VZCZCXRO3906
PP RUEHLMC
DE RUEHMU #1390/01 3231724
ZNR UUUUU ZZH
P 181724Z NOV 08
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC PRIORITY 3391
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEAUSA/DEPT OF HHS WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 05 MANAGUA 001390 
 
SIPDIS 
 
STATE PASS USTR 
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 
HHS FOR FDA 
 
E.O.  12958: N/A 
TAGS: ETRD EINV ECON EAGR EFIN ECPS SOCI TBIO NU
SUBJECT: NICARAGUA: INPUT FOR THE 2009 NATIONAL TRADE ESTIMATE 
 
REF: STATE 88447 
 
TRADE SUMMARY 
------------- 
 
¶1.  The U.S. goods trade deficit with Nicaragua was $713 million in 
2007, a decrease of $61 million from $774 million in 2006.  U.S. 
goods exports in 2007 were $890 million, up 18.5 percent from the 
previous year.  U.S. imports from Nicaragua were $1.6 billion, up 
5.1 percent over the corresponding period.  Nicaragua is currently 
the 72nd largest export market for U.S. goods. 
 
¶2.  The stock of U.S. foreign direct investment in Nicaragua was 
$261 million in 2006 (latest data available), up from $245 million 
in 2005. 
 
¶3.  Note: Data in paragraphs 1 and 2 are based on the 2008 National 
Trade Estimate and are to be updated by Commerce Department.  End 
note. 
 
IMPORT POLICIES 
--------------- 
 
Free Trade Agreement 
 
¶4.  On August 5, 2004, the United States signed the Dominican 
Republic-United States-Central America Free Trade Agreement 
(CAFTA-DR or Agreement) with five Central American countries (Costa 
Rica, El Salvador, Guatemala, Honduras, and Nicaragua) and the 
Dominican Republic. 
 
¶5.  During 2006, the Agreement entered into force for the United 
States, El Salvador, Guatemala, Honduras, and Nicaragua.  The 
CAFTA-DR entered into force for the Dominican Republic on March 1, 
¶2007.  Costa Rica approved the CAFTA-DR through a national 
referendum on October 7, 2007, but the Agreement has not entered 
into force, as Costa Rica has not yet completed the process of 
adopting implementing legislation and regulations. 
 
¶6.  In 2008, the Parties implemented amendments to several 
textile-related provisions of the CAFTA-DR, including, in 
particular, changes the rules of origin to require the use of U.S. 
or regional pocket bag fabric in originating apparel. 
 
¶7.  Under the Agreement, the Parties remove barriers to trade and 
investment in the region, which will strengthen regional economic 
integration.  The CAFTA-DR also includes important disciplines 
relating to customs administration and trade facilitation, technical 
barriers to trade, government procurement, investment, 
telecommunications, electronic commerce, intellectual property 
rights (IPR), transparency, and labor and environmental protection. 
 
Tariffs 
 
¶8.  As a member of the Central American Common Market (CACM), 
Nicaragua agreed in 1995 to reduce its common tariff to a maximum of 
15 percent.  In response to rising prices, Nicaragua has 
unilaterally eliminated tariffs on many basic foodstuffs and 
consumer goods for the duration of 2008. 
 
¶9.  Under the CAFTA-DR, approximately 80 percent of U.S. industrial 
and consumer goods now enter Nicaragua duty free, with remaining 
tariffs phased out over 10 years, starting in 2006.  Nearly all 
textile and apparel goods that meet the Agreement's rules of origin 
now enter duty free and quota free, promoting new opportunities for 
U.S. and regional fiber, yarn, fabric, and apparel manufacturing 
companies. 
 
¶10.  Under the CAFTA-DR, more than half of U.S. agricultural exports 
now enter Nicaragua duty free.  Nicaragua will eliminate its 
remaining tariffs on nearly all agricultural goods over 15 to 20 
years, including those on pork, rice, and yellow corn.  Nicaragua 
will eliminate its tariffs on chicken leg quarters and rice within 
18 years and on dairy products within 20 years.  For certain 
products, tariff-rate quotas (TRQs) will permit some duty free 
access for specified quantities during the tariff phase out period, 
with the duty free amount expanding during that period.  Nicaragua 
will liberalize trade in white corn through expansion of a TRQ, 
rather than by tariff reductions. 
 
