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Special Report
Last Updated: 10/05/2007
Free Trade and the Debate Deficit in Costa Rica
Candice O'Grady

Cost Rica is poised on the precipice of historic political action. The Costa Rican people, about 4 million strong, will vote on whether their country should sign the Dominican Republic – Central America – United States Free Trade Agreement (DR-CAFTA). To date this agreement has been ratified by the Dominican Republic, Guatemala, El Salvador, Honduras and Nicaragua. Neither Belize nor Panama were involved in negotiations. Costa Rica is the only outstanding signatory.

In the southern reaches of the Central American isthmus, lies a country whose name conjures visions of humid virgin rainforest, brilliantly coloured frogs and vibrant butterflies the size of dinner plates. Many of its mountainsides are planted thick with coffee plantations, while the lowlands lie replete with pineapple and banana fields. Bienvenido a Costa Rica.

Covering 51 thousand square kilometers, Costa Rica is about the size of West Virginia.[1] As of 2004, 1.4 million international tourists scaled its volcanic mountains, lounged on its seaside beaches and forged into the depths of its rainforest.[2] It should come as little surprise that when Costa Rica surfaces on the pages of the international press, it is often in the travel section. There are occasional stories about waning species of plants and animals. While Costa Rica remains one of the most bio-diverse regions on earth[3], global warming and increased land development, due largely to tourism, are putting increasing strain on wild species.

There is another story to be told in Costa Rica, however. One has garnered little international coverage, despite its global implications. Cost Rica is poised on the precipice of historic political action. The Costa Rican people, about 4 million strong[4], will vote on whether their country should sign the Dominican Republic – Central America – United States Free Trade Agreement (DR-CAFTA). To date this agreement has been ratified by the Dominican Republic, Guatemala, El Salvador, Honduras and Nicaragua. Neither Belize nor Panama were involved in negotiations. Costa Rica is the only outstanding signatory. As one prominent academic stated, “As long as we don’t sign, we have options.”[5]



Free Trade to the Ballot Box


What makes Costa Rica’s approach to free trade unique? It is set to be the first country to let take free trade to the ballot box. Current president Oscar Arias has vowed to put the question to a national referendum, which is currently scheduled for October 2007, pending a review by the high court. This is certainly a landmark decision on the part of Arias and his government. However, the process may not be as legitimate as it would seem.

There is a significant catch. De facto, calling citizens to vote on a question of political importance in a referendum is a democratic means of ascertaining public opinion. However, there is an acute difference between informed and uninformed decision-making. The possibility alone to make a political decision is valuable. The capacity to make the best possible decision, however, is largely dependent on access to fair, balanced and accurate information. Unfortunately, mainstream media coverage of the pending free trade agreement has been almost exclusively pro-DR-CAFTA. President Arias strongly supports adoption of the agreement, as does one of Costa Rica’s primary news media organizations, El Grupo La Nacion. This company publishes two of the most widely read newspapers in the country, La Nacion and El Dia. During a visit to La Nacion’s headquarters in San Jose, director Alejandro Urbina and chief editor Armando Gonzalez were asked to explain the newspaper’s editorial position on the adoption of DR-CAFTA. The paper is “enthusiastically for”[6] Costa Rica’s entry into this new trade regime.

With pro-free trade stories dominating the mass media, there is a serious shortfall in challenging, analytical public debate. What does this mean for the legitimacy of the referendum? Can citizens be expected to make informed decisions about issues of national sovereignty, social and environmental health, and a vastly new trade regime based on biased information?



Mass-Mediated Consent


The anti-DR-CAFTA movement in Costa Rica is neither narrow, nor peripheral. This is not a case of the press ignoring dissent amongst the marginalized. Although traditionally excluded groups such as indigenous peoples, women and youth are often the most dramatically affected by the fallout of free trade. Nor can the Costa Rican movement be written off as a student issue. On the contrary, resistance to DR-CAFTA has drawn together politicians, grassroots activists, academics, indigenous groups, teachers, business owners, women’s right advocates and students. Despite its broad, active and articulate base, the anti-DR-CAFTA movement has gained negligible voice in the mass media. This means the drawbacks of free trade are not being discussed.

