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Cablegate: Costa Rica Response to Ustr Request for Info On Cbi-

VZCZCXYZ0002
RR RUEHWEB

DE RUEHSJ #0921/01 3002048
ZNR UUUUU ZZH
R 272048Z OCT 09
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC 1352
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SAN JOSE 000921

STATE PASS TO OPIC
STATE PASS TO USTR
STATE PASS TO EXIMBANK FOR CREQUE
STATE PASS TO FEDERAL RESERVE MIAMI BRANCH MANIERO
TREASURY FOR OASIA/INC

SIPDIS

DEPT FOR WHA/CEN, WHA/EPSC:SGARRO, EEB/TTP/BT:RMANOGUE AND DGROUT,
EEB/TPP/IPE:JURBAN

PLEASE PASS TO USTR FOR DOLIVER, AMALITO AND KSHIGETOMI

E.O. 12958: N/A
TAGS: ECON ETRD KIPR EINV PREL PGOV CS
SUBJECT: COSTA RICA RESPONSE TO USTR REQUEST FOR INFO ON CBI-
BENEFICIARY COUNTRIES

REF: SECSTATE 75599, SANJOSE 811, SAN JOSE 07 1963

1. The following is Post's response to reftel A. The text replies
to specific keyed reftel questions and updates Post's 2007
submission (reftel C) to USTR's request regarding CBI beneficiary
countries. Questions can be directed to Economics Specialist, Kevin
Ludeke at +506 2519-22261, Fax +506 2220-2470, or
LudekeKJ@state.gov.

2. Costa Rica
-- Population: 4,533,000
-- Per Capita GDP: $6,544
-- Exports to U.S.: $3,926 million
-- Imports from U.S.: $5,682 million
-- U.S. Trade Balance: +$1,755 million

The Department of State's Economic Engagement Statistics are the
source for the above date. All data are 2008 annual figures.

3. Commitment to the World Trade Organization (WTO) and Completion
of CAFTA-DR: Costa Rica participates actively in the WTO and has
taken its obligations under the Uruguay Round seriously. In 2000,
Costa Rica ceased granting financial investment subsidies and tax
holidays to new exporters. A law designed to bring the Free Trade
Zone regime into compliance with WTO standards is currently under
debate in the National Assembly. Although the WTO deadline for
compliance was extended through the year 2014, the export sector
pressed for prompt resolution of a new regime. Costa Rica is
currently negotiating free trade agreements with China and Singapore
and as a block with its Central American neighbors with the European
Union. These negotiations and the January 1, 2009 entry-into-force
of CAFTA-DR are clear signs of Costa Rica's commitment to free trade
principles.

4. Protection of Intellectual Property Rights (IPR): Costa Rica
has been on the Watch List since 2002 when it was moved from the
Priority Watch List. Costa Rica is a party to all major
international intellectual property agreements with the exception of
the Budapest Agreement. In part due to a Priority Watchlist Country
designation in 2001, the GOCR took steps at that time to combat
piracy and passed several IPR protection laws including the
requirement for the GOCR to not use pirated software.

As a necessary condition for CAFTA-DR entry-into-force (EIF), Costa
Rica passed a set of new IPR laws, significantly strengthening the
IPR legal framework. Other heartening signs include a significant
budget increase and corresponding increase in staffing levels at the
patent and trademark office during the Arias Administration
(2006-2010), continued efforts by the Judicial School to prepare
judges and prosecutors in IPR, and sporadic action by uniformed
police in confiscating pirated DVD's and CD's.

However, the Prosecutor's Office has shown very little political
will to pursue IPR violators, in part due to scarce resources and
other "higher priorities." Criminal and civil remedies are
available but the onus is on the victim of the crime, i.e., the
victim not only has to investigate the violation through detective
work but also, in most cases, needs to request seizure of the
property, pay for all required analysis, and employ legal counsel to
bring the case to trial.

