NICARAGUA: NEW TRADE MINISTER TAKES PRAGMATIC APPROACH TO

UNCLAS MANAGUA 001847 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: NICARAGUA: NEW TRADE MINISTER TAKES PRAGMATIC APPROACH TO BILATERAL TRADE RELATIONS REF: A) MANAGUA 1753; B) MANAGUA 1745; C) MANAGUA 1217 Summary -------------- ¶1. (SBU) New Minister of Trade, Industry, and Development (MIFIC) Orlando SOLORZANO Delgadillo says he will focus on areas of common interest between Nicaragua and the United States, including trade and economic integration. He mentioned several specific areas of concern regarding CAFTA-DR, including peanut and cheese TRQs and a proposed U.S. tobacco tax that would harm the Nicaraguan cigar industry. Solorzano suggested that U.S. development assistance should be more helpful to Nicaragua's effort to take advantage of opportunities presented by CAFTA-DR. The Ambassador raised regulatory and legal difficulties U.S. investors are facing in aquaculture and oil exploration. Solorzano, a seasoned FSLN technocrat, appears ready to work pragmatically on bilateral issues, with the support of a MIFIC staff that has remained largely unchanged since the Sandinistas took charge. End Summary. A Pragmatic Approach to our Economic Relationship -------------- -------------- ¶2. (SBU) In a July 27 courtesy call, New Minister of Trade, Industry, and Development (MIFIC) Orlando SOLORZANO Delgadillo told Ambassador Trivelli that he would focus on areas of common interest between Nicaragua and the United States, such as regional integration and trade, especially trade in agricultural goods. Solorzano, a seasoned technocrat with decades of experience in international trade policy, emphasized a pragmatic approach to the U.S. - Nicaragua economic relationship in his meeting with the Ambassador. ¶3. (SBU) In describing his recent participation in the June 2007 Americas Competitiveness Forum in Atlanta, Solorzano said that he favors a regional growth strategy that allows the United States, Mexico, and the Central American countries to cooperate in competing effectively with other regions of the world. In particular, he commended practical trade measures such as regional cumulation (soon to include Mexico) and pocketing agreements for the textile and apparel sector. [Note: MIFIC officials are hopeful the National Assembly will approve the amendment to Nicaragua's trade agreement with Mexico within the next week or two. End Note.] ¶4. (SBU) Solorzano suggested that Nicaragua must focus on encouraging investment outside of the free trade zones, where textile and apparel dominate. Unfortunately, the current crisis in the power sector (Ref A) is a limiting factor in this regard. Solorzano suggested that the United States donate generating capacity to Nicaragua, as other countries had. [Note: Venezuela has supplied 60MW of generating capacity and waived payment, at least for the time being; Taiwan is reportedly considering donating generating capacity and President Ortega occasionally mentions Iran and France as possible sources of generating capacity. End Note.] The Ambassador responded that the United States is planning assistance in identifying and repairing transmission line losses and is implementing a project to promote energy efficiency among industrial users. ¶5. (SBU) Another limiting factor in attracting new investment, said Solorzano, was poor road infrastructure, which prevents producers from getting their goods to market and the country from serving as an alternative to the Panama Canal. The Ambassador responded that the United States is providing considerable assistance to improve roads in Leon and Chinandega through the Millennium Challenge Corporation (MCC). The Need for Trade Capacity Building Assistance -------------- -- ¶6. (SBU) Solarzano commented that he is disappointed in the level of U.S. development assistance directed toward helping Nicaragua take advantage of CAFTA-DR. Echoing a theme often raised by the government in discussions with other donors, he said that current assistance carries too high an administrative burden, and that few resources trickle down to intended recipients. Solorzano said that his government places special emphasis on assistance that makes a demonstrative contribution to poverty alleviation. The Sandinista Government is taking this perspective as it reviews foreign assistance programs in Nicaragua. The Ambassador offered to arrange a comprehensive briefing for the Minister on our extensive trade capacity building portfolio. Making CAFTA-DR Work for Nicaragua -------------- ¶7. (SBU) Solorzano said that close