"For the first time, Costa Ricans will be able to directly decide the future of a very important law for the country,” Arias told a news conference last week, going on to describe his decision as "historic" and "a new era in our democratic development.”

The referendum could take place within the next three months, but with opinion polls showing that less than 40% of Costa Rica's voters are in support of the trade pact, it opens the possibility that the country could reject the deal altogether.

Arias, a supporter of the CAFTA-DR deal, said shortly after his election victory in March 2006 that his government would "cede no ground" in its fight to push through the trade pact. However, the president has been forced to act after a legal ruling issued by a court last week gave opponents of CAFTA-DR the right to call for a referendum if they collect signatures from about 130,000 voters, or about 5% of Costa Rica's electorate, over a nine-month period.

If at least 29 of the 57 lawmakers in the Legislative Assembly approve a referendum decree, then the Supreme Elections Tribunal (TSE) will have 90 days to hold the nationwide vote - the first referendum in Costa Rican history.

The United States, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua signed the CAFTA-DR in August 2004. All but Costa Rica have ratified the Agreement. Implementing legislation for the CAFTA-DR passed the US Senate in June 2005 and the House of Representatives in July 2005 and was signed by the President in August 2005.

Under CAFTA-DR, 80% of US exports of consumer and industrial goods will become duty-free in signatory countries, with remaining tariffs phased out over 10 years. The agreement would immediately eliminate duties on more than half the value of US farm exports to the region, expand IP protections and open telecommunications and other markets.

Opponents of the trade deal are reluctant to see Costa Rican industry and agriculture opened up to cheaper foreign competition, and the issue has provoked demonstrations from workers and trade unions.