Caribbean & Central America - June 2007 (ISSN 1741-4458)

The Costa Rican government severed its six-decade-long ties with Taiwan on 1 June and established diplomatic relations with China. According to the Costa Rican President, Oscar Arias, the decision was "an act of elemental realism due to the growing importance of China in global affairs". The change in Costa Rica's foreign policy towards China may have a dramatic impact in other parts of Central America. 

The Costa Rican government was obliged to break its traditional alliance with Taiwan in order to establish diplomatic relations with China. This is a pre-condition for having diplomatic relations with the government of mainland China, as they consider Taiwan to be a breakaway province. Indeed, in an official declaration Costa Rica recognised "the People's Republic of China [as] the sole legitimate government representing the whole of China" and downgraded "Taiwan [as] an inalienable part of the Chinese territory".

In a bitter note the Taiwanese foreign minister, James Huang, declared "it is ironic that a Nobel Peace Prize winner establish[ed] diplomatic relations with a country that does not respect neither peace, nor democracy, nor human rights". Huang was referring to Arias, who was granted a Nobel Peace Prize in 1987 for helping to resolve conflicts in Central America; and to China, which activists maintain has a poor human rights' record. To be fair to Arias, the latter notion has not deterred 168 nations represented in the UN from maintaining diplomatic relations with China. Taiwan, meanwhile, is currently recognised by only 24 countries (including El Salvador, Guatemala, Honduras, Nicaragua and Panama). 

At the same time it is undeniable that Arias's political ambitions in the international arena have outweighed his principles. Firstly, he is seeking a non-permanent seat in the UN Security Council for Costa Rica next year and Chinese backing would be a great boost for its candidacy. Secondly, and at a more personal level, Arias sees a prospective attempt to resolve Chinese-Taiwanese hostilities, or even pressing China on human rights, as a great chance to improve his own international standing. 

Economics, however, was central to the Costa Rican decision. China is currently Costa Rica's second-most important trade partner after the US, with deals worth over US$1bn annually. Trade with Taiwan, meanwhile, is small in comparison: some US$260m annually. Significantly, Costa Rica posted a small trade surplus with China in 2006, while bilateral trade with Taiwan left a deficit of almost US$75m, according to figures from the Central American economic integration secretary (Sieca). The figures reveal that trade ties with the Chinese are more profitable to Costa Rica and thus essential to the achievement of the government's target of doubling the country's total exports to US$18bn by 2010. 

Impact on the Sica

Costa Rica's decision to establish diplomatic relations with China prompted other members of the Central American Integration System (Sica) to reaffirm their commitment to Taiwan. Nonetheless, economics may lead to a change of foreign policy in the near future - especially if Costa Rica manages to remain unscarred by the Taiwanese withdrawal of funding and the competition of cheap Chinese imports. Significantly, the Chinese government has made it clear that Costa Rica is "the first step" to win over other Central American and Caribbean countries. In order to set off a "domino effect" in the region the Chinese will allow Costa Rica to run considerable trade surpluses. China vowed to take on Taiwan's investments in Costa Rica and has promised to build an oil refinery.

The Costa Rican government declared it hoped that its decision would not affect relations between the Sica and Taiwan, but that will be difficult. Relations are bound to suffer as trade with the Chinese make Costa Rica even more prosperous in comparison to its impoverished Central American neighbours. The Taiwanese government is now stepping up diplomacy in order to keep its allies in the region. Taiwan is already one of the main sources of finance for Sica and vowed to provide more aid and business deals for the group's members, especially Nicaragua, as the government of President Daniel Ortega is ideologically closer to Beijing than to Taipei. 

Yet trade figures between Central American countries and China shows the potential for increasing exports to China, if relations were better. According to Sieca's figures, the Sica as a whole exported goods worth US$608m to China last year. Over five sixths of this figure were exports from Costa Rica (mostly microchips), which doubled between 2005 and 2006. Meanwhile, the group as a whole imported US$1.6bn from China in the period. Significantly, Costa Rica imported less than one-third of the total figure and was the only Sica country to post a trade surplus with China. 

In comparison, Sica's trade with Taiwan was small, worth US$526bn last year. Crucially, despite their diplomatic recognition, Sica members also posted a trade deficit with Taiwan: US$280m in 2006. The governments of El Salvador and Honduras hope to revert this trend with the signing, last May, of a trilateral free-trade agreement with Taiwan. However, Panama, Guatemala and Nicaragua already have free-trade agreements with the Taiwanese and still posted trade deficits. Central American business associations have grasped this and have increased the pressure on their governments to change their foreign policy.

• Chinese toothpaste "poison alert"
  Panamanian authorities confirmed that toothpaste contaminated with dietileneglycol, which was manufactured in China, has been re-exported to the Dominican Republic. Dietileneglycol is the poisonous substance that killed over 100 Panamanians last year after it found its way into medicine manufactured by Panama's state laboratory. Panamanian authorities said that contaminated toothpaste may have also been re-exported to other countries in the region, prompting a "poison alert" in Central America and the Caribbean.