This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 SAN JOSE 001828 
 
SIPDIS 
 
SENSITIVE 
 
WHA/CEN 
EB FOR WCRAFT, BLAMPRON 
E FOR DEDWARDS 
WHA/EPSC FOR KURS, LGUMBINER 
STATE PASS TO USTR FOR RVARGO, CPADILLA, AMALITO 
 
E.O. 12958: N/A 
TAGS: ETRD ECPS ECON PREL PGOV SOCI CS
SUBJECT: PRESIDENT'S PARTY PUBLICLY SUPPORTS CAFTA-DR, BUT 
OUTLOOK FOR NECESSARY IMPLEMENTATION LEGISLATION UNCLEAR 
 
REF:  (A) SAN JOSE 01774 
 
      (B) SAN JOSE 01639 
 
¶1.  (U) Summary.  Members of President Pacheco's Social 
Christian Unity Party (PUSC) are publicly urging him to 
send the United States-Central American-Dominican Republic 
Free Trade Agreement (CAFTA-DR) to the Legislative Assembly 
as soon as possible, despite the continued failure to pass 
the Fiscal Reform bill (Note: President Pacheco has made 
passage of fiscal reform a condition for his sending CAFTA- 
DR to the Assembly for ratification [Ref A]).  PUSC 
representatives also requested that the Administration send 
the necessary CAFTA-DR-related legislation; including bills 
to allow competition in the telecommunications and 
insurance markets.  Currently, these industries are run by 
the state-owned monopolies, the Costa Rican Institute of 
Electricity (ICE) and the National Institute of Insurance 
(INS), respectively.  The gradual opening of these markets 
to competition is required to implement the trade 
agreement.  Other legislation, although not required to 
implement CAFTA-DR, is necessary to increase the global 
competitiveness of Costa Rican companies.  End Summary 
 
¶2.  (U) After meeting on August 8, 2005, the PUSC Assembly 
members (deputies) officially gave a "public vote of 
support" to CAFTA-DR.  They also urged the President to 
send the trade agreement and information about the 
complementary agenda to the Assembly.  "We have always been 
respectful of the Administration and its decisions, but we 
believe that it is necessary to be able to move forward on 
this issue in Congress," said Lillian Salas, PUSC deputy 
and party leader, after the meeting with her fellow 
deputies.  The PUSC deputies also want to discuss the 
legislative projects related to implementation of CAFTA-DR, 
such as those opening the telecommunications and insurance 
markets to competition. 
 
--------------------------------------------- ----------- 
Legislation Required to Implement CAFTA-DR in Costa Rica- 
THE PARALLEL or IMPLEMENTATION AGENDA 
--------------------------------------------- ----------- 
 
¶3.  (U) The proposed legislation that will open the 
telecommunications and insurance markets to competition as 
required by CAFTA-DR has not yet been sent to the Assembly. 
The Administration has referred to these projects as the 
"parallel agenda" or the "implementation agenda" to CAFTA- 
DR - that legislation that must be completed to comply with 
the requirements of CAFTA-DR.  Based on various sources, 
including personnel within the GOCR, the telecommunications 
legislation, known as the "Telecommunications Act," is 
being managed by the Ministries of Foreign Trade (COMEX) 
and Finance with input from the various interested parties 
such as ICE.  Reportedly, neither legislative project has 
been finalized by the Administration.  Gilberto Barrantes, 
the Economy Minister and new Coordinator of the President's 
Economic Council, stated that he expects a first draft of 
the Telecommunications Act this week.  However, he called 
attention to the importance of moving forward on the 
proposed Law to Strengthen and Modernize ICE (see paragraph 
7). 
 
¶4.  (U) One month ago, Finance Vice Minister David Fuentes 
told Econoff that the insurance and telecommunications 
legislation would be sent to the Assembly by the end of 
August 2005.  However, lack of progress on the 
Telecommunications Act has caused a delay.  Finance 
Minister Federico Carrillo stated that he expects the 
telecommunications legislation to be presented in November 
and maintains that the insurance legislation will be ready 
in August.  COMMENT:  It is clear that the 
telecommunications legislation is more complex and 
politically sensitive than the insurance legislation. 
However, the need to proceed in the telecommunications 
arena is, arguably, more urgent because, under CAFTA-DR, 
the opening of the telecommunications market starts on 
January 1, 2006, while January 1, 2008 marks the opening of 
the insurance market.  END COMMENT. 
 
