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Cablegate: Nicaragua: Post's Input for the 2007 National

VZCZCXYZ0001
RR RUEHWEB

DE RUEHMU #2474/01 3122352
ZNR UUUUU ZZH
R 082352Z NOV 06
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 8158
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS MANAGUA 002474

SIPDIS

SIPDIS

STATE FOR EB/TPP, WHA/EPSC, WHA/CEN
PLEASE PASS TO USTR/GEREFFI, MALITO
USDOC FOR TCC/4100/MSEIGELMAN
TREASURY FOR JHOEK

E.O. 12958: N/A
TAGS: ETRD ECON EFIN EINV NU
SUBJECT: NICARAGUA: POST'S INPUT FOR THE 2007 NATIONAL
TRADE ESTIMATE REPORT

REF: SECSTATE 136315

1. This cable transmits post's input for the 2007 National
Trade Estimate Report on Nicaragua. Per reftel instructions,
post transmitted this information via e-mail on November 7 to
USTR/Gereffi and Blue, STATE/WHA/CEN/Schiffer and Kopolow,
and STATE/EB/TPP/Clarkson and Lampron.

TRADE SUMMARY
-------------

Tariffs
-------

2. (U) In 2002 and 2003, Nicaragua completed implementation
of most of a broad package of tariff reductions that had been
approved in 1997. In those same years, two tax reform bills
introduced additional tariff changes. In 2005, additional
reforms were introduced. The overall thrust of these changes
in both legislation and practice has been to reduce tariffs
(although there have been a few increases), eliminate
non-tariff barriers, and greatly limit the discretion of
government officials to waive the application of tariffs.
The reform process has been in accordance with the reduction
and harmonization of a common external tariff among members
of the Central American Common Market (CACM) to between 0%
and 15% on most items. Nicaragua imposes regular import
duties of 10% or 15% on many final consumer goods, a duty of
0-5% on most primary goods, and a duty of 5-10% on
intermediate goods from outside CACM that compete with
products produced by CACM countries. The tariff is assessed
on the cost, insurance, and freight (CIF) value of a good.

3. (U) Under CAFTA-DR, about 80% of U.S. industrial and
commercial goods may enter Nicaragua duty-free, with
remaining tariffs phased out over 10 years. Nearly all
textile and apparel goods that meet the CAFTA-DR's rules of
origin are duty-free and quota-free. A small number of
protected agricultural commodities, notably rice and chicken
parts, have particularly high tariff rates. Processed rice
faces tariffs as high as 60%, down from 103.5% in 2002.
Certain chicken parts face a tariff of 170%. Tariffs on corn
range from 10% to 15%. Tariffs on cheese and certain other
dairy products from countries outside the CACM region are
subject to a common external tariff of 40%. Under CAFTA-DR,
Nicaragua will eliminate tariffs on nearly all agricultural
products within 15 years, including its tariffs on rice and
yellow corn. Nicaragua will eliminate its tariffs on chicken
leg quarters within 18 years and on dairy products within 20
years. For the most sensitive products, tariff rate quotas
permit some immediate duty-free access for specified
quantities during the tariff phase-out period, which will
expand over time. Nicaragua will liberalize trade in white
corn through expansion of a tariff rate quota.

Non-Tariff Measures
-------------------

4. (U) A "selective consumption tax" on luxury items is
levied on a limited number of items. The tax is generally
lower than 15%, with a few exceptions. The tax is not
applied exclusively to imports, however, domestic goods are
taxed according to the manufacturer's price while imports are
taxed according CIF value. Alcoholic beverages and tobacco
products are taxed according to the price charged to the
retailer. The selective consumption tax on soft drinks is 9%.

STANDARDS, TESTING, LABELING, AND CERTIFICATION
--------------------------------------------- --

5. (U) Consumer products must be labeled in Spanish, except
for products destined for the Atlantic region, where English
may be required. Importers may translate labels into
Spanish. The Government of Nicaragua accepts a sticker with
a Spanish translation.

6. (U) When the United States and Central America launched
free trade agreement negotiations, they initiated a working
group on sanitary/phytosanitary barriers to agricultural
trade to facilitate market access. As a result of the work
of this group, Nicaragua committed to resolve specific
measures affecting U.S. exports to Nicaragua. On February
18, 2005, the President of Nicaragua signed a decree
recognizing the equivalency of foreign meat and poultry
inspection systems. After auditing the U.S. meat and poultry
inspection system, the Government of Nicaragua granted
equivalency to the United States. U.S. meat and poultry
exports from any federally inspected establishment are now
allowed into Nicaragua.

