Costa Rica: Background and U.S. Relations
Peter J. Meyer
Analyst in Latin American Affairs
July 21, 2009
Congressional Research Service
7-5700
www.crs.gov
R40593
CRS Report for Congress
P
repared for Members and Committees of Congress
Costa Rica: Background and U.S. Relations
Summary
Costa Rica is a relatively politically stable and economically developed nation with a long
tradition of civilian democracy. Former president (1986-1990) and Nobel-laureate Oscar Arias of
the National Liberation Party was elected President in 2006. Throughout his term, Arias has
focused on expanding the country’s social safety net and increasing free trade. He faced strong
opposition to the country’s inclusion in the Dominican Republic-Central America-United States
Free Trade Agreement (CAFTA-DR), but eventually secured its ratification and implementation.
Arias has also been active in foreign affairs, establishing diplomatic relations with China and
Cuba after decades without formal ties.
Once a predominantly agricultural nation, Costa Rica has established a diversified economy with
a strong export sector. Under President Arias, the country has increased its social investment,
experienced significant economic growth, and seen a reduction in poverty. The global financial
crisis and economic downturn, however, threatens to erase these gains. President Arias has
responded to the crisis with an ambitious fiscal stimulus and social protection plan. While the
plan may do much to mitigate the social impacts of the crisis, analysts believe it will be unable to
prevent Costa Rica’s economy from slowing considerably in 2009.
In recent years, many have begun to recognize Costa Rica as a world leader in environmental
protection. Successive Costa Rican administrations have sought to address the extensive
deforestation and environmental degradation that resulted from decades of logging and
agricultural expansion. The country’s innovative policies, strong conservation system, and
commitment to alternative energy have done much to restore Costa Rica’s environment. Costa
Rica is also party to a variety of international treaties and has committed to becoming carbon
neutral by 2021. This commitment to environmental protection has been a significant source of
economic growth for the country as Costa Rica is now a top destination for ecotourism.
The United States and Costa Rica have long enjoyed close relations as a result of the countries’
shared commitments to strengthening democracy, improving human rights, and advancing free
trade. The countries have also maintained strong commercial ties, which are likely to become
even more extensive as a result of the implementation of CAFTA-DR. Costa Rica and the United
States have worked together on a number of other issues as well, such as conserving Costa Rica’s
tropical forests and combating narcotics trafficking.
For additional information see CRS Report RL31870, The Dominican Republic-Central America-
United States Free Trade Agreement (CAFTA-DR), by J. F. Hornbeck, CRS Report RL34112,
Gangs in Central America, by Clare Ribando Seelke, and CRS Report R40135, Mérida Initiative
for Mexico and Central America: Funding and Policy Issues, by Clare Ribando Seelke and June
S. Beittel.
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Costa Rica: Background and U.S. Relations
Contents
Political Situation........................................................................................................................ 1
Background .......................................................................................................................... 1
2006 Elections ...................................................................................................................... 1
Arias Administration ............................................................................................................. 2
2010 Elections ...................................................................................................................... 2
Economic Situation..................................................................................................................... 3
Global Financial Crisis.......................................................................................................... 3
Social Conditions .................................................................................................................. 4
Environmental Policy.................................................................................................................. 4
U.S.-Costa Rican Relations ......................................................................................................... 6
U.S. Assistance ..................................................................................................................... 7
Mérida Initiative ............................................................................................................. 8
International Military Education and Training ................................................................. 8
Free Trade Agreement ........................................................................................................... 9
Ratification ..................................................................................................................... 9
Implementation ............................................................................................................. 10
Figures
Figure 1. Map of Costa Rica........................................................................................................ 6
Contacts
Author Contact Information ...................................................................................................... 11
