Cablegate: Secretary Gutierrez's Meetings with President Arias


DE RUEHSJ #0827/01 2912033
P 172033Z OCT 08




E.O. 12958: N/A

REFS: A) San Jose 745 (NOTAL), B) San Jose 774, C) San Jose 823

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


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

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

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.


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.

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.


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.

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.


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