U.S. Q NICARAGUA TRADE GROWING UNDER CAFTA-DR

UNCLAS MANAGUA 001741

SIPDIS

SENSITIVE
SIPDIS

USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN
3134/ITA/USFCS/OIO/WH/MKESHISHIAN/BARTHUR

E.O. 12958: N/A
TAGS: ETRD ECON PREL NU
SUBJECT: U.S. Q NICARAGUA TRADE GROWING UNDER CAFTA-DR

REF: MANAGUA 522

Summary
--------------


1. (SBU) Nicaraguan exports to the United States increased
by 17.4 percent, up from $733 million to $910 million,
during the first 12 months of CAFTA-DR. Excluding maquila,
data show Nicaragua exports were up 8.2 percent, from $541
million to $585 million. In addition to maquila, other
sectors showing strong growth were sugar, coffee, cigars,
cheese, and fresh fruits and vegetables. President Ortega
has muted his public criticism of the agreement, and he
even acknowledged that CAFTA-DR brings some benefit to the
country. Attracting new investors to take advantage of the
agreement, however, has become more difficult according to
representatives of ProNicaragua. End summary.

U.S. Q Nicaragua Trade up 15.8 Percent
--------------


2. (U) During the first 12 months of CAFTA-DR (04/01/06 -
03/31/07),total trade between the United States and
Nicaragua increased 15.8 percent, from $1.91 billion to
$2.21 billion, compared to the previous 12 month period
(04/01/05 - 03/31/06),according to USITC trade data.
Nicaraguan exports to the United States increased by 17.4
percent, up from $733 million to $910 million. Excluding
maquila, data show exports were up 8.2 percent, from $541
million to $585 million, contrary to a recent public claim
made by a Ministry of Trade, Industry, and Development
(MIFIC) official that nonmaquila trade fell 0.1 percent.
Meanwhile, U.S. exports to Nicaragua increased by 12.7
percent, from $634 million to $715 million. The following
table summarizes these trade flows:

U.S. Q Nicaragua Trade
U.S. Dollars

04/01/2005Q 04/01/2006- Percentage
03/31/2006 03/31/2007 Change
-------------- -------------- --------------
U.S. Exports to Nicaragua
Maquila 58,226,534 55,830,635 -4.1%
Other 575,888,799 658,671,546 14.4%
Total 634,115,333 714,502,181 12.7%

U.S. Imports from Nicaragua
Maquila 732,815,134 910,292,040 24.2%
Other 541,206,958 585,341,487 8.2%
Total 1,274,022,092 1,495,633,527 17.4%

U.S. Trade Balance with Nicaragua
Maquila -674,588,600 -854,461,405 26.7%
Other 34,681,841 73,330,059 111.4%
Total -639,906,759 -781,131,346 22.1%

Source: USITC DataWeb, 07/12/2007

Maquila and Traditional Exports Show Strong Growth
-------------- --------------


3. (U) Maquila (apparel) exports from Nicaragua to the
United States showed strong growth during the first 12
months of CAFTA-DR, increasing 24.2 percent, from $733
million to $910 million. These exports accounted for about
61 percent of total Nicaraguan exports to the United
States, up from just under 58 percent the previous year.


4. (U) Growth outside the maquila sector was also robust,
with traditional exports leading the charge. Nicaraguans
took advantage of a CAFTA-DR tariff-rate quota (TRQ) to
increase sugar exports from $14 to $33.5 million, while
coffee exports jumped from $58.5 to $81.7 million thanks to
high world prices. Shrimp exports fell slightly from $70.5
million to $69.3 million, likely owing to increased exports
from Asia and Ecuador. Cigars, which before CAFTA-DR were
subject to a specific tariff of 0.57/kilogram and an ad
valorem tariff of 1.4 percent, now enter the United States
duty free, and exports are up 15 percent from $28.9 to
$33.3 million. Gold exports remained stable at $27.1
million, while exports of wire harnesses for automobiles
fell slightly from $124.5 to $120 million. These six
goods, which together account for 24 percent of Nicaraguan
exports to the United States, saw 12.8 percent growth under
CAFTA-DR, up from $324 to $365 million.

