VZCZCXYZ0005
RR RUEHWEB

DE RUEHSJ #0478/01 1561419
ZNR UUUUU ZZH
R 051419Z JUN 09
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC 0912
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHDC
RHMFIUU/CDR USSOUTHCOM MIAMI FL

UNCLAS SAN JOSE 000478 
 
SIPDIS 
SENSITIVE 
 
DEPT FOR WHA/CEN, WHA/EPSC, OES, INL/LP 
 
E.O. 12958: N/A 
TAGS: PGOV PREL PINR ECON ETRD KDEM SNAR MASS PA CS
SUBJECT:  COSTA RICA AND PANAMA - COOPERATION AND COMPETITION 
 
NOTE: This is the first in a multi-part, occasional series that will 
examine Costa Rica's relationship with its main political, economic 
and social partners in the hemisphere. 
 
¶1.  (SBU) SUMMARY: In contrast to its historically problematic 
relationship with Nicaragua, Costa Rica has deepening and positive 
political-economic ties with Panama.  Both countries have abolished 
their militaries and are cooperating more closely on 
counternarcotics, law enforcement and disaster preparedness 
initiatives.  More importantly, both see themselves as "different" 
from the rest of Central America.  The Costa Rica-Panama Free Trade 
Agreement, signed in October 2008, forged a permanent economic link 
between the two countries, which the Arias administration and the 
new Martinelli administration hope to expand.  Costa Rican 
officials, academics and Panamanian diplomats based here all 
describe the growing bilateral relationship in glowing terms, with 
the MFA in particular calling for even stronger ties and a strategic 
partnership between the two neighbors.  However, as Panama continues 
to develop economically, the two countries may find themselves 
competing directly, as each strives to become an economic leader in 
the region.  END SUMMARY. 
 
------------------------------ 
POLITICS, BORDERS AND SECURITY 
------------------------------ 
 
¶2. (SBU) Costa Rica and Panama share values and perspectives on a 
number of issues.  While Costa Rica's history of respect for 
democracy and human rights is longer, both countries have modern 
societies built on liberal democratic foundations and fueled by 
globalized investment and trade.  The current political climates in 
the two countries seem fairly closely aligned, especially after the 
election of Panama's Ricardo Martinelli.  Martinelli's 
right-of-center, pro-U.S. leanings may make him a natural ally for 
the Arias government, relative to the left-leaning, populist 
governments of Costa Rica's neighbors to the north.  The Panamanian 
president-elect's warm reception by President Oscar Arias in San 
Jose May 22-23, and his speech to the INCAE regional business school 
decrying the "improvisation" of populist governments in Latin 
America which had further "impoverished" their populations, support 
this assessment.  The most likely outcome of the 2010 Costa Rican 
election -- another win for Arias' PLN party - probably would mean 
continued close relations with the Martinelli administration. 
 
¶3. (SBU) Also, unique in the region, neither country has a standing 
army, instead relying on domestic police forces for internal and 
external security.  Because Panama's 1992 abolition of its military 
is far more recent than Costa Rica's, its security forces are still 
more "military-like".  However, due to a deteriorating security 
situation, Costa Rica must now invest more public resources in 
better training and equipping its security forces, including a few 
"military-like" special units.  The USG provides both countries with 
counternarcotics law enforcement assistance.  This includes the 
Merida Initiative, which is supporting Costa Rica with $4.3 million 
and Panama with $2.9 million in FY 2008 funds. 
 
¶4. (SBU) By appropriately applying this assistance, continuing their 
own efforts to train and equip their forces, and cooperating to 
confront common security and law enforcement challenges, Panama and 
Costa Rica could serve as regional models of how to keep the peace 
without conventional armed forces.   Cooperation is already 
improving, as the GOCR has quietly reached out to Panama on a 
case-by-case basis to counter narcotrafficking.  The regional 
"mini-IDEC" meetings (International Drug Enforcement Conferences) 
have helped build solid working relationships between the two 
countries. 
 
 
¶5. (SBU) Border issues demonstrate how Costa Rica and Panama 
constructively work together.  While Costa Rica and Nicaragua are 
locked in a long-running dispute about navigation rights on the San 
Juan River (which should be resolved by an  International Court of 
Justice decision this summer), Panama has shown an interest in 
resolving such problems systematically and quietly.  Costa Rica and 
Panama established a standing Border Commission for resolving 
disputes which typically deals with small-scale complaints from 
citizens living along the border.  Both governments seem satisfied 
with the Commission's results, and the Martinelli visit generated 
talk in Costa Rica of creating a more formal Binational Commission 
to handle a wider array of issues. 
 
¶6.  (U) In addition, both countries worked together (with the U.S. 
military) on disaster relief and humanitarian projects during the 
last six months.  These included a Medical Readiness Training 
Exercise (MEDRETE) in September, which treated indigenous patients 
from Costa Rica and Panama in the Burica region; a flood relief 
mission in November, which used Limon, Costa Rica as a base to 
provide aid to Caribbean coast residents in both countries; and the 
SOUTHCOM-sponsored regional FA-HUM humanitarian assistance exercise 
in April, which included a rescue dog team from Panama which 
participated in disaster simulations in Quepos, Costa Rica. (Joint 
Task Force Bravo from Honduras and/or elements of the New Mexico 
National Guard, Costa Rica's State Partner, were active in all these 
activities as well.) 
 