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Costa Rica: Background and U.S. Relations
Political Situation
Background
Costa Rica is a relatively politically stable and economically developed country of 4.3 million
people. The country gained its independence from Spain in 1821 as a part of the Central
American Union, and became a sovereign nation following the union’s dissolution in 1838. Costa
Rica has a history of stable governance and has enjoyed continuous civilian democratic rule since
the end of a 1948 civil war, the longest period of unbroken democracy in Latin America. The civil
war led to the creation of a new constitution, the abolition of the military, and the foundation of
one of the first welfare states in the region. Although the 1949 constitution forbids the creation of
a standing army, the country has a coast guard and a 9,900-strong police force that is controlled
by the Ministry for Public Safety and the Interior. Costa Rica is a presidential democracy with a
unicameral legislature. Presidential and legislative terms last four years, with consecutive terms
prohibited by the constitution.1 Costa Rica also possesses an independent judiciary, which
includes a Supreme Court with a Constitutional Chamber that has extensive powers to review the
constitutionality of legislation.2
Public fatigue with politics has grown in recent years as a result of corruption scandals that have
implicated three former presidents from the two traditional ruling parties: Rafael Angel Calderón
(1990-1994) and Miguel Angel Rodríguez (1998-2002) of the center-right Social Christian Unity
Party (PUSC) and José María Figueres (1994-1998) of the center-left National Liberation Party
(PLN). This disillusionment has led to high voter abstention rates and increased support for newer
parties, such as the leftist Citizens’ Action Party (PAC) and the conservative Libertarian
Movement Party (PML).3
2006 Elections
Presidential and legislative elections were held in February 2006, though the presidential election
was so close that the Supreme Electoral Tribunal (TSE) did not announce the final results until
March 2006, following a manual recount. Former president (1986-1990) and Nobel-laureate
Oscar Arias of the PLN defeated the PAC’s Ottón Solís—a former PLN deputy and Minister for
National Planning and Economic Policy during Arias’ first administration—40.92% to 39.8%, a
difference of just 18,167 votes. The PLN also won a plurality in the National Assembly with 25 of
the 57 seats. The PAC won 17 seats, surpassing the PUSC, which won just five National
Assembly seats and 3.5% of the presidential vote. Voter abstention continued to be high, with
35% of the population not voting, a 4% increase from 2002.4 The Dominican Republic-Central
America-United States Free Trade Agreement (CAFTA-DR) was one of the most prominent
issues of the campaign. Arias supported ratification of the agreement while Solís maintained that
it should be renegotiated.
1 As a result of an April 2003 constitutional change, presidents may be reelected after two terms out of office.
2 “Country Profile: Costa Rica,” Economist Intelligence Unit, 2008.
3 “Costa Rica: Elections end in dead heat,” Oxford Analytica, February 8, 2006. The PML first participated in
presidential elections in 1998 and the PAC in 2002.
4 “Costa Rica: Arias Finally Wins It,” Latin American Regional Report Caribbean & Central America, March 2006.
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Arias Administration
President Arias has spent much of his administration expanding Costa Rica’s social safety net and
advancing free trade. Despite some minor scandals that led to several Cabinet members’
resignations, President Arias has enjoyed considerable public support throughout much of his
term. In April 2009, the Arias Administration had a 53% approval rating, the highest rating for a
president in the final year of his term in 28 years.5
President Arias has done much to expand and modernize Costa Rica’s social safety net since his
election in 2006. In his first year alone, Arias doubled welfare pensions, created 16 new centers
for primary healthcare services, and increased funding for education by 26%.6 The Arias
Administration also introduced Avancemos, a conditional cash transfer program that provides
monthly stipends to the families of 140,000 poor students, as long as the children remain in
school and receive annual medical care.7 The program aims to reduce poverty in the short run
while fostering long-term poverty alleviation through increased educational attainment. Social
spending accounted for 41.1% of the budget in 2008 and will likely exceed 45% of the budget in
2009.8 Although these policies combined with strong economic growth helped reduce poverty in
Costa Rica, the onset of the global financial crisis has threatened to erase the social gains made in
recent years.
Arias has had more difficulty implementing his priorities on the trade front. Ratification and
implementation of CAFTA-DR took much longer than expected. Although Costa Rica signed the
agreement in 2004, the country did not ratify it until a national referendum in 2007, and the
implementation did not take place until January 2009. Nonetheless, the Arias Administration has
continued to push for more free trade agreements, ratifying an agreement with Panama and
beginning trade talks with the European Union, Singapore, and China. President Arias established
diplomatic ties with China in 2007, ending its 60 year relationship with Taiwan. Arias also
reestablished diplomatic relations with Cuba in March 2009, 48 years after Costa Rica suspended
ties with the nation.
