HONDURAS NATIONAL TRADE ESTIMATE REPORT 2003

UNCLAS SECTION 01 OF 04 TEGUCIGALPA 003418

SIPDIS

FOR EB/TPP/MTA/MST
USTR FOR GBLUE
GENEVA FOR USTR
GUATEMALA FOR COMMATT:DTHOMPSON

E.O. 12958: N/A
TAGS: ETRD EFIN ECON HO
SUBJECT: HONDURAS NATIONAL TRADE ESTIMATE REPORT 2003

REF: SECSTATE 225281


1. The text of the 2003 National Trade Estimate report for
Honduras follows.

TRADE SUMMARY


2. (Note that the following paragraph to be updated by
Washington with USDOC statistics). In 2001, the U.S. trade
deficit with Honduras was $690 million, an increase of $183
million from the U.S. trade deficit of $506 million in 2000.
U.S. goods exports to Honduras were $2.4 billion, a decrease of
$147 million (5.7 percent) from the level of U.S. exports to
Honduras in 2000. Honduras was the United States' 40th largest
export market in 2001. U.S. imports from Honduras were $3.1
billion in 2001, an increase of $36 million (1.2 percent) from
the level of imports in 2000.


3. (We also understand that this paragraph will also be updated
with USDOC statistics). The stock of U.S. foreign direct
investment (FDI) in Honduras in 2000 amounted to $115 million, a
decrease of 8.7 percent from the level of U.S. FDI in 1999. U.S.
FDI is concentrated largely in the manufacturing sector.

IMPORT POLICIES

Tariffs


4. In 1995, Honduras and other members of the Central American
Common Market (CACM) agreed to reduce and harmonize the common
external tariff (CET) at zero to 15 percent, but allowed each
member to determine the timing of the reductions. Honduras has
reduced its tariffs to one percent on capital goods, medicines,
agricultural inputs, and raw materials for those imports produced
outside of the CACM. Tariffs on non-CACM final goods were
reduced to 16 percent on December 31, 2000. Honduras intends to
reduce its non-CACM external tariffs for other goods
(intermediate and finished) over the next several years to
between 10 percent and 15 percent. Per the tax reform law of
June 2002, import tariffs on cars were reduced from 40 percent to
15 percent ad valorem. Vehicles older than seven years are no
longer allowed entry to Honduras.

Non-tariff Measures


5. Honduras was obligated to implement the WTO Customs Valuation
Agreement on January 1, 2000. WTO records show that Honduras has
not yet notified its legislation nor the Customs Valuation
Checklist to the WTO Committee on Customs Valuation. In November
1999, the WTO Committee on Customs Valuation granted Honduras'
request to use minimum values for certain used clothing products
until January 1, 2002, and for certain tires, appliances, and
used vehicles until January 2, 2003.


6. Honduras implements a price band mechanism for imports of
yellow corn, sorghum, and corn meal. This price band is
calculated from a time series of international prices on a given
product for the prior 60 months. The 15 highest and lowest
monthly prices are eliminated, with the remaining highs and lows
establishing the price band. Imports entering with values within
the defined band are assessed a 20 percent tariff. Imports
entering with prices above the band are assessed duties at a rate
lower than 20 percent, according to a predetermined schedule;
those imports priced below the band are assessed a tariff higher
than 20 percent. However, the government also maintains a
seasonal restriction on the price band. From September to
January the minimum allowable duty is 20 percent for corn and 15
percent for cornmeal and sorghum. From February to August,
duties are allowed to fluctuate according to the predetermined
duty tables for each commodity. This seasonal restriction has
been added to provide additional protection to local grain
farmers during the main harvest season. In addition to the
above, the Government of Honduras, farm groups, and importers
have agreed to a quasi-tariff-rate quota in which the price band
remains in effect until local grain supplies are exhausted, after
which a one percent duty is applied to imports. The United
States has strongly opposed the Honduran policies on corn and
sorghum as limiting access for U.S. agricultural products.

STANDARDS, TESTING, LABELING AND CERTIFICATION


7. 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. The Embassy has received a series of
complaints in 2002 from local importers regarding import
restrictions, difficult certification requirements and other
obstacles to the importation of U.S. pork, poultry and dairy
products. Honduran food safety officials have restricted the
imports of U.S. chicken and pork products citing sanitary
concerns. Local importers charge that Honduran officials are
using sanitary and phyto-sanitary measures to block U.S. imports
to protect local producers and in some cases to promote diversion
of trade to other Central American countries. Changes in
sanitary and phyto-sanitary requirements are seldom reported to
the WTO as required, and create uncertainty among U.S. suppliers
and Honduran importers. The Honduran government requires that
sanitary permits be obtained for all imported foodstuffs.

GOVERNMENT PROCUREMENT


8. Under the new State Contracting Law, which entered into force
in October 2001, all public works contracts over $63,000 must be
offered through public competitive bidding. Public contracts
between $31,000 and $63,000 can be offered through a private bid
and contracts less than $31,000 are exempt from the bidding
process. To participate in public tenders, foreign firms are
required to act through a local agent. Local agency firms must
be at least 51 percent Honduran-owned, unless the procurement is
linked to a national emergency. While foreign firms are granted
national treatment for public bids, some still complain of
mismanagement and lack of transparency in the bid processes.
Government purchases and project acquisitions are generally
exempted from import duties.


