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### Viewing cable 05SANJOSE2658, COSTA RICA RESPONSE TO USTR REQUEST FOR INFO ON CBI-

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
05SANJOSE2658 | 2005-11-15 14:02 | 2011-03-03 16:04 | UNCLASSIFIED | 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 05 SAN JOSE 002658

    SIPDIS

    WHA/CEN
    EB FOR WCRAFT
    E FOR DEDWARDS
    WHA/EPSC FOR KURS
    STATE PASS TO USTR FOR RSMITH

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

    REF:  SECTATE 188288

    ¶1.  SUMMARY: Post has updated information provided in
    previous report using the same format.  Post contact is
    Maria D. Villanueva, (506) 519-2419, Fax (506) 519-2364,
    villanuevamd@state.gov.  End Summary.

    ¶2.  Country Reports: Compliance with Eligibility Criteria

    The country reports contained in this section focus
    particular attention on current performance of CBI countries
    with respect to the eligibility criteria reflected in the
    CBTPA, as the most recent expression of U.S. policy
    objectives linked to the extension of CBI benefits.  The pre-
    existing eligibility conditions of the CBERA are also
    reflected in the country reports, where relevant.

    ¶3.  Costa Rica
    Population: 4,178,755 (Jul 2004)
    Per Capita GDP: $4,204

    Central Bank of Costa Rica (2004)
    Trade Statistics:

    U.S. Exports: $3,725,000,000
    U.S. Imports: $3,741,000,000
    U.S. Trade Balance: -$17,700,000
    Central Bank of Costa Rica Data

    ¶4.  Economic Review: Costa Rica has continued to pursue an
    economic strategy based on trade liberalization and
    investment promotion.  This strategy has led to
    diversification of the economy away from traditional
    dependence on agricultural products, such as bananas and
    coffee, and towards tourism; services, such as call centers;
    and manufactured industrial goods, such as semiconductors.
    However, during the five-year period from 2000 through 2004,
    average GDP growth dropped to 3.1 percent per year, compared
    to a 5.4 percent annual growth from 1995 to 1999.  The
    current rate is insufficient to prevent a creeping rise in
    unemployment, despite a thriving export sector.  Among the
    problems currently encountered by the Costa Rican economy
    are continued double-digit inflation rates, and stagnant
    real family incomes and per capita GDP figures.  Costa Rica
    has an ineffective tax system that has not raised sufficient
    funds to build or even maintain the necessary infrastructure
    to take advantage of CBI opportunities.  Out of 155
    countries surveyed in the World Bank's "Doing Business"
    index, Costa Rica ranks 129 in "paying taxes".  Costa Rican
    policies during this administration have led to a decline in
    competitiveness.  This decline is reflected by a drop of 14
    places between 2004 and 2005 in the most recent World
    Economic Forum Growth Competitiveness Index.

    The United States supplied 45 percent of Costa Rican imports
    and absorbed 59 percent of Costa Rican exports in 2004.  The
    tourism sector is the principal earner of foreign currency,
    and tourists from the U.S. far outnumber those from other
    countries.  The United States remains by far the largest
    foreign investor in Costa Rica.  The U.S.-Cental American-
    Dominican Republic Free Trade Agreement (CAFTA-DR)
    negotiations concluded on January 24, 2004, the agreement
    was signed on August 8, 2004 and the President of Costa Rica
    sent the bill to the Legislative Assembly for ratification
    on October 21, 2005.  The GOCR will likely not be able to
    complete the ratification process and pass all the necessary
    implementation laws before the second half of 2006, meaning
    Costa Rica will join CAFTA-DR sometime after it has already
    come into force for all other partners.

    ¶5.  Commitment to the World Trade Organization (WTO) and
    Free Trade Area of the Americas (FTAA): 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.  Companies established in
    duty-free exporting zones are scheduled to begin paying
    taxes in 2007 although they can request an additional two
    year extension.  Costa Rica has been supportive of
    multilateral trade liberalization through negotiations in
    both the WTO and the FTAA.  Currently, Costa Rica serves as
    the Chair of the Working Group on Transparency in Government
    Procurement Practices.  In the FTAA negotiations, Costa Rica
    is currently the Chair of the Government Procurement
    Negotiating Group and served as Chair of the Dispute
    Settlement Negotiating Group from 1999-2001.  The majority
    of the staff of the Costa Rican Ministry of Foreign Trade
    left between late-2004 to mid-2005, which has affected the
    Ministry's operational capabilities.