5. Provision of Internationally Recognized Worker Rights: Costa
Rica extends all internationally recognized worker rights to its
citizens, though union leaders continue to call for enhanced
protections for private sector employees who want to unionize.
Costa Rican law guarantees the right of association, the right to
organize and bargain collectively, and prohibits forced labor.
Costa Rican law sets a minimum age for employment at 15; however,
teenagers between 15-18 years of age may work for a maximum of six
hours daily and 36 hours weekly with special permission from the
National Institute for Children (PANI). The law prohibits night
work and overtime for minors. Activities considered to be unhealthy
or hazardous typically require a minimum age of 18. In addition,
the law entitles working minors to attend educational establishments
through school arrangements and timetables adapted to their
interests and employment conditions and to participate in
apprenticeship training programs. The law provides for a minimum
wage set by the National Wage Council, which is updated annually.
The constitution sets workday hours, overtime remuneration, days of
rest, and annual vacation rights. Costa Rican law also enshrines

acceptable occupational safety and health standards. The Labor
Ministry, in cooperation with PANI, generally enforces regulations
related to children's employment effectively through inspections in
the formal sector; the regulations are not enforced effectively in
the informal labor sector as a result of inadequate resource
allocations by the government. According to the ILO, working minors
ages 15 to 18 sometimes receive less than the minimum wage, which
was corroborated by the chief of the Labor Ministry's Office for the
Eradication of Child Labor.

6. Implementation of Commitments to Eliminate the Worse Forms of
Child Labor: In 2001, the Costa Rican Legislative Assembly ratified
Resolution 182 of the ILO related to eliminating the worst forms of
child labor, including the sexual exploitation of children.

Child labor is a problem mainly in the informal agricultural,
fishing, construction, and service sectors of the economy. Children
work in the production of bananas, coffee, and sugarcane. Some
indigenous children from Panama migrate seasonally to Costa Rica
with their families and work in agriculture. Child labor is used in
domestic work and family-run enterprises. Child prostitution and
other types of child sexual exploitation remain serious problems.

The government has a number of policies and programs that seek to
address child labor. Policies include the National Agenda for
Children and Adolescents 2000-2010; the Second National Action Plan
for the Prevention and Eradication of Child Labor and Special
Protection of Adolescent Workers 2005-2010; and the Third National
Plan to Eliminate Commercial Sexual Exploitation of Children.

The Conditional Cash Transfer program "Avancemos", which pays
stipends to the families of children who stay in high school, has
become one of the Arias administration's signature programs. The
program currently benefits over 130,000 high school students or
roughly 100,000 families. Stipends range from USD 26 per month for
seventh graders up to USD 87 per month for twelfth graders. The
program stipulates only two requirements: the family income is less
than a prescribed threshold and the child attends high school.
Direct funding for Avancemos in 2008 (before administrative costs)
was USD 77 million, or one-fourth of one percent (.25 percent) of
gross domestic product. This high level of funding demonstrates the
Costa Rican government's commitment to keep children out of the
labor market and in the school system. Other projects to address
child labor are described in the Department of Labor's report
entitled, "Findings on the Worst Forms of Child Labor", available at
www.dol.gov/ilab/programs/ocft/PDF/2008OCFTre port.pdf.

7. Counter-Narcotics Cooperation: While Costa Rica remains a
significant transshipment point for the smuggling of cocaine from
South America to the United States and Europe, Costa Rican law
enforcement officials fully cooperate with U.S. counter-narcotics
efforts. Costa Rica continues to work closely with the United
States in implementing the comprehensive Maritime Counter-drug
Cooperation Agreement signed with the United States in 2000.
Additionally, Costa Rica will receive over $10 million in
counter-narcotics assistance from the U.S. via the multi-year Merida
Initiative.

8. Implementation of the Inter-American Convention Against
Corruption (IACAC): Costa Rica ratified the IACAC. Domestic law
imposes a requirement that senior government officials file personal
financial reports while in office. The Controller General's Office
plays an active role both in filing those reports and monitoring
potentially corrupt activity. The GOCR is currently prosecuting
cases involving two ex-presidents who are charged with having been
involved in two different corruption/kickback schemes. One of the
trials concluded on October 5 with a conviction and a five year
sentence for former President Rafael Angel Calderon Fournier
(1990-1994). He accepted bribes to secure a contract for medical
equipment between a Finnish firm and the Costa Rican government in
2004. The trial against former President Miguel Angel Rodriguez
(1998-2002) will start soon. .

