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Cablegate: Nicaragua: Austr Eissenstat Promotes Cafta-Dr

VZCZCXRO9665
RR RUEHLMC
DE RUEHMU #0579/01 1301258
ZNR UUUUU ZZH
R 091258Z MAY 08
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 2583
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC

UNCLAS SECTION 01 OF 02 MANAGUA 000579

SIPDIS
SENSITIVE

STATE PASS USTR

E.O. 12958: N/A
TAGS: ETRD ECON EINV PGOV NU
SUBJECT: NICARAGUA: AUSTR EISSENSTAT PROMOTES CAFTA-DR

REFS: A) MANAGUA 481, B) MANAGUA 450, C) MANAGUA 443, D) MANAGUA
338

Summary and Introduction
------------------------

1. (U) During his April 21-23, 2008, visit to Nicaragua, Assistant
U.S. Trade Representative for the Americas Everett Eissenstat
underscored the importance of the United States - Central America -
Dominican Republic Free Trade Agreement (CAFTA-DR). In meetings
with officials from the Ministry of Trade, Industry, and Development
(MIFIC) and the Free Trade Zone Commission (FTZC), he discussed
CAFTA-DR implementation issues, especially those related to textile
and apparel provisions. AUSTR Eissenstat also visited U.S. Agency
for International Development (USAID) and U.S. Department of
Agriculture (USDA) trade capacity building projects that help small
farmers in Nicaragua sell their goods regionally and in the United
States. AUSTR Eissenstat's participation in the inauguration of
Cone Denim's textile mill is reported septel.

Nicaragua Benefiting from CAFTA-DR
----------------------------------

2. (U) In a conversation with MIFIC Minister Orlando Solorzano,
AUSTR Eissenstat highlighted Nicaraguan success to date in taking
advantage of CAFTA-DR to increase exports to the United States.
Solorzano agreed, noting that first quarter 2008 exports to the
United States were 33% above first quarter 2007, while those to the
rest of the world were up only 25%. Eissenstat asked Solorzano to
take an active role in publicizing the importance of CAFTA-DR to
promote exports and increase incomes for Nicaraguans. He also noted
that the agreement is important to attracting investment such as
that of Cone Denim (septel), which depend on strong institutions and
a stable regulatory environment.

TIME FOR A REGIONAL DISCUSSION
------------------------------

3. (SBU) AUSTR Eissenstat suggested that the timing is right to hold
a regional discussion among Trade Ministers on treaty
administration, a point with which Minister Solorzano agreed. MIFIC
Director General for International Trade Sonia Somarriba, also
present at the meeting, suggested that it would be useful to explore
ways to make rules of origins more flexible to link other trade
agreements. She also suggested that technical discussions on
agreement implementation are long overdue. AUSTR Eissenstat agreed,
but noted that staggered implementation and of the agreement and
difficulty in ensuring sufficient senior level participation among
all countries had made identification of an appropriate date
difficult.

Textiles and Apparel Take Center Stage
--------------------------------------

4. (SBU) Minister Solorzano highlighted Nicaraguan concern that the
textile and apparel sector faces contraction, thanks to CAFTA-DR's
one-for-one provision for trousers, which requires the use of 30
million square meter equivalents (SMEs) of U.S. fabric in 2007 to
qualify for tariff preference levels (TPLs) of 100 million SMEs for
third-party fabric. In a separate meeting with AUSTR Eissenstat,
CNZF President Alvaro Baltodano echoed Solorzano. CNZF Technical
Director Carlos Zuniga claimed there simply is not enough fabric
available at a reasonable price in the United States to fully comply
with the one-for-one provision. Zuniga suggested that counting
fabric made in Nicaragua from U.S. cotton may help. AUSTR
Eissenstat responded that U.S. officials would seek to minimize the
impact of the one-for-one shortfall as much as possible within the
constraints of the agreement.

5. (SBU) For 2007, Zuniga believes the one-for-one shortfall will be
about 10 million SMEs. He reported that Nien Hsing, a Taiwanese
apparel company, is responsible for much of that shortfall;
therefore, CNZF officials have told Nien Hsing they will bear the
brunt of the TPL cut in 2008. Zuniga believes this announced cut in
TPLs for third-party fabric is behind Nien Hsing's recently
announced plans to close its factories in Nicaragua, eliminating
9,000 jobs, in addition to 5,000 already cut over the past several
months.