Modest Growth Elsewhere, but Some Bright Spots
-------------- -


5. (U) Outside of maquila, sugar, coffee, shrimp, cigars,
gold, and wire harnesses, which combined account for 85
percent of Nicaraguan exports, growth under CAFTA-DR was a
modest 1.3 percent. However, several sectors showed much
higher growth, including beef, which grew 38 percent from
$55 to $61.7 million. Cheese exports also increased
dramatically, up 56.7 percent from $3.2 to $5 million.
Nicaraguan producers quickly filled NicaraguaQs 625 metric
ton TRQ for cheese under CAFTA-DR, and government officials
have indicated that they may formally request additional
TRQ access this year.


6. (U) Several agricultural cooperatives have been
particularly successful in taking advantage of enhanced
market access under CAFTA-DR to reach niche markets in the
United States for Latin cheeses. Among them stands out the
San Francisco de Asis cooperative, which before CAFTA-DR
exported 30,000 pounds of cheese each month but now exports
that amount in a week. USDA and USAID assistance in food
safety has been critical to growth in this sector as firms
have improved their processing facilities to meet U.S.
sanitary standards.


7. (U) Also benefiting from USG technical assistance in the
agricultural sector, Nicaragua has exported $3.3 million in
fresh peppers to the United States during the first year of
CAFTA-DR, up from $250,000 the previous 12 months. Other
fruits, vegetables, and roots and tubers have showed strong
growth as well, with total exports for the sector
increasing from $8.7 to $31.8 million. Cosfrunic, a rural
cooperative with 69 members, now regularly exports
vegetables such as okra--which previously faced a 20
percent tariff--to the United States. Several other small
cooperatives have seen similar success exporting vegetables
that formerly faced specific tariffs of several cents per
kilogram or ad valorem tariffs of 5 to 20 percent.


8. (U) Rum exports increased from $1.7 to $2.5 million
during CAFTA-DRQs first 12 months. Handicrafts such as
hammocks, on which importers previously paid 14 percent
duty, have also shown growth, though total volume is still
very low. Although both had duty-free access to U.S.
markets before CAFTA-DR, furniture exports increased from
$463,000 to $1.8 million over the past year, while billiard
table exports grew from almost nothing to $737,000.

U.S. Exports Show Broad Growth
--------------


9. (U) U.S. export growth--up 12.7 percent, from $634
million to $715 million--was spread evenly across many
sectors, with petroleum products, pharmaceutical products,
fertilizer, vegetable oils, and basic grains among the most
important sectors. Corn exports grew by 61 percent, from
$12.1 to $19.6 million, while for most dairy products, TRQs
went unfilled and growth was modest. U.S rice exports for
the period fell from $44.9 to 36.8 percent, an 18 percent
decrease.

Comment
--------------


10. (U) The one-year anniversary of CAFTA-DR passed quietly
in Nicaragua despite strong evidence that the private
sector is beginning to take advantage of preferential
access to U.S. markets. Small businesses and cooperatives,
several of which are described above, have found niche
markets in the United States for a variety of products. On
a larger scale, representatives of ProNicaragua (the
government-run investment promotion agency) report that
since CAFTA-DR went into effect, 17 companies have
announced $318 million in new investment that will create
13,880 new jobs.


11. (SBU) ProNicaragua officials report, however, that the
task of attracting new investment has become more difficult
of late. President OrtegaQs constant rhetoric, lambasting
of big business and Qsavage capitalism,Q has no doubt
played a role in that regard. On the other hand, Ortega
recently acknowledged in public that the agreement brings
some benefits to Nicaragua, perhaps signaling a softening
of his campaign position that CAFTA-DR must be
renegotiated. What is clear is that the Sandinistas will
do little to publicize the positive impact the agreement
has had and the potential it still holds. That task will
fall squarely on the U.S. government, with support from the
private sector here. End comment.

TRIVELLI