¶11.  Nicaragua and the other Parties have agreed to improve 
transparency and efficiency in administering customs procedures, 
including the CAFTA-DR rules of origin.  Under the CAFTA-DR, 
Nicaragua committed to ensuring greater procedural certainty and 
fairness in the administration of these procedures, and all the 
CAFTA-DR countries agreed to share information to combat illegal 
transshipment of goods. 
 
Nontariff Measures 
 
¶12.  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 cost, insurance, and freight value.  Alcoholic beverages and 
tobacco products are taxed on the price charged to the retailer. 
 
STANDARDS, TESTING, LABELING, AND CERTIFICATION 
--------------------------------------------- -- 
 
¶13.  On February 18, 2005, the government of Nicaragua issued a 
decree authorizing the Ministry of Agriculture to recognize the 
equivalency of foreign meat and poultry sanitary measures.  After 
auditing the U.S. meat and poultry inspection system, the government 
of Nicaragua recognized the equivalence of the U.S. food safety and 
inspection systems for meat and poultry, thereby eliminating the 
need for plant-by-plant inspections in the United States. 
 
¶14.  The U.S. Department of Agriculture's Animal and Plant Health 
Inspection Service entered into a protocol with Nicaragua in 2008 
for the export of U.S. seed and table potatoes.  Importations of 
rice, wheat, and yellow corn, previously conducted according to 
APHIS-negotiated protocols, now enter Nicaragua according to 
standards defined in Law 291, the General Animal and Plant Health 
Law. 
 
¶15.  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 phytosanitary or sanitary 
certificate is required from the country of origin and the 
Nicaraguan Ministry of Health.  Such certificates issued by 
Nicaragua are not required for products packaged in the United 
States.  However, Nicaragua continues to maintain bans on U.S. 
boneless beef from animals over 30 months of age, bone-in-beef, and 
live cattle, which are inconsistent with the World Organization for 
Animal Health (OIE) guidelines. 
 
¶16.  Under the CAFTA-DR, Nicaragua reaffirmed its commitment to 
abide by the terms of the World Trade Organization's (WTO) Import 
Licensing Agreement.  The Ministry of Health must provide a permit, 
renewable every five years, for the importation of any alcoholic 
beverage.  U.S. industry has expressed concern about Nicaragua's 
proposed standards for alcoholic beverages distilled from sugarcane. 
 However, Nicaragua and the other Central American countries are 
developing common standards for the importation of several key 
products, including distilled spirits, an effort that may eventually 
facilitate trade. 
 
¶17.  Law 291 regulates the importation 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. 
 
¶18.  Two bills that would regulate the importation of products of 
agricultural biotechnology are pending in the National Assembly.  A 
bill on the Prevention of Risks from Living Organisms Modified 
through Molecular Biotechnology comprehensively defines 
science-based technical criteria and procedures to conduct the risk 
analysis 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 to draft, implement, and 
evaluate food security policies. 
 
¶19.  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 
---------------------- 
 
¶20.  The CAFTA-DR requires the use of fair and transparent 
government procurement procedures, including advance notice of 
purchases and timely and effective bid review procedures for 
procurement covered by the Agreement.  Under the CAFTA-DR, U.S. 
suppliers may bid on procurements of 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 2006.  The anti-corruption provisions of the 
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.  Procurement by government entities 
not covered by the CAFTA-DR, such as the National Electricity 
Company, remains subject to nontransparent and irregular practices. 
 
¶21.  Nicaragua is not a signatory to the WTO Agreement on Government 
Procurement. 
 
EXPORT SUBSIDIES 
---------------- 
 
¶22.  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 the 
CAFTA-DR, Nicaragua is not permitted to adopt new duty waivers or 
expand existing duty waivers that are conditioned on the fulfillment 
of a performance requirement (e.g., the export of a given level or 
percentage of goods).  However, Nicaragua may maintain such duty 
waiver measures for such time as it is an Annex VII country for the 
purposes of the WTO Agreement on Subsidies and Countervailing 
Measures (SCM Agreement).  Thereafter, Nicaragua must maintain any 
such measures in accordance with Article 27.4 of the SCM Agreement. 
 
