CARIBBEAN BASIN ECONOMIC RECOVERY ACT REPORT TO CONGRESS: HONDURAS

UNCLAS SECTION 01 OF 04 TEGUCIGALPA 001914



SIPDIS



PASS TO USTR FOR ADURKIN AND MMILLAN

STATE PASS USTR FOR CENTAM/CARIB DIRECTOR

STATE FOR EB/TPP/MTA/IPC, WHA/CEN, AND WHA/EPSC

DOL FOR ILAB



E.O.12958: N/A

TAGS: ETRD, ELAB, PGOV, HO, XK, XL, USTR

SUBJECT: CARIBBEAN BASIN ECONOMIC RECOVERY ACT REPORT TO

CONGRESS: HONDURAS



REF: SECSTATE 215050



1. Post submits the following report in response to reftel

request for the biannual report to Congress on the operation

of the Caribbean Basin Economic Recovery Act (CBERA),as

required by section 213(b) of the CBERA.



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Commitment to WTO and FTAA

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2. The GOH is complying with its commitments under the WTO

and is supporting the advancement of a Free Trade of the

Americas Agreement. Honduras has completed nearly all of

its tariff obligations under the Uruguay Round Agreements.

Honduran officials have voiced some concern regarding

certain proposals addressed in the Doha Negotiations,

especially related to market access issues for agricultural

and non-agricultural goods. These concerns could place

Honduras at odds with key U.S. objectives in the World Trade

Organization.



3. Despite these concerns, Honduras remains an active

participant in establishing free trade in the Western

Hemisphere. Honduras, working in coordination with other

Central American countries, has been negotiating with U.S.

officials to establish the U.S.-Central America Free Trade

Agreement (CAFTA) and has indicated that it would accept the

inclusion of the Dominican Republic into the agreement as

well.



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Protection of Intellectual Property

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4. Honduras remains largely in compliance with the Trade

Related Aspects of Intellectual Property Rights (TRIPs);

however, the government of Honduras has made limited efforts

to strengthen existing intellectual property rights in the

last year. Constitutional amendments, passed in 1999,

updated the copyright law and addressed patent and copyright

compliance issues. Honduras lacks two measures, the

protection of integrated circuit designs and plant variety

safeguards, before it can be brought into full compliance

with TRIPS agreement. These two measures remain stuck

before a committee in the National Congress.



5. In 2002, a major U.S. pharmaceutical company questioned

the GOH's commitment to TRIPs mandated data protection.

Honduran law and the TRIPs agreement guarantee data

exclusivity rights for an established time frame. The U.S.

company complained that the Ministry of Health was

considering approval of another company to distribute a

generic drug copy for which the U.S. company held the data

exclusivity rights. After several months of delay, the

Ministry of Health has recognized that the drug is a copy of

the U.S. company's protected product, and therefore will not

approve the other company's application.



6. The Government of Honduras advanced its compliance with

World Intellectual Property Organization standards when it

became a party to two "internet treaties" last year. The

National Congress ratified the WIPO Copyright Treaty (WCT)

and the WIPO Performances and Phonogram Treaty (WPPT) in

2002.



7. Since placement on the `Watch List' category of the U.S.

Government's annual Special 301 Review in 1998 for failure

to control broadcast television piracy, the GOH has taken an

active role to monitor television stations against further

violations. The negotiations of the U.S.-Central America

Free Trade Agreement have provided a valuable forum to

highlight and correct shortcomings in Honduran IPR

legislation and implementation.



