US embassy cable - 05TEGUCIGALPA741

UNCLAS SECTION 01 OF 03 TEGUCIGALPA 000741 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA/CEN, WHA/EPSC, EB/TPP, DRL/IL, AND INR/IAA 
STATE PASS USTR 
STATE PASS AID FOR LAC/CAM 
DOL FOR ILAB 
GUATEMALA FOR AGATT SHUETE 
TREASURY FOR DDOUGLASS 
 
E.O. 12958: N/A 
TAGS: ETRD, ECON, PGOV, ELAB, HO 
SUBJECT: HONDURAS' TRADE PRIORITIES: CAFTA-DR 
IMPLEMENTATION, TCB TAKE PRIORITY OVER FTAA, NEW 
INTERNATIONAL AGREEMENTS 
 
REF: 
 
     A) Tegucigalpa 493 
     B) State 44480 
     C) Tegucigalpa 730 
     D) Tegucigalpa 708 
 
1. (SBU) With CAFTA-DR approved by the Honduran Congress, 
Honduran trade officials are turning their focus to the job 
of implementing the agreement and channeling Trade Capacity 
Building (TCB) support to the vulnerable groups who will 
need assistance adjusting to a climate of freer trade.  A 
second priority is the Central American customs union and 
handling various technical issues related to its 
implementation.  With the main focus on these two areas, 
little attention or effort is being given to the negotiation 
of other bilateral or plurilateral trade agreements, 
including the FTAA (Free Trade Area of the Americas).  End 
summary. 
 
2. (SBU) EconOffs met with Vice Minister of External Trade 
Irving Guerrero on March 29, in our first meeting with him 
since the Honduran Congress approved CAFTA-DR on March 3 
(ref A).  EconOffs delivered ref B talking points on the 
progress of the FTAA negotiations, and Guerrero responded 
with a long discussion questioning the actual value that the 
FTAA can provide for Honduras (ref C).  In addition, 
Guerrero outlined the GOH's top trade priorities for the 
year ahead, which are dominated primarily by effective 
implementation of CAFTA-DR and of the Central American 
customs union. 
 
--------------------------------------------- 
Top Priority: CAFTA-DR Implementation and TCB 
--------------------------------------------- 
 
3. (SBU) Though the battle for CAFTA-DR ratification in the 
Honduran Congress was won on March 3, the job of CAFTA-DR 
implementation is still the top priority for the Honduran 
Trade Ministry in the months ahead.  When asked about the 
Ministry's major goals, Guerrero immediately responded by 
referring to Honduras' updated National Action Plan for 
Trade Capacity Building (TCB), a draft of which was 
completed on March 15.  According to Guerrero, the plan 
identifies three major areas of importance: first, 
institutional capacity on the part of GOH officials to 
implement CAFTA-DR ("which we currently don't have"), 
second, outreach to small and medium enterprises, and third, 
rural development. 
 
4. (SBU) Some of the implementation issues are purely 
technical in nature.  For example, CAFTA-DR establishes 
tariff-rate quotas (TRQs) for imports of various sensitive 
products, and the management and allocation of such quotas 
is a new task for the GOH.  The Ministers of Trade and of 
Agriculture are currently working on the issue of how to 
allocate these quotas in a fair and transparent manner: 
whether by auction, on a first-come, first-served basis, 
based on historical market share, or some combination of 
these methods. 
 
5. (SBU) Discussion is also underway regarding institutional 
changes within certain government ministries.  There are 
plans under discussion to separate the Trade Policy Division 
of the Ministry of Industry and Trade from the Ministry and 
establish it as a separate autonomous institution, to be 
known as the Trade Institute.  The Trade Policy Division has 
been strengthened over the past two years (with technical 
assistance from USAID and the IDB (Inter-American 
Development Bank)) for the purpose of preparing for the 
CAFTA-DR negotiations and is headed by the GOH's chief CAFTA- 
DR negotiator Melvin Redondo and by Vice Minister Guerrero. 
The goal of the Trade Institute would be to preserve the 
technical expertise that currently exists in the Trade 
Policy Division by paying the technical experts higher 
salaries than the Ministry can and also to insulate them 
somewhat from political influences of the Ministry - an 
especially important goal in light of the approaching change 
in administration.  In addition, the Ministry of Natural 
Resources and the Environment is also discussing the 
creation of a special unit within the Ministry (or possibly 
within the Trade Institute, if established) dedicated to 
CAFTA-DR implementation issues. 
 
6. (SBU) The larger task, however, is that of preparing 
Hondurans, especially vulnerable groups, for life under 
CAFTA-DR.  In part, this task is one of information and 
education.  In this vein, the same Trade Ministry officials 
who, for the past year, have been working to persuade the 
Honduran public of the benefits of CAFTA-DR are now shifting 
to the task of teaching Hondurans how to realize those 
benefits.  (In a separate meeting, the head of the 
Ministry's Communications Department, Rebeca Reyes, outlined 
to EconOffs some of the Ministry's plans for the near 
future, including a seminar to be held on April 15 with 
small and medium enterprises.)  Turning to rural 
development, Guerrero highlighted the success of 
agricultural diversification and market-outreach projects, 
such as the USAID-supported program managed by FINTRAC, but 
stated that much more needs to be done.  (Comment: The 
agricultural components of Honduras' Millennium Challenge 
Corporation (MCC) proposal expand upon this strategy of 
support for agricultural diversification and rural 
development.  End comment.) 
 
