Chapter 4: Costa Rica – People’s Republic of China Relations
4.5 Cooperation and Economic Relations between China and Costa Rica
國
立 政 治 大 學
‧
N a
tio na
l C h engchi U ni ve rs it y
78 Also those arguments contravene Oscar Arias’ thought about China by the time of his first rule, as a threatening issue, a political-military power which had a very complicated relationship with the United States and did not cooperate with the peace process (Rodríguez, 2013).
Moreover, Oscar Arias argued that he based his decision on pragmatism and political realism to look to China for help developing his country (Olsen, 2009).
4.5 Cooperation and Economic Relations between China and Costa Rica
In the year Costa Rica and China established official ties, both signed 11 agreements on cooperation in investment, trade and culture. One of those was the donation from China of US$ 20 million in economic cooperation grants and 200 million yuan in technical and economic cooperation to be allocated to several projects (Government of Costa Rica & Government of China, 2007).
As stated on the official website of the Embassy of Costa Rica in the PRC, in the period 2000-2012, the trade between Costa Rica and China grew from US$ 91 million to nearly US$ 1.7 billion. According to the Foreign Trade Promoter in Costa Rica (PROCOMER), in 2006 exports increased from USD558.3 million to USD848.2 million in 2007. Regarding to imports, they increased from USD554 to USD763.2 million, in the same years respectively. By 2007 the trade balance was positive and the best one for the country, a total of USD85.1 million. However, since both countries signed an FTA, on April 8th 2010, the trade imbalance increased, and in 2010 it was US$ -701.0 million, in 2011 and 2012, USD -1.102 and USD-1.108 million respectively (Figure 4.1).
The Sino-Costa Rica FTA enabled immediate access to 99.6% of the Costa Rican exportations, which included products such as flowers, ornamental plants and orange juice, while
‧ 國
立 政 治 大 學
‧
N a
tio na
l C h engchi U ni ve rs it y
79 Costa Rica would have immediately access to 58% of Chinese products with no-tariff and the other 25% will be eliminated within 10 years (La Prensa Grafica, 2010).
Moreover, as stated in PROCOMER 2012, the top Costa Rican export sector to China is the technology industry, from which integrated circuits represent 78.1 % of Costa Rican sales.
Figure 4.1: Trade between Costa Rica and the PRC*, 2001-2012. USD Million
Source: Own elaboration based on PROCOMER data.
*Hong Kong is not included
4.5.1 Development Aid from the PRC to Costa Rica
In accordance with the Ministry of National Planning and Economical Politics (MIDEPLAN), in the period 2006-2008, Costa Rica received a total of US$ 456.9 million (including both non-reimbursable financial and technical cooperation and reimbursable financial cooperation), of which 69% was non-reimbursable technical and financial assistance and 31%
reimbursable financial aid, contrasting with the aid tendency Costa Rica had had since 1998.
This is due to China contributions.
-1,500.0 -1,000.0 -500.0 0.0 500.0 1,000.0 1,500.0 2,000.0
2001 2002 2003 20042005 2006 2007 2008 2009 2010 2011 2012
Trade Balance Import Export
‧ 國
立 政 治 大 學
‧
N a
tio na
l C h engchi U ni ve rs it y
80 Additionally, MIDEPLAN reported that the PRC provided 39.4% of the total resources received by Costa Rica which was about US$ 180 million, thus becoming the largest source of bilateral cooperation in the country in 2006-2008. The figures on tables 4.2 and 4.3 show how high the amount of aid provided by China was, compared with the rest of providers. It was almost triple Germany’s aid, which was the second highest. This was due to mainly the great amount of technical and financial non-reimbursable aid provided by the PRC which was triple and quintuple greater than the next 2 highest ones (Germany and Spain). Both technical and financial non-reimbursable and reimbursable aid granted by China, represented 55% of the total received in Costa Rica.
