VZCZCXYZ0000
PP RUEHWEB

DE RUEHSJ #0098/01 0492027
ZNR UUUUU ZZH
P 182027Z FEB 09
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC PRIORITY 0500
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE

UNCLAS SAN JOSE 000098 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR WHA/CEN, WHA/EPSC, INL/AP AND EEB 
PLEASE PASS TO USTR AMALITO AND DOLIVER 
 
E.O. 12958: N/A 
TAGS: ASEC CS ETRD KIPR PGOV PINR PREL SNAR
SUBJECT: WHA/CEN DEPUTY DIRECTOR'S VISIT: MERIDA AND CAFTA 
 
REF: A) SAN JOSE 0085, B) 07 SAN JOSE 0288 
 
¶1.  SUMMARY: (SBU) GOCR officials and legislators asked for 
additional Merida assistance for Costa Rica, and echoed the region's 
positive hopes for the Obama Administration in meetings with 
visiting WHA/CEN Deputy Director David Wolfe February 9-11.  Key 
legislators made clear that the domestic political wounds from the 
CAFTA implementation battle have not yet healed; this may slow 
passage of the pending IPR technical corrections bill.  They also 
asked about "renegotiating" CAFTA.  Wolfe heard from business 
leaders about their growing security concerns and plans to attract 
more FDI in "niche" high-tech and service sectors.  On Merida, Wolfe 
conferred with VM of Public Security Marcela Chacon, who agreed that 
the FY 2008 LOA's should be ready for signature in late-February or 
early-March, depending on Ministerial schedules.  He also visited 
the coast guard base at Puntarenas, and stressed throughout his 
visit the importance of a coordinated regional approach to security 
(and to obtaining USG security assistance).  In addition, Wolfe 
joined a meeting between VM of Public Security Ana Duran and a 
visiting team from DOJ to discuss TIP enforcement issues.  Wolfe did 
not clear this cable in advance.  MFA issues addressed septel.  END 
SUMMARY. 
 
 
 
-------------------- 
WITH THE LEGISLATORS 
-------------------- 
 
¶2.  (U) Post used Wolfe's visit to arrange a group meeting with 
three faction chiefs and three independent members of the 
legislature.  DCM Brennan and Emboffs also participated in the 
wide-ranging discussion over lunch.  The legislators were very 
optimistic about the new U.S. administration, and hopeful of a more 
"respectful" tone in relations with Latin America.  They also 
described Costa Rica's "strategic importance" to the United States 
as a stable democracy and a regional ally. 
 
¶3.  (U) CONCERNS ABOUT CAFTA, AND CRIME:  Pro-CAFTA legislators 
(such as independent Evita Arguedes) voiced concerns about President 
Obama's campaign pledge to re-examine free trade agreements.  The 
PAC's Francisco Molina, whose party had vigorously opposed CAFTA 
(and whose party leader has consistently called for "renegotiating" 
the agreement) maintained that PAC only sought to modify some labor 
and environmental sections of CAFTA.  All agreed that rising crime 
remained a major problem in Costa Rica, and some expressed hope that 
additional Merida assistance would be provided to a "deserving" 
Costa Rica. 
 
¶4.  (SBU) THE 14TH LAW:  The most heated discussion (among the 
legislators) concerned the final CAFTA implementation legislation 
(making technical corrections to earlier IPR legislation).  Although 
well-versed with the details of the bill (which is the newest item, 
and thus dead last on the current legislative agenda), the 
legislators made clear that the domestic political wounds from the 
CAFTA implementation battle have not yet healed.  In addition to the 
anti-CAFTA PAC, erstwhile pro-CAFTA partner PUSC was still fuming at 
the GOCR for "hiding" the final bill until the last minute.  PLN 
faction chief Oscar Nunez (representing President Arias' party) was 
confident the bill would be passed, eventually. 
 
¶5.  (SBU) U.S. RESPONSE:  DCM Brennan, Wolfe and Emboffs explained 
why "renegotiation" of CAFTA, or any other current FTA, was highly 
unlikely, given the other more pressing issues on the USG's agenda. 
Brennan also cautioned that re-opening trade agreements could cut 
both ways, potentially leading to tougher requirements on U.S. 
trading partners.  Wolfe suggested that the Pathways Ministerial in 
April might address some of the region's concerns about the social 
aspects of free trade agreements.  He also described the continuity 
underpinning USG policy in the hemisphere, even with the change in 
administrations.  On Merida, he explained the aegis of the 
initiative, detailed the regional programs that would complement 
bilateral assistance to Costa Rica, and urged Costa Rica (and the 
other Merida countries) to focus on regional solutions to security, 
and to approaching Washington for assistance. 
 
