San José, Costa Rica, since 1956

Assembly Tackles Massive Reforms

Though the fate of the Central American Free-Trade Agreement with the United States (CAFTA) remains in legislative limbo, its supporters in Congress this week began politicking to push through massive reforms that are part of the CAFTA agenda.

Legislators from the National Liberation Party (PLN) have spearheaded a controversial proposal to speed up the legislative process for international treaties. The proposal drew fire from the opposition Citizen Action Party (PAC), and prompted its members to walk out of a legislative session last week.

“They’re imposing a fast-track measure,” said PAC legislator Alberto Salom, adding his party was “taken by surprise”when Liberation presented a slew of motions to expedite CAFTA and CAFTA-related projects.

Costa Rica is the only country that signed on to CAFTA whose Congress has yet to vote on the pact. As part of the free-trade agreement, Costa Rica is required to pass 13 different laws, including opening up its staterun telecommunications and insurance monopolies, passing six reforms to intellectual property rights laws, and approving a handful of international conventions, among other projects (TT, Oct. 3, 2003).

Some of the projects, which have different deadlines for approval, are already behind schedule. None has been approved; all but one are crawling their way through the Legislative Assembly.

Pressed by an already hefty legislative agenda, the assembly voted Monday night in favor of opening up nine-member special commissions to discuss the telecommunications reform proposal and a proposal to modernize the Costa Rican Electricity Institute (ICE), the state-run electricity and telecom monopoly, so it can better compete in an open market.

The assembly’s Economic Commission has been debating since October a proposal to reform the state-run National Insurance Institute (INS) and open the country’s insurance monopoly.

The Liberation-proposed partial reform to article 41 bis of the assembly regulation is moving through Congress quickly, and is expected to reach the assembly floor next week. If passed, it would give lawmakers the possibility of setting a 22-session deadline on debate over international treaties –including CAFTA and other CAFTA-related treaties that must be passed – according to legislative aide Paulo Alonso Soto, from the office of PLN legislative leader Mayi Antillón. Legislator Antillón presented the proposal last week.

Last month, attempts to set similar voting deadlines on CAFTA raised questions about the constitutionality of expediting the process (TT, Dec. 15, 2006). In the past, attempts to speed up the legislative process for fiscal and telecommunications reform, for instance, have resulted in unfavorable court rulings that crippled legislation (TT, March 24, 2006).

Aside from what is referred to as the “implementation’’ agenda that must be passed under CAFTA, the Arias administration is pushing a group of “complementary’’ reforms it hopes will be approved along with CAFTA.

As a result of political negotiations between Liberation and the Social Christian Unity Party (PUSC), the assembly voted to open a special commission to debate a proposal for a development bank, which would free up funds to help finance Costa Rica’s micro, small and medium-sized businesses (TT, Nov. 3, 2006). The administration’s complementary agenda also includes three international loans for Customs modernization, competitiveness and education (the latter was approved), a law to benefit organic agriculture (also approved), and a reform to outlaw firearms manufacturing here, according to the Trade Ministry.

Big Reforms

According to Economic Commission president and Liberation legislator Clara Zomer, the INS reform legislation would create an insurance market regulatory agency that would be a branch of the National Financial Supervision System Council (CONASSIF) – the agency that already regulates financial and pensions markets in Costa Rica.

Two pieces of legislation would create an agency that would regulate market competition, create an ombudsman office to investigate complaints against companies, require businesses trying to enter the market to prove that they have sufficient capital to cover themselves, and modernize INS to be able to compete.

She said a regulated open market would develop new types of insurance in Costa Rica that have stagnated under the current system, such as life insurance.

“It would bring a diversity of supply that we often don’t see here,” she said.

Luis Chavarría, head of the Social Security Workers’ Union (UNDECA), said institutions like INS “won’t be able to survive with international competition.”

“We’re a small country. There’s monopolies with great economic power that will come here,” he said.

Zomer said Costa Rica’s banking sector, which began opening up to private competition in the 1980s, is an example of how staterun institutions have fared well against private competition.

But Chavarría said the banks haven’t had to compete against international “megabanks” yet. Public banks still have some advantages in Costa Rica that private banks don’t, he said, and if the government takes away those protections, public banks won’t be able to compete with international banks attracted here by a free-trade agreement with the United States.

Zomer said CAFTA supporters in the commission will seek ways to speed up the INS reform’s process in the face of mounting motions proposed by PAC legislators.

“We have to vote on it, we can’t leave it as is eternally,” she told The Tico Times. In anticipation of INS reform, administration officials and pro-CAFTA President Oscar Arias this week signed a decree that aims to streamline INS to make it more competitive by giving it more administrative autonomy and loosening up budget constraints.

Former Trade Minister Alberto Trejos said the biggest implementation agenda project will be the reform of Costa Rica’s $1.5 billion telecom sector. Two proposals in Congress would open the sector to private competition and create a watchdog agency to guard the industry from monopoly.

President Arias signed an ICE decree similar to this week’s INS decree late last year, preparing the institute for a possible market opening, a prospect that the massive ICE unions oppose (TT, Oct. 29, Sept. 15, 2006).

U.S. Ambassador Mark Langdale said he hopes what he called Latin America’s longest continuous democracy will find a way to approve CAFTA and its implementation agenda before the deadline and add itself to the list of other Central American countries who have done so.

U.S. President George W. Bush had planned to give $40 million in aid to CAFTA countries for environmental and labor projects, but the project’s fate is up in the air, as the future of the United States’ 2007 budget is in question with the arrival of a new, more protectionist Democratic majority in Congress.

The U.S. Labor Department recently announced $8 million in grants for CAFTA labor projects, according to U.S. Embassy spokeswoman Elaine Samson.

Accusing CAFTA supporters of trying to implement a “fast track,” Salom referred to a mechanism in the United States that gives the President power to negotiate agreements that Congress can approve or disapprove but cannot amend or filibuster. To push CAFTA through Congress, President Bush used the fast-track mechanism, which also sets deadlines for legislative debate.

The assembly voted to give each of the special commissions that will debate telecom reform, ICE modernization and the new development bank one month to discuss the issues before they must be voted on, according to a statement from the Liberation party.

What’s on the Agenda?

Thirteen projects are part of the implementation agenda reforms required by CAFTA. Each has a different deadline, and though none has been approved, some are already behind schedule. They include:

*Two laws to reform insurance and strengthen INS.

*Two laws to reform telecom and strengthen ICE.

*A reform to laws that regulate foreign businesses in Costa Rica.

*Six different reforms to intellectual property rights laws.

*An environmental cooperation agreement between the CAFTA countries.

*Reforms to the Penal Code to punish companies and public employees for bribery and corruption.

Source: Foreign Trade Ministry

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