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Cablegate: Historical Visit of Chinese President Hu Kicks Off

VZCZCXYZ0000
RR RUEHWEB

DE RUEHSJ #0969/01 3470212
ZNY CCCCC ZZH
R 120212Z DEC 08
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC 0346
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0153
RUEHSG/AMEMBASSY SANTIAGO 0452
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNSC/NSC WASHDC

C O N F I D E N T I A L SAN JOSE 000969

SIPDIS

DEPARTMENT FOR WHA/CEN, EAP/CM, WHA/EPSC AND EEB;
TREASURY FOR SSENICH

E.O. 12958: DECL: 12/09/2018
TAGS: PREL PGOV PHUM ETRD EFIN EINV ECON CS CH CU
SUBJECT: HISTORICAL VISIT OF CHINESE PRESIDENT HU KICKS OFF
FTA TALKS, SEALS 11 ACCORDS

REF: A. SAN JOSE 133
B. 07 SAN JOSE 1106
C. 07 SAN JOSE 1488
D. SAN JOSE 540
E. BEIJING 04253

Classified By: DCM Peter M. Brennan for reason 1.4(d).

-------
SUMMARY
-------

1. (SBU) "Chinese president (arrives) like Santa Claus with
FTA, balls, and bicycles" read one headline recapping the
historical visit of President Hu Jintao to San Jose November
16-17. Hu's rock-star-like reception included major street
closures and a holiday for most government employees who work
downtown, ensuring smooth travel and added
security for Hu and his 184-member delegation. The major
significance of the event was the "official kick-off" of
Sino-Costa Rican FTA negotiations (to begin in earnest in
2009), wherein Chile will also provide technical assistance
to Costa Rica (septel). Officials signed a total of 11
pre-drafted cooperative accords addressing, among other
issues: a joint venture to modernize the GOCR's RECOPE
refinery; USD 10 million in additional funds for the new
soccer stadium that China will build (Ref A); as much as USD
80 million in bank lines of credit; creation of a "Confucian
Institute" to teach Mandarin at the national university; and
a sports equipment donation for underprivileged youth.
President Arias invited Chinese companies to bid on a new
concession for Costa Rica's major port in Limon. In
addition, the Costa Rican private sector signed cooperative
agreements with Chinese counterparts. China's human-rights
record and Tibet were intentionally absent from discussions.
END SUMMARY.

-----------------------------------
FIRST TIME ON CENTRAL AMERICAN SOIL
-----------------------------------

2. (SBU) Hu's visit reciprocated President Arias' October
2007 China trip which followed GOCR re-establishment
diplomatic relations with the PRC on June 1, 2007 (Ref B).
It also marked the first time that a Chinese president "set
foot on Central American soil" according to FonMin Bruno
Stagno, who described the 17-month old bilateral relationship
as "historic and symbolic" in his welcoming remarks. Stagno
noted that Hu's visit came on the heels of the G20 Summit in
Washington, and he extolled China's ability to help the world
through the current financial crisis and to aid developing
countries. Stagno used the visit to publicly reiterate the
GOCR's aspiration for APEC membership once the moratorium is
lifted in 2010 (Ref C), as part of the administration's
National Development Plan strategy to increase ties with
Asia, especially with China and India. Stagno proudly added
that "not every country that has ties with China has received
a visit of this caliber."

--------------------------------------
POMP, CIRCUMSTANCE, AND ARMS WIDE OPEN
--------------------------------------

3. (U) Hu's agenda included a one-on-one with President
Arias, the agreement signing ceremony, and a visit with
legislators at the National Assembly. Aside from the usual
fanfare (such as schoolchildren cheering Hu's arrival at
Arias' office), the visit generated controversy for major
street closures and a one-day holiday for government
employees in downtown offices, and drew criticism from some
legislators who noted the disparity in treatment of Panama's
Torrijos and Chile's Bachelet during recent state visits.
Minister of Public Security, Janina Del Vecchio said the
measures were requested by the Chinese as reciprocal
treatment (stemming from Arias' China trip) and that the
closures were necessary to prevent traffic chaos.

--------------------------------------
"GREAT FRUITS" AND A POLITICAL MESSAGE
--------------------------------------

4. (U) Hu's remarks touched on bonds of friendship, trust and
support for the (eventual) FTA. He noted that the
re-establishment of diplomatic ties with the PRC had "borne
great fruits (for Costa Rica) in just one year." The

official Chinese Embassy press statement declared that Costa
Rica was a "relevant partner" in the region. It heralded the
"gigantic steps" in cooperation and friendship between the
two "developing countries" that shared the mission of
"safeguarding world peace" and promoting joint development.

