DR-CAFTA Comes To A Vote; Costa Rica not so sure it wants to ratify a free trade agreement with the United States, as Peter Krupa explains

The small Central American country of Costa Rica is about to become the first country in the world to put a free trade agreement with the United States to a referendum. It could become the first to reject one by referendum.

At issue is the Dominican Republic-Central American Free Trade Agreement, or DR-CAFTA. Negotiated in 2003, finalized in 2004, and passed by the U.S. Congress in July of 2005, DR-CAFTA has been ratified and put into effect by every one of the signatory countries – except Costa Rica.

Hung up on its snail’s pace political processes and increasingly loud protests from certain sectors of the population, Costa Rica has been batting the free trade agreement around over three years and two presidential administrations.

With a deadline looming and the Legislative Assembly going nowhere, Costa Rican President and Nobel Peace Prize laureate Oscar Arias was maneuvered by the opposition this past May into calling for a referendum on the treaty.

At the time, it seemed like a safe bet. Instead, it has turned into a nail-biter following the release of a scandalous memo and the resignation of one of the country’s vice presidents. Now with less than a week before the Oct. 7 vote, polls are showing a statistical tie – and the momentum is on the “no” side.

Strangely enough, of all the countries party to DR-CAFTA, Costa Rica should probably be the least worried. Over the last decade, this country (known as a favorite vacation spot for its accessible jungles and beaches) has been swiftly transforming itself into a high-skills export and service economy.

Exports this year are on track to break last year’s record of over $8 billion, with principle products being tropical fresh fruits, high-grade coffee, processed foods, and electronic components, that last category dominated by the production of Intel’s Costa Rican factory.

Export manufacturing has been helped along by generous tax breaks under the country’s “free zone” provisions, and increasingly companies like Hewlett Packard, Phillip Morris, and Sykes Enterprises are moving back office and tech jobs to their installations there, creating a mini service boom that has the country’s bilingual population scrambling to keep up.

Costa Rica has by far the highest standard of living in the region, with its per capita gross domestic product clocking in at $12,500 (compare that to its northern neighbor, Nicaragua, where per capita GDP is $3,100).

Since most all Central American products already receive privileged access to U.S. markets thanks to the Caribbean Basin Initiative benefits, DR-CAFTA wouldn’t instantly boost Costa Rica’s exports.

It would, however, consolidate that privileged access by making it part of a bilateral treaty rather than a unilateral one that exists at the whim of the U.S. Congress. Likewise, it would guarantee Costa Rican consumers easier access to cheap (and subsidized) U.S. goods, a less thorny issue in Costa Rica than other places since it currently imports a vast majority of its consumer goods, grains, and processed foodstuffs anyway.

So what’s the problem?

The largest hang-up has been the country’s state telecom monopoly, which would have to be opened up to competition under DR-CAFTA. The monopoly’s thousands of unionized employees are legendary both for their cushy benefits and their penchant for loud protesting anytime someone suggests opening the monopoly, and this time has been no exception.

Following that, opposition legislators and activists began raising concerns about requirements that the company sign onto treaties protecting intellectual property rights to drugs and possibly genetic materials.

The opposition has raised a string of other objections, ranging from questions about the independent arbitration panel that would be set up by the treaty to resolve disputes, to accusations that DR-CAFTA would act “above the law” to allow the manufacturing of arms and the buying and selling of human organs.

None of that noise seemed to have legs, and according to polls from both the nation’s leading newspapers and from the University of Costa Rica, Costa Ricans were prepared to vote for the treaty by a margin of more than 10 percentage points.

But then in September, a memo came out co-authored by the country’s vice president, Kevin Casas. In the memo, Casas recommended that the pro-CAFTA government wage a campaign based on fear of job loss and Venezuela’s left-wing rabble rouser Hugo Chávez.

Worse yet, Casas suggested the government withhold funds from municipal mayors who do not deliver the DR-CAFTA vote from their cantons come Oct. 7.

Even though the outrage at the government’s strong-armed and deceitful tactics was immediate, it still took Casas a full two weeks to resign his post, and by then the entire campaign was tainted. A poll released a few days after Casas’ resignation showed voting intentions were at a statistical tie, and they remain that way going into the last week of the campaign.

It’s impossible to say what might happen on Oct. 7, especially considering that a quarter of the country’s population does not have a telephone, making polls in Costa Rica notoriously inaccurate. Going into the final week of the campaign, however, the “no” side looks strong, or is at least making a lot of noise.

Still, the country’s business community and government are not likely to go quietly. At stake here is more than just a free trade agreement with the United States. Central America is set to begin negotiations with the European Union on Oct. 22 over a possible Association Agreement that would include opening markets.

Yet if Costa Rica remains outside DR-CAFTA, it would make the regional integration that the EU requires of Central America very difficult; a “no” vote on DR-CAFTA could effectively hamstring the country’s chances for EU and other free trade agreements.

Also, considering the turning tide in the U.S. Congress against free trade, this very well may be Costa Rica’s last chance to “get on the train,” as U.S. Ambassador Mark Langdale recently put it.

The way things look at the moment, however, Costa Rica could very well vote to stay on the platform.

Peter Krupa is the business reporter for the Tico Times, Central America’s leading English-language newspaper. He is based in San José, Costa Rica.


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