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COSTA RICA: Companies Eye Pull-Outs if CAFTA Flounders

by Daniel ZuerasInter Press News Service (IPS)
August 29th, 2006

Weary of the snail's pace ratification process of the Central American Free Trade Agreement (CAFTA), which continues to dominate Costa Rica's political and social agenda, some companies are weighing the idea of moving to other Central American countries should Congress reject the treaty.

Five countries -- Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua -- signed CAFTA with the United States two years ago, and were joined by the Dominican Republic the following year. The export sector welcomed the deal with high hopes for the economic benefits it could bring to the region.

But in Costa Rica, always a step behind in integration matters -- it was late joining the Central American Common Market in the 1960s and never became a member of the Central American Parliament -- the legislature has not yet ratified the treaty, which has already been approved by all of the other participating countries.

Former Costa Rican president Abel Pacheco (2002-May 2006) held off sending the text to Congress for almost a year, reluctant to spark the ire of trade unions.

Recently-elected President Óscar Arias -- who also served between 1986 and 1990 and won the Nobel Peace Prize in 1987 -- is committed to gaining congressional approval for CAFTA, but faces a tough road.

The free trade deal has been an ongoing source of controversy in Costa Rica. On Aug. 14, several companies threatened to pull out of the country if Congress fails to give the agreement the green light.

And the clock is ticking. San José has until Mar. 1, 2008 to approve the treaty, and companies feel the window of opportunity gradually closing.

Failure to ratify the treaty would place the country at a competitive disadvantage in global markets, said Shirley Saborío, executive director of the Union of Private Sector Chambers and Associations (UCCAEP), which represents the private business sector in Costa Rica.

"What is at stake is the country's development, because there is no alternative to CAFTA in the foreseeable future. It consolidates trade benefits with Costa Rica's main market. What we have now is a worst-case scenario, where every country except ours has ratified CAFTA. The pressure to cut off unilateral benefits for a country that negotiated but did not ratify CAFTA will be tremendous," she told IPS.

One company that has threatened to move its operations to another country is Sardimar, a large-scale tuna producer that employs 1,000 workers.

The largest tuna company in Central America and the Caribbean, Sardimar exports to 28 countries, including Canada (with which Costa Rica has already implemented a free trade agreement) and the United States.

Sardimar General Manager Thomas Gilmore told IPS that "we have decided to transfer operations to another country in the region if Costa Rica does not approve CAFTA in its entirety by March 2008. We're leaning towards El Salvador."

Currently, under the U.S. Caribbean Basin Initiative (CBI) -- in effect since 1984 -- food and agriculture products are exported duty-free to the U.S. market. But the future of the CBI is up in the air; one part is valid only until 2008, at which point, without CAFTA, goods exported to the United States could be subject to 35 percent tariffs.

"Costa Rica will end up approving CAFTA and its corresponding laws," predicted Gilmore. "If for some reason it's not going to, that will be clear by the end of 2007."

CAFTA sections regarding privatisation of Costa Rica's state-run insurance and telecommunications monopolies have sparked the greatest outrage, as trade unions and many citizens consider these institutions "jewels" in the country's crown.

Diego Artiñano, general manager of the Atlas Eléctrica company, underscored that "Atlas jobs in Costa Rica are not at risk. Having said that, we are planning a major expansion to double our current capacity, which we can undertake only within a stable, forward-looking environment."

The Costa Rican company, which manufactures home appliances, has a workforce of 1,200 and exports to countries throughout the Americas.

Artiñano is still optimistic about CAFTA's chances for ratification, but said "it's unfortunate that the stumbling blocks have nothing to do with economics -- all about domestic politics. The country's priorities are out of order."

Other firms have already made motions to leave, such as agrifood company Melones de Costa Rica, which owns 4,000 hectares in San Francisco Libre del León, Nicaragua. The company warned that, to avoid losing markets if Costa Rica kills CAFTA, it will jump the border to the north to avoid paying 29.9-percent tariffs on goods it exports to the U.S. market. If it makes good on its threat to pull out, Costa Rica stands to lose 5,000 jobs.

But Albino Vargas, secretary of the National Association of Public and Private Employees (ANEP), has a different take on Costa Rican firms sizing up potentially greener pastures.

"They are taking advantage of the situation to cut costs. Not only will this free trade agreement fail to generate employment, but we have showed in various studies that it actually threatens up to 200,000 service, agriculture and manufacturing jobs."

"Without building it up too much, in terms of development, Costa Rica is on an entirely different level than the surrounding countries," he said. For example, the country's minimum wage -- approximately 250 dollars a month -- is much higher than those of its neighbours.

"Frustration levels in business circles are running high because of CAFTA. It's now going on three years without ratification. We believe the CBI will remain in effect after 2008; it does not have an expiry date, and we don't think the United States would punish Costa Rica for not ratifying the free trade agreement," he added.

He clarified that trade unions do not object to expanding trade with the United States. Any such accusations are based on "a major distortion of the truth," said Vargas. What they do want is "another kind of deal -- preferably bilateral," taking into account Costa Rica's advantages with respect to its neighbours.

The unions are not alone on this point. According to a CID-Gallup poll conducted for La República newspaper, support for CAFTA has fallen from 61 percent in October 2005 to 41 percent today.

This is because "Costa Rica has carried out more studies on CAFTA than any other participating country. Well-respected lawyers say it would quietly undermine our constitution," said Vargas.

Academics have also come out against the treaty, as has the centre-left Citizen Action Party headed by Ottón Solís -- the leading opposition party -- which has unsuccessfully pressed for a renegotiation of the agreement with Washington.

Tensions could run high over the next few months. Trade unions have threatened to take to the streets, pulling out all the stops to draw support from public employees -- the ones most affected if CAFTA is approved.





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