---------------------- 
TRADE AND TOURISM TIES 
---------------------- 
 
¶7. (U) Presidents Arias and Martin Torrijos signed a Costa 
Rica-Panama Free Trade Agreement (FTA) in San Jose in October, 2008, 
further warming the relationship between the two countries.  Panama 
is the fourth largest destination for Costa Rican goods.  According 
to Panamanian Charge D' Affairs Luz Arredondo, Costa Rica is the 
main beneficiary of the FTA as it produces far more finished goods 
than Panama.  Arrendondo told us that while in most areas the FTA 
made permanent parts of previous agreements, it served to 
demonstrate how both countries are looking to enhance cooperation. 
 
 
¶8. (SBU) Of note in the negotiation process was the (almost) 
complete lack of opposition to the Panama FTA within Costa Rica. 
While Costa Rica struggled through a five-year, 
politically-contentious ordeal to negotiate, ratify and implement 
CAFTA-DR, the Panamanian agreement was completed and approved with 
virtually no opposition, in a matter of weeks. During Martinelli's 
visit, he and Arias announced plans to revise the FTA to include 
some products (such as refined oils) and sectors (such as insurance) 
which were omitted from the original agreement.  Perhaps seeking a 
counterbalance to the CA-4 group (Nicaragua, El Salvador, Guatemala 
and Honduras), Arias also expressed hope that Panama might join the 
ongoing EU-Central American Association Agreement, which the Arias 
administration would like to see completed before it leaves office 
in mid-2010.  Martinelli agreed, noting in his INCAE speech that his 
government hoped to join the EU agreement when Spain assumes the 
presidency during the first six months of next year. 
 
¶9. (U) During his press conference with President Arias on May 22, 
Martinelli stressed that Panama and Costa Rica have much in common, 
and should focus on developing tourism as well as trade.  With 
nearly half the tourists visiting Panamanian destinations such as 
Bocas de Toro coming from Costa Rica, he suggested that the two 
countries form a "tourism alliance" to attract more international 
tourists. 
 
------------------ 
A GREEN FRIENDSHIP 
------------------ 
 
¶10. (U) The two countries also have a significant relationship in 
the environmental sector.  A large part of the Costa Rica - Panama 
border falls inside La Amistad National Park, a bi-national park 
that the two countries manage jointly.  A World Heritage Site, La 
Amistad faces continual development pressure on both sides of the 
border from oil exploration, poaching, road development, etc. 
However, both countries work diligently together to face these 
challenges, and have a standing bilateral cooperation agreement 
focused on the border region and its management. 
 
¶11. (U) In addition to their respective participation in regional 
bodies, such as the Central American Commission on Environment and 
Development (CCAD) and the Central American Fisheries and 
Aquaculture Organization (OSPESCA), Costa Rica and Panama are also 
coordinating bilaterally on issues such as the trafficking of 
endangered species.  For example, at a late 2008 CAFTA-DR training 
program in San Jose regarding the Convention on International Trade 
in Endangered Species (CITES), Panamanian and Costa Rican customs, 
fisheries, and environmental officials focused on developing more 
effective coordination of cross-border enforcement efforts. 
 
----------------------- 
HOW CLOSE CAN THEY GET? 
----------------------- 
 
¶12. (SBU) After the relative success of the Costa Rica-Panama FTA, 
the GOCR's Ministry of Foreign Affairs has set its sights on 
pursuing a more robust cooperative agreement that could relax 
immigration restrictions between the two countries. The MFA has 
started to tentatively  push towards the negotiation of a "CA-2 
agreement", loosely based on the "CA-4" (Central America Four 
agreement) between Nicaragua, El Salvador, Guatemala and Honduras 
that Costa Rica chose not to join.  This would focus on further 
political/migratory cooperation.  As foreseen by the MFA, this 
agreement might abandon the requirement that citizens of Costa Rica 
and Panama carry passports when crossing the shared border, instead 
allowing travelers to use their national identity cards to process 
through migration.  Commercial trucking interests widely support the 
proposal, as it would accelerate the movement of goods. 
 
¶13. (SBU) While the MFA proposes loosening restrictions, both Costa 
Rica's Department of Immigration and Panama's Embassy in Costa Rica 
oppose these plans.  Immigration Director Mario Zamora told us that 
his department "completely opposes" the removal of any restrictions 
to crossing the Costa Rica-Panama border.  He is concerned with the 
possibility of third-country nationals, particularly Colombians who 
can already enter Panama without a visa, acquiring fake Panamanian 
ID cards which they would then use to cross freely into Costa Rica. 
 
