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### Viewing cable 07SANJOSE1963, COSTA RICA RESPONSE TO USTR REQUEST FOR INFO ON

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
07SANJOSE1963 | 2007-11-07 22:10 | 2011-03-02 16:04 | UNCLASSIFIED | Embassy San Jose
Appears in these articles: http://www.nacion.com/2011-03-02/Investigacion.aspx

`

    VZCZCXYZ0002
    RR RUEHWEB

    DE RUEHSJ #1963/01 3112235
    ZNR UUUUU ZZH
    R 072235Z NOV 07
    FM AMEMBASSY SAN JOSE
    TO RUEHC/SECSTATE WASHDC 9168
    INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
    RUEATRS/DEPT OF TREASURY WASHINGTON DC

` `

    UNCLAS SAN JOSE 001963

    SIPDIS

    STATE PASS TO USTR FOR KSHIGETOMI
    STATE PASS TO USITC FOR LSCHLITT
    STATE PASS TO EXIMBANK FOR CREQUE
    STATE PASS TO FEDERAL RESERVE MIAMI BRANCH MANIERO
    TREASURY FOR SARA GRAY

    SIPDIS

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

    REF:  SECTATE 143212

    ¶1.  The following is Post's response to Reftel's enquiries.
    Questions can be directed to Econoff Steven Bitner, (506)
    519-2502, Fax (506) 519-2364, bitnesr@state.gov.

    ¶2.  Costa Rica
    Population: 4,299,234 (Dec 2006)
    Per Capita GDP: $5,050 (2006)

    Department of Commerce Trade Statistics (2006):

    U.S. Exports: $4,132,405,740
    U.S. Imports: $3,844,274,625
    U.S. Trade Balance: +$288,131,116

    ===============
    Economic Review
    ===============

    ¶3.  Over the last two years Costa Rica has experienced
    significant economic growth, with foreign direct investment
    (FDI) and exports serving as the fuel for the economy.
    With GDP growth rising from 4.3% in 2004 to 5.9% in 2005
    and hitting an estimated 8.2% in 2006, the country is
    experiencing the positive side effects of economic
    expansion including the lowest poverty level in 30 years
    and an unemployment rate of 4.6%.  Over the last two years
    Costa Rican exports have grown 30.2%, from $6,301 million
    in 2004 to $8,207 million in 2006.  Over the same
    timeframe, exports to the U.S., most of which enter under
    CBI/CBERA/CBTPA benefits, have increased 15% percent, from
    USD 3,332 million in 2004, to USD 3,844 million in 2006.
    The influx of FDI also plays a significant role in the
    economy, with FDI totaling USD 1,410 million in 2006 and
    U.S. FDI accounting for 80.4% of the total (excluding real
    estate).

    ¶4.  Costa Rica's ratification of the Central American Free
    Trade Agreement (CAFTA-DR) in a nationwide referendum in
    October 2007 sets the stage for continued economic growth.
    After protracted and unproductive discussions on CAFTA-DR
    dragged on in the Costa Rican Legislative Assembly
    (Asamblea) for a year and a half, the Costa Rican
    government circumvented the legislative process by
    submitting the ratification of the agreement to a national
    referendum.  This was the first referendum in Costa Rica's
    history, as well as the first FTA ever submitted to a
    referendum, and generated enormous interest in issues
    related to trade, intellectual property rights,
    telecommunications, and insurance among the Costa Rican
    electorate.  On the day of the referendum 59.24% of the
    electorate participated with 805,658 (51.6%) voting in
    favor of ratification and 756,814 (48.4%) voting against.
    Costa Rica now faces the daunting task of implementing the
    necessary laws and regulations to become compliant with its
    CAFTA-DR obligations before March 1, 2008.  Opposition
    political figures, union leaders, and a number of academics
    have proclaimed they will continue to fight passage of
    these laws and regulations, despite having lost the
    referendum which ratified the deal.  In fact, opposition
    supporters continue to congregate daily in the public
    gallery of the Asamblea and attempt to disrupt CAFTA-DR
    legislative proceedings.

