HAPPY FIRST BIRTHDAY! COSTA RICA AND CHINA

C O N F I D E N T I A L SAN JOSE 000540

SIPDIS

DEPARTMENT FOR WHA/CEN, IO/UNP, EAP/CM; SOUTHCOM FOR FPA

E.O. 12958: DECL: 06/23/2018
TAGS: PREL PGOV PINR ETRD ENRG ENVI MASS XK CS CU
ZO, CH
SUBJECT: HAPPY FIRST BIRTHDAY! COSTA RICA AND CHINA

REF: A. SAN JOSE 133

B. 07 SAN JOSE 1106

C. 07 SAN JOSE 1488

D. 07 SAN JOSE 1783 AND PREVIOUS

E. SAN JOSE 129

Classified By: ADCM David E. Henifin for reason 1.4 (d).

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SUMMARY
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1. (C) As Costa Rica's diplomatic relations with the People's
Republic of China turn one year old, the
David-and-Goliath-sized arrangement continues to work for the
benefit of both nations. While China's generous
political and financial support to Costa Rica could be
short-lived and Costa Rica's sense of self-importance as a
regional, possibly hemispheric platform for China's trade in
the region appears inflated, this is a serious and
dynamic relationship with no signs of letting up. During a
May 7 visit to Costa Rica by Vice Premier Hui Liangya,
China signed agreements for more than $50 million in
assistance that included 200 police cars and huge grants to
the Costa Rican Central Bank for several projects. Though
still over the horizon, a Costa Rican-Chinese free trade
agreement remains on the agenda.


2. (C) According to China watchers here:

-- dwindling U.S. donation flows could be filled by China in
the short and long term;

-- China helped Costa Rica win a UNSC seat and increased
UNSC cooperation;

-- Costa Rica could benefit with better access to a Chinese
consumer market of 1.3 billion people;

-- China could use Costa Rica to springboard economically
and politically into the rest of Central America; and

-- recognition of China could affect Costa Rica's vaunted
defense of human rights around the world, including in Tibet,
Cuba and Sudan.

END SUMMARY.

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A LUCRATIVE RECOGNITION PACKAGE . . .
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3. (SBU) Returning the favor of President Arias' October 2007
visit to China that helped yield more than $48 million
worth of support to Costa Rica last fall (Ref A),Chinese
Vice Premier Hui Liangya visited Costa Rica May 7, signing
four new accords with the GOCR that brought goodies totaling
more than $50 million. The Costa Rican MFA's Deputy Director
of Foreign Policy, Alejandro Solano, confirmed to us that the
deals included: 200 new police cars (not yet delivered); $10
million in discretionary funding to be used by the GOCR's
Planning Ministry; $40 million from the Chinese Development
Bank to the Costa Rican Central Bank, to be used for small
business development grants; internships in China for five
Central Bank personnel; an additional 20 scholarships for
Costa Rican students to study in China; and a memorandum of
understanding between the Costa Rican Ministry of the
Environment and Energy and the Chinese Ministry of Hydraulic
Resources regarding hydro-energy cooperation.


4. (C) Zhou Chao, Chinese embassy attach, representing the
International Department of the Central Committee of the
Communist Party of China, told us their strategy was to
"learn" from countries with which China had friendly
relations, and "when a friend approaches us, we want to
help." Zhou explained that the large donations of grants,
scholarships and material were simply "part of what China
did" when it established relations with a country. Zhou
maintained that China in turn could learn from Costa Rica's
experience in the financial sector; in agriculture,
especially in the production and export of fruits; and in
managing the natural environment.

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. . . BUT IT IS MOSTLY ABOUT THE UN
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5. (C) The MFA's Solano, former MFA Vice Minister (1998-2002)
Elaine White, and Constantino Urcuyo of the think-tank
"Center for Political Administration Research and Training"
(CIAPA, Spanish acronym),all told us that the GOCR's
recognition of China was calculated to help Costa Rica win a
seat on the UN Security Council in October 2007 (as
speculated Ref B). Solano told us that from the beginning of
the Arias administration, President Arias and FM Bruno Stagno
were concerned about the GOCR's "non-compliance" with the
UNSC resolution recognizing the People's Republic of China as
the sole representative of China in the UN. Costa Rica's
continued recognition of Taiwan, Solano candidly noted, would
have been a problem since the GOCR wanted a UNSC seat.
Urcuyo and Solano both pointed out that China helped arrange
FM Stagno's tour of 16 African countries in 14 days before
the UNSC election to garner votes for Costa Rica. Urcuyo
added that Stagno initiated contact with China while in New
York as UN Ambassador during the Pacheco Administration
(2002-2006).


6. (SBU) According to Solano, White and Urcuyo, Taiwan had
lost prestige in Costa Rica due to various scandals
involving alleged Taiwanese payments to government officials,
including to ex-President Miguel Angel Rodriguez (1998-2002)
and questionable direct funding of some of the MFA's
operations. These scandals generated the image domestically
that Costa Rica was in a trade-off, selling its support to
Taiwan.

