Referendum in Costa Rica: Countdown to CAFTA?

Oscar Arias

On Oct. 7, Costa Ricans will vote whether or not to adopt DR-CAFTA, the controversial Dominican Republic-Central American Free Trade Agreement signed in August 2004 and implemented in 2006 by El Salvador, Nicaragua, the Dominican Republic, Guatemala and Honduras.

Oscar Arias

On Oct. 7, Costa Ricans will vote whether or not to adopt DR-CAFTA, the controversial Dominican Republic-Central American Free Trade Agreement signed in August 2004 and implemented in 2006 by El Salvador, Nicaragua, the Dominican Republic, Guatemala and Honduras.

The vote will determine whether the country joins its neighbors in forming a NAFTA-like relationship with the U.S., with 80 percent of tariffs reduced, imports greatly increased and state industries opened to privatization and foreign investment.

It is also being framed as something of an ideological referendum in the context of ongoing, snowballing debate over the future economic and political direction of Latin America and the ideological stand-off between the U.S. administration and Venezuelan president Hugo Chavez.

As the most stable and financially successful country in Central America, and one with a solidly socialized infrastructure of state-owned enterprises and universal healthcare, Costa Rica’s decision has significant symbolic importance.

DR-CAFTA (more often called just CAFTA) was crafted to extend North American Free Trade Agreement (NAFTA)-type provisions further south. The Washington Office on Latin America notes that it is a partnership between staggeringly unequal parties – the Central American countries’ combined GDP is only about 0.5 percent of the U.S.’s GDP.

Costa Rican support for DR-CAFTA plummeted after the recent publication of a July 29 memo to President Oscar Arias and his brother, minister Rodrigo Arias, which laid out a public relations plan to paint anti-CAFTA forces as stooges of Chavez and Cuban president Fidel Castro. The plan called for “stimulat[ing] fear” about what will happen if CAFTA isn’t passed, and withholding funds from local officials whose constituencies vote against it. Memo author Kevin Casas, the Second Vice President, stepped down from his post as planning minister after the revelation, and polls flipped from predicting a CAFTA ratification Oct. 7 to a possible no vote.

Oscar Arias almost lost the 2006 presidential election because of his support for CAFTA. He had earlier been considered a shoo-in, but in the face of mounting protests, he won by only a narrow margin over leftist CAFTA opponent Otton Solis. A massive march Sept. 21 was the latest in several years of demonstrations, strikes, highway blockades, teach-ins and other actions against CAFTA in Costa Rica, not to mention continuing protests in the countries that have implemented the agreement.

“I think Costa Rica is setting an example for the region,” said Daisy Blancaneaux, a Costa Rican native now based in New York as president of the activist group Help Going South. “Costa Ricans are sending a message loud and clear to the world, that a new economic model is not needed and the free trade agreement formula does not work for developing countries anymore.”

Meanwhile U.S. Ambassador to Costa Rica Mark Langdale has applied increasing pressure leading up to the vote, saying “there is no other possibility for prosperity, in my opinion,” and apparently threatening that CAFTA is the only way for the country to obtain a trade deal with the U.S. Several large companies, including the tuna producer Sardimar, have also threatened to pull out of the country if CAFTA isn’t ratified by the March 2008 deadline.

Ironically the left/right, pro-U.S./ anti-U.S. portrayal of the CAFTA issue in Costa Rica is somewhat of a red herring, since not all the opposition to the free trade deal comes from anti-free trade sentiment. With its population of just over four million enjoying a much higher standard of living and much more political and economic stability than its Central American neighbors, some Costa Ricans simply don’t want to be lumped in a regional trade bloc.

A faction of CAFTA opponents would much rather negotiate a bi-lateral trade agreement with the U.S., of the type the U.S. is trying to push through with Peru, Colombia and Panama. The U.S. is the largest recipient of Costa Rican exports, including apparel, coffee, fruit and high-tech products.

Trade and investment are reportedly up in the Central American countries which implemented CAFTA, with a 68 percent increase in exports from El Salvador and a 30 percent increase in foreign investment in Nicaragua, where leftist president Daniel Ortega allayed early U.S. government fears by supporting the agreement. But many labor and human rights advocates in those countries question whether the economic gains are reaching the bulk of the population, as opposed to staying in the hands of a wealthy minority.

Much of the increased investment has been in textile, electronics and other manufacturing, industries that are known for sweatshop conditions and for quickly pulling up stakes when cheaper labor becomes available elsewhere on the globe. Textile and apparel companies in the US and Central America have been among the major backers of CAFTA, seeing it as a way to compete with producers in Asia. But so far that promise hasn’t panned out, with about a million textile factory jobs shifted from the Americas to Asia in the past decade.

CAFTA essentially takes the place of and negates the existing Caribbean Basin program, which allowed duty free trade in the apparel industry within the region and was widely described as a political tactic to avert leftist revolutions. 

It is widely feared CAFTA would have numerous negative effects on the Costa Rican economy and individual well-being, because of competition from cheaper U.S. imports, widespread privatization and new intellectual property and other trade-related restrictions.

