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### Viewing cable 05SANJOSE1828, PRESIDENT'S PARTY PUBLICLY SUPPORTS CAFTA-DR, BUT

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
05SANJOSE1828 | 2005-08-11 13:01 | 2011-03-03 16:04 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy San Jose

Appears in these articles:
http://www.nacion.com/2011-03-03/Investigacion/NotasDestacadas/Investigacion2697430.aspx
http://www.nacion.com/2011-03-03/Investigacion/NotaPrincipal/Investigacion2697496.aspx
http://www.nacion.com/2011-03-03/Investigacion/NotasSecundarias/Investigacion2697489.aspx
http://www.nacion.com/2011-03-03/Investigacion/NotasSecundarias/Investigacion2697532.aspx
http://www.nacion.com/2011-03-03/Investigacion/NotasSecundarias/Investigacion2697535.aspx
http://www.nacion.com/2011-03-03/Investigacion/NotasSecundarias/Investigacion2701964.aspx
http://www.nacion.com/2011-03-03/Investigacion/Relacionados/Investigacion2701965.aspx

`

    This record is a partial extract of the original cable. The full text of the original cable is not available.

` `

    UNCLAS SECTION 01 OF 03 SAN JOSE 001828

    SIPDIS

    SENSITIVE

    WHA/CEN
    EB FOR WCRAFT, BLAMPRON
    E FOR DEDWARDS
    WHA/EPSC FOR KURS, LGUMBINER
    STATE PASS TO USTR FOR RVARGO, CPADILLA, AMALITO

    E.O. 12958: N/A
    TAGS: ETRD ECPS ECON PREL PGOV SOCI CS
    SUBJECT: PRESIDENT'S PARTY PUBLICLY SUPPORTS CAFTA-DR, BUT
    OUTLOOK FOR NECESSARY IMPLEMENTATION LEGISLATION UNCLEAR

    REF:  (A) SAN JOSE 01774

          (B) SAN JOSE 01639

    ¶1.  (U) Summary.  Members of President Pacheco's Social
    Christian Unity Party (PUSC) are publicly urging him to
    send the United States-Central American-Dominican Republic
    Free Trade Agreement (CAFTA-DR) to the Legislative Assembly
    as soon as possible, despite the continued failure to pass
    the Fiscal Reform bill (Note: President Pacheco has made
    passage of fiscal reform a condition for his sending CAFTA-
    DR to the Assembly for ratification [Ref A]).  PUSC
    representatives also requested that the Administration send
    the necessary CAFTA-DR-related legislation; including bills
    to allow competition in the telecommunications and
    insurance markets.  Currently, these industries are run by
    the state-owned monopolies, the Costa Rican Institute of
    Electricity (ICE) and the National Institute of Insurance
    (INS), respectively.  The gradual opening of these markets
    to competition is required to implement the trade
    agreement.  Other legislation, although not required to
    implement CAFTA-DR, is necessary to increase the global
    competitiveness of Costa Rican companies.  End Summary

    ¶2.  (U) After meeting on August 8, 2005, the PUSC Assembly
    members (deputies) officially gave a "public vote of
    support" to CAFTA-DR.  They also urged the President to
    send the trade agreement and information about the
    complementary agenda to the Assembly.  "We have always been
    respectful of the Administration and its decisions, but we
    believe that it is necessary to be able to move forward on
    this issue in Congress," said Lillian Salas, PUSC deputy
    and party leader, after the meeting with her fellow
    deputies.  The PUSC deputies also want to discuss the
    legislative projects related to implementation of CAFTA-DR,
    such as those opening the telecommunications and insurance
    markets to competition.

    --------------------------------------------- -----------
    Legislation Required to Implement CAFTA-DR in Costa Rica-
    THE PARALLEL or IMPLEMENTATION AGENDA
    --------------------------------------------- -----------

    ¶3.  (U) The proposed legislation that will open the
    telecommunications and insurance markets to competition as
    required by CAFTA-DR has not yet been sent to the Assembly.
    The Administration has referred to these projects as the
    "parallel agenda" or the "implementation agenda" to CAFTA-
    DR - that legislation that must be completed to comply with
    the requirements of CAFTA-DR.  Based on various sources,
    including personnel within the GOCR, the telecommunications
    legislation, known as the "Telecommunications Act," is
    being managed by the Ministries of Foreign Trade (COMEX)
    and Finance with input from the various interested parties
    such as ICE.  Reportedly, neither legislative project has
    been finalized by the Administration.  Gilberto Barrantes,
    the Economy Minister and new Coordinator of the President's
    Economic Council, stated that he expects a first draft of
    the Telecommunications Act this week.  However, he called
    attention to the importance of moving forward on the
    proposed Law to Strengthen and Modernize ICE (see paragraph
    7).

    ¶4.  (U) One month ago, Finance Vice Minister David Fuentes
    told Econoff that the insurance and telecommunications
    legislation would be sent to the Assembly by the end of
    August 2005.  However, lack of progress on the
    Telecommunications Act has caused a delay.  Finance
    Minister Federico Carrillo stated that he expects the
    telecommunications legislation to be presented in November
    and maintains that the insurance legislation will be ready
    in August.  COMMENT:  It is clear that the
    telecommunications legislation is more complex and
    politically sensitive than the insurance legislation.
    However, the need to proceed in the telecommunications
    arena is, arguably, more urgent because, under CAFTA-DR,
    the opening of the telecommunications market starts on
    January 1, 2006, while January 1, 2008 marks the opening of
    the insurance market.  END COMMENT.

