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### Viewing cable 08SANJOSE294, SCENESETTER FOR AUSTR EISSENSTAT'S VISIT TO COSTA RICA

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
08SANJOSE294 | 2008-04-22 21:48 | 2011-03-02 16:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy San Jose
Appears in these articles: http://www.nacion.com/2011-03-02/Investigacion.aspx

`

    VZCZCXYZ0000
    PP RUEHWEB

    DE RUEHSJ #0294/01 1132148
    ZNR UUUUU ZZH
    P 222148Z APR 08
    FM AMEMBASSY SAN JOSE
    TO RUEHC/SECSTATE WASHDC PRIORITY 9616
    INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY

` `

    UNCLAS SAN JOSE 000294

    SIPDIS

    SENSITIVE

    SIPDIS

    DEPT FOR WHA/CEN, WHA/EPSC, WHA/PPC AND EEB
    PLEASE PASS TO USTR DOLIVER/AMALITO
    MANAGUA FOR DAVID KRZYDA:PLEASE PASS TO AUSTR EISSENSTAT

    E.O. 12958: N/A
    TAGS: CS ECON ETRD PGOV PREL
    SUBJECT: SCENESETTER FOR AUSTR EISSENSTAT'S VISIT TO COSTA RICA

    REF: A. SAN JOSE 0232

         ¶B. SAN JOSE 288
         ¶C. SAN JOSE 263
         ¶D. 07 SAN JOSE 1926

    ¶1. (SBU) SUMMARY: Embassy San Jose warmly welcomes AUSTR Everett
    Eissenstat.  His visit to Costa Rica is timely, and will help us keep
    the pressure on the GOCR to complete CAFTA implementation.  The Arias
    administration remains deeply committed to CAFTA, and is making
    progress, but slowly.  Although all the major parties in the
    legislature have agreed to move ahead on CAFTA, the government's pro-
    CAFTA coalition remains fragile.  The legislature (Asamblea) has also
    been distracted by other issues including domestic security, an
    investigation into allegations of FARC ties to Costa Rica, and the May
    1 leadership elections.  Six of 12 CAFTA-related bills have been
    completed; six others remain in work, including those covering
    controversial IPR and insurance issues, and one more remains to be
    introduced.  Whereas the entry-in-force (EIF) extension granted on
    February 27, Commerce U/S Padilla's February 28-29 visit (Ref A) and
    WHA DAS Madison's March 31-April 3 visit (Ref B) described the red
    lines on the schedule for implementation (no later than October 1),
    this visit can set the red lines on substance.  See snapshot of pending
    issues, para 11.  END SUMMARY.

    ===================
    THE CAFTA SCORECARD
    ===================

    ¶2. (U) As of April 21, the Asamblea has completed half the CAFTA-
    legislation (six of 12).  Of these, three are law (covering foreign-
    owned firms, penal code reforms and UPOV compliance), and three are
    pending signature and publication as law (the Budapest Treaty, the UPOV
    convention and a bill governing certain patent and trademark reforms).
    A seventh and eighth bill (ratifying the International Trademark Treaty
    and opening the telecom sector) are pending the Asemblea's second and
    final vote.  A ninth bill (on IPR reforms) was bounced by the Supreme
    Court for constitutional questions (see para 6 below).  Three bills (on
    modernizing telecommunications, opening the insurance market, and
    making additional IPR changes) are in varying stages of action.  Of
    note and new to this process, there will be a 13th bill, according to
    the Ministry of Foreign Trade (COMEX), which will ratify various CAFTA
    amendments accepted by the other parties.  To summarize:

    COMPLETED BY ASAMBLEA:
    Signed into law:              3
    Pending signature:            3

    IN WORK BY THE ASAMBLEA:
    Returned by Supreme Court:    1 (Asamblea to correct and vote again)
    Pending final vote:           2
    Under debate:                 3

    To be introduced:             1
    TOTAL                        13

    ====================
    THE CAFTA CHALLENGES
    ====================

    ¶3. (SBU) This Asamblea had made more progress on CAFTA legislation in the four months from November-February than its predecessor had in the previous four years, but momentum dissipated after the EIF extension was granted.  The leaders of the 38-seat pro-CAFTA coalition well understand the need to keep moving, but have found this challenging.