Former Costa Rican president Rodrigo Carazo is a vocal opponent of the trade deal. He has followed the evolution of the North American Free Trade Agreement (NAFTA) closely, concluding that its costs far outweigh its benefits. In the year since DR-CAFTA was passed, U.S. exports to the region have risen by 16 per cent, totaling $19.6 billion.[7] This is the same total growth rate U.S. exports experienced over the entire period between 2000 and 2004.[8] Meanwhile the commercial and trade deficits of Central American nations have ballooned, unemployment rates have risen and they are buying more and selling less.[9]

Entering DR-CAFTA is akin to overpaying for groceries everyday, according to Carazo.

I am a friend of trade, but when I go to the convenience store I count the change. Only this way can I be sure I’m getting the correct change. If I don’t count my change, and I become accustomed to what they give me, then they’ll never give me the proper change. They will forever hand me what suits them.[10]

The failures of free trade also have the most deleterious effects on the most vulnerable groups, those with the least social agency, public voice and political power. Liddiethe Madden, a Costa Rican professor and founder of the NGO Asociacion Andar, notes that independent farmers, women, youth and particularly the 65,000 indigenous people, have been left out of DR-CAFTA discussions. When social programs are cut, public lands parceled off to private developers, and public services outsourced to private contractors, these groups stand to gain the least and suffer most.[11] Madden uses the social effects NAFTA wreaked on Mexico’s poor as an example.

Since NAFTA was passed in Mexico 14 million poor Mexicans have had to leave their country to work illegally in the United Stated with no protection, in a kind of slavery.[12]

In Costa Rica, there is no reason to believe vulnerable would be better protected. In recent months the Costa Rican government began derogating a law designed protect the land rights of farmers and indigenous people in the face of crop failures suffered as the result natural disasters, like hurricanes. While the law has saved about 7,000 families from losing their land, the government is overhauling it under the guidance of the Inter-American Development Bank, Madden stated. Behind closed doors, without significant participation from civil society, the law is being redrafted to promote economic growth rather than to protect the victims of natural disaster. [13]

This new law is paving the way for DR-CAFTA. It is the last step in re-working the social welfare system, in remodeling the economic system. It will marginalize again, the most vulnerable groups in Costa Rica.[14]

Many Costa Ricans are not aware of the deal’s far-reaching capacities, which challenge the fundamental socio-economic organizing principles of the state. Without knowledge there is little incentive for participation. Carazo explains:

The truth is that most Costa Rican still don’t know what DR-CAFTA is, or what it means…. The big mistake is that it was negotiated without public knowledge. The big mistake is that the implications of many sides of the agreement were not open to analysis.[15]

While the news media could have been a platform for critical debate, it has failed to adequately inform the public. Stories written on the race to deadline generally fail to provide the serious analysis necessary to understand the trade agreement, according to Carazo. “If we believe what the media tells us is the truth, then we’re fooling ourselves.”[16]

The pro-free trade stance of the press is often the only information people in remote communities receive. This is particularly problematic because they are also the communities most likely to suffer under the deal’s stringent adherence to principles of economic growth over human rights and environmental health.

The communications media are aggravating the situation by confusing citizens, making them believe that free trade means more jobs for Costa Ricans. In the rural communities, where farmers and indigenous people live, this is the only source of information available to them. The majority of them are confused. They want information. They want to study. They want to have an opinion. They want to make informed decisions on what DR-CAFTA really means.[17]

Reversing this information deficit is a critical responsibility shared by citizens and members of the press alike. In the face of DR-CAFTA, in which the Costa Rican public has the opportunity to voice a clear opinion on the state’s socio-economic future, access to accurate information is urgent.



The Fallout of Free Trade


            Free trade agreements challenge the state’s most fundamental principles, policies and programs. Under this economic regime international trade law supercedes national and local law. Policies and programs at all levels of government are vulnerable to attack from foreign investors. The economic rights of these international corporations generally trump the political, social, economic, environmental and human rights of the citizens in the implicated community. When disputes arise they are not tried before the nation’s highest courts of justice. Rather, they are settled in international arbitration courts whose members are appointed by the foreign company and the federal government, even if the dispute is local in nature. Free trade regimes provide companies with an internationally binding arbitration court. Companies can sue the state for loss profit, or loss of expected profit. Citizens, communities and nations have no similar recourse against these companies.

