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IdentifierCreatedClassificationOrigin
05TEGUCIGALPA544 2005-03-10 14:36:00 CONFIDENTIAL Embassy Tegucigalpa
Cable title:  

HONDURAS: MINFIN HINTS AT PORT FEES COMPROMISE

Tags:   EWWT ETRD ECPS EINV PGOV KMCA HO 
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					  C O N F I D E N T I A L TEGUCIGALPA 000544 

SIPDIS

STATE FOR EB/TRA, WHA/EPSC, AND WHA/CEN
STATE FOR EB/TRA (DHAYWOOD)
TREASURY FOR DDOUGLASS
COMMERCE FOR AVANVUREN, MSIEGELMAN
STATE PASS AID FOR LAC/CAM

E.O. 12958: DECL: 03/09/2015
TAGS: EWWT ETRD ECPS EINV PGOV KMCA HO
SUBJECT: HONDURAS: MINFIN HINTS AT PORT FEES COMPROMISE

REF: A) TEGUCIGALPA 399 AND PREVIOUS

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



1. (C) On the margins of another meeting on March 4,
EconChief raised the port x-ray scanning fees question (ref
A) with Minister of Finance William Chong Wong, Vice Minister
of Finance for Revenues Donald Dubon, Director of the Tax
Service (the DEI) Jose Manuel Carcamo, and Director of
Customs Arquimedes Jimenez. Chong dismissed as gamesmanship
most of the ongoing outcry from the business sector over the
fees, but he hinted that a compromise was, nevertheless, the
most likely outcome.



2. (C) Chong said that, in his view, there are three driving
forces behind the increasingly vocal opposition to the
proposed fees for x-ray scanning at Puerto Cortes: first,
there are powerful persons importing goods without declaring
them. Clearly they do not want either to get caught or be
forced to pay taxes. Second, he said, Chiquita is concerned
that as a heavy user of Puerto Cortes, it will be placed at a
competitive disadvantage to Dole, which has the option of
using Puerto Castilla, where no such fee is imposed. Third,
he said, "this is a fight among the Arabs." Each of the six
firms that competed for the contract had local partners,
often firms owned by "turcos" (Hondurans of Arab, generally
Palestinian Christian, descent). Those firms that lost the
bid are impugning the process and seeking to derail the
project, Chong said, either to get a second chance at the
contract or simply out of wounded pride and/or family rivalry.



3. (C) Chong was unsympathetic to the argument that the new
fees would damage Puerto Cortes' competitiveness in the
region. Instead, he focused on the negligible impact of the
fee (currently USD 55) when compared to the value of the
average outbound container, which he placed at USD 60,000.
Moreover, he said, the argument is weakened even further when
one considers that the fee will likely not be USD 55 but
perhaps half that. The fee ultimately passed on to port
users will depend, in part, he said, on the increases in
revenues that accrue to the customs service. Those revenues
will be placed in a fund that will defray costs of the
system. If enough funds are raised, he said, the users might
not have to pay at all. (Comment: This assumes the GOH is
disciplined enough not to raid the fund during this election
year -- something we doubt. End Comment.)



4. (C) EconChief asked why not use those revenue increases
and fines on violators to pay for the service and thereby
avoid imposing what is essentially an export tax on Honduran
industry. Chong, showing his roots as a former tax collector
and auditor, complained that the maquila sector pays no taxes
on its profits. Left unsaid but clearly implied was his
resultant justification for passing on the fee to exporters:
since they cannot be taxed directly (they are exempted as
"offshore" assembly operations), this fee is a way for the
GOH to earn revenue from the booming maquila sector.
(Comment: Seen from that perspective, it seems unlikely the
GOH would ever choose to absorb these fees through fines and
revenues, even if the jump in customs collections allowed
them to do so. End Comment.)



5. (C) Comment: Chong was correct that smugglers, spurned
bidders, and Chiquita each have an interest in fighting the
proposed screening or its fees. He is also correct in noting
that, in absolute terms, the fee is small compared to
high-value containerized exports. That said, he misses the
point that the marginal costs could still be enough to cause
port users (particularly Salvadoran and Nicaraguan exporters
trans-shipping to the U.S. and Europe) to shift their
business to other regional ports. Moreover, his defense of a
de facto export tax as a revenue enhancing measure shows he
approaches this issue as a tax collector and not as a
Minister of Finance. The fees will generate some revenue but
at the risk of weakening the port, slowing job creation, and
undermining export-led economic development.

Palmer






Palmer