2010 Elections
The political scene in Costa Rica has become increasingly focused on the February 2010
presidential and legislative elections. Former Vice President Laura Chinchilla won the June 2009
primaries of the ruling PLN, defeating former mayor of San José Johnny Araya 54% to 43%.9
Chinchilla’s main opposition is likely to be Ottón Solís of the leftist PAC. Solís, the PAC’s 2006
presidential candidate, won his party’s nomination with 71% of the vote in a May 2009 closed
primary. Former President Rafael Angel Calderón (1990-1994)—who is currently on trial for
corruption—may be the candidate of the PUSC while Otto Guevara will likely once again be the
candidate of the PML. Given the popularity of the current administration, some analysts believe
that Chinchilla is the favorite to succeed President Arias.10 Support for the PLN could dissolve,
5 “Country Report: Costa Rica,” Economist Intelligence Unit, May 2009.
6 “Country Profile: Costa Rica,” Economist Intelligence Unit, 2008.
7 Gillian Gillers, “Dr.’s Visit Now Required To Get Cash Benefits,” Tico Times, February 1, 2008.
8 “Corruption Impedes Flow of Aid to Poor in Costa Rica,” Latin America Data Base NotiCen, September 18, 2008.
9 “Costa Rica’s Chinchilla secures nomination,” Latin News Daily, June 8, 2009.
10 “Costa Rica still inclined towards PLN,” Latin American Caribbean & Central America Report, February 2009.
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however, should the Costa Rican economy continue to deteriorate despite President Arias’
economic stimulus package.
Economic Situation
Costa Rica pursued state-led development throughout much of the 20th century. A regional
recession in the 1980s, however, led Costa Rica to borrow heavily and eventually default on its
foreign debt in 1983. Following the economic collapse, Costa Rica sought assistance from the
International Monetary Fund (IMF) and other international financial institutions. In order to
receive funds, Costa Rica was required to implement structural adjustment programs that
liberalized the country’s economy and privatized the majority of its state-owned enterprises.11
In recent decades, Costa Rica has continued to pursue market-oriented policies, making
considerable efforts to attract foreign direct investment (FDI), develop its export sector, and
diversify its once predominantly agriculture-based economy. Costa Rica’s economic policies,
stable democracy, and well educated population have led a number of analysts to consider Costa
Rica one of the most attractive investment environments in Central America.12 The creation of
free trade zones (FTZs) over the past two decades has attracted a number of businesses in
electronics and other high-tech industries, including Intel, which operates a microprocessor
assembly plant in the country. These new industries have been an important source of
employment and have strengthened the country’s export sector. In 2007, Costa Rica attracted $1.9
billion in FDI, of which $1 billion originated in the United States.13 Between 2005 and 2007,
exports grew by 34%, with microprocessors and other electrical machinery accounting for
roughly 21% of all export earnings in the period. Other important exports are edible fruit and
nuts; machinery parts and mechanical devices; and optical and medical instruments, which
respectively accounted for 14%, 12%, and 8% of export earnings in 2007.14 The economy grew
by 8.8% in 2006 and 7.8% in 2007, fueled in large part by export growth and increased
investment.15
Global Financial Crisis
The global financial crisis has significantly affected the Costa Rican economy as the U.S.
recession has considerably weakened demand in one of Costa Rica’s major export markets.
Exports increased by just 1.83% in 2008 while real gross domestic product (GDP) growth in 2008
slowed to 2.9%. In the first quarter of 2009, exports fell 12% year-on-year and the economy
contracted by 6.2%.16 The country is expected to face continued declines in important sectors like
11 CAFTA-DR further liberalizes the Costa Rican economy by opening up the telecommunications and insurance
sectors.
12 “IHS Global Insight Report: Costa Rica (Country Intelligence),” IHS Global Insight Inc., 2009.
13 U.N. Economic Commission for Latin America and the Caribbean, Foreign Investment in Latin American and the
Caribbean, 2007.
14 U.S. Department of Commerce statistics, as presented by Global Trade Atlas, 2009.
15 “Country Profile: Costa Rica,” Economist Intelligence Unit, 2008.
16 “Costa Rica: Worries about the fiscal deficit,” Latin American Economy & Business, May 2009.
