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Cablegate: U/S Padilla Urges Costa Rica to Implement Cafta

VZCZCXYZ0015
RR RUEHWEB

DE RUEHSJ #0232/01 0792119
ZNR UUUUU ZZH
R 192119Z MAR 08
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC 9546
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHBO/AMEMBASSY BOGOTA 4216
RUEHDG/AMEMBASSY SANTO DOMINGO 1587
RHEHNSC/NSC WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SAN JOSE 000232

SIPDIS

SIPDIS

DEPT FOR WHA, WHA/CEN, WHA/EPSC AND EEB; PLEASE PASS TO
USTR: AMALITO/DOLIVER

E.O. 12958: N/A
TAGS: ECON ETRD KIPR PGOV PREL CS
SUBJECT: U/S PADILLA URGES COSTA RICA TO IMPLEMENT CAFTA


1. SUMMARY. In a timely and highly effective visit to
Costa Rica, February 28-29, Commerce U/S Chris Padilla
delivered a clear and consistent message to local audiences
that Costa Rica needed to finish CAFTA implementation
quickly, and that the US was eager to begin working with
Costa Rican counterparts to take maximum advantage of the
opportunities CAFTA offers. In meetings, interviews, and
receptions, U/S Padilla stated that the extension granted
to Costa Rica by the CAFTA-DR countries affords it one last
opportunity for entry-into-force (EIF) of CAFTA-DR. This
is a special opportunity, because free trade agreements
(FTA) create unique relationships with the USG, thus far
enjoyed by only 14 countries around the world. Padilla
also unequivocally confirmed the reality of the original
February 29 EIF deadline. Follow-up events include a
review of trade and foreign direct investment (FDI)
initiatives proposed by the GOCR, a meeting on textiles,
and the possibility of fresh trade promotion activities in
the US and Costa Rica. END SUMMARY.

===========================
STAKEHOLDERS HAVE THEIR SAY
===========================

2. U/S Padilla and staff (listed in paragraph 15) started
their visit to Costa Rica with a country team briefing,
which included a review of his primary message for Costa
Ricans, a summary of his prior stops in Nicaragua and
Honduras, and a review of the events leading to the signing
of the extension for Costa Rica the day before in
Washington.

3. In a luncheon discussion with business leaders which
followed, Padilla expressed the key points of his message
to Costa Rica: that we are eager to move forward and start
developing the trade opportunities that CAFTA-DR offers,
but they must seize this "one last chance" to conclude
their implementation obligations. There will be no further
extensions. The U/S expanded on the uniqueness of the
trade opportunity and then opened the floor for
perspectives from the business leaders on the current
economic/legal climate and the continuing CAFTA-DR debate.

4. The group noted the following:

- Personal security is a growing concern for both business
and the public.

- Uncertainties over CAFTA-DR implementation and CBTPA
renewal have hurt business. One apparel manufacturer laid
off one third of his employees due to reduced customer
orders caused by CAFTA uncertainty.

- The national legislature may lack the ability to pass
implementation legislation with clear language on IPR data
protection. (This was from a representative of the
pharmaceutical industry.)

- The general law enforcement environment of Costa Rica
regarding IPR and security in general is problematic.
Several business leaders also cited deficiencies in the
judicial system such as an overwhelming backlog of cases
and a priority list for judicial action which does not even
address IPR cases.

- The criminal code has a number of specific failings,
including outdated laws, very low conviction and
incarceration rates, and early releases from custody.

- The government is generally ineffective because of
procedural slowness, an aversion to risk, and the labyrinth
of national legislature (Asamblea) rules that encourages a
turgid, hyper-legalistic approach. (This was from the
manager of the airport authority.)

==================================
MEETING WITH COMEX MINISTER: CAFTA
==================================

5. Padilla also met with Minister of Foreign Trade Marco
Vinicio Ruiz, and Vice Minister Amparo Pacheco. The
Minister contrasted success at the WTO on an arbitration
issue between the GOCR and the USG with the procedural
problems plaguing the Ministry of Foreign Trade (COMEX) in
the Asamblea with CAFTA-DR legislation. The Minister was
thankful for the EIF extension, and observed that the
extension was a new chapter in the "soap opera" surrounding
CAFTA-DR implementation. COMEX aims to deliver all of the
legislation to the Constitutional Chamber of the Supreme
Court (Sala IV) for judicial review by May 1, though the
biodiversity law is a sensitive issue with legislators.
(NOTE: As of March 14, five of 13 CAFTA-related laws had
completed Sala IV review, four were under review, and four
were pending Asamblea action.)

6. Padilla noted that the benefits of CAFTA-DR are now
being realized in other member countries. With an
extension in place, Costa Rica must look forward and plan
for an increase in FDI and trade. The aggressiveness of
other member countries, including Nicaragua, is very
impressive. CAFTA-DR represents permanence, U/S Padilla
explained, and investors want certainty. He urged the
Minister to maintain the legislative pace of the past four
months. Finally, Padilla voiced the "one last chance"
message and placed its importance in the context that only
fourteen other countries in the world have free trade
agreements with the U.S.; Costa Rica has the unique
opportunity to be the fifteenth.

7. In response to Padilla's question on the status of
CAFTA-DR regulations, the Minister was not specific. He
explained that COMEX's work is well underway but there are
hurdles. USTR should have drafts of the regulations by
mid-March, but the drafts do not apply to all issues. For
example, the drafting of the regulations for
telecommunications cannot commence until the
telecommunications bill is passed. After passage, the
Ministry of Environment and Energy (MINAE) will become the
Ministry of Environment, Energy, and Telecommunications
(MINAET). Only then will it be empowered to develop the
appropriate regulations.