The most emblematic project made by Chinese aid in the country was the construction of the National Stadium, finished in January 2011, under the turnkey contract modality (usually used by China in which it provides all materials, construction machinery and manpower) and cost about US$ 85 million. Additionally China donated US$ 20 million for the Emergency Response and resources for a range of projects for the country and bought bonds of Costa Rican public debt by US$ 300 million. These resources are not counted as foreign aid, therefore are not reflected in the report (MIDEPLAN, 2010).
Another big project is the modernization of the Refinadora Costarricense de Petróleo S.A.
(RECOPE) oil refinery in the Caribbean port of Moin, which is China’s largest investment of US$800 – US$900 million. This expands the daily capacity from 25,000 barrels to 60,000 barrels (Boyed, 2012). In addition both governments established a joint venture agreement between RECOPE and China National Petroleum Corporation (CNPC International Ltd.) on November 17th 2008.
‧
Table 4.3: Costa Rican Bilateral Cooperation 2006-2008Source of Aid US$ Million Percentage
People's Republic of China 180.0 39.4
Table 4.4: Types of Bilateral Cooperation received by Costa Rica 2006-2008 Source of aid
‧ 國
立 政 治 大 學
‧
N a
tio na
l C h engchi U ni ve rs it y
82 Bilateral
Percentage
78.4 21.6 71.4 100.0
Source: MIDEPLAN
Moreover, on June 3rd 2013, as stated in a relevant Costa Rican online newspaper El Financiero, the Chinese President Xi Jinping and Costa Rican President Laura Chinchilla signed millionaire agreements without apparently any conditions from China, said the Costa Rican Foreign Minister. These were the agreements:
a) US$400 million for financing the enlargement of 110 kilometers of the highway from San José (Costa Rican capital city) to Limón (where the oil refinery RECOPE is) by two lines of credit obtained from the Export-Import Bank of China (China EXIM Bank). One of the lines of credit will be US$ 101 million and concessional - with 2% interest - and the other line, for $ 296 million in commercial terms - 4% interest. The Finance Ministry have stated both loans have a total term of 20 years.
b) The China EXIM Bank also provided a loan of US$ 100 million for public state banks transfer loans to companies and dealerships persons’ buses and taxis to renew their units of public transport vehicles by others with clean energy such as liquefied gas and electricity.
c) A US$ 30 million loan agreement in order for China to facilitate the purchase of 5,000 solar panels that will be used to produce electricity.
d) The Chinese government also formally delivered 8,400 computers to public school students and another 800 for teachers.
e) Costa Rican companies signed export and import agreements with the PRC.
‧ 國
立 政 治 大 學
‧
N a
tio na
l C h engchi U ni ve rs it y
83 Furthermore, given the interest of the Costa Rican government to join as a full member of the Asia-Pacific Economic Cooperation (APEC), where the Central American country is an observer, Costa Rica made a request to the Chinese President to boost its joining as a full member.
Finally China is approaching Latin America more and more through strategic agreements with big countries and with only one Central American country. Sino-Costa Rica trade has grown and the amounts of foreign aid received have grown too, but there still remains a large trade imbalance and the development aid is more for short term, in contrast to several projects funded by Taiwan.
‧ 國
立 政 治 大 學
‧
N a
tio na
l C h engchi U ni ve rs it y
84 Chapter 5: COMPARATIVE ANALYSIS OF THE RELATIONS BETWEEN EL
SALVADOR-TAIWAN AND COSTA RICA-CHINA
5.1 Introduction
This section is about the comparative analysis of both relations in order to prove the hypothesis set out. It begins with the characteristics of Taiwan’s and China’s foreign aid until the challenges and opportunities both relations are facing, and the next and last chapter are the conclusions and suggestions of the result of the research.
5.2 Comparative study
Taiwan’s foreign aid, although generous, cannot compete with Chinese aid, trade and investment. According to the OECD report, Taiwan contributed US$ 381 million in ODA in 2011, most of which went to its diplomatic supporters. In the case of China’s investment, in some Latin American countries reached US$ 15 billion in 2010 (Myers, 2012).
