VZCZCXYZ0013
PP RUEHWEB

DE RUEHSJ #0827/01 2912033
ZNR UUUUU ZZH
P 172033Z OCT 08
FM AMEMBASSY SAN JOSE
TO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 0194
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEHDG/AMEMBASSY SANTO DOMINGO PRIORITY 1606

UNCLAS SAN JOSE 000827 
 
SENSITIVE 
SIPDIS 
 
COMMERCE FOR ITA, TDA AND SECRETARY'S OFFICE 
DEPT FOR WHA, WHA/CEN, WHA/EPSC AND EEB 
PLEASE PASS TP USTR AMALITO AND DOLIVER 
 
E.O. 12958: N/A 
TAGS: ECON ETRD OVIP PGOV PINR PREL CS
SUBJECT:  SECRETARY GUTIERREZ'S MEETINGS WITH PRESIDENT ARIAS 
 
REFS: A) San Jose 745 (NOTAL), B) San Jose 774, C) San Jose 823 
(NOTAL) 
 
¶1.  (SBU) SUMMARY:  In two meetings held in the presidential office 
complex on September 30, President Oscar Arias and Commerce 
Secretary Carlos Gutierrez, joined by senior staff, discussed a wide 
range of political and trade issues centered on Costa Rican entry 
into CAFTA.  Arias emphasized the political cost he had paid to move 
Costa Rica almost to CAFTA implementation and asked for USG 
understanding and flexibility as the GOCR neared entry-into-force. 
Arias and his ministers asked that USTR accept a proposal permitting 
them to enter CAFTA as soon as the 13th bill (on IPR catch-all 
issues) was modified and approved, with a pledge to complete all 
other issues, including a 14th technical corrections bill, if 
needed, after entry-into-force (EIF).  Secretary Gutierrez made 
clear that any decision on a CAFTA proposal was USTR's, not his, but 
he said he would make it a priority to discuss the proposal with 
USTR when he returned to Washington.   The Secretary also briefed 
Arias on Bolivian and Cuban developments, while members of the 
Secretary's party briefed on new and continuing OPIC, Ex-Im and U.S. 
Trade and Development Agency initiatives.  Minister of Foreign Trade 
Ruiz suggested a CAFTA-related meeting on the margins of the next 
Americas Competitiveness Forum, to presage the much-delayed CAFTA 
Ministerial and to highlight the benefits of CAFTA and free trade in 
contrast to the populist alternatives being offered around Latin 
America.  President Arias also reiterated his well-known pitch for 
merit-based foreign assistance.  Secretary Gutierrez's staff cleared 
this report.  Other visit events will be reported septel.  END 
SUMMARY. 
 
 
------------------------------- 
SMALLER MEETING: CAFTA SIDE LETTER, CUBA AND BOLIVIA 
------------------------------- 
 
¶2.  (U) The events opened with a small meeting in the President's 
office involving President Arias, Secretary Gutierrez, and senior 
GOCR officials.  With Arias were FM Bruno Stagno, Minister of 
Foreign Trade Marco Vinicio Ruiz, National Legislature President 
Francisco Pacheco and Ambassador Tomas Duenas from Washington.  With 
the Secretary were Ambassador Cianchette and DCM Brennan. 
 
¶3.  (SBU) THE CAFTA SAGA:  Arias was more animated than Post had 
observed for some time, as he explained the long CAFTA saga in Costa 
Rica, stressing the importance of the 2007 national referendum which 
narrowly ratified the treaty, and the significance of CAFTA changing 
Costa Rica's 60 year-old traditional, statist model.  Recalling the 
long, tough political battle over the referendum, and noting that 
the anti-CAFTA forces had many factors in their favor, including the 
unions, the universities, the church, "and very probably Venezuelan 
money," Arias emphasized, "I exposed myself politically, and there 
has been a political cost."  If CAFTA doesn't go through, he warned, 
it will be a victory for Venezuela's Chavez, (the leading opposition 
party) PAC, and the extreme leftist forces that have been resurgent 
throughout the region. 
 
¶4.  (SBU) PITCH FOR FLEXIBILITY:  The President admitted that he and 
"everyone else" had fully expected the last (13th) CAFTA 
implementation bill (the "catch all" on IPR issues) to get through 
the Constitutional Court easily; they were all surprised by the 
Court's September 11 ruling (which rejected a portion of the bill as 
unconstitutional, Refs A-B).  Under the circumstances, Arias 
therefore asked for understanding and flexibility on our part.  "I 
would like to ask that as soon as this law is corrected, we be 
allowed to enter into CAFTA - sin condicionamientos (without 
conditions)." 
 
¶5.  (SBU) LEGISLATION VS THE GOCR PROPOSAL:  When Secretary 
Gutierrez asked about USTR's expectations, Ruiz responded that USTR 
wanted some "small word changes" in IPR language that would require 
new legislation.  The GOCR had originally thought that these could 
be fixed through regulations, but now realized that they could not. 
Pacheco then chimed in, confirming that some of the changes (not 
specified) "demanded" by USTR would require legislative approval, 
and complaining that these seemed to be relatively minor and 
inconsequential given all that had been accomplished to this point. 
It would be a shame, he added, to have all of CAFTA bogged down and 
perhaps jeopardized over such seemingly small matters. 
 
