US embassy cable - 05TEGUCIGALPA544

C O N F I D E N T I A L TEGUCIGALPA 000544 
 
SIPDIS 
 
STATE FOR EB/TRA, WHA/EPSC, AND WHA/CEN 
STATE FOR EB/TRA (DHAYWOOD) 
TREASURY FOR DDOUGLASS 
COMMERCE FOR AVANVUREN, MSIEGELMAN 
STATE PASS AID FOR LAC/CAM 
 
E.O. 12958: DECL: 03/09/2015 
TAGS: EWWT, ETRD, ECPS, EINV, PGOV, KMCA, HO 
SUBJECT: HONDURAS:  MINFIN HINTS AT PORT FEES COMPROMISE 
 
REF: A) TEGUCIGALPA 399 AND PREVIOUS 
 
Classified By: Economic Chief Patrick Dunn for reasons 1.4 (b) and (d). 
 
1. (C) On the margins of another meeting on March 4, 
EconChief raised the port x-ray scanning fees question (ref 
A) with Minister of Finance William Chong Wong, Vice Minister 
of Finance for Revenues Donald Dubon, Director of the Tax 
Service (the DEI) Jose Manuel Carcamo, and Director of 
Customs Arquimedes Jimenez.  Chong dismissed as gamesmanship 
most of the ongoing outcry from the business sector over the 
fees, but he hinted that a compromise was, nevertheless, the 
most likely outcome. 
 
2. (C) Chong said that, in his view, there are three driving 
forces behind the increasingly vocal opposition to the 
proposed fees for x-ray scanning at Puerto Cortes:  first, 
there are powerful persons importing goods without declaring 
them.  Clearly they do not want either to get caught or be 
forced to pay taxes.  Second, he said, Chiquita is concerned 
that as a heavy user of Puerto Cortes, it will be placed at a 
competitive disadvantage to Dole, which has the option of 
using Puerto Castilla, where no such fee is imposed.  Third, 
he said, "this is a fight among the Arabs."  Each of the six 
firms that competed for the contract had local partners, 
often firms owned by "turcos" (Hondurans of Arab, generally 
Palestinian Christian, descent).  Those firms that lost the 
bid are impugning the process and seeking to derail the 
project, Chong said, either to get a second chance at the 
contract or simply out of wounded pride and/or family rivalry. 
 
3. (C) Chong was unsympathetic to the argument that the new 
fees would damage Puerto Cortes' competitiveness in the 
region.  Instead, he focused on the negligible impact of the 
fee (currently USD 55) when compared to the value of the 
average outbound container, which he placed at USD 60,000. 
Moreover, he said, the argument is weakened even further when 
one considers that the fee will likely not be USD 55 but 
perhaps half that.  The fee ultimately passed on to port 
users will depend, in part, he said, on the increases in 
revenues that accrue to the customs service.  Those revenues 
will be placed in a fund that will defray costs of the 
system.  If enough funds are raised, he said, the users might 
not have to pay at all.  (Comment:  This assumes the GOH is 
disciplined enough not to raid the fund during this election 
year -- something we doubt.  End Comment.) 
 
4. (C) EconChief asked why not use those revenue increases 
and fines on violators to pay for the service and thereby 
avoid imposing what is essentially an export tax on Honduran 
industry.  Chong, showing his roots as a former tax collector 
and auditor, complained that the maquila sector pays no taxes 
on its profits.  Left unsaid but clearly implied was his 
resultant justification for passing on the fee to exporters: 
since they cannot be taxed directly (they are exempted as 
"offshore" assembly operations), this fee is a way for the 
GOH to earn revenue from the booming maquila sector. 
(Comment: Seen from that perspective, it seems unlikely the 
GOH would ever choose to absorb these fees through fines and 
revenues, even if the jump in customs collections allowed 
them to do so.  End Comment.) 
 
5. (C) Comment:  Chong was correct that smugglers, spurned 
bidders, and Chiquita each have an interest in fighting the 
proposed screening or its fees.  He is also correct in noting 
that, in absolute terms, the fee is small compared to 
high-value containerized exports.  That said, he misses the 
point that the marginal costs could still be enough to cause 
port users (particularly Salvadoran and Nicaraguan exporters 
trans-shipping to the U.S. and Europe) to shift their 
business to other regional ports.  Moreover, his defense of a 
de facto export tax as a revenue enhancing measure shows he 
approaches this issue as a tax collector and not as a 
Minister of Finance.  The fees will generate some revenue but 
at the risk of weakening the port, slowing job creation, and 
undermining export-led economic development. 
 
Palmer 
 
 
 
 
 
 
Palmer