VZCZCXYZ0007
PP RUEHWEB

DE RUEHMU #1865/01 2201617
ZNR UUUUU ZZH
P 081617Z AUG 07
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC PRIORITY 0952
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHDG/AMEMBASSY SANTO DOMINGO 0538
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS MANAGUA 001865 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 
3134/ITA/USFCS/OIO/WH/MKESHISHIAN/BARTHUR 
 
E.O. 12958: N/A 
TAGS: ETRD ECON PREL NU
SUBJECT: PROPOSED U.S. TOBACCO TAX WOULD JEOPARDIZE JOBS 
IN NICARAGUAN CIGAR SECTOR 
 
REF: STATE 6604 
 
Summary 
------- 

¶1. (SBU) In an August 2 meeting with he Ambassador, representatives 
of the Nicaraguan cigar industry voiced concern that a proposal to 
increase cigar taxes in the United States will snuff out growth in 
their sector.  They warned that the tax would jeopardize the jobs of 
15,000 direct employees and another 15,000 indirect employees. 
Industry representatives are seeking support on this issue from the 
Nicaraguan government, claiming the tax may be inconsistent with 
U.S. CAFTA-DR commitments.  They also plan to contact members of the 
U.S. Congress directly on the issue.  If passed, the tax may provide 
President Ortega with an example of "U.S. duplicity" in offering 
market access through CAFTA-DR only to cut it through an excise tax. 
 End Summary. 
 
Social and Economic Impact 
-------------------------- 

¶2. (U) Representatives of the Nicaraguan Cigar Guilders Association, 
which includes several U.S. companies, met with the Ambassador on 
August 2, 2007, to discuss a bill the U.S. Congress is debating to 
fund child healthcare with an increase in excise taxes on tobacco 
products.  During the meeting, the association's membership voiced 
concern with both the Senate version, which would tax cigars at 
53.13%, with a $10 cap per cigar, and a House version, which would 
tax cigars at 44.63%, with a $1 cap.  Either version, they said, 
would cripple the cigar industry in Nicaragua.  In 2006, Nicaragua 
exported $33.8 million dollars in cigars to the United States. 
 
¶3. (U) According to Alejandro Martinez Cuenca, owner of the Joya de 
Nicaragua cigar company and a noted Sandanista economist, demand for 
premium, hand-rolled cigars is elastic, so any increase in price 
produces a corresponding decrease in sales.  He also suggested that 
premium, hand-rolled cigars are a luxury item and are less likely 
than cigarettes and machine-rolled cigars to be abused in their use. 
 
 
¶4. (U) Martinez Cuenca claimed the proposed cigar tax would 
jeopardize the jobs of 15,000 cigar workers.  He added that some 
15,000 indirect employees could also lose their jobs in the sector. 
Martinez Cuenca said that the average salary for a worker in a cigar 
manufacturing company is $160 - $200 dollars a month.  [Note: The 
minimum wage for the manufacturing sector is approximately $77 a 
month.  End Note.]  Meanwhile, Omar Ortez of Nicaraguan American 
Tobacco (NATSA) reported that 95% of the those employed by the 
Nicaraguan cigar industry are between the ages of 18 and 25 and that 
more than 60% are women. 
 
¶5. (U) In most cases, said Martinez Cuenca, these employees are the 
only wage earners in a family of five, meaning that 150,000 
Nicaraguans, of a regional population of 500,000, would be affected 
by the measure in the northern departments of Esteli, Madriz, and 
Nueva Segovia where tobacco cultivation and cigar manufacturing is 
concentrated.  Absent jobs in the tobacco sector, he suggested that 
most workers would return to subsistence agriculture or other 
seasonal work that would pay much less.  Representatives of the 
association also claimed that many in the region would likely 
immigrate to the United States were they to lose their jobs in the 
tobacco sector. 
 
Industry Response 
----------------- 

¶6. (U) Cigar industry representatives have met with Nicaraguan 
government officials to seek their support.  Minister of Trade, 
Industry, and Development Orlando Solorzano told the Ambassador in 
their July 26 meeting that he believes the tax would be inconsistent 
with CAFTA-DR obligations, if implemented (septel).  Martinez Cuenca 
later suggested to the Ambassador that although it might be 
difficult to show that the tax were inconsistent with CAFTA-DR, it 
would clearly violate the spirit of the agreement.  He said market 
access for cigars, which now enter duty free under CAFTA-DR, would 
become meaningless.  The Ambassador--both in his meeting with MIFIC 
Minister Solorzano and with cigar industry representative--replied 
that President Bush has already threatened to veto the bill, which 
may make a trade complaint unnecessary. 
 
¶7. (U) Nonetheless, representatives of the cigar industry in 
Nicaragua suggested they would seek to communicate with members of 
the U.S. Congress to inform them of the negative economic and social 
consequences the tobacco tax increase would have in Nicaragua.  They 
said they would coordinate their efforts with cigar industry 
representatives in Honduras and the Dominican Republic.  Nestor 
Plasencia, president of the association, has already written to U.S. 
Secretary of Commerce Carlos Gutierrez on the issue.  [Note: Post 
faxed this letter to Commerce/ITA/MAC on August 3.  End Note.] 
 
 
Comment 
------- 

¶8. (SBU) Although industry representatives emphasized the social and 
economic wellbeing of their workers in their meeting with the 
Ambassador, they are no doubt clearly also concerned the tax would 
harm their bottom line.  We have been careful to emphasize that we 
are limited by U.S. law from providing support for the tobacco 
sector (Reftel).  While we cannot independently confirm the 
employment information provided by the sector, a tax increase would 
likely dampen demand for cigars in the United States and threaten 
the livelihoods of many in the impoverished northern part of 
Nicaragua.  President Ortega may also seize on the tax as an example 
of "U.S. duplicity" in offering market access through CAFTA-DR only 
to cut it off after a trading partner begins to export.  End 
Comment. 
 
TRIVELLI