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Protection of Internationally Recognized Worker Rights

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8. Union officials remain critical of what they perceive as

inadequate enforcement by the Ministry of Labor (MOL) of

workers' rights, particularly the right to form a union and

bargain collectively, and the reinstatement of workers

unjustly fired for union organizing activities. In November

1995, the MOL signed a Memorandum of Understanding with the

U.S. Trade Representative's Office to implement 11

recommendations for enforcement of the Honduran Labor Code

and the resolution of disputes. The MOL has implemented

some of these recommendations, particularly as they relate

to inspection and monitoring of assembly-for-export

factories (maquilas). However, it has been slow to

implement others due to resource constraints. Also, the

Honduran Maquiladora Association initiated a code of conduct

in July 1998 for the Maquiladora Association and its

constituent companies. Through cooperation within the

bipartite and tripartite commissions (unions, MOL, private

sector) and other venues, MOL inspectors' access to maquila

plants to enforce the labor code has improved, and MOL has

continued to work to increase its effectiveness in enforcing

worker rights and child labor laws.



9. The labor law prescribes a maximum 8-hour workday and 44-

hour week. There is a requirement for at least one 24-hour

rest period every week. The Labor Code provides for a paid

vacation of 10 workdays after one year, and of 20 workdays

after four years. The Constitution and Labor Code prohibit

the employment of persons under the age of 16, except that a

15-year old may be permitted to work with the written

permission of parents and the MOL. All persons under 18

years of age are prohibited from night work, dangerous work

and full time work.



10. The Children's Code (September 10, 1996) prohibits a

person of 14 years of age or less from working, even with

parental permission, and establishes prison sentences of 3

to 5 years for individuals who allow children to work

illegally. An employer who legally hires a 15-year-old must

certify that the young person has finished or is finishing

compulsory schooling. The MOL grants a number of work

permits to 15-year-olds each year. Document fraud is

prevalent among minors interested in working.



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Commitment to Eliminate the Worst Forms of Child Labor

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11. With regard to the elimination of the worst forms of

child labor, the National Congress ratified the ILO

Convention 182, and Honduras became a party to the

Convention in June 2001. In the textile manufacturing

sector, the elimination of child labor has seen great

strides. International pressure on the export sector

through agreements such as the Caribbean Basin Trade

Partnership Act and negotiations such as the U.S.-Central

American Free Trade Agreement have helped employers and

employees recognize the importance of these laws. The

government has created a special commission to establish a

more complete program towards eliminating child labor and

signed a Memorandum of Understanding with the ILO's

International Program for the Eradication of Child Labor

(IPEC). Despite a commitment of political support, child

labor still exists in Honduras, with an estimated 400,000

children working illegally. Identified instances of child

labor in Honduras include prostitution, fireworks industry

workers, child divers on lobster boats, garbage dump

pickers, and agricultural workers, including melon, sugar,

and coffee.



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Counter-Narcotics Cooperation

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12. Honduras remains a trans-shipment point for narcotics

trafficking through air, land, and maritime routes from

South America to the United States. Indications of

corruption in law enforcement, judicial, and military

entities plagues counter-narcotics efforts. Despite

technical support from the U.S. government, the arrest,

prosecution, and incarceration of major narco-trafficking

offenders remains problematic. A new money laundering law

passed in March 2002 provided further assistance to U.S. and

Honduran law enforcement and counterterrorism efforts.

Finally, in the first seven months of 2003, Honduran counter-

narcotics authorities seized more cocaine than they had

seized in the previous four years combined. However, the

recent counter-narcotics seizures can be credited in large

part to strong pressure for increased results from Embassy

officials.



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Transparency in Government Procurement

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13. The government of Honduras established a new contracting

law in 2001. Under the law, foreign firms are entitled to

national treatment for public bids, concessions, and

government-contracted consulting services. As a part of the

new code, government procurement proceedings are to be made

public through a regularly published report. In practice,

U.S. companies have complained of instances of mismanaged

and opaque bidding processes. One U.S. company underwent an

extended bidding process, filled with questionable

practices, in its attempts to win a government contract

within the publicly owned utilities sector.



14. Despite these shortcomings, the Government of Honduras

has initiated a system in which the United Nations

Development Program oversees the bidding process for

government procurement in a limited number of contracts.

This attempt to make the process more transparent in some

areas coincides with the preparations to initiate

privatization of several government-owned entities.

