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Costa Rica’s CAFTA Referendum

Costa Rica's CAFTA referendum will decide the future direction of macroeconomic policy.


On October 7th, a referendum election will be held in Costa Rica concerning ratification of the Free Trade Agreement between the United States, Central America, and the Dominican Republic, known as CAFTA-DR. The first country to approve the treaty was El Salvador in December of 2004, and the most recent was the Dominican Republic in 2006. Costa Rica is the only remaining signatory country that has not ratified the Agreement. It faces a February 2008 deadline to not only ratify it but also to enact thirteen related laws in order for the Agreement to take effect. The issue of whether to approve CAFTA-DR has stirred up such political and social upheaval that the government chose to submit the issue to a popular referendum.

Buy why has CAFTA-DR generated such controversy? Costa Rica has already signed and ratified free-trade agreements with Mexico, Canada, the Dominican Republic, and Chile, and in early August of 2007 signed an FTA with Panama, and nobody objected to those agreements. Only CAFTA-DR has been singled out by its opponents as supposedly conflicting with Costa Rica’s Constitution. Only CAFTA-DR was singled out to require a two-thirds vote for approval by the Legislative Assembly instead of an absolute majority (50% plus one). Only CAFTA-DR has mobilized its opponents to protest in the streets. When one compares the inexistent opposition to the other free-trade agreements that Costa Rica has signed, it becomes clear that what concerns CAFTA-DR’s opponents is not the issue of free trade with the United States.

What’s at stake are two ideologies, two distinct models of development. CAFTA-DR mandates opening up the telecommunications and insurance industries that are currently controlled by state-run monopolies. Besides being the most important, these industries are the home of the country’s most powerful labor unions, whose interests would be seriously threatened by opening up their respective markets. Furthermore, many of the arguments against the Agreement do not refer to free trade per se, but rather to the supposedly negative consequences that trade liberalization would have on those industries. These unions have protested in the streets while waving Venezuelan flags, exhorting Costa Ricans to embrace the politics of Hugo Chávez. In the event the Agreement is not ratified, this country’s unions will be significantly empowered, with a very strong likelihood that economic policy would take on socialist leanings in the near future in Costa Rica.

What’s at stake in this referendum election is not just free trade, but the future direction of macroeconomic policy. Otton Solís, who lost the most recent election against President Arias by a margin of only 18,000 votes, was supported by the unions during his campaign. Solís is one of CAFTA-DR’s main detractors, as well as an opponent of economic freedom in general. The most recent opinion polls show the Yes votes in favor of CAFTA-DR with about a ten percent advantage over the No votes. In one poll, 54.5% of potential voters indicated they would vote in favor, while 45.5% said they would vote against ratification of the Agreement. Another recent poll showed 50% for and 38.2% against.

Many analysts state that ratification of CAFTA-DR by way of a referendum election is a victory for democracy, but this is far from being true. One of the pillars of democracy is equality in the eyes of the law and respect for individual liberty. A free person has the right to trade with anyone he or she wants to trade with anywhere in the world, and no majority has the moral authority to prohibit that freedom. If we were all equal in the eyes of the law, there would be no discrimination between nationals and foreigners with respect to trade, investment, movement of capital, or labor supply. When my economic freedom is subjected to a referendum, this can never be seen as a victory for democracy, but rather as a sign that our society has a long way to go before finally understanding the values that make a country prosperous and peaceful. As Lord Acton observed, “Freedom is not a means to a higher political end. It is in itself the paramount political end.”

Jose Joaquin Fernández is President of Instituto Libertario (www.InstitutoLibertario.org), former deputy Secretary General of Partido Movimiento Libertario in Costa Rica (www.Libertario.org) and the author of the book Causa de la inflación, cierre del Banco Central y dolarización en Costa Rica (Inflation causes, closing the Central Bank and dollarization in Costa Rica). This article was originally published by the Hispanic American Center for Economic Research (HACER). Republished with permission.


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