VZCZCXRO5951
PP RUEHLMC
DE RUEHMU #2497/01 3302213
ZNR UUUUU ZZH
P 262213Z NOV 07
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC PRIORITY 1706
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC

UNCLAS SECTION 01 OF 05 MANAGUA 002497 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS USTR 
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 
3134/ITA/USFCS/OIO/WH/MKESHISHIAN/BARTHUR 
 
E.O.  12958: N/A 
TAGS: ETRD EINV ECON NU
SUBJECT: NICARAGUA: INPUT FOR THE 2008 NATIONAL TRADE ESTIMATE 
 
REF: SECSTATE 119763 
 
TRADE SUMMARY 
------------- 
 
¶1.  The U.S. goods trade deficit with Nicaragua was $771 million in 
2006, an increase of $215 million from $555 million in 2005.  U.S. 
goods exports in 2006 totaled $755 million, up 20.7 percent from the 
previous year.  In 2006, U.S. imports from Nicaragua were $1.5 
billion, a 29.2 percent increase over 2005.  Nicaragua is currently 
the 73rd largest export market for U.S. goods. 
 
¶2.  The stock of U.S. foreign direct investment in Nicaragua in 2005 
was valued at $245 million (latest data available), up from $215 
million in 2004. 
 
IMPORT POLICIES 
--------------- 
 
Free Trade Agreement 
 
¶3.  On August 5, 2004, Costa Rica, the Dominican Republic, El 
Salvador, Guatemala, Honduras, Nicaragua, and the United States 
signed the Dominican Republic-Central America-United States Free 
Trade Agreement (CAFTA-DR).  CAFTA-DR entered into force for 
Nicaragua and the United States on April 1, 2006. 
 
¶4.  The agreement removes many barriers to trade and investment and 
will further regional economic integration.  CAFTA-DR requires 
Central American countries and the Dominican Republic to undertake 
the reforms needed to open markets and provide for greater 
transparency and certainty in a number of trade-linked public policy 
areas, including: customs administration, protection of intellectual 
property rights, services, investment, financial services, 
government procurement, and sanitary and phytosanitary measures. 
 
Tariffs 
 
¶5.  Nicaragua is a member of the Central American Common Market 
(CACM).  Nicaragua imposes regular import duties of 10 or 15 percent 
on many final consumer goods, a duty of 0 to 5 percent on most 
primary products, and a duty of 5 to 10 percent on those 
intermediate goods which compete with CACM products.  Some 
agricultural goods face tariffs higher than the CACM maximum common 
external tariff of 15 percent.  Duties are assessed on the cost, 
insurance, and freight (CIF) value of goods. 
 
¶6.  Under CAFTA-DR, about 80 percent of U.S. industrial and consumer 
goods may now enter Nicaragua duty-free.  Remaining tariffs will be 
phased-out by 2016.  Nearly all textile and apparel goods which meet 
the agreement's rules of origin are traded duty and quota free, 
opening new markets for U.S. and regional fiber, yarn, fabric, and 
apparel.  The agreement's tariff treatment for textile and apparel 
goods is retroactive to January 1, 2004. 
 
¶7.  More than half of U.S. agricultural exports enter Nicaragua 
duty-free under CAFTA-DR.  Nicaragua will eliminate remaining 
tariffs on nearly all agricultural goods within 15 years, including 
those on pork and yellow corn.  Nicaragua will eliminate tariffs on 
chicken leg quarters and rice by 2024 and on dairy products by 2026. 
 For the most sensitive products, tariff-rate quotas (TRQs) will 
permit immediate duty-free access for specified quantities during 
the tariff phase-out period, with the duty-free component expanding 
over time.  Nicaragua will liberalize trade in white corn through 
expansion of a TRQ, rather than through a series of tariff 
reductions. 
 
Non-Tariff Measures 
 
¶8.  The government levies a "selective consumption tax" on some 
luxury items that is 15 percent or less, with a few exceptions.  The 
tax is not applied exclusively to imports; however, domestic goods 
are taxed on the manufacturer's price while imports are taxed on the 
CIF value.  Alcoholic beverages and tobacco products are taxed on 
the price charged to the retailer. 
 
