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Cablegate: Costa Rica and China: The Honeymoon Continues

VZCZCXYZ0012
PP RUEHWEB

DE RUEHSJ #0133/01 0511434
ZNY CCCCC ZZH
P 201434Z FEB 08
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC PRIORITY 9448
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 0141
RHMFISS/HQ USSOUTHCOM MIAMI FL PRIORITY
RUEHIN/AIT TAIPEI PRIORITY 0082

C O N F I D E N T I A L SAN JOSE 000133

SIPDIS

SIPDIS

DEPARTMENT FOR WHA/CEN AND EAP/CM
SOUTHCOM FOR FPA

E.O. 12958: DECL: 02/17/2018
TAGS: PREL PGOV PINR ETRD ENRG MASS XK CS
SUBJECT: COSTA RICA AND CHINA: THE HONEYMOON CONTINUES

REF: A. 2007 SAN JOSE 01783 AND PREVIOUS
B. SAN JOSE 0071 (NOTAL)
C. SAN JOSE 0003 (NOTAL)

Classified By: ADCM David E. Henifin per 1.4 (d)

1. (C) SUMMARY: Sino-Costa Rican relations continue to deepen
smoothly, if slowly (Ref A). The first tangible results of
the GOCR,s June 2007 recognition of China -- USD 20 million
in disaster relief, and loans and grants for development
projects -- have begun to flow. Both governments are
highlighting potential tourism, trade, development and energy
projects; negotiations on a free trade agreement may begin
later this year. The GOCR insists (privately) that this is
not a one-way relationship. The Arias administration
welcomes the PRC,s largesse, but maintains that it will not
shy away from raising prickly issues such as human rights.
The GOCR also seeks to make the aid relationship with China
far more transparent than it was with Taiwan. From a US
strategic perspective, the new Chinese generosity here is
another reason we must remain engaged in Costa Rica through
humanitarian and other assistance projects. END SUMMARY.

=================
SHOW US THE MONEY
=================

2. (SBU) President Arias,s October 2007 visit to China was
heavy on showmanship and symbolism, but MFA sources confirm
that 11 agreements were signed, ranging from trade to tourism
(China declared Costa Rica a "preferred destination" for
tourism), to student exchanges. The first batch of
scholarship students, including the son of PLN legislator
Federico Tinoco, is already studying in Beijing. A steady
stream of PRC officials, including the VM for Tourism and a
commercial delegation, have since visited Costa Rica.

3. (SBU) The first tangible result of the newly-established
relationship was a pledge of USD 20 million in disaster
assistance following last year,s devastating rainy season
(Ref B). The MFA confirmed this was a no-strings-attached
grant, which will be used primarily to reconstruct damaged
housing, according to National Emergency Committee
(FEMA-equivalent) director Daniel Gallardo. The actual funds
were transferred to the GOCR on December 16, in conjunction
with a ceremony at the MFA.

4. (SBU) The next tranche of assistance, totaling USD 28
million, will underwrite specific infrastructure projects,
according to MFA sources. The showcase will be a new stadium
and sports complex in San Jose, which the MFA tacitly
acknowledges seems to be part of the "standard" Chinese aid
package for countries which recognize the PRC. President
Arias was shown sample facilities while in China. Low income
housing may be another component of the 28 million, with
completion of the highway to San Ramon (begun by the
Taiwanese) rounding out the package. By mid-January, the
local media were speculating that the total overall value of
this tranche may actually be closer to USD 60 million.

5. (SBU) Catching the spirit (and reflecting the political
savvy and national aspirations of PLN mayor Jhonny Araya),
the municipality of San Jose, with assistance from the
Sino-Costa Rican Chamber of Commerce, announced plans to
establish San Jose's own Chinatown. This project is expected
to promote tourism, encourage cultural exchanges, and
beautify blighted areas of the declining center city.

6. (SBU) Rounding out the PRC,s assistance is a sizable
purchase of Costa Rican bonds, probably totaling USD 250-300
million. (The MFA and Hacienda have declined to confirm the
actual number.) The purchase will make China the largest
holder of Costa Rican bonds.

