Cablegate: Costa Rica Response to Ustr Request for Info On Cbi-

Published: Tue 15 Nov 2005 02:02 PM
This record is a partial extract of the original cable. The full text of the original cable is not available.
E.O. 12958: N/A
1. SUMMARY: Post has updated information provided in
previous report using the same format. Post contact is
Maria D. Villanueva, (506) 519-2419, Fax (506) 519-2364, End Summary.
2. Country Reports: Compliance with Eligibility Criteria
The country reports contained in this section focus
particular attention on current performance of CBI countries
with respect to the eligibility criteria reflected in the
CBTPA, as the most recent expression of U.S. policy
objectives linked to the extension of CBI benefits. The pre-
existing eligibility conditions of the CBERA are also
reflected in the country reports, where relevant.
3. Costa Rica
Population: 4,178,755 (Jul 2004)
Per Capita GDP: $4,204
Central Bank of Costa Rica (2004)
Trade Statistics:
U.S. Exports: $3,725,000,000
U.S. Imports: $3,741,000,000
U.S. Trade Balance: -$17,700,000
Central Bank of Costa Rica Data
4. Economic Review: Costa Rica has continued to pursue an
economic strategy based on trade liberalization and
investment promotion. This strategy has led to
diversification of the economy away from traditional
dependence on agricultural products, such as bananas and
coffee, and towards tourism; services, such as call centers;
and manufactured industrial goods, such as semiconductors.
However, during the five-year period from 2000 through 2004,
average GDP growth dropped to 3.1 percent per year, compared
to a 5.4 percent annual growth from 1995 to 1999. The
current rate is insufficient to prevent a creeping rise in
unemployment, despite a thriving export sector. Among the
problems currently encountered by the Costa Rican economy
are continued double-digit inflation rates, and stagnant
real family incomes and per capita GDP figures. Costa Rica
has an ineffective tax system that has not raised sufficient
funds to build or even maintain the necessary infrastructure
to take advantage of CBI opportunities. Out of 155
countries surveyed in the World Bank's "Doing Business"
index, Costa Rica ranks 129 in "paying taxes". Costa Rican
policies during this administration have led to a decline in
competitiveness. This decline is reflected by a drop of 14
places between 2004 and 2005 in the most recent World
Economic Forum Growth Competitiveness Index.
The United States supplied 45 percent of Costa Rican imports
and absorbed 59 percent of Costa Rican exports in 2004. The
tourism sector is the principal earner of foreign currency,
and tourists from the U.S. far outnumber those from other
countries. The United States remains by far the largest
foreign investor in Costa Rica. The U.S.-Cental American-
Dominican Republic Free Trade Agreement (CAFTA-DR)
negotiations concluded on January 24, 2004, the agreement
was signed on August 8, 2004 and the President of Costa Rica
sent the bill to the Legislative Assembly for ratification
on October 21, 2005. The GOCR will likely not be able to
complete the ratification process and pass all the necessary
implementation laws before the second half of 2006, meaning
Costa Rica will join CAFTA-DR sometime after it has already
come into force for all other partners.
5. Commitment to the World Trade Organization (WTO) and
Free Trade Area of the Americas (FTAA): Costa Rica
participates actively in the WTO and has taken its
obligations under the Uruguay Round seriously. In 2000,
Costa Rica ceased granting financial investment subsidies
and tax holidays to new exporters. Companies established in
duty-free exporting zones are scheduled to begin paying
taxes in 2007 although they can request an additional two
year extension. Costa Rica has been supportive of
multilateral trade liberalization through negotiations in
both the WTO and the FTAA. Currently, Costa Rica serves as
the Chair of the Working Group on Transparency in Government
Procurement Practices. In the FTAA negotiations, Costa Rica
is currently the Chair of the Government Procurement
Negotiating Group and served as Chair of the Dispute
Settlement Negotiating Group from 1999-2001. The majority
of the staff of the Costa Rican Ministry of Foreign Trade
left between late-2004 to mid-2005, which has affected the
Ministry's operational capabilities.
6. Protection of Intellectual Property Rights (IPR): Costa
Rica has been on the Watch List since 2002 when it was moved
from the Priority Watch List. Costa Rica is a party to all
major international intellectual property agreements with
the exception of the Budapest Agreement. In part due to
being named a Priority Watchlist Country in 2001, the GOCR
took steps at that time to combat piracy and passed several
IPR protection laws including the requirement for the GOCR
to not use pirated software.