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manufacturing and tourism, leading the IMF to predict that the Costa Rican economy will grow
only 0.5% in 2009 and 1.5% in 2010.17
In order to boost economic growth as well as protect the social gains that have been made in
recent years, President Arias announced a $2.5 billion (8% of GDP) economic stimulus and social
protection plan known as Plan Escudo in February 2009. Among other provisions, the plan
recapitalizes state banks, provides support to small and medium-sized enterprises and the
agricultural sector, increases labor flexibility, invests $1.43 billion (5% of GDP) in infrastructure
projects, provides grants to workers in the worst-affected sectors, increases the number of
students eligible for the Avancemos program, and creates a new food program for pre-school
children and their families. Around $1.9 billion of the plan will be financed through new
multilateral debt—including $1.3 billion from the Inter-American Development Bank (IDB)—
with the rest coming from domestic sources.18 Some labor groups and non-governmental
organizations (NGOs) have criticized the labor flexibility provisions of the plan, which allow
reduced work days with the intention of maintaining overall employment levels.19 In April 2009,
Costa Rica also received approval for a $735 million stand-by loan from the IMF and a $500
million credit line from the World Bank should it need additional funds to weather the crisis.20
Social Conditions
Costa Rica’s citizens enjoy a relatively high standard of living as a result of the country’s
comparatively well-developed economy and devotion of considerable government resources to
social services. The World Bank classifies Costa Rica as an upper-middle-income developing
country with a per capita income of $5,560 in 2007.21 Costa Rica invests 6.6% of GDP in public
health and 6% of GDP in education, some of the highest rates in the developing world. According
to the United Nations’ 2007/2008 Human Development Report, Costa Rica has the highest level
of human development in Central America and the fourth highest in all of Latin America with a
life expectancy at birth of 78.5 years and a literacy rate of 95%. Costa Rica’s poverty rate has
declined in recent years, falling nearly 4% since Arias took office to just 16.7%. Analysts attribute
the reduction in poverty to strong economic growth and social programs such as Avancemos.22
Many of these social gains potentially are at risk due to the global economic downturn.
Environmental Policy
Although the country has long been admired for its tropical forests, it is only relatively recently
that Costa Rica began to be seen as a world leader in environmental protection. While
approximately 75% of Costa Rican territory was forest covered in the 1940s, just 21% remained
17 International Monetary Fund “World Economic Outlook: Crisis and Recovery,” April 2009.
18 “Country Report: Costa Rica,” Economist Intelligence Unit, February 2009.
19 “Country Report: Costa Rica,” Economist Intelligence Unit, June 2009.
20 “IMF approves $735 mn stand-by loan for Costa Rica,” EFE News Service, April 13, 2009; “Costa Rica: Growth
falls despite expansionary policies,” Oxford Analytica, April 15, 2009.
21 World Bank, World Development Report, 2009.
22 “Costa Rica Sees Accelerated Poverty Reductions,” Latin America Data Base NotiCen, November 15, 2007;
“Corruption Impedes Flow of Aid to Poor in Costa Rica,” Latin America Data Base NotiCen, September 18, 2008.
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covered in 1987 as a result of logging and agricultural expansion.23 Alarmed at the pace of
deforestation and the extent of environmental degradation, the Costa Rican government began
implementing a variety of environmental protections during the 1960s. Among these protections
is the National System of Conservation Areas (SINAC), which currently provides formal
protection for over 26% of Costa Rica’s land and 16.5% of its waters.24 Costa Rica has also
imposed a 3.5% “carbon tax” on fossil fuels since 1997. The funds generated go to a national
forest fund that pays indigenous and other communities to practice sustainable development and
protect their forests.25 As a result of these efforts, over 50% of Costa Rican territory is now under
forest cover.26
Costa Rica has introduced a number of other innovative environmental policies as well. The
country imposes a tax on major water users—such as hydro-electric dams, farmers and drinking
water providers—to pay communities upstream to keep the water clean. It has also begun taxing
companies that pollute rivers, using the funds to improve the water treatment system, monitor
pollution, and promote environmentally friendly practices. Costa Rica has invested heavily in
renewable energy sources as well. It currently generates more than 95% of its energy from hydro-
electric, geo-thermal and wind power, and has refused to exploit its discovered oil reserves in
order to maintain incentives to develop alternative energies.27 These environmental policies are
critical since Costa Rica is home to a disproportionately high percentage of the earth’s biological
diversity with 5% of the planet’s plant and animal species.28 Environmental protection has also
been a significant source of economic growth for Costa Rica as the country has become one of
the premier destinations for ecotourism. Uncontrolled development and the overuse of some
protected areas, however, have drawn criticism from environmentalists.29
Although Costa Rica is a relatively small country in terms of size and population, its leadership
has allowed it to play a larger role in formulating global environmental policies. It is a party to a
wide variety of international environmental agreements, including the U.N. Convention on
Biological Diversity, the Montreal Protocol on Substances that Deplete the Ozone Layer, and the
U.N. Framework Convention on Climate Change and its Kyoto Protocol. Costa Rica has also
participated in the Kyoto Protocol’s Clean Development Mechanism (CDM), which allows
industrialized countries to partially meet their mandated emission reduction targets by funding
emission reduction projects in developing countries. Costa Rica has developed six such projects,
preventing 21,226 tons of carbon dioxide from being released into the atmosphere.30 In 2008,
President Arias announced Costa Rica’s intention to become carbon-neutral by 2021, making it
the first developing nation to make such a pledge. The announcement reflected Costa Rica’s view
that developing nations must cut their greenhouse gas emissions now, rather than waiting until
23 “Costa Rica: Government seeks green credentials,” Oxford Analytica, October 21, 2008.
