VZCZCXYZ0000
RR RUEHWEB

DE RUEHSJ #0969/01 3470212
ZNY CCCCC ZZH
R 120212Z DEC 08
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC 0346
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0153
RUEHSG/AMEMBASSY SANTIAGO 0452
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNSC/NSC WASHDC

C O N F I D E N T I A L SAN JOSE 000969 
 
SIPDIS 
 
DEPARTMENT FOR WHA/CEN, EAP/CM, WHA/EPSC AND EEB; 
TREASURY FOR SSENICH 
 
E.O. 12958: DECL: 12/09/2018 
TAGS: PREL PGOV PHUM ETRD EFIN EINV ECON CS CH CU
SUBJECT: HISTORICAL VISIT OF CHINESE PRESIDENT HU KICKS OFF 
FTA TALKS, SEALS 11 ACCORDS 
 
REF: A. SAN JOSE 133 
     ¶B. 07 SAN JOSE 1106 
     ¶C. 07 SAN JOSE 1488 
     ¶D. SAN JOSE 540 
     ¶E. BEIJING 04253 
 
Classified By: DCM Peter M. Brennan for reason 1.4(d). 
 
------- 
SUMMARY 
------- 
 
¶1. (SBU) "Chinese president (arrives) like Santa Claus with 
FTA, balls, and bicycles" read one headline recapping the 
historical visit of President Hu Jintao to San Jose November 
16-17.  Hu's rock-star-like reception included major street 
closures and a holiday for most government employees who work 
downtown, ensuring smooth travel and added 
security for Hu and his 184-member delegation.  The major 
significance of the event was the "official kick-off" of 
Sino-Costa Rican FTA negotiations (to begin in earnest in 
2009), wherein Chile will also provide technical assistance 
to Costa Rica (septel).  Officials signed a total of 11 
pre-drafted cooperative accords addressing, among other 
issues:  a joint venture to modernize the GOCR's RECOPE 
refinery; USD 10 million in additional funds for the new 
soccer stadium that China will build (Ref A); as much as USD 
80 million in bank lines of credit; creation of a "Confucian 
Institute" to teach Mandarin at the national university; and 
a sports equipment donation for underprivileged youth. 
President Arias invited Chinese companies to bid on a new 
concession for Costa Rica's major port in Limon.  In 
addition, the Costa Rican private sector signed cooperative 
agreements with Chinese counterparts.  China's human-rights 
record and Tibet were intentionally absent from discussions. 
END SUMMARY. 
 
----------------------------------- 
FIRST TIME ON CENTRAL AMERICAN SOIL 
----------------------------------- 
 
¶2. (SBU) Hu's visit reciprocated President Arias' October 
2007 China trip which followed GOCR re-establishment 
diplomatic relations with the PRC on June 1, 2007 (Ref B). 
It also marked the first time that a Chinese president "set 
foot on Central American soil" according to FonMin Bruno 
Stagno, who described the 17-month old bilateral relationship 
as "historic and symbolic" in his welcoming remarks.  Stagno 
noted that Hu's visit came on the heels of the G20 Summit in 
Washington, and he extolled China's ability to help the world 
through the current financial crisis and to aid developing 
countries.  Stagno used the visit to publicly reiterate the 
GOCR's aspiration for APEC membership once the moratorium is 
lifted in 2010 (Ref C), as part of the administration's 
National Development Plan strategy to increase ties with 
Asia, especially with China and India.  Stagno proudly added 
that "not every country that has ties with China has received 
a visit of this caliber." 
 
-------------------------------------- 
POMP, CIRCUMSTANCE, AND ARMS WIDE OPEN 
-------------------------------------- 
 
¶3. (U) Hu's agenda included a one-on-one with President 
Arias, the agreement signing ceremony, and a visit with 
legislators at the National Assembly.  Aside from the usual 
fanfare (such as schoolchildren cheering Hu's arrival at 
Arias' office), the visit generated controversy for major 
street closures and a one-day holiday for government 
employees in downtown offices, and drew criticism from some 
legislators who noted the disparity in treatment of Panama's 
Torrijos and Chile's Bachelet during recent state visits. 
Minister of Public Security, Janina Del Vecchio said the 
measures were requested by the Chinese as reciprocal 
treatment (stemming from Arias' China trip) and that the 
closures were necessary to prevent traffic chaos. 
 
