VZCZCXYZ0000
RR RUEHWEB

DE RUEHSJ #0985/01 3431811
ZNR UUUUU ZZH
R 091811Z DEC 09
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC 0108
INFO WHA CENTRAL AMERICAN COLLECTIVE
RHEFDIA/DIA WASHINGTON DC
RHMFIUU/CDR USSOUTHCOM MIAMI FL
RUEAIIA/CIA WASHINGTON DC
RUEHBJ/AMEMBASSY BEIJING 0007

UNCLAS SAN JOSE 000985 
 
SENSITIVE 
SIPDIS 
DEPT FOR WHA/CEN 
 
E.O. 12958: N/A 
TAGS: PGOV KDEM CH CS PREL PINR
SUBJECT: COSTA RICA AND CHINA EXPLORE AN EVOLVING RELATIONSHIP 
 
REF: 07SANJOSE1173; 08SANJOSE133; 08 SAN JOSE 969; 09 SAN JOSE 389 
 
¶1. (SBU) Summary: Costa Rica and China continue to strengthen their 
marriage of convenience, increasing ties that are proving 
beneficial for both countries.  Of late, this has focused on the 
negotiations surrounding a free trade agreement between the two 
countries, which both governments hope to conclude in 2010.  China 
also continues to reward Costa Rica for establishing official 
relations with the PRC in 2007, the only country in Central America 
to have done so.  However, various sectors of Costa Rican society, 
including the business community and immigration officials, are 
wary of tighter ties with the most populous country on earth.  Even 
if the pace of Chinese aid and investment slows after this grand 
start, the GOCR sees its relationship with this ascending power as 
an investment that will grow in value over the medium to long term. 
End Summary. 
 
 
 
----------------------------- 
 
FOCUSED ON THE FTA 
 
----------------------------- 
 
 
 
¶2. (SBU) Both sides are currently focused on concluding the 
negotiations over a free trade agreement (FTA).  In early November 
the two parties concluded the fifth round of negotiations over the 
FTA, with the next and "final" round scheduled for February 2010. 
However, there are still a number of issues that need to be worked 
out before an agreement is reached, including agreement on 
agricultural products, such as sugar and coffee. 
 
 
 
¶3. (SBU) The Arias administration is pushing hard to conclude the 
FTA though, which it sees as an important part of the Arias legacy. 
Not content just to pass the controversial Central American Free 
Trade Agreement (CAFTA-DR), Arias seems intent on 'doubling down' 
on globalization by completing the only FTA with China in Central 
America.   However, negotiators for both China and Costa Rica 
privately deem it unlikely that the FTA can be passed through Costa 
Rica's Congress before Arias leaves office in May 2010.  Most hope 
that the agreement can at least be ready to present to Congress 
before the change in administrations. 
 
 
 
¶4. (SBU) The GOCR believes the conclusion of an FTA will boost 
trade between the two countries, which at USD 1.5 billion in 2008 
has already risen almost 2,000 percent over the past ten years. 
(Note:  In 2008 Costa Rica had a negative trade balance of 208 
million with China. The value of Chinese trade is now 15 percent of 
the value of U.S. - Costa Rican trade.  End Note.)  Costa Rica 
hopes the FTA will allow them to import Chinese raw materials and 
semi-finished goods before exporting finished goods to other 
CAFTA-DR countries and Europe.  However, some experts question how 
much more trade can grow in the short term due to the size of the 
Costa Rican market and additional constraints to trade (lack of 
trade networks, language, market knowledge, visa restrictions, 
etc.)  The PRC's commercial/economic officer in San Jose recently 
told us that he thought trade had possibly reached a plateau over 
the past few years, and in fact projected a decrease for the 2009 
numbers.  A prominent academic we spoke with agreed, saying that 
without much experience operating in Asia or language/cultural 
knowledge, Costa Ricans would find it extremely difficult to access 
China's market in the short term. 
 
 
 
------------------ 
 
THE GOODS... 
 
------------------ 
 
¶5. (SBU) One of the most visible outcomes of Costa Rica's 
recognition of the PRC in 2007 is the ongoing construction of a 
35,000-seat stadium to serve as the home of Costa Rica's national 
soccer team.  The PRC is paying for and building the USD 83 million 
stadium.  In addition, the PRC brought 800 Chinese nationals to 
Costa Rica to complete the project on the western edge of downtown 
San Jose.  Another prominent "reward" for recognition was the PRC 
donation of 200 police patrol cars in early 2009 (Taiwan had 
previously donated equipment, including motorcycles and cars, to 
the police).  While the cars can often be seen roaming the streets 
with prominently displayed PRC flags painted on their sides, the 
Mazda-clones are of questionable quality.  A contact at the PRC 
embassy recently told us that five of the vehicles are already out 
of commission, due, in part, to poor maintenance practices (Note: 
Proper maintenance practices have often been a challenge for Costa 
Rican law enforcement agencies. End Note.) He also commented, 
"we'll see how many they're still using in a year." 
 
 
 
¶6. (SBU) Additional PRC initiatives were linked to the November of 
2008 visit of PRC President Hu Jintao (reftel C), including the 
donation of USD 10 million to the GOCR for small business 
development, the extension of 40 scholarships annually to Costa 
Rican students to study in China (a program taken over from Taiwan) 
and the planned modernization of a large oil refinery on Costa 
Rica's Caribbean coast.  This last project, estimated to cost up to 
USD 1 billion (of which approximately half would be financed by 
China, according to a PRC diplomat) is expected to begin in 2010 or 
2011 and will triple the refinery's capacity to 60,000 barrels a 
day. 
 
