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### Viewing cable 05SANJOSE1774, SECRET MEETINGS, DEAL-MAKING, TAXES, AND CAFTA-DR

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
05SANJOSE1774 | 2005-08-08 15:03 | 2011-03-03 16:04 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy San Jose

Appears in these articles:
http://www.nacion.com/2011-03-03/Investigacion/NotasDestacadas/Investigacion2697430.aspx
http://www.nacion.com/2011-03-03/Investigacion/NotaPrincipal/Investigacion2697496.aspx
http://www.nacion.com/2011-03-03/Investigacion/NotasSecundarias/Investigacion2697489.aspx
http://www.nacion.com/2011-03-03/Investigacion/NotasSecundarias/Investigacion2697532.aspx
http://www.nacion.com/2011-03-03/Investigacion/NotasSecundarias/Investigacion2697535.aspx
http://www.nacion.com/2011-03-03/Investigacion/NotasSecundarias/Investigacion2701964.aspx
http://www.nacion.com/2011-03-03/Investigacion/Relacionados/Investigacion2701965.aspx

`

    This record is a partial extract of the original cable. The full text of the original cable is not available.

` `

    UNCLAS SECTION 01 OF 02 SAN JOSE 001774

    SIPDIS

    SENSITIVE

    WHA/CEN
    EB FOR WCRAFT
    E FOR TSMITHAM
    WHA FOR WMIELE
    WHA/EPSC FOR KURS
    H FOR JHAGAN
    STATE PASS TO USTR FOR JYOUNG, CPADILLA, AMALITO

    E.O. 12958: N/A
    TAGS: ETRD ECPS ECON PREL PGOV SOCI CS
    SUBJECT: SECRET MEETINGS, DEAL-MAKING, TAXES, AND CAFTA-DR
    IN COSTA RICA

    REF: (A) SAN JOSE 01455

    ¶1. (U) Summary.  On August 3, 2005 Costa Rican dailies "La
    Prensa Libre" and "Diario Extra" reported that members of
    President Pacheco's Social Christian Union Party (PUSC) and
    the National Liberation Party (PLN) met in secret on July
    29, 2005 to discuss overcoming difficulties in passing the
    Fiscal Reform bill.  President Pacheco continues to require
    passage of the Fiscal Reform bill prior to sending the
    United States-Central American-Dominican Republic Free
    Trade Agreement (CAFTA-DR) to the Legislative Assembly.  In
    a different venue, a key PUSC party member tested the
    waters of how strongly the Libertarian Movement Party (ML)
    deputies want to ratify CAFTA-DR by proposing a deal
    involving removing numerous ML-proposed amendments to the
    Fiscal Reform bill in exchange for sending the trade
    agreement to the Assembly.  These two actions are
    significant in that they are unusual for Costa Rican
    politics and show just how contentious the debate
    surrounding all CAFTA-DR-related issues has become.  End
    Summary.

    ¶2.  (U) Oscar Arias (PLN), the current front-runner in the
    February Presidential election, and Ricardo Toledo, the
    PUSC Presidential candidate, as well as other senior PLN
    and PUSC Assembly members (deputies) attended the meeting.
    Laura Chinchilla (PLN), a possible Arias running mate in
    the upcoming February 2006 presidential elections, hosted
    the meeting at her house.  The purpose of the gathering was
    to allow the PLN party members to urge PUSC deputies to
    identify their issues with the bill and to prod them into
    supporting it.  The Fiscal Reform bill, although under a
    "fast track" review, has gone nowhere fast, in part, due to
    heavy opposition from the President's own party (Reftel).
    [COMMENT:  This is an odd situation in that the
    "opposition" PLN is in the role of trying to convince the
    President's own party members (PUSC) to support the
    Administration's self-proclaimed top priority.  President
    Pacheco has not deigned to call legislators to lobby
    himself for the bill.  END COMMENT.]

    ¶3.  (U) Together, the two parties' deputies, should they
    decide to support it, number more than the minimum 29
    necessary to pass the bill.  Reportedly, the PLN leaders
    requested that the PUSC deputies cease the political
    rhetoric regarding opposition to Fiscal Reform and clearly
    define their issues and identify what changes would be
    necessary to win their votes. Some of the PUSC deputies,
    including the Assembly President Gerardo Gonzalez do not
    support the bill because they state that it does not
    benefit the poor and does not ensure that rich Costa Ricans
    will pay their fair share.  One of the issues is that of
    exempting taxation of income earned outside of Costa Rica.
    They state that this would unfairly benefit the rich Costa
    Ricans at the expense of the poor.  However, it is
    uncertain if this is the only issue because, as a voting
    block, the PUSC deputies have not clearly expressed why
    they oppose the bill.

