Costa Rica May Hold Referendum On CAFTA

by Mike Godfrey, Tax-News.com, Washington

14 March 2005

With controversy continuing to rage in Costa Rica over whether the country should join the Central American Free Trade Area (CAFTA), a poll last week showed that a plurality of citizens want the Congress to vote in favour of joining.

In May 2004, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua agreed to join CAFTA, which would reduce or eliminate taxes and tariffs on imports, but in December 2003 Costa Rica temporarily opted out of CAFTA negotiations, fearing adverse impacts on the country's cossetted telecommunications and insurance sectors.

Last week it became clear that legislators, labor unions and business leaders are agreed on putting the issue to a referendum, but there is little time left, because any referendum would have to be held not less than 6 months before the next presidential elections, set for February, 2006. Otto Guevara, opposition Libertarian Movement Party presidential candidate, said the assembly has about 15 days to decide and act on his party's proposal for a referendum.

The National Association of Public and Private Employees (ANEP), which has led public protest against CAFTA, and the Costa Rican-American Chamber of Commerce (AmCham) have both supported the referendum proposal, and even President Abel Pacheco said it was a possibility.

Until now, the President has angered supporters of the free trade pact by insisting that his long-delayed tax reform bill - still languishing in the Congress - is approved first. Growing ever more impatient with the government, businesses (along with the Libertarian Movement Party, which is opposing the tax package) have countered that Pacheco’s stance on the issue will scare away foreign investors, and have warned that the ongoing delay in CAFTA’s approval will threaten the country’s economic prospects.

Last week's poll showed that 41% of people wanted Congress to approve CAFTA membership, 38% were against, and 31% unsure.

El Salvador and Honduras have both ratified the treaty. US President George W. Bush is expected to send it to Congress before July. Legislators in Guatemala and Nicaragua continue to discuss the agreement.

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