LULA'S VISIT TO COSTA RICA - PROMOTING TRADE AND

C O N F I D E N T I A L SAN JOSE 000498

SIPDIS

DEPT FOR WHA/CEN; WHA/EPSC:FCORNEILLE; WHA/BSC;
EEB/ESC/IEC/EPC:MMCMANUS

E.O. 12958: DECL: 06/12/2019
TAGS: KDEM PGOV ECON EFIN ETRD ENRG PREL BR CS
SUBJECT: LULA'S VISIT TO COSTA RICA - PROMOTING TRADE AND

RENEWABLE ENERGY

REF: SAN JOSE 419 NOTAL

Classified By: Classified by DCM Peter Brennan per 1.4 (d).


1. (SBU) SUMMARY: Brazilian President Luiz Inacio Lula da
Silva visited Costa Rica June 2-3 to advance cooperation
between the Mercado Comun del Cono Sur (MERCOSUR) and the
Sistema de Integracion Centroamericana (SICA),of which Costa
Rica will assume the Presidency in July, and to strengthen
bilateral economic ties between the two countries. Da Silva,
making the brief visit en route home after attending the
swearing in of El Salvadorian President Mauricio Funes, also
sought to promote the idea of Brazilian companies using Costa
Rica's tariff-free access to U.S. markets (granted through
CAFTA) to export sugar cane ethanol to Costa Rica, refine it
there, and sell it to the U.S. President Oscar Arias was
visibly delighted to host his Brazilian counterpart and hopes
that his administration can further trade and renewable
energy initiatives with the GOB before leaving office next
year. END SUMMARY.

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AN EMERGING REGIONAL TRADE PACT?
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2. (C) Da Silva's visit, which reciprocated Arias, visit to
Brasilia in June 2008, focused in part on plans for greater
economic cooperation between MERCOSUR and SICA, with both
leaders expressing interest in a trade agreement between the
two regions. According to Linyi Baidal, Deputy Director of
Foreign policy in Costa Rica's MFA, Costa Rica will use its
presidency of SICA to "feel out" Central American interest in
a free-trade agreement with MERCOSUR. Costa Rica hopes a
trade agreement would help to correct the massive trade
imbalance between the two regions. As Arias noted during da
Silva's visit, Central American import taxes are so much
lower than those of Brazil, that "for every dollar that
Central America exports to Brazil, (Central America) imports
twenty-four dollars." Both da Silva, and Uruguayan President
Tabare Vazquez, who visited Costa Rica in April and takes
over the presidency of MERCOSUR this year, used their visits
to reiterate interest in opening up trade negotiations
between the two regions.
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RENEWABLE ENERGY AND WATER TREATMENT
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3. (SBU) Da Silva and Arias also discussed the production of
ethanol and the potential participation of Brazilian
businesses in infrastructure projects in Costa Rica. Da
Silva promised Arias technical support and technology
transfer in the area of biofuels, specifically relating to
sugar cane ethanol. Da Silva also presented the possibility
of Brazilian companies opening up ethanol plants in Costa
Rica, in order to make use of Costa Rica's CAFTA-granted
access to U.S. markets. CAFTA affords Costa Rica unlimited
tariff-free access to the U.S. for originally-grown and
produced ethanol, and an annual quota of 31 million gallons
for third-country grown, Costa Rican-produced ethanol. Brazil
would like to take advantage of that latter quota, since it
currently pays 54 cents per gallon in taxes on biofuels
exported to the U.S.


4. (SBU) Da Silva's final piece of business was to sign an
agreement under which Brazil will provide technology and
skills training in waste water treatment to Costa Rica's
national water utility (AyA). The project will focus on
smaller treatment plants, as several large plants in the San
Jose metropolitan area are well advanced in planning and
financing. A Brazilian company and AyA will jointly manage
the project, which is related to discussions currently under
way between Banco de Brazil, the Central American Bank for
Economic Integration and the AyA to finance three large water
treatment plants in Costa Rica.

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A CELEBRITY WELCOME
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5. (U) The often taciturn Arias could barely contain his
pleasure at welcoming Lula, whom he described as "one of the
most loved and admired presidents in Latin America" and as a
"political farmer," "troubadour for equality," "symbol of
social justice" and "poet for democracy". He offered Costa
Rica as a "bridge" for Brazilian products (via CAFTA) to the
United States.

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COMMENT
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6. (C) If the lavish praise and promising prose bears fruit,
both countries stand to gain from closer relations, but Costa
Rica (and the Arias administration) may be the bigger
winners. Renewable energy sources are high on the GOCR,s
agenda and appeal to Costa Rica,s green image. A tangible
benefit from CAFTA, such as local ethanol production, would
also be welcome, although this will take time. Waste water
treatment is a major challenge here, so Brazilian assistance
may help the GOCR make long-needed progress, especially in
the crowded Central Valley around San Jose.


7. (C) Legacy may be at the very top of Arias, agenda with
Lula, however, as the clock begins to wind down on his
administration, which ends in May 2010. The SICA presidency,
along with the last six months of Costa Rica's term on the
U.N. Security Council (which ends December 31, 2009),provide
Arias with more opportunities to build on his international
reputation while in office. Starting talks on a free trade
agreement between SICA and MERCOSUR, as well as launching any
CAFTA-related ethanol initiative, would allow Arias to take
credit for any future success. Not mentioned publicly, but
perhaps discussed in their private meeting, is Arias, "Good
Friend" initiative, which would include Lula in a select
group of regional leaders, along with Arias, who would help
craft a new USG policy towards Latin America with the
Secretary and POTUS (Reftel). In short, the Arias
administration made the most of da Silva's short visit,
hoping to further trade, energy and international relations
initiatives before leaving office next year.
CIANCHETTE