Taiwan channeled aid through the Taiwan ICDF, which hold investment programs, mobile medical services, technical assistance, banking and financing projects, human resources development, humanitarian aid and overseas volunteers. These assistances are provided to countries that have diplomatic ties with Taiwan, or that provide special recognition to Taiwan’s international status despite having official ties with China (Chien, Yang & Wu, 2009).
In 2011 Taiwan’s ODA amounted to around US$ 381 million which is a share of GNI of 0.093% (Kao, 2012), ranking slightly below Greece and Korea which are OECD-DAC members.
However despite this figure being far below the standard established by the United Nations, which is 0.7% (OECD, 2011), it appears in figure 5.1 that also for the DAC members this is
‧
Yet, there are several reasons influencing Taiwan’s low level of ODA, however probably the main reason is the prevailing uncertainty about Taiwan’s international political status and subsequently the restricted number of states which recognize the island.
Figure 5.1: Net ODA in 2011 from OECD-DAC member countries (as a percentage of GNI)
Source: OECD
The ROC’s foreign assistance has been an essential mechanism, largely, for the maintenance of Taipei's diplomatic allies, as a response to its international isolation. Therefore
1.02
Sweden Norway Luxembourg Denmark Netherlands United Kingdom Belgium Finland Ireland France Switzerland Germany Australia Canada Portugal Spain New Zealand Austria United States Italy Japan Korea Greece TOTAL DAC
As% of GNI
UN target 0.7
‧ 國
立 政 治 大 學
‧
N a
tio na
l C h engchi U ni ve rs it y
86 Taiwan provides aid without rigorous conditionalities such like the U.S. (like the example of U.S.-El Salvador relations described in the 2nd chapter) or the E.U do; to South Pacific, African, Latin American and Caribbean countries (Atkinson, 2014).
As Joel Atkinson stated in “Aid in Taiwan’s foreign policy: putting Ma Ying-jeou’s aid reforms in historical Perspective”, the ROC’s foreign aid can be viewed as a result of three challenging and persistent pressures: preserving the number of diplomatic relationships, enhancing its global reputation, and the encompassing aid expenditure. The tacit “diplomatic truce” between the ROC and the PRC has meaningfully diminished the pressure between these three constraints on Taipei’s overseas aid policy, and the Ma Ying-jeou administration has decreased funding assistance, has enhanced the administration of assistance programs and requires more accountability from beneficiary governments. Yet, accountability and administration of the Taipei Government itself persists narrowly (Atkinson, 2014).
In 2009, the ROC launched its first White Paper on Foreign Aid Policy which defined the national procedure of its foreign assistance. In June 2010, the MOFA40 created the International Cooperation and Development Act (appendix II) which delineated the content, goals, and values to enhance Taiwan’s foreign aid affairs, aiming to bring Taiwan’s international assistance projects to conform to international norms. Recently, the ROC has kept on modifying related laws and regulations to foster more demanding and efficient assistance operations (Atkinson, 2014), consequently Taiwan ICDF carried out considerable organizational reforms and strategies (Taiwan ICDF, 2010).
Alike the White Paper, the Act is more a public diplomacy endeavor than legislation to regulate Taiwan assistance program, which stated a lawful basis as a guideline for Taiwanese overseas aid events (Atkinson, 2014). However, despite the ambiguity of this act, it brought to
40 Ministry of Foreign Affairs of Republic of China (Taiwan)
‧ 國
立 政 治 大 學
‧
N a
tio na
l C h engchi U ni ve rs it y
87 the Taiwanese foreign aid assistance management, more effectiveness and transparency. One of the actions taken by the government for this aim was the reduction of aid funding but managed more effectively and transparently, turning Taiwan’s aid program less exposed to charges of waste and corruption. Also Taiwan’s aid goals are clearer, in the article 5 of this act states that besides to be for promoting diplomatic relations and enhancing friendly relations with nations that already have official ties, are for ameliorating the welfare of the people of the Taiwan’s diplomatic allies and friendly developing countries by reducing poverty, growing income and raising living standards; guaranteeing human security and promoting peace, democracy, human rights, humanitarian care and sustainable development.