24 Ministerio Del Ambiente y Energia, “Sistema Nacional de Áreas Protegidas,” available at http://www.sinac.go.cr/
planificacionasp.php.
25 Thomas L. Friedman, “(No) Drill, Baby, Drill,” New York Times, April 12, 2009.
26 “Costa Rica: Government seeks green credentials,” Oxford Analytica, October 21, 2008.
27 Esteban A. Mata, “Óscar Arias se opone a exploración petrolera,” La Nación (Costa Rica), March 24, 2009; Thomas
L. Friedman, “(No) Drill, Baby, Drill,” New York Times, April 12, 2009.
28 “Costa Rica: Government seeks green credentials,” Oxford Analytica, October 21, 2008.
29 Ibid.
30 United Nations Framework Convention on Climate Change, “CDM Statistics,” May 2009.
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developed nations make significant cuts. In 2004, Costa Rica emitted just 1.4 tons of carbon
dioxide per capita, one of the lowest per capita emissions in Latin America and the world.31
Figure 1. Map of Costa Rica
Source: Map Resources. Adapted by CRS Graphics.
U.S.-Costa Rican Relations
Relations between the United States and Costa Rica traditionally have been strong as a result of
common commitments to democracy, free trade, and human rights. U.S. intervention in Central
America during the 1980s, however, slightly strained the relationship. President Arias responded
to the various conflicts in the region by crafting a peace plan during his first administration,
which excluded the involvement of extra-regional powers. As a result of his efforts, Arias was
awarded the Nobel Peace Prize in 1987. U.S. policy in Iraq has also strained relations between
31 “Costa Rica: Government seeks green credentials,” Oxford Analytica, October 21, 2008.
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Costa Rica and the United States. Although then President Pacheco (2002-2006) supported the
U.S. invasion, Costa Rica’s Constitutional Court ruled that listing the country as a member of the
so-called “coalition of the willing” violated the country’s constitutionally mandated neutrality.
President Arias has questioned the priorities of the United States for continuing to spend
substantial funds in Iraq while allocating comparatively little to assist allies in Central America.32
Current relations between the United States and Costa Rica could be characterized as friendly.
Costa Rica finally implemented CAFTA-DR in January 2009. The agreement will likely
strengthen Costa-Rica’s already significant trade relationship with the United States. Vice
President Biden visited Costa Rica during his first trip to Central America, leading the Arias
Administration to describe the meeting as “a clear recognition of the trajectory of Costa Rica as
the United States’ strategic partner in the region.”33 Additionally, President Arias criticized the
anti-Americanism of some of his fellow Latin American leaders at the Fifth Summit of the
Americas, and the United States has strongly supported President Arias’ role as mediator in the
political crisis in Honduras.34
U.S. Assistance
For more than a decade, Costa Rica has not been a large recipient of U.S. assistance as a result of
its relatively high level of development, although this is likely to change somewhat as a result of
the “Mérida Initiative.” The Peace Corps has been operating in Costa Rica since 1963 and
generally has been the largest source of U.S. assistance to the country since the U.S. Agency for
International Development (USAID) Mission closed in 1996. Costa Rica also receives
“International Military Education and Training” (IMET) assistance. Costa Rica received $1.7
million in U.S. assistance in FY2006 and $2.3 million in FY2007. In FY2008, Costa Rica was
scheduled to receive $2.4 million in regular U.S. assistance and an additional $4.3 million in
supplemental assistance through the Mérida Initiative. In FY2009, Costa Rica could receive $2.9
million in regular foreign aid funding and an additional $9.5 million for the continuation of the
Mérida Initiative.35
In 2007, Costa Rica signed one of the largest ever debt-for-nature swaps with the U.S.
