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US Happy As Costa Rica Votes Narrowly To Approve CAFTA

by Mike Godfrey, Tax-News.com, Washington

12 October 2007


The United States government has welcomed the result of Costa Rica's referendum on its participation in the Central American Free Trade Agreement (CAFTA-DR), after the 'yes' campaign won a narrow victory.

"We are pleased that Costa Rica will be joining the other CAFTA-DR countries in reaping the benefits of greater regional economic integration and market opportunities that the CAFTA-DR provides We look forward to working with the Government of Costa Rica as it completes the necessary steps to implement the agreement, so that the CAFTA-DR can enter into force for Costa Rica as soon as possible," commented US Trade Representative Susan Schwab in a statement following Sunday's historic poll.

After a heated debate over the merits of CAFTA, which culminated in a huge street demonstration by the 'no' campaign on the eve of the referendum, voters eventually decided to ratify the agreement by a slender margin, with a reported 51.58% voting in favor and 48.42% voting against.

CAFTA would eliminate duties on more than half the value of US farm exports to the region, expand intellectual property protections, and open telecommunications and other markets such as insurance, thus breaking long-held monopolies in Costa Rica. CAFTA would also eliminate tariffs on 80% of US exports of consumer and industrial goods in signatory countries, with the remaining tariffs phased out over 10 years. Critics have contended that this will flood the country with cheap imports, rendering Costa Rican firms unable to compete, leading to mass job losses.

Costa Rica had been the only signatory to delay ratification. The pact has already taken effect in the Dominican Republic, Guatemala, Honduras, Nicaragua and El Salvador.

However, the road to Costa Rica's ratification has not ended yet. The 'no' campaign has demanded a recount - a process that could take up to two weeks - and has accused the 'yes' campaign and the United States of using scare tactics to persuade people to vote in favor of the pact. These allegations were made after US Deputy Trade Representative John Veroneau warned that the US Congress may not renegotiate preferential trade terms between Costa Rica and the US under the Caribbean Basin Initiative, due to expire in September 2008, if the referendum rejected CAFTA. US officials also hinted that Washington would refuse to renegotiate CAFTA just to suit Costa Rica.

However, according to Schwab, the economic arguments in favour of such free trade agreements speak for themselves.

"We believe, and history confirms, that countries that open their markets have greater success in generating economic growth and development," she stated.

The government of President Oscar Arias also faces an uphill battle in its quest to pass a package of 13 laws required as part of the CAFTA agreement, especially the more controversial parts that will open the state telecommunications and insurance monopolies, with opposition lawmakers likely to demand concessions such as increased farm subsidies.


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