US embassy cable - 03TEGUCIGALPA1914

UNCLAS SECTION 01 OF 04 TEGUCIGALPA 001914 
 
SIPDIS 
 
PASS TO USTR FOR ADURKIN AND MMILLAN 
STATE PASS USTR FOR CENTAM/CARIB DIRECTOR 
STATE FOR EB/TPP/MTA/IPC, WHA/CEN, AND WHA/EPSC 
DOL FOR ILAB 
 
E.O.12958: N/A 
TAGS: ETRD, ELAB, PGOV, HO, XK, XL, USTR 
SUBJECT: CARIBBEAN BASIN ECONOMIC RECOVERY ACT REPORT TO 
CONGRESS: HONDURAS 
 
REF: SECSTATE 215050 
 
1. Post submits the following report in response to reftel 
request for the biannual report to Congress on the operation 
of the Caribbean Basin Economic Recovery Act (CBERA), as 
required by section 213(b) of the CBERA. 
 
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Commitment to WTO and FTAA 
--------------------------- 
 
2. The GOH is complying with its commitments under the WTO 
and is supporting the advancement of a Free Trade of the 
Americas Agreement.  Honduras has completed nearly all of 
its tariff obligations under the Uruguay Round Agreements. 
Honduran officials have voiced some concern regarding 
certain proposals addressed in the Doha Negotiations, 
especially related to market access issues for agricultural 
and non-agricultural goods.  These concerns could place 
Honduras at odds with key U.S. objectives in the World Trade 
Organization. 
 
3. Despite these concerns, Honduras remains an active 
participant in establishing free trade in the Western 
Hemisphere.  Honduras, working in coordination with other 
Central American countries, has been negotiating with U.S. 
officials to establish the U.S.-Central America Free Trade 
Agreement (CAFTA) and has indicated that it would accept the 
inclusion of the Dominican Republic into the agreement as 
well. 
 
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Protection of Intellectual Property 
----------------------------------- 
 
4. Honduras remains largely in compliance with the Trade 
Related Aspects of Intellectual Property Rights (TRIPs); 
however, the government of Honduras has made limited efforts 
to strengthen existing intellectual property rights in the 
last year. Constitutional amendments, passed in 1999, 
updated the copyright law and addressed patent and copyright 
compliance issues.  Honduras lacks two measures, the 
protection of integrated circuit designs and plant variety 
safeguards, before it can be brought into full compliance 
with TRIPS agreement.  These two measures remain stuck 
before a committee in the National Congress. 
 
5. In 2002, a major U.S. pharmaceutical company questioned 
the GOH's commitment to TRIPs mandated data protection. 
Honduran law and the TRIPs agreement guarantee data 
exclusivity rights for an established time frame.  The U.S. 
company complained that the Ministry of Health was 
considering approval of another company to distribute a 
generic drug copy for which the U.S. company held the data 
exclusivity rights.  After several months of delay, the 
Ministry of Health has recognized that the drug is a copy of 
the U.S. company's protected product, and therefore will not 
approve the other company's application. 
 
6. The Government of Honduras advanced its compliance with 
World Intellectual Property Organization standards when it 
became a party to two "internet treaties" last year.  The 
National Congress ratified the WIPO Copyright Treaty (WCT) 
and the WIPO Performances and Phonogram Treaty (WPPT) in 
2002. 
 
7. Since placement on the `Watch List' category of the U.S. 
Government's annual Special 301 Review in 1998 for failure 
to control broadcast television piracy, the GOH has taken an 
active role to monitor television stations against further 
violations.  The negotiations of the U.S.-Central America 
Free Trade Agreement have provided a valuable forum to 
highlight and correct shortcomings in Honduran IPR 
legislation and implementation. 
 
--------------------------------------------- --------- 
Protection of Internationally Recognized Worker Rights 
--------------------------------------------- --------- 
 
8. Union officials remain critical of what they perceive as 
inadequate enforcement by the Ministry of Labor (MOL) of 
workers' rights, particularly the right to form a union and 
bargain collectively, and the reinstatement of workers 
unjustly fired for union organizing activities.  In November 
1995, the MOL signed a Memorandum of Understanding with the 
U.S. Trade Representative's Office to implement 11 
recommendations for enforcement of the Honduran Labor Code 
and the resolution of disputes.  The MOL has implemented 
some of these recommendations, particularly as they relate 
to inspection and monitoring of assembly-for-export 
factories (maquilas).  However, it has been slow to 
implement others due to resource constraints.  Also, the 
Honduran Maquiladora Association initiated a code of conduct 
in July 1998 for the Maquiladora Association and its 
constituent companies.  Through cooperation within the 
bipartite and tripartite commissions (unions, MOL, private 
sector) and other venues, MOL inspectors' access to maquila 
plants to enforce the labor code has improved, and MOL has 
continued to work to increase its effectiveness in enforcing 
worker rights and child labor laws. 
 