However, since that earlier push to combat IPR violations,
progress has stalled. The GOCR does not have the political
will to pursue IPR violators, in part due to scarce
resources and other "higher priorities". Criminal and civil
remedies are available but the onus is completely on the
victim of the crime, i.e., the victim not only has to
investigate the violation but also, in most cases, needs to
request seizure of the property, pay for all required
analysis, and employ legal counsel to bring the case to
trial. Piracy of pharmaceuticals is a concern as the large
majority of the drugs purchased by the Costa Rican Social
Security System are generics and Costa Rica does not have
the capability to test for bioequivalence. IPR protection
is covered under CAFTA-DR chapter 15, but Costa Rica's IPR
obligations will require much more attention whether or not
CAFTA-DR is ratified.
7. Provision of Internationally Recognized Worker Rights:
The Costa Rican Constitution protects the right to organize.
Specific provisions of the 1993 Labor Code reforms provide
protection from dismissal for union organizers and members
during union formation, including reinstatement for workers
who were unfairly dismissed. Courts order reinstatement as
appropriate under Costa Rican law, although employers do not
always comply with such orders. Labor courts and case
backlogs have been significantly reduced as a result of
additional shifts, including night-shift work, the
appointment of more labor court judges, and a center for
alternative dispute resolution that operates in San Jose.
However, the Costa Rican judicial system can further benefit
from efforts to expedite cases, redress procedures, and
increase efficiency. Costa Rican labor leaders claim that
stronger remedies for retaliatory dismissals of trade
unionists would advance trade unions in the country.
According to the Labor Ministry the rate of unionization is
53 percent in the public sector and 6 percent in the private
sector, with an overall rate of 12 percent. Currently,
public sector bargaining is governed by a provisional
regulation that requires collective agreements to be
reviewed by a commission of state officials, making approval
contingent on the impact of the agreement on the national
With regard to the issue of public sector collective
bargaining, the International Labor Organization (ILO)
Committee of Experts on the Application of Conventions and
Recommendations (CEACR) has encouraged Costa Rica to ratify
ILO Conventions 151 and 154. In May 2002, the Government of
Costa Rica proposed legislation to expand and guarantee the
right to bargain collectively in the public sector and in
April 2003 the Government proposed the ratification of ILO
Conventions 151 and 154. To date the Costa Rican
Legislative Assembly has failed to enact either the
legislation or the ILO Conventions.
The ILO conducted a labor law study at the invitation of the
Costa Rican government in 2003. The study entitled,
"Fundamental Principles and Rights at Work: A Labour Law
Study" documented that Costa Rican law specifies the rights
of workers to join unions of their choosing without prior
authorization, and workers exercise this right in practice.
Unions operate independently of government control. The law
prohibits discrimination against union members and imposes
sanctions against offending parties. In practice, however,
labor organizations complain that employers, especially in
the private sector, regularly fire workers for joining
unions. Due to extensive backlog and outdated case
management, labor dispute resolution within the Ministry of
Labor frequently takes up to ten years to complete. As a
result, according to union officials, employers regularly
restrict employees' access to unions or dismiss workers
without cause with little fear of official sanction, since
few workers can maintain a dispute for eight years.
The ILO, in conjunction with the University of Costa Rica
and the Costa Rican Supreme Judicial Court, recently
proposed legislation to update the country's labor law to
streamline the labor dispute resolution process, encourage
alternative dispute resolution, and ease restrictions on
collective bargaining and strikes.
The GOCR is engaged in labor cooperation initiatives to
increase the capacity of the Labor Ministry and to better
protect worker rights. These initiatives include a regional
project in Central America funded with a fiscal year 2004
grant of $6.75 million from the U.S. Department of Labor to
increase workers' and employers' knowledge of labor laws,
strengthen labor inspections systems, and create and bolster
alternative dispute resolution mechanisms.
The Costa Rican Constitution prohibits forced or bonded
labor, and there have not been any reports that such labor
has occurred. Laws specifically prohibit forced and bonded
labor by children, and the government enforces this
prohibition effectively. The minimum age of legal
employment in Costa Rica is 15 years.