    --------------------------------------------- --
    Legislation to Improve Global Competitiveness -
    THE COMPLEMENTARY AGENDA
    --------------------------------------------- --

    ¶5.  (U) Other legislation that is not required to implement
    CAFTA-DR, but is necessary to ensure Costa Rica can take
    advantage of the opportunities created by the agreement, is
    referred to as the "complementary agenda" (Ref B).  To
    date, we have been told by the GOCR that the complementary
    agenda will focus on upgrading infrastructure (mostly rural
    roads and highways) and increasing the competitiveness of
    small- and medium-size enterprises.  Costa Rica has
    arranged for approximately USD 209 million of funding for
    these initiatives with the majority of the resources being
    provided by a USD 117 million loan from the Inter-American
    Development Bank (IDB).

    ¶6.  (U) Other smaller loans will be provided by the World
    Bank and the Central American Bank of Economic Integration
    (BCIE) to fund education projects and improve customs
    systems, respectively (Ref B).  COMMENT:  Legislative
    Assembly approval of these loans is necessary prior to
    disbursal of funds.  To date, no legislation has been
    provided to the Assembly on any of these loans.  However,
    based on information provided to Econoff, the necessary
    legislation should be sent to the Assembly within the next
    two months.  END COMMENT.

    --------------------------------------------- --------
    THE STATUS OF THE LAW TO STRENGTHEN AND MODERNIZE ICE
    --------------------------------------------- --------

    ¶7.  (U) At the time that Costa Rican negotiators signed
    CAFTA-DR in May 2004, it was assumed and reflected in the
    text of the agreement that Costa Rica would pass a Law to
    Strengthen and Modernize ICE by December 31, 2004.  The
    Costa Rican negotiators inserted this requirement into the
    agreement to enact a law to give ICE sufficient autonomy
    and resources to be able to compete against potential
    competitors in an open telecommunications market.  The
    proposed law was introduced in the Assembly prior to the
    signing of CAFTA-DR and was referred for review to the
    Assembly's Special Mixed Commission for ICE, consisting of
    deputies from various parties as well as consultants from
    inside and outside the GOCR.  This Commission is currently
    studying the bill and deciding whether it should be
    referred to the Assembly floor for a vote.

    ¶8.  (U)  The bill has been stuck in the Commission because
    of difficulties surrounding the issues of: (1) distribution
    of spectrum frequencies; (2) the amount of taxes, if any,
    that ICE will pay to the GOCR; and (3) how the rights to
    concessions for use of natural resources will be handled.
    There are some members of this commission, such as Gloria
    Valerin, a PUSC deputy and President of the Special Mixed
    Commission, who would like the bill passed in its current
    form, which would give ICE unprecedented autonomy and
    special treatment such as rights to most, if not all, of
    the spectrum of mobile telecommunications frequencies and
    exemption from paying taxes.  There are other members of
    the Commission, such as Libertarian Movement deputy
    Federico Malavassi, who are reluctant to give ICE such
    special treatment, which they believe would reduce the
    likelihood of any real competition in telecommunications.
    COMMENT:  Eladio Gonzalez, Adviser to the Commission and a
    legal expert who wrote the legislation, told Econoff that
    if the Telecommunications Act is completed correctly, i.e.,
    a clear regulatory framework is constructed and a strong
    and unbiased regulator is established, the passage of the
    ICE Modernization bill would not conflict with the
    requirements of CAFTA-DR.  END COMMENT.

    ¶9.  (U) Valerin, stated, "We will not give an inch.  If
    they want the complementary agenda, they should approve the
    strengthening (of ICE).  We are not going to permit the
    weakening of ICE in this project."  COMMENT:  Post believes
    that the proposed law in its current form and depending on
    the final Telecommunications Law that will be passed, may
    result in the inability of Costa Rica to comply with the
    equal treatment provisions required by CAFTA-DR.  The parts
    of the bill that may cause these problems coincide with
    those issues already identified in the Mixed Commission's
    review.  END COMMENT

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

    ¶10.  (SBU) One key aspect of the legislative projects
    associated with the parallel or implementation agenda
    should be the creation of a new entity or strengthening of
    an existing organization that is independent and capable of
    competently regulating the telecommunications and insurance
    industries.  This is important to ensure that all potential
    competitors are treated equally and have the same
    opportunities to access the markets, as required by the
    spirit and letter of CAFTA-DR.  This is no small task since
    the GOCR has very little experience in regulating
    competitive markets, and the most likely regulator, the
    Regulatory Authority of Public Services (ARESEP), is not
    considered effective in regulating much simpler sectors.
    In addition, ARESEP has its hands full with regulating
    everything from taxi fares to gasoline prices.

    ¶11.  (SBU) The pressure to send CAFTA-DR and all related
    legislation required for its implementation is mounting,
    and it is now clear that if CAFTA-DR were sent to the
    Assembly today, there would be enough votes to pass it.
    However, many knowledgeable people doubt whether the
    Assembly has the ability to create the necessary
    legislation to fulfill commitments made in the agreement
    (especially in the telecommunications sector) or the
    commitment to try to do so in a timely manner.
    KAPLAN

`