A 2005 brief published by the Office of the United States Trade Representative, entitled CAFTA Facts, outlines the primary benefits the U.S. expects to reap under the new regime. One of the highlighted changes is massive privatization and outsourcing of the services sector in the region. This would mean dramatic change in Costa Rica, where 60.4 per cent of the economy relies on the service industry.[18] The federal government currently operates all telecommunications services and power generation and distribution. Costa Rica has universal health care and education, and tourism is one of its economic mainstays. The brief reads:

Central America and the Dominican Republic will accord substantial market access across the entire services regime, offering new access in sectors such as telecommunications, express delivery, computer and related services, tourism, energy, transport, construction and engineering, financial services, insurance, audio/visual and entertainment, professional, environmental and other sectors.[19]

The U.S. Trade Representative further states that tariffs will be immediately dropped on 80 per cent of U.S. exports to the region, including “information technology products, agricultural and construction equipment, paper products, pharmaceuticals and medical and scientific equipment.”[20] It should come as little surprise that large-scale privatization of public services would be swiftly followed by a deluge of products manufactured to run these services.

The “Textiles and Apparel – Uniting to Compete with Asia” section showcases the deal’s lack of freeness. The Dominican Republic and Central America are subject to serious restrictions in the garment manufacturing industry. The section states:

Garment factories in Central America and the Dominican Republic are collectively the second-largest world buyer of U.S. yarn and fabric. Apparel made in these facilities will be duty-free and quota-free under the Agreement if they use U.S. or regional fabric or yarn, thereby supporting U.S. fabric/yarn exports and jobs.[21]

DR-CAFTA is a trade agreement; it is not free. It is not free from tariffs, nor is it free from restrictions. State parties are certainly not allowed to trade amongst each other freely, but within a complex web of trade laws.

            In a conference paper presented at the Civil Participation in NAFTA conference, professor Stanford E. Gaines from the University of Houston Law Centre explains one of the primary problems for local governments in the face free trade. As described earlier, disputes are settled in international arbitration courts. Local governments suffer a severe loss of freedom, independence and agency under free trade regimes. Gaines explains:

Because state/provincial and local government actions may give rise to an investor’s claim while the federal government is the defending entity, the states and localities are unable to fight their own battles to protect their environmental actions against foreign investors. They fear that the federal governments, influenced more strongly by economic and foreign policy considerations, may not aggressively or effectively represent their interests.  In short, constitutions give significant rights to subfederal governments, whereas under NAFTA it is up to the federal authorities to defend those rights against attack by foreign investors.[22]

            It can be difficult to visualize what all of this means. What does free trade mean for individual lives and communities? DR-CAFTA is a very young treaty. It has only been in effect for approximately a year. To understand the real impacts of free trade NAFTA, which came into force in 1994, provides a better case study.



Cash over Community


            Under NAFTA numerous companies have brought cases against governments seeking to ban harmful and toxic chemicals from crossing into their countries. The Canadian government has paid millions as a result of phasing-out toxins. In one case the government was ordered to pay Ethyl Corporation $13 million after banning the gasoline additive MMT.[23] In the wake of this case, the Canadian government also reversed its ban on MMT. Canada also paid Ohio-based S.D. Meyers $4.8 million for “lost business opportunities” after banning the import of PCBs.[24] Under NAFTA federal governments use tax payers’ money to cover million-dollar payouts to billion-dollar companies, for trying to protect their citizens from toxic chemicals.

            Mexico provides a particularly compelling example of the incompatibility of free trade regimes with local control over social and environmental issues.  The roots of this case stretch back to 1990, in the Mexican city of Guadalcazar, in the state of San Luis de Potosi. At that time the Mexican waste disposal company, Coterin, was seeking to expand its facilities into a toxic waste landfill. The company acquired federal permission for the expansion, but was refused local building permits. In face of significant local opposition, including protests and roadblocks, Coterin ceased construction in 1991. [25] In 1993 Coterin was bought-out by California-based Metalclad Insulation Corporation. Metalclad began construction for the toxic waste facility anew, without the required local permits. The municipal government of Guadalcazar ordered Metalclad to cease construction in 1994. The company ignored the order and finished the landfill in 1995. According to a report by U.S.-based non-profit consumer rights organization Public Citizen:

The construction project was completed in March of 1995, still without the proper municipal permit, but the company was prevented from opening and operating the site due to continued local opposition and public demonstrations.[26]

The following October Metalclad launched a NAFTA Chapter 11 action against the Mexican government, also known as an Investor-State dispute. A year later, in September 1997, the Guadalcazar municipal council created a 600,000-acre ecological preserve to protect a rare cactus species, which included Metalclad’s landfill site.[27]

