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Controversial free-trade agreement divides Costa Rica
The Washington Diplomat / November 2005

By Larry Luxner

What an irony it would be if Central America celebrates New Year's Day 2006 with the birth of CAFTA and Tomás Dueñas isn't invited to the party.

Dueñas, after all, is Costa Rica's ambassador to the United States, a successful businessman and one of the most ardent CAFTA supporters inside the Beltway. But the Central America Free Trade Agreement is so controversial back home that Costa Rica's own legislature has yet to consider the treaty, let alone ratify it.

That means Costa Rica could be left out in the cold when five other Spanish-speaking nations inaugurate the most important trading bloc in Central American history on Jan. 1.

That very real possibility concerns Dueñas, a businessman who never held any kind of diplomatic position until last November, when former President Miguel Angel Rodríguez appointed him to replace Costa Rica's previous ambassador in Washington, Jaime Daremblum.

"There's a saying in Spanish that "el sol sale para todo el mundo — the sun shines on everyone," Dueñas says, insisting that CAFTA will benefit not only Costa Rica and all of Central America, but the United States as well.

"I think CAFTA can help Costa Rica not only consolidate a market we've been able to develop, but also take a leap forward and become even more competitive," he says. "In Costa Rica, it's not only about wages but also social standards. We have free education and health care, which is universal. This is not the case with many other countries in the region."

Likewise, he adds, "The United States stands for democracy, liberty, trade and stability. By providing the region opportunities to enter its market, the U.S. is giving our region the means to become more democratic, and more stable through trade. That is good for all of us. Secondly, the U.S. is opening up markets for its products that previously were impeded by tariffs throughout Central America."

The governments of El Salvador, Guatemala, Nicaragua, Honduras and the Dominican Republic have all ratified CAFTA, as has the United States, leaving Costa Rica as the only holdout.

Panama and Belize, although geographically part of Central America, are not included in CAFTA, although the Dominican Republic is because of long-standing trade, cultural and language ties with the region. Technically, the agreement is known as US-DR-CAFTA, although it's still referred to as CAFTA by both supporters and detractors.

Dueñas, 56, is especially well suited for this tough job, thanks to his background as a no-nonsense businessman familiar with the strategies of international negotiations.

The child of a Costa Rican mother and an Ecuadorian father, Dueñas speaks perfect English, having been born in the United States and raised in both Los Angeles and San José, Costa Rica. He has a business degree from the University of Miami and has taken graduate courses at Columbia, Stanford and the University of Pennsylvania's Wharton School.

Dueñas served as minister of economy, industry and commerce (1998-2000) and later as foreign trade minister (2000-02) during the RodrÌguez administration.

While still trade minister, Dueñas served as one of the vice presidents of the World Trade Organizationís 2001 ministerial meeting in Doha, Qatar. It was during that meeting that the current round of WTO multilateral trade talks — the Doha Round — was launched. Before and after he was minister, Dueñas served as president of the Costa Rican Investment Board (known by its Spanish acronym CINDE). He also served on the board of directors at Costa Rica's Foreign Trade Promotion Office.

Besides being an ambassador, Dueñas owns Esco S.A., a Costa Rica-based engineering services company with offices in Panama, Nicaragua, Puerto Rico, Trinidad and El Salvador. He's married to Diana ChavarrÌa, and his main hobby is coin collecting; in 1994, he published a book on the history of Costa Rican coinage.

Dueñas oversees the tiny Costa Rican Embassy on S Street, which employs only 10 people, "including the gardener." The country also has consulates in New York, Los Angeles, San Francisco, Miami, Atlanta, Houston, Chicago and New Orleans.

"At first it was awkward to represent a country, having never been an ambassador before," he notes, although it obviously didn't take Costa Rica's man in Washington very long to begin utilizing his expertise as a businessman in the political sphere.

The Washington Diplomat interviewed Dueñas last month over a cup of strong Costa Rican Tarrazu coffee in a sparsely decorated office void of the clutter of medallions, framed photographs and souvenirs usually found in Washington embassies.

"I visit other ambassadors often, and they always have all types of mementoes reminding themselves who they are," Dueñas says."I'm a businessman. I don't believe in that."

What he does believe in is free trade — and the best way to bring that about, he says, is through CAFTA. In fact, before leaving the Ministry of Foreign Trade in 2002, Dueñas laid the groundwork that made it possible for Costa Rica to begin negotiations for CAFTA in early 2003.

