VZCZCXYZ0012
PP RUEHWEB

DE RUEHSJ #0133/01 0511434
ZNY CCCCC ZZH
P 201434Z FEB 08
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC PRIORITY 9448
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 0141
RHMFISS/HQ USSOUTHCOM MIAMI FL PRIORITY
RUEHIN/AIT TAIPEI PRIORITY 0082

C O N F I D E N T I A L SAN JOSE 000133 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR WHA/CEN AND EAP/CM 
SOUTHCOM FOR FPA 
 
E.O. 12958: DECL: 02/17/2018 
TAGS: PREL PGOV PINR ETRD ENRG MASS XK CS
SUBJECT: COSTA RICA AND CHINA: THE HONEYMOON CONTINUES 
 
REF: A. 2007 SAN JOSE 01783 AND PREVIOUS 
     ¶B. SAN JOSE 0071 (NOTAL) 
     ¶C. SAN JOSE 0003 (NOTAL) 
 
Classified By: ADCM David E. Henifin per 1.4 (d) 
 
¶1. (C) SUMMARY: Sino-Costa Rican relations continue to deepen 
smoothly, if slowly (Ref A).  The first tangible results of 
the GOCR,s June 2007 recognition of China -- USD 20 million 
in disaster relief, and loans and grants for development 
projects -- have begun to flow.  Both governments are 
highlighting potential tourism, trade, development and energy 
projects; negotiations on a free trade agreement may begin 
later this year.  The GOCR insists (privately) that this is 
not a one-way relationship.  The Arias administration 
welcomes the PRC,s largesse, but maintains that it will not 
shy away from raising prickly issues such as human rights. 
The GOCR also seeks to make the aid relationship with China 
far more transparent than it was with Taiwan.  From a US 
strategic perspective, the new Chinese generosity here is 
another reason we must remain engaged in Costa Rica through 
humanitarian and other assistance projects.  END SUMMARY. 
 
================= 
SHOW US THE MONEY 
================= 
 
¶2. (SBU) President Arias,s October 2007 visit to China was 
heavy on showmanship and symbolism, but MFA sources confirm 
that 11 agreements were signed, ranging from trade to tourism 
(China declared Costa Rica a "preferred destination" for 
tourism), to student exchanges.  The first batch of 
scholarship students, including the son of PLN legislator 
Federico Tinoco, is already studying in Beijing. A steady 
stream of PRC officials, including the VM for Tourism and a 
commercial delegation, have since visited Costa Rica. 
 
¶3. (SBU) The first tangible result of the newly-established 
relationship was a pledge of USD 20 million in disaster 
assistance following last year,s devastating rainy season 
(Ref B).  The MFA confirmed this was a no-strings-attached 
grant, which will be used primarily to reconstruct damaged 
housing, according to National Emergency Committee 
(FEMA-equivalent) director Daniel Gallardo.  The actual funds 
were transferred to the GOCR on December 16, in conjunction 
with a ceremony at the MFA. 
 
¶4. (SBU) The next tranche of assistance, totaling USD 28 
million, will underwrite specific infrastructure projects, 
according to MFA sources. The showcase will be a new stadium 
and sports complex in San Jose, which the MFA tacitly 
acknowledges seems to be part of the "standard" Chinese aid 
package for countries which recognize the PRC.  President 
Arias was shown sample facilities while in China.  Low income 
housing may be another component of the 28 million, with 
completion of the highway to San Ramon (begun by the 
Taiwanese) rounding out the package.  By mid-January, the 
local media were speculating that the total overall value of 
this tranche may actually be closer to USD 60 million. 
 
¶5. (SBU) Catching the spirit (and reflecting the political 
savvy and national aspirations of PLN mayor Jhonny Araya), 
the municipality of San Jose, with assistance from the 
Sino-Costa Rican Chamber of Commerce, announced plans to 
establish San Jose's own Chinatown.  This project is expected 
to promote tourism, encourage cultural exchanges, and 
beautify blighted areas of the declining center city. 
 
¶6. (SBU) Rounding out the PRC,s assistance is a sizable 
purchase of Costa Rican bonds, probably totaling USD 250-300 
million.  (The MFA and Hacienda have declined to confirm the 
actual number.)  The purchase will make China the largest 
holder of Costa Rican bonds. 
 