Honduras hopes such measures will make investment in these

privatization efforts more attractive and competitive.



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Expropriation

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15. Over 160 property and investment disputes involving U.S.

citizens have been registered with the U.S. Embassy in

Honduras. The majority of the cases relate to land disputes

and fall under the jurisdiction of the National Agrarian

Institute (INA). Other sources of expropriation include

investment disputes involving U.S. investors, resulting

primarily from inadequate titling procedures, and investment

disputes between U.S. citizens and Honduran citizens. On

July 12, 2001, a Bilateral Investment Treaty (BIT) between

the U.S. and Honduras entered into force. The bill provides

for equal protection under local law for U.S. investors and

allows expropriation only in cases that agree with

international legal standards. In October 2002, the

National Congress approved a one-time expanded arbitration

law allowing for pending cases to file for arbitration. Of

the 11 cases pending, only two U.S. citizens filed petitions

for arbitration requests to INA by the July 21, 2003

deadline.



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Extradition of U.S. Citizens

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16. Honduras does not have a treaty or any other agreement

allowing for a treaty or any other agreement allowing for

the extradition of U.S. citizens.



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General Economic Conditions

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17. Honduras is one of the poorest and least developed

countries in Latin America. The economy suffered a major

setback after the destruction caused by Hurricane Mitch in

1998. The economy did not return to pre-Mitch levels until

the end of 2000, and certain agricultural sectors, including

the banana crop, have yet to attain pre-Mitch levels. Low

world coffee prices have dramatically reduced revenues from

this other key agricultural export commodity. The slowdown

in the growth of the global economy, especially in the

United States, has also had a depressing effect on the

exports and economic growth in Honduras. Honduras' economic

growth slowed to only two 2.5 percent in 2002, falling from

a 2.7 6 percent growth in 2001 and a 4.75.2 percent growth

rate in 2000. At this time, it is expected to grow at a

rate of 3.2 percent in 2003.



18. Honduras has a growing textiles and apparel sector

despite the negative effects of the U.S. economy's sluggish

performance in 2001 - 2003. Currently ranked as the third

largest textile exporter to the United States, the maquila

sector (garment assembly) has been largely assisted by the

implementation of the Caribbean Basin Initiative. The

benefits provided through the Caribbean Basin Partnership

Trade Agreement (CBTPA) have been crucial to the development

of this industry, and industry officials have high hopes for

future growth to be generated by new provisions in the

proposed CAFTA. Although the elimination of world textile

import quotas in December 2004 will put new demands on the

competitiveness of this sector. In 2002, the maquila

industry employed over 100,000 employees with exports from

the industry totaling USD 2.439 billion.



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Revitalization of the region

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19. Honduras and Nicaragua underwent a period of tense

relations in 2000 and 2001 as a result of a maritime border

dispute. Nicaragua levied a retaliatory 35 percent tariff

on Honduran goods as a result of the disagreement. The

tariff was ruled illegal by the Central American Court of

Justice in 2001, but was not lifted until March 2003. Both

countries seem to have moved past this disagreement to form

a united Central American front in the CAFTA negotiations.

The willingness of the Honduran government to move forward

from this controversy indicates a commitment to regional

integration and market liberalization.





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Self-help measures to promote economic development

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20. One area of concern that has been an impediment to

greater U.S. investment, and thus Honduran economic

development, is the lack of transparency and efficiency in

the Honduran judicial system. Post has received complaints

from U.S. citizens and companies regarding frustrations with

the sluggish pace of the court system, as well as court

cases never brought to fair trial. These inefficiencies in

the court system mark a fundamental flaw in the government

structure that merits attention and reform.



21. Economic Officer Thomas R. Hastings is Post's designated

reporting officer. Mr. Hastings's telephone number is (504)

236-9320, extension 4060; fax (504) 236-6836; and email

hastingstr(at)state.gov.



PIERCE