"When I took that job, we only had two trade agreements in place, with Central America and Mexico. By the time I left, we had six: those plus FTAs with Chile, the Dominican Republic, Canada and the Caribbean Community [Caricom]," he says. "Eventually on my watch, we came to Washington to propose what became CAFTA. The fact that I'm here shows Costa Rica's commitment to this process. They sent the person who is probably one of CAFTA's most important advocates."

Once CAFTA goes into effect two months from now, 95% of the products that Central American nations export will immediately be allowed to enter the United States duty free. Likewise, about 80% of U.S. products will enter Central America duty free. In Costa Rica's case, exemptions include "sensitive" products such as potatoes, onions and rice.

In the event Costa Rica doesn't ratify CAFTA by January, the trade pact will go forward without it, although Costa Rica has two years to jump on the bandwagon.

Dueñas says certain industries in Costa Rica will particularly benefit from CAFTA. One is the microchip sector, dominated by Intel, which operates a $1 billion factory adjacent to the international airport in San José, the capital. Other sectors likely to get a boost from CAFTA are textiles, apparel, medical devices, ornamental plants and food exports such as beef.

Yet not all Costa Ricans are as gung-ho about CAFTA as their ambassador in Washington. Dueñas cites polls claiming that 70% of the country's 3.5 million inhabitants favor joining CAFTA, although a study just conducted by the University of Costa Rica shows that only 27% of people interviewed are in favor of the treaty as it is now written. Another 43% think it should be renegotiated, while 15% of respondents reject it outright.

Even more important, 69% of those polled — regardless of whether they favor or oppose CAFTA — say the final decision should be made directly by the people democratically, via a national referendum, rather than through a vote in Congress.

Considering that the market represented by Central America's 38 million people absorbs only 1.9% of total U.S. exports, many opponents conclude that CAFTA is clearly of greater geopolitical than economic importance to Washington — and that raises suspicions among many people.

In early September, Costa Rican President Abel Pacheco designated a commission of experts who are to submit a report sometime in November as to whether it's advisable for Costa Rica to join CAFTA. Dueñas says this commission comprises scientists, lawyers, academics and other people outside the realm of business and politics "to provide him with their nonbinding opinion on CAFTA."

Yet even Pacheco has stated publicly that there's no need for haste in submitting the trade pact to Costa Rica's Legislative Assembly for a vote.

Albino Vargas, secretary-general of Costa Rica's National Association of Public Employees and the National Civic Committee, says he's confident that the country's social movements will block ratification of CAFTA.

"Right now we are engaged in a process of educating and informing the public about CAFTA," he says. "Although we are prepared to take our fight to the streets if the agreement is sent to the Legislative Assembly, we hope it won't come to that."

Indeed, opposition to CAFTA is widespread, and many Costa Ricans have already taken to the streets in loud protests against a trade pact they say could increase poverty while making their country ever more dependent on the United States.

Dueñas counters that "people are always reacting to change, and the opposition has been quite vocal. And there will be change. CAFTA will open up monopolies that have been in the hands of government for 50 years. For example, our telecommunications monopoly is so large that it not only has a monopoly on telephone service but electricity as well."

That's precisely what worries CAFTA opponents like Vargas, who claims the country would have a great deal to lose if it hands over public enterprises that up until now have allowed universal access to quality public services.

CAFTA opponents also point to the 11-year-old North America Free Trade Agreement (NAFTA), arguing that Mexico's 100 million inhabitants — especially poor Mexicans — are much worse off now than when the country's economy became linked to that of the United States and Canada through NAFTA in 1994.

But that has more to do with the Mexican government's shortcomings than with the trade pact itself, Dueñas suggests. "I'm trying to be diplomatic, but you have to compare the standards of living of today's Mexico with the standards of living in Mexico before NAFTA. There is no question that there's been quite an advance. That the advance has not covered everyone is a different story, but it's not NAFTA's fault," he says.

"This is a two-way relationship, a commitment to send products, but at the same time a commitment for institutional reform. You cannot have a society that prospers if you do not invest in the rule of law, in competition, in establishing the rights for consumers without good labor and environmental practices."