government. Authorized by the Tropical Forest Conservation Act of 1998 (P.L. 105-214), the
agreement reduced Costa Rica’s debt payments by $26 million over 16 years. In exchange, the
Costa Rican Central Bank agreed to use the funds to support grants to non-governmental
organizations and other groups committed to protecting and restoring the country’s tropical
forests. In order to fund the agreement, the U.S. government contributed $12.6 million and
32 Oscar Arias, “Region’s real enemies: poverty and ignorance,” Miami Herald, August 19, 2008.
33 Tim Rogers, Central American leaders to vie for Obama’s ear; Nicaragua and Costa Rica are jockeying for
leadership roles at the Summit of the Americas in Trinidad and Tobago,” Miami Herald, March 25, 2009.
34 Andres Oppenheimer, “Arias’ brilliant response to anti-American leaders,” Miami Herald, May 3, 2009; Hillary
Rodham Clinton, Secretary of State, “Remarks at the Top of the Daily Press Briefing,” July 7, 2009. For additional
information on the Fifth Summit of the Americas, see CRS Report R40074, Fifth Summit of the Americas, Port of
Spain, Trinidad and Tobago, April 2009: Background, Expectations, and Results. For more information on the 2009
political crisis in Honduras, see CRS Report RL34027, Honduran-U.S. Relations.
35 U.S. Department of State, Congressional Budget Justification, Foreign Operations, FY2007, FY2008, and FY2009;
Peace Corps, Congressional Budget Justification, FY2006-2009.
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Conservation International and the Nature Conservancy contributed a combined donation of more
than $2.5 million.36
Mérida Initiative37
In October 2007, the United States and Mexico announced the Mérida Initiative, a multi-year
proposal to provide U.S. assistance to Mexico and Central America aimed at combating drug
trafficking and organized crime. Costa Rica was scheduled to receive an estimated $4.3 million of
the $60 million in funding for the Mérida Initiative appropriated for Central America, Haiti, and
the Dominican Republic in the FY2008 supplemental appropriations legislation (P.L. 110-252).
Costa Rica likely will receive additional FY2008 Mérida Initiative funding from a $24.9 million
regional program for Central America. For FY2009, Costa Rica could receive $9.5 million of the
$105 million appropriated for Central America under the Mérida Initiative in the Omnibus
Appropriations Act of 2009 (P.L. 111-8). On June 17, 2009, Costa Rica and the United States
signed the first letter of agreement implementing the Mérida Initiative. The letter provides an
initial $1.1 million of the FY2008 funding to Costa Rica. The funds will go toward the Central
American Fingerprint Exchange, improved policing and equipment, improved prison
management, maritime interdiction support, border assistance and inspection equipment, and a
number of regional training programs.38 President Arias has praised the Mérida Initiative as a
“step in the right direction,”39 but maintains that the U.S. funding of the program in Central
America—and Costa Rica in particular—is “insufficient.”40
International Military Education and Training
Although Costa Rica has no military, it receives IMET assistance to train its public security
forces. These funds have been used to improve the counterdrug, rule of law, and military
operations capabilities of the Costa Rican Coast Guard and law enforcement services. Costa Rica
was prohibited from receiving IMET assistance in FY2004, FY2005, and FY2006 as a result of
its refusal to sign an Article 98 agreement exempting U.S. personnel from the jurisdiction of the
International Criminal Court. In October 2006, President Bush waived FY2006 IMET restrictions
for a number of countries—including Costa Rica—and signed the John Warner National Defense
Authorization Act for Fiscal Year 2007 into law (P.L. 109-364), a provision of which ended
Article 98 sanctions on IMET funds.41 Costa Rica began receiving IMET funds again in FY2007.
In January 2009, Security Minister Janina del Vecchio revealed that Costa Rica would once again
send police officers to the Western Hemisphere Institute for Security Cooperation (WHINSEC,
formerly known as the School of the Americas) in Fort Benning, GA.42 The decision to resume
36 U.S. Department of State, Office of the Spokesman, “Debt for Nature Agreement to Conserve Costa Rica’s Forests,”
October 17, 2007. For more information on the Tropical Forest Conservation Act, see CRS Report RL31286, Debt-for-
Nature Initiatives and the Tropical Forest Conservation Act: Status and Implementation, by Pervaze A. Sheikh.