The NAFTA tribunal ruled in favour of Metalclad in August 2000. First it found that the company’s right to “fair and equitable treatment” had been denied:

The Town Council denied the permit for reasons which included, but may not have been limited to, the opposition of the local population, the fact that construction had already begun when the application was submitted, the denial of the permit to COTERIN in December 1991 and January 1992, and the ecological concerns regarding the environmental effect and impact on the site and surrounding communities. None of the reasons included a reference to any problems associated with the physical construction of the landfill or to any physical defects therein. The Tribunal therefore finds that the construction permit was denied without any consideration of, or specific reference to, construction aspects or flaws of the physical facility.[28]

Thus the tribunal ruled that “opposition of the local population,” illegal construction without a permit, and “ecological concerns regarding the environmental effect” of a toxic waste dump on the community, are not appropriate reasons to deny a building permit. What room does this leaves for local, or national, planning? It co-opts the ability of a government, or of a community, to protect its most precious resources – land, water, soil, air and a healthy population.

Secondly, the NAFTA arbitrators ruled that the actions of the Mexican government amounted to “expropriation” of Metalclad’s property.[29] Concerns for community health and wellbeing are trumped by concerns for corporate profit. The tribunal writes:

As determined earlier… the Municipality denied the local construction permit in part because of the Municipality’s perception of the adverse environmental effects of the hazardous waste landfill and the geological unsuitability of the landfill site. In so doing, the Municipality acted outside its authority. As stated above, the Municipality’s denial of the construction permit without any basis in the proposed physical construction or any defect in the site, and extended by its subsequent administrative and judicial actions regarding the Convenio, effectively and unlawfully prevented the Claimant’s operation of the landfill. These measures, taken together with the representations of the Mexican federal government, on which Metalclad relied, and the absence of a timely, orderly or substantive basis for the denial by the Municipality of the local construction permit, amount to an indirect expropriation.[30]

NAFTA ordered the Mexican government to pay Metalclad upwards of $16 million. Although the state launched a partially successful review of the case, it was still made to pay Metalclad $15.6 million in 2001. The Mexican government then attempted to pass the vast sum off to the state of San Luis de Potosi, but ultimately failed before the Supreme Court of Mexico in 2004. Then-governor of San Luis de Potosi, Fernando Silva Nieto, is quoted as saying,

There is no judicial, political, or moral reason for the federal government to demand the government of San Luis de Potosi to pay restitution for the $16 million indemnification paid to Metalclad... San Luis Potosi did not sign NAFTA.[31]

The Metalclad case provides a stunning example for how free trade agreements corrode the very basic principles of democracy. Decisions that profoundly impact the health and wellbeing of a community are not taken by elected officials, but by foreign corporations. When a community seeks to assert control over its land and resources, foreign companies stand profits millions from public coffers for loss of potential profits.

This is the side of free trade has been absent in the Costa Rican media. This is the side of free trade that Costa Ricans have a right to witness and understand, before casting their ballots in the referendum.





            The people of Costa Rica are on the brink of a decision that could change much more than the their country’s trade regime. The decision to sign DR-CAFTA has profound implications for national sovereignty, for social justice, for environmental health and ecological preservation, as well as for communities’ democratic decision-making processes. This free trade agreement stands to erode the power of a community to develop according to its own goals, visions and values. It defines development as the perpetual increase of profit. It defines progress as eternal industrialization and ever-increasing production.

The void of critical information, with the press towing a blatantly market-driven, neo-liberal line, suggests that citizens have not been informed as to the agreements vast implications. In Carazo’s words:

In our time the great problems resulting from world trade are derived from ignorance. Communications media are very sophisticated and very useful for those who have them, but not for those don’t. We use neither the communications technologies nor the vision at our disposal.[32]

In the run-up to the referendum the press should do well by its people, those to whom it is ultimately accountable. It should report on the deeply rooted concerns about free trade, those so eloquently articulated by members of the resistance movement. However, it is clear that the Costa Rican media has chosen its side. There it will remain.

Thus, the call is out to the people, to all of us. Do not let ignorance pave the path to free trade. If Costa Ricans choose free trade, let it be as a result of informed decision-making, after analyzing both sides of this contentious question. Harness the technology and disseminate the vision.