VZCZCXYZ0000
RR RUEHWEB

DE RUEHMU #1084/01 3031824
ZNR UUUUU ZZH
R 301823Z OCT 09
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 0043
INFO WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEAUSA/DEPT OF HHS WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC

UNCLAS MANAGUA 001084 
 
SIPDIS 
STATE FOR WHA/CEN AND EB/TPP/BTA 
USTR/GBLUE 
 
E.O. 12958: N/A 
TAGS: ECON EINV ETRD EAGR EFIN ECPS SOCI TBIO NU
SUBJECT: NICARAGUA: INPUT FOR THE 2010 NATIONAL TRADE ESTIMATE 
 
REF: 09 STATE 105824 
 
TRADE SUMMARY 
 
¶1.  The U.S. goods trade deficit with Nicaragua was $611 million in 
2008, a decrease of $103 million from $714 million in 2007. U.S. 
goods exports in 2008 were $1.1 billion, up 22.8 percent from the 
previous year. Corresponding U.S. imports from Nicaragua were $1.7 
billion, up 6.3 percent. Nicaragua is currently the 73rd largest 
export market for U.S. goods. 
 
¶2.  The stock of U.S. foreign direct investment (FDI) in Nicaragua 
was $203 million in 2007 (latest data available), up from $145 
million in 2006. 
 
¶3.  Note: Data in paragraphs 1 and 2 are based on the 2009 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-Central America-United States Free Trade Agreement 
(CAFTA-DR or Agreement) with five Central American countries (Costa 
Rica, El Salvador, Guatemala, Honduras, and Nicaragua) and the 
Dominican Republic (the Parties). Under the Agreement, the Parties 
are significantly liberalizing trade in goods and services. 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, transparency, and labor and 
environmental protection. 
 
¶5. The Agreement entered into force for the United States, El Salvador, Guatemala, Honduras, and Nicaragua in 2006. The CAFTA-DR entered into force for the Dominican Republic on March 1, 2007, and for Costa Rica on January 1, 2009.
 
¶6.  In 2008, the Parties implemented amendments to several 
textile-related provisions of the CAFTA-DR, including, changing the 
rules of origin to require the use of U.S. or regional pocket bag 
fabric in originating apparel. The Parties also implemented a 
reciprocal textile inputs sourcing rule with Mexico. Under this 
rule, Mexico provides duty-free treatment on certain apparel goods 
produced in a Central American country or the Dominican Republic 
with U.S. inputs, and the United States provides reciprocal 
duty-free treatment under the CAFTA-DR on certain apparel goods 
produced in a Central American country or the Dominican Republic 
with Mexican inputs. These changes will further strengthen and 
integrate regional textile and apparel manufacturing and create new 
economic opportunities in the United States and the region. 
 
Tariffs  
 
¶7.  As a member of the Central American Common Market, Nicaragua 
agreed in 1995 to reduce its common tariff to a maximum of 15 
percent. In response to rising prices, Nicaragua issued a series of 
decrees in 2007 to unilaterally eliminate, or reduce to 5 percent, 
tariffs on many basic foodstuffs and consumer goods. These decrees 
have been extended every six months and are currently in effect 
through December of 2009. 
 
¶8.  Under the CAFTA-DR, approximately 80 percent of U.S. industrial 
and consumer goods now enter Nicaragua duty-free, with remaining 
tariffs phased out by 2015. Nearly all textile and apparel goods 
that meet the Agreement's rules of origin now enter Nicaragua 
duty-free and quota-free, promoting new opportunities for U.S. and 
regional fiber, yarn, fabric, and apparel manufacturing companies. 
 
¶9.  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 by 2025, 
including those on pork, rice, and yellow corn. Nicaragua will 
eliminate its tariffs on chicken leg quarters and rice by 2023 and 
on dairy products by 2025. For certain products, tariff-rate quotas 
(TRQs) will permit 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. 
 
Nontariff Measures 
 
¶10.  Under the CAFTA-DR, Nicaragua committed to improve 
transparency and efficiency in administering customs procedures, 
including the CAFTA-DR rules of origin. Nicaragua also committed to 
ensuring greater procedural certainty and fairness in the 
administration of these procedures. All the CAFTA-DR countries 
agreed to share information to combat illegal transshipment of 
goods. 
 
