Global Insight Perspective | |
Significance | A fragmented Costa Rican electorate will go to the ballot box on 7 October to either approve or reject the ratification of a trade deal with other Central American countries, the United States and the Dominican Republic, known as CAFTA-DR. |
Implications | Paralleling the 2006 presidential election, Costa Ricans appear almost equally split on the matter. The latest controversy surrounding a leaked memorandum seems to be giving a last-minute edge to the anti-CAFTA camp, however, casting a sombre shadow over the incumbent administration. |
Outlook | A "No" win will undeniably weaken the decisively pro-CAFTA government headed by President Oscar Arías, and will raise questions on the viability of some sectors whose exports could suffer from a possible end to the unilateral preferential access to the U.S. market currently enshrined in the temporary Caribbean Basin Initiative. |
Rival Models
Proponents and detractors of the regional Central American trade scheme with the United States and the Dominican Republic (CAFTA-DR) brought an end to intense campaigning yesterday evening, as the electorate prepares to decide on its fate at a referendum on Sunday (7 October), the first such vote ever held in Costa Rica. The week ended on a sour note for the government of President Oscar Arías, with a number of polls placing the anti-CAFTA camp ahead of the pro-treaty side, a blow to the administration after years in the lead. Admittedly, the percentage-point difference varied significantly between the distinct polls; in some the two sides appear to be heading for a neck-and-neck scenario, while other surveys point to a clear 10-percentage-point lead for the "No" vote (see Costa Rica: 4 September 2007:Poll Posts Anti-CAFTA Win in Looming Referendum in Costa Rica). In any case the voters' preferences have definitely been altered in the last few weeks, with the scandal surrounding a leaked memorandum by then second vice-president and planning minister Kevin Casas certainly contributing to damage caused to the administration's pro-CAFTA campaign (see Costa Rica: 24 September 2007: Vice-President Resigns in Costa Rica Amid Troubled Referendum Campaign). The opposition's show of force last weekend was quite convincing, with thousands taking to the streets to protest against the deal they see as threatening Costa Rica's "independent path".
In many ways the scheme is indeed seen as attacking the core values of the country, which retains state-controlled sectors (telecommunication, insurance, electricity, for example) and a hefty state presence. The welfare system is hailed by those opposed to CAFTA as the Costa Rican way of life and the basis of democratic stability that has set the country apart from its regional neighbours—along with the absence of any military institution. At the same time the traditional issues that beset trade liberalisation treaties have been brought to the fore. Concerns of a mass influx of subsidised U.S. imports, costing local jobs, are one of the top items on the "list of fears" of CAFTA's potential negative impact, along with the potential loss of freedom over intellectual property, procurement, and other legislation. The liberalisation of state monopolies, enshrined in the deal, is also seen as potentially damaging to the lower classes, less able to cope with the cost of private-sector services. As for the advocates of the treaty, they say that missing out on CAFTA is closing the door to enhanced opportunities generated by reciprocal market access. Some sectors, in particular textiles, are fearful of the rejection of the deal. Currently Costa Rica enjoys unilateral preferential access to the U.S. market under the Caribbean Basin Initiative (CBI), but this could come to an end next year, the arrangement being subject to renewal rounds. From then on, and without CAFTA operating, Costa Rica would be put at a disadvantage against its regional neighbours on selected exports to the United States. In a formal statement yesterday U.S. trade negotiator Susan Schwab said that the United States would be unwilling to renegotiate CAFTA with Costa Rica. Pressure from the World Trade Organization (WTO) for preferential discriminatory trade schemes such as the CBI to be scrapped could eventually push the United States not to renew it in September 2008. The opposition to the deal has nonetheless assured its undecided voters that U.S. Democrats have proven willing to renegotiate deals in the past, citing Peru as an example, and as such CAFTA could be reconsidered at a later date with the anti-Republican camp.
Outlook and Implications
Life After A "No" Win?
President Arías and his administration put all their energy in striving to secure the ratification of the deal. A "No" victory will be a severe blow to the government, undermining its already relatively fragile popular mandate. Indeed, one must bear in mind that Arías secured a razor-thin victory against Ottón Solis in the 2006 election. The current clash of ideologies was already prevalent then, as the two candidates stood for different "models" of these, with their positions on CAFTA constituting the main distinctive points of pre-electoral debate. The battle between the Costa Rican model and the embracing of a more globalised/liberalised one thus continues this weekend. Arguably, the anti-CAFTA camp has also come to attract those who oppose President Arías on a more general level, offsetting in some cases key issues inherent to the treaty per se. There is no doubt that the legitimacy of the Arías administration would be sorely wounded from a "No" win, and the opposition strengthened, with a mandate to reject similar projects, such as the Central America-European Union (EU) negotiations, and relevant bills pending in Congress (see Costa Rica: 21 September 2007: Costa Rican Government Unveils Post-Referendum Intention). Global Insight would contemplate raising both its Operational and Political Risk Ratings for Costa Rica should CAFTA ratification fail to materialise in the referendum. A heated contest, the race that will take place this weekend could well be a tight one, and results could take time to be formally announced, mirroring the presidential election experience (see Costa Rica: 23 February 2006: Election 2006: Costa Rica's Pro-Free Trade Candidate Secures Non-Official Victory in Vote Recount and Costa Rica: 6 March 2006: Election 2006: One-Time President to Return to Power in Costa Rica).
For the referendum's outcome to be validated, more than 40% of the 2.6-million-strong electorate needs to participate in Sunday's poll. Current projections point to a sufficient turn-out to make the results binding. Should the ratification be approved, CAFTA will automatically be converted into law.