    ¶6.  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
    being named a Priority Watchlist Country 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.

    However, since that earlier push to combat IPR violations,
    progress has stalled.  The GOCR does not have the 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 completely on the
    victim of the crime, i.e., the victim not only has to
    investigate the violation 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.  Piracy of pharmaceuticals is a concern as the large
    majority of the drugs purchased by the Costa Rican Social
    Security System are generics and Costa Rica does not have
    the capability to test for bioequivalence.  IPR protection
    is covered under CAFTA-DR chapter 15, but Costa Rica's IPR
    obligations will require much more attention whether or not
    CAFTA-DR is ratified.

    ¶7.  Provision of Internationally Recognized Worker Rights:
    The Costa Rican Constitution protects the right to organize.
    Specific provisions of the 1993 Labor Code reforms provide
    protection from dismissal for union organizers and members
    during union formation, including reinstatement for workers
    who were unfairly dismissed.  Courts order reinstatement as
    appropriate under Costa Rican law, although employers do not
    always comply with such orders.  Labor courts and case
    backlogs have been significantly reduced as a result of
    additional shifts, including night-shift work, the
    appointment of more labor court judges, and a center for
    alternative dispute resolution that operates in San Jose.
    However, the Costa Rican judicial system can further benefit
    from efforts to expedite cases, redress procedures, and
    increase efficiency.  Costa Rican labor leaders claim that
    stronger remedies for retaliatory dismissals of trade
    unionists would advance trade unions in the country.

    According to the Labor Ministry the rate of unionization is
    53 percent in the public sector and 6 percent in the private
    sector, with an overall rate of 12 percent.  Currently,
    public sector bargaining is governed by a provisional
    regulation that requires collective agreements to be
    reviewed by a commission of state officials, making approval
    contingent on the impact of the agreement on the national
    budget.

    With regard to the issue of public sector collective
    bargaining, the International Labor Organization (ILO)
    Committee of Experts on the Application of Conventions and
    Recommendations (CEACR) has encouraged Costa Rica to ratify
    ILO Conventions 151 and 154.  In May 2002, the Government of
    Costa Rica proposed legislation to expand and guarantee the
    right to bargain collectively in the public sector and in
    April 2003 the Government proposed the ratification of ILO
    Conventions 151 and 154.  To date the Costa Rican
    Legislative Assembly has failed to enact either the
    legislation or the ILO Conventions.

    The ILO conducted a labor law study at the invitation of the
    Costa Rican government in 2003.  The study entitled,
    "Fundamental Principles and Rights at Work: A Labour Law
    Study" documented that Costa Rican law specifies the rights
    of workers to join unions of their choosing without prior
    authorization, and workers exercise this right in practice.
    Unions operate independently of government control.  The law
    prohibits discrimination against union members and imposes
    sanctions against offending parties.  In practice, however,
    labor organizations complain that employers, especially in
    the private sector, regularly fire workers for joining
    unions.  Due to extensive backlog and outdated case
    management, labor dispute resolution within the Ministry of
    Labor frequently takes up to ten years to complete.  As a
    result, according to union officials, employers regularly
    restrict employees' access to unions or dismiss workers
    without cause with little fear of official sanction, since
    few workers can maintain a dispute for eight years.

    The ILO, in conjunction with the University of Costa Rica
    and the Costa Rican Supreme Judicial Court, recently
    proposed legislation to update the country's labor law to
    streamline the labor dispute resolution process, encourage
    alternative dispute resolution, and ease restrictions on
    collective bargaining and strikes.

    The GOCR is engaged in labor cooperation initiatives to
    increase the capacity of the Labor Ministry and to better
    protect worker rights.  These initiatives include a regional
    project in Central America funded with a fiscal year 2004
    grant of $6.75 million from the U.S. Department of Labor to
    increase workers' and employers' knowledge of labor laws,
    strengthen labor inspections systems, and create and bolster
    alternative dispute resolution mechanisms.
    The Costa Rican Constitution prohibits forced or bonded
    labor, and there have not been any reports that such labor
    has occurred.  Laws specifically prohibit forced and bonded
    labor by children, and the government enforces this
    prohibition effectively.  The minimum age of legal
    employment in Costa Rica is 15 years.

