Identifier
Created
Classification
Origin
04TEGUCIGALPA778
2004-04-02 20:51:00
UNCLASSIFIED
Embassy Tegucigalpa
Cable title:  

HONDURAN TRADE PRIORITIES: DOHA NEGOTIATIONS AND

Tags:  ETRD ECON EAGR PGOV HO WTO 
pdf how-to read a cable
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 TEGUCIGALPA 000778 

SIPDIS

STATE FOR WHA/CEN, WHA/EPSC, AND EB
STATE PASS USTR FOR JWOLFE

E.O. 12958: N/A
TAGS: ETRD ECON EAGR PGOV HO WTO
SUBJECT: HONDURAN TRADE PRIORITIES: DOHA NEGOTIATIONS AND
CENTRAL AMERICAN CUSTOMS UNION

REF: A) Tegucigalpa 715

B) Tegucigalpa 704
C) State 6662
D) Guatemala 305

UNCLAS SECTION 01 OF 02 TEGUCIGALPA 000778

SIPDIS

STATE FOR WHA/CEN, WHA/EPSC, AND EB
STATE PASS USTR FOR JWOLFE

E.O. 12958: N/A
TAGS: ETRD ECON EAGR PGOV HO WTO
SUBJECT: HONDURAN TRADE PRIORITIES: DOHA NEGOTIATIONS AND
CENTRAL AMERICAN CUSTOMS UNION

REF: A) Tegucigalpa 715

B) Tegucigalpa 704
C) State 6662
D) Guatemala 305


1. SUMMARY: The GOH's two top trade priorities for 2004 are
progress in the WTO negotiations of the Doha Development
Agenda (DDA) and the creation of a Central American customs
union. In the WTO negotiations, Honduras' main concerns
focus on agricultural market access, rather than
agricultural subsidies or the Singapore issues. In Central
America, Honduras supports the completion of the regional
customs union, but believes it will take several months to
work out certain technical issues. END SUMMARY.

-------------- ---
Top Priorities for 2004: WTO and Central America
-------------- ---


2. On March 17, EconOffs met with Melvin Redondo, Director
of Trade Policy and Honduras' chief negotiator for trade
agreements. In addition to discussion of Honduras' view of
the ongoing FTAA negotiations (reftel A) and the upcoming
UNCTAD XI session (reftel B),Redondo outlined Honduras'
priorities in regional and global trade negotiations for the
coming year. He stated that, as Honduras' top trade
priority in 2003 had been CAFTA, its focus in 2004 would be
the WTO negotiations and the Central American customs union.

-------------- --------------
WTO Negotiations: Agricultural Market Access is Key
-------------- --------------


3. Redondo acknowledged that the GOH has not yet formally
responded to Ambassador Zoellick's January letter (reftel C)
regarding next steps in the Doha Development Agenda. He
said that his office is still working on putting its views
on the negotiations into a comprehensive response that can
be discussed in detail. However, he was supportive of the
letter and appreciative of Ambassador Zoellick's efforts to
advance the Doha negotiations in 2004.


4. The GOH's primary concern with the DDA is with market
access for agricultural goods, and the formulation of a list
of products that will receive special treatment. Redondo
pointed out that Honduras is unusual for a developing

country, in having a maximum WTO tariff binding of only 50
percent, and a tariff binding of only 35 percent on most
products. Redondo compared this to other countries with
tariff peaks of 600 percent (he mentioned Kenya and India),
and said that the Swiss Formula, designed with countries
with higher tariffs in mind, would not be appropriate for
Honduras. Applying the Swiss Formula to Honduras, according
to Redondo, would lead to a schedule of tariff reductions
that the Honduran private sector would find unacceptable,
and that would seem unfair, given the already low level of
Honduras' tariff bindings.


5. As in the CAFTA negotiations, Honduras hopes to be able
to set aside a group of sensitive agricultural products for
which tariff reductions will be negotiated differently.
Redondo expects that a paper outlining the GOH position in
greater detail will be ready for discussion by April. The
GOH believes that, with only Sri Lanka in a similar
situation, an accommodation for developing countries with
low initial bindings should be possible.