--------------------------------------------- --- 
2nd Priority: Customs Union and Technical Issues 
--------------------------------------------- --- 
 
7. (SBU) After CAFTA-DR, Guerrero cited the implementation 
of the Central American customs union as the second most 
important area of focus (ref D).  This largely involves 
working through certain difficulties that exist as a result 
of the non-harmonized external tariff schedules of the 
various Central American countries.  As an example, Guerrero 
cited the agreement between El Salvador and Chile, which 
allows Chilean wine to enter El Salvador duty free. 
Enterprising traders then ship Chilean wine from El Salvador 
to Honduras, with the result that Honduran wine 
distributors, who import wine directly from Chile and pay 
the required duty, are unable to compete.  Ideally, Honduran 
border officials would impose the duty at the Honduran- 
Salvadoran border, but in reality, according to Guerrero, 
this rarely happens.  A similar state of affairs exists in 
the opposite direction with Colombian-made farm tools, which 
enter Honduras duty-free and are then shipped to El Salvador 
to escape the Salvadoran duty.  Ultimately, said Guerrero, 
the only solution to such problems is to completely 
harmonize tariff schedules in the region and to negotiate 
only as a region in any future agreements. 
 
--------------------------------------------- ----- 
Low Priority: FTAA, Other International Agreements 
--------------------------------------------- ----- 
 
8. (SBU) Much less important than CAFTA-DR implementation or 
regional integration, in Guerrero's view, are moves to reach 
out to other international partners for new free trade 
agreements (FTAs).  Guerrero spoke at length about the 
limited value that the FTAA seems to present for Honduras 
(ref C), but also spoke disparagingly of other possible 
bilateral and plurilateral FTAs as well. 
 
9. (SBU) The one new trade agreement that Honduras is taking 
seriously at the moment is between the so-called CA-4 
(Guatemala, Honduras, El Salvador, and Nicaragua) and the 
European Union (EU).  The CA-4 countries are currently in a 
"pre-negotiation" phase with the EU, with the prospect of 
actual negotiations to begin in 2006.  Guerrero says that 
one early point to come out of these preliminary discussions 
is that the Europeans strongly prefer to negotiate one 
unified agreement with one common market, rather than an 
agreement (such as CAFTA-DR) with separate tariff schedules 
for the different countries.  For this reason, the talks 
with the EU are having the effect of reinforcing the 
development of the Central American customs union.  He also 
noted his surprise that the U.S., in negotiating CAFTA-DR, 
had not pressed the Central American countries harder to 
adopt regional integration measures such as mutual 
recognition of sanitary registrations, which is a priority 
for the Europeans.  Such recognition would facilitate a more 
streamlined transfer of imported goods subject to sanitary 
registration across Central American boundaries, as each 
country would accept the others' product certifications, and 
exporters to Central America would be able to access area 
regionally, rather than country by country. 
 
10. (SBU) Others who have reached out to Honduras for trade 
talks in recent months include Taiwan and the Mercosur 
countries.  In each case, Guerrero dismissed the prospect as 
being "not worth our time."  Taiwan is apparently seeking 
bilateral trade agreements with several Central American 
countries.  Pointing out that trade between Honduras and 
Taiwan is minimal, Guerrero asked "What would we gain from a 
deal with them?"  Only if the Taiwanese offered a 
significant Trade Capacity Building program or significant 
technology transfer, said Guerrero, would an agreement be 
attractive to Honduras.  (In other words, it would not be 
the trade, but the associated aid, which would be 
worthwhile.)  A delegation from the Mercosur countries also 
visited Honduras in March to discuss a possible trade 
agreement, but again Guerrero was dismissive, citing the 
very low level of trade that Honduras has with these 
countries and the lack of any obvious complementary 
relationship in the products that the countries produce. 
The free trade negotiations between the CA-4 and Canada, 
meanwhile, seem to have been put on a back burner 
indefinitely. 
 
--------------------------------------------- ------ 
Comment: A Welcome Focus on CAFTA-DR Implementation 
--------------------------------------------- ------ 
 
11. (SBU) Comment:  It is encouraging to see that the 
Honduran Trade Ministry is keeping its eye on the ball of 
CAFTA-DR implementation, rather than rushing off to new 
games.  During the CAFTA-DR negotiations, a great deal of 
institutional capacity was built up within the Trade 
Ministry, in the form of both technical experts and a public 
outreach team.  Post is pleased to see that this capacity, 
developed in part with assistance from USAID (as well as the 
TDA (Trade and Development Agency) and the IDB), is not 
being dispersed now that CAFTA-DR has been approved but 
instead is being concentrated and dedicated to the job of 
ensuring that CAFTA-DR's benefits are extended to those that 
will need the most assistance in making the transition to 
free trade.  End comment. 
 
Palmer