9. The labor law prescribes a maximum 8-hour workday and 44- 
hour week.  There is a requirement for at least one 24-hour 
rest period every week.  The Labor Code provides for a paid 
vacation of 10 workdays after one year, and of 20 workdays 
after four years.  The Constitution and Labor Code prohibit 
the employment of persons under the age of 16, except that a 
15-year old may be permitted to work with the written 
permission of parents and the MOL.  All persons under 18 
years of age are prohibited from night work, dangerous work 
and full time work. 
 
10.  The Children's Code (September 10, 1996) prohibits a 
person of 14 years of age or less from working, even with 
parental permission, and establishes prison sentences of 3 
to 5 years for individuals who allow children to work 
illegally.  An employer who legally hires a 15-year-old must 
certify that the young person has finished or is finishing 
compulsory schooling.  The MOL grants a number of work 
permits to 15-year-olds each year.  Document fraud is 
prevalent among minors interested in working. 
 
--------------------------------------------- --------- 
Commitment to Eliminate the Worst Forms of Child Labor 
--------------------------------------------- --------- 
 
11. With regard to the elimination of the worst forms of 
child labor, the National Congress ratified the ILO 
Convention 182, and Honduras became a party to the 
Convention in June 2001.  In the textile manufacturing 
sector, the elimination of child labor has seen great 
strides.  International pressure on the export sector 
through agreements such as the Caribbean Basin Trade 
Partnership Act and negotiations such as the U.S.-Central 
American Free Trade Agreement have helped employers and 
employees recognize the importance of these laws.  The 
government has created a special commission to establish a 
more complete program towards eliminating child labor and 
signed a Memorandum of Understanding with the ILO's 
International Program for the Eradication of Child Labor 
(IPEC).  Despite a commitment of political support, child 
labor still exists in Honduras, with an estimated 400,000 
children working illegally.  Identified instances of child 
labor in Honduras include prostitution, fireworks industry 
workers, child divers on lobster boats, garbage dump 
pickers, and agricultural workers, including melon, sugar, 
and coffee. 
 
----------------------------- 
Counter-Narcotics Cooperation 
----------------------------- 
 
12. Honduras remains a trans-shipment point for narcotics 
trafficking through air, land, and maritime routes from 
South America to the United States.  Indications of 
corruption in law enforcement, judicial, and military 
entities plagues counter-narcotics efforts.  Despite 
technical support from the U.S. government, the arrest, 
prosecution, and incarceration of major narco-trafficking 
offenders remains problematic.  A new money laundering law 
passed in March 2002 provided further assistance to U.S. and 
Honduran law enforcement and counterterrorism efforts. 
Finally, in the first seven months of 2003, Honduran counter- 
narcotics authorities seized more cocaine than they had 
seized in the previous four years combined. However, the 
recent counter-narcotics seizures can be credited in large 
part to strong pressure for increased results from Embassy 
officials. 
 
-------------------------------------- 
Transparency in Government Procurement 
-------------------------------------- 
13. The government of Honduras established a new contracting 
law in 2001.  Under the law, foreign firms are entitled to 
national treatment for public bids, concessions, and 
government-contracted consulting services.  As a part of the 
new code, government procurement proceedings are to be made 
public through a regularly published report.  In practice, 
U.S. companies have complained of instances of mismanaged 
and opaque bidding processes.  One U.S. company underwent an 
extended bidding process, filled with questionable 
practices, in its attempts to win a government contract 
within the publicly owned utilities sector. 
 
14. Despite these shortcomings, the Government of Honduras 
has initiated a system in which the United Nations 
Development Program oversees the bidding process for 
government procurement in a limited number of contracts. 
This attempt to make the process more transparent in some 
areas coincides with the preparations to initiate 
privatization of several government-owned entities. 
Honduras hopes such measures will make investment in these 
privatization efforts more attractive and competitive. 
 
