Cablegate: Costa Rica and China Explore an Evolving Relationship


DE RUEHSJ #0985/01 3431811
R 091811Z DEC 09



E.O. 12958: N/A

REF: 07SANJOSE1173; 08SANJOSE133; 08 SAN JOSE 969; 09 SAN JOSE 389

1. (SBU) Summary: Costa Rica and China continue to strengthen their
marriage of convenience, increasing ties that are proving
beneficial for both countries. Of late, this has focused on the
negotiations surrounding a free trade agreement between the two
countries, which both governments hope to conclude in 2010. China
also continues to reward Costa Rica for establishing official
relations with the PRC in 2007, the only country in Central America
to have done so. However, various sectors of Costa Rican society,
including the business community and immigration officials, are
wary of tighter ties with the most populous country on earth. Even
if the pace of Chinese aid and investment slows after this grand
start, the GOCR sees its relationship with this ascending power as
an investment that will grow in value over the medium to long term.
End Summary.




2. (SBU) Both sides are currently focused on concluding the
negotiations over a free trade agreement (FTA). In early November
the two parties concluded the fifth round of negotiations over the
FTA, with the next and "final" round scheduled for February 2010.
However, there are still a number of issues that need to be worked
out before an agreement is reached, including agreement on
agricultural products, such as sugar and coffee.

3. (SBU) The Arias administration is pushing hard to conclude the
FTA though, which it sees as an important part of the Arias legacy.
Not content just to pass the controversial Central American Free
Trade Agreement (CAFTA-DR), Arias seems intent on 'doubling down'
on globalization by completing the only FTA with China in Central
America. However, negotiators for both China and Costa Rica
privately deem it unlikely that the FTA can be passed through Costa
Rica's Congress before Arias leaves office in May 2010. Most hope
that the agreement can at least be ready to present to Congress
before the change in administrations.

4. (SBU) The GOCR believes the conclusion of an FTA will boost
trade between the two countries, which at USD 1.5 billion in 2008
has already risen almost 2,000 percent over the past ten years.
(Note: In 2008 Costa Rica had a negative trade balance of 208
million with China. The value of Chinese trade is now 15 percent of
the value of U.S. - Costa Rican trade. End Note.) Costa Rica
hopes the FTA will allow them to import Chinese raw materials and
semi-finished goods before exporting finished goods to other
CAFTA-DR countries and Europe. However, some experts question how
much more trade can grow in the short term due to the size of the
Costa Rican market and additional constraints to trade (lack of
trade networks, language, market knowledge, visa restrictions,
etc.) The PRC's commercial/economic officer in San Jose recently
told us that he thought trade had possibly reached a plateau over
the past few years, and in fact projected a decrease for the 2009
numbers. A prominent academic we spoke with agreed, saying that
without much experience operating in Asia or language/cultural
knowledge, Costa Ricans would find it extremely difficult to access
China's market in the short term.




5. (SBU) One of the most visible outcomes of Costa Rica's
recognition of the PRC in 2007 is the ongoing construction of a
35,000-seat stadium to serve as the home of Costa Rica's national
soccer team. The PRC is paying for and building the USD 83 million
stadium. In addition, the PRC brought 800 Chinese nationals to
Costa Rica to complete the project on the western edge of downtown
San Jose. Another prominent "reward" for recognition was the PRC
donation of 200 police patrol cars in early 2009 (Taiwan had
previously donated equipment, including motorcycles and cars, to
the police). While the cars can often be seen roaming the streets
with prominently displayed PRC flags painted on their sides, the
Mazda-clones are of questionable quality. A contact at the PRC
embassy recently told us that five of the vehicles are already out
of commission, due, in part, to poor maintenance practices (Note:
Proper maintenance practices have often been a challenge for Costa
Rican law enforcement agencies. End Note.) He also commented,
"we'll see how many they're still using in a year."

6. (SBU) Additional PRC initiatives were linked to the November of
2008 visit of PRC President Hu Jintao (reftel C), including the
donation of USD 10 million to the GOCR for small business
development, the extension of 40 scholarships annually to Costa
Rican students to study in China (a program taken over from Taiwan)
and the planned modernization of a large oil refinery on Costa
Rica's Caribbean coast. This last project, estimated to cost up to
USD 1 billion (of which approximately half would be financed by
China, according to a PRC diplomat) is expected to begin in 2010 or
2011 and will triple the refinery's capacity to 60,000 barrels a

7. (SBU) For its part, China has also seen some limited returns on
its "investment" in Costa Rica. This has primarily centered on the
awarding of a USD 235 million GOCR contract to Huawei technologies
to modernize the state-run telecom company. PRC representatives
had also initially expressed an interest in oil exploration in
Costa Rica. However, nothing yet has come out of PRC oil interest
and the Arias administration has ruled out any additional
exploration indefinitely.




