Cablegate: Nicaragua: New Trade Minister Takes Pragmatic Approach To


DE RUEHMU #1847/01 2181618
P 061618Z AUG 07





E.O. 12958: N/A

REF: A) MANAGUA 1753; B) MANAGUA 1745; C) MANAGUA 1217


1. (SBU) New Minister of Trade, Industry, and Development (MIFIC)
Orlando SOLORZANO Delgadillo says he will focus on areas of common
interest between Nicaragua and the United States, including trade
and economic integration. He mentioned several specific areas of
concern regarding CAFTA-DR, including peanut and cheese TRQs and a
proposed U.S. tobacco tax that would harm the Nicaraguan cigar
industry. Solorzano suggested that U.S. development assistance
should be more helpful to Nicaragua's effort to take advantage of
opportunities presented by CAFTA-DR. The Ambassador raised
regulatory and legal difficulties U.S. investors are facing in
aquaculture and oil exploration. Solorzano, a seasoned FSLN
technocrat, appears ready to work pragmatically on bilateral issues,
with the support of a MIFIC staff that has remained largely
unchanged since the Sandinistas took charge. End Summary.

A Pragmatic Approach to our Economic Relationship
--------------------------------------------- ----

2. (SBU) In a July 27 courtesy call, New Minister of Trade,
Industry, and Development (MIFIC) Orlando SOLORZANO Delgadillo told
Ambassador Trivelli that he would focus on areas of common interest
between Nicaragua and the United States, such as regional
integration and trade, especially trade in agricultural goods.
Solorzano, a seasoned technocrat with decades of experience in
international trade policy, emphasized a pragmatic approach to the
U.S. - Nicaragua economic relationship in his meeting with the

3. (SBU) In describing his recent participation in the June 2007
Americas Competitiveness Forum in Atlanta, Solorzano said that he
favors a regional growth strategy that allows the United States,
Mexico, and the Central American countries to cooperate in competing
effectively with other regions of the world. In particular, he
commended practical trade measures such as regional cumulation (soon
to include Mexico) and pocketing agreements for the textile and
apparel sector. [Note: MIFIC officials are hopeful the National
Assembly will approve the amendment to Nicaragua's trade agreement
with Mexico within the next week or two. End Note.]

4. (SBU) Solorzano suggested that Nicaragua must focus on
encouraging investment outside of the free trade zones, where
textile and apparel dominate. Unfortunately, the current crisis in
the power sector (Ref A) is a limiting factor in this regard.
Solorzano suggested that the United States donate generating
capacity to Nicaragua, as other countries had. [Note: Venezuela has
supplied 60MW of generating capacity and waived payment, at least
for the time being; Taiwan is reportedly considering donating
generating capacity and President Ortega occasionally mentions Iran
and France as possible sources of generating capacity. End Note.]
The Ambassador responded that the United States is planning
assistance in identifying and repairing transmission line losses and
is implementing a project to promote energy efficiency among
industrial users.

5. (SBU) Another limiting factor in attracting new investment, said
Solorzano, was poor road infrastructure, which prevents producers
from getting their goods to market and the country from serving as
an alternative to the Panama Canal. The Ambassador responded that
the United States is providing considerable assistance to improve
roads in Leon and Chinandega through the Millennium Challenge
Corporation (MCC).

The Need for Trade Capacity Building Assistance
--------------------------------------------- --

6. (SBU) Solarzano commented that he is disappointed in the level of
U.S. development assistance directed toward helping Nicaragua take
advantage of CAFTA-DR. Echoing a theme often raised by the
government in discussions with other donors, he said that current
assistance carries too high an administrative burden, and that few
resources trickle down to intended recipients. Solorzano said that
his government places special emphasis on assistance that makes a
demonstrative contribution to poverty alleviation. The Sandinista
Government is taking this perspective as it reviews foreign
assistance programs in Nicaragua. The Ambassador offered to arrange
a comprehensive briefing for the Minister on our extensive trade
capacity building portfolio.