6. (SBU) Note: Scott Vaughn, co-owner of Rocedes Apparel and
President of the Nicaraguan Apparel and Textile Manufacturers'
Association (ANITEC), told Econoff that Nien Hsing's departure has
nothing to do with TPLs. Instead, he points to rising wages in the
sector (up 36% in six months), harassment from government officials
(who, for example, seek to collect import duties on trash and refuse
to process tax refund checks), and political uncertainty (as
recently as April 30, President Ortega publicly criticized Nien
Hsing for paying low wages). End note.

Focus on Trade Capacity Building
--------------------------------

7. (U) AUSTR Eissenstat visited two agricultural cooperatives
receiving USAID-funded TCB assistance. One is using drip irrigation
and greenhouse technologies to grow tomatoes, bell peppers, and
eggplants for local supermarkets. That cooperative has begun
growing several hot pepper varieties to be processed locally for use
in Tabasco brand hot sauces. The second cooperative is growing
papayas for sale in local supermarkets and eggplant for export to
the United States. In both cases, farmers highlighted the
importance of USAID TCB in providing financing, know-how, and
marketing assistance to help them introduce new crops and develop
new markets to increase earnings.

8. (SBU) AUSTR Eissenstat visited a labortoy unby the Ministry
of Agriculture that inspects agricultural exports for contamination
and pests. The director of the laboratory noted that the facility
is woefully under-funded and lacks political support. The lab has
benefited in the past from USDA-sponsored training and USDA-funded
equipment. However, the director complained that the Ortega
administration now requires that a government official seeking to
travel outside the United States for training must receive
permission from First Lady Rosario Murillo. In the past year, her
staff and other Ministry of Agriculture employees have missed out on
26 separate training opportunities because the First Lady did not
authorize their travel. AUSTR Eissenstat raised this issue in a
subsequent meeting with Baltodano, noting that lack of timely
approval for travel was impeding Nicaragua's ability to take full
advantage of capacity building opportunities.

9. (SBU) During AUSTR Eissenstat's meeting with Minister Solorzano,
MIFIC's Sonia Somarriba complained that CAFTA-DR's TCB mechanism is
in desperate need of reform. In particular, she suggested that the
CAFTA-DR TCB Committee be structured to directly address countries'
National Action Plans. She said that Central American participants
in the TCB process--not only Nicaraguan--feel deceived because they
expected TCB to be additive in terms of resources. Making a pitch
for more TCB funding, Minister Solorzano told AUSTR Eissenstat that
CAFTA-DR is more than a simple commercial arrangement and is also a
development instrument. AUSTR Eissenstat responded by noting our
interest in ensuring the agreement works for all signatories, but he
cautioned that TCB funding is constrained by the U.S. political
process.

Investment Climate and Debt Default
-----------------------------------

10. (SBU) During his meeting with CNZF President Alvaro Baltodano,
AUSTR Eissenstat raised concerns with the Nicaraguan Government's
recent decision to stop payment on government bank bonds (CENIs),
noting that such actions stifle private investment in Nicaragua
(Refs A, B, and C). He also emphasized the importance of
transparent governance and decisions making as key elements in
attracting foreign investment.

Comment
-------

11. (SBU) We continue to pursue a positive agenda with MIFIC to
encourage their support for CAFTA-DR implementation. On May 28, we
will co-host a forum on competitiveness with MIFIC that will serve
as a warm-up for the Commerce Department's Americas' Competitiveness
Forum in August. On TCB issues, with our encouragement MIFIC
recently hosted the government's first interagency meeting on
CAFTA-DR TCB, and we are working with MIFIC officials to review
their TCB National Action Plan and provide substantive feedback. We
are also working with Ministry of Agriculture officials to
facilitate their participation in USDA-sponsored training, though
political and bureaucratic hurdles remain.

12. (U) AUSTR Eissenstat has cleared this cable.

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