Identifier
Created
Classification
Origin
02TEGUCIGALPA2972
2002-10-28 21:33:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Tegucigalpa
Cable title:  

HONDURAN-U.S. BILATERAL TRADE AND NON-TRADE ISSUES

Tags:  ETRD EAGR ECON ELAB EINV PREL XK HO USTR 
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UNCLAS SECTION 01 OF 04 TEGUCIGALPA 002972 

SIPDIS

SENSITIVE

STATE FOR WHA/CEN, WHA/EPSC
STATE PASS TO USTR: ANDREA GASH-DURKIN, DAN FANTOZZI
STATE PASS TO USDA/FAS FOR BRENDA FREEMAN/AA/ITP
DOL FOR ILAB: ROBERT WHOLEY
GUATEMALA FOR COMMATT: DTHOMPSON
GUATEMALA FOR AGATT: FCOOLIDGE

E.O. 12958: N/A
TAGS: ETRD EAGR ECON ELAB EINV PREL XK HO USTR
SUBJECT: HONDURAN-U.S. BILATERAL TRADE AND NON-TRADE ISSUES
AFFECTING USCAFTA

REFS: A) SECSTATE 203301

B) SECSTATE 207175
C) TEGUCIGALPA 728
D) TEGUCIGALPA 1951
E) TEGUCIGALPA 2307
F) TEGUCIGALPA 2207
G) TEGUCIGALPA 2857
H) TEGUCIGALPA 2897
I) TEGUCIGALPA 1920
J) TEGUCIGALPA 1756
K) TEGUCIGALPA 2829
L) TEGUCIGALPA 2916

UNCLAS SECTION 01 OF 04 TEGUCIGALPA 002972

SIPDIS

SENSITIVE

STATE FOR WHA/CEN, WHA/EPSC
STATE PASS TO USTR: ANDREA GASH-DURKIN, DAN FANTOZZI
STATE PASS TO USDA/FAS FOR BRENDA FREEMAN/AA/ITP
DOL FOR ILAB: ROBERT WHOLEY
GUATEMALA FOR COMMATT: DTHOMPSON
GUATEMALA FOR AGATT: FCOOLIDGE

E.O. 12958: N/A
TAGS: ETRD EAGR ECON ELAB EINV PREL XK HO USTR
SUBJECT: HONDURAN-U.S. BILATERAL TRADE AND NON-TRADE ISSUES
AFFECTING USCAFTA

REFS: A) SECSTATE 203301

B) SECSTATE 207175
C) TEGUCIGALPA 728
D) TEGUCIGALPA 1951
E) TEGUCIGALPA 2307
F) TEGUCIGALPA 2207
G) TEGUCIGALPA 2857
H) TEGUCIGALPA 2897
I) TEGUCIGALPA 1920
J) TEGUCIGALPA 1756
K) TEGUCIGALPA 2829
L) TEGUCIGALPA 2916


1. (U) In response to refs a & b, Post identifies the
following outstanding bilateral trade and non-trade issues
that could negatively impact perception of a U.S.-Central
American free trade agreement in the U.S. private sector and
Congress.

Agriculture Import Restrictions
--------------


2. (U) Honduras has had a ban on U.S. raw poultry imports
for some time. USDA FAS estimates that if Honduran
restrictions on U.S. raw poultry and poultry parts were
lifted, U.S. producers could export an additional USD 10
million of poultry products to Honduras, annually.


3. (U) Since President Maduro took office on January 27,
Embassy has received a series of complaints from local
importers regarding import restrictions, difficult
certification requirements and other obstacles to the
importation of U.S. pork, poultry and dairy products. GOH
agriculture officials, in increasing the bureaucratic
requirements to import U.S. products, appear bent on using
sanitary and phytosanitary (SPS) measures as a way to
restrict imports and support local poultry and pork
producers. GOH officials, in turn, claim that Honduran
importers provide partial documentation, either for purposes
of tax evasion or in order to evade SPS restrictions on
products from third countries. U.S. companies Cargill and
PriceSmart (a subsidiary of Costco) have been among the

companies complaining in 2002 of import obstacles. Post
notes that in 2001, Honduras imported USD 6.1 million of
U.S. dairy products, USD 6 million of U.S. pork products,
USD 3.5 million of U.S. poultry products.


4. (U) In February, several Honduran importers of U.S. meat
and dairy products complained to the Embassy that Honduras'
Office of Plant and Animal Health (SENASA) was denying
applications for the importation of goods from the United
States on the basis that the plants producing the food
products had not been certified by SENASA (ref c). SENASA
Director Reyes explained that the actions were being taken
not on the basis of Honduran phytosanitary law but due to a
Honduran implementing regulation adopted in late 2001 and
that the GOH believes its actions are consistent with its
WTO commitments. He committed to ensuring the clearance of
all U.S. agriculture imports as soon as the importers fill
out applications for pre-certification. While the
complaints have lessened since that time, there have been
some sporadic incidents over this requirement.