    ¶4. (SBU) Their first challenge: keeping all 38 coalition members (the
    G38) together.  This is important because a two-thirds majority
    (precisely 38) is needed to form a quorum, to set rules and to manage most legislation.  From time to time, various members of the coalition have tried to parlay their "38th vote" into support for pet causes.
    Christian Unity Party (PUSC) member Bienvenido Venegas, for example, has stubbornly refused to support the CAFTA legislation until his home province (Puntarenas) received more attention and resources from the central government.  Despite a parade of senior officials to Puntarenas in late March-early April, including President Arias, Venegas's support has remained elusive.  His thinly-veiled true motive: to back ex- President Rafael Calderon (PUSC), a CAFTA opponent who is hoping to overcome corruption charges to run again for the legislature in 2010.

    ¶5. (SBU) Their second challenge: the opposition, led by the Citizens
    Action Party (PAC), a steadfast opponent of CAFTA even after the
    October 7 referendum ratified the agreement.  PAC's reluctance to
    cooperate blocked quorum on a number of occasions, and stalled the legislation.  PAC leaders insisted there was no hurry to pass the
    bills, and reveled in the pro-CAFTA coalition's internal wrangles.
    However, under relentless pressure from the GOCR and a private sector ad campaign that criticized them for ignoring the will of the people as  expressed in the referendum, PAC finally reached an agreement with the pro-CAFTA parties.  They would no longer block debate on remaining CAFTA bills as long as the Arias administration would permit debate on PAC-supported legislation creating a social development bank, reforming electoral laws and other initiatives.  The GOCR-PAC agreement has helped circumvent problematic legislators like Venegas, but it is only temporary, lasting until the new legislative year begins on May 1.

    ¶6. (SBU) Their third challenge: the Supreme Court, specifically the
    Constitutional Chamber (Sala IV), which reviews most legislation
    between the required first and second votes of the Asamblea.  The
    opposition has ensured that all CAFTA bills are reviewed by the Sala
    IV, delaying the legislative process, but only one bill has been
    bounced for corrections to date.  By unanimous vote on April 4, the
    Sala IV found the penalty provisions of the IPR bill
    "disproportionate," and in violation of the principle of "reasonable
    penalty." By the same vote, the Sala IV also ruled that the provision
    which permitted seizure of items produced in violation of IPR
    protections contravened the right to private property.  The Asamblea is
    to begin action on these corrections as soon as the final text of the
    Sala's ruling is available.

    ¶7. (SBU) Their fourth challenge: political distractions.  A special
    committee is to begin taking testimony the week of April 21 on
    allegations by the previous Minister of Public Security that the
    Colombian FARC had ties to some political figures, including
    legislators, in Costa Rica.  This stemmed from information discovered after the Colombian March 1 raid which killed FARC leader Raul Reyes in Ecuador.  The ex-minister was to testify on March 31, but was removed from office the day before so he could not speak in an official capacity (Ref C).  His sudden removal only fueled speculation that he was going to "name names."  (COMMENT:  We do not believe there is any hard evidence linking Costa Rican political figures actively or recently to the FARC.  END COMMENT.)

    ¶8. (SBU) In addition, political maneuvering is under way, even among
    the pro-CAFTA coalition, for leadership positions during the
    legislative year which begins May 1.  Complicating the political dog
    fighting this time:  the president of the Asamblea who takes office on
    May 1 will likely become the next VP of Costa Rica, when the incumbent,
    Laura Chinchilla (whom Eissenstat will meet), resigns as expected (and as required by law) in early 2009 to campaign for the presidency.  Both the special FARC investigation and the electioneering have slowed action on the CAFTA bills.

    ====================================
    THE CAFTA COMMITMENT, WITH A CAVEAT?
    ====================================

    ¶9. (SBU) Despite these challenges, the Arias Administration remains
    committed to completing the legislation and implementing CAFTA.  Citing
    the newly-cooperative attitude of the PAC party, Arias himself told
    visiting WHA DAS Kirsten Madison on April 1 that the CAFTA laws should
    be completed in the next three months (i.e., by the end of June).
    Arias (and by implication, his pushing to complete CAFTA) remains
    popular.  He received a 50 percent good or very good rating in a UNIMER
    poll released March 24 with the lowest negative rating (14 percent)
    since taking office.  The public and most political parties are tired
    of the protracted CAFTA debate and want to close this chapter and move
    on to other important issues, such as tougher laws on domestic
    security, which tops the polls as the public's chief concern.

