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