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Will Costa Rica join Latin America's leftward tide?

Costa Ricans vote Sunday whether to approve a free-trade pact with the US.

By Sara Miller Llana – Staff writer, Blake Schmidt – contributor / October 5, 2007



Mexico City; and San José, Costa Rica

Sergio Salazar has spent three years touring seaside hamlets and mountain towns alike in a rickety yellow school bus, warning against trade liberalization at each stop.

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No, he's not in Ecuador, or Venezuela, or any other Latin American country that has voted a leftist leader into power in recent years.

He's in Costa Rica, historically Central America's most stable, business-friendly democracy. And his rallying call is coming to a head this weekend as the nation votes in a referendum on the Central America Free Trade Act (DR-CAFTA) encompassing the US, Central America, and the Dominican Republic.

Costa Rica is the only nation in the region not to have ratified DR-CAFTA. Even in Nicaragua, whose president Daniel Ortega was once a virulent US foe, the pact has been ratified. And the outcome is far from certain: Opinion polls show a tight race, with the 'no' side now edging past the 'si' side.

Supporters, including Costa Rican President Oscar Arias, say that the agreement is essential for jobs and investment and that it will keep the technology sector booming. Opponents say the deal will flood the market with cheap imports, will be a boost to multinationals at the expense of small-business owners, and threaten national sovereignty. The debate has led to finger-pointing and has undertones of the "left" and "right" pendulum of Latin American politics. Will Costa Ricans endorse their historically close ties to the US, or will the country move toward the anti-US camp headed by Venezuela's President Hugo Chávez?

"I believe the opposition is against the agreement because [the pact] is with the US," says Luis Haug, manager of the polling firm CID-Gallup in Costa Rica. "It's more about ideology than free trade."

This weekend's referendum is, in many ways, a referendum on the presidential election last February, in which President Arias beat opponent Ottón Solis by just 2 percent.

Arias's slogan was "Costa Rica, Sí!," a reference to his support for the pact, which includes Guatemala, El Salvador, Honduras, Nicaragua, and the Dominican Republic. Once again, he's asking Costa Ricans to vote "Sí" in favor of it.

"If we want to generate the 70,000 jobs we need every year for the next generation, we should vote 'Sí,' " Arias said recently, adding that if the trade pact is rejected, "Costa Rica will stop exporting goods and services and would instead export people."

Over the past two decades, Costa Rica's agricultural economy of coffee and bananas has diversified, and the country has become a technology hub, drawing such companies as Intel and Hewlett-Packard. Today computer microchips are Costa Rica's top export, according to the Foreign Trade Ministry. And last year, the country was able to attract $1.5 billion in foreign investment, up from $100 million two decades ago, according to the ministry.

Costa Rica's business sector is among the biggest advocates of a trade pact. CAFTA supporters say they fear that if the pact is turned down, investors will flee, and plans to negotiate similar agreements with the European Union and other strategic markets will be crippled.

"If this loses, it will be a regression of astronomical proportions," says Luis Lauredo, the former US ambassador to the Organization of American States.

But supporters face a tough opposition that spans university elites, unions, and dairy and rice farmers. More than 100,000 marched in the capital, San José, this past weekend, waving signs reading, "We won't sell our country."

As part of the agreement, the US is demanding that Costa Rica open up state telecom and insurance monopolies.

"It will benefit the multinational companies, but not small businesses like mine," says Antonio Ramirez, who runs a travel agency. If Costa Rica's telecom industry is opened, he says, increased communications costs will eat into his company's modest profits.

"The 'no' [camp] is asking, 'Why do we need this if we have already done so well compared to the rest of Central America?" says the pollster, Mr. Haug.

But many supporters here say a window of opportunity is quickly closing.

Winning support for DR-CAFTA in the US House of Representatives in 2005 was a struggle. Now the antifree-trade sentiment in the Democratic-controlled Congress is stronger. "If this is rejected," says Mr. Lauredo, "there will be no new trade agreement on the horizon."

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