cooperation with the United States on CAFTA-DR implementation issues is critical to promoting economic growth in Nicaragua. In this vein, he highlighted several issues, including improving market access for Nicaraguan cheese beyond existing tariff rate quota (TRQ) levels without renegotiating the agreement. He questioned whether Nicaragua's 2.4 million reduction in its 2007 trade preference level (TPL) for poor performance in 2006 under the one-for-one agreement resulted in an April or June starting date for 2007. [Note: We have since explained to MIFIC staff that with respect to the one-for-one agreement, the TPL year closes December 31, 2007. Any 2007 first quarter numbers that Nicaragua was allowed to apply to the 2006 TPL year cannot again be counted toward 2007. End Note.] Solorzano protested that local peanut producers could not fill their CAFTA quota because U.S. domestic support undermined Nicaraguan competitiveness. He complained that the current U.S. congressional proposal to fund healthcare with additional taxes on tobacco products unfairly targeted imports, at least in the case of cigars and cigar tobacco, most of which the United States imports from Central America and the Caribbean. The tax, he argued, may not be consistent with CAFTA-DR commitments (septel). On this last point, the Ambassador explained that domestic politics may well preclude a trade complaint here; President Bush had already threatened to veto the legislation. U.S. Investor Concerns -------------- ¶8. (SBU) The Ambassador noted that pending legislation on exotic species had the potential to shut down a growing aquaculture industry, including a U.S.-invested tilapia farm in Lake Nicaragua and shrimp farms elsewhere. In response, Solorzano repeated a claim made by the new Minister of Environment and Natural Resources in a recent meeting with the Ambassador (Ref B) that tilapia farming in Lake Nicaragua contaminated the waters and damaged local species. In addition, he cited the negative impact the farm has had on tourism development on nearby Ometepe Island. Solorzano maintained that the legislation would in no way affect shrimp farming, which took place primarily in coastal as opposed to fresh waters. ¶9. (SBU) The Ambassador also voiced his concern that two U.S. companies have been unable to move forward on oil exploration concessions off the Atlantic coast thanks to legal challenges from the RAAN and RAAS (Ref C). As insurer of the projects, the Overseas Private Investment Corporation's ability to support further investment in Nicaragua is tied to the resolution of the issue. Solorzano simply deferred to Minister of Energy and Mining Emilio Rapacciolli. After the meeting, however, his staff requested (and received) additional information on the concessions and promised to follow up on the issue as appropriate. Biographical Note -------------- ¶10. (SBU) Solorzano takes over the top spot at MIFIC after having served as Vice Minister in charge of external trade under former Minister Horacio Brenes. Brenes resigned after an open dispute with former Vice-Minister in charge of internal trade Leana Lacayo, who was reassigned as an Economic Advisor at the Ministry of Foreign Affairs. From 1980 to 1990, Solorzano served as Vice Minister for Economic Integration and International Trade in the Ministry of Trade and Planning. In the interim, he worked as a private consultant on trade and economic integration issues with Nicaraguan business associations such as PROEXPORT, multilateral organizations such as the United Nations Development Programme and the Inter-American Development Bank, and regional groups such as the Secretariat for Economic Integration of Central America (SIECA). He holds an advanced degree in international trade policy from the U.N. Economic Commission for Latin America and the Caribbean (CEPAL) Institute for Latin American and Caribbean Economic and Social Planning in Chile and an undergraduate degree from the National Autonomous University of Nicaragua. Comment -------------- ¶11. (SBU) MIFIC has so far retained the core of its technical staff since the Ortega government assumed power in January 2007. Unlike many ministers in the new government, Solorzano seems to afford MIFIC a measure of seasoned leadership. Our responsiveness to his concerns on CAFTA-DR issues may help instill Sandinista confidence in other areas of our relationship. Local USAID and MCC offices will address directly Solorzano's criticism of foreign assistance to make him fully aware of our strong commitment to economic development in Nicaragua. End Comment. TRIVELLI