By contrast, the ambassador says, "Costa Ricans are highly educated, and our standards are high. Fortunately we don't have a violent history, so Costa Ricans are quite satisfied with what they have."

That's why, he suggests, many of its people are reluctant to embrace CAFTA. After all, Costa Rica enjoys a per-capita income of around $4,500, by far the highest in Central America, and an unemployment rate of only 4% by far the region's lowest.

The country is also Washington's leading trade partner in the region, with exports to the United States coming to nearly $3 billion a yearómost of that in the form of agricultural goods such as bananas, coffee and melons, as well as medical devices, microchips, shrimp, ornamental plants, flowers and handicrafts.

"Costa Rica has a very diversified product mix," Dueñas says. "We export almost 3,500 different products to 125 countries."

In fact, roughly two-thirds of all foreign direct investment in Costa Rica comes from the United States, which also supplies 55% of Costa Rica's imports. Leading U.S. investors already established in the country include Intel, Baxter Healthcare, Procter & Gamble, Del Monte Fresh Produce, Dole and Marriott Hotels.

In addition, some 1.4 million tourists visit Costa Rica annually, the vast majority of them Americans in search of Costa Rica's famous rainforests, volcanoes, beaches and stunning biodiversity.

According to a 200-page study by the World Bank, "The vast majority of the population in Central America is likely to experience welfare gains from implementation of CAFTA, even in the short run. At the same time, the removal of trade barriers in sensitive agricultural crops could adversely affect a small share of the population living in rural areas in Central America."

The World Bank study adds that "CAFTA alone should not be expected to unleash radically higher levels of trade and growth, for the same reasons that trade policies since the early 1990s obtained only limited results. Countries will need to accompany CAFTA implementation with policies to address key constraints and bottlenecks in order to reap the full social and economic results of this initiative."

Interestingly, the study notes, "Costa Rica is the only country that will be required to make significant legislative changes to adapt policies and regulations to its commitments under CAFTA, allowing access to significant portions of its telecom and insurance markets. These reforms had been long postponed and should further foster the modernization, efficiency and competitiveness of these areas of the Costa Rican economy."

Yet Dueñas insists that his government has no plans to privatize the national phone company, only to allow competition in that sector. "Another institutional reform that has to take place is to allow competition in insurance," he says. "The state-run Institución Nacional de Seguros is larger than its 10 competitors combined."

Presidential elections are next February; under Costa Rica's constitution, President Pacheco cannot run for re-election. Yet Dueñas says all the major candidates have endorsed CAFTA, so he's confident it will eventually be ratified.

As controversial as it is, CAFTA isn't the only issue confronting Dueñas. The businessman-turned-diplomat is also on a mission to bring more U.S. investment to Costa Rica, particularly in manufacturing. But the country is no longer a mecca for the labor-intensive garment and apparel industry.

"In order to preserve our social structure, we cannot compete with low-wage countries like Nicaragua, Honduras and El Salvador. We are moving away from that and going into highly technical, value-added production. Costa Rica wants to concentrate on three areas of foreign direct investment in which we feel we're competitive with the rest of the world," Dueñas explains, naming Ireland, Puerto Rico and Singapore as some of Costa Rica's stiffest rivals. "These three areas are high-tech products like microchips, medical devices, and back-office operations like data entry and call centers."

Dueñas must also contend with the issue of corruption — an endemic problem throughout Latin America. "Corruption is present all over the place and finds its environment precisely where the institutional structure is weak," he says. "There's a common denominator, an umbilical cord between corruption and very weak rule of law. That's why the political commitment of strengthening the structure of our countries is going to help eradicate corruption."

And what better place to start than in Costa Rica, where the man who hired Dueñas as ambassador, Miguel Angel Rodríguez, was released in mid-October after a year under house arrest. That followed accusations that the former president accepted a $140,000 bribe from French telecom giant Alcatel.

After those allegations surfaced, RodrÌguez was forced to resign as secretary-general of the Organization of American States after only two weeks on the job — the biggest embarrassment in OAS history.

Yet Dueñas doesn't think the scandal reflects negatively on Costa Rica at all.

"In general, other countries respect Costa Rica very much for this action that was taken, because it sends a very strong signal that our judicial system is independent of the political and legislative branches — quite contrary to some other Latin American countries where people are clearly above the law," he says, declining to identify those countries. "In Costa Rica, no one is above the law."

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