1. (C) Summary. WHA A/S Reich met August 28 in Tegucigalpa
with Honduran President Ricardo Maduro. The discussion was
positive and covered a wide range of issues, with the focus
being the ongoing dispute between Honduras and Nicaragua on
border issues and the Nicaraguan 35 percent tariff on
Honduran goods. Reich praised Maduro for not imposing a
retaliatory tariff and urged him to seek an amicable
solution to the dispute. Unfortunately, it appears that
there is no immediate solution in sight on the issue. Reich
and Maduro also discussed the issue of an ICC Article 98
Agreement (see reftel). End Summary.

2. (U) Participants in WHA A/S Reich meeting with Honduran
President Ricardo Maduro in Maduro's office in Tegucigalpa:

USG: A/S Reich, Ambassador, WHA/CEN Director Trivelli, DCM,
PolCouns, EconCouns, and PolOff (notetaker).

GOH: President Ricardo Maduro, Foreign Minister Guillermo
Perez-Cadalso Arias, Minister of the Presidency Luis
Cosenza, the President's Executive Assistant Xavier Arguello
and Cesar Batres, the President's Special Advisor on Land
Issues

Nicaragua and the Tariff


--------------------------



3. (C) Maduro welcomed A/S Reich to Honduras and opened the
meeting by asking Reich about his trip to Nicaragua August
26-27, noting that the GOH has many issues pending with the
GON. Reich told Maduro that he had met with prominent GON
officials while in Managua, including President Enrique
Bolanos. Reich said Bolanos was doing the best he could
with a difficult situation, including a struggling economy.
Reich noted that Bolanos was attacking corruption, just as
Maduro was doing in Honduras. Reich explained that the
question of stripping former President Arnoldo Aleman of his
congressional immunity was the major issue in Managua. He
added that he had also discussed obstacles to Central
American integration, including the 35 percent tariff
leveled in late 1999 against Honduran goods by Nicaragua.

4. (C) Maduro replied that it appeared reversing the tariff
had unfortunately become linked to the debate over stripping
Aleman's congressional immunity. Maduro then recalled that
Nicaragua's 35 percent tariff on Honduran goods was imposed
by the Nicaraguan Congress in reaction to Honduras ratifying
a Caribbean maritime boundary treaty with Colombia in 1999.
He explained that the Nicaraguans felt the treaty ignored
GON territorial claims. Maduro said he understood the GON
position that the GOH had to renounce its treaty with
Colombia. However, Maduro said now that the GON has filed a
case before the International Court of Justice on the
maritime boundary the GOH's position is that it will await
the court's ruling on its boundary claims before taking any
action on that treaty.

5. (C) Maduro outlined how Honduran FM Perez-Cadalso had
explored options to resolve the tariff issue with Nicaraguan
FM Norman Caldera. GOH/GON discussions had included the
possibility of joint maritime exploitation not just in
disputed areas, but in all areas. Maduro recognized that
Aleman had criticized Bolanos for seeking cooperation with
the GOH. However, Maduro charged that Caldera's recent
statements on oil exploration in the Caribbean were contrary
to statements made in private GOH/GON discussions and done
for political reasons. He explained that those comments had
provoked a strong negative reaction in the Honduran Congress
and private sector.

6. (C) Maduro also detailed efforts made by Cardinal
Rodriguez, the Archbishop of Tegucigalpa, to approach his
Nicaraguan counterpart Cardinal Obando y Bravo to discus the
possible elimination of the tariff but that Obando y Bravo
had declined to get involved. Subsequently FM Perez-
Cadalso, Nicaraguan MFA Sub-Secretary Salvatore (FM Caldera
did not attend), and Vatican officials discussed the issue
of possible Vatican mediation of the issue without success.

7. (C) Maduro said he understood that Bolanos had the
political will to eliminate the tariff but recognized the
problem Bolanos faced with Aleman. He offered that the GOH
was looking at different approaches to solve the tariff
problem, but warned that domestic political pressure on him
to take action was growing. He explained that some
political opponents were alleging he was not taking the
border issue seriously because he was not really Honduran.
(Note: Maduro was born in Panama and the issue of his
citizenship was a hot political issue during the 2001
presidential campaign. End Note.)

8. (C) Maduro said he was seeking to dampen political
rhetoric on the tariff issue and hoped to find a creative
solution. However, he flagged that even deputies of his own
party (the National Party) were calling for a retaliatory
tariff. Maduro underscored his strong personal belief that
a retaliatory tariff would be contrary to Central American
integration. Reich complimented Maduro and the GOH for not
responding with a retaliatory tariff against Nicaraguan
goods.

Gulf Of Fonseca


--------------------------



9. (C) Maduro also discussed the Gulf of Fonseca border
dispute with El Salvador and Nicaragua, saying that the 1992
ICJ ruling had clearly given Honduras an exit point from the
Gulf in the Pacific Ocean. Maduro opined that a trilateral
economic agreement to develop the gulf would be the best
solution. However, he noted that the Inter-American
Development Bank did not want to get involved in the issue
due to a lack of interest from the GON and GOES. He noted
that the 10-year anniversary of the ICJ ruling on the
Honduran/Salvadoran border would occur September 11. Maduro
said he wanted to lower border tensions and emphasize
positive economic issues between the countries.

