VZCZCXYZ0000
PP RUEHWEB

DE RUEHSJ #0498/01 1681633
ZNY CCCC ZZH
P 171633Z JUN 09
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC PRIORITY 0934
INFO RUHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY
RUEBR/AMEMBASSY BRASILIA PRIORITY 0835

C O N F I D E N T I A L SAN JOSE 000498 
 
SIPDIS 
 
DEPT FOR WHA/CEN; WHA/EPSC:FCORNEILLE; WHA/BSC; 
EEB/ESC/IEC/EPC:MMCMANUS 
 
E.O. 12958: DECL: 06/12/2019 
TAGS: KDEM PGOV ECON EFIN ETRD ENRG PREL BR CS
SUBJECT: LULA'S VISIT TO COSTA RICA - PROMOTING TRADE AND 
 
RENEWABLE ENERGY 
 
REF: SAN JOSE 419 NOTAL 
 
Classified By: Classified by DCM Peter Brennan per 1.4 (d). 
 
¶1. (SBU) SUMMARY: Brazilian President Luiz Inacio Lula da 
Silva visited Costa Rica June 2-3 to advance cooperation 
between the Mercado Comun del Cono Sur (MERCOSUR) and the 
Sistema de Integracion Centroamericana (SICA), of which Costa 
Rica will assume the Presidency in July, and to strengthen 
bilateral economic ties between the two countries.  Da Silva, 
making the brief visit en route home after attending the 
swearing in of El Salvadorian President Mauricio Funes, also 
sought to promote the idea of Brazilian companies using Costa 
Rica's tariff-free access to U.S. markets (granted through 
CAFTA) to export sugar cane ethanol to Costa Rica, refine it 
there, and sell it to the U.S.  President Oscar Arias was 
visibly delighted to host his Brazilian counterpart and hopes 
that his administration can further trade and renewable 
energy initiatives with the GOB before leaving office next 
year.  END SUMMARY. 
 
-------------------------------- 
AN EMERGING REGIONAL TRADE PACT? 
-------------------------------- 
 
¶2. (C) Da Silva's visit, which reciprocated Arias, visit to 
Brasilia in June 2008, focused in part on plans for greater 
economic cooperation between MERCOSUR and SICA, with both 
leaders expressing interest in a trade agreement between the 
two regions.  According to Linyi Baidal, Deputy Director of 
Foreign policy in Costa Rica's MFA, Costa Rica will use its 
presidency of SICA to "feel out" Central American interest in 
a free-trade agreement with MERCOSUR.  Costa Rica hopes a 
trade agreement would help to correct the massive trade 
imbalance between the two regions. As Arias noted during da 
Silva's visit, Central American import taxes are so much 
lower than those of Brazil, that "for every dollar that 
Central America exports to Brazil, (Central America) imports 
twenty-four dollars."  Both da Silva, and Uruguayan President 
Tabare Vazquez, who visited Costa Rica in April and takes 
over the presidency of MERCOSUR this year, used their visits 
to reiterate interest in opening up trade negotiations 
between the two regions. 
------------------------------------ 
RENEWABLE ENERGY AND WATER TREATMENT 
------------------------------------ 
 
¶3. (SBU) Da Silva and Arias also discussed the production of 
ethanol and the potential participation of Brazilian 
businesses in infrastructure projects in Costa Rica.  Da 
Silva promised Arias technical support and technology 
transfer in the area of biofuels, specifically relating to 
sugar cane ethanol.  Da Silva also presented the possibility 
of Brazilian companies opening up ethanol plants in Costa 
Rica, in order to make use of Costa Rica's CAFTA-granted 
access to U.S. markets.  CAFTA affords Costa Rica unlimited 
tariff-free access to the U.S. for originally-grown and 
produced ethanol, and an annual quota of 31 million gallons 
for third-country grown, Costa Rican-produced ethanol. Brazil 
would like to take advantage of that latter quota, since it 
currently pays 54 cents per gallon in taxes on biofuels 
exported to the U.S. 
 
¶4. (SBU) Da Silva's final piece of business was to sign an 
agreement under which Brazil will provide technology and 
skills training in waste water treatment to Costa Rica's 
national water utility (AyA).  The project will focus on 
smaller treatment plants, as several large plants in the San 
Jose metropolitan area are well advanced in planning and 
financing.  A Brazilian company and AyA will jointly manage 
the project, which is related to discussions currently under 
way between Banco de Brazil, the Central American Bank for 
Economic Integration and the AyA to finance three large water 
treatment plants in Costa Rica. 
 
------------------- 
A CELEBRITY WELCOME 
------------------- 
 
¶5. (U) The often taciturn Arias could barely contain his 
pleasure at welcoming Lula, whom he described as "one of the 
most loved and admired presidents in Latin America" and as a 
"political farmer," "troubadour for equality," "symbol of 
social justice" and "poet for democracy".  He offered Costa 
Rica as a "bridge" for Brazilian products (via CAFTA) to the 
United States. 
 
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COMMENT 
------- 
 
¶6. (C) If the lavish praise and promising prose bears fruit, 
both countries stand to gain from closer relations, but Costa 
Rica (and the Arias administration) may be the bigger 
winners.  Renewable energy sources are high on the GOCR,s 
agenda and appeal to Costa Rica,s green image.  A tangible 
benefit from CAFTA, such as local ethanol production, would 
also be welcome, although this will take time.  Waste water 
treatment is a major challenge here, so Brazilian assistance 
may help the GOCR make long-needed progress, especially in 
the crowded Central Valley around San Jose. 
 
¶7.  (C) Legacy may be at the very top of Arias, agenda with 
Lula, however, as the clock begins to wind down on his 
administration, which ends in May 2010.  The SICA presidency, 
along with the last six months of Costa Rica's term on the 
U.N. Security Council (which ends December 31, 2009), provide 
Arias with more opportunities to build on his international 
reputation while in office.  Starting talks on a free trade 
agreement between SICA and MERCOSUR, as well as launching any 
CAFTA-related ethanol initiative, would allow Arias to take 
credit for any future success.  Not mentioned publicly, but 
perhaps discussed in their private meeting, is Arias, "Good 
Friend" initiative, which would include Lula in a select 
group of regional leaders, along with Arias, who would help 
craft a new USG policy towards Latin America with the 
Secretary and POTUS (Reftel).  In short, the Arias 
administration made the most of da Silva's short visit, 
hoping to further trade, energy and international relations 
initiatives before leaving office next year. 
CIANCHETTE