6. Redondo stressed that agricultural subsidies or domestic
supports are not a primary concern of his government, nor
are the Singapore issues; the agricultural market access
issue described above is far more important. Redondo said
that Honduras is also working to build an offer on services
that will lock in recent domestic liberalization of the
telecom industry.

-------------- --------------
Central American Customs Union: Honduras Supportive
-------------- --------------


7. The GOH's second major trade priority for 2004 is the
establishment of a Central American customs union. As
discussed in reftel D, this project has received high-level
political attention from the new administration in
Guatemala, which in January announced its intention to open
its borders with El Salvador by late April, with Honduras
and Nicaragua to follow later in the year.


8. Redondo emphasized that Honduras supports the goal of a
regional customs union and is actively engaged in this
project. Redondo stated that Honduras has acquired the
image of the regional "bad boy" simply for being the one to
point out some of the practical difficulties involved in the
creation of a full customs union. He stressed that the
issue is not the presence or absence of border controls, but
the technical details involved in the management of the
customs union - specifically, administration of certain tax
issues - which imply a concern over trade distortions and
diversions.


9. Redondo discussed at length some of the difficulties in
managing the differing tax systems of the countries
involved: for example, applying Honduran sales tax to goods
which originate in El Salvador, or vice versa. (Note: while
commonly called a sales tax, Honduras' tax is in fact a
hybrid of a sales tax and a value-added tax (VAT). Tax is
therefore levied not only at the point of sale, but also
throughout the production and distribution process. End
note.) Furthermore, Redondo stressed that, unlike Guatemala
and El Salvador, Honduras exempts a sizable number of
products -- mainly foodstuffs -- from the sales tax. True
tax harmonization across the region would imply either
persuading other countries to exempt the same basic basket
of goods from sales tax, or applying the sales tax to those
goods in Honduras. Neither is considered remotely feasible.


10. Setting aside the issue of tax harmonization, however,
Redondo raised other examples of trading patterns which,
under a customs union, would present "difficulties". For
example, if El Salvador has a trade agreement with Chile but
other members of the customs union do not, would Chilean
goods for the entire region simply enter the region via El
Salvador and then be shipped throughout the region tariff-
and tax-free? Redondo also expressed concern over
differences in sanitary and phyto-sanitary regulations among
the various countries that would belong to the customs
union, saying that Guatemala has declared itself to be free
of certain poultry diseases, but implying that Honduran
authorities have less than complete confidence in such
declarations.


11. Redondo believes that, for Honduras, the technical
questions can all be worked out so that Honduras could join
by the end of the year. He outlined a two-stage process.
In stage one, Honduras would open up to all goods which
satisfy a Central American rule of origin, and to all goods
for which the tariff for countries from the rest of the
world is zero. In the second stage, Honduras would open up
to goods originating from outside Central America, and those
for which the different Central American countries have
different tariffs.


12. In a separate meeting the following week, EconOffs also
discussed the customs union with Marlene Urtecho, who is
Assistant Director of Customs at the Honduran tax collection
agency, the DEI (Direccion Ejecutiva de Ingresos). Urtecho
downplayed the difficulty of managing different internal
taxes, saying that each country could simply impose its own
taxes on products passing through its own territory.
Instead, she focused on the revenue losses to Honduras that
would likely accrue because importers of the five products
for which Honduras has higher taxes than its neighbors
(petroleum products, wheat, sugar, alcoholic beverages and
ethyl alcohol) would transship these imports through
neighboring countries to avoid the tax. Honduras is not in
a position to lower these taxes (particularly the fuel
taxes),given the importance of meeting IMF fiscal targets.
Like Redondo, however, Urtecho believes that these
outstanding tax issues can be handled and expects that
Honduras will belong to the customs union before the end of
the year.

Palmer