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Expropriation 
------------- 
 
15. Over 160 property and investment disputes involving U.S. 
citizens have been registered with the U.S. Embassy in 
Honduras.  The majority of the cases relate to land disputes 
and fall under the jurisdiction of the National Agrarian 
Institute (INA).  Other sources of expropriation include 
investment disputes involving U.S. investors, resulting 
primarily from inadequate titling procedures, and investment 
disputes between U.S. citizens and Honduran citizens.  On 
July 12, 2001, a Bilateral Investment Treaty (BIT) between 
the U.S. and Honduras entered into force.  The bill provides 
for equal protection under local law for U.S. investors and 
allows expropriation only in cases that agree with 
international legal standards.  In October 2002, the 
National Congress approved a one-time expanded arbitration 
law allowing for pending cases to file for arbitration.  Of 
the 11 cases pending, only two U.S. citizens filed petitions 
for arbitration requests to INA by the July 21, 2003 
deadline. 
 
---------------------------- 
Extradition of U.S. Citizens 
---------------------------- 
 
16. Honduras does not have a treaty or any other agreement 
allowing for a treaty or any other agreement allowing for 
the extradition of U.S. citizens. 
 
--------------------------- 
General Economic Conditions 
--------------------------- 
 
17. Honduras is one of the poorest and least developed 
countries in Latin America.  The economy suffered a major 
setback after the destruction caused by Hurricane Mitch in 
1998.  The economy did not return to pre-Mitch levels until 
the end of 2000, and certain agricultural sectors, including 
the banana crop, have yet to attain pre-Mitch levels.  Low 
world coffee prices have dramatically reduced revenues from 
this other key agricultural export commodity.  The slowdown 
in the growth of the global economy, especially in the 
United States, has also had a depressing effect on the 
exports and economic growth in Honduras.  Honduras' economic 
growth slowed to only two 2.5 percent in 2002, falling from 
a 2.7 6 percent growth in 2001 and a 4.75.2 percent growth 
rate in 2000.  At this time, it is expected to grow at a 
rate of 3.2 percent in 2003. 
 
18. Honduras has a growing textiles and apparel sector 
despite the negative effects of the U.S. economy's sluggish 
performance in 2001 - 2003.  Currently ranked as the third 
largest textile exporter to the United States, the maquila 
sector (garment assembly) has been largely assisted by the 
implementation of the Caribbean Basin Initiative.  The 
benefits provided through the Caribbean Basin Partnership 
Trade Agreement (CBTPA) have been crucial to the development 
of this industry, and industry officials have high hopes for 
future growth to be generated by new provisions in the 
proposed CAFTA.  Although the elimination of world textile 
import quotas in December 2004 will put new demands on the 
competitiveness of this sector.  In 2002, the maquila 
industry employed over 100,000 employees with exports from 
the industry totaling USD 2.439 billion. 
 
---------------------------- 
Revitalization of the region 
---------------------------- 
 
19. Honduras and Nicaragua underwent a period of tense 
relations in 2000 and 2001 as a result of a maritime border 
dispute.  Nicaragua levied a retaliatory 35 percent tariff 
on Honduran goods as a result of the disagreement.  The 
tariff was ruled illegal by the Central American Court of 
Justice in 2001, but was not lifted until March 2003.  Both 
countries seem to have moved past this disagreement to form 
a united Central American front in the CAFTA negotiations. 
The willingness of the Honduran government to move forward 
from this controversy indicates a commitment to regional 
integration and market liberalization. 
 
 
--------------------------------------------- ----- 
Self-help measures to promote economic development 
--------------------------------------------- ----- 
 
20. One area of concern that has been an impediment to 
greater U.S. investment, and thus Honduran economic 
development, is the lack of transparency and efficiency in 
the Honduran judicial system.  Post has received complaints 
from U.S. citizens and companies regarding frustrations with 
the sluggish pace of the court system, as well as court 
cases never brought to fair trial.  These inefficiencies in 
the court system mark a fundamental flaw in the government 
structure that merits attention and reform. 
 
21. Economic Officer Thomas R. Hastings is Post's designated 
reporting officer.  Mr. Hastings's telephone number is (504) 
236-9320, extension 4060; fax (504) 236-6836; and email 
hastingstr(at)state.gov. 
 
PIERCE