Identifier
Created
Classification
Origin
09MANAGUA1055
2009-10-30 20:15:00
CONFIDENTIAL
Embassy Managua
Cable title:  

Nicaragua: The General's New Clothes

Tags:  ECON ETRD KTEX NU 
pdf how-to read a cable
VZCZCXYZ0000
RR RUEHWEB

DE RUEHMU #1055/01 3032016
ZNY CCCCC ZZH
R 302015Z OCT 09
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 0049
INFO WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
C O N F I D E N T I A L MANAGUA 001055 

SIPDIS
STATE PASS USTR

E.O. 12958: DECL: 2019/10/30
TAGS: ECON ETRD KTEX NU
SUBJECT: Nicaragua: The General's New Clothes

REF: 2009 MANAGUA 324; 2008 MANAGUA 1374

CLASSIFIED BY: Robert J. Callahan, Ambassador, U.S. Embassy, Managua;
REASON: 1.4(B),(D)

Summary



C O N F I D E N T I A L MANAGUA 001055

SIPDIS
STATE PASS USTR

E.O. 12958: DECL: 2019/10/30
TAGS: ECON ETRD KTEX NU
SUBJECT: Nicaragua: The General's New Clothes

REF: 2009 MANAGUA 324; 2008 MANAGUA 1374

CLASSIFIED BY: Robert J. Callahan, Ambassador, U.S. Embassy, Managua;
REASON: 1.4(B),(D)

Summary




1. (C) Retired General Alvaro Baltodano, Nicaragua's Presidential
Delegate for Investment Promotion, briefed the Ambassador on his
recent trip to Washington to advocate for more flexible textile and
apparel rules for Nicaragua in the implementation of the United
States - Central America - Dominican Republic Free Trade Agreement
(CAFTA-DR). Local contacts have reported that Baltodano has a
personal interest in the matter. When a Taiwanese company pulled
out of Nicaragua in 2008, the Nicaraguan Free Trade Zone
Corporation, with the direct participation of Baltodano and another
former general, bought the company's assets and now take advantage
of Nicaragua's preferential access to export trousers to the United
States.





Reset the Clock on Nicaraguan Apparel Benefits




2. (U) On October 21, retired General Alvaro Baltodano, who serves
as Presidential Delegate for Investment Promotion, briefed
Ambassador Callahan on his trip to Washington the week prior to
address textile and apparel trade issues. Baltodano told the
Ambassador he had met with both Assistant U.S. Trade Representative
for Textiles Gail Strickler and Deputy Assistant Secretary of
Commerce for Textiles and Apparel Kim Glas. He outlined a proposal
to "reset the clock" on the one-for-one rule, whereby Nicaragua
must use a certain amount of U.S. fabric so that trousers sewn from
third-country fabric may enter the United States duty free under
the Tariff Preference Level (TPL) established that year for
Nicaragua according to CAFTA-DR.




3. (U) Baltodano argued that apparel manufacturing has not taken
off in Central America as anticipated when CAFTA-DR was negotiated,
and that U.S. supplies of fabric are too expensive. As a result,
Nicaragua has not met its one-for-one commitment and has seen its
TPL penalized. Baltodano is afraid the situation will become
untenable: U.S. textile mills continue to close, the one-for-one
requirement is becoming more stringent, and TPLs are scheduled to
phase out. His solution is to apply 2006 one-for-one requirements

and TPLs for 2010. He also suggested trade financing might
facilitate the sale of U.S. fabric so that local manufacturers can
meet the one-for-one requirement.





Baltodano and the GON Buy an Apparel Factory




4. (C) On October 22, Charles Rogers, General Manager of VF -
Nicaragua, told Econoff that General Baltodano is motivated by
personal interests in his efforts to see one-for-one rules relaxed.
Other apparel industry insiders have made similar comments. In a
separate conversation on October 27, Scott Vaughn, General Manager
of Rocedes Apparel and President of the Nicaraguan Association of
Textile and Apparel Industries (ANITEC),explained those interests
in more detail. Vaughn told Econoff that when Nien Hsing withdrew
from Nicaragua in July 2008, the Taiwanese company closed five
plants and eliminated 14,850 jobs (Ref A). According to Vaughn,
Baltodano, in his role as President of the Nicaraguan Free Trade
Zone Corporation (CZF)-which owns the Las Mercedes Industrial Park
where three of Nien Hsing's plants were located-forced the company
to sell its equipment to the CZF at a fire-sale price of $3.1
million. The CZF then looked to sell off the assets to a company
interested in operating an apparel factory in Nicaragua.




5. (C) Baltodano found it difficult to find a buyer at first, but
finally identified a Mexican company, Kaltex. Vaughn reported that
Baltodano offered six months of free rent to sweeten the deal.

When that deal fell through, Baltodano, retired General JoaquC-n
Cuadra, and Mexican Luis Velasquez formed C & C Apparel to operate
the three facilities located in Las Mercedes. Several months ago,
Baltodano and Cuadra forced out their Mexican partner, according to
Vaughn. He also alleged that in addition to the private capital
provided by Baltodano and Cuadra, C&C Apparel operates with funding
from the CZF. Vaughn told Econoff that C&C employs 2,100 and has
shipped 2 million square meter equivalents (SMEs) of trousers so
far in 2009.





TPL Administration Lacks Transparency and Fairness




6. (C) Vaughn complained that the process by which the Nicaraguan
Free Trade Zone Commission (CNZF) allocates TPL now lacks
transparency and fairness, two principles that were in place when
the system was introduced in 2006. He said that the CNZF has
transferred all 9.3 million TPLs formerly in the hands of Nien
Hsing to C&C. Because C&C is a new company, it should have been
allocated TPLs from the limited amount set aside each year for
start-ups. With TPLs trading among apparel companies in Nicaragua
for about $.30 an SME, those could provide $1.9 million in revenue
for C&C this year, assuming that the company uses about 3 million
TPLs and trades the balance. In addition, Vaughn said C&C does not
pull its weight in meeting the one-for-one requirement, having
shipped no trousers to date that use U.S. fabric. Finally,
Baltodano has not called a meeting of the TPL Board, on which
Vaughn sits, for more than a year.





Comment




7. (C) During the past few years, Baltodano has been a dogged
advocate for Nicaraguan textile and apparel manufacturers. As a
former general, his "mission" was to attract investment and create
employment for Nicaraguans. Given the information provided to us
by these credible sources about Baltodano's new business, it
appears that his mission has changed. The next time he makes a
pitch for concessions on textile and apparel issues, we will recall
that he and the GON now have direct financial interests at play.
CALLAHAN