-------------------------------------- 
"GREAT FRUITS" AND A POLITICAL MESSAGE 
-------------------------------------- 
 
¶4. (U) Hu's remarks touched on bonds of friendship, trust and 
support for the (eventual) FTA.  He noted that the 
re-establishment of diplomatic ties with the PRC had "borne 
great fruits (for Costa Rica) in just one year."  The 
 
official Chinese Embassy press statement declared that Costa 
Rica was a "relevant partner" in the region.  It heralded the 
"gigantic steps" in cooperation and friendship between the 
two "developing countries" that shared the mission of 
"safeguarding world peace" and promoting joint development. 
 
¶5. (C) In a November 20 briefing for U.S. and Canadian 
PolOffs, the MFA's Deputy Director of Foreign Policy 
Alejandro Solano told us that China's primary purpose for the 
visit was to send a political message to countries in the 
region that they, too, could receive great economic benefits 
if they recognized China.  Timing may be running out to 
collect these benefits, he maintained, since the increased 
dialogue and commercial ties between China and Taiwan might 
resolve the intra-Chinese differences sooner than later. 
According to Solano, Chinese officials believe that 
Nicaragua, which they thought would be first in Central 
America to re-establish ties with the PRC, now could be the 
very last.  Because of the GON's heavy dependence on 
Taiwanese assistance (especially in light of EU aid 
reductions), Nicaragua could not even afford a short gap in 
aid flows while switching recognition to China. 
 
------------------------------------------ 
SINO-GOCR FTA NEGOTIATIONS IN JANUARY . . . 
------------------------------------------ 
 
¶6. (U) Arias and Hu utilized the visit to announce the 
"kick-off" of negotiations on the proposed Chinese-Costa 
Rican FTA, after a year of exploratory talks, even though the 
first round will actually take place beginning January 
19, 2009, in San Jose.  Chinese Ambassador Wang Xiaoyuan told 
the press that, based on China's experience 
with other FTAs, his side expected negotiations to last "a 
year or so."  Minister of Foreign Trade Marco Vinicio Ruiz 
announced Costa Rica's intent to finish the FTA by 2010, 
before the end of Arias administration.  Arias himself told 
reporters he hoped that it would not take four-and-a-half 
years for the China FTA to be approved by the National 
Assembly, referring to the long, torturous battle to pass, 
ratify and implement CAFTA-DR.  Costa Rica expects to see an 
11 percent increase in duty-free exports to China under the 
FTA, especially in coffee, bananas and beef, with improved 
access to China's 1.3 billion-person market. 
 
¶7. (SBU) Just after Hu's visit, Minister Ruiz told the 
Ambassador that President Hu's visit went very well and was 
another important step in "getting Costa Rica to look more 
towards Asia" for its economic future.  This remained very 
important to President Arias, and, according to Ruiz, had 
fueled the Arias administration's opening of relations with 
China in 2007.  With the GOCR stymied by previous attempts to 
foster deeper relations in Asia via Japan and South 
Korea, Ruiz offered that Arias' second presidency would be 
remembered for his engagement with China.  The Costa Rican 
public was looking for something "exciting" after the 
protracted CAFTA-DR battle, and the continued opening with 
China might satisfy that interest, according to Ruiz. 
 
----------------------------------- 
. . . BUT ADJUST THOSE EXPECTATIONS 
----------------------------------- 
 
¶8. (SBU) Ruiz acknowledged, however, that Costa Rican 
expectations might have to be "adjusted" to meet reality. 
Relations with China would continue to develop, but not 
necessarily in a spectacular fashion.  Based on the Costa 
Rican experience with even non-controversial trade agreements 
(such as with Panama), ratification of an FTA with China 
likely would take longer than expected.  Separately, the 
MFA's Solano noted opposition to a Sino-Costa Rican FTA from 
some domestic sectors, including packaging, container and toy 
importers/manufacturers.  COMEX, he added, would have to 
decide which sectors to "leave out". 
 