9. Honduras is not a signatory of the WTO Government Procurement
Agreement. In the past, the United States has raised concerns
regarding Honduras' lack of cooperation in the WTO Working Party
on Transparency in Government Procurement. In recognition of
increased cooperation in the WTO Working Party on Transparency in
Government Procurement, the United States reinstated a waiver of
"Buy America Act" provisions in 2002 which had previously been
suspended for Honduras.

INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION


10. Honduras largely has complied with the WTO Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPS),
through legal revisions enacted in December 1999. The Honduran
Congress still must, for instance, adopt reforms related to
integrated circuit designs and plant variety protection to be in
full compliance with TRIPS.


11. Honduras and the U.S. initialed a Bilateral Intellectual
Property Rights (IPR) Agreement in March 1999. Final signature
of this agreement is still pending. Honduras became a member of
the World Intellectual Property Organization (WIPO) in 1983.

Copyrights


12. Honduras' copyright law, updated in 1999, added more than 20
different criminal offenses related to copyright infringement and
established fines and suspension of services that can be levied
against offenders. The piracy of books, sound and video
recordings, compact discs, and computer software is still
widespread in Honduras, however, due in part to limited
enforcement capacity. U.S. companies are concerned that recent
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 Attorney General's office.

Patents and Trademarks


13. Honduras ratified the Paris Convention for the Protection of
Industrial Property in 1994. The Honduran Congress enacted a
1999 Law of Industrial Property to provide improved protection
for both trademarks and patents. To be protected under Honduran
law, patents and trademarks must be registered with the Ministry
of Industry and Trade.


14. Recent modifications to the Patent Law of 1993 include
patent protection for pharmaceuticals, and extend the term of
protection for a patent from seventeen to twenty years from the
date of filing to meet WTO standards. The term for cancellation
of a trademark for lack of use has been extended from one year to
three years. Trademarks are valid for up to 10 years from the
registration date. The illegitimate registration of well-known
trademarks has, however, been a persistent problem in Honduras.


15. A U.S. pharmaceutical company has complained that the
Ministry of Health, in approving a competing company's
pharmaceutical product, did not respect their 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 competing pharmaceutical product,
despite communication from Honduras' IPR Division that the U.S.
company's research and data were protected under Honduran law.
The U.S. company 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.

SERVICES BARRIERS


16. Special government authorization must be obtained to invest
in the tourism, hotel and banking services sectors. Foreigners
may not hold a seat in Honduras' two stock exchanges or provide
direct brokerage services in these exchanges. Honduran
professional bodies heavily regulate the licensing of foreigners
to practice law, medicine, engineering, accounting, and other
professions.

INVESTMENT BARRIERS


17. The Constitution of Honduras requires that all foreign
investment complement, but not substitute for, national
investment. Companies that wish to take advantage of the
Agrarian Reform Law; engage in commercial fishing, forestry, or
local transportation activities; serve as representatives,
agents, or distributors for foreign companies; or operate radio
and television stations must be majority-owned by Hondurans.
Government authorization is required for both foreign and
domestic investors in basic health services; telecommunications;
generation, transmission, and distribution of electricity; air
transport; and mining.


18. In addition, special government authorization is required
for foreign investment in the following sectors: forestry,
telecommunications, basic health, air transport, fishing and
aquaculture, mining, insurance and financial services, private
education, and those agricultural and agro-industrial activities
exceeding land tenancy limits established by law.


19. Small-scale commercial and industrial activities with an
investment less than 150,000 lempiras (about $9,000),excluding
land, buildings, and vehicles, are reserved exclusively for
Honduran nationals. For all investments, at least 90 percent of
a company's labor force must be Honduran, and at least 80 percent
of the payroll must be paid to Hondurans.


20. Foreign ownership of land within 40 km of the coastlines and
national boundaries is constitutionally prohibited, though
tourism investment laws allow for certain exceptions. Inadequate
land title procedures have led to numerous investment disputes
involving U.S.-citizen landowners.


21. Historically, U.S. firms and private citizens have found
corruption to be a problem and a constraint on foreign direct
investment. Corruption appears to be most pervasive in the
following areas: government procurement, performance
requirements, the regulatory system, and the buying and selling
of real estate, particularly land title transfers. Honduras'
judicial system is easily influenced; investment and business
disputes involving foreigners have rarely been resolved in a
transparent manner. In 2002, however, the Honduran Supreme
Court, the appeals court and the executive branch have looked
into some of these specific problems and been helpful in pushing
delayed cases toward resolution. The Honduran government also
has plans to submit a small number of land expropriation cases to
arbitration.


22. On July 12, 2001, a Bilateral Investment Treaty (BIT)
between the U.S. and Honduras entered into force. The treaty
provides for equal protection under the law for U.S. investors in
Honduras and permits expropriation only in accordance with
international legal standards and accompanied by adequate
compensation. U.S. investors in Honduras also have the right to
submit an investment dispute to binding international
arbitration. Honduras has taken the following limited exceptions
to its BIT national treatment obligation: properties on cays,
reefs, rocks, shoals or sandbanks or on islands or on any
property located within 40 km of the coastline or land borders of
Honduras; small scale industry and commerce with total invested
capital of no more than $40,000 or its equivalent in national
currency; ownership, operation and editorial control of broadcast
radio and television; ownership, operation and editorial control
of general interest periodicals and newspapers published in
Honduras.

Palmer