Just as many Mexican small farmers were devastated by cheap corn and other agricultural imports from the U.S. after the implementation of NAFTA in 1994, Costa Ricans fear farmers – particularly in dairy and rice – could be put out of business once most protectionist tariffs on imports are removed. The agreement says virtually all agricultural tariffs will be removed in 15 years, with a few extra years given for rice, dairy and poultry

Though the agreement stops short of forcing the privatization of state-owned telecommunications and insurance industries, it mandates breaking the state monopolies and allowing competition from private foreign companies. CAFTA critics fear this will mean the generous telephone and internet service and insurance coverage the country now enjoys will be gutted, since government companies will have to compete with private companies and serving rural and impoverished customers is relatively unprofitable.

“The price that Costa Rica has to pay in order to be part of the Central American ‘not free’ trade agreement is huge,” said Blancaneaux. “Affordable products and services provided and delivered to every region in the country by the state-run industries, like telecommunications, electricity, potable water, universal healthcare, medicines, sewage, insurance, education and petroleum byproducts will all be gone forever, as it has happened in the rest of Latin America.”

Currently Costa Rica ranks 47th worldwide in the “human development index,” with a poverty level holding steady at 15 percent, unemployment at six percent, and a whopping 82 percent of people with health insurance. Illiteracy is rare, 98 percent of people have electricity and 60 percent have phone coverage. Economically Costa Ricans are significantly better off than the rest of the region. For example, in El Salvador almost half the country lives in poverty.

CAFTA critics are also very concerned about intellectual property rights provisions in the agreement which will make it harder for generic drugs to be produced and marketed; and which allow the patenting of plants – a highly charged issue in such a bio-diverse country with a movement against “bio-prospecting” by foreign researchers and pharmaceutical companies.

The agreement also mandates Costa Rica accept U.S. inspections for agriculture, meat and poultry, which could prevent moves like the country’s past ban on U.S. beef due to mad cow disease fears.

Meanwhile a report by Robert E. Scott of the Economic Policy Institute says that as with NAFTA, contrary to administration promises, the US economy and US agricultural producers are unlikely to benefit much from CAFTA.

“Promoters of CAFTA have asserted it will provide significant benefits to the US economy, especially to the agricultural sector,” Scott writes. “Similar promises were made in the debate on [NAFTA] in 1992 and 1993. However since that time NAFTA has failed to live up to these promises, and similar promises made for CAFTA are even less likely to be fulfilled.”

Even if Costa Ricans vote not to adopt CAFTA, they may still suffer economically from it. Already Costa Rica is restrained in trading with its neighbors, since CAFTA means an apparel component produced in Costa Rica would face a higher tariff during importation to a CAFTA country like El Salvador; but Guatemala or other CAFTA members would be under no such restriction.

Costa Rica participated in the nine rounds of negotiations to draft CAFTA in 2003, plus a Costa Rica-U.S. only round in 2004. The draft was kept secret from the public, and the negotiators refused to accept input from indigenous groups and scores of other groups opposed to the agreement. Then it was revealed the U.S. government contributed more than $900,000 in U.S. AID funds to the Costa Rican negotiating team, through the Costa Rica-United States Foundation formed for that purpose. Most of the negotiating team resigned, and the draft was not sent to the Costa Rican congress for ratification until late 2005. Arias and his allies tried to push it through Congress, but in the face of massive public outcry the administration agreed to put it to a popular vote this fall.

CAFTA’s full adoption is an especially sensitive matter to the Bush administration since the embarrassing failure of the Free Trade Area of the Americas (FTAA). Though popular opposition to free trade deals within the U.S. is growing, the Democratic Congress has been supportive of them with increased provisions for protecting workers rights and the environment. The fate of CAFTA in Costa Rica and of the proposed deals with Peru, Colombia and Panama as well as one with South Korea will be closely-watched bellwethers.

The Peru deal, shepherded by Bush and Peruvian president-free market proponent Alan Garcia, passed the Senate Finance Committee Sept. 21 and could reach a floor vote by October. Some US activists are already gearing up for that vote: four activists were arrested in Democrat Congressman Earl Blumenauer’s Portland office. Blumenauer–a staunch opponent of the Iraq war–has yet to tip his hand on the Bush-negotiated Peru agreement.

A March 2007 report by the International Relations Center (IRC) Americas program notes that like many developing countries, CAFTA’s adoption in Costa Rica would set in stone a neo-liberal economic model which has been an increasing trend over a number of years, even in Costa Rica. Polarization of wealth, foreign investment and the informal economy have already been on the rise in Costa Rica, the report says.

“The FTA [free trade agreement] with the United States expresses the consolidation of a tendency that is not new and that has shown itself to have enormous limitations in generating a sustainable, solidarity-based, fair system,” says the report, by Eva Carazo Vargas. “The FTA will mandate that these negative tendencies become permanent and practically the only permitted route to development.”