¶9. (C) Solano acknowledged that a Chinese FTA could 
indirectly impact Costa Rica's other FTA partners, such as 
the U.S. Canada, and Chile.  The GOCR might re-examine rules 
of origin requirements, for example, in order to attract more 
Chinese FDI via products assembled in Costa Rica that might 
have preferred entry into the CAFTA or Chilean markets (Ref 
D).  COMEX would have to consult with other FTA partners 
during the negotiation process to be sure that 
any adverse effects or implications were taken into account. 
Solano said that Chile would provide technical training and 
 
"tips" (based on Chile's own negotiating experience with the 
Chinese) to GOCR negotiators, similar to the Chilean advice 
provided to the GOCR during the current FTA negotiations with 
the EU. 
 
--------------------------------------------- - 
ELEVEN ACCORDS SIGNED; OIL AND CREDIT TOP LIST 
--------------------------------------------- - 
 
¶10. (U) In addition to the FTA negotiation agreement, the 
GOCR signed 10 more accords with the PRC during Hu's visit. 
Principal among them was a deal on behalf of China's CNPC 
International Ltd. to modernize Costa Rica's RECOPE oil 
Refinery on the Caribbean.  RECOPE sources tell us that the 
agreement would permit the creation of a 25-year joint 
venture to expand or build a new facility in Moin which would 
greatly increase production.  Construction and equipment 
costs could amount to between $800 million and $1 billion, 
and Costa Rica would retain the option to purchase at the end 
of the contract term.  The joint venture would undertake a 
feasibility study to determine the scope of construction, 
with the goal of building in a modular fashion that would 
facilitate future expansion.  The joint venture would front 
30 percent of costs, with the balance to be financed.  Once 
begun, construction would probably take three years. 
 
¶11. (SBU) China's National Development Bank extended a $40 
million line of credit to Costa Rica's Central Bank (Banco 
Nacional) and signed a cooperative financial agreement with 
the national Bank of Costa Rica.  Though the amount set 
aside for the Bank of Costa Rica was not specified in the 
agreement, the MFA's Solano confirmed that a similar $40 
million figure was under discussion.  The funds would be 
available for recapitalization (to stabilize institutions 
against the global financial crisis). 
 
¶12. (SBU) China donated 10,000 soccer balls and 1,000 
mountain bikes for disadvantaged youth, which the GOCR's 
ceremonial First Lady's Office will distribute, according to 
Solano.  Solano told us that this donation apparently 
resulted from an off-hand remark by President Arias himself, 
joked before the visit that perhaps the Chinese could bring 
balls and bikes as early Christmas presents. A staffer took 
him seriously and included those items in an official request 
to the PRC.  The deals also created a Confucian Institute at 
the University of Costa Rica for the study of Mandarin and 
Chinese culture; confirmed Costa Rica's participation in the 
2010 Shanghai Expo, established a Binational Business 
Council; launched relations between the GOCR Science and 
Technology Ministry and China's agricultural science and 
science academies; and covered additional economic and 
technological aid, including an additional $10 million for 
the new stadium (Ref A). 
 
--------------------------------- 
THE PRIVATE SECTOR GETS ITS SHARE 
--------------------------------- 
 
¶13. (SBU) On the sidelines of the visit, members of the Costa 
Rican Chamber of Exporters (CADEXCO, Spanish acronym) 
signed pacts with representatives of the International 
Business Chamber of Wenzhou, the Sichuan Council for 
International Business Promotion, and the Guangxi Sub-Council 
for International Business Promotion, who were 
among the 60-100 (official numbers vary) Chinese business 
leaders who accompanied Hu.  These pacts were the only 
agreements signed with Costa Rica's private sector and paved 
the way for Chinese technical assistance to Costa Rican 
companies and for opening commercial offices in China. 
CADEXCO Vice President Sergio Navas told us that the 
agreements represented a strategic move to work with regional 
Chinese markets as opposed to with Beijing and Shanghai 
alone.  Given Mexican, Colombian, and Chilean competition in 
China, and the size of the Chinese market relative to Costa 
Rica, the regional agreements signal an emerging niche export 
strategy for the GOCR. 
 
