Costa Rica Passes Trade Agreement in Landmark Referendum

October 8, 2007
San Jose, Costa Rica

Dear Costa Rica First Alert Reader,

Yesterday a slim majority of voters in Costa Rica approved DR-CAFTA (the Dominican Republic-Central American Free Trade Agreement). The people passed the pact with the U.S. in the nation's first-ever referendum. This is also the first time in world history that a country has put a Free Trade Agreement (FTA) to a popular vote.

Initial results released after polls closed Sunday night show 52% of voters approved and 48% rejected the agreement, simply referred to as CAFTA. By law, election officials must now recount all the votes by hand, a process that could last through next week. The margin of approval is wide enough, however, that the recount is unlikely to upset the "yes" camp's win.
The agreement has been a flash point of social and political conflict. During the past four years of debate, the nation has been split down the middle. (In the 2006 presidential elections, pro-CAFTA candidate Oscar Arias beat anti-CAFTA Otton Solis by less than a percentage point.)

But the pro-CAFTA camp is not out of the woods. Costa Rica's inclusion in CAFTA now hinges on an "implementation agenda." The agenda stipulates 13 laws that the U.S. wants Costa Rica to enact. Costa Rica's Legislative Assembly must pass these measures before March 2008, or the country will be permanently excluded from the accord. Leaders of Solis' opposition party Partido Accion Ciudadana (Citizen Action Party, or PAC) plan to do their best to block the implementation agenda in the assembly.

Nicaragua, Honduras, El Salvador, Guatemala, and the Dominican Republic are already participating members of CAFTA. Costa Rica is the only invited country that has not ratified it. Panama, meanwhile, has since negotiated and approved a separate, bilateral FTA with the United States.

Under CAFTA, Costa Rica will receive duty-free access to the U.S. market for a nearly all of its exports, while 80% of U.S. goods will enter Costa Rica tax-free. CAFTA also opens Costa Rica's insurance and telecommunications markets-currently under government monopoly-to competition (one of the main reasons many Costa Ricans objected to the pact).

The opposition says Costa Rican businesses may not be able to compete with a flood of cheap products from the U.S. (particularly subsidized agricultural products). Also, intellectual property rights will make it impossible for state-run hospitals to get cheap, generic medicines for low-income Costa Ricans.

Many export businesses, on the other hand (particularly in the tuna and textile sectors) said they would move operations out of Costa Rica if CAFTA were rejected. Business representatives said they would not be able to stay competitive in Costa Rica if every other Central American country had duty-free access to the U.S.

In a victory speech Sunday night, President Arias called on Costa Ricans to move past their differences, respect the results and come together to solve the country's problems. The pro-CAFTA camp then celebrated the initial results with a big party, complete with flashing lights, dancing girls, and clowns. Leaders of the opposition did not immediately acknowledge a loss, however. They are alleging irregularities and say they prefer to wait for the full recount.

Your Latin America Insider,

Suzan Haskins
for International Living

P.S. Now more than ever it is an exciting time to set your sights on Costa Rica. Be one of the first, and position yourself for the increased business opportunities and other benefits CAFTA will bring. Learn how.