    The Costa Rican Constitution provides for a minimum wage by
    occupation that is set by the National Wage Council.  The
    Ministry of Labor effectively enforces minimum wages in the
    San Jose area, but is less effective in rural areas,
    especially those where large numbers of migrants are
    employed.  The national minimum wage does not provide a
    decent standard of living for a worker and family.

    The Constitution sets maximum workday hours, overtime
    remuneration, days of rest, and annual vacation rights.
    Generally, workers may work a maximum of eight hours during
    the day and six at night, up to weekly totals of 48 and 36
    hours, respectively.

    Nonagricultural workers receive an overtime premium of 50
    percent of regular wages for work in excess of the daily
    work shift.  The law on health and safety in the workplace
    requires industrial, agricultural, and commercial firms with
    10 or more employees to establish a joint management-labor
    committee on workplace conditions and allows the government
    to inspect workplaces and to fine employers for violations.

    Inspection and enforcement of labor violations are the
    responsibility of the Inspections Directorate of the
    Ministry of Labor.  Officials within the directorate
    acknowledge that their operations and effectiveness are
    severely hampered by a lack of resources.  While the office
    represents one of the most widely dispersed agencies within
    the Costa Rican government, with 31 offices located
    throughout the country, most offices are under-staffed,
    poorly equipped and isolated.  As a result, inspectors focus
    primarily on large businesses within the formal labor
    sector.  Inspectors lack the resources to effectively police
    small enterprises and the informal labor sector but few of
    these enterprises export items covered by CBI preferences.

    ¶8.  Commitments to Eliminate the Worst Forms of Child Labor:
    Costa Rica is serious about addressing the issue of the
    worst forms of child labor, and President Pacheco has been
    very public in his concern for child welfare.  Costa Rica
    ratified Resolution 138 of the ILO in 1974.  In July 2001,
    the Legislative Assembly ratified Resolution 182 of the ILO
    related to eliminating the worst forms of child labor,
    including the sexual exploitation of children.  The
    government has also established a national committee to
    oversee the efforts to combat child labor and has signed a
    Memorandum of Understanding with ILO-IPEC.  Responsibility
    for child welfare and labor enforcement is shared among
    several ministries and directorates, coordinated under the
    National Committee on Child and Adolescent Labor.  The
    Ministries of Labor, Education, Health and Children's Issues
    are all represented on the committee.  The Office for the
    Eradication of Child Labor and Protection of the Adolescent
    Worker (OATIA), an office within the Ministry of Labor, has
    principal responsibility for drafting and implementing
    action strategies and education programs.

    In August 2003, the Government of Costa Rica and the ILO
    released a joint, comprehensive report financed by the U.S.
    Department of Labor entitled "Results of the Survey of Child
    Labor and Adolescents in Costa Rica."  According to the
    report, of the 1,113,987 children and adolescents between
    the ages of 5 and 17 in Costa Rica, 127,077 or 11.4 percent
    are employed or looking for work.
    This year, the OATIA issued its second National Action Plan
    for the period 2005-2010.  Drafted in conjunction with some
    twenty governmental offices and NGOs the plan ambitiously
    seeks to eradicate child labor in Costa Rica by 2010 through
    implementation of eight rights-based goals.  Each general
    goal is accompanied by specific goals, strategies and action
    plans calling for significant involvement and contribution
    from diverse child governmental agencies and NGOs.  Among
    the strategies to be implemented are training of teachers,
    parents and labor inspectors, detailed regional information
    gathering, and aggressive poverty-reduction campaigns.  In
    addition, the Government of Costa Rica has a number of
    social programs to reduce the causes of child labor.  These
    programs include providing small loans and economic aid to
    families with at-risk children and scholarships for poor
    families to cover the indirect costs of attending school.

    Due to an underfunded and poorly equipped inspections
    regime, child labor remains an issue mainly in the informal
    sector of the economy, including small-scale agriculture,
    domestic work, and family-run micro-enterprises.  Sex
    tourism is actively discouraged and enforcement has been
    strengthened, either by prosecution and lengthy imprisonment
    of U.S. citizen offenders in Costa Rica or their capture and
    deportation for punishment in the U.S., yet child
    prostitution remains a problem, and more resources would
    improve enforcement.