In some of the projects implemented by Taiwan in El Salvador, have promoted some of these values, such as what the technical missions have been doing for more than 40 years in improving pig farming, aquaculture, fisheries, shrimp cultivation, horticulture, fruit growing, forestry and agro-business; also ROC has promoted the enhancing the health sector such as what the mobile medical mission has been doing in El Salvador and other countries as well as the improvement of Salvadoran health infrastructure; the humanitarian aid El Salvador has received for recovering from natural disasters, projects related with water supply and sanitation, etc.
However, since there is an unclear evaluation of the real benefits of most of the development programmes once they were implemented in the country, except the infrastructure enhancement projects (e.g. the modernization of the Ministry of Foreign Affairs in El Salvador) which are tangible; it was not possible to do an assessment of the real benefits El Salvador has been received from Taiwanese cooperation.
‧ 國
立 政 治 大 學
‧
N a
tio na
l C h engchi U ni ve rs it y
88 Regarding to PRC foreign assistance, according to the CRS Report Congress (2009)
“China’s Foreign Aid Activities in Africa, Latin America, and Southeast Asia” is hard to quantify, one of the reasons being that China manages foreign aid without a centralized system, foreign aid agency, or regularized annual allotments, in contrast to Taiwan.
In accordance with the U.S. Congressional Research Service (2008) research about China’s global influence was hindered by a shortage of reliable records on Chinese international assistance and by a scarcity of transparency on whether and how the PRC implements large and prominent investment agreements. Chinese aid comes from several state agencies with no regularized funding schedule.
Conforming to China’s Foreign Aid policy the Ministry of Commerce (MOFCOM) is the administrative entity accredited by the State Council to manage foreign assistance, specifically the Department of Aid to Foreign Countries. The Export-Import Bank of China (China EXIM Bank) is in charge of the appraisal of projects with concessional loans, and the apportionment and recovery of loans. Chinese embassies or consulates overseas are responsible of the direct coordination and administration of development aid projects in the pertinent countries (Chinese Government, 2014). Additionally other ministries and the Communist Party have international cooperation departments as well, which likely have some development programmes abroad.
Among those ministries are the Ministries of Health, Agriculture, Science and Technology and Foreign Affairs (Grimm et al., 2011)
MOFCOM is the main institution subsidiary to the State Council through which all sorts of investment and aid flow should be channeled (van der Lugt et al. 2011). Subsidiary bodies to MOFCOM are the Department of Aid to Foreign Countries in Beijing and Economic Councillors delegated at the respective embassies and consulates abroad. Also it is the only accredited source
‧ 國
立 政 治 大 學
‧
N a
tio na
l C h engchi U ni ve rs it y
89 for data, even though the institution may not report on all other ministries' flows, hence to a certain extent miscalculate the global figures (Grimm et al., 2011).
Moreover loans are a relevant feature in development finance, whatsoever their level of concessionality. Therefore, state banks play a crucial role in Chinese development cooperation.
These banks are the China EXIM Bank, the Agricultural Development Bank and the China Development Bank (Grimm et al., 2011).
The China EXIM Bank is the main political bank in PRC, which delivers export credits to Chinese firms and international clients, offers foreign exchange guarantees and manages the Chinese government’s concessional loans to governments from abroad. Furthermore, for the execution of the assistance PRC does not have a specific agency. Rather it relies on Chinese enterprises which are hired for carrying out the projects in the receptor country (Grimm et al., 2011).
On the other hand, the beneficiary countries of Beijing investment and trade are more interested to the fact that Chinese funding generally comes with no good governance conditions, environmental regulations, human rights requirements and approved-project constraints, that characterize other Western state investments (Congressional Research Service, 2008), such as some EU countries or U.S. style, thus generating much criticism from many of the major donor countries to Chinese foreign aid procedures.