8. (SBU) Closer ties with China have also highlighted areas of
concern for various sectors in Costa Rica. Many within the local
business community continue to be fearful of cheap, imported goods
from the PRC. One businessman we spoke with also questioned the
GOCR's capacity to properly conduct quality control checks on
imported goods, citing his experience with the poor quality of
imported bridge materials. Though the Costa Rican Chamber of
Industries (CRCI) supported both CAFTA-DR and negotiations over an
FTA with the European Union, they have gone to considerable (and
sometimes absurd) lengths to oppose the China FTA. This has
included insisting that goods such as helicopters, circus
equipment, and vehicles be excluded from any FTA, in spite of the
fact that none of these items are currently produced in Costa Rica.
CRCI capped off their opposition by recently announcing they will
oppose the China FTA outright, along with any other new FTAs in the
near future.

9. (SBU) There are also some security issues that bear watching.
GOCR immigration officials, along with their counterparts in the
PRC, broke up a child-trafficking ring in late 2008 (reftel D)
which authorities said was run by the Chinese Snakehead mafia, with
the goal of bringing up to 300 minors to Costa Rica to work in
indentured servitude. Immigration officials remain concerned about
the possibility of additional Chinese smuggling or trafficking, to
the extent that they hosted a regional conference on the subject in
May 2009. In spite of Chinese complaints that the policy stifles
tourism and business travel, Costa Rica has kept the PRC in its
highest category of visa restriction and requires MFA-approval for

all visa applications.

10. (SBU) China has also often sought to conduct their affairs with
Costa Rica behind a veil of secrecy, and both diplomats and the
press have complained about the lack of transparency in PRC-GOCR
programs. A scandal emerged in 2008 over a USD 300 million bond
deal (China purchased the bonds from Costa Rica at only 2 percent
interest) which both countries tried to keep secret. Then, in
September of 2009, the PRC offered Costa Rica a USD 650,000
"donation" to attend a trade fair in Shanghai in 2010, with the
stipulation that the transaction remain confidential. After Costa
Rican press uncovered the story the GOCR announced that it would
not accept any agreement with China that had a confidentiality




11. (SBU) Chinese embassy officials with whom we recently spoke
(who all arrived to Costa Rica after the establishment of relations
two-and-a-half years ago), noted some differences from the rosy
picture of the bilateral relationship painted in the press. They
described Chinese tourism as almost non-existent, despite the PRC's
naming of Costa Rica as a 'preferred' tourist destination in the
Americas, and believed trade had already reached its peak-both
facts they blamed on the GOCR's visa policy. They also believed
the PRC and the roughly 10,000 Chinese citizens living in Costa
Rica were often unfairly criticized in the Costa Rican press (a
complaint we've heard before).




12. (SBU) China has handsomely rewarded Costa Rica for its 2007
recognition of the PRC. However, that assistance may have reached
its peak, since China now has delivered almost everything it
promised as part of that exchange. While there had initially been
talk that the PRC would use Costa Rica as a springboard towards
extending into the rest of Central America, a Chinese embassy
official recently told us he expected the thawing of relations with
Taiwan to put a hold on expansion in the short-term. However, with
the small size of the local market and lack of available natural
resources, Costa Rica's main utility to China still remains as an
example to Central America of the PRC's benevolence. This, along
with possible support in international fora and occasionally
favorable consideration of Chinese companies for GOCR contracts,
are the true "take-homes" the PRC can expect out of their
still-evolving relationship. Costa Rica has long maintained that
its recognition of China would not influence its focus on human
rights, but that position has not yet been put to the test.

13. (SBU) The GOCR sees China as a large source of donor aid and a
sizeable potential market for Costa Rican goods. The amount and
visibility of Chinese assistance in recent years dwarfs that of any
other country. The focus on concluding the FTA, in spite of the
objections of local industry, shows the GOCR's determination to
broaden Costa Rican trade away from a dependence on the U.S.
market. On the political front, building the relationship with
China has been a significant component of the Arias
administration's efforts to diversify its bilateral relationships:
increasing ties with Asian countries in recognition of that
region's growing influence on the world stage. Even if the pace of
Chinese aid and investment slows after this grand start, the GOCR
sees its relationship with this ascending power as an investment
that will grow in value over the medium to long term.

© Scoop Media

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