GOVERNMENT, PRIVATE SECTOR AND UNIONS BATTLE FOR

UNCLAS MANAGUA 000344

SIPDIS

SENSITIVE
SIPDIS

DEPARTMENT FOR WHA/CEN
DEPARTMENT OF LABOR FOR ILAB
DEPARTMENT PLEASE PASS TO USTR

E.O. 12958: N/A
TAGS: ECON ELAB EFIN PGOV PREL ETRD KTEX NU
SUBJECT: GOVERNMENT, PRIVATE SECTOR AND UNIONS BATTLE FOR
CONTROL OF CAFTA TRADE PREFERENCE LEVEL (TPL) QUOTAS



1. (SBU) SUMMARY: Nicaragua's government, private sector,
and unions all realize that the preferential Tariff
Preference Levels (TPLs) for textiles accorded to the country
in the Central American Free Trade Agreement (CAFTA) mean
money and power, and they are engaged in an ongoing struggle
to determine who will allocate the TPLs, and in what manner.
Fears of government bias and corruption in TPL distribution
are widespread, but so far no one has provided any proof of
official wrongdoing, nor concrete analysis that the private
sector could do a better job. However, given Nicaragua's
weak democratic institutions, the potential for corruption in
TPLs is significant. END SUMMARY.

FACTORY OWNERS AND UNIONS WORRIED ABOUT BIASED GON TPL
DISTRIBUTION
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2. (SBU) During a February 8 visit by laboff to the
Korean-owned free trade zone factory Guanica in Diriamba,
both company managers and union representatives expressed
concerns regarding the government's pending allocation of the
special textile TPLs given Nicaragua by CAFTA. These treaty
provisions will allow Nicaragua to ship 100 million SME
(Square Meter Equivalents) in textiles made from components
sourced from any non-U.S. or CAFTA country per year duty
free. Echoing comments that emboffs have heard from others
in the private sector, most notably the association of free
trade zone textile manufacturers (ANITEC),union leaders and
company managers at Guanica complained that the government is
preparing to distribute these TPLs in a non-transparent,
biased manner.


3. (SBU) Specifically, post interlocutors allege that the
GON,s free trade zone corporation, which is managing the
TPLs and insists it will do so fairly, plans to provide
excessive TPL quotas to companies with strong political
connections (especially Taiwanese-owned companies) at the
expense of others (including Korean-owned companies).
Factory managers at Guanica said they fear losing business as
a result, while union leaders are worried that large TPLs
will go to companies with poor labor rights records (many of
which are Taiwanese),while factories with better labor
situations will be disadvantaged because of a lack of
political connections.

TEXTILE MANUFACTURERS CLAIM PRIVATE SECTOR CAN BETTER
ALLOCATE TPLS, BUT FAIL TO PROVIDE ANY EVIDENCE
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4. (SBU) ANITEC has alleged that if the government, and not
the private sector, manages the TPLs, the process will be
thoroughly corrupt. During a December meeting, ANITEC
President Carlos Sandino told emboffs that his organization
could distribute TPLs in a more equitable and transparent
manner than the government, and he urged the Embassy to
support ANITEC,s position with the GON. ANITEC
representatives told emboffs repeatedly that the Mexican
experience with public management of TPLs had been rife with
corruption. When emboffs requested documentation of that
assertion, and available analysis demonstrating that private
sector administration would be superior, ANITEC officials
promised to document their claims, but none of the requested
analysis has ever arrived at the Embassy.


5. (SBU) ANITEC has also failed to deliver any research
demonstrating that the proposed TPL split between existing
and new investments (70 - 30) meets economic development
objectives based on market and employment projections.
According to ANITEC and GON sources, the TPL split represents
a compromise acceptable to both the public and private
sectors. Finally, on February 6, in response to repeated
Embassy requests for documentation of ANITEC's various
assertions, econoff received a vague e-mail communication
from the association claiming that an "accommodation" of the
various private and public sector interests associated with
the administration of the TPLs had been reached.


6. (SBU) Throughout the local debate, emboffs have emphasized
that the TPLs were included in the CAFTA-DR agreement for
Nicaragua as a special economic development tool to spur
investment and associated job creation, mindful of the fact
that Nicaragua's textile sector is appreciably smaller than
those in neighboring countries. Emboffs have also indicated
that the USG believes that the TPL percentage split between
new and existing investments should be equitable and support
economic development objectives by allowing for the
introduction of diverse lines, making the sector more
sustainable. Administration of the TPLs should also be as
transparent and efficient as possible.

COMMENT
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7. (SBU) Government, business, and unions all realize that
Nicaragua,s special CAFTA TPLs mean money and power, and all
want as much say as possible in their distribution. Given
the country's weak democratic institutions, the potential for
TPL-fueled corruption and influence peddling is significant,
regardless of who ultimately makes the decisions on TPL
allocation.
TRIVELLI