MADURO ANNOUNCES RETALIATORY TARIFFS AGAINST

UNCLAS TEGUCIGALPA 000606

SIPDIS

SENSITIVE

STATE FOR WHA/CEN, WHA/EPSC
STATE PASS AID FOR LAC/CEN
PASS TO USTR FOR ANDREA GASH DURKIN

E.O. 12958: N/A

TAGS: PBTS ETRD PGOV HO
SUBJECT: MADURO ANNOUNCES RETALIATORY TARIFFS AGAINST
NICARAGUA



1. (SBU) Summary. On March 3, President Maduro announced a
number of retaliatory countermeasures against Nicaragua
including a 35 percent tariff on goods and increased fees
for the use of Puerto Cortez and national highways. The
retaliatory action by the GOH is the latest chapter in the
long-running dispute between Honduras and Nicaragua over
their maritime boundary. The GOH hopes that this action
will force the GON to repeal the 35 percent tariff they
imposed in 1999 in response to the ratification of a
maritime treaty between Colombia and Honduras recognizing
the 15th parallel as the maritime boundary. The
announcement of the countermeasures has allowed Maduro to
look proactive, boost his popularity ratings and has
provided the GOH the leverage against Nicaragua. End
Summary.


2. (U) On March 3, President Ricardo Maduro announced that
he was sending to the Congress a decree to apply retaliatory
countermeasures against Nicaragua in response to the GON's
failure to repeal the 35 percent tariff that was imposed in

1999. The retaliatory countermeasures include a matching 35
percent tariff on all Nicaraguan goods and increased fees
for the use of Puerto Cortez and national highways. In the
announcement, Maduro stated that the Nicaraguan tariff had
severely damaged the Honduran economy and called on the GON
to abandon its anti-integrationist position. Further, he
noted that the measure Nicaraguan President Bolanos had
proposed to send to the Nicaraguan National Assembly to
temporarily repeal the tariff was unsatisfactory. If the
tariffs are imposed, Honduras believes they would deal a
serious blow to the Nicaraguan economy, especially the
coffee industry, since almost 100 percent of Nicaraguan
exports pass through Puerto Cortez.


3. (U) The GOH's announcement of the imposition of
retaliatory tariffs against Nicaragua is the latest chapter
in their long-running dispute over their maritime boundary.
The dispute began when Honduras ratified a maritime treaty
with Colombia in 1999, recognizing the 15th parallel as the
maritime boundary. That same year, Nicaragua retaliated by
filing an ICJ case and more importantly, imposing a 35
percent tariff on Honduran goods and services. The
Nicaraguan tariff has remained in place despite a Central
American Court of Justice ruling that it is illegal.


4. (U) With former Nicaraguan President Arnoldo Aleman
deposed as President of the National Assembly, the GOH had
expressed optimism in the last few months that Bolanos would
make good on private assurances to lift the tariff and
thereby take an important step toward regional economic
integration. The ongoing U.S.-Central America Free Trade
Agreement (U.S.-CAFTA) negotiations and the recent ICJ
ruling in favor of the GOH's petition against the tariff
were viewed as additional incentives.


5. (SBU) Comment: After three years of restraint, the GOH
finally reached the point where they felt the leverage
provided by Honduran countermeasures was the only way to
ensure repeal of the Nicaraguan sanctions. The Honduran
Congress was prepared to consider a retaliatory tariff bill
in January, but postponed the action after public assurances
from Bolanos. However, after intense pressure from the
Honduran business community in the last two weeks, Maduro
promised to take action after a ten-day waiting period. By
taking the initiative, Maduro was able to look proactive,
possibly boost his sagging popularity and deflect attention
from the recently introduced tax package. Further, the
announcement of the retaliatory measures solidified his
support in the business community.


6. (SBU) There still remains a possibility that the GON will
repeal the 35 percent tariff in the next week to avoid both
the countermeasures and regional squabbling during the U.S.-
CAFTA negotiations. We understand that there have been
discussions between the countries Congressional Vice
Presidents in an attempt to resolve the issue before
countermeasures are enacted. If the sanctions are adopted,
vested interests may develop, making repeal both politically
and economically difficult. The Honduran press is already
quoting figures on badly needed government revenue that will
accrue from the countermeasures. It remains to be seen
whether the Honduran proposal will only add fuel to an
already volatile situation or act as the final catalyst to
successfully repeal the Nicaraguan tariff.

Palmer