VZCZCXYZ0000
PP RUEHWEB

DE RUEHSJ #0294/01 1132148
ZNR UUUUU ZZH
P 222148Z APR 08
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC PRIORITY 9616
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY

UNCLAS SAN JOSE 000294 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
DEPT FOR WHA/CEN, WHA/EPSC, WHA/PPC AND EEB 
PLEASE PASS TO USTR DOLIVER/AMALITO 
MANAGUA FOR DAVID KRZYDA:PLEASE PASS TO AUSTR EISSENSTAT 
 
E.O. 12958: N/A 
TAGS: CS ECON ETRD PGOV PREL
SUBJECT: SCENESETTER FOR AUSTR EISSENSTAT'S VISIT TO COSTA RICA 
 
REF: A. SAN JOSE 0232 
 
     ¶B. SAN JOSE 288 
     ¶C. SAN JOSE 263 
     ¶D. 07 SAN JOSE 1926 
 
 
¶1. (SBU) SUMMARY: Embassy San Jose warmly welcomes AUSTR Everett 
Eissenstat.  His visit to Costa Rica is timely, and will help us keep 
the pressure on the GOCR to complete CAFTA implementation.  The Arias 
administration remains deeply committed to CAFTA, and is making 
progress, but slowly.  Although all the major parties in the 
legislature have agreed to move ahead on CAFTA, the government's pro- 
CAFTA coalition remains fragile.  The legislature (Asamblea) has also 
been distracted by other issues including domestic security, an 
investigation into allegations of FARC ties to Costa Rica, and the May 
1 leadership elections.  Six of 12 CAFTA-related bills have been 
completed; six others remain in work, including those covering 
controversial IPR and insurance issues, and one more remains to be 
introduced.  Whereas the entry-in-force (EIF) extension granted on 
February 27, Commerce U/S Padilla's February 28-29 visit (Ref A) and 
WHA DAS Madison's March 31-April 3 visit (Ref B) described the red 
lines on the schedule for implementation (no later than October 1), 
this visit can set the red lines on substance.  See snapshot of pending 
issues, para 11.  END SUMMARY. 
 
=================== 
THE CAFTA SCORECARD 
=================== 
 
¶2. (U) As of April 21, the Asamblea has completed half the CAFTA- 
legislation (six of 12).  Of these, three are law (covering foreign- 
owned firms, penal code reforms and UPOV compliance), and three are 
pending signature and publication as law (the Budapest Treaty, the UPOV 
convention and a bill governing certain patent and trademark reforms). 
A seventh and eighth bill (ratifying the International Trademark Treaty 
and opening the telecom sector) are pending the Asemblea's second and 
final vote.  A ninth bill (on IPR reforms) was bounced by the Supreme 
Court for constitutional questions (see para 6 below).  Three bills (on 
modernizing telecommunications, opening the insurance market, and 
making additional IPR changes) are in varying stages of action.  Of 
note and new to this process, there will be a 13th bill, according to 
the Ministry of Foreign Trade (COMEX), which will ratify various CAFTA 
amendments accepted by the other parties.  To summarize: 
 
COMPLETED BY ASAMBLEA: 
Signed into law:              3 
Pending signature:            3 
 
IN WORK BY THE ASAMBLEA: 
Returned by Supreme Court:    1 (Asamblea to correct and vote again) 
Pending final vote:           2 
Under debate:                 3 
 
To be introduced:             1 
TOTAL                        13 
 
==================== 
THE CAFTA CHALLENGES 
==================== 
 
¶3. (SBU) This Asamblea had made more progress on CAFTA legislation in the four months from November-February than its predecessor had in the previous four years, but momentum dissipated after the EIF extension was granted.  The leaders of the 38-seat pro-CAFTA coalition well understand the need to keep moving, but have found this challenging. 
 
¶4. (SBU) Their first challenge: keeping all 38 coalition members (the 
G38) together.  This is important because a two-thirds majority 
(precisely 38) is needed to form a quorum, to set rules and to manage most legislation.  From time to time, various members of the coalition have tried to parlay their "38th vote" into support for pet causes. 
Christian Unity Party (PUSC) member Bienvenido Venegas, for example, has stubbornly refused to support the CAFTA legislation until his home province (Puntarenas) received more attention and resources from the central government.  Despite a parade of senior officials to Puntarenas in late March-early April, including President Arias, Venegas's support has remained elusive.  His thinly-veiled true motive: to back ex- President Rafael Calderon (PUSC), a CAFTA opponent who is hoping to overcome corruption charges to run again for the legislature in 2010. 
 