7. (U) The U.S. Animal and Plant Health Inspection Service
has negotiated protocols with Nicaragua for the importation
of U.S. rice, wheat, yellow corn, and seed potatoes. All
packaged food products must be registered with the Ministry
of Development, Industry and Trade. If a product is imported
in bulk and packaged in Nicaragua, a phyto/zoosanitary
certificate is required from the country of origin and from
the Nicaraguan Ministry of Health. A phyto/zoosanitary
certificate issued by Nicaragua is not required for products
packaged in the United States.

8. (U) Under CAFTA-DR, Nicaragua commits to abide by the
terms of the WTO's Import Licensing Agreement. Import
licenses are required to import beverage alcohol, and all
brands of alcoholic beverages must be registered annually
with the Ministry of Health. U.S. industry has expressed
concern about Nicaragua's proposed standards for rum and
"agua ardiente." However, Central American countries,
including Nicaragua, are in the process of developing common
standards for several products, including distilled spirits,
which could serve to increase market access and facilitate
trade for U.S. producers. Nicaragua committed under CAFTA-DR
to explicitly recognize Bourbon and Tennessee Whiskey as
distinct products of the United States.

9. (U) Law 291 regulates the importation of genetically
modified organisms (GMOs). The law was approved in 1998 and
modified in 2003 to require that GMOs undergo a risk analysis
prior to importation. The risk analysis must be performed by
the Commission on Risk Analysis for Genetically Modified
Organisms (CONARGEN), which makes a recommendation concerning
importation to the Minister of Agriculture and Forestry, who
then issues a final decision. CONARGEN is comprised of
officials from the Ministry of Agriculture and Forestry, the
Nicaraguan Institute for Agricultural Technology, the
Ministry of Environment and Natural Resources, the Ministry
of Health, the National Autonomous University of Nicaragua in
Leon, the National Agrarian University, and the Central
American University in Managua. After reaching consensus
with anti-biotechnology organizations in 2005, the government
submitted a compromise science-based biotechnology bill to
the National Assembly for approval. As of November 2006,
passage was still pending.

10. (U) Nicaragua is in the process of implementing the
provisions of the Cartagena Protocol, of which it is a
signatory. As part of the process, in 2005 the GON began to
require notifications and a risk analyses on the possible
import of living modified organisms (LMOs). CONARGEN has
conducted risk analyses on all genetic events authorized by
the United States for yellow corn destined for processing and
for animal feed. Nicaragua and the United States signed an
agreement on the transboundary movement of LMOs destined for
food, feed, or processing that entered into force on February
18, 2005. The agreement articulates a practical definition
for LMO and non-LMO shipments for purposes of applying the
"may contain" documentation requirement, and recognizes that
non-LMO shipments must be defined in a sales contract as
having 95% or greater non-LMO content.

GOVERNMENT PROCUREMENT
----------------------

11. (U) Nicaragua's procurement law applies to all branches
of government as well as to the autonomous regional
governments, municipalities, universities, and other
institutions that receive government funds or where the state
is a shareholder. It sets general standards and procedures
regulating public acquisition, leasing, construction, and
contract of services. Nicaragua is not party to the WTO
Agreement on Government Procurement.

12. (U) CAFTA-DR requires fair and transparent procurement
procedures, including advance notice of purchases and timely
and effective bid review procedures for procurement covered
by the agreement. U.S. suppliers may bid on the same basis
as Nicaraguan suppliers on procurements by most Nicaraguan
government entities, including key ministries and state-owned
enterprises. In the past, some suppliers have complained
about inadequate notification of pending procurements.
Nicaragua is currently implementing a computer-based system
to make the bidding process more transparency and efficient.
The anti-corruption provisions in CAFTA-DR require each
government to ensure that bribery in matters affecting trade
and investment, including government procurement, is treated
as a criminal offense or subject to comparable penalties
under law.

