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Democrats vs. Central America
October 1, 2007
America's only socialist senator traveled to Costa Rica last week, but it wasn't to work on strengthening ties between our two nations. Vermont's Bernie Sanders went to San José with Rep. Mike Michaud (D., Maine) to aid the local opposition to the U.S-Central American Free Trade Agreement, which has not yet been ratified by that country.
The congressional visit was strategically timed. As one of seven signatories to Cafta, and the only one that hasn't made it official, Costa Rica has only until Feb. 29 to adopt the legislation necessary to join the pact. But first it must be ratified and time is running out. The Costa Rican Congress has been gridlocked on the matter, so on Sunday there will be a national referendum asking the electorate to decide directly.
Messrs. Sanders and Michaud were invited by the leader of the country's anti-Cafta movement, Ottón Solís. Their role was to boost the "No" campaign by declaring that the rejection of Cafta will not affect the preferential access to U.S. markets for a variety of Costa Rican products that now exists under the Caribbean Basin Initiative. Reps. Charlie Rangel (D., N.Y.) and Sandy Levin (D., Mich.) sent a similar message, by letter, to Mr. Solís in January; Harry Reid and Nancy Pelosi sent a letter last week to the Costa Rican ambassador in Washington telling him the same. The idea is to undermine the reciprocity argument that might help get Cafta approved.
It is odd that U.S. legislators are going out of the way to discourage the opening of markets for U.S. exporters. But egging on Costa Ricans to defeat Cafta also runs contrary to U.S. political interests. Cafta is an essential tool for strengthening democratic capitalism in Central America. If it is killed in Costa Rica, it will be a victory for Venezuela's Hugo Chávez, who is trying to drive a wedge between Latin America and the U.S. and help Iran put down roots in America's backyard.
According to the latest polls, the race is a statistical dead-heat. Anti-Cafta strength is partly explained by the country's powerful and well-organized labor unions, led by the union for the government's monopoly electricity and telecommunications company (known by its Spanish initials as ICE). The union resists Cafta because it would force competition in wireless and Internet services -- though it would do nothing to disturb the ICE monopoly in fixed-line telephony and in electricity.
The ICE union is joined in its opposition to Cafta by other public-sector unions -- notably teachers -- as well as by intellectuals, the university set and a surprising number of radicalized Costa Ricans whose most important political issue seems to be anti-Americanism. The anti-Cafta campaign has been marked by violence and intimidation.
Costa Rica is often held up as a model for tolerance and democracy in the region, and if nothing else, the fight over Cafta reveals just how far left this nation has tilted. The hard left might not be a majority, but it is certainly a force that threatens the nation's civility. A Cafta defeat is likely to pull the country further in the direction of the anti-globalization extremists.
There are also enormous economic costs associated with rejecting Cafta: Costa Rica would be the only country in Central America without an institutionalized commitment to open trade and investment with its neighbors and with the U.S. This would inflict grave damage on its investment profile. Things could get even worse if Panama's FTA with the U.S. is ratified by the U.S. Congress, as is expected. Import barriers in Costa Rica would be likely to divert trade and capital flows to more open markets.
In that case, efficiency, productivity and growth will almost certainly suffer. In telecom, for example, Costa Rica is already falling far behind its neighbors because of the ICE monopoly. Many of its services are unreliable and modern technology that other countries take for granted -- hand-held wireless devices such as BlackBerries, for example -- are but futuristic dreams for Costa Ricans. At some point foreign investors, comparing Costa Rica to its neighbors, are bound to respond negatively to the country's declining competitiveness in a sector so tied to productivity.
In a sense, Sunday's vote is a referendum on whether Costa Rica should move forward by integrating with the modern world or cling to its closed economy and nanny-state traditions. Mr. Solís, a losing presidential candidate in last year's election, wants to preserve the past, though it is hard to see how he can make it work. Wages, pensions, debt service and higher education drain 80% of the budget every year; law enforcement, the judiciary, roads and ports are being starved. The government simply doesn't have the money to build a modern telecom network.
Two weeks ago the pro-Cafta campaign took a big hit when a leaked memo revealed that a member of President Oscar Arias's cabinet had been counseling the use of hardball tactics as a way to win votes. Then Messrs. Sanders and Michaud arrived to shore up the Solís agenda. That's when the free-trade side bounced back up in the polls.
The visit from the gringos seems to have widely insulted the Costa Rican nation, not least because it doesn't appreciate U.S. politicians meddling in its internal affairs. But there may have been something else that angered the locals: Here were two protectionists promising to leave the U.S. market open for Costa Rican goods even after the death of Cafta. They smelled a rat.
Within days Costa Ricans learned just how protectionist these "friends" of Mr. Solís are. Mr. Sanders always votes against free trade and as recently as last year he and Mr. Reid voted against the Caribbean Basin Trade Partnership Act which provides duty-free access to the U.S. for Costa Rican textiles. Mr. Michaud's Web site boasts of his opposition to Cafta in defense of Maine jobs. These notorious protectionists would champion trade preferences or a new FTA for Costa Rica after Cafta? That was perceived as an insult to Costa Rican intelligence. One local politician called them "wolves in sheep's clothing."
The fact is that CBTPA expires in September 2008 and the Caribbean Basin Initiative can be terminated by the president if beneficiaries don't make an effort to liberalize. Moreover, protectionist sentiment is growing on Capitol Hill and trade preferences for countries that refuse to open their own markets are coming under scrutiny. Both Sen. Charles Grassley (R., Iowa) Sen. Max Baucus (D., Mont.) have suggested they might not continue. In other words, if Costa Rica rejects Cafta, it should be prepared to lose its preferential U.S market access. That's a price that even Mr. Solís's followers may not be prepared to pay, which is why he invited his friends down from Washington.
Write to O'Grady@wsj.com.
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