--------------------------------------------- -- 
Legislation to Improve Global Competitiveness - 
THE COMPLEMENTARY AGENDA 
--------------------------------------------- -- 
 
¶5.  (U) Other legislation that is not required to implement 
CAFTA-DR, but is necessary to ensure Costa Rica can take 
advantage of the opportunities created by the agreement, is 
referred to as the "complementary agenda" (Ref B).  To 
date, we have been told by the GOCR that the complementary 
agenda will focus on upgrading infrastructure (mostly rural 
roads and highways) and increasing the competitiveness of 
small- and medium-size enterprises.  Costa Rica has 
arranged for approximately USD 209 million of funding for 
these initiatives with the majority of the resources being 
provided by a USD 117 million loan from the Inter-American 
Development Bank (IDB). 
 
¶6.  (U) Other smaller loans will be provided by the World 
Bank and the Central American Bank of Economic Integration 
(BCIE) to fund education projects and improve customs 
systems, respectively (Ref B).  COMMENT:  Legislative 
Assembly approval of these loans is necessary prior to 
disbursal of funds.  To date, no legislation has been 
provided to the Assembly on any of these loans.  However, 
based on information provided to Econoff, the necessary 
legislation should be sent to the Assembly within the next 
two months.  END COMMENT. 
 
--------------------------------------------- -------- 
THE STATUS OF THE LAW TO STRENGTHEN AND MODERNIZE ICE 
--------------------------------------------- -------- 
 
¶7.  (U) At the time that Costa Rican negotiators signed 
CAFTA-DR in May 2004, it was assumed and reflected in the 
text of the agreement that Costa Rica would pass a Law to 
Strengthen and Modernize ICE by December 31, 2004.  The 
Costa Rican negotiators inserted this requirement into the 
agreement to enact a law to give ICE sufficient autonomy 
and resources to be able to compete against potential 
competitors in an open telecommunications market.  The 
proposed law was introduced in the Assembly prior to the 
signing of CAFTA-DR and was referred for review to the 
Assembly's Special Mixed Commission for ICE, consisting of 
deputies from various parties as well as consultants from 
inside and outside the GOCR.  This Commission is currently 
studying the bill and deciding whether it should be 
referred to the Assembly floor for a vote. 
 
¶8.  (U)  The bill has been stuck in the Commission because 
of difficulties surrounding the issues of: (1) distribution 
of spectrum frequencies; (2) the amount of taxes, if any, 
that ICE will pay to the GOCR; and (3) how the rights to 
concessions for use of natural resources will be handled. 
There are some members of this commission, such as Gloria 
Valerin, a PUSC deputy and President of the Special Mixed 
Commission, who would like the bill passed in its current 
form, which would give ICE unprecedented autonomy and 
special treatment such as rights to most, if not all, of 
the spectrum of mobile telecommunications frequencies and 
exemption from paying taxes.  There are other members of 
the Commission, such as Libertarian Movement deputy 
Federico Malavassi, who are reluctant to give ICE such 
special treatment, which they believe would reduce the 
likelihood of any real competition in telecommunications. 
COMMENT:  Eladio Gonzalez, Adviser to the Commission and a 
legal expert who wrote the legislation, told Econoff that 
if the Telecommunications Act is completed correctly, i.e., 
a clear regulatory framework is constructed and a strong 
and unbiased regulator is established, the passage of the 
ICE Modernization bill would not conflict with the 
requirements of CAFTA-DR.  END COMMENT. 
 
¶9.  (U) Valerin, stated, "We will not give an inch.  If 
they want the complementary agenda, they should approve the 
strengthening (of ICE).  We are not going to permit the 
weakening of ICE in this project."  COMMENT:  Post believes 
that the proposed law in its current form and depending on 
the final Telecommunications Law that will be passed, may 
result in the inability of Costa Rica to comply with the 
equal treatment provisions required by CAFTA-DR.  The parts 
of the bill that may cause these problems coincide with 
those issues already identified in the Mixed Commission's 
review.  END COMMENT 
 
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COMMENT 
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¶10.  (SBU) One key aspect of the legislative projects 
associated with the parallel or implementation agenda 
should be the creation of a new entity or strengthening of 
an existing organization that is independent and capable of 
competently regulating the telecommunications and insurance 
industries.  This is important to ensure that all potential 
competitors are treated equally and have the same 
opportunities to access the markets, as required by the 
spirit and letter of CAFTA-DR.  This is no small task since 
the GOCR has very little experience in regulating 
competitive markets, and the most likely regulator, the 
Regulatory Authority of Public Services (ARESEP), is not 
considered effective in regulating much simpler sectors. 
In addition, ARESEP has its hands full with regulating 
everything from taxi fares to gasoline prices. 
 
¶11.  (SBU) The pressure to send CAFTA-DR and all related 
legislation required for its implementation is mounting, 
and it is now clear that if CAFTA-DR were sent to the 
Assembly today, there would be enough votes to pass it. 
However, many knowledgeable people doubt whether the 
Assembly has the ability to create the necessary 
legislation to fulfill commitments made in the agreement 
(especially in the telecommunications sector) or the 
commitment to try to do so in a timely manner. 
KAPLAN