------------------------ 
WITH THE BUSINESS SECTOR 
------------------------ 
 
¶6. (U) SECURITY CONCERNS:  Security concerns, CAFTA follow-up, 
foreign direct investment (FDI) and the global financial crisis were 
top of the agenda for business leaders including AMCHAM Executive 
Director Lynda Solar, President Luis Gamboa, and members Charles 
Spalding and Jorge Villalobos.  The rise in crime, they told Wolfe, 
was eroding one of Costa Rica's historic comparative advantages for 
businesses and investors.  Solar called for re-energizing the 
Embassy-private sector Overseas Security Council (OSAC).  (This 
group, coordinated by Post's RSO, will meet again in a few weeks.) 
 
¶7. (U) The AMCHAM group characterized Costa Rica's legal system as 
unable to deal with the rising crime.  While the nation bragged 
about being the only Central American country without overcrowded 
jails, the truth was not enough criminals are being put in jail, 
according to Gamboa.  Wolfe outlined the Merida-related security 
assistance that Costa Rica would receive.  He also encouraged the 
private sector to work in at-risk neighborhoods with local NGOs to 
offer community-based solutions to crime. 
 
¶8. (U) FINANCIAL CRISIS:  AMCHAM views President Arias' new Plan 
Escudo (Shield) as impractical for the private sector (Ref A).  They 
noted that his request that the private sector redistribute hours 
among personnel to ensure that everyone has at least some income is 
financially impossible given Costa Rica's strict labor and severance 
laws.  Any change of hours (from six days a week, eight hours a day) 
requires companies to pay the employee full severance.  The private 
sector continues to work with the GOCR to make the severance laws 
more flexible so they can respond to his request.  The AMCHAM 
representatives said Plan Escudo had no "meat" in it to help the 
private sector."  Villalobos (from HSBC Bank) echoed what we have 
heard previously about many real estate projects stopping mid-stream 
because of the economic downturn.  On the other hand, many companies 
are aware that this is the cheapest time to build and are trying to 
self-finance some projects. 
 
¶9. (U) ATTRACTING FDI: In a follow-on meeting, CINDE Director 
Gabriella Llobet outlined plans to attract foreign investors to 
Costa Rica in three targeted areas: medical devices, advanced 
manufacturing, and professional services.  (CINDE, established by an 
endowment originally set up by USAID, is Costa Rica's 
non-government, non-profit investment promotion agency.) 
 
¶10. (U) Llobet and her staff explained that Costa Rica saw USD 2 
billion in FDI in 2008, and expected to see a 30% reduction in 2009. 
 FDI per capita was USD 445, about seven times the rate in China, 
translating to 6.8% of GDP and placing Costa Rica 13th in the world 
for attracting FDI.   In 2008, thirty high tech companies invested 
or re-invested USD 428 million in Costa Rica, producing over 6,000 
new jobs.  Costa Rica's main competitors in terms of attracting FDI 
are Malaysia, Vietnam, Thailand, and Singapore in addition to Latin 
American competitors Chile and Panama.  CINDE believes that there 
are two areas for growth in spite of the recession: medical devices 
and professional services.  The health sector is not as susceptible 
to market changes and many U.S. companies may choose to move their 
call centers or back office operations to Costa Rica because of the 
cheaper labor costs. 
 
¶11.  (U) AND KEEPING FDI: In addition to attracting companies, CINDE 
also works hard, through their "aftercare" customer service, to keep 
companies in Costa Rica and to encourage them to expand operations 
here.  CINDE provides free assistance to obtain permits and navigate 
often-difficult government procedures.  They also solicit feedback 
about how Costa Rica can be more responsive to companies' needs. 
For example, when companies noted that they were unable to find 
enough workers with sufficient English-language skills, CINDE 
launched pilot language training programs in targeted areas.  Some 
of these programs have now been adopted as part of the Arias 
administration's national English Program. 
 
------------------- 
ON THE ROAD I - SARDIMAR STILL A SUCCESS 
------------------- 
 
¶12. (U) As have other Washington visitors (Ref B), Wolfe visited 
Sardimar Tuna Company (Costa Rican owned) as part of his field visit 
to the major Pacific Coast town of Puntarenas on February 10. 
Sardimar is the largest tuna processor in Central America, employing 
1300 - most from the surrounding communities - and exporting to over 
26 countries including the United States, Canada, the EU, Central 
America, and the Caribbean.  In the U.S., Sardimar products are sold 
under a variety of brand names at Whole Foods and Trader Joe's. 
 