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VISIBILITY, EGO (AND US RELATIONS) PLAY A ROLE
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7. (C) White told us the UNSC seat was a means by which Arias
sought to regain visibility on the world stage, alluding to
his 1986-1990 first term as President when he won the Nobel
Peace Prize for his work to end the wars in Nicaragua and El
Salvador. She said this Arias Administration had followed a
foreign policy based on systematically removing what it
viewed as the GOCR's international "handicaps," which
included winning a UNSC seat, recognizing Palestinian
statehood (Ref E),and shifting allegiance from Taiwan to
China. Additionally, White said that when Arias took
office, he wanted to "restore dignity" to Costa Rica's
international image and foreign policy. Opening up to China
reflected Arias' "multilateralist" interests; in his second
presidential term, White noted, Arias seemed far more
interested in the UN and global issues than engagement in
Central American politics.


8. (C) White suggested that Costa Rica's historic "close
relationship" with the U.S. had weakened over the past few
years and was a contributing factor in the decision to
establish ties with China. She speculated that reaching out
to China could have represented a "realpolitik" move to
garner support and assistance from another great power.
Noting that Costa Rica had been a "favorite son" of the U.S.
in the past, White said El Salvador had replaced Costa
Rica as the "favored one" in the region with its political
and military support of the U.S. in the war in Iraq.
Furthermore, El Salvador's eventual leading role in CAFTA
negotiations far outshined Costa Rica's plodding and painful
path to ratification and implementation.


9. (C) Urcuyo (a well-known critic of the president) believed
that Arias' larger-than-life ego played a major role in the
decision to recognize China in two ways. First, Urcuyo
described Arias using a metaphor proffered by a local
journalist: "If he goes to a christening, he wants to be the
baby; if he goes to a wedding, he wants to be the bride; and
if he goes to a funeral, he wants to be the deceased."
Urcuyo commented that Arias liked to do what is modern and
fashionable, and therefore, "if China appeared on the cover
of 'The Economist' twice" and the newest wave was that China
was where the action was, then Arias had to jump on that
wave.


10. (C) Second, Arias' relentless struggle to get CAFTA
approved domestically, Urcuyo said, alienated Arias' former
intellectual leftist comrades, who saw his pro-CAFTA stance
as "abandoning" his socialist roots. By establishing
relations with "communist" China (a country that has little
in common with Costa Rica in terms of its human rights
record, its one-party structure, and its repression of
freedom of expression),Arias could return to the good graces
of the leftist Costa Rican elites.
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THE BUSINESS OF CHINA AND COSTA RICA IS BUSINESS
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11. (C) Driving the Costa Rican business sector to support
Chinese recognition, White said, was the realization that
Costa Rica was losing economic ground by its lack of ties
with China. CIAPA's Urcuyo noted that Arias' appointment of
Antonio Burgues, a prominent banker and investor, as
Ambassador to Beijing, evidenced the economic and business
aspects of the recognition. (COMMENT: Burgues' closeness to
Arias, and his past record as treasurer for the President's
PLN party didn't hurt, either. END COMMENT.)


12. (SBU) According to Solano, China is Costa Rica's second
largest market for exports, primarily in microchips (from
INTEL) and agricultural products. Costa Rica also plans to
"culturally" develop a market for Costa Rican coffee in
China and hopes that access to the 1.3 billion-person market
will help Costa Rica develop other industries. Solano
hoped that ties to China could serve as a platform for Costa
Rica to gain entry into APEC someday.


13. (SBU) As for benefits to Beijing, Solano said that China
could use Costa Rica as a base against Taiwan in Central
America and to build bridges to other countries in the
region. Though not in Central America, Solano pointed to
Paraguay as a country that was about to follow Costa Rica's
lead in switching allegiance from Taiwan to the PRC. Marco
Vinicio Ruiz, Minister of Foreign Trade (COMEX) and Emmanuel
Hess, manager of PROCOMER, a Costa Rican export
assistance agency, commented in a May 13 newspaper article in
"La Republica" that they saw Costa Rica well-positioned
as a platform for Chinese business operations in North and
South America -- a "center of operations from which China
could tend to markets in other latitudes of the continent."
Hess went so far as to claim that Costa Rica "offers access
to markets, which benefits China, a country that does not yet
have a FTA with the U.S. which we are going to have; China
needs to confer origin through a country that has an FTA with
the U.S. and with which China already has commercial
relations."


14. (SBU) However, Chinese Embassy attach, Zhou downplayed
that analysis and told us that China already has good trade
relations with the U.S., Mexico, and many other countries in
South America, including Brazil and Argentina. He added
that China had an FTA with Chile and was negotiating one with
Peru. In terms of trade for China in the region, Zhou
noted, Costa Rica was about 9th or 10th place (COMMENT. UN
data for 2007 ranked Costa Rica as China's thirteenth largest
export market (USD 567 million) in Latin America. END
COMMENT.)

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FTA AND APEC DREAMS
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15. (SBU) A China-Costa Rica free trade agreement (FTA)
remains on the horizon. While Vice Premier Hui Liangya was
in Costa Rica in May, Costa Rican COMEX officials were in
Beijing for the second round of talks on developing a FTA.
Attach, Zhou said several "technical matters" were being
discussed. COMEX Minister Marco Vinicio Ruiz traveled to
China the week of May 5 and discussed the upcoming July
conclusion of a feasibility study on the mechanics of
launching formal FTA negotiations. The study began in
January and has been a joint Costa Rican-Chinese effort, with
participants exchanging views on how to proceed with a formal
agreement.