¶5. (SBU) Their second challenge: the opposition, led by the Citizens 
Action Party (PAC), a steadfast opponent of CAFTA even after the 
October 7 referendum ratified the agreement.  PAC's reluctance to 
cooperate blocked quorum on a number of occasions, and stalled the legislation.  PAC leaders insisted there was no hurry to pass the 
bills, and reveled in the pro-CAFTA coalition's internal wrangles. 
However, under relentless pressure from the GOCR and a private sector ad campaign that criticized them for ignoring the will of the people as  expressed in the referendum, PAC finally reached an agreement with the pro-CAFTA parties.  They would no longer block debate on remaining CAFTA bills as long as the Arias administration would permit debate on PAC-supported legislation creating a social development bank, reforming electoral laws and other initiatives.  The GOCR-PAC agreement has helped circumvent problematic legislators like Venegas, but it is only temporary, lasting until the new legislative year begins on May 1. 
 
¶6. (SBU) Their third challenge: the Supreme Court, specifically the 
Constitutional Chamber (Sala IV), which reviews most legislation 
between the required first and second votes of the Asamblea.  The 
opposition has ensured that all CAFTA bills are reviewed by the Sala 
IV, delaying the legislative process, but only one bill has been 
bounced for corrections to date.  By unanimous vote on April 4, the 
Sala IV found the penalty provisions of the IPR bill 
"disproportionate," and in violation of the principle of "reasonable 
penalty." By the same vote, the Sala IV also ruled that the provision 
which permitted seizure of items produced in violation of IPR 
protections contravened the right to private property.  The Asamblea is 
to begin action on these corrections as soon as the final text of the 
Sala's ruling is available. 
 
¶7. (SBU) Their fourth challenge: political distractions.  A special 
committee is to begin taking testimony the week of April 21 on 
allegations by the previous Minister of Public Security that the 
Colombian FARC had ties to some political figures, including 
legislators, in Costa Rica.  This stemmed from information discovered after the Colombian March 1 raid which killed FARC leader Raul Reyes in Ecuador.  The ex-minister was to testify on March 31, but was removed from office the day before so he could not speak in an official capacity (Ref C).  His sudden removal only fueled speculation that he was going to "name names."  (COMMENT:  We do not believe there is any hard evidence linking Costa Rican political figures actively or recently to the FARC.  END COMMENT.) 
 
¶8. (SBU) In addition, political maneuvering is under way, even among 
the pro-CAFTA coalition, for leadership positions during the 
legislative year which begins May 1.  Complicating the political dog 
fighting this time:  the president of the Asamblea who takes office on 
May 1 will likely become the next VP of Costa Rica, when the incumbent, 
Laura Chinchilla (whom Eissenstat will meet), resigns as expected (and as required by law) in early 2009 to campaign for the presidency.  Both the special FARC investigation and the electioneering have slowed action on the CAFTA bills. 
 
==================================== 
THE CAFTA COMMITMENT, WITH A CAVEAT? 
==================================== 
 
¶9. (SBU) Despite these challenges, the Arias Administration remains 
committed to completing the legislation and implementing CAFTA.  Citing 
the newly-cooperative attitude of the PAC party, Arias himself told 
visiting WHA DAS Kirsten Madison on April 1 that the CAFTA laws should 
be completed in the next three months (i.e., by the end of June). 
Arias (and by implication, his pushing to complete CAFTA) remains 
popular.  He received a 50 percent good or very good rating in a UNIMER 
poll released March 24 with the lowest negative rating (14 percent) 
since taking office.  The public and most political parties are tired 
of the protracted CAFTA debate and want to close this chapter and move 
on to other important issues, such as tougher laws on domestic 
security, which tops the polls as the public's chief concern. 
 