    ¶4.  (U) Arias reportedly talked to the PUSC deputies of the
    need to be consistent and sincere and to avoid having the
    Assembly put in an impossible position.  Gonzalez's very
    public opposition to the Fiscal Reform bill was
    specifically mentioned.  Arias and his fellow party members
    complained that Gonzalez, as president of the Assembly,
    promised to lengthen and devote Assembly sessions to
    discuss the Fiscal Reform bill, but he has failed to follow
    through on that promise.  Mario Redondo (PUSC) stated that
    he would look for consensus in his own party and hopes to
    find common ground with President Pacheco's Administration
    and the PLN.

    ¶5.  (U) Other than the PUSC and PLN factions, the rest of
    the deputies who make up the 57-member Assembly are from
    several smaller parties with the third-largest contingent,
    that of the Citizens' Action Party (PAC), having 8
    deputies.  Of note are the 5 Libertarian Movement Party
    (ML) deputies who have historically stonewalled passage of
    some bills by introducing hundreds of amendments that by
    rule must be discussed, effectively killing the bills.
    Since being introduced three years ago, consensus has
    proven illusive on the Fiscal Reform bill.  On May 23,
    2005, the Assembly voted 38 to 19 to invoke the new "fast-
    track" review of the bill, the first time using this
    procedure.  On the first and only day of debate, the ML
    deputies proposed more than 1000 amendments in an attempt
    to kill the bill (even with the fast-track review, all of
    the amendments would need to be discussed and would result
    in hundreds of hours of delay in voting for the bill).
    Other changes made by the Administration, mostly exempting
    special interests from paying taxes, have resulted in a
    decrease of support of the current bill and have brought
    the Assembly to the current impasse.  [COMMENT:  The ML
    party strongly supports CAFTA-DR, but vehemently opposes
    fiscal reform because it will cause a tax increase.  END
    COMMENT.]

    ¶6.  (U) President Pacheco supports the bill in its current
    form, and he is using the issue of sending CAFTA-DR to the
    Assembly as leverage to assist its passage.  Due to his
    fears of strikes and violent demonstrations, he also is
    using this strategy to avoid sending CAFTA-DR to the
    Assembly during his administration.  Finance Minister
    Federico Carrillo has stated that passage of this bill is
    necessary to ensure long-term fiscal stability of the
    country. In response to PUSC deputies' opposition to the
    issue of taxes on income earned outside of the country, on
    August 4, 2005, the Administration proposed to introduce
    changes to the bill that would require a resident to pay
    taxes on income earned outside of Costa Rica only if the
    income actually enters Costa Rican territory.  [COMMENT:
    Other contentious issues still exist and it is unclear if
    this will satisfy enough deputies to approve the bill. END
    COMMENT.]

    --------------------------------------------- -------------
    DEAL MAKING - REMOVAL OF PROPOSED AMENDMENTS TO THE FISCAL
    REFORM BILL FOR SENDING CAFTA-DR TO THE ASSEMBLY?
    --------------------------------------------- -------------

    ¶7.  (U) The numerous amendments proposed by the ML
    deputies, even under the "fast track" review, would require
    many hours of discussion and delay.  In response to this,
    the Chair of the Assembly's Mixed Commission responsible
    for reviewing the Fiscal Reform bill, Mario Redondo of the
    PUSC, proposed a deal with the ML deputies -- to send CAFTA-
    DR to the Assembly after the ML deputies withdraw some or
    all of their more-than-1000 proposed amendments to the
    Fiscal Reform bill.  The ML deputy Federico Malavassi
    stated "We are not going to give in to such a ruse from
    this guy ... this is extortion, and there is no way that
    our deputies are going to accept it."  [COMMENT: It is
    highly unlikely that the Assembly or any member of the
    Assembly has the power under the constitution to submit a
    treaty for ratification.  Most constitutional scholars
    believe that only the President can do that.  END COMMENT.]

    -------
    COMMENT
    -------

    ¶8.  (SBU)  The two largest factions in the Assembly
    discussing a very important issue such as Fiscal Reform is
    certainly a good thing.  However, the fact that these party
    leaders felt that they had to do this in secret and outside
    of the Assembly is a sign of the contentiousness of this
    issue.  The Fiscal Reform Bill, in its current form, has an
    uphill battle to be approved.  In the three years that it
    has been under discussion, it has made little progress, and
    the adoption of the so-called "fast-track" review of the
    bill has done little to speed its passage.  Knowing that
    President Pacheco has placed this bill in the path to CAFTA-
    DR ratification, some deputies may be using this issue as a
    means to avoid even discussing CAFTA-DR.  The unusual nature
    of the discussions and the aforementioned deal proposed by
    Redondo shows the desperation of the political situation
    surrounding this issue.
    KAPLAN

`