Digital Paradise?

Intel is putting Costa Rica on the high-tech map, but environmentalists wonder if its act is really clean.

COSTA RICA MARKETS ITSELF AS A PARADISE OF PRISTINE beaches, grilled fish and cocktails in coconut shells. Tourism dollars have long been key to development.

Last year, the digital era caught up with Costa Rica. Revenues from high-tech manufacturing, led by chipmaker Intel, surpassed tourism to become the leading source of foreign revenue. Given the environmental risks of the toxic chemicals used in most manufacturing processes, the arrival of Intel four years ago was widely debated by activist groups both in Costa Rica and abroad.

Costa Rica's environmental laws are already much weaker than those in the United States but, now that Costa Rica's huge technology exports are the envy of Latin America, those favoring tougher environmental laws must weigh them against the possible loss of badly needed billions of dollars in foreign revenue. Can Costa Rica--and its 3.6 million inhabitants--have both?

Throughout much of 1995, Intel executives traveled across Latin America searching for a site to build plants for the company's surface mount technology procedure, the last stage of the complex chip manufacturing process. The company negotiated with Brazil, Chile and Mexico about where to invest US$500 million and create 3,500 new jobs. In the end, Intel chose Costa Rica, following an aggressive courtship by its government.

Jose Maria Figueres, president of Costa Rica from 1994 to 1998, says his country couldn't grow with tourism alone. "We made a special effort to attract high-quality foreign investment," he says. "We don't want to compete in a globalized market with industries that use cheap labor and degrade our environment."

Through the Costa Rican Coalition of Development Initiatives, Figueres actively recruited high-tech electronics companies. In the past five years, 25 such firms have arrived, including Intel, Microsoft and Oracle.

Intel hopes to benefit from Costa Rica's highly educated but relatively cheap work force. The company surely also appreciated the government's eager welcome. All 36 permits for the project's operation were approved in a record 60 days; at the same time, Intel won a special 12-year tax break. For the first eight years of operations, the firm will pay no taxes on profits and for four years after that it will pay only half the usual rate.

Officials further sweetened the deal with an energy subsidy--offering a special industrial rate of $0.42 per kilowatt hour, less than half the commercial value--and by building an electrical sub-station for Intel's exclusive use.

Irate neighbors. After two years of operations in Costa Rica, Intel's exports now represent more than one-third of Costa Rica's total exports, or approximately $1.2 billion in 1999. They helped boost economic growth rates to 6.2% in 1998 and more than 5% in 1999, according to the Costa Rican Central Bank.

Intel's two plants, located in the town of Belen some 13 miles northwest of San Jose, only entered into full operations in the middle of this year, so it is still too early to say what the sustained impact will be on the economy.

But Intel's incursion is the largest investment a single company has ever made in Costa Rica, and a source of great pride for the government. "The operations of Intel in Costa Rica are a sample of how this country can integrate itself intelligently into globalization," says Figueres, who led the negotiations with Intel.

Still, not everyone was overjoyed. Environmental groups in Costa Rica and the United States immediately raised warning flags, saying that the quantity of toxic chemicals used for chip production and Intel's questionable environmental performance at other facilities were grounds for worry.

According to the Silicon Valley Toxics Coalition (SVTC), which has been tracking the environmental hazards of the electronics industry since the early 1980s, chip-making is one of the dirtiest industries on earth.

"Over 1,000 materials and chemicals are used to manufacture a computer workstation. Because of the widespread use of these highly toxic materials, the rate of industrial illness among semiconductor workers, called systematic poisoning, is higher than in other manufacturing sectors," SVTC Program Director Leslie Byster has written.

In the beginning, residents of the community of Bosques de Dona Rosa, in Belen, opposed the construction of high-tension wires that supplied the Intel plant, arguing they threatened their health and violated environmental regulations. They flied a complaint in court. Four people were slightly injured during a protest when they clashed with police.

In an effort to speed up the construction process and shield Intel from criticism, the Costa Rican government took over direction of the power line construction. The Silicon Valley group moved on to raise alarms about the local water supply, pointing out that the plant was built on top of one of the main aquifers that provide drinking water for some one million inhabitants.

A case of cry wolf? A closer look at the productive process of Intel's operations in Costa Rica reveals that environmental groups may have cried wolf.

"There are more than 50 large industries operating in Belen, and Intel is the only one with a waste-treatment plant," says Annette Zulano, a Belen municipal worker who monitors environmental reports required of industries operating in the area. "I have been working here for one year and we haven't received one single complaint about Intel."

Jorge Vieto, who works for a San Jose-based environmental venture capital firm, says Intel's production methods in Costa Rica are among the least contaminating of the chip-manufacturing business, since they involve the last steps of the chip-producing process. He claims they use no CFCs or other solvents, and that the soldering paste is safe. The process does, however, require lead, acetone and isopropyl alcohol, but these substances are non-contaminating if properly managed. "I don't think Intel is a big worry," says Vieto. "Their process here is safe."

Vieto also notes that the most toxic solid wastes are shipped back to the United States under an agreement that ultimately makes the U.S. government responsible for the safe and secure disposal of toxic materials.

"We haven't heard any complaints since the beginning of 1998. Before that, there were a series of groups that expressed worry and mistrust, especially since they had had bad experiences with other companies in the area," says Francisco Benavides, Intel's environment, health and security manager for Costa Rica. "But we have established a good relationship with these groups and Intel has the highest environmental standards of any company in the country."

Benavides says Intel has also agreed to follow U.S. laws when local environmental laws are insufficient. Costa Rica, for example, has no air-quality legislation; the only monitoring is done by volunteers. If pollution reaches a dangerous level, there is no government agency to halt operations or levy fines.

Joseph Pasciuto, senior water consultant for Intel, who directed the construction of the two Costa Rica plants, says all U.S. companies building plants overseas should comply with U.S. standards when local environmental laws are inadequate. He says Intel has installed an air-abatement system and waste-treatment facility for the plant's human waste and has "behaved a lot better than other industries in Costa Rica."

Moreover, Pasciuto says the aquifer is safe from ground contamination since human waste is the only waste to leave the plant, and the chemicals used in the production process have very little effect on groundwater.

Long-term concerns. Despite these claims of environmental correctness, environmental and community groups are still fretting.

Jorge Vieto worries about the spate of smaller companies that are springing up in Belen to provide Intel with such products as soldering paste, nitrogen and photo circuits used to produce printed wireboards. "The smaller companies are a big worry and Intel doesn't seem to care what they do to the environment," says Vieto.

Residents of Bosques de Dona Rosa argue that the high-voltage electricity lines placed through their neighborhood for Intel's use have driven properly values down and may affect their health, citing studies linking high-voltage lines to leukemia.

Without a toxic-waste-treatment facility, Intel exports thousands of pounds of hazardous lead waste back to the United States every year. Environmentalists worry about the effects of the transport of such waste within Costa Rica and at the Gila Indian reservation in Arizona, its final destination.

Intel supporters say the Silicon Valley firm has been a responsible corporate citizen and a model for other industries, but the Silicon Valley Toxics Coalition remains unconvinced. "Intel will swear up and down that they use the highest standards wherever they are in the world," says Executive Director Ted Smith. "Obviously they have taken heat in the States and have learned from that. Nevertheless, they are doing enormous damage to the environment wherever they go. That is the nature of the industry."

Will Intel look out for Costa Rica, as it says? Perhaps only the next generation in Belen will really know. For now, Costa Ricans watch and wait, hoping that pressure from outside groups has served a purpose--protecting their country, their health and their now No.2 source of foreign income, tourism.