37 For more information on the Mérida Initiative, see CRS Report R40135, Mérida Initiative for Mexico and Central
America: Funding and Policy Issues, by Clare Ribando Seelke and June S. Beittel.
38 U.S. Department of State, Office of the Spokesman, “Letter of Agreement Signed with Costa Rica,” June 18, 2009.
39 Oscar Arias, “Region’s real enemies: poverty and ignorance,” Miami Herald, August 19, 2008.
40 “Costa Rican president says Merida Plan funds ‘insufficient,’” British Broadcasting Corporation, March 31, 2009.
41 For more information on Article 98 sanctions, see CRS Report RL33337, Article 98 Agreements and Sanctions
on U.S. Foreign Aid to Latin America, by Clare Ribando Seelke.
42 “Row over ‘abolished’ army,” Latin American Security & Strategic Review, January 2009.
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training came just a year and a half after President Arias, following a meeting with opponents of
WHINSEC, announced that Costa Rica would withdraw its students from the school.43
WHINSEC, which has trained tens of thousands of military and police personnel from throughout
Latin America—including 2,600 Costa Ricans, has been criticized for the human rights abuses
committed by some of its graduates.44 Supporters of the school maintain that WHINSEC
emphasizes democratic values and respect for human rights, develops camaraderie between U.S.
military officers and military and police personnel from other countries in the hemisphere, and is
crucial to developing military partners capable of effective combined operations.45 A provision of
the Omnibus Appropriations Act of 2009 (P.L. 111-8) directs the Department of State to provide a
report of the names, ranks, countries of origin, and years of attendance of all students and
instructors at WHINSEC for fiscal years 2005, 2006, and 2007. The Latin American Military
Training Review Act (H.R. 2567, McGovern), which was introduced in the House in May 2009,
would suspend all operations at WHINSEC, establish a joint congressional task force to assess
the types of training that are appropriate to provide Latin American militaries, and establish a
commission to investigate activities at WHINSEC and its predecessor.
Free Trade Agreement
In August 2004, the United States Trade Representative (USTR) and the trade ministers from the
Dominican Republic, Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua signed the
Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR). 46
CAFTA-DR liberalizes trade in goods, services, government procurement, intellectual property,
and investment, immediately providing duty-free status to a number of commercial and farm
goods while phasing out tariffs on other trade over five to twenty years. Prior to the agreement,
the countries of Central America all had tariff-free access to the U.S. market on approximately
three-quarters of their products through the Caribbean Basin Trade Partnership Act (P.L. 106-200,
Title II).47 The CAFTA-DR agreement makes the arrangement permanent and reciprocal.
Although CAFTA-DR is a regional agreement under which all parties are subject to the same
obligations and commitments, each country defines its own market access schedule with the
United States.
Ratification
Following the August 2004 signature of CAFTA-DR, the agreement had to be approved by the
legislatures of all of the countries involved. In Costa Rica, a qualified congressional majority (38
of 57 legislators) was needed to ratify the agreement. Although Costa Rican leaders across the
political spectrum support liberalized trade, there has been intense internal debate concerning the
43 Argentina, Bolivia, Uruguay, and Venezuela have stopped sending students to WHINSEC.
44 For more information on the School of the Americas and the Western Hemisphere Institute for Security Cooperation,
see CRS Report RL30532, U.S. Army School of the Americas: Background and Congressional Concerns, by Richard F.
Grimmett and Mark P. Sullivan and CRS Report RS20892, Western Hemisphere Institute for Security Cooperation, by
Richard F. Grimmett.
45 U.S. Southern Command, “Posture Statement of Admiral James G. Stavridis, United States Navy Commander,
United States Southern Command, Before the 111th Congress Senate Armed Services Committee,” March 17, 2009.
46 For more information on the Dominican Republic-Central America-United States Free Trade Agreement, see CRS
Report RL31870, The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), by J.
F. Hornbeck.
47 “Latin America Economy: What’s at Stake with CAFTA,” Economist Intelligence Unit, May 14, 2003.
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Costa Rica: Background and U.S. Relations
benefits of CAFTA-DR. While the Arias Administration was able to create a cross-party alliance
of 38 deputies, the PAC opponents of the agreement were able to block ratification through
various delaying tactics. In order to avoid missing the ratification deadline, President Arias asked
the TSE for a binding referendum on CAFTA-DR.