STANDARDS, TESTING, LABELING AND CERTIFICATION 
--------------------------------------------- - 
 
¶9.  On February 18, 2005, the executive issued a decree authorizing 
the agriculture ministry to recognize the equivalency of foreign 
meat and poultry inspection systems.  After inspecting the U.S. meat 
and poultry inspection system, the Government of Nicaragua indeed 
recognized the equivalence of the U.S. food safety and inspection 
system for meat and poultry, thereby eliminating the need for 
further meat packing plant inspections in the United States. 
 
¶10.  The U.S. Animal and Plant Health Inspection Service maintains 
protocols with Nicaragua for the export of U.S. rice, wheat, yellow 
corn, and seed potatoes.  All packaged food products must be 
registered with the Ministry of Trade, Industry, and Development. 
If a product is imported in bulk and packaged in Nicaragua, a 
phyto/zoosanitary certificate is required from the country of origin 
and the Nicaraguan Ministry of Health.  A phyto/zoosanitary 
certificate issued by Nicaragua is not required for products 
packaged in the United States. 
 
¶11.  Under CAFTA-DR, Nicaragua reaffirmed its commitment to abide by 
the terms of the World Trade Organization's (WTO) Import Licensing 
Agreement.  Import licenses are required to import alcoholic 
beverages; 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 alcoholic beverages 
distilled from sugarcane.  The five Central American countries, 
including Nicaragua, are developing common standards for the import 
of several key products, including distilled spirits, an effort 
which should eventually facilitate trade. 
 
¶12.  Law 291, approved in 1998, regulates the import of products of 
agricultural biotechnology.  The law was modified in 2003 to 
establish the Commission on Risk Analysis for Genetically Modified 
Organisms (CONARGEN), a panel composed of representatives from 
government and the academic community.  According to the law, the 
Minister of Agriculture and Forestry, taking into consideration risk 
analysis conducted by CONAGREN, makes a final decision on 
biotechnology imports.  Through this process, Nicaragua has allowed 
the entry of yellow corn for animal feed.  Law 291 also addresses 
the field-testing of biotechnology crops. 
 
¶13.  Two bills that would regulate the import of products of 
agricultural biotechnology are pending in the National Assembly. 
The former Bolanos administration submitted a science-based bill to 
the National Assembly in 2005, the Law on the Prevention of Risks 
from Living Organisms Modified through Molecular Biotechnology. 
This bill comprehensively defines the technical criteria and 
procedures needed to conduct risk analysis currently required by Law 
¶291.  The Ortega Administration has submitted a competing bill on 
Sovereignty, Food Security, and Nutrition that would prohibit the 
government from accepting food aid containing agricultural 
biotechnology products.  The proposal would also establish a 
National Commission headed by the President to regulate all food aid 
donations and draft, implement, and evaluate food security 
policies. 
 
¶14.  Nicaragua is a signatory of the Cartagena Protocol on 
Biosafety.  As mandated by the protocol, Nicaragua requires that 
agricultural goods containing living modified organisms (LMOs)-- 
unless they include 95 percent or greater non-LMO content--be 
labeled to indicate that they "may contain" LMOs. 
 
GOVERNMENT PROCUREMENT 
---------------------- 
 
¶15.  CAFTA-DR requires the use of fair and transparent government 
procurement procedures, including advance notice of purchases and 
timely and effective bid review procedures.  U.S. suppliers may 
therefore bid on procurements sought by most Nicaraguan Government 
entities, including key ministries and state-owned enterprises, on 
the same basis as Nicaraguan suppliers.  To make its bidding process 
more transparent and efficient, Nicaragua launched a computer-based 
procurement system in November 2006.  The anti-corruption provisions 
of CAFTA-DR require each government to ensure under its domestic law 
that bribery in matters affecting trade and investment, including 
government procurement, is treated as a criminal offense, or is 
subject to comparable penalties.  Nicaragua is not a signatory to 
the WTO Agreement on Government Procurement.  Procurement by 
government entities not covered by CAFTA-DR, as is the case for the 
National Electricity Company, remains characterized by 
nontransparent and irregular procurement practices. 
 