5. (C) In a November 20 briefing for U.S. and Canadian
PolOffs, the MFA's Deputy Director of Foreign Policy
Alejandro Solano told us that China's primary purpose for the
visit was to send a political message to countries in the
region that they, too, could receive great economic benefits
if they recognized China. Timing may be running out to
collect these benefits, he maintained, since the increased
dialogue and commercial ties between China and Taiwan might
resolve the intra-Chinese differences sooner than later.
According to Solano, Chinese officials believe that
Nicaragua, which they thought would be first in Central
America to re-establish ties with the PRC, now could be the
very last. Because of the GON's heavy dependence on
Taiwanese assistance (especially in light of EU aid
reductions), Nicaragua could not even afford a short gap in
aid flows while switching recognition to China.

------------------------------------------
SINO-GOCR FTA NEGOTIATIONS IN JANUARY . . .
------------------------------------------

6. (U) Arias and Hu utilized the visit to announce the
"kick-off" of negotiations on the proposed Chinese-Costa
Rican FTA, after a year of exploratory talks, even though the
first round will actually take place beginning January
19, 2009, in San Jose. Chinese Ambassador Wang Xiaoyuan told
the press that, based on China's experience
with other FTAs, his side expected negotiations to last "a
year or so." Minister of Foreign Trade Marco Vinicio Ruiz
announced Costa Rica's intent to finish the FTA by 2010,
before the end of Arias administration. Arias himself told
reporters he hoped that it would not take four-and-a-half
years for the China FTA to be approved by the National
Assembly, referring to the long, torturous battle to pass,
ratify and implement CAFTA-DR. Costa Rica expects to see an
11 percent increase in duty-free exports to China under the
FTA, especially in coffee, bananas and beef, with improved
access to China's 1.3 billion-person market.

7. (SBU) Just after Hu's visit, Minister Ruiz told the
Ambassador that President Hu's visit went very well and was
another important step in "getting Costa Rica to look more
towards Asia" for its economic future. This remained very
important to President Arias, and, according to Ruiz, had
fueled the Arias administration's opening of relations with
China in 2007. With the GOCR stymied by previous attempts to
foster deeper relations in Asia via Japan and South
Korea, Ruiz offered that Arias' second presidency would be
remembered for his engagement with China. The Costa Rican
public was looking for something "exciting" after the
protracted CAFTA-DR battle, and the continued opening with
China might satisfy that interest, according to Ruiz.

-----------------------------------
. . . BUT ADJUST THOSE EXPECTATIONS
-----------------------------------

8. (SBU) Ruiz acknowledged, however, that Costa Rican
expectations might have to be "adjusted" to meet reality.
Relations with China would continue to develop, but not
necessarily in a spectacular fashion. Based on the Costa
Rican experience with even non-controversial trade agreements
(such as with Panama), ratification of an FTA with China
likely would take longer than expected. Separately, the
MFA's Solano noted opposition to a Sino-Costa Rican FTA from
some domestic sectors, including packaging, container and toy
importers/manufacturers. COMEX, he added, would have to
decide which sectors to "leave out".

9. (C) Solano acknowledged that a Chinese FTA could
indirectly impact Costa Rica's other FTA partners, such as
the U.S. Canada, and Chile. The GOCR might re-examine rules
of origin requirements, for example, in order to attract more
Chinese FDI via products assembled in Costa Rica that might
have preferred entry into the CAFTA or Chilean markets (Ref
D). COMEX would have to consult with other FTA partners
during the negotiation process to be sure that
any adverse effects or implications were taken into account.
Solano said that Chile would provide technical training and

"tips" (based on Chile's own negotiating experience with the
Chinese) to GOCR negotiators, similar to the Chilean advice
provided to the GOCR during the current FTA negotiations with
the EU.

--------------------------------------------- -
ELEVEN ACCORDS SIGNED; OIL AND CREDIT TOP LIST
--------------------------------------------- -

10. (U) In addition to the FTA negotiation agreement, the
GOCR signed 10 more accords with the PRC during Hu's visit.
Principal among them was a deal on behalf of China's CNPC
International Ltd. to modernize Costa Rica's RECOPE oil
Refinery on the Caribbean. RECOPE sources tell us that the
agreement would permit the creation of a 25-year joint
venture to expand or build a new facility in Moin which would
greatly increase production. Construction and equipment
costs could amount to between $800 million and $1 billion,
and Costa Rica would retain the option to purchase at the end
of the contract term. The joint venture would undertake a
feasibility study to determine the scope of construction,
with the goal of building in a modular fashion that would
facilitate future expansion. The joint venture would front
30 percent of costs, with the balance to be financed. Once
begun, construction would probably take three years.

11. (SBU) China's National Development Bank extended a $40
million line of credit to Costa Rica's Central Bank (Banco
Nacional) and signed a cooperative financial agreement with
the national Bank of Costa Rica. Though the amount set
aside for the Bank of Costa Rica was not specified in the
agreement, the MFA's Solano confirmed that a similar $40
million figure was under discussion. The funds would be
available for recapitalization (to stabilize institutions
against the global financial crisis).