    ¶9.  Counter-Narcotics Cooperation: Costa Rica is a
    transshipment point for the smuggling of cocaine and heroin
    from South America to the United States and Europe.  Costa
    Rican law enforcement officials are fully cooperating 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.

    ¶10.  Implementation of the Inter-American Convention Against
    Corruption (IACAC): Costa Rica has ratified the IACAC.
    Domestic law imposes a requirement that senior government
    officials file personal financial reports while in office.
    In 2002, the Government of Costa Rica commissioned a study
    to monitor implementation of the IACAC and to issue
    recommendations for further actions.

    The GOCR has taken legal steps to combat alleged corruption
    involving two ex-presidents who are charged with having been
    involved in two different corruption/kickback schemes.  The
    cases are still pending after more than a year of
    investigation.  As a result of these charges, the
    Legislative Assembly passed a law in 2004 to strengthen the
    government's anti-corruption efforts.

    ¶11.  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 Contraloria General's efforts to
    regulate government purchases and procedures.  The
    aforementioned corruption scandals both involved state
    monopolies.  In one case, alleged kickbacks came from a
    company that had "won" a contract with the state-owned
    telecommunications company, and the other, embezzlement of
    funds from the social security system.  CAFTA-DR will allow
    competition in both of these sectors thereby lessening
    opportunities for corruption.

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    Additional Issues
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    ¶12.  Expropriation: The Government of Costa Rica has
    expropriated large tracts of rural land for national parks,
    biological reserves and indigenous reservations 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
    frequently arise over title to the property and the amount
    of compensation with some cases dragging on for over 30
    years.  Current and past governments have made some efforts
    to resolve several pending expropriation cases involving
    U.S. citizens, but long-standing cases remain.  Out of 155
    countries surveyed in the World Bank's "Doing Business"
    index, Costa Rica ranks 141 in "enforcing contracts" and 134
    in "protecting investors" which accurately reflects the
    difficulties American investors experience in Costa Rica.
    There are cases where arbitral awards by the ICSID or by
    local arbitration in favor of U.S. citizens have heen
    honored.

    ¶13.  The GOCR has free trade agreements with the following
    countries/groups (year in which ratified): Panama (1973),
    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. Vincents 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 FTA with CARICOM could result
    in a lowering of prices of products such as certain fruits
    and vegetables in the CARICOM countries and, likewise,
    provide another market for CARICOM-produced items.  This
    would seem to support CBI goals.

    ¶14.  Costa Rica does have an extradition treaty with the
    U.S. and GOCR personnel work with Post personnel effectively
    in arranging extraditions.

    ¶15.  There are no government-owned broadcasting entities
    that broadcast copyrighted materials without the express
    consent of U.S. copyright-holders.

    ¶16.  Regarding the extent to which Costa Rica has assured
    the U.S. it will provide equitable and reasonable access
    for U.S. goods and services to its market (and the question
    of whether the country is undertaking self-help measures to
    promote its own economic development), the ratification and
    implementation of CAFTA-DR and its associated
    "complementary agenda" are the best indicator.

    The series of coordinated projects known as the
    complementary agenda to CAFTA-DR includes many self-help
    initiatives to improve customs' clearing systems, roads and
    other infrastructure, and investing in education and
    training to ensure the flourishing of small- and medium-
    size businesses.  A request to approve funding of these
    projects by loans from the World Bank (WB), the Inter-
    American Development Bank (IDB), and the Central American
    Bank for Economic Integration (BCIE) is currently being
    reviewed by the Legislative Assembly.

    ¶17.  The GOCR is cooperating with the U.S. in the
    administration of CBERA.  As an example, auditors from the
    Department of Homeland Security's Immigration and Customs
    Enforcement Agency recently completed an inspection in
    country.  The Ministry of Foreign Trade, Customs Agency,
    and the quasi-governmental Costa Rican Textile Chamber
    provided unfettered access and helpful assistance to the
    inspectors.

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    COMMENT
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    ¶18.  Costa Rica is a country that is benefiting greatly from
    CBI.  In general, the country has made progress since CBI
    came into force in 1984 toward freer trade and lower
    barriers.  However, the ratification of CAFTA-DR should be
    taken as the key indicator on whether that process will
    continue or whether progress in lowering trade barriers has
    stalled.
    LANGDALE

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