5. (U) In June, SENASA began restricting imports of U.S.
poultry products over concerns of an outbreak of avian
influenza in the U.S. After some negotiation, GOH officials
agreed to allow poultry imports if and when USDA certifies
that the products originate from a zone free of avian
influenza (ref d). The ensuing back and forth on whether
USDA can certify poultry products free of low pathogen avian
influenza delayed entry of cooked and mechanically deboned
poultry meat into the Honduran market. USDA FAS is aware of
several U.S. suppliers that have turned away from selling to
Honduras because of these reported difficulties.


6. (U) There doesn't seem to be any legitimate health
concern over U.S. pork imports, which SENASA began
restricting in June and July (ref e). The GOH indicated
privately to importers that it is interested in limiting the
number of containers from certain companies (ostensibly over
concerns that importers don't have the necessary cold
storage capacity to handle the amount of imports). After
discussions with Embassy and importers about paperwork
requirements, GOH obstacles to pork product imports from the
U.S. began to ebb.


7. (U) In October, in response to an announcement by USDA
of a recall of turkey products originating from certain
plants in the U.S. due to listeria, SENASA announced that it
would restrict imports of U.S. turkey, chicken and other
products susceptible to listeria. Without consultation or
prior notice, SENASA told importers it requires FSIS or
APHIS to certify that these products are free of listeria
and newcastle disease. Embassy has begun discussions with
SENASA officials over USDA's zero tolerance policy for
listeria in cooked and processed food, and appropriate
action on raw turkey. We expect this issue to be
problematic in the near term.


8. (U) Post is also concerned that the GOH is not giving
advance notice of changes in import regulations as required
by WTO rules. We are skeptical that SENASA is applying
equivalent SPS treatment to domestic poultry and pork
products.

IPR Issues
--------------


9. (SBU) U.S. pharmaceutical company Pfizer has complained
that the Ministry of Health, in approving a competing
company's pharmaceutical product, did not respect Pfizer's
data exclusivity rights as guaranteed in article 77 of
Honduras' Industrial Property Law and article 39 of the WTO
TRIP's agreement. The Ministry of Health approved the
pharmaceutical product, despite communication from Honduras'
IPR Division that Pfizer's research and data were protected
under Honduran law. Pfizer argues that in order for the
competing product to be legally registered with the Ministry
of Health, the company needs to provide the research and
data to support their application. Honduran law provides
five-year exclusive use of data provided in support of
registering pharmaceutical products.


10. (U) U.S. companies, through the Business Software
Alliance (BSA),complain that attempts to prosecute computer
software infringement cases have been met with resistance by
officials in the Ministry of Industry and Trade's IPR
Division and the GOH's Attorney General's Office who often
cite procedural problems or lack of resources as the main
causes of government inaction.


11. (U) Honduras largely complied with the Trade Related
Aspects of Intellectual Property Rights (TRIPS) Agreement by
the January 1, 2000 deadline. However, there has been no
action by the GOH to obtain approval of two laws governing
the designs of integrated circuits and plant variety
protection in the National Congress. Approval of the two
laws is necessary for Honduras to be in complete TRIPS
compliance.

AES
---


12. (SBU) U.S. energy company AES is the only U.S. finalist
in the current bidding for a 210 MW tender by the GOH (refs
f, g & h). AES has plans to build a usd 650 million liquid
natural gas-fired power plant with transmission lines and
LNG port that would serve Honduras, El Salvador and other
countries in the region. General Electric is a strategic
partner in this project. The state-run electricity company
(ENEE) has delayed announcement of the winner, presumably
because of heavy pressure by Honduran competitors in the
thermal and hydropower sector. While the Maduro
administration has assured that the 210 MW tender will be
fair and transparent, the government-controlled process
provides ample opportunity for discretion and manipulation.
One possible issue is that one domestic firm, which bid low,
did not include the price of constructing a new substation
and accompanying power lines in its bid offer. Presumably
this company should be disqualified.

Property, Investment and Commercial Disputes
--------------


13. (SBU) The Embassy has files on over 150 property and
investment cases involving U.S. citizens. The 2002 Helms
Act report (ref I) includes 9 cases that could be termed
expropriation without adequate compensation, under the
definition used in the Helms Act. Eight of the claims
described in the Helms Act report involve the Honduran
National Agrarian Institute (INA) and land invasion by
squatters. Land invasions are common for both Honduran and
foreign landowners. According to the National Agrarian
Reform Law, idle land fit for farming can be expropriated
and awarded to the landless poor. Generally, an INA
expropriation case begins after squatters target and invade
unprotected property. The squatters then file for the land
with the INA under the Agrarian Reform Law. In most cases,
pursuit of the subsequent legal avenues has proven to be
costly and time consuming, and has rarely lead to positive
results. Representatives in the U.S. Congress have been
contacted about land cases in Honduras, especially Senator
Graham of Florida who has been contacted by four
constituents about their cases.