    ¶10. (SBU) Because of these challenges, GOCR interlocutors including VP
    Laura Chinchilla, Minister of the Presidency (and the President's
    brother) Rodrigo Arias and COMEX Minister Marco Vinicio Ruiz may press
    AUSTR Eissenstat for "political" solutions to the most difficult
    pending CAFTA issues on IPR, insurance and biodiversity.  We do not
    expect them to ask for more time to implement CAFTA; they understand
    that the extension to October 1 was a one-time exception.  They may ask
    for more "understanding" and political room to maneuver to wrap up the
    remaining legislation (and regulations).  In response, Eissenstat can
    affirm the USG's positions on the pending issues, in effect,
    establishing red lines on substance while urging continued progress.

    =============================================
    THE CAFTA CONTENT: PENDING PROBLEMATIC ISSUES
    =============================================

    ¶11. (SBU) The pending issues include:

    - On IPR, the issue is dangerously fluid as the legislators do not
    always follow COMEX's counsel; COMEX responds by advocating for
    leniency from USTR.  Although graduated penalties were included in the
    legislation and passed, legislators from all parties agreed with the
    Sala IV's "disproportional" ruling, and the generic drug industry
    continues to pressure select G38 members to soften the IPR legislation
    in their favor;

    - On insurance, the GOCR reacted favorably to USTR's new phrasing on
    the issue of a government guarantee.  Timing is the problem as the
    insurance bill matriculated in the Asamblea to a point where it now
    cannot be amended.  The GOCR needs to develop a legislative tactic for
    introducing an insurance amendment;

    - On biodiversity, the GOCR wants its existing biodiversity law to
    remain intact, claiming "it was progressive in its time," although it
    is in conflict with legislation required for CAFTA compliance.  The
    GOCR desires to paper over the difference by asserting that
    international treaties have priority over domestic law without having
    to change the law;

    - On the patent law, legislators acted independent of COMEX's counsel
    and changed wording which now makes the law non-compliant with CAFTA.
    Though the intent was not to undermine CAFTA, the results of the change
    create a new problem;

    - On the regulations, USTR needs to review all of the regulations well
    in advance of October 1, and Essenstat will want to reinforce this
    message.  For telecommunications, the GOCR must develop a solution to
    unravel the coordination problems between ICE (the state
    telecommunications and energy utility), MINAE (Ministry of the
    Environment and Energy), and ARESEP (Regulatory Authority of Public
    Services); and

    - On the amendments, the Asamblea needs to pass the CAFTA amendments
    which are about to be introduced.

    ¶12. (SBU) Having come so far on CAFTA, and increasingly focused
    on/distracted by other priority issues, it is tempting for Costa Rican
    legislators to assume that implementation is inevitable.  As the recent
    challenges indicate, however, political focus and discipline are still
    required to get the job done. This would be another useful message from
    Eissenstat.  His interlocutors will also be interested in the "view
    from Washington" on the Colombian FTA, and the general (anti-trade)
    tone in the Congress and in the U.S. presidential campaign.

    =====================================
    THE CAFTA CONTEXT:  WHAT IS AT STAKE?
    =====================================

    ¶13. (U) Without CAFTA, the textile and the tuna sectors are at risk due
    to the short-run possibility of the loss of Caribbean Basin Trade
    Promotion Act (CBTPA) trade preferences on October 1 and the long-run
    risk that Costa Rica will not have permanent, tariff-free access to the
    U.S. market.  For Costa Rica, both risks would portend a competitive
    disadvantage with its CAFTA neighbors.  Business leaders predict 20,000
    jobs in the tuna and textile sectors are at stake.  Since DAS Madison
    visited a leading tuna cannery to underscore this risk during her
    visit, we plan to have AUSTR Eissenstat visit an at-risk textile plant.

    ¶14. (U) In the intensely competitive textile industry, buyers want
    price certainty which Costa Rican companies currently cannot provide.
    Indicative of the uncertainty, the industry contracted from $730
    million in 2002 to $557 million in 2006.  The Costa Rican textile
    industry is heavily reliant on the U.S. market and the preferential
    treatment it receives under the CBTPA (Ref D).  The U.S. accounted for
    86 percent of its total textile exports in 2006 and CBTPA lowers the
    U.S. tariff from 18 percent to zero for most textile products.
    Thus, without an implemented CAFTA, industry uncertainty has
    reached critical levels as producers openly talk about moving
    production outside of Costa Rica.  Eissenstat will also be able
    to discuss these issues further with AMCHAM members during his visit.

    HENIFIN

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