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION 
--------------------------------------------- 
 
¶23.  The CAFTA-DR provides improved standards for the protection and 
enforcement of a broad range of IPR, which are consistent with U.S. 
and international intellectual property standards, as well as with 
emerging international standards of protection and enforcement. 
Such improvements include state-of-the-art protections for digital 
copyrighted 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 further deterrence of piracy and counterfeiting. 
 
¶24.  However, Nicaraguan efforts to enforce intellectual property 
law remain limited.  In 2008, the National Police implemented a 
strategy to improve IPR enforcement that included a public awareness 
program, training on the detection of pirated goods and the 
application of IPR law, as well as the coordination of raids and 
seizures of pirated goods and equipment for their production. 
During the first eight months of the 2008, the police seized 350,000 
pirated and 80,000 blank DVDs and CDs and audiovisual equipment 
worth approximately $803,000.  However, the Nicaraguan Government 
did not arrest or convict a single IPR offender during the first 
eight months of 2008. 
 
SERVICES BARRIERS 
----------------- 
 
Financial Services 
 
¶25.  The CAFTA-DR ensures that U.S. financial services companies 
have full rights to establish subsidiaries, joint ventures, or bank 
branches, and U.S. insurance suppliers enjoy full rights to 
establish subsidiaries and joint ventures, with a phase-in provision 
for branches of financial services companies.  Nicaragua allows U.S. 
based firms to supply insurance on a cross-border basis, including 
reinsurance; reinsurance brokerage; marine, aviation, and transport 
insurance; in addition to other insurance services. 
 
Other Services Issues 
 
¶26.  Nicaragua accords substantial market access across its entire 
services regime, including financial services, subject to very few 
exceptions.  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 the CAFTA-DR, Nicaragua does not 
require U.S. film productions to contribute to the cultural fund or 
hire locally. 
 
¶27.  Under the 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, though some television and radio stations have refused 
to air programs critical of government policy for fear that 
political factors will be taken into consideration for the renewal 
of broadcast licenses.   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 protracted 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 
------------------- 
 
¶28.  The CAFTA-DR establishes a more 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 to 
U.S. investors are due process protections and the right to receive 
fair market value for property in the event of an expropriation. 
Investor rights are protected under the CAFTA-DR by an impartial 
procedure for dispute settlement that is fully transparent and open 
to the public.  Submissions to dispute panels and dispute panel 
hearings will be open to the public, and interested parties will 
have the opportunity to submit their views. 
 
¶29.  During the 1980s, the Sandinista government confiscated some 
28,000 real properties.  Since 1990, thousands of individuals have 
filed claims for the properties' return or for compensation. 
Compensation is most commonly granted via low-interest bonds issued 
by the government.  As of October 2008, the Nicaraguan government 
had settled more than 4,500 U.S. citizen claims.  A total of 617 
Embassy registered U.S. claims remain outstanding.  The United 
States continues to press the Nicaraguan government to resolve 
outstanding claims. 
 
¶30.  In August 2007, the Nicaraguan government seized, via judicial 
order, several petroleum storage tanks owned by a U.S. company, 
claiming that the company had not paid value added taxes associated 
with the importation of crude oil, even though crude oil is not 
subject to this tax.  The government subsequently purchased the 
storage tanks from the company and paid for the use of the tanks 
during the seizure.  In a separate instance, the courts declared oil 
exploration concessions invalid, forcing companies to effectively 
renegotiate some of the terms of concession agreements that had been 
tendered transparently by the previous administration. 
 
ELECTRONIC COMMERCE 
------------------- 
 
¶31.  The CAFTA-DR includes provisions on electronic commerce that 
reflect its importance to global trade.  Under the CAFTA-DR, 
Nicaragua has committed to provide nondiscriminatory treatment to 
U.S. digital products, and not to impose customs duties on digital 
products transmitted electronically. 
 
OTHER BARRIERS 
-------------- 
 
¶32.  The anti-corruption provisions in the 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.  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 can be erratic and frequently subject to nonjudicial 
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 may find 
themselves at a disadvantage in any dispute with Nicaraguan 
nationals. 
 
Law 364 
 
¶33.  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 liability 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 nonrefundable 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).  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. 
 
CALLAHAN