    ¶5.  Although the country has made progress in several
    fronts over the last two years, challenges to the Costa
    Rican economy remain.  Despite improvements, the country
    still faced double-digit core inflation rates of 11.0% in
    2004, 14.6% in 2005 and 10.6% in 2006.  Although Costa
    Rica's tax system has seen improvement in collections with
    the advent of a new automated customs system and assistance
    from the United States Treasury, problems remain in
    simplifying the tax regime and collecting revenue.  In the
    World Bank's "Doing Business" index, Costa Rica dropped to
    162nd out of 178 countries in "paying taxes."

    =========================================
    WTO Obligations and Free Trade Agreements
    =========================================

    ¶6.  Commitment to Undertake WTO Obligations and Participate
    in Completion of a Free Trade Agreement: Costa Rica
    participates as an active member of the WTO, taking its
    Uruguay round commitments seriously and participating in
    discussions to move Doha round issues forward.  While in
    2000 Costa Rica ceased granting financial investment
    subsidies and tax holidays to new exporters, it continues
    to rely on duty-free exporting zones to attract foreign
    direct investment. Companies established in duty-free
    exporting zones were originally scheduled to begin paying
    taxes in 2007 but were allowed a two-year extension, if
    requested.

    ¶7. In addition to its attempts to ratify and implement
    CAFTA-DR, the Costa Rican government is also pursuing trade
    discussions with the European Union (EU).  These multi-
    lateral discussions between the Central American countries
    and the EU stalled during the run-up to the Costa Rican
    referendum on CAFTA-DR but the first round of discussions
    took place the week of October 22 in San Jose.  The second
    round has been scheduled for February, in Brussels.

    ==========================================
    Protection of Intellectual Property Rights
    ==========================================

    ¶8. Costa Rica is due to pass several important laws to
    improve its intellectual property rights (IPR) regime in
    order to become CAFTA-DR compliant.  The ratification and
    implementation of the International Convention for the
    Protection of New Varieties of Plants (UPOV) and the
    Budapest Agreement will bring the country closer to
    international IPR norms.  Under its CAFTA-DR obligations,
    the country's criminal penalties must serve as a sufficient
    deterrent against IPR violations.  It remains to be seen
    whether Costa Rica's legislature will pass the needed laws
    to strengthen the country's IPR regime sufficiently to meet
    its CAFTA-DR obligations.

    ¶9. Updating its laws, however, will likely not address the
    larger issue of a lack of general enforcement of IPR.  The
    Attorney General for the Government of Costa Rica has not
    made IPR enforcement a priority due to a lack of 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, must 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.  As a result of the deficiencies
    in enforcement, Costa Rica continues to remain on the
    Special 301 Watch List, a position it has maintained since
    ¶2002.

    ============================================= ========
    Provision of Internationally Recognized Worker Rights
    ============================================= ========

    ¶10. 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.  Unfortunately, there are no specific tools to
    enforce reinstatement.  Additionally, the backlog has
    inched up in the past few years and the average labor
    dispute case takes 3 to 4 years to be resolved. Two centers
    for alternative dispute resolution are operating in San
    Jose and more are planned for the Southern end of the
    country in San Isidro del General and for the Caribbean
    region, in Limon, to be operational by the end of 2007.  A
    labor reform project is currently in Costa Rica's
    Legislative Assembly but its progress is slow.  Costa Rican
    labor leaders rightfully claim that stronger remedies for
    retaliatory dismissals of trade unionists would advance
    trade union interests in the country.

    ¶11. According to the most recent July 2007 report of the
    Labor Ministry the rate of unionization is 36 percent in
    the public sector and 4.5 percent in the private sector,
    with an overall rate of 9 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.

    ¶12. 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.

    ¶13. 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 takes
    an average of 3-4 years and some cases have taken up to 13
    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 such an extended period of time.

    ¶14. The GOCR is engaged in labor cooperation initiatives to
    increase the capacity of the Labor Ministry and to better
    protect worker rights.  These initiatives included 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.  In Costa Rica this cooperation ended in 2007,
    although the project continues for the other Central-
    American countries.

    ¶15. 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.

    ¶16. 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.

    ¶17. 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.

    ¶18. 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.

    ============================================= ==========
    Commitments to Eliminate the Worst Forms of Child Labor
    ============================================= ==========
    ¶19. Costa Rica is serious about addressing the issue of the
    worst forms of child labor, and President Arias has been
    vocal 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.  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. There are no current figures
    available at this time.