EXPORT SUBSIDIES 
---------------- 
 
¶16.  Nicaragua does not provide export financing.  However, all 
exporters receive tax benefit certificates equivalent to 1.5 percent 
of the free on board value of the exported goods.  Under 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 export of a given level or percentage of goods). 
Nicaragua may maintain existing duty waiver measures for such time 
as it remains an Annex VII country for the purposes of the WTO 
Agreement on Subsidies and Countervailing Measures (SCM). 
Thereafter, Nicaragua shall maintain any such measures in accordance 
with Article 27.4 of the SCM Agreement.  
 
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION 
--------------------------------------------- 
 
¶17.  CAFTA-DR provides improved standards for the protection and 
enforcement of a broad range of intellectual property rights, 
consistent with U.S. intellectual property standards and emerging 
international standards.  To implement the agreement, Niaragua has 
strengthened its legal framework for the protection of intellectual 
property rights by passing several new laws which provide 
state-of-the-art protections for digital products such as software, 
music, text and videos; stronger protection for patents, trademarks 
and test data, including an electronic system for the registration 
and maintenance of trademarks; and greater deterrence of piracy and 
counterfeiting. 
 
¶18.  Nicaraguan efforts to enforce intellectual property law remain 
limited.  During the first ten months of 2007, the Nicaraguan 
Government conducted 20 raids and the police seized 58,547 pirated 
DVDs, 21,629 CDs, 13 computers, 3 multi-purpose copiers, and other 
audiovisual equipment worth approximately $123,000.  In 2006, the 
government successfully prosecuted a case against a vendor selling 
pirated DVDs, but that conviction was later overturned.  In July 
2007, the Nicaraguan Government again successfully prosecuted a case 
in a local court against a Nicaraguan citizen selling pirated music 
CDs.  The offender was sentenced to two years in prison--later 
reduced to parole--and fined 5,000 cordobas ($267).  The Prosecutor 
General and National Police are currently investigating 28 
intellectual property cases for possible prosecution. 
 
SERVICES BARRIERS 
----------------- 
 
Financial Services 
 
¶19.  Nicaragua has ratified its commitments under the 1997 WTO 
Financial Services Agreement.  Those commitments cover most banking 
services, including the acceptance of deposits, lending, leasing, 
the issuing of guarantees and foreign exchange transactions. 
However, these rules do not cover the management of assets or 
securities.  Nicaragua allows foreign banks to operate either as 100 
percent-owned subsidiaries or as branches.  CAFTA-DR ensures U.S. 
financial services companies have full rights to establish 
subsidiaries, joint ventures, or bank branches. 
 
¶20.  The country's banking system is now stable following a severe 
restructuring in 2001-02.  In 2005, Nicaragua further strengthened 
the financial sector through banking law reform, the implementation 
of improved regulations governing the Superintendent of Banks and 
other Financial Institutions, and the creation of a deposit 
guarantee fund.  In recent years, large U.S. and foreign banks have 
invested directly in Nicaragua's financial sector. 
 
¶21.  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 enjoy full rights to establish subsidiaries and joint 
ventures, with a phase-in provision for 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.  Furthermore, Nicaragua accords substantial market access 
across its entire services regime, subject to very few exceptions. 
 
Other Services Issues 
 
¶22. The Law on Promotion of National Artistic Expression and on 
Protection of Nicaraguan Artists (Law 215, 1996) requires that 
foreign production companies contribute 5 percent of total 
production costs to a national cultural fund.  In addition, the law 
requires that 10 percent of the technical, creative, and/or artistic 
staff be locally hired.  Under CAFTA-DR, Nicaragua does not require 
U.S. film productions to contribute to the cultural fund or hire 
locally.  Under CAFTA-DR, Nicaragua opened its telecommunications 
sector to U.S. investors, service providers, and suppliers. U.S. 
exports of telecommunications equipment receive duty-free treatment. 
 The telecommunications sector is fully privatized and open to 
competition.  Enitel, the former state telephone company, is now 99 
percent owned by a Mexican telecommunications company.  The mobile 
telephone industry in Nicaragua is served by two nationwide 
operators.  Enitel controls switching for all cellular service and, 
therefore, may exercise leverage over companies seeking 
interconnection.  The telecommunications regulator TELCOR has 
generally encouraged competition in its licensing and regulatory 
practices.  However, a legal dispute between the executive and 
legislative branches over the country's public regulatory framework 
has resulted in a leadership stalemate at TELCOR. 
 
