CHINA CEMENTS TIES WITH COSTA RICA THROUGH TRADE

UNCLAS SECTION 01 OF 02 BEIJING 000684

STATE PASS USTR
DEPT FOR EEB/TPP/BA, EAP/CM, EAP/EP, WHA/CEN, WHA/EPSC

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: PREL ETRD EINV CH CR
SUBJECT: CHINA CEMENTS TIES WITH COSTA RICA THROUGH TRADE

REF: 08 SAN JOSE 969

Summary
--------------


1. (SBU) Costa Rica is reaping economic benefits from China for
its 2007 decision to switch diplomatic recognition from Taipei to
Beijing, including talks on a bilateral free trade agreement (FTA)
announced during President Hu's 2008 visit and the planned
construction of a new soccer stadium. Costa Rica's trade with
China is complementary, with microchips leading the way and hopes
for burgeoning Chinese demand in high-end coffee. Costa Rican
diplomats believe the FTA will face little resistance from either
congress or civil society, and will provide China a trade platform
in the region. End summary.

Switching from Taipei to Beijing Opens Door to FTA
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2. (SBU) "Fundamental realism" drove the decision to switch
diplomatic recognition from Taipei to Beijing, Costa Rican
Commercial Counselor Alvaro Cedeno told EmbOffs January 22. Such
a shift opened the door to enhanced economic ties, most clearly in
the form of the announcement of FTA negotiations during President
Hu Jintao's November 2008 visit (reftel). The GOCR wants to
expand access to the Chinese market for primary Costa Rican
exports including high-end coffee, agricultural products, IT
products and medical equipment. China is also building a PRC-
funded, USD 75 million sports stadium in San Jose that will seat
35,000 spectators. An Anhui-based construction company has begun
the work, and will provide the project's engineers and laborers,
according to Costa Rican embassy officials.

Costa Rica's Pro-trade Policy Gaining Support
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3. (SBU) The GOCR is pursuing an aggressive global trade agenda.
A China FTA, if concluded, would add to Costa Rica's existing free
trade partners, including the United States, Mexico and Central
America, the Dominican Republic, Chile, Canada, South Korea and
Singapore. The scope of the China-Costa Rica FTA, much of will
negotiated on the basis of the China-Peru FTA model, includes
trade in goods (see para 2 above for sectors of particular
interest to Costa Rica),rules of origin, customs procedures,
sanitary and phyto-sanitary measures, technical barriers to trade,
trade remedies, services, intellectual property rights, and
dispute resolution. The FTA will build on a rapidly growing trade
relationship between the two countries, Cedeno said. Six rounds
of talks are planned, the first of which was held in January 2009.

The second round is scheduled to take place in China April 14-17.
With regard to eventual prospects for ratification, Costa Rican
Consul Roberto Cespedes said the deal will likely face little
opposition from Costa Rican policymakers and civil society, who
have already been intensively exposed to the pro- and con- trade
arguments as a result of the divisive debate over ratification of
the U.S. free trade agreement with Central America and the
Dominican Republic (CAFTA-DR). He added that Chinese goods, food,
and culture have been in Costa Rica for many years, further
alleviating people's concerns about expanded bilateral trade.

More Complementary Economies
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4. (SBU) The complementary nature of the Costa Rican and Chinese
economies will facilitate ratification of the FTA, according to
Costa Rican diplomats. Unlike Mexico and other Central American
countries that have lost substantial market share to Chinese
products (particularly in the textile and apparel sectors) both at
home and in third-country markets like the United States, Costa
Rica has remained relatively unaffected by the huge surge in
China's global exports. Costa Rica's main export industries are
in higher-value added sectors like medical devices and IT
products, in which the Chinese compete less. In fact, semi-
conductor chips (most of which are made at the large Intel plant
in Costa Rica) currently comprise around 80% of Costa Rica's
exports to China. Still, China's share of the electronics and IT
sectors has grown rapidly, and our Costa Rican counterparts noted
that Intel plans to establish a new chip plant in Dalian which
could affect Costa Rica's main export. Another product Costa Rica
hopes to exploit is coffee, but Cespedes and Cedeno said it will
take some time to foster Chinese consumers' appreciation for the
premium-quality Arabica beans that Costa Rica specializes in
growing. With regard to another famous Costa Rican export,
bananas, they said that it was simply not feasible to export such

BEIJING 00000684 002 OF 002


a perishable item all the way to China.

Not Much FDI, but a Confucius Institute
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5. (SBU) In addition to expanded trade engagement, Cedeno said
Costa Rica is interested in attracting Chinese tourism and
investment. Due to the country's small size and low profile in
China, however, there has been very little of either to date,
though the conclusion of an FTA may help change that. Cespedes
mentioned that China, together with the University of Costa Rica,
recently inaugurated a Confucius Institute to promote Chinese
culture.

Comment
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6. (SBU) The tiny Costa Rican market offers relatively little to
China in terms of export opportunities. Though Beijing and Taipei
seem to have an undeclared diplomatic ceasefire since the
inauguration of Ma Ying-jeou under which the two sides are
refraining from trying to flip recognition, it is likely no
coincidence that China's Costa Rican charm offensive (Hu visit,
FTA talks, soccer stadium, Confucius Institute) is aimed at the
only Central American country with which Beijing has official
ties.

End comment.


Piccuta