---------------- 
THE INTEL FACTOR 
---------------- 
 
¶14. (SBU) Since INTEL comprises an overwhelming share of 
Costa Rican exports to China (96 percent INTEL; 4 percent 
everything else), the decisions of INTEL regarding future 
manufacturing weighs heavily on the Sino-Costa Rican trade 
 
relationship.  Navas fretted that the soon-to-be-opened INTEL 
production facilities in China may compromise INTEL's 
production in Costa Rica. In general terms, Navas saw three 
different horizons for the agreements: 
 
-- Short Term:  Chinese foreign direct assistance and 
cooperation in the form of technical assistance. 
 
-- Medium Term:  Working to expand the four percent of 
non-INTEL exports to China while maintaining the INTEL 
relationship in Costa Rica.  Raw materials, foodstuffs, and 
tourism are the leading candidates to increase Costa Rican 
trade revenue with China. 
 
-- Long Term:  market analysis and research by Costa Rica on 
which Chinese consumer sectors to target. Size matters; 
coffee exporters note that if only two percent of China's 
population drank coffee at one-third the consumption of the 
average Costa Rican, the demand would use up all of Costa 
Rica's current annual production. 
 
Navas believes that the commercial benefits will develop 
slowly, however, as do all relationships with China. 
Successful business with China depends on building trusting 
relationships over time. 
 
------------------------------ 
HUMAN RIGHTS NOT ON THE AGENDA 
------------------------------ 
 
¶15. (SBU) A reporter from TV Channel 42 raised the issue of 
China's human-rights record during the Arias/Hu joint press 
conference, and he questioned whether 
Nobel-Peace-Prize-Winner Arias broached the topic of human 
rights during their one-on-one.  In a telling commentary on 
his administration's current focus with China, the president 
responded -- on camera -- that the two did not talk about 
human rights, and that he "took advantage of the opportunity 
to talk about things that are important and urgent to Costa 
Rica."  FonMin Stagno subsequently backpedaled a little to 
explain that there were other fora (including the UN) and 
moments in which representatives of the two nations discussed 
"with much patience and much more time, topics such as human 
rights." 
 
¶16. (C) Interestingly, human rights was the second topic that 
the MFA's Solano broached with us in his November 20 
briefing.  He said that the Chinese wanted to put Tibet on 
the agenda, but the GOCR declined due to difficulties for 
Arias given his still-close relationship with the Dalai Lama. 
 Solano fumbled a bit trying to rectify the GOCR's new "one 
China" policy and its continued interest in human rights 
issues in Tibet.  When asked, Solano said that Arias had made 
no/no offers to help moderate or negotiate on Tibet. 
However, the GOCR would begin to take up human rights during 
bilateral political consultations with China planned over the 
next year.  Solano indicated that perhaps some special 
administrative arrangement could be made for Tibet a-la Hong 
Kong, but for now the GOCR had to weigh political 
"equilibrium" (and economic benefits) against public 
sentiment (on human rights). 
 
------- 
COMMENT 
------- 
 
¶17. (C) Hu's visit demonstrated the GOCR's and Costa Rica's 
continuing exuberance for China more than a year after 
diplomatic relations were restored.  Stagno's vision of the 
21st Century as the "Chinese Century" shows that the Arias 
administration is continuing to look hopefully to Asia for 
its economic future; China has already begun the second-most 
export market for the Costa Rica.  Though the PRC Embassy's 
press statement tried to portray the two countries as equal 
partners in a similar struggle along the path of development, 
officials involved in the day-to-day business of building 
relations, such as Minister Ruiz and Chinese interlocutors in 
Beijing (Ref E), are well aware that this new relationship is 
anything but equal.  For now, trade with China has apparently 
trumped all other issues on the Costa Rican-Chinese agenda, a 
departure for the little country with the big love of human 
rights. 
CIANCHETTE