Thursday, July 05, 2007

Costa Rica's constitutional court backs CAFTA-DR

by Leroy Baker,
Tax-News.com

Supporters of Costa Rica's involvement in the Central American and Dominican Republic Free Trade Agreement (CAFTA-DR) were given a boost on Tuesday when the country's constitutional court voted 5 to 2 that the treaty did not breach Costa Rica's constitution.

While Costa Rica's ratification of the treaty remains an uncertainty, the court's decision clears the way for a referendum to take place on whether the country should participate in CAFTA, which is scheduled for October 7, 2007.

While all the other signatories of CAFTA-DR, including the United States, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua, have signed and ratified the agreement, Costa Rica remains divided over the measures contained in the treaty, and is the only country to waver on its commitments.

Opponents of the deal, such as trade unions, argue that by opening up the country to more foreign competition, wages will be driven down and unemployment will rise. Other opponents fear that the agreement could lead to a loss of sovereignty, as Costa Rica would be required to defer to a multinational arbitration panel in the event of a trade dispute. There is also plenty of opposition to the deal in the legislative assembly, and in May, 19 lawmakers presented a 130-page document explaining why CAFTA-DR would be bad for Costa Rica.

President Oscar Arias and his government however, argue to the contrary and believe that CAFTA-DR will increase foreign investment in Costa Rica, thus spurring economic growth. Last month, Standard & Poor's supported this view, and said that ratification of CAFTA-DR would boost the prospects for the Costa Rican economy.

However, opinion polls earlier this year suggested that the majority of the public do not share the government's view, with only 40% expressing support for the trade deal.

CAFTA would immediately eliminate duties on more than half the value of US farm exports to the region, expand intellectual property protections, and open telecommunications and other markets. It would also eliminate tariffs on 80% of US exports of consumer and industrial goods in signatory countries, with the remaining tariffs phased out over 10 years.

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