wikileaks ico  Home papers ico  Cables mirror and Afghan War Diary privacy policy  Privacy
05TEGUCIGALPA363 2005-02-14 20:57:00 CONFIDENTIAL Embassy Tegucigalpa
Cable title:  


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.
					  C O N F I D E N T I A L SECTION 01 OF 04 TEGUCIGALPA 000363 



E.O. 12958: DECL: 02/14/2015





Classified By: Economic Chief Patrick Dunn for reasons 1.4 (b) and (d)

1. (C) Summary: The GOH has recently approved a USD 55 per
container fee for x-ray scanning at Puerto Cortes (Ref A).
This fee, if passed on to port users, would nearly double
port costs, rendering the port uncompetitive and resulting in
trade and investment diversion away from Honduras (Ref B).
The private sector has united in opposing this new fee,
though there is deep pessimism that the GOH can be convinced
to discuss these fees and their potentially catastrophic
impacts in good faith. End Summary.

2. (C) Background: In December 2004, the GOH National
Congress approved legislation agreeing to pay a hefty
per-container fee of USD 18 for empty containers and USD 37
for loaded containers for x-ray scanning. The current law
obligates the Ministry of Finance to pay these fees to the
service provider but is silent on the question of whether
these costs will then be passed on in whole or in part to
importers and exporters. The decree containing the contract
terms and fees, already approved by the National Congress,
was transmitted in mid-January to President Maduro, who
signed it despite a written request from the national
umbrella group for private enterprise (COHEP) strongly urging
him to veto the bill. The Presidency has now sent it on to
the Ministry of Finance to be published in the Gazette (the
GOH Federal Register equivalent). Upon publication, the
contract takes effect.

Private Sector: "We will not obey."


3. (C) In a marathon 3 hour strategy session on February 10,
members of Honduras' economic elite met to discuss their
response to the impending port fees. Representatives of the
Honduran Private Enterprise Council (COHEP), the Honduran
Industrialists Association (ANDI), the Chamber of Commerce of
Cortes, and AmCham members Dole and Chiquita were joined at
the meeting by economic and political heavyweights Miguel
Facusse, Adolfo Facusse, and Congressman Oswaldo Ramos Soto.
Little dissent was heard around the table, as all present
agreed on their opposition to the new fees as non-transparent
and potentially economically devastating.

4. (C) Chairing the meeting and, characteristically, leading
the charge, Adolfo Facusse, President of ANDI, laid out the
private sector's objections to the proposed fees. First of
all, he said, the UNDP-managed bid solicitation was
non-transparent and the private sector's "right" to know what
was going on was violated. (Comment: This is a favorite
complaint of Facusse's (Refs C and D), but this debate has
long since been closed and is not at the heart of the present
problem. It is unsurprising that he took this opportunity to
rail once again against the UNDP-managed bid solicitation
process, but the others present wisely decided that basing
their port-fees complaint on this stale issue would be a
losing strategy. End Comment.) But at the heart of this
shared concern, he said, is that the high fees will price
Honduran ports and Honduran producers out of the market.
With these new fees, Facusse said, "it will cost more to ship
from Puerto Cortes to New Orleans than from Hong Kong to Los
Angeles -- and that conspires against free trade."

5. (C) Facusse then highlighted complaints about the scope,
goals, and process of the port scanning project. He noted:
The objective of scanning 100 percent of containers is too
costly, and goes well beyond what any other country does. If
the goal is to increase customs revenues, then the increased
collections and fines for evaders should be used to finance
the project. If the goal is security, the GOH itself should
be responsible for the fees, and the process should be run
through the Port Security Commission, not the tax authority
(the DEI) as is currently planned. More attention should
likewise be paid to regulating the scanning contractor, since
the government is in effect establishing a monopoly
enterprise. While the private sector supports increased
security and a crackdown on customs fraud, he continued,
implementing these measures only at Puerto Cortes will not
accomplish these goals, and will make the port less
competitive both nationally and regionally. Finally, he
said, there is no defined relation between the cost of the
project and the fees. His conclusion, he said, is that this
is a sweetheart contract for someone close to the GOH.
Summing up his position, Facusse defiantly declared that, "we
will not obey this law, even if that means we need to go
elsewhere" for port services.

