Costa Ricans vote on free trade with the U.S.

By John McPhaul

SAN JOSE, Costa Rica (Reuters) - Costa Ricans vote on a free-trade deal with the United States on Sunday in a referendum that has split the Central American nation like no other issue in decades.

Opponents fear the Central American Free Trade Agreement, or CAFTA, will weaken the country's prized welfare system, among the strongest in Latin America.

Supporters, led by Nobel peace laureate President Oscar Arias, say Costa Rica needs to open its economy more since it is a small country with few natural resources.

In the second such warning in recent days, the White House said on Saturday it would not renegotiate the deal if Costa Ricans vote against the current proposal.

A poll last week in La Nacion newspaper showed Costa Ricans rejecting the trade deal by 55 percent to 43 percent. Other recent surveys showed the country -- home to 4 million people and the most prosperous and stable in Central America -- sharply divided.

The agreement would open state-run sectors like telecommunications and insurance to competition from foreign firms. Opponents say that threatens institutions that have contributed to the country's social stability for decades.

Critics also say the deal will mean a flood of cheap U.S. farm imports and limit the country's sovereignty by taking investment disputes to international arbitration.

"The experiences of other countries that have signed CAFTA have not been good -- a lot of unemployment and a concentration of wealth in the hands of the few," said hardware store owner Alex Cordero.

Costa Rica is the only country not to have ratified CAFTA -- which includes Guatemala, El Salvador, Honduras, Nicaragua and the Dominican Republic -- and is the only nation to decide the issue by referendum.

In the largest march in Costa Rica in years, about 100,000 people filled the streets of the capital last weekend to protest the trade pact.

'JUST RICHER'

Costa Rica, which has no army and boasts of pristine beaches and jungles, has enjoyed almost uninterrupted democratic government for over a century and has much better free education and health care than its neighbors.

Coffee farming, tourism, call centers and microchip manufacturing support the growing economy, which is more diversified than its neighbors and attracts migrants from Nicaragua and Panama.

Arias, who won a Nobel Peace Prize for helping end Central American civil wars in the 1980s, says CAFTA will help Costa Rica stay ahead in the region.

"If this deal is approved it won't make us better or worse," he said last week. "Just richer."

The White House warning on Saturday was the latest in a series of conflicting messages from Washington.

"If the free trade agreement is rejected, the United States will not renegotiate the agreement," White House spokeswoman Dana Perino said in a statement.

Democrats in Congress have sought to reassure Costa Rican voters their country would not lose existing trade benefits if the pact is defeated.