The Costa Rican Constitution provides for a minimum wage by
occupation that is set by the National Wage Council. The
Ministry of Labor effectively enforces minimum wages in the
San Jose area, but is less effective in rural areas,
especially those where large numbers of migrants are
employed. The national minimum wage does not provide a
decent standard of living for a worker and family.
The Constitution sets maximum workday hours, overtime
remuneration, days of rest, and annual vacation rights.
Generally, workers may work a maximum of eight hours during
the day and six at night, up to weekly totals of 48 and 36
hours, respectively.
Nonagricultural workers receive an overtime premium of 50
percent of regular wages for work in excess of the daily
work shift. The law on health and safety in the workplace
requires industrial, agricultural, and commercial firms with
10 or more employees to establish a joint management-labor
committee on workplace conditions and allows the government
to inspect workplaces and to fine employers for violations.
Inspection and enforcement of labor violations are the
responsibility of the Inspections Directorate of the
Ministry of Labor. Officials within the directorate
acknowledge that their operations and effectiveness are
severely hampered by a lack of resources. While the office
represents one of the most widely dispersed agencies within
the Costa Rican government, with 31 offices located
throughout the country, most offices are under-staffed,
poorly equipped and isolated. As a result, inspectors focus
primarily on large businesses within the formal labor
sector. Inspectors lack the resources to effectively police
small enterprises and the informal labor sector but few of
these enterprises export items covered by CBI preferences.
8. Commitments to Eliminate the Worst Forms of Child Labor:
Costa Rica is serious about addressing the issue of the
worst forms of child labor, and President Pacheco has been
very public in his concern for child welfare. Costa Rica
ratified Resolution 138 of the ILO in 1974. In July 2001,
the Legislative Assembly ratified Resolution 182 of the ILO
related to eliminating the worst forms of child labor,
including the sexual exploitation of children. The
government has also established a national committee to
oversee the efforts to combat child labor and has signed a
Memorandum of Understanding with ILO-IPEC. Responsibility
for child welfare and labor enforcement is shared among
several ministries and directorates, coordinated under the
National Committee on Child and Adolescent Labor. The
Ministries of Labor, Education, Health and Children's Issues
are all represented on the committee. The Office for the
Eradication of Child Labor and Protection of the Adolescent
Worker (OATIA), an office within the Ministry of Labor, has
principal responsibility for drafting and implementing
action strategies and education programs.
In August 2003, the Government of Costa Rica and the ILO
released a joint, comprehensive report financed by the U.S.
Department of Labor entitled "Results of the Survey of Child
Labor and Adolescents in Costa Rica." According to the
report, of the 1,113,987 children and adolescents between
the ages of 5 and 17 in Costa Rica, 127,077 or 11.4 percent
are employed or looking for work.
This year, the OATIA issued its second National Action Plan
for the period 2005-2010. Drafted in conjunction with some
twenty governmental offices and NGOs the plan ambitiously
seeks to eradicate child labor in Costa Rica by 2010 through
implementation of eight rights-based goals. Each general
goal is accompanied by specific goals, strategies and action
plans calling for significant involvement and contribution
from diverse child governmental agencies and NGOs. Among
the strategies to be implemented are training of teachers,
parents and labor inspectors, detailed regional information
gathering, and aggressive poverty-reduction campaigns. In
addition, the Government of Costa Rica has a number of
social programs to reduce the causes of child labor. These
programs include providing small loans and economic aid to
families with at-risk children and scholarships for poor
families to cover the indirect costs of attending school.
Due to an underfunded and poorly equipped inspections
regime, child labor remains an issue mainly in the informal
sector of the economy, including small-scale agriculture,
domestic work, and family-run micro-enterprises. Sex
tourism is actively discouraged and enforcement has been
strengthened, either by prosecution and lengthy imprisonment
of U.S. citizen offenders in Costa Rica or their capture and
deportation for punishment in the U.S., yet child
prostitution remains a problem, and more resources would
improve enforcement.
9. Counter-Narcotics Cooperation: Costa Rica is a
transshipment point for the smuggling of cocaine and heroin
from South America to the United States and Europe. Costa
Rican law enforcement officials are fully cooperating with
U.S. counter-narcotics efforts. Costa Rica continues to
work closely with the United States in implementing the
comprehensive Maritime Counter-drug Cooperation Agreement
signed with the United States in 2000.
10. Implementation of the Inter-American Convention Against
Corruption (IACAC): Costa Rica has ratified the IACAC.