Costa Rica has a robust financial enforcement system presided by the
National Council of Financial System Supervision (CONASSIF) and
composed of three Superintendents that report to CONASSIF. CONASSIF
operates two boards: a seven member board for banking and stock
exchange oversight and an eight member board for pension fund
oversight. The Central Bank appoints the board members.
Know-your-customer provisions are now implemented by all banks in

the country such that no bank account or company owning a bank
account can remain anonymous. Additionally, the Costa Rican Drug
Institute (a rough equivalent to the U.S. Office of National Drug
Control Policy) is charged with anti-money laundering
responsibilities and carries out measures that also help in the
fight against corruption. In 2008 Transparency International ranked
Costa Rica 47 out of 180 countries in its Corruption Perception
Index.

9. Transparency in Government Procurement: While the Government of
Costa Rica generally requires all procurement to be done through
open bidding, problems and complaints occur. Costa Rican government
procurement practices are complex and cumbersome, resulting from the
many layers of government supervision in place to prevent illegal
practices. Bid awards are frequently delayed by appeals by the
losing parties or the Office of the Controller's efforts to regulate
government purchases and procedures. The aforementioned corruption
scandals (paragraph 8) both involved state monopolies. In the case
concluded in October, the convicted former President was the key
political lobbyist for a medical-supplies company that channeled
kickbacks to public officials for a social security contract. In
the other case, ex-President Rodriguez, still in office at the time,
allegedly received kickbacks from a company that had "won" a
contract with the state-owned telecommunications company.

-----------------
Additional Issues
-----------------

10. Expropriation: The Government of Costa Rica has expropriated
large tracts of rural land for national parks, biological reserves,
indigenous reservations, and public works projects during the past
30 years. The Costa Rican Constitution stipulates that no land can
be expropriated without prior payment and demonstrable proof of
public interest, but disputes often arise over title to the property
and the amount of compensation. Expropriation processes follow
clear legal processes (valuation, notification, appeal, etc.) but
often last far longer than the subjects of the expropriation feel to
be reasonable. Current and past governments have made some efforts
to resolve several pending expropriation cases involving U.S.
citizens, but long-standing cases remain and several new cases have
come to our attention. There are cases where arbitral awards by the
ICSID or by local arbitration in favor of U.S. citizens have been
honored. Out of 183 countries surveyed in the World Bank's "Doing
Business 2010" index, Costa Rica ranks 132 in "enforcing contracts"
and 165 in "protecting investors", which accurately reflects the
difficulties American investors experience in Costa Rica.

11. Other Free Trade Agreements and Adverse Effects: The GOCR has
free trade agreements with the following countries/groups (year in
which ratified): Panama (originally in 1973, updated 2008), Mexico
(1995), Canada (2001), Chile (2001), the Dominican Republic (2001),
CARICOM which comprises Antigua and Barbuda, Barbados, Belize,
Dominica, Grenada, Guyana, Jamaica, St. Kitts and Nevis, Saint
Lucia, St. Vincent's and the Grenadines, Suriname, and Trinidad and
Tobago (2005). None of these agreements appears to have had any
adverse effects on U.S. commerce. The Government of Costa Rica is
currently negotiating free trade agreements with China, Singapore,
and (together with its Central American neighbors) the European
Union.

12. Government Broadcasting: There are no government-owned
broadcasting entities that broadcast copyrighted materials without
the express consent of U.S. copyright-holders.

13. Extradition: Costa Rica does have an extradition treaty with
the U.S. and GOCR personnel work with Post personnel in arranging
extraditions.