14. (SBU) Post demarched the Honduran government repeatedly
in 2001 and 2002 on the importance of establishing a
mechanism that will allow progress on expropriation cases
involving U.S. citizens (ref j). In late August, the GOH
informed us that they are pursuing our recommendation of
letting land cases involving the Honduran or municipal
government be resolved in arbitration rather than through
the courts (this will require legislation, which has not yet
been submitted to Congress). Note: Honduras' first
experience with arbitration involving a private dispute
between U.S. and Honduran companies does not bode well; the
U.S. company is now appealing the arbitral award to its
former subcontractor, alleging corruption. End note.


15. (SBU) The Embassy is aware of numerous other property
and investment disputes involving U.S. investors, the
majority of which have arisen out of inadequate titling
procedures or fraudulent business dealings and involve
disputes between U.S. and Honduran citizens. In many of the
private disputes between U.S. and Honduran citizens, the
U.S. citizens charge unfair, often egregious, treatment in
the court system. Most of these problems arose under
previous administrations. In the case of the Moore family
in Roatan, however, an unwarranted eviction from their
property occurred in August (ref k). While the case has
received widespread attention, there has not yet been a
favorable result.


16. (SBU) U.S. Tobacco and textile company JE Morgan have
both had difficult and prolonged labor cases that arose when
the companies tried to investigate or dismiss key employees.
(Note: In the case of U.S. Tobacco, the dismissed employee
is a U.S. citizen and the Embassy is therefore limited in
its role. End note.) In both cases, the employees have
gone to the labor courts requesting extremely high severance
packages. Texaco has complained of undue delays and lack of
due process in its contractual dispute with a franchisee.
Transpacific Geothermal has complained that slow,
inefficient court proceedings have unjustifiably tied up the
company's bid to build a small geothermal energy project in
Western Honduras. (Note: Another U.S. citizen is suing the
GOH over a former mining concession on the land. End note.)
U.S. companies have also complained about judicial
procedures that inhibit the return of stolen property.
Several U.S. companies and investors have complained of
arbitrary and unfair environmental permitting procedures,
although this appears to have improved significantly under
the Maduro administration. The U.S. companies have alleged
unfair treatment in the courts and indicated that the state
of the judicial system has dissuaded them from any new
investments.

Labor
--------------


17. Although not mentioned in other Central American posts'
cables on bilateral trade and non-trade issues affecting
U.S.-CAFTA, civil society in Central America and the U.S.
have voiced concern over labor issues throughout the region
and are likely to press for improvement in the labor
situation and swifter action to eradicate the worst forms of
child labor as conditions for a trade agreement. Concerns
frequently mentioned by international labor organizations
and NGOs, especially in the maquila sector, include
challenges to and problems with the freedom of association,
the right to organize, the right to strike and the right to
collectively bargain. These rights are generally respected
in practice, but enforcement is weak. While many Central
American countries, including Honduras, are party to ILO
Convention 182 to eradicate the worst forms of child labor,
the private sector - particularly in coffee, melon,
sugarcane, and lobster agroindustrial production for export
- continues to employ children in hazardous agricultural
activities in which the minors also lose opportunities for
schooling (see ref L). Other illicit activities in which
minors engage in throughout Central America and which are
even more difficult to enforce include commercial sex
exploitation in tourist and border areas and illegal
narcotics smuggling in the border areas and the Caribbean
coast. (Note: There are numerous regional projects
supported by USDOL with the goal of working to eradicate the
worst forms of child labor. End Note.)

Other Issues
--------------


18. (SBU) The GOH provides extensive tax incentives to
foreign and domestic companies, especially in the apparel
assembly sector and widely defined tourism. Companies
operating in designated export processing zones are exempt
from paying import duties on goods and capital equipment and
from state and municipal taxes. In the lead up to the
initiation of the Doha round, the GOH put priority on
maintenance of its incentives regime. The GOH will continue
to provide incentives through 2010 per WTO rules allowing
countries with GDP per capita under USD 1,000 to maintain
free trade zones. Previously negotiated contracts with
franchisees provide tax incentives to some Honduran owners
of fast food outlets for another 15 years. Electric power
producers are allowed to import fuel duty free, but some
national firms may be taking advantage of the tax exemption
to evade taxes on the sale of refined oil products. Embassy
understands that investment incentives are an issue in the
Canada-Central America free trade talks. International
donors, including the IMF, IDB and World Bank, have
identified the GOH's extensive tax exemptions as a main
contributor to the Government's perennial fiscal problems.
During U.S-CAFTA talks, U.S. negotiators should be aware of
the interplay of the trade and fiscal issues.


19. (SBU) The IMF and the World Bank are looking closely at
the fragile financial sector in Honduras. The Honduran
banking system is considered weak and in need of
consolidation. Insider abuses and heavy losses in key
sectors have combined to contribute to a large overhang of
bad loans. Problems in the financial sector affect interest
rates and the availability of medium and long-term lending.
During the U.S.-CAFTA trade talks on financial services,
U.S. negotiators should be aware of the measures the IMF and
World Bank are recommending to strengthen the banking
sector.


20. (U) We also note that Honduras has failed to implement
fully its customs valuation obligations. The U.S.-CAFTA
negotiations could be used to push for more complete
implementation of the WTO customs valuation agreement.

Pierce