6. (C) The COHEP representative concurred and, calling the
fees "extremely onerous," asked why exporters and legitimate
importers should have to pay. These high fees are, for fruit
producers, "the difference between staying in the market or
not." Moreover, he noted, estimates seemed to indicate that
the machinery would cost USD 4.0 million to install, and USD
1.5 million per year to operate, but at current volumes the
contract would gross USD 10.5 million per year. Why are the
fees so high, he asked. He closed by noting that the private
sector was promised an opportunity to present its views and
analyses to Congress before the contract was to be
considered, but never received that chance. Instead, the
contract was rushed through late at night near the end of the
legislative session, as though it were urgent.

The Big Lie: "The U.S. Made Us Do It"


7. (C) The urgency, Congressmen were told, was because the
security equipment was required by the U.S. Former tax
director Mario Duarte reportedly testified that if the GOH
failed to install this x-ray equipment, the U.S. "would
de-certify Puerto Cortes the next day." Congressman Ramos
echoed this version of events, saying that the entire
Congressional ratification debate had centered on security
and certification issues. The contract was passed, he said,
"without the Congress understanding the consequences."
(Note: Ramos then took the opportunity to bash the UNDP,
and, even less helpfully, to again raise the red-herring of
port scanning equipment posing a radiological hazard. End
note.) Several others present took this as their cue to
denounce the "fraud" behind the contract and to call for
voiding the contract on this basis.

8. (C) EconChief then carefully clarified port security
requirements and the USG role in port certification. Basic
port security standards, he pointed out, are set by the
International Maritime Organization (IMO). Certification of
the port is actually a self-certification by the host-country
government. The GOH self-certified in July 2004. The U.S.
Coast Guard periodically checks foreign ports to verify they
are in compliance with the IMO standards, but they are not
responsible for "certifying" the port. Finally, there is no
current IMO requirement for non-intrusive inspection (NII --
that is, x-ray or gamma-ray scanning). Therefore, any GOH
claim that the scanners are required under current
obligations or that the USG would "de-certify" Cortes without
them are entirely incorrect.

9. (C) However, EconChief went on to say, some in the GOH and
in the private sector have raised the possibility of applying
for entry into the Container Security Initiative (CSI). To
apply for this program, the port must indeed have NII
available on site. Honduras is not currently a participant
in CSI, and, as a small port, is unlikely to be added in the
near future, according to the Department of Homeland
Security. If the GOH intends to seek membership in CSI, it
would then be accurate to say the USG requires scanning
equipment. Upon hearing EconChief's explanation, one
participant noted that it confirmed his understanding that
there is no current requirement for this equipment, and any
claims to such are "fraud." Even if the machinery is
intended for a future CSI, he said, the costs and competitive
disadvantages will be incurred today. "It's like preparing
for your daughter's quinceanera (coming out party at age 15)
by buying her a wedding dress."

GOH Belatedly Offers to Talk Price


10. (C) Several present noted the sharp price differential
these fees would create vis-a-vis other regional ports (see
Ref B), and agreed with Facusse that if the fees are passed
on to port users they might stop using Puerto Cortes in favor
of one of the other ports. However, as former ports Director
Fernando Alvarez pointed out to EconChief on January 28,
there's not enough spare capacity at these other ports to
absorb Cortes' traffic. These physical realities dictate
that most private sector shippers cannot, in fact, simply
abandon Cortes. The only short-term solution, he said, will
be negotiated rates for x-ray scanning.

11. (C) Such negotiations have already been launched by the
GOH. EconChief spoke on January 31 with Arturo Alvarado,
former Minister of Finance and the man charged with chairing
the working group to explore how these rates will be
assessed. Alvarado said that the focus of the group will be
on determining if any current activities and their fees can
be eliminated once scanning begins. In this way he seeks to
identify, and minimize, the incremental cost of the new
service. Ideally, he said, there would be no net impact on
importers and exporters. Alvarado gently criticized the
business community for its outspoken condemnation of the new
fee even before talks had begun, though he admitted that as
long as the issue remains unresolved they will be
"concerned." However, he said, to discuss the matter
intelligently, the working group first needs cost data and
has set itself the task of collecting these data.
Unfortunately, said Alvarado, the private sector has yet to
even name its two representatives to the working group, much
less begin data collection. Though the draft contract gives
the consortium up to eight months to begin operations,
Alvarado understands the current plan calls for start-up in
May. There is little time to reach an agreement on the fees,
he noted, and much work yet to be done.