INVESTMENT BARRIERS 
------------------- 
 
¶23.  CAFTA-DR establishes a secure and predictable legal framework 
for U.S. investors operating in Nicaragua.  Under the agreement, all 
forms of investment are protected, including enterprises, debt, 
concessions, contracts, and intellectual property.  U.S. investors 
enjoy, in almost all circumstances, the right to establish, acquire, 
and operate investments in Nicaragua on an equal footing with local 
investors.  Among the rights afforded U.S. investors are due process 
protections and the opportunity to receive a fair market value for 
property in the event of an expropriation.  CAFTA-DR protects 
investor rights through an effective, impartial procedure for 
dispute settlement that is fully transparent.  The Nicaraguan 
Chamber of Commerce and the American Chamber of Commerce of 
Nicaragua operate separate mediation and arbitration centers. 
 
¶24.  During the 1980s, the Sandinista government confiscated some 
28,000 real properties.  Since 1990, thousands of individuals have 
filed claims for the properties' return of real property or 
compensation.  Compensation is most commonly granted via 
low-interest bonds issued by the government.  As of September 2007, 
the Nicaraguan Government had settled more than 4,500 U.S. citizen 
claims.  A total of 677 Embassy-registered U.S. claims remain 
outstanding.  The United States continues to press the Nicaraguan 
Government to resolve outstanding claims. 
 
¶25.  In August 2007, the Nicaraguan Government seized, via judicial 
order, several petroleum storage tanks owned by a U.S. company on 
the pretext that the company had not paid value-added taxes 
associated with the import of crude oil, despite the fact that 
unrefined petroleum is not subject to this tax and no mechanism 
exists to collect it.  The government then used the tanks to store 
petroleum products received from Venezuela under the terms of a 
state-to-state financing agreement.  In a separate instance, the 
courts ignored due process to declare oil exploration concessions 
invalid, forcing companies, including some U.S. companies, to 
renegotiate the terms of their concession agreements that had been 
tendered in a transparent manner by the previous administration. 
 
ELECTRONIC COMMERCE 
------------------- 
 
¶26.  CAFTA-DR includes provisions on electronic commerce that 
reflect its importance in global trade.  Under CAFTA-DR, Nicaragua 
must provide nondiscriminatory treatment of U.S. digital products, 
not impose customs duties on digital products transmitted 
electronically, and work together with the United States in policy 
areas related to electronic commerce. 
 
OTHER BARRIERS 
-------------- 
 
¶27.  The anti-corruption provisions of CAFTA-DR require each 
government to ensure under its domestic law that bribery in matters 
affecting trade and investment is treated as a criminal offense, or 
is subject to comparable penalties.  However, voices within and 
outside 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 orders (called an "amparo") to 
protect criminal suspects of white collar crime by enjoining 
official investigatory and enforcement actions almost indefinitely. 
Foreign investors are not specifically targeted, but find themselves 
at a disadvantage in any dispute with politically connected 
nationals. 
 
Law 364 
------- 
 
¶28.  U.S. companies and the U.S. Chamber of Commerce have voiced 
concern that Nicaraguan Law 364, enacted in 2000 and implemented in 
2001, 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. companies 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 mount a defense in court, and 
escrow requirements of approximately $20 million earmarked for 
payment of awards and minimum liabilities as liquidated damages 
(ranging from $25,000 to $100,000).  A November 2006 court order 
lifted a January 2006 embargo placed by the National Assembly on the 
trademark rights of a U.S. company allegedly involved in the 
distribution and use of this pesticide.  Some plaintiffs seek to lay 
claim to U.S. company assets in other countries.  The U.S. 
Government has been working with the affected companies and the 
Nicaraguan government to facilitate resolution of this issue. 
 
TRIVELLI