EXPORT SUBSIDIES
----------------

13. (U) Nicaragua does not provide export financing.
However, all exporters receive tax benefit certificates
equivalent to 1.5% of the FOB port of exit value of the
exported goods. Foreign inputs for Nicaraguan export goods
from the country's free trade zones enter duty-free and are
exempt from value-added tax. Under the CAFTA-DR, Nicaragua
may not adopt new duty waivers or expand existing duty
waivers conditioned on the fulfillment of a performance
requirement (e.g., the exportation of a given level or
percentage of goods). Nicaragua may maintain existing duty
waiver measures provided such measures are consistent with
its WTO obligations.

INTELLECTUAL PROPERTY RIGHTS PROTECTION
---------------------------------------

14. (U) In March 2006, Nicaragua strengthened its legal
framework for protection of intellectual property rights
(IPR) with the passage of five new laws in preparation for
the implementation of CAFTA-DR. The laws provide stronger
deterrence against piracy and counterfeiting by criminalizing
end user piracy and requiring Nicaragua to authorize the
seizure, forfeiture, and destruction of counterfeit and
pirated goods and the equipment used to produce them. They
also mandate the payment of statutory and actual damages for
copyright and trademark infringement, to ensure that monetary
damages can be awarded even when losses associated with a
violation are difficult to assign.

15. (U) Although historically IPR enforcement has been weak,
U.S. Government and industry are working with the Nicaraguan
government to provide training to improve enforcement. In an
April 2006 raid, police took custody of 13,000 pirated CDs
and DVDs, but made no arrests.
In October 2006, the government scored its first
prosecutorial victory when a court convicted a local vendor
of selling 400 pirated videos. The vendor was fined $1,500
and sentenced to two years in prison. It was a short-lived
victory as weeks later the conviction was overturned by an
appeals court. In coming months, the government plans to try
its first copyright and trademark infringement case under the
new IPR law.

16. (U) In the past, a lack of regulation establishing
procedures to guarantee the protection of pharmaceutical and
agricultural product test data against unfair commercial use
was a serious concern. CAFTA-DR now requires Nicaragua to
protect undisclosed test data submitted for the purpose of
product marketing approval of pharmaceutical and agricultural
chemical products against disclosure and unfair commercial
use.

SERVICES BARRIERS
-----------------

Financial Services
------------------

17. (U) Nicaragua has ratified its commitments under the 1997
WTO Financial Services Agreement. Its commitments cover most
banking services, including the acceptance of deposits,
lending, leasing, guarantees, and foreign exchange. However,
they do not cover the management of assets or securities.
Nicaragua allows foreign banks to operate either as wholly
owned subsidiaries or as branches. CAFTA-DR ensures U.S.
financial service suppliers have full rights to establish
subsidiaries, joint ventures, or branches for banks.

18. (U) The country's banking system is now stable after
having undergone severe restructuring several years ago. In
2005, as part of the Poverty Reduction and Growth Facility
agreement with the IMF, Nicaragua further strengthened the
financial sector through reforms to its banking laws, the
Superintendent of Banks and Other Financial Institutions, and
the Guarantee of Deposits in Institutions of the Financial
System. In recent years, U.S. and foreign banks have begun
to re-enter the market. In 2005, GE Financial Services
acquired 49.99% stake in the Bank of Central America, a
Nicaraguan-owned regional bank. In October 2006, Citigroup
announced, subject to regulatory approval, the acquisition of
Grupo Financiero Uno, the largest credit card issuer in
Central America with a distribution network of 75 branches.
Other foreign banks have also opened offices, such as Banco
del Istmo, a member of the Panamanian Grupo Banistmo
currently in the process of being acquired by Hong Kong and
Shanghai Banking Corporation. Additionally, Banco ProCredit
(formerly Financiera ProCredit) and FINDESA, both
microfinance institutions, have been authorized to operate as
commercial banks.

19. (U) The insurance sector is open to private sector
participation. Several private insurance companies compete
with the government-owned firm INISER. Under CAFTA-DR, U.S.
insurance suppliers have full rights to establish
subsidiaries, joint ventures, and/or branches. Nicaragua
allows U.S.-based firms to supply insurance on a cross-border
basis, including reinsurance, reinsurance brokerage, as well
as marine, aviation, and transport insurance, in addition to
other insurance services. Further, Nicaragua accords
substantial market access in services across their entire
services regime, subject to very few exceptions. No U.S. or
other foreign insurance company has yet entered the
Nicaraguan market.