7. (C) According to the MFA, whether related to bonds, grants
or other types of assistance, both governments want to make
their aid relationship as transparent as possible.
Donations, especially, are to flow openly to the appropriate
GOCR agencies, with development projects handled via normal
GOCR channels. This is to contrast with the highly flexible,
but not always above board assistance provided by Taiwan.
MFA sources add that this transparency is also intended to
quiet critics of Costa Rica,s switching allegiance from
Taipei to Beijing, and to highlight Costa Rica as a "model
aid recipient" while President Arias pushes his international
"Costa Rica Consensus," (which calls for additional
assistance to countries which disarm/reduce arms to focus on
socio-economic development).

=============================
NEXT, A COSTA RICA-CHINA FTA?
=============================

8. (SBU) Ministry of Foreign Commerce (COMEX) has begun a
feasibility study that may lead to a free trade agreement.
Director General Gabriela Castro told the media on February
11 that the study should be completed in six months, with
meetings planned in China in April and in Costa Rica in June.
China-related trade expositions continue to take place (the
latest sponsored the week of February 11 by a group called
"China Ya" (China Now), with an eye to maximizing Costa Rican
attendance at the large trade fair in Canton in April. GOCR
sources, meanwhile, highlight to the media the rapid growth
in bilateral investment and trade since relations were
established, which increased by a reported 30 percent from
2006 to 2007. (COMMENT: While some sources describe China as
now the second largest market for Costa Rican products after
the United States, the current figures are somewhat
misleading. In 2006, for example, a reported 90% of Costa
Rica,s 1.082 billion USD exports to mainland China and Hong
Kong was due solely to intra-company shipments of Intel,s
integrated circuits. This trade would have continued even
without normalized relations. Nevertheless, both the
statistics as well as the proactive statements by GOCR
officials on strengthening trade between the two countries
portend strong future growth in the trade relationship.

========================================
OIL EXPLORATION AND ENERGY: PIPE DREAMS?
========================================

9. (SBU) On January 18, the GOCR and the PRC Embassy
announced cooperative efforts in energy
production, the culmination of several months of talks
between the two governments. China's
National Oil Corporation is to assist in oil exploration and
at the same time, provide technical expertise and financial
assistance for the modernization and expansion of Costa
Rica's Caribbean coast oil refinery, operated by RECOPE, the
state-owned petroleum enterprise. The deal may more than
triple the facility's capacity. (NOTE: The GOCR is entirely
dependent on Venezuelan oil at the moment, although it is
negotiating to refine Colombia and Ecuador petroleum locally.
Only approximately 20% of Costa Rica,s national electrical
energy production is oil-dependent, however. The vast
majority is generated from renewable hydro-electric sources.)


10. (C) Privately, MFA sources explain that the oil project
would be supported by the Chinese-purchased bonds, and would
envision expanding RECOPE facilities even farther, perhaps by
a factor of five. The national port-port oil pipeline
(running between Caldera on the Pacific and Limon on the
Caribbean) would also be refurbished. The Chinese goal,
according to the MFA, would be to turn Costa Rica into a
petroleum shipping and refining hub for the region. The PRC
would buy crude elsewhere, ship it to Costa Rica for refining
(presumably providing some at low cost to RECOPE), then sell
it to a 3rd party to ship it to China. Our MFA contacts
acknowledge this may be a very ambitious undertaking, given
(a) Costa Rica,s strong environmental lobby and reputation
as a green country (which, in the past was cited by the GOCR
as the reason for freezing a petroleum exploration concession
previously granted to the US firm, Harken) and (b) possible
contradictions with President Arias,s international Peace
with Nature initiative.

=======
COMMENT
=======

11. (C) Both sides are eager to show the benefits of the new
Sino-Costa Rican partnership. PRC Ambassador Wang continues
to stress in public that Beijing views Costa Rica as the
stepping stone to reach other Central American nations, using
increased trade, industrial development, and
economic assistance as tangible incentives. For its part,
the GOCR wants to put as principled a gloss as possible on
its new links to China. The MFA privately tells us that it
will not shy away from pressing the PRC on prickly issues
such as human rights. This may be easier for Costa Rica, now
that it has been elected to the Security Council. From a US
strategic perspective, the new Chinese generosity here is
another reason we must remain engaged in Costa Rica through
humanitarian and other assistance projects, such as the
JTF-Bravo MEDRETE exercise and the SOUTHCOM engineering
survey in December (Refs B-C). We can't match China's blank
check for USD 20 million, but we can offer targeted,
effective assistance and sustained involvement.
BRENNAN

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