¶6. (SBU) Minister Ruiz then asserted that the GOCR did not want the 
tariff holdbacks that USTR seemed to be contemplating as a condition 
if Costa Rica could not complete its CAFTA EIF requirements on time. 
 He and Arias said this would look very bad for everyone and would 
be touted as a victory by the PAC-led opposition.  Ruiz said they 
preferred a side letter - which Arias said he would be willing to 
sign - committing them to get the remaining items done, including 
new legislation as needed, in the next legislative session (which 
begins December 1).  Ruiz re-emphasized that the GOCR did not want 
any holdbacks.   Returning to the historical context, Arias 
reiterated that for Costa Rica, CAFTA was the culmination of a 
"process of state reform that has taken more than 20 years - we 
don't want to lose it now." 
 
¶7.  (SBU) Secretary Gutierrez made clear that any decision on a 
CAFTA side letter was USTR's, not his, but he offered to take the 
proposal back to Ambassador Schwab and see what could be done.  He 
said he could not provide any guarantees or promises on the 
decision, but he would make it a priority to discuss with Schwab. 
He said he would be back in his office on October 3, and planned to 
discuss CAFTA then with Schwab, after which he would get in touch 
with Ambassador Duenas at the Costa Rican Embassy. 
 
¶8.  (SBU) BOLIVIA AND CUBA:  Secretary Gutierrez used the meeting to 
raise two additional issues with President Arias: the non-renewal of 
ATPDEA for Bolivia, and Cuba's refusal of humanitarian assistance 
from the U.S. in the wake of Hurricanes Ike and Gustav.  The 
Secretary told Arias that he wanted the GOCR to understand the 
background and context on both issues.  On ATPDEA, the Secretary 
described how the U.S. had been trying very hard to work with 
President Morales and the GOB, but when they began shutting down USG 
cooperation programs and then threw out our Ambassador, there was no 
option. 
 
¶9. (SBU) Regarding aid to Cuba, Secretary Gutierrez pointed out that 
the U.S. had been doing everything it could as a humanitarian 
gesture to help the Cuban people, but the GOC had repeatedly (four 
times at that point) refused our assistance.  Gutierrez added that 
he simply wanted President Arias to know and understand the USG 
position.  He pointed out that while there's a great hue and cry 
over the embargo, most countries don't know that the U.S. is the top 
food and humanitarian assistance provider to Cuba, and the 2nd top 
provider of medicines. Arias and FM Stagno acknowledged these 
points, and thanked Gutierrez for the insights. 
 
------------------------------ 
LARGER MEETING: HISTORY OF, NEED FOR, BENEFITS FROM CAFTA 
------------------------------ 
 
¶10.  (U)  Moving to the Cabinet Room, Arias, the Secretary and the 
participants in the first meeting were joined by a larger group 
including, on the GOCR side, Minister of the Presidency Rodrigo 
Arias (briefly) and Gabriela Llobet, Director of CINDE, the GOCR's 
private, non-profit foreign direct investment development agency. 
On the USG side, OPIC President and CEO Robert Mosbacher, Ex-Im Bank 
1st VP and Vice-Chair Linda Conlin, Trade and Development Agency 
Director Larry Walther, Commerce DAS Walter Bastian and Senior 
Advisor Ambassador (ret.) Lino Gutierrez, and Embassy Pol-Econ 
Counselor (notetaker) joined the session. 
 
¶11.  (U) MORE CAFTA CONTEXT:  President Arias opened by elaborating 
on the CAFTA and Costa Rican history he had described in the first 
meeting.  He stressed that Costa Rican and U.S. values were similar, 
and that his country was "the most democratic" in Latin America, 
according to a recent study by the Adenauer Foundation.  Abolishing 
the military in 1948 had allowed the GOCR to invest in education and 
health care, fueling a higher level of social development than 
elsewhere in the region.  In addition, Costa Rica had opened trade, 
the "motor" of economic development.  Arias said he made the 
"unilateral decision" during his first term as president (1986-1990) 
to lower tariffs by 40%, open the Costa Rican economy, and begin to 
better integrate with the world and the region, including by using 
free trade agreements. 
 
¶12.  (SBU) None of the other Costa Rican FTAs had been as polemical 
as CAFTA, however. Lacking the votes to ratify it in the 
legislature, Arias said he took CAFTA to a referendum, winning by a 
very close margin (less than 50,000 votes).  Because CAFTA would 
break up the long-popular state monopolies on telecommunications and 
insurance, it took a long time for public support to build, and 
Arias had to "gradually educate" the populace.  Now, the GOCR was 
"correcting the errors" found by the Constitutional Court in the 
final CAFTA law, the 13th to be passed by the legislature in about a 
year.  Managing the five-party pro-CAFTA coalition to get this far 
had been difficult, he stressed.  The entire process had been an 
"ordeal," and he and Secretary Gutierrez had been discussing how 
best to bring the process to a close.  The President concluded that 
foreign investment remained important to Costa Rica, which was now 
attracting more FDI per capita than Brazil or Mexico.  Costa Rica's 
tranquility, rule of law, democracy, and "absolutely independent" 
judiciary made this possible. 
 