Domestic law imposes a requirement that senior government
officials file personal financial reports while in office.
In 2002, the Government of Costa Rica commissioned a study
to monitor implementation of the IACAC and to issue
recommendations for further actions.
The GOCR has taken legal steps to combat alleged corruption
involving two ex-presidents who are charged with having been
involved in two different corruption/kickback schemes. The
cases are still pending after more than a year of
investigation. As a result of these charges, the
Legislative Assembly passed a law in 2004 to strengthen the
government's anti-corruption efforts.
11. Transparency in Government Procurement: While the
Government of Costa Rica generally requires all procurement
to be done through open bidding, problems and complaints
occur. Costa Rican government procurement practices are
complex and cumbersome, resulting from the many layers of
government supervision in place to prevent illegal
practices. Bid awards are frequently delayed by appeals by
the losing parties or the Contraloria General's efforts to
regulate government purchases and procedures. The
aforementioned corruption scandals both involved state
monopolies. In one case, alleged kickbacks came from a
company that had "won" a contract with the state-owned
telecommunications company, and the other, embezzlement of
funds from the social security system. CAFTA-DR will allow
competition in both of these sectors thereby lessening
opportunities for corruption.
Additional Issues
12. Expropriation: The Government of Costa Rica has
expropriated large tracts of rural land for national parks,
biological reserves and indigenous reservations during the
past 30 years. The Costa Rican Constitution stipulates that
no land can be expropriated without prior payment and
demonstrable proof of public interest, but disputes
frequently arise over title to the property and the amount
of compensation with some cases dragging on for over 30
years. Current and past governments have made some efforts
to resolve several pending expropriation cases involving
U.S. citizens, but long-standing cases remain. Out of 155
countries surveyed in the World Bank's "Doing Business"
index, Costa Rica ranks 141 in "enforcing contracts" and 134
in "protecting investors" which accurately reflects the
difficulties American investors experience in Costa Rica.
There are cases where arbitral awards by the ICSID or by
local arbitration in favor of U.S. citizens have heen
13. The GOCR has free trade agreements with the following
countries/groups (year in which ratified): Panama (1973),
Mexico (1995), Canada (2001), Chile (2001), the Dominican
Republic (2001), CARICOM which comprises Antigua and
Barbuda, Barbados, Belize, Dominica, Grenada, Guyana,
Jamaica, St. Kitts and Nevis, Saint Lucia, St. Vincents and
the Grenadines, Suriname, and Trinidad and Tobago (2005).
None of these agreements appears to have had any adverse
effects on U.S. commerce. The FTA with CARICOM could result
in a lowering of prices of products such as certain fruits
and vegetables in the CARICOM countries and, likewise,
provide another market for CARICOM-produced items. This
would seem to support CBI goals.
14. Costa Rica does have an extradition treaty with the
U.S. and GOCR personnel work with Post personnel effectively
in arranging extraditions.
15. There are no government-owned broadcasting entities
that broadcast copyrighted materials without the express
consent of U.S. copyright-holders.
16. Regarding the extent to which Costa Rica has assured
the U.S. it will provide equitable and reasonable access
for U.S. goods and services to its market (and the question
of whether the country is undertaking self-help measures to
promote its own economic development), the ratification and
implementation of CAFTA-DR and its associated
"complementary agenda" are the best indicator.
The series of coordinated projects known as the
complementary agenda to CAFTA-DR includes many self-help
initiatives to improve customs' clearing systems, roads and
other infrastructure, and investing in education and
training to ensure the flourishing of small- and medium-
size businesses. A request to approve funding of these
projects by loans from the World Bank (WB), the Inter-
American Development Bank (IDB), and the Central American
Bank for Economic Integration (BCIE) is currently being
reviewed by the Legislative Assembly.
17. The GOCR is cooperating with the U.S. in the
administration of CBERA. As an example, auditors from the
Department of Homeland Security's Immigration and Customs
Enforcement Agency recently completed an inspection in
country. The Ministry of Foreign Trade, Customs Agency,
and the quasi-governmental Costa Rican Textile Chamber
provided unfettered access and helpful assistance to the
18. Costa Rica is a country that is benefiting greatly from
CBI. In general, the country has made progress since CBI
came into force in 1984 toward freer trade and lower
barriers. However, the ratification of CAFTA-DR should be
taken as the key indicator on whether that process will
continue or whether progress in lowering trade barriers has
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