The referendum was held in October 2007 and reflected the polarization of the issue among the
Costa Rican electorate. Trade unions, students, a variety of social movements, and the PAC
opposed the ratification of CAFTA-DR, while business groups and each of the other major
political parties were in favor of the agreement. The referendum campaign was often contentious.
Just two weeks before the vote, Arias’ Second Vice President was forced to resign after authoring
a memorandum recommending that the Administration link the anti-CAFTA-DR forces to
Presidents Castro of Cuba and Chávez of Venezuela and play up the possible consequences of a
failed referendum.48 Then, days before the referendum, Costa Rican media published statements
by members of the Bush Administration saying it was unlikely that the United States would
renegotiate the agreement or maintain the unilateral trade preferences Costa Rica received under
the Caribbean Basin Initiative should the country vote against CAFTA-DR.49 In the end, 51.6% of
Costa Ricans voted in favor of CAFTA-DR while 48.4% voted against the agreement.
Referendum turnout was just over 60%, well above the 40% minimum necessary for it to be
binding.50
Implementation
After the approval of CAFTA-DR by referendum, the Costa Rican legislature still had to pass 13
laws in order to implement the agreement. These included a variety of intellectual property law
reforms, an opening of the insurance and telecommunications sectors, reform of the criminal
code, an anti-corruption law, and a law protecting agents of foreign firms.51 Costa Rica’s
consensus-seeking tradition and the ability of PAC legislators to challenge the constitutionality of
the proposed legislation in the Constitutional Chamber slowed the implementation of CAFTA-DR
significantly. As of the original February 2008 deadline for implementation, Costa Rica had only
passed five of the necessary reforms.52 Then, prior to the extended deadline of October 2008, the
Constitutional Chamber ruled that the intellectual property legislation was unconstitutional as a
result of the Arias Administration’s failure to meet with indigenous and tribal groups about the
bill before sending it to the legislature.53 After obtaining a second extension, Costa Rica passed all
of the necessary reforms and implemented CAFTA-DR on January 1, 2009.54
Prior to the implementation of CAFTA-DR, the United States was already Costa Rica’s largest
trading partner as the destination of about 36% of Costa Rican exports and the origin of about
38% of its imports in 2008. U.S. exports to Costa Rica amounted to about $5.7 billion in 2008.
Machinery parts, mechanical devices, oil, and plastics accounted for a majority of the exports.
48 “Scandal Topples Costa Rican Vice President, Clouds Outlook as CAFTA Referendum Nears,” Latin America Data
Base NotiCen, September 27, 2007.
49 “Costa Rica: Arias is undermined despite ‘yes’ vote,” Oxford Analytica, October 9, 2007.
50 “Costa Rica: Arias sneaks Cafta-DR referendum,” Latin News Weekly Report, October 11, 2007.
51 “Country Profile: Costa Rica,” Economist Intelligence Unit, 2008.
52 “Costa Rica: Arias concedes defeat on CAFTA-DR deadline,” Latin American Weekly Report, February 7, 2008.
53 “Country Report: Costa Rica,” Economist Intelligence Unit, October 2008.
54 “Bush firma decreto para que Costa Rica se una al Cafta,” Reuters, December 23, 2008.
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Costa Rica: Background and U.S. Relations
U.S. imports from Costa Rica amounted to about $3.9 billion in 2008, with medical instruments,
fruit, machinery, and electronic circuits accounting for a significant portion. Implementation of
CAFTA-DR should increase U.S.-Costa Rican trade. Since implementing CAFTA-DR with El
Salvador, Honduras, Nicaragua, and Guatemala in 2006, U.S. exports to those countries have
increased an average of 24.7% while U.S. imports from those countries have increased an average
of 12.5%.55 Although Costa Rica’s exports have fallen as a result of the global economic
slowdown, President Arias maintains they would have fallen even further if the country had not
begun to implement CAFTA-DR.56
Author Contact Information
Peter J. Meyer
Analyst in Latin American Affairs
pmeyer@crs.loc.gov, 7-5474
55 U.S. Department of Commerce statistics, as presented by Global Trade Atlas, 2009.
56 John McPhaul, “Entrevista—Costa Rica está en recesión pero destaca Cafta: Arias,” Reuters, May 13, 2009.
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