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.