10. (C) A/S Reich responded that the USG would be happy to
help if it could to reduce tensions in Central America. He
noted that no one wanted to return to the tensions of the
1980s. Reich emphasized that President Bush was very
interested in Central America. Reich added that Honduras
needed to catch up economically with El Salvador and Costa
Rica, but acknowledged that would not be easy and that
expectations needed to be realistic.

Regional Disarmament?


--------------------------



11. (C) Maduro said that he had discussed with El Salvadoran
President Francisco Flores the idea of regional disarmament.
Maduro said that if disarmament occurred it could lead to
savings that could be used for social investment. A/S Reich
said that the USG was concerned about the number of arms in
Central America, and cited the recent case of 3,000 rifles
that went from Nicaragua to Colombia via Panama. Reich also
noted that in Nicaragua there was a plethora of AK-47 rifles
but a shortage of pistols for police. He stressed that all
of the arms left over from the 1970s and 80s in the region
concerned the U.S. Maduro noted that Honduras had fewer
weapons and a smaller military than its neighbors do and was
concerned by its neighbors' military spending. Maduro said
that the GOH could not invest in military hardware because
it needed the money for police, teachers, and other
important productive domestic investments. He asked for
U.S. support on the disarmament issue, saying American
leadership would be helpful. A/S Reich offered U.S. and
pledged to look into ways to assist this effort.

Trade is Key


--------------------------



12. (C) Maduro emphasized his vision that Central American
integration and free trade within the region were key to
making progress against poverty in the region. He noted he
has now met with Bolanos and Flores together at least 4
times since taking office in January. He shared that he
would soon meet again privately with Bolanos, and separately
with Flores, to encourage more concrete efforts toward
regional integration.

13. (C) Maduro stressed the importance of a Central American
free trade agreement with the U.S. Maduro said the GOH was
happy about the U.S. Congress voting to grant the President
Trade Promotion Authority. Maduro pointed out that
increased trade was key to reducing illegal immigration to
the U.S., but underscored that Honduran remittances from the
U.S. were a critical element to maintaining a stable
economic situation in Honduras. Maduro said he hoped the
proposed Central America Free Trade Agreement would boost
foreign investment in the region. A/S Reich said such
investment usually followed a trade agreement, especially if
progress was made against corruption and in favor of
judicial security.

Land Disputes and the Administration of Justice


--------------------------

--
14. (C) Maduro introduced Cesar Batres, his Legal Advisor,
who explained (as expected) that the GOH had decided to seek
to resolve land disputes involving the GOH by submitting
them to arbitration (similar to the process used in Costa
Rica for expropriation cases). The proposal required a
change in legislation. Batres provided the draft law
prepared by the Supreme Court to Ambassador. A/S Reich and
Ambassador thanked Maduro for this initiative.

15. (C) Reich noted that the administration of justice (AOJ)
was key for investment. Why would a business invest if the
law and protection for investments were not clear when they
could invest in another location where investments were
protected, asked Reich. Maduro agreed that AOJ was critical
for investment.

Limited Progress on Economic and Security Problems


--------------------------



--------------------------



16. (C) On agricultural issues, Maduro suggested the need
for a coordinated international response to the free-fall in
coffee prices. Reich noted the importance of coffee in
Central America and the challenge producers in Central
America and the Andean Region faced from Vietnamese coffee.
Maduro said that even though oversupply had led to falling
producer prices, it had not affected consumer prices, which
if anything were rising.

17. (C) Maduro commented that the tourism and textile
sectors were improved. He said his administration was
trying to foster home ownership, infrastructure development,
and micro and small businesses. Maduro explained that
though the International Monetary Fund (IMF) was
disappointed in the GOH's wage settlement with teachers, he
hoped they would be successful in negotiating a new three-
year IMF program, when the IMF team arrived in October. He
indicated that tax receipts had risen since July, due to use
of enforcement measures in the new tax law that included
temporarily closing businesses that did not pay taxes.

18. (C) Maduro noted he had boosted police patrols with the
military to crack down on crime and claimed that both
homicides and crime in general had dropped since his
inauguration.

GOH Appreciates Visit


--------------------------



19. (C) Reich thanked Maduro for the GOH's support on issues
of concern to the USG at the UN. Maduro thanked Reich for
his visit and noted that U.S. support is key and very much
appreciated. Maduro praised retiring Ambassador as a friend
of Honduras and of Maduro.

Candid Discussion Reveals No Quick End to Tariff Issue


--------------------------



--------------------------



20. (C) Comment. Reich and Maduro had a friendly and open
discussion, dominated by discussion of the tariff and border
dispute with Nicaragua. In the lengthy talk it was clear
that there was no immediate solution at hand on the tariff
issue. Maduro is likely to face growing political pressure
to retaliate against the Nicaraguan tariff unless there are
signs of progress in resolving the issue. Reich's visit was
an important statement that the USG recognizes Maduro's
leadership in avoiding such retaliation, and that its
resolution is key to Central American free trade and
integration. End Comment.

PIERCE