12. (SBU) China donated 10,000 soccer balls and 1,000
mountain bikes for disadvantaged youth, which the GOCR's
ceremonial First Lady's Office will distribute, according to
Solano. Solano told us that this donation apparently
resulted from an off-hand remark by President Arias himself,
joked before the visit that perhaps the Chinese could bring
balls and bikes as early Christmas presents. A staffer took
him seriously and included those items in an official request
to the PRC. The deals also created a Confucian Institute at
the University of Costa Rica for the study of Mandarin and
Chinese culture; confirmed Costa Rica's participation in the
2010 Shanghai Expo, established a Binational Business
Council; launched relations between the GOCR Science and
Technology Ministry and China's agricultural science and
science academies; and covered additional economic and
technological aid, including an additional $10 million for
the new stadium (Ref A).

---------------------------------
THE PRIVATE SECTOR GETS ITS SHARE
---------------------------------

13. (SBU) On the sidelines of the visit, members of the Costa
Rican Chamber of Exporters (CADEXCO, Spanish acronym)
signed pacts with representatives of the International
Business Chamber of Wenzhou, the Sichuan Council for
International Business Promotion, and the Guangxi Sub-Council
for International Business Promotion, who were
among the 60-100 (official numbers vary) Chinese business
leaders who accompanied Hu. These pacts were the only
agreements signed with Costa Rica's private sector and paved
the way for Chinese technical assistance to Costa Rican
companies and for opening commercial offices in China.
CADEXCO Vice President Sergio Navas told us that the
agreements represented a strategic move to work with regional
Chinese markets as opposed to with Beijing and Shanghai
alone. Given Mexican, Colombian, and Chilean competition in
China, and the size of the Chinese market relative to Costa
Rica, the regional agreements signal an emerging niche export
strategy for the GOCR.

----------------
THE INTEL FACTOR
----------------

14. (SBU) Since INTEL comprises an overwhelming share of
Costa Rican exports to China (96 percent INTEL; 4 percent
everything else), the decisions of INTEL regarding future
manufacturing weighs heavily on the Sino-Costa Rican trade

relationship. Navas fretted that the soon-to-be-opened INTEL
production facilities in China may compromise INTEL's
production in Costa Rica. In general terms, Navas saw three
different horizons for the agreements:

-- Short Term: Chinese foreign direct assistance and
cooperation in the form of technical assistance.

-- Medium Term: Working to expand the four percent of
non-INTEL exports to China while maintaining the INTEL
relationship in Costa Rica. Raw materials, foodstuffs, and
tourism are the leading candidates to increase Costa Rican
trade revenue with China.

-- Long Term: market analysis and research by Costa Rica on
which Chinese consumer sectors to target. Size matters;
coffee exporters note that if only two percent of China's
population drank coffee at one-third the consumption of the
average Costa Rican, the demand would use up all of Costa
Rica's current annual production.

Navas believes that the commercial benefits will develop
slowly, however, as do all relationships with China.
Successful business with China depends on building trusting
relationships over time.

------------------------------
HUMAN RIGHTS NOT ON THE AGENDA
------------------------------

15. (SBU) A reporter from TV Channel 42 raised the issue of
China's human-rights record during the Arias/Hu joint press
conference, and he questioned whether
Nobel-Peace-Prize-Winner Arias broached the topic of human
rights during their one-on-one. In a telling commentary on
his administration's current focus with China, the president
responded -- on camera -- that the two did not talk about
human rights, and that he "took advantage of the opportunity
to talk about things that are important and urgent to Costa
Rica." FonMin Stagno subsequently backpedaled a little to
explain that there were other fora (including the UN) and
moments in which representatives of the two nations discussed
"with much patience and much more time, topics such as human
rights."

16. (C) Interestingly, human rights was the second topic that
the MFA's Solano broached with us in his November 20
briefing. He said that the Chinese wanted to put Tibet on
the agenda, but the GOCR declined due to difficulties for
Arias given his still-close relationship with the Dalai Lama.
Solano fumbled a bit trying to rectify the GOCR's new "one
China" policy and its continued interest in human rights
issues in Tibet. When asked, Solano said that Arias had made
no/no offers to help moderate or negotiate on Tibet.
However, the GOCR would begin to take up human rights during
bilateral political consultations with China planned over the
next year. Solano indicated that perhaps some special
administrative arrangement could be made for Tibet a-la Hong
Kong, but for now the GOCR had to weigh political
"equilibrium" (and economic benefits) against public
sentiment (on human rights).

-------
COMMENT
-------

17. (C) Hu's visit demonstrated the GOCR's and Costa Rica's
continuing exuberance for China more than a year after
diplomatic relations were restored. Stagno's vision of the
21st Century as the "Chinese Century" shows that the Arias
administration is continuing to look hopefully to Asia for
its economic future; China has already begun the second-most
export market for the Costa Rica. Though the PRC Embassy's
press statement tried to portray the two countries as equal
partners in a similar struggle along the path of development,
officials involved in the day-to-day business of building
relations, such as Minister Ruiz and Chinese interlocutors in
Beijing (Ref E), are well aware that this new relationship is
anything but equal. For now, trade with China has apparently
trumped all other issues on the Costa Rican-Chinese agenda, a
departure for the little country with the big love of human
rights.
CIANCHETTE

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