Telecommunications
------------------

20. (U) Under CAFTA-DR, Nicaragua opened its
telecommunications sector to U.S. investors, service
providers, and suppliers. All exports, including
telecommunications equipment, receive duty-free treatment.

21. (U) The telecommunications sector is fully privatized.
TELCOR, the regulatory entity, has generally encouraged
competition in its licensing and regulatory practices.
Enitel, the former state telephone company, is now 99.03%
owned by the Mexican telecommunications company America
M"vil. America Movil also obtained a license to operate the
cellular company Alo PCS. In 2004, America Movil merged
Enitel Movil with Sercom Nicaragua, and BellSouth sold its
Nicaraguan unit TCN BellSouth to Telefonica Moviles, a
Spanish company. As a result, the mobile industry in
Nicaragua is now served by only two nationwide operators:
Telefonica Moviles and America Movil (now Claro). Enitel
controls switching for all cellular service, and therefore
may exercise leverage over companies seeking interconnection.


22. (U) At the end of 2004, Enitel unilaterally imposed a
100% increase in termination rates for calls sent to wireless
networks and blocked traffic to such networks when carriers
refused to pay the increase. TELCOR was not effective in
requiring Enitel to justify the increase. The opening of the
fixed-line and international telephony markets was delayed
when the National Assembly created the Office of the
Superintendent of Public Services (SISEP) to regulate
electricity, water, and telecommunications and the role of
TELCOR was obscured. Institutional deadlock was averted when
the formation of SISEP was delayed until January 2007.
Fixed-line and telephony markets are now open. However,
duplicate appointments to TELCOR by the executive and
legislative branches have resulted in a continuing leadership
stalemate for the regulatory authority.

23. (U) The Law on Promotion of National Artistic Expression
and on Protection of Nicaraguan Artists (Law no. 215,
National Gazette 134, July 17, 1996) requires that foreign
production companies contribute 5% of total production costs
to a local cultural fund. In addition, the law requires that
10% of the technical, creative, and/or artistic staff must be
hired locally. Under CAFTA-DR, Nicaragua does not require
U.S. film productions to contribute to the cultural fund or
hire locally.

INVESTMENT BARRIERS
-------------------

24. (U) Under CAFTA-DR, all forms of investment are
protected, including enterprises, debt, contracts,
concessions, and intellectual property. U.S. investors enjoy
in almost all circumstances the right to establish, acquire,
and/or operate businesses in Nicaragua on an equal footing
with local investors. Among the rights afforded to U.S.
investors are due process protections and the right to
receive a fair market value for property in the event of
expropriation. Investor rights are backed by an effective,
impartial procedure for dispute settlement that is fully
transparent. Submissions to dispute panels and panel
hearings will be open to the public, and interested parties
may submit their views.

25. (U) Poorly enforced real property rights constitute a
serious barrier to investment in Nicaragua. In the 1980s,
the Sandinista government confiscated nearly 30,000
properties. Since 1990, many thousands of individuals have
filed claims for the return of real property or compensation.
A weak registration system has led to conflicting claims
that can delay investment. Property claimants can sue for
the return of property, but the legal system favors current
occupants. Most claimants seek compensation through the
low-interest bonds issued by the Government. As of November
2006, the Nicaraguan government had settled nearly 4500 U.S.
citizen claims. Fewer than 700 embassy-registered U.S.
claims were outstanding. Many valuable properties remain in
the hands of the government or private parties, including
former Sandinista government officials and military officers.
The United States continues to urge the Nicaraguan
government to resolve outstanding claims.

26. (U) Reforms introduced in 2005 halted exemptions on the
taxation of certain imported items, including taxes on a list
of luxury products and materials considered necessary to
develop tourism. The Ministry of Tourism and the private
sector have been lobbying the National Assembly to
re-establish these incentives and to approve a new law that
would allow tourism companies to issue investment bonds.

27. (U) A new environmental protection law entered into force
on May 20, 2006 which is much more rigid than previous laws,
especially since it combines fines ranging between $1,000 and
$50,000 with actual jail time for lawbreakers and penalties
for accomplices. The law requires that any project affecting
the environment undergo an environmental impact assessment
and that investors provide some sort of financial guaranty,
in an amount determined by the Ministry of Environment and
Natural resources, to cover the risk of environmental damage.


