BY MARY COX

The vote was close, but it was conclusive. For months, parties supporting and opposing the referendum had campaigned vigorously, and public support was narrowly divided. By the time the polls closed on October 7, Costa Rica’s voters had handed a victory to proponents of free trade: They approved the Central American Free Trade Agreement with a majority of under fifty-two percent. With this election, Costa Rica became the last country to formally approve the United States-backed CAFTA treaty. For three years, Costa Rica had lagged behind countries like Guatemala and the Dominican Republic in approving the trade deal. From the White House to the editorial page of the Washington Post, American observers took the country’s October vote as a positive sign for future economic cooperation between the United States and Costa Rica.

At the same time, however, as CAFTA supporters were making their case to the Costa Rican people, another diplomatic decision was making its way through the government in San José. On June 7, Costa Rican President Oscar Arias announced that his country would recognize the People’s Republic of China, abandoning a sixty-year relationship with Taiwan. This decision was motivated largely by economics, as Arias hoped that better relations with China would help create more consumers for Costa Rican products. Arias’s diplomatic move, along with the CAFTA vote, shows that Central America’s most successful capitalist democracy is doing some long-term economic planning, and is no longer looking only northwards to find a path to prosperity.

More Eggs, More Baskets
Costa Rica’s ratification of CAFTA was the culmination of a decades-long process of trade liberalization in the Americas. While those who opposed the agreement worried about the uncertain fate of domestic entrepreneurs, there were clear advantages to ratifying CAFTA. As supporters emphasized, the deal will increase the flow of goods and capital between the United States and Costa Rica by reducing tariffs and other trade barriers. The enactment of the new China policy was somewhat less predictable, and was adopted for more complicated reasons. While Taiwan has long been an ally of Costa Rica, “people envision that in a few decades China will be such a huge market that China will start importing more,” said Professor Maurice Kugler of Harvard’s Kennedy School of Government in an interview with the HPR. Anticipating China’s continued growth as a market for its exports, Costa Rica wanted to get on the superpower’s good side early.

This shift, said journalist Peter Krupa, is part of a broader strategy to prepare Costa Rica for a globalized economy. “Costa Rica has been pursuing a path of becoming an export economy,” explained Krupa, who writes for the Tico Times, a Costa Rican newspaper. While China currently imports fairly little from abroad, its future growth is likely to increase its need for foreign goods. Furthermore, Krupa told the HPR, closer relations with China would help Costa Rica in the event that the American economy went into serious decline. “They are putting their eggs in different baskets,” he concluded. “If... trade with China increases dramatically, Costa Rica will be well-positioned if the United States goes down the tubes.”

Setting a Trend?
For the time being, Costa Rica’s economic stability still depends on its ties to the United States. “The U.S. is our main trade partner, the main investor in Costa Rica,” said Laura Dachners, the minister-counselor for economic and trade affairs at the Costa Rican embassy in Washington. “If we don’t have the certainty that we can keep this relationship it could be very negative.” At the same time, Dachners also acknowledged that China represented an important economic prospect for Costa Rica. “We see China as one of the biggest trade partners,” she explained in an interview. “It is one of the main doors for Costa Rica in Asia, sending our products to Asia and potential investment back here.”

The decisions made by Costa Rica, a nation of only four million people, are unlikely to upend the global economy on their own. But this new approach to trade could be a signal of things to come. Just twenty years ago, Central America was largely dependent on Washington for political and financial support. And while CAFTA does represent a move toward even more interdependence with the US, there are new actors on Latin America’s economic stage whose influence is only beginning to show. ]]>