¶10. (SBU) Because of these challenges, GOCR interlocutors including VP 
Laura Chinchilla, Minister of the Presidency (and the President's 
brother) Rodrigo Arias and COMEX Minister Marco Vinicio Ruiz may press 
AUSTR Eissenstat for "political" solutions to the most difficult 
pending CAFTA issues on IPR, insurance and biodiversity.  We do not 
expect them to ask for more time to implement CAFTA; they understand 
that the extension to October 1 was a one-time exception.  They may ask 
for more "understanding" and political room to maneuver to wrap up the 
remaining legislation (and regulations).  In response, Eissenstat can 
affirm the USG's positions on the pending issues, in effect, 
establishing red lines on substance while urging continued progress. 
 
============================================= 
THE CAFTA CONTENT: PENDING PROBLEMATIC ISSUES 
============================================= 
 
¶11. (SBU) The pending issues include: 
 
- On IPR, the issue is dangerously fluid as the legislators do not 
always follow COMEX's counsel; COMEX responds by advocating for 
leniency from USTR.  Although graduated penalties were included in the 
legislation and passed, legislators from all parties agreed with the 
Sala IV's "disproportional" ruling, and the generic drug industry 
continues to pressure select G38 members to soften the IPR legislation 
in their favor; 
 
- On insurance, the GOCR reacted favorably to USTR's new phrasing on 
the issue of a government guarantee.  Timing is the problem as the 
insurance bill matriculated in the Asamblea to a point where it now 
cannot be amended.  The GOCR needs to develop a legislative tactic for 
introducing an insurance amendment; 
 
- On biodiversity, the GOCR wants its existing biodiversity law to 
remain intact, claiming "it was progressive in its time," although it 
is in conflict with legislation required for CAFTA compliance.  The 
GOCR desires to paper over the difference by asserting that 
international treaties have priority over domestic law without having 
to change the law; 
 
- On the patent law, legislators acted independent of COMEX's counsel 
and changed wording which now makes the law non-compliant with CAFTA. 
Though the intent was not to undermine CAFTA, the results of the change 
create a new problem; 
 
- On the regulations, USTR needs to review all of the regulations well 
in advance of October 1, and Essenstat will want to reinforce this 
message.  For telecommunications, the GOCR must develop a solution to 
unravel the coordination problems between ICE (the state 
telecommunications and energy utility), MINAE (Ministry of the 
Environment and Energy), and ARESEP (Regulatory Authority of Public 
Services); and 
 
- On the amendments, the Asamblea needs to pass the CAFTA amendments 
which are about to be introduced. 
 
¶12. (SBU) Having come so far on CAFTA, and increasingly focused 
on/distracted by other priority issues, it is tempting for Costa Rican 
legislators to assume that implementation is inevitable.  As the recent 
challenges indicate, however, political focus and discipline are still 
required to get the job done. This would be another useful message from 
Eissenstat.  His interlocutors will also be interested in the "view 
from Washington" on the Colombian FTA, and the general (anti-trade) 
tone in the Congress and in the U.S. presidential campaign. 
 
===================================== 
THE CAFTA CONTEXT:  WHAT IS AT STAKE? 
===================================== 
 
¶13. (U) Without CAFTA, the textile and the tuna sectors are at risk due 
to the short-run possibility of the loss of Caribbean Basin Trade 
Promotion Act (CBTPA) trade preferences on October 1 and the long-run 
risk that Costa Rica will not have permanent, tariff-free access to the 
U.S. market.  For Costa Rica, both risks would portend a competitive 
disadvantage with its CAFTA neighbors.  Business leaders predict 20,000 
jobs in the tuna and textile sectors are at stake.  Since DAS Madison 
visited a leading tuna cannery to underscore this risk during her 
visit, we plan to have AUSTR Eissenstat visit an at-risk textile plant. 
 
¶14. (U) In the intensely competitive textile industry, buyers want 
price certainty which Costa Rican companies currently cannot provide. 
Indicative of the uncertainty, the industry contracted from $730 
million in 2002 to $557 million in 2006.  The Costa Rican textile 
industry is heavily reliant on the U.S. market and the preferential 
treatment it receives under the CBTPA (Ref D).  The U.S. accounted for 
86 percent of its total textile exports in 2006 and CBTPA lowers the 
U.S. tariff from 18 percent to zero for most textile products. 
Thus, without an implemented CAFTA, industry uncertainty has 
reached critical levels as producers openly talk about moving 
production outside of Costa Rica.  Eissenstat will also be able 
to discuss these issues further with AMCHAM members during his visit. 
 
HENIFIN