 
¶14. (SBU) Panamanian Charge D' Affairs Arredondo told us that she is 
also concerned with relaxing migration controls at Panama's northern 
border.  She was unaware of any "active discussions" on the issue, 
adding that her government had already considered and rejected the 
possibility of reducing immigration requirements with Costa Rica. 
Overall, Arredondo still describes her country and Costa Rica as 
"natural partners," however. 
 
¶15. (SBU) Even if the immigration initiatives do not bear fruit, the 
Costa Rican MFA remains optimistic.  New Chief of Staff (and former 
Vice-FM) Elaine White described relations with Panama as 
"extraordinarily good," reflecting Costa Rica's and Panama's status 
as one of the "natural pairs" in Central America.  (In her view, the 
others are Nicaragua and Honduras, and El Salvador and Guatemala.) 
White told us that Costa Rica is looking for an eventual "strategic 
partnership" with Panama, and she joked that the GOCR was pleased to 
have a "good border to the south" compared to the "bad border to the 
north". 
 
¶16.  (U) How close will/can the two neighbors become?  Well-known 
Costa Rica academics such as Constantino Urcuyo of the University of 
Costa Rica and the CIAPA think tank, and Panama-based Luis Guillermo 
Solis of the Ibero-American Secretariat for Central America, 
acknowledge the warm political climate at the moment and the many 
similarities between Costa Rica and Panama. However, they caution 
that the closeness and potential for partnership should not be 
exaggerated.  Both countries are being driven together as much by 
what they do not want to have in common with the region, as by what 
they have in common with each other.  An issue-by-issue partnership 
is thus more likely, in their view, than extremely close ties across 
the board. 
 
----------------------- 
GRAB THOSE GRINGO BUCKS 
----------------------- 
 
¶17. (SBU) While their economies differ, with Costa Rica more heavily 
dependent on manufacturing and agriculture and Panama on financial 
services and the maritime sector, Costa Rica and Panama increasingly 
compete in several economic sectors.  Both countries actively market 
themselves to foreign tourists, primarily the American market.  In 
2008, 2.1 million tourists travelled to Costa Rica, which has long 
been the tourist-capital of Central America.  However, a healthy 1.8 
million tourists visited Panama over the same period, almost a 30 
percent increase over 2007. 
 
¶18. (SBU) Though Costa Rica is still king of the tourist sector, 
Panama consistently leads its northern neighbor in attracting 
international investment.  Panama topped Costa Rica in foreign 
direct investment (FDI) again in 2008, this time by 20 percent, 
attracting over $2.4 billion compared to Costa Rica's $2 billion. 
Costa Rica's Investment Promotion Board (CINDE) says that Panama is 
one of their main competitors--along with China, Vietnam, and El 
Salvador--when foreign companies are considering where to locate. 
 
¶19. (SBU) Panama has had more success in part due to its focus on 
attracting American retirees, and the housing boom that has 
accompanied the Gringo retirement wave in recent years. 
Additionally, Panama has focused on public infrastructure 
improvements, which have enhanced its reputation with the expat 
retiree market relative to Costa Rica, where infrastructure 
development amounted to less than two percent of GDP in 2008 
(compared to Panama's five percent).  (COMMENT: One need only make 
the 14-hour drive along the Pan-American Highway between San Jose 
and Panama City to see Panama's vast superiority over Costa Rican 
highway infrastructure.  END COMMENT.)  The World Bank Doing 
Business indicators reflect this significant difference between the 
two countries.  In 2009, Costa Rica rated 117th in "ease of doing 
business", while Panama came in much higher at 81st (second in 
Central America to El Salvador). 
 
------------------------------- 
COMMENT: COSTA RICA LOOKS SOUTH 
------------------------------- 
 
¶20. (SBU) Costa Rica has long considered itself exceptional in 
Central America, and superior to its northern neighbors.  Costa 
Rica's "exceptionalism" has only increased under the Arias 
administration, especially in light of the return of the Sandinistas 
in Nicaragua.  In this respect, Panama represents a more equal (and 
to the GOCR, more acceptable) partner for Costa Rica. The 2008 FTA 
showed a developing maturity in the bilateral relationship, both 
politically and economically.  Additionally, the already positive 
law enforcement relationship that Costa Rica enjoys with Panama 
should only get better, and may provide new opportunities to advance 
USG security policy in the region.  Costa Rica certainly views its 
non-militarized southern neighbor as a kind of "offspring" of its 
own non-military example. 
 
¶21. (SBU) However, as Panama continues to develop it will become an 
increasingly tough competitor for Costa Rica.  Costa Rica maintains 
a number of advantages over Panama, including a more educated 
population (and more English speakers in the workforce), a larger 
middle class, better health care services, and a more robust social 
service sector.  Costa Rica's "Achilles heel" is its lack of 
investment in infrastructure, it's lagging "doing business" 
quotient, and growing domestic security problems which may hinder 
the flow of international investment.  Though Costa Rica may 
appreciate a Central American neighbor on a more similar 
political-economic footing, there may come a day in the 
not-too-distant future when Costa Rica will wonder how Panama 
surpassed it so quickly to take economic leadership in the region. 
 
 
CIANCHETTE