14. Economic Review: Costa Rica has experienced significant
economic growth in recent years as it continues to pursue an
economic strategy based on trade liberalization and investment
promotion. While this growth trend has reversed with the current
global economic crisis, Costa Rica's economy nevertheless appears to
be more resistant to the downturn than those of some of its major
trade partners. Annual Foreign Direct Investment (FDI), which is
both a key indicator of investor confidence and an important driver
of export and tourism growth in the country, has grown continuously
since 2003 and reached USD 2.016 billion in 2008. The tourism and
export sectors have been particularly notable recipients of FDI in

recent years. Annual real GDP growth in recent years rose from 4.3
percent in 2004 to a high of 8.8 percent in 2006, down slightly in
2007 (7.8 percent) then down significantly to 2.6 percent in 2008.
The Central Bank estimates annual GDP growth for 2009 to be -1.3
percent -- and may dip lower than -2 percent -- while the investment
promotion agency CINDE estimates that FDI in 2009 may be down 30
percent.

The CAFTA-DR entry-into-force (EIF) January 1, 2009 is one of the
positive countercyclical factors working to dampen the effects of
the current global recession in Costa Rica. The telecommunications
and insurance sectors are both opening up to competition as a
consequence of commitments made by Costa Rica in the CAFTA-DR
framework and both market openings will likely provoke significant
investment and competitive activity. The Arias Administration is
also budgeting counter cyclical spending in 2009 and 2010 after
having posted a government budget surplus in 2007 and presided over
a major reduction in outstanding government debt as a percentage of
GDP.

15. Equitable and Reasonable Access for U.S. Goods: Through
implementation of CAFTA-DR, Costa Rica has assured the U.S. of its
commitment to provide equitable and reasonable access for U.S. goods
and services to its market. The Arias Administration continues to
conduct its commercial policy in a way consistent with its
commitments made under CAFTA-DR.

16. Export Subsidy, Export Performance or Local Content
Requirements: We know of no Costa Rican export subsidies or
performance requirements. Costa Rica does currently offer Free
Trade Zone incentives (see paragraph 3) and there are de-facto sugar
subsidies generated by a protected internal market. In either case,
Costa Rica is acting in a manner consistent with its international
commitments.

17. Contribution to CBI Region: Costa Rica continues to be the
leading example of economic and political stability in the Central
American region. Both CAFTA-DR and the pending trade agreement
between Central America and the European Union (EU) have helped
motivate the Central American countries to work together. However,
on the latter, progress is still slow due to political, historical,
and cultural differences both within the Central American block and
with the EU.

18. Self-Help Measures for Economic Development: The
Administration of President Oscar Arias (2006-2010) has pursued an
explicit policy of trade and business-friendly policies (successful
passage of CAFTA-DR) coupled with a strong social-welfare
orientation. An analysis of the 2007-2009 period reveals a notable
increase in spending on infrastructure, education, health, support
for workers, and the judiciary as a percentage of the total budget
(reftel B). The increases are remarkable when compared to budgets
of the previous administration (2003-2006 budgets) and considering
that an estimated 90 percent of the budget consists of mandated
expenses and debt payments. Much of this spending has been
presented conceptually as part of the so-called "complementary
agenda" to CAFTA-DR with such initiatives as improvement of customs'
clearing systems, roads and other infrastructure, and investment in
education and training to ensure the flourishing of small- and
medium-size businesses.

19. Administrative Cooperation with the U.S.: To our knowledge,
the GOCR has consistently communicated and cooperated with the U.S.
in addressing any issues that arise under the umbrella of bilateral
or multilateral agreements. The Ministry of Foreign Trade (COMEX)
is often the lead agency in coordinating any trade and investment
related disputes and has shown itself to be a reasonably responsive
agency.

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

20. Costa Rica continues as a responsible trade and political
partner with the U.S. While the country displays a series of
shortcomings -- notably in the intellectual property rights (IPR)
field and more generally in a lack of procedural efficiency -- it
has also made sustained efforts in a number of the areas of concern
highlighted in this cable. Worker rights, prevention of child
labor, anti-corruption, and anti-narcotics are all areas in which

Costa Rica has worked to improve. The recent Entry-Into-Force of
CAFTA-DR is a reaffirmation of the country's commitment to free
trade principles and continued close relations with its neighbors
and trade partners.

BRENNAN

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