16. (C) According to COMEX Director General Gabriela Castro,
Ruiz's Chinese trip in May included a stop-over in Singapore
to meet with the Secretariat of APEC. Castro told us the
GOCR was keen on joining APEC and learned that it was "first
on the list" to join in 2010 (Ref C).

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WHAT ELSE MIGHT LIE AHEAD?
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17. (C) White supported the decision, and its timing, to
recognize China. However, it remained unclear to her and
others what China wants from Costa Rica and if the Chinese
largesse which flowed freely during the last year is a
one-time deal. White and Urcuyo believed China's major
interests in establishing formal ties with Costa Rica were to
advance de-legitimization of Taiwan (and reunification of
China),followed closely by the ability to use Costa Rica as
a political and business base to gain entry into other
Central American countries. Chinese Ambassador Wang
Xiaoyuan discussed these motives freely in a May 20 "La
Prensa Libre" newspaper article.


18. (C) Though some Costa Ricans boast that Costa Rica was
the first country in Central America to establish
diplomatic relations with China, Chinese attach, Zhou
reminded us that Daniel Ortega, in his first presidential
term in Nicaragua, established relations with the PRC in

1985. However, Violeta Chamorro severed those ties when she
took office in 1990. Zhou confirmed that there "had been
talks" with Nicaragua and that "the door was open" to
resume relations. (COMMENT: Not being trumped by Ortega's
re-recognition of China in this administration may have
colored the accelerated timing of the GOCR's recognition, see
Ref B.)


19. (C) During Vice Premier Hui Liangya's May visit to San
Jose, Solano said, talks covered future cooperation on
environmental protection. He noted that representatives from
INBIO (Costa Rican Institute for Biodiversity) would visit
China soon to discuss the use of fossil and other types of
fuels, research on natural medicinal substances, management
of caves and rivers, forestry development, and protection of
species. Additionally, Costa Rica would symbolically donate
back some of the blankets and tents provided by China for
victims of last year's flooding in Costa Rica, part of the
$20 million of assistance (Ref D),to victims of China's
recent earthquake.

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WHAT ELSE IS IN IT FOR CHINA?
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20. (C) Urcuyo described the GOCR's recognition of China as a
"symbolic reward" for China, which now had support from a
global leader on human rights, Costa Rica. He speculated that
Costa Rica would have to "pay back" China in some fashion for
help with the UNSC seat, but he did not believe that China
would try to dictate the GOCR's votes in the UN. (NOTE:
However, twice in delivering recent demarches on Burma, MFA
staff asked PolOff what China's position was on the issue).


21. (C) The MFA's Solano himself stated that although there
are divergences between the two countries on human rights
matters, they do have common ground to discuss political and
economic strategy. Solano noted an air of "cooperation
and exchange" with China in the UNSC and said that that the
dialogue between the two is even more "fluid" in New York
than in San Jose.

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IF CHINA, WHY NOT CUBA?
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22. (C) On Cuba and human rights in general, White pondered
what the GOCR's recognition of China could mean for its
relations with Cuba. She noted that Costa Rica could not now
easily differentiate between Cuba and China, adding "if both
have the same problem with human rights, what is the excuse
for establishing relations with China and not with Cuba?"
Though White doubted the GOCR's Cuba policy would change
soon, due to Arias' personal strong antipathy for Castro and
the regime, establishing relations with China could pave the
way for further changes in GOCR foreign policy. (NOTE: PLN
Legislator Federico Tinoco told us on June 6 that increased
overtures from the Arias Administration towards Cuba were a
possibility.)

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COMMENT
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23. (C) Costa Rica's relationship with China seems to be
paying off, both domestically and internationally, for the
Arias Administration. China's assistance packages totaling
nearly $100 million the first year (which includes disaster
and humanitarian assistance, a new national stadium, and a
financial shot in the arm to the Central Bank) have certainly
helped fill some gaps in U.S. assistance, including in law
enforcement (the patrol cars) and traditional USAID
development areas.


24. (C) What remains to be seen for Costa Rica is the price
that China could expect for its support in the UNSC and aid
packages. Although we have not seen any overt pressure from
the Chinese, there has been no official outcry in Costa Rica
to address China's poor human rights record, recently
highlighted by extensive coverage of Tibetan separatism.
Additionally, there has been no fuss over China's limited
military assistance to Sudan. Given the GOCR's unusually
vocal support for the Palestinians (on the basis of human
rights, among other issues),the Arias administration's
silence over these two issues has been notable.


25. (C) Practically speaking, China has now become one of
Costa Rica's major donors and we intend to include the
Chinese on future "Mini-Dublin" meetings that we host at
least once a year. Although we do not see China's "entry"
into Costa Rica as an end of U.S. influence in the region, it
does highlight that we are not the only (nor the most
generous) player in town.
CIANCHETTE