Approval of the Central American Free Trade Agreement (CAFTA) faces a new uncertainty with a decision by Costa Rica's Supreme Elections Tribunal (TSE) that there be a national referendum on the trade deal instead of a vote in the National Assembly, where pro-CAFTA forces have a majority.

The party of Costa Rican President Oscar Arias, who seeks CAFTA approval, has the largest block of votes in the assembly. Costa Rica is the only signatory who has not yet ratified the agreement.

The TSE on May 3 ruled that the CAFTA referendum will be brought about by a joint assembly-executive branch decree, instead of requiring a signature collection process. The referendum will likely take place in either August or September, but the TSE still has to decide the exact date and the number of votes needed for approval, sources said.

A simple majority will require 30 percent of registered voters to vote yes, while a qualified majority would require 40 percent, according to a Costa Rican official.

The referendum is likely to take place well before the CAFTA deadline of March 2008 for Costa Rica's approval of the agreement. The CAFTA stipulates that the last signatory must approve the deal two years after the first signatory implemented CAFTA. That deadline could be changed by unanimous consent of all the countries that have already implemented the trade agreement and the U.S., a private sector source said.

In a victory for CAFTA supporters, the TSE denied a request that implementation bills must be held up until the referendum vote takes place, sources said. Meanwhile, a proposal to limit debate and "fast-track" the implementation bills was conditionally approved by Costa Rica's constitutional court pending minor modifications to wording in the bill, sources said. A private-sector source hoped this could be resolved by the end of May.

Also, pro-CAFTA Assembly President Antonio Francisco Pacheco was re-elected this week, and his continued control over procedures and agenda will aid the implementation bills' passage, sources said. As of May, the agenda of the assembly is being set by the Assembly President instead of the executive branch, which had the power to set the agenda from December to April.

Implementation of CAFTA requires the passage of 13 implementation bills, of which the most controversial bills would dismantle the telecommunications monopoly and dismantle the insurance monopoly (Inside U.S. Trade, December 1).

Three of these bills are out of committees, and one bill, governing contracts between foreign companies and Costa Rican dealers of industrial products, is ready for a vote, an official said. But it was blocked when opposition parties staged a walk-out, he said. Anti-CAFTA parties are only one vote short of the 20 assembly votes needed to block the bills, so all members of the ruling party's coalition must be present at all votes to ensure victory, said Otton Solis, chairman of the political committee of Costa Rica's main opposition party.

Nationwide campaigns over the CAFTA on both sides of the issue are just starting. A private-sector expressed hope that the domestic industry could raise $3 million for the pro-CAFTA campaign. No foreign countries or companies are allowed to contribute to the campaign, the source said.

Anti-CAFTA forces had sought a referendum by a signature collection, which itself would have taken as long as nine months. Once the signatures were collected, they would have had to be submitted to the TSE and then the actual referendum vote would have taken place.

The signature process was a possibility when TSE decided on April 12 to approve a request by ex-legislator Jose Miguel Corrales, who is anti-CAFTA, that allowed him to begin collecting about 135,000 signatures which would amount to 5 percent of registered voters to initiate a country-wide vote.

To pre-empt a referendum by the lengthy signature process, Arias submitted the decree to the assembly where it was approved by both CAFTA supporters and detractors. Once approved, the decree was submitted to the TSE, which authorized the referendum by that process.

The CAFTA referendum will be Costa Rica's first public referendum since it gained independence from Spain in 1821.

The results of the referendum will be binding if over 30 percent of registered voters take part, a Costa Rican official said. He said that Arias has indicated if the referendum vote is no, and if the referendum is non-binding due to less than 30 percent turnout, he will take CAFTA approval back to Congress.

However, if CAFTA is struck down by a binding referendum vote, opponents hope it may lead to a renegotiation.

According to an official, election participation is widely varied in Costa Rica, with presidential elections sometimes garnering 80 percent voter turnout, while recent mayoral elections only had 25 percent turnout.

A private-sector source said the TSE approval of Corrales' request came as a surprise, as many people had expected a decision at a later point, possibly at a time when a referendum would not be feasible. Solis attributed the TSE decision to a massive CAFTA protest that took place in February, which he said put pressure TSE to rule that a referendum could take place.

However, a Costa Rican official said that the decision was somewhat expected, as Corrales' request was made many months ago, and by law, no referendum can be held within six months of a national election. The official noted that the last nationwide election was held in December 2006.

While acknowledging that a public referendum leads to increased uncertainty, pro-CAFTA sources noted that the referendum decision has helped speed up a process that had stalled in recent times. CAFTA approval in the Costa Rican assembly had been plagued by opposition efforts to stop procedural maneuvers that would have limited the debate on the treaty (Inside U.S. Trade, February 2).

Opinion polls in Costa Rica have consistently shown majority support for CAFTA approval, sources agreed, though Solis noted that he believed anti-CAFTA sentiment has been growing. In yet another unexpected development, the Catholic Church of Costa Rica expressed its support for the referendum and urged its members to participate.

In addition to the referendum, many other challenges remain for CAFTA, sources said. Costa Rica's Ombudswoman Lisbeth Quesada has asked for a constitutional review of CAFTA now before the Constitutional Chamber of the Supreme Court, sources said. This would be a change from the regular process of having the assembly vote on a deal after which the Constitutional Court reviews it before a second assembly vote.

Also, opposition parties are requesting that the TSE request a constitutional review of CAFTA before the referendum takes place, Solis said. The TSE has already asked the constitutional court for a preliminary review of CAFTA but the Supreme Court refused to issue such a ruling, stating they cannot review CAFTA until it is approved. This indicates it is unlikely that the TSE complies with the opposition's requests, an official said.