¶13. (U) A MODEL OPERATION: As we have witnessed in previous visits, 
the Sardimar facility is extremely professionally run and clean, 
adhering to EU standards, which are often more stringent than U.S. 
standards.  Sardimar also conducts an impressive array of corporate 
social responsibility programs that affect the Puntarenas community 
and the companies' employees.  These include: equipment and 
technical assistance to a local hospital, including constructing a 
natal wing and providing a pediatric ambulance; tuna for school and 
nursing home lunch programs; annual Christmas parties for 
orphanages; and dental and eye care and budgeting classes for 
employees.  These social activities complement Sardimar's 
environmental conservation efforts, which include purchasing only 
dolphin-safe tuna, and operating their own waste water treatment 
plant. 
 
¶14. (U) CAFTA MATTERS:  The lack of CAFTA-DR in Costa Rica would 
have particularly affected Sardimar.  Had CBI expired, or CAFTA-DR 
not entered into force, Sardimar would have been forced to pay up to 
34% in duties in the U.S. (up from four percent), and was thus 
considering moving out of Costa Rica last year.  The economic 
downturn in the U.S. has minimally affected Sardimar.  Only their 
market in El Salvador has contracted, and as a result, the company 
laid off several employees in December.  However, no major job cuts 
are on the horizon 
 
----------------------- 
ON THE ROAD II - COAST GUARD CHALLENGES 
----------------------- 
 
¶15. (U) Wolfe also visited the coast guard station in Puntarenas, 
observing first-hand the condition of the patrol boats the Costa 
Rican Coast Guard (SNGC) maintains in this small, dilapidated 
station.  SNGC Chief Engineer Adrian Delgado briefed Wolfe on the 
operational status of all vessels. 
 
¶16. (U) THE OLD BOATS: Of the five largest patrol boats (all 
1960's-1970's vintage U.S. vessels donated and delivered 1999-2000), 
only the two 82-foot vessels were operational; one was conducting a 
patrol during the visit.  Two 47-year old 65-foot patrol boats are 
not operational; one is beyond repair and the other is under repair. 
 The 31-year old 105-footer (which needs new engines and generators) 
is also non-operational.  The two 82-footers will receive new 
electronic equipment via the Merida Initiative, including new 
radars, radios, GPSs, and other electronic gear.  A third 82-footer, 
that will also receive Merida upgrades, is berthed in Golfito, 
approximately 200 miles to the south. 
 
¶17. (U) SOME NEW BOATS: We did note that a 32-foot vessel, seized 
during a counter-drug operation in July 2008, was now operating for 
the SNGC; this represents an additional small boat capability for 
the SNGC.  This new addition was donated in less than six months 
from the Costa Rican seized-asset organization (the Costa Rican Drug 
Institute or ICD), a great improvement over the usual asset seizure 
process, which can take years in litigation.  We also observed two 
INL-purchased 26-foot vessels at Puntarenas, one of which was in the 
water for the first time in over 18 months. 
 
¶18. (U) THE FUTURE (U.S.-FUNDED) BASE: Wolfe also visited the Port 
of Caldera, 20 miles from Puntarenas and adjacent to the future site 
of the SNGC station that will replace the existing (and run down) 
facility.  SOUTHCOM will spend between USD 2-3 million of Section 
1004 construction funds to build this new SNGC complex, which will 
include a barracks, maintenance facility, operations center, and a 
floating dock.  The floating dock will be future home to the 
FMF-funded "SAFE" boats, part of the FY 2008 Merida package for 
Costa Rica.  Ground-breaking for the new facility is expected later 
this year. 
 
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COMMENT 
------- 
 
¶19. (SBU) Wolfe's visit was well-timed to underscore the perceived 
renewed USG interest in the region.  One legislator told us after 
their meeting that she was "impressed" that Wolfe had come to 
"listen" to Costa Rican concerns.  This is still the honeymoon phase 
with the new U.S. administration, of course, and we may have to 
engage in some expectation management on Merida and other 
anticipated assistance programs for the region.  Another challenge 
will be to continue to highlight the benefits from CAFTA, even as 
the global economic slowdown reduces some of those gains.  For now, 
however, as Wolfe observed first hand, Costa Rica is looking forward 
to even closer and more positive relations with the United States 
under the Obama administration. 
 
CIANCHETTE