=============================================
MEETING WITH COMEX MINISTER: TRADE PROMOTION
=============================================

8. Minister Ruiz described economic growth in Costa Rica
and stressed CAFTA-DR's importance to sustain and continue
the growth. Though the economy is positive, a significant
group of Costa Rican exporters are affected by rising costs
(e.g. agribusiness facing higher costs due to fuel). Also,
Costa Rica has been slow in attracting investment due to
CAFTA-DR delays, with a few notable exceptions such as
Emerson's plan to build a design center in Costa Rica and
Boston Scientific doubling its plant. The German company
Continental also announced a new investment in October to
manufacturer car parts. Ruiz described the GOCR's
promotional efforts in the U.S. including opening a Costa
Rican export office in Cleveland, Ohio (through a grant
from the Cleveland Foundation) and an office in California.
The Minister also requested assistance with targeting
export opportunities for small and medium businesses in
California and presented a list to Padilla of "trade
capacity cooperation" and "FDI attraction cooperation"
initiatives.

9. Padilla promised to review the initiatives and said
that Commerce will respond after further discussions in
Washington. In addition, he cited the Competitiveness
Forum in Atlanta in August as an opportunity for Costa Rica
to address the issue of export opportunities for small and
medium enterprises cooperation. Reciprocating trade
missions to both countries can also pursue trade and
investment possibilities. Textiles were discussed as
another possibility for engagement since local textile
companies are losing customers. U/S Padilla thought that a
trip to Costa Rica by Commerce DAS Matt Priest could be
helpful in this regard given the DAS's experience with
textile politics in the United States.

===========================
AUDIENCE WITH THE PRESIDENT
===========================

10. Padilla later met with President Arias, Minister of
the Presidency Rodrigo Arias, Minister of Foreign Affairs
Bruno Stagno, Minister Ruiz, and Ambassador to the U.S.
Tomas Duenas. CDA Brennan, FCSO, PAO, and EconOff
accompanied. The President began by asking Padilla, "What
can you do for us," regarding support for CAFTA-DR.
Padilla referred to the previous meeting with Ruiz and
described the possible visit of DAS Priest regarding
textiles and the possibility of FDI and trade initiatives.

11. The President turned to Costa Rican politics and
described the intransigence of the opposition, which had
accused the GOCR of inventing the February 29 EIF deadline
and denied the need for an extension, despite the GOCR's
attempts to explain the reality and urgency. Padilla
acknowledged this issue but also referred to the declining
interest in the US for trade agreements. He reiterated his
"one last opportunity" for Costa Rica message and noted the
small number of countries with free trade agreements with
the USG now benefiting from permanent trade benefits.
Padilla noted that Costa Rica had originally been the
leader in seeking and negotiating CAFTA-DR, but had become
the laggard in approving and implementing it.

12. U/S Padilla thanked the President for his leadership
on cuts in agricultural subsidies and support on issues of
importance to the USG such as Cuba, the NAMA agenda at the
WTO in Geneva (advocating for market access among less
inclined emerging markets like Brazil and India), and the
Colombian FTA. On the latter topic, the President offered
his assistance in support of President Uribe.

=====================
COMMENTS TO THE MEDIA
=====================

13. Following their meeting President Arias and U/S
Padilla held a joint press conference, at which Padilla
stressed his "one last chance" message and the finality of
the deadlines established in such agreements, as well as
the U.S. desire to see Costa Rica reaping the benefits of
CAFTA-DR. Padilla also provided a more extensive
interviews to La Nacion, Costa Rica's leading daily, and
Eco-News, a leader in political reporting on the radio in
the greater San Jose area. In response to (expected)
questions about the legitimacy of the February 29 EIF
deadline and possible unilateral deposit at the OAS (both
concepts advocated by the PAC-led opposition), Padilla
delivered a very clear message. He stressed that the USG
as a sovereign government "does not sign an agreement that
is a lie." In addition, he added, five other countries
(the other CAFTA-DR members), all sovereign governments,
"do not sign an official document that is a lie."

=================================
TOUGH MEETING WITH THE OPPOSITION
=================================

14. At a reception that evening, Post arranged a private
pull-aside between the U/S and PAC faction leader Elizabeth
Fonseca and legislative members Rafael Madrigal and
Francisco Molina. Both sides spoke frankly. Padilla
reprised his firm messages on the legitimacy of the
original EIF deadline and the need for the extension, the
uniqueness of the opportunity to conclude an FTA, and the
urgency to move forward. The PAC legislators presented
their critique of the Arias government and the tactics of
the pro-CAFTA legislative coalition, as well as their
complaints about CAFTA itself. The opposition team
remained largely unconvinced, but seemed to take seriously
the messages that 1) there would be no further extensions,
and 2) should Costa Rica be excluded from CAFTA and the
expressed will of the people (in the October 7 referendum)
not be fulfilled, they would be to blame. Fonseca
acknowledged that this would be the case. She and her team
appeared sincerely grateful for the opportunity to exchange
views candidly with a senior USG trade official, and
following the meeting engaged animatedly with the largely
pro-CAFTA crowd at the reception.

15. Delegation Members:

-- U/S of International Trade Chris Padilla
-- Chief of Staff, Office of the U/S, Michael DiPaula-
Coyle
-- Senior Director, Office of Western Hemisphere, Market
Access and Compliance, John Andersen

16. This cable has been cleared by the office of U/S
Padilla.

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