¶7. (C) According to the MFA, whether related to bonds, grants 
or other types of assistance, both governments want to make 
their aid relationship as transparent as possible. 
Donations, especially, are to flow openly to the appropriate 
GOCR agencies, with development projects handled via normal 
GOCR channels.  This is to contrast with the highly flexible, 
but not always above board assistance provided by Taiwan. 
MFA sources add that this transparency is also intended to 
quiet critics of Costa Rica,s switching allegiance from 
Taipei to Beijing, and to highlight Costa Rica as a "model 
aid recipient" while President Arias pushes his international 
"Costa Rica Consensus," (which calls for additional 
assistance to countries which disarm/reduce arms to focus on 
socio-economic development). 
 
============================= 
NEXT, A COSTA RICA-CHINA FTA? 
============================= 
 
¶8. (SBU) Ministry of Foreign Commerce (COMEX) has begun a 
feasibility study that may lead to a free trade agreement. 
Director General Gabriela Castro told the media on February 
11 that the study should be completed in six months, with 
meetings planned in China in April and in Costa Rica in June. 
 China-related trade expositions continue to take place (the 
latest sponsored the week of February 11 by a group called 
"China Ya" (China Now), with an eye to maximizing Costa Rican 
attendance at the large trade fair in Canton in April.  GOCR 
sources, meanwhile, highlight to the media the rapid growth 
in bilateral investment and trade since relations were 
established, which increased by a reported 30 percent from 
2006 to 2007.  (COMMENT: While some sources describe China as 
now the second largest market for Costa Rican products after 
the United States, the current figures are somewhat 
misleading.  In 2006, for example, a reported 90% of Costa 
Rica,s 1.082 billion USD exports to mainland China and Hong 
Kong was due solely to intra-company shipments of Intel,s 
integrated circuits.  This trade would have continued even 
without normalized relations.  Nevertheless, both the 
statistics as well as the proactive statements by GOCR 
officials on strengthening trade between the two countries 
portend strong future growth in the trade relationship. 
 
======================================== 
OIL EXPLORATION AND ENERGY: PIPE DREAMS? 
======================================== 
 
¶9. (SBU) On January 18, the GOCR and the PRC Embassy 
announced cooperative efforts in energy 
production, the culmination of several months of talks 
between the two governments.  China's 
National Oil Corporation is to assist in oil exploration and 
at the same time, provide technical expertise and financial 
assistance for the modernization and expansion of Costa 
Rica's Caribbean coast oil refinery, operated by RECOPE, the 
state-owned petroleum enterprise.  The deal may more than 
triple the facility's capacity.  (NOTE: The GOCR is entirely 
dependent on Venezuelan oil at the moment, although it is 
negotiating to refine Colombia and Ecuador petroleum locally. 
 Only approximately 20% of Costa Rica,s national electrical 
energy production is oil-dependent, however.  The vast 
majority is generated from renewable hydro-electric sources.) 
 
 
¶10.  (C) Privately, MFA sources explain that the oil project 
would be supported by the Chinese-purchased bonds, and would 
envision expanding RECOPE facilities even farther, perhaps by 
a factor of five.  The national port-port oil pipeline 
(running between Caldera on the Pacific and Limon on the 
Caribbean) would also be refurbished.  The Chinese goal, 
according to the MFA, would be to turn Costa Rica into a 
petroleum shipping and refining hub for the region.  The PRC 
would buy crude elsewhere, ship it to Costa Rica for refining 
(presumably providing some at low cost to RECOPE), then sell 
it to a 3rd party to ship it to China.  Our MFA contacts 
acknowledge this may be a very ambitious undertaking, given 
(a) Costa Rica,s strong environmental lobby and reputation 
as a green country (which, in the past was cited by the GOCR 
as the reason for freezing a petroleum exploration concession 
previously granted to the US firm, Harken) and (b) possible 
contradictions with President Arias,s international Peace 
with Nature initiative. 
 
======= 
COMMENT 
======= 
 
¶11. (C) Both sides are eager to show the benefits of the new 
Sino-Costa Rican partnership.  PRC Ambassador Wang continues 
to stress in public that Beijing views Costa Rica as the 
stepping stone to reach other Central American nations, using 
increased trade, industrial development, and 
economic assistance as tangible incentives.  For its part, 
the GOCR wants to put as principled a gloss as possible on 
its new links to China.  The MFA privately tells us that it 
will not shy away from pressing the PRC on prickly issues 
such as human rights.  This may be easier for Costa Rica, now 
that it has been elected to the Security Council. From a US 
strategic perspective, the new Chinese generosity here is 
another reason we must remain engaged in Costa Rica through 
humanitarian and other assistance projects, such as the 
JTF-Bravo MEDRETE exercise and the SOUTHCOM engineering 
survey in December (Refs B-C).  We can't match China's blank 
check for USD 20 million, but we can offer targeted, 
effective assistance and sustained involvement. 
BRENNAN