28. (U) In June 2006, the National Assembly approved a new
law on forest management that prohibits the export of any
species of wood from Nicaragua for the next ten years that
has not undergone transformation into an intermediary or
final product. The law also prohibits for ten years the
harvest of six species of wood: mahogany, cedar, pine,
pochote, mangle, and ceibo. An exception is made for pine
harvested in the departments of Nueva Segovia, Jinotega, and
the Autonomous Region of the North Atlantic.

Arbitration
-----------

29. (U) The Nicaraguan government accepts binding
international arbitration of investment disputes between
foreign investors and the state. Nicaragua is party to both
the Inter-American Convention on Arbitration and the New York
Convention on Arbitration, and is a member of the
International Center for the Settlement of Investment
Disputes (ICSID). Nicaragua signed the 1958 New York
Convention on the recognition and enforcement of foreign
arbitration awards and ratified it in 2003. In 2005, the
National Assembly approved an arbitration law based on the UN
Model Law on International Commercial Arbitration. The law
allows for arbitration between private parties, however,
parties may still submit a motion to the Supreme Court
seeking to nullify an arbiter's decision. In May 2006, the
Nicaraguan Chamber of Commerce inaugurated Nicaragua's first
center for mediation and arbitration. Nicaraguan businesses
may choose from a list of national and international
mediators to deal with a dispute.

ELECTRONIC COMMERCE
-------------------

30. (U) CAFTA-DR includes provisions on electronic commerce
that reflect its importance to global trade, including the
provision of services by electronic means. Under CAFTA-DR,
Nicaragua provides non-discriminatory treatment to U.S.
digital products and services, does not impose customs duties
on digital products, and cooperates with the United States in
policy areas related to electronic commerce.

OTHER BARRIERS
--------------

31. (U) The anti-corruption provisions in the CAFTA-DR
require each government to ensure that bribery in matters
affecting trade and investment is treated as a criminal
offense, or is subject to comparable penalties under law.
However, voices within and outside of Nicaragua have raised
concerns that Nicaragua's legal system is weak, cumbersome,
and lacks independence. Many members of the judiciary,
including those at high levels, are widely believed to be
corrupt or subject to outside political pressures.
Enforcement of court orders is uncertain and sometimes
subject to non-judicial considerations. Courts have granted
a writ of shelter (called an "amparo") to protect criminal
suspects of white collar fraud by enjoining official
investigatory and enforcement actions almost indefinitely.
Foreign investors are not specifically targeted, but are
often at a disadvantage in disputes against nationals with
political connections. Recognizing Nicaragua's reputation
for having problems with corruption, President Bola$os made
anti-corruption a centerpiece of his administration's
domestic policy. This effort greatly contributed to
Nicaragua's selection in 2004 as a country eligible for
Millennium Challenge Account (MCA) assistance. Nicaragua's
MCA program requires the country to maintain progress on
eligibility criteria, particularly in the areas of
controlling corruption, improving government effectiveness,
and assuring political/civil liberties.

Law 364
-------

32. (U) U.S. multinational firms and the U.S. Chamber of
Commerce have expressed concern regarding Nicaraguan Law 364,
enacted in October 2000 and published in January 2001. Law
364 retroactively imposes liabilities on foreign companies
that manufactured or used the chemical pesticide DBCP in
Nicaragua. DBCP was banned in the United States after the
Environmental Protection Agency cancelled its certificate for
use (with exceptions) in 1979. U.S. multinationals have
expressed concern that the law and its application under
Nicaragua's judicial system lack due process, transparency,
and fundamental fairness. In particular, the law allows for
retroactive application of no-fault liability related to a
specific product, waiver of the statute of limitations,
irrefutable presumption of causality, truncated judicial
proceedings, imposition of a $100,000 non-refundable bond per
defendant as a condition for firms to put up a defense in
court, escrow requirements of approximately $20 million
earmarked for payment of awards, and minimum liabilities as
liquidated damages (ranging from $25,000 to $100,000.) In
January 2006, the National Assembly placed an embargo on the
trademark rights of an American multinational because of its
involvement in the production of this pesticide. Some
plaintiffs seek to lay claim to U.S. company assets in other
countries.
TRIVELLI

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