China’s foreign assistance consists mainly of concessional loans, debt relief and subsidized investments in natural resources and infrastructure. A relatively small portion of Chinese aid includes social welfare programs, development grants, humanitarian assistance and food aid, and little military and security-related assistance. A small portion of PRC foreign assistance activities meet the OECD’s definition of ODA (Lum et al., 2009). In accordance with Grimm et al. in their
‧ 國
立 政 治 大 學
‧
N a
tio na
l C h engchi U ni ve rs it y
90 study about the Transparency of Chinese Aid, Chinese count as aid the building of sports facilities, military aid and sponsored loans for cooperation projects and joint ventures, but DAC members do not include them in their reports, and there are some issues that DAC members report as aid, but Chinese does not include in their aid figures, such as debt relief, costs for international students, administrative expenses for assistance and costs for first year refugees in the aid-provider country.
Regarding to Beijing’s economic investments abroad, some of them might be add up as aid rather than foreign direct investment (FDI) because they are insured by bilateral treaties, preventing financial jeopardize upon the Chinese firms implicated. On the other hand, Chinese aid projects besides having more funds and more short term in a certain extent than the Taiwanese ones, to a large degree serve its own development such as exporting raw materials to China more easily, having as a conditionality that 50% of project materials and services are to be supplied by PRC (Lum et al., 2009).
Moreover, in 2010, Beijing’s ODA was estimated to be US$2 billion, which represented only the 0.04% of its GNI (Coleman, 2013); while U.S ODA was US$30 billion equivalent to 0.21% of its GNI (OECD, 2012). However despite these figures, China can be seen as an important donor.
OECD identifies a variety of funds out of the definition of ODA such as natural-resource-backed lines of credit, subventions for private investment, export credits and excludes FDI, called Other Official Flows (OOF). OOF is normally excluded from ODA because of the issue about the development repercussions of being recurrently linked to OOF agreements, such as attaching the funds to the use of services and goods from the benefactor country. Hence Beijing’s OOF is greater than its ODA. The U.S. and other OECD-DAC countries also deliver several
‧ 國
立 政 治 大 學
‧
N a
tio na
l C h engchi U ni ve rs it y
91 kinds of OOF, but at an extent far lower than that of the PRC. For instance, the Ex-Im Bank of the U.S. disbursed under $10 billion in loans to Africa during 2005-2013, during which time China EXIM Bank reportedly paid out US$38 billion for the same region (Coleman, 2013).
In sum, all monetary flows coming from the PRC for trade, investment or foreign assistance are numerous, especially for developing countries. Costa Rica is benefiting from these flows, perhaps not in the same manner as it was with the ROC, from which perhaps the worst loss was its development cooperation which was a regular non-reimbursable aid. In fact, the greatest benefit Costa Rica is obtaining from the relations with the PRC is the trade, investment and significant proximity to Asia. For instance, since 2008 Costa Rica has become an observer member of APEC, supported by China (Rodriguez, 2013).
According to Mario Rodriguez in his article “China or Taiwan? The Paradoxes of Costa Rica and Nicaragua (2006-2008)”, in terms of the trade and investment between Costa Rica and the ROC, although they had official ties, Taiwan was not strongly linked to the local economy. In the middle of 2005 the cumulative Taiwanese investment in Costa Rica accounted for just US$ 16.6 million in 2006 and Costa Rica’s exports to Taiwan represented less than 1% of its exports, US$ 95.5 million. By contrast, the PRC was already at that time the second largest trading partner of Costa Rica, exporting in 2006 products to China worth US$ 1,082.8 million (Rodriguez, 2013).
The PRC’s assistance to Costa Rica allegedly was directly associated to the Central American nation’s setting up of diplomatic ties with China (and cessation of relations with ROC) in 2007. Another reason was the opportunity for China to open up an alternative market and investment. However, in accordance with many scholars, PRC recognizes that the United States remains the main political and economic sway in the Western Hemisphere (Lum et al., 2009).