¶13. (U) LONGSTANDING US-COSTA RICAN PARTNERSHIP:  In response, 
Secretary Gutierrez thanked President Arias for his and Costa Rica's 
friendship to the United States, and offered greetings from POTUS. 
He also commended Arias for his leadership on CAFTA.  Despite the 
remaining problems reaching implementation, Costa Rica would not 
have been this far along without Arias's firm direction.  The 
Secretary noted the business delegation traveling with him to take 
advantage of the opportunities to invest in Costa Rica, even as 
CAFTA was being completed.  "CAFTA without Costa Rica would not be 
CAFTA," he stressed, and CAFTA membership had obvious benefits for 
Costa Rica.  The Secretary then opened the floor to other USDEL 
members as follows: 
 
-- OPIC's Mosbacher noted that his agency was not waiting for CAFTA 
completion, but was announcing USD 105 million in new lending for 
small- and medium-sized businesses and low- to moderate-income 
homeowners in Costa Rica, partnering with Banco Lafise and BAC.  He 
added that OPIC had provided over USD 200 million in projects in 
Costa Rica over the last two years, and over USD 370 million over 
OPIC's history; 
 
-- Ex-Im's Conlin noted that her organization "was no stranger" to 
Costa Rica, having provided USD 46 million in a "broad spectrum" of 
projects over the last six years.  Ex-Im wants that positive 
relationship to continue, she said, and agreed that finance could be 
the catalyst for the "trade and commercial engine" of the Costa 
Rican economy; 
 
-- TDA's Walther described his agency's long-time partnership with 
Costa Rica, in particular on infrastructure projects such as 
electrical production and the early stages of expansion for San 
Jose's Juan Santamaria International Airport; and 
 
-- Lino Gutierrez thanked Arias and the GOCR for their constant 
support for human rights issues around the globe, and especially on 
Cuba, which was important to both Secretaries Gutierrez and Rice. 
 
¶14. (SBU) Returning to the infrastructure theme, President Arias 
noted that nearly two million tourists visited Costa Rica each year, 
equivalent to half the nation's population, but the county's 
airports, roads and ports were not able to handle the flow.  The 
GOCR hoped to concession the major Caribbean port of Limon, he said, 
but it might take four more years to convince the powerful 
dockworkers' union there.  Arias expressed thanks for all the USG 
and international support to projects and financing which aided 
small and medium companies in Costa Rica.  Many of these had the 
"export mentality" that was essential to keep the economy growing. 
 
 
---------------------------- 
A MEETING BEFORE THE FIRST CAFTA MINISTERIAL? 
---------------------------- 
 
¶15.  (SBU) Minister Ruiz used the session to suggest a bi-national 
US-Costa Rica CAFTA commission meeting in the next few months, 
including "observers" from the private sector and academia.  "The 
world is watching Central America and CAFTA," he asserted, and if 
CAFTA should be "closed" to Costa Rica (by not entering into force), 
he feared a significant loss in investment and trade.  An 
international vehicle was needed to highlight the benefits from 
CAFTA and trade agreements.  A bi-national entity would not have to 
wait for the long-delayed first CAFTA Ministerial, he added, and 
could underscore the "strategic partnership" between Costa Rica and 
the United States while also countering the "alternative" political 
and development model being offered by Venezuela, Nicaragua and 
Bolivia.  DAS Bastian noted that the Secretary and his delegation 
had also been asked about the CAFTA Ministerial during their visit 
to the Dominican Republic prior to visiting Costa Rica.  A meeting 
along the lines described by Ruiz, but expanded to include other 
CAFTA partners, might be worth considering. 
 
 ¶16.  (SBU) PITCH FOR MERIT-BASED ASSISTANCE:  President Arias 
closed the session by returning to familiar arguments about Costa 
Rica "deserving" additional international assistance.  As a "middle 
income" country, Costa Rica did not receive much USG assistance, he 
asserted, although "70% of the world's poverty" was concentrated in 
middle income nations.  Although Arias had no objection to wealthier 
nations helping the poorest countries, he was concerned by the aid 
recipient nations who purchased weapons instead of focusing on 
development needs such as education.  "Never has Latin America seen 
such a time of (inter-state) peace," he said, and yet nations like 
Venezuela and Chile are buying arms.  It is "schools and clinics" 
that the developing world really needs, he said, and not arms.  Thus 
Arias underscored his continued campaign for merit-based as well as 
needs-based foreign assistance. 
 
CIANCHETTE