12. (C) When informed in sidebar of Alvarado's views, the
COHEP representative disputed Alvarado's claims, saying that
COHEP had named its participants to the commission and had
already gathered its own data on port costs. He rejected as
a waste of time repeating the data gathering exercise jointly
with the Commission. Even if they were to do so, he doubted
the various entities at the port would be likely -- with the
former Minister of Finance standing there -- to give a full
accounting of all the "hidden costs" of getting a container
through port. He also rejected Alvarado's assertion that
cuts in other costs would make up for a significant part of
the new fees. There is simply no way, he said, to reduce the
current USD 8 security fee enough to make up for the new USD
55 fee. (Note: In a separate conversation on February 8,
Port Authority Economist Mohaad Merzkani made similar remarks
when he observed that the GOH currently inspects only 30
percent of containers. Even if the GOH offered to pick up a
similar percentage of the cost of the new program, that would
leave 70 percent of the costs on the shoulders of port users
-- still more than enough to inflict serious damage on Puerto
Cortes' market share, and on importers' and exporters'
profitability. End note.)

13. (C) ANDI's representative to Alvarado's commission then
spoke, outlining the work of the commission to date. If this
is already the law, Facusse asked, "What can be done? The
Congress was fooled." The ANDI representative responded that
while the contract has been approved by Congress and signed
by the President, it will not enter into force until
publication. Unfortunately, the only person who can stop
publication now is the President himself, and he wants it to
go forward, so seeking a delay in publication is unlikely to
work. The appropriate question for the commission, he said,
is who pays and how the cost to the private sector can be
minimized. "While we sit here and debate, the government (of
Honduras) is finalizing this contract." Once that happens,
he said, the GOH is locked in because of high breach of
contract penalties.

14. (C) But that will not be the end of the battle. The
contract does not specify that the fees will be passed from
the GOH to port users. With little hope of stopping the
contract itself, he said, the private sector should focus its
efforts on minimizing the cost passed through to port users.
The COHEP representative agreed that stopping the contract
would be difficult, saying it would be pointless to raise
this with Minister of the Presidency Luis Cosenza or Minister
of Finance William Chong Wong, since they are "absolutely
convinced" of the correctness of the project and are not
listening to the private sector's concerns. COHEP has made
these arguments to Cosenza before, he said, but Cosenza is
"obstinate" in his desire to move the project forward.
(Note: Cosenza had displayed this same dismissive attitude
when EconChief raised these concerns with him on January 21.
End Note.)

So What Now?


15. (C) This apparent consensus to the contrary, the group
quickly determined that it should nevertheless try to block
publication of the contract, to prevent its entry into force.
Immediately following the meeting the group drafted an
urgent appeal for a meeting with President Maduro, to ask him
to delay publication of the contract until the fees can be
analyzed and a method for apportioning them worked out. To
reinforce the urgency of the matter, various members will
grant interviews to the press, and the group will seek to
publish an op-ed on the subject in the major newspapers. The
group is still investigating the possibility of a court
challenge, with some opining that it is worth pursuing.
Others felt that if the law hasn't been published it does not
officially exist, and therefore cannot be challenged in
court, but once it is published it is too late and the damage
is done. (The way to stop GOH publication of the new
contract, Facusse half-joked as the meeting broke up, would
be to have the workers at the printing plant suddenly go on
strike. Those labor leaders always loudly oppose CAFTA, he
said, "why don't they do something useful for a change?")

16. (C) In sidebar conversations following the meeting,
EconChief suggested that the group clearly separate the
question of the value of port scanning from the cost of such
a system. Arguing against improved security or reduced
customs fraud, he said, is unlikely to be a persuasive
approach. Better to focus on the economic impacts, the loss
of competitiveness, and the possible diversion of productive
investment if the fees are set too high. Finally, he
recommended the group participate meaningfully in Alvarado's
commission, and come prepared with well-researched
projections of economic and financial impacts to buttress
their case. Both the U.S. and Honduras have an interest in a
flourishing Honduran economy, and a competitively priced
Puerto Cortes is key to this goal. Post has raised this
concern with the GOH already, and will continue to do so, but
it is up to the Honduran private sector itself to forcefully
drive home the point that Cortes must remain competitive if
Honduras is to survive and prosper.