    ¶20. Due to an under-funded 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.

    =============================
    Counter-Narcotics Cooperation
    =============================

    ¶21. While the President has not identified Costa Rica as a
    major illicit drug transit or producing country under the
    provisions of the FOAA, Costa Rica functions as a
    transshipment point for the smuggling of cocaine and heroin
    from South America to the United States and Europe.  Costa
    Rican law enforcement officials fully cooperate with U.S.
    counter-narcotics efforts.  To date, this cooperation has
    resulted in the capture of over 40 tons of cocaine
    transiting through the country or its territorial waters in
    ¶2007.  In 2006, Costa Rica captured what then was a record
    amount of 25.5 tons of cocaine.

    =======================
    Implementation of IACAC
    =======================

    ¶22. Costa Rica ratified the Inter-American Convention
    Against Corruption (ICAC) in 1997. Domestic law imposes a
    requirement that senior government officials file personal
    financial reports while in office. 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 two years of investigation.  As a
    result of these charges, the Legislative Assembly passed a
    strict anti-corruption law in 2006 to further strengthen
    the government's anti-corruption efforts.

    ======================================
    Transparency in Government Procurement
    ======================================

    ¶23. 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 as well as the subsequent
    projects are frequently delayed by appeals by the losing
    parties or the Contraloria General's (Comptroller
    General's) efforts to regulate government purchases and
    procedures.  In addition, over the last five years, several
    contracts tendered by state monopolies have been mired in
    controversy.  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 the insurance and telecommunications
    sectors, thereby lessening opportunities for corruption.

    =================
    Additional Issues

    =================

    =============
    Expropriation
    =============

    ¶24. The Government of Costa Rica has expropriated large
    tracts of rural land for national parks, biological
    reserves and indigenous reservations over 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, and those cases are currently winding their
    way through the Costa Rican courts.  Most recently, in
    October 2007 the Costa Rican government announced the
    expropriation of beach-front property owned by U.S.
    citizens in order to protect a turtle-breeding habitat.
    Out of 178 countries surveyed in the World Bank's "Doing
    Business" index, Costa Rica ranks 130 in "enforcing
    contracts" and 158 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 been honored.

    ===========
    Extradition
    ===========

    ¶25. Costa Rica has an extradition treaty with the United
    States.  Costa Rican government officials and U.S. Embassy
    personnel enjoy a cooperative relationship in arranging
    approximately 15-20 prisoner extraditions from Costa Rica
    each year.

    =================================
    Broadcast of Copyrighted Material
    =================================

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

    =============
    Market Access
    =============

    ¶27. Costa Rica's October 7, 2007 ratification of CAFTA-DR
    and its efforts to implement the laws to conform to its
    CAFTA-DR obligations indicate the country's commitment to
    providing equitable and reasonable access for U.S. goods
    and services to its market.  However, as the campaign prior
    to the referendum demonstrated, there is a large contingent
    of both Costa Rican citizens and politicians that oppose a
    further opening of the Costa Rican market and monopolies.
    As such, it will remain important, even after CAFTA-DR is
    fully implemented, to monitor market access in Costa Rica.

    ==================
    Self Help Measures
    ==================

    ¶28. The set of laws that Costa Rica must pass in order to
    implement CAFTA-DR consist of a number of measures that
    will increase the competitiveness of several sectors of the
    economy.  In addition, the CAFTA-DR obligations concerning
    IPR should create the proper environment for industries in
    Costa Rica to develop more of their own innovative
    products.  Costa Rica has also taken concrete steps to
    facilitate trade.  Over the last year, the country, using
    its own resources and initiative, has implemented a new
    customs regime, TICA.  This system automates many of the
    customs transactions, resulting in fewer opportunities for
    corruption.  The Arias administration has made
    infrastructure improvements a priority, leading to some
    improvement in the road surface of many transportation
    routes.  While many issues remain, the current Costa Rican
    government is cognizant of the challenges and has
    articulated a desire to address them.  Among the most
    prominent are reforming laws surrounding government
    concessions, updating the tax policy, and improving the
    responsiveness of government.

    BRENNAN

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