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.

--------------
Commitment to WTO and FTAA
--------------

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.

--------------
Protection of Intellectual Property
--------------

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.

-------------- --------------
Protection of Internationally Recognized Worker Rights
-------------- --------------

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.

-------------- --------------
Commitment to Eliminate the Worst Forms of Child Labor
-------------- --------------

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.

--------------
Counter-Narcotics Cooperation
--------------

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.

--------------
Transparency in Government Procurement
--------------
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.

--------------
Expropriation
--------------

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.

--------------
Extradition of U.S. Citizens
--------------

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.

--------------
General Economic Conditions
--------------

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.

--------------
Revitalization of the region
--------------

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.


-------------- --------------
Self-help measures to promote economic development
-------------- --------------

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