Making CAFTA-DR Work for Nicaragua

7. (SBU) Solorzano said that close cooperation with the United
States on CAFTA-DR implementation issues is critical to promoting
economic growth in Nicaragua. In this vein, he highlighted several
issues, including improving market access for Nicaraguan cheese
beyond existing tariff rate quota (TRQ) levels without renegotiating
the agreement. He questioned whether Nicaragua's 2.4 million
reduction in its 2007 trade preference level (TPL) for poor
performance in 2006 under the one-for-one agreement resulted in an
April or June starting date for 2007. [Note: We have since
explained to MIFIC staff that with respect to the one-for-one
agreement, the TPL year closes December 31, 2007. Any 2007 first
quarter numbers that Nicaragua was allowed to apply to the 2006 TPL
year cannot again be counted toward 2007. End Note.] Solorzano
protested that local peanut producers could not fill their CAFTA
quota because U.S. domestic support undermined Nicaraguan
competitiveness. He complained that the current U.S. congressional
proposal to fund healthcare with additional taxes on tobacco
products unfairly targeted imports, at least in the case of cigars
and cigar tobacco, most of which the United States imports from
Central America and the Caribbean. The tax, he argued, may not be
consistent with CAFTA-DR commitments (septel). On this last point,
the Ambassador explained that domestic politics may well preclude a
trade complaint here; President Bush had already threatened to veto
the legislation.

U.S. Investor Concerns

8. (SBU) The Ambassador noted that pending legislation on exotic
species had the potential to shut down a growing aquaculture
industry, including a U.S.-invested tilapia farm in Lake Nicaragua
and shrimp farms elsewhere. In response, Solorzano repeated a claim
made by the new Minister of Environment and Natural Resources in a
recent meeting with the Ambassador (Ref B) that tilapia farming in
Lake Nicaragua contaminated the waters and damaged local species.
In addition, he cited the negative impact the farm has had on
tourism development on nearby Ometepe Island. Solorzano maintained
that the legislation would in no way affect shrimp farming, which
took place primarily in coastal as opposed to fresh waters.

9. (SBU) The Ambassador also voiced his concern that two U.S.
companies have been unable to move forward on oil exploration
concessions off the Atlantic coast thanks to legal challenges from
the RAAN and RAAS (Ref C). As insurer of the projects, the Overseas
Private Investment Corporation's ability to support further
investment in Nicaragua is tied to the resolution of the issue.
Solorzano simply deferred to Minister of Energy and Mining Emilio
Rapacciolli. After the meeting, however, his staff requested (and
received) additional information on the concessions and promised to
follow up on the issue as appropriate.

Biographical Note

10. (SBU) Solorzano takes over the top spot at MIFIC after having
served as Vice Minister in charge of external trade under former
Minister Horacio Brenes. Brenes resigned after an open dispute with
former Vice-Minister in charge of internal trade Leana Lacayo, who
was reassigned as an Economic Advisor at the Ministry of Foreign
Affairs. From 1980 to 1990, Solorzano served as Vice Minister for
Economic Integration and International Trade in the Ministry of
Trade and Planning. In the interim, he worked as a private
consultant on trade and economic integration issues with Nicaraguan
business associations such as PROEXPORT, multilateral organizations
such as the United Nations Development Programme and the
Inter-American Development Bank, and regional groups such as the
Secretariat for Economic Integration of Central America (SIECA). He
holds an advanced degree in international trade policy from the U.N.
Economic Commission for Latin America and the Caribbean (CEPAL)
Institute for Latin American and Caribbean Economic and Social
Planning in Chile and an undergraduate degree from the National
Autonomous University of Nicaragua.


11. (SBU) MIFIC has so far retained the core of its technical staff
since the Ortega government assumed power in January 2007. Unlike
many ministers in the new government, Solorzano seems to afford
MIFIC a measure of seasoned leadership. Our responsiveness to his
concerns on CAFTA-DR issues may help instill Sandinista confidence
in other areas of our relationship. Local USAID and MCC offices
will address directly Solorzano's criticism of foreign assistance to
make him fully aware of our strong commitment to economic
development in Nicaragua. End Comment.


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