 
 
¶7. (SBU) For its part, China has also seen some limited returns on 
its "investment" in Costa Rica.  This has primarily centered on the 
awarding of a USD 235 million GOCR contract to Huawei technologies 
to modernize the state-run telecom company.  PRC representatives 
had also initially expressed an interest in oil exploration in 
Costa Rica.  However, nothing yet has come out of PRC oil interest 
and the Arias administration has ruled out any additional 
exploration indefinitely. 
 
 
 
-------------------- 
 
...AND THE BAD 
 
-------------------- 
 
 
 
¶8. (SBU) Closer ties with China have also highlighted areas of 
concern for various sectors in Costa Rica.  Many within the local 
business community continue to be fearful of cheap, imported goods 
from the PRC.  One businessman we spoke with also questioned the 
GOCR's capacity to properly conduct quality control checks on 
imported goods, citing his experience with the poor quality of 
imported bridge materials.  Though the Costa Rican Chamber of 
Industries (CRCI) supported both CAFTA-DR and negotiations over an 
FTA with the European Union, they have gone to considerable (and 
sometimes absurd) lengths to oppose the China FTA.  This has 
included insisting that goods such as helicopters, circus 
equipment, and vehicles be excluded from any FTA, in spite of the 
fact that none of these items are currently produced in Costa Rica. 
CRCI capped off their opposition by recently announcing they will 
oppose the China FTA outright, along with any other new FTAs in the 
near future. 
 
 
 
¶9. (SBU) There are also some security issues that bear watching. 
GOCR immigration officials, along with their counterparts in the 
PRC, broke up a child-trafficking ring in late 2008 (reftel D) 
which authorities said was run by the Chinese Snakehead mafia, with 
the goal of bringing up to 300 minors to Costa Rica to work in 
indentured servitude.  Immigration officials remain concerned about 
the possibility of additional Chinese smuggling or trafficking, to 
the extent that they hosted a regional conference on the subject in 
May 2009. In spite of Chinese complaints that the policy stifles 
tourism and business travel, Costa Rica has kept the PRC in its 
highest category of visa restriction and requires MFA-approval for 
 
all visa applications. 
 
 
 
¶10. (SBU) China has also often sought to conduct their affairs with 
Costa Rica behind a veil of secrecy, and both diplomats and the 
press have complained about the lack of transparency in PRC-GOCR 
programs.  A scandal emerged in 2008 over a USD 300 million bond 
deal (China purchased the bonds from Costa Rica at only 2 percent 
interest) which both countries tried to keep secret.  Then, in 
September of 2009, the PRC offered Costa Rica a USD 650,000 
"donation" to attend a trade fair in Shanghai in 2010, with the 
stipulation that the transaction remain confidential.  After Costa 
Rican press uncovered the story the GOCR announced that it would 
not accept any agreement with China that had a confidentiality 
clause. 
 
 
 
----------------------- 
 
PRC COMPLAINTS 
 
----------------------- 
 
 
 
¶11. (SBU) Chinese embassy officials with whom we recently spoke 
(who all arrived to Costa Rica after the establishment of relations 
two-and-a-half years ago), noted some differences from the rosy 
picture of the bilateral relationship painted in the press.  They 
described Chinese tourism as almost non-existent, despite the PRC's 
naming of Costa Rica as a 'preferred' tourist destination in the 
Americas, and believed trade had already reached its peak-both 
facts they blamed on the GOCR's visa policy.  They also believed 
the PRC and the roughly 10,000 Chinese citizens living in Costa 
Rica were often unfairly criticized in the Costa Rican press (a 
complaint we've heard before). 
 
 
 
------------------------------------------ 
 
COMMENT: WHAT'S IN IT FOR ME? 
 
------------------------------------------ 
 
 
 
¶12. (SBU) China has handsomely rewarded Costa Rica for its 2007 
recognition of the PRC.  However, that assistance may have reached 
its peak, since China now has delivered almost everything it 
promised as part of that exchange.  While there had initially been 
talk that the PRC would use Costa Rica as a springboard towards 
extending into the rest of Central America, a Chinese embassy 
official recently told us he expected the thawing of relations with 
Taiwan to put a hold on expansion in the short-term. However, with 
the small size of the local market and lack of available natural 
resources, Costa Rica's main utility to China still remains as an 
example to Central America of the PRC's benevolence.  This, along 
with possible support in international fora and occasionally 
favorable consideration of Chinese companies for GOCR contracts, 
are the true "take-homes" the PRC can expect out of their 
still-evolving relationship.  Costa Rica has long maintained that 
its recognition of China would not influence its focus on human 
rights, but that position has not yet been put to the test. 
 
 
 
¶13. (SBU) The GOCR sees China as a large source of donor aid and a 
sizeable potential market for Costa Rican goods.  The amount and 
visibility of Chinese assistance in recent years dwarfs that of any 
other country.  The focus on concluding the FTA, in spite of the 
objections of local industry, shows the GOCR's determination to 
broaden Costa Rican trade away from a dependence on the U.S. 
market.  On the political front, building the relationship with 
China has been a significant component of the Arias 
administration's efforts to diversify its bilateral relationships: 
increasing ties with Asian countries in recognition of that 
region's growing influence on the world stage.  Even if the pace of 
Chinese aid and investment slows after this grand start, the GOCR 
sees its relationship with this ascending power as an investment 
that will grow in value over the medium to long term. 
BRENNAN