¶11. 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 billed to the retailer. 
 
TECHNICAL BARRIER TO TRADE (STANDARDS, TESTING, LABELING, AND CERTIFICATION)
 
¶12.  Nicaragua and the other four Central American Parties to the 
CAFTA-DR are in the process of developing common standards for the 
importation of several products, including distilled spirits, which 
may facilitate trade. 
 
¶13.  Under the CAFTA-DR, Nicaragua reaffirmed its commitment to 
abide by the terms of the 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. 
 
Sanitary and Phytosanitary Measures 
 
¶14.  During the CAFTA-DR negotiations, the governments created an 
intergovernmental working group to discuss sanitary and 
phytosanitary (SPS) barriers to agricultural trade. Through the 
work of this group, Nicaragua committed to resolving specific 
measures affecting U.S. exports to Nicaragua. For example, 
Nicaragua now recognizes the equivalence of the U.S. food safety 
and inspection systems for beef, pork, and poultry, thereby 
eliminating the need for plant-by-plant inspections of U.S. 
producers. 
 
¶15.  In February 2009, Nicaragua fully opened its market to all 
U.S. beef and beef products in line with the World Organization for 
Animal Health (OIE) guidelines for "controlled risk" countries for 
Bovine Spongiform Encephalopathy (BSE). The OIE categorized the 
United States as "controlled risk" for BSE in May 2007. Prior to 
February 2009, Nicaragua prohibited imports of U.S. deboned beef 
from cattle 30 months of age and older and bone-in beef from cattle 
of any age. Nicaragua based its import prohibition on the 2003 
discovery of a BSE positive animal in the United States. Nicaragua 
and the United States are negotiating a protocol for the export of 
U.S. horses, goats, and sheep to Nicaragua. 
 
¶16.  In 2008, Nicaragua and the four other Central American Parties 
to the CAFTA-DR notified to the WTO a set of microbiological 
criteria for all raw and processed food products imported into any 
of these countries. The United States had some concerns with these 
criteria and in May 2008 submitted comments to the five countries. 
In March 2009, the Central American countries amended the proposed 
microbiological criteria to exclude the regulations applied to raw 
poultry. 
 
¶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. U.S. rice is tested for living modified organisms (LMOs) before shipment to Nicaragua and after arrival. Rice from other countries is not subject to these tests. Law 291 also addresses the field testing of biotechnology crops. However, these provisions have not been used.
  
¶18.  A bill on the "Prevention of Risks from Living Modified 
Organisms through Molecular Biotechnology" has been passed by the 
National Assembly but not yet signed into law. It would strengthen 
science-based principles in the analysis conducted by CONAGREN.
 
¶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. Under the CAFTA-DR, procuring entities must use 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 anticorruption 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, the National Assembly, the National Basic Foods Company, the Ministry of Tourism, the Supreme Court, the Ministry of Energy and Mines, and some public universities, remains subject to highly 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 may not 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 standards, as well as with emerging 
international standards of protection and enforcement of IPR. Such 
improvements include state-of-the-art protections for patents, 
trademarks, undisclosed test and other data submitted to obtain 
marketing approval for pharmaceuticals and agricultural chemicals, 
and digital copyrighted products such as software, music, text, and 
videos as well as further deterrence of piracy and counterfeiting. 
 
¶24.  In 2009, the Nicaraguan Government focused on improving 
interagency cooperation on IPR enforcement against copyright and 
trademark infringement. The Nicaraguan Government also improved its 
cooperation with private industry to combat IPR crimes in some 
areas, such as identifying vendors of pirated goods and offering 
training to Nicaraguan police officers. During the first seven 
months of 2009, the Nicaraguan police reported having seized 4,327 
backpacks that included designs infringing on a U.S. company's 
trademark rights. The police also seized 6,464 blank CDs. The 
monetary value of the seized goods is approximately $232,406. 
Despite these improvements, Nicaraguan efforts to enforce IP law 
remain limited. For example, the Nicaraguan government did not make 
any IPR-related arrests or convictions in 2009. 
 
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. Under the CAFTA-DR, Nicaragua granted U.S. services suppliers substantial access to its services market, 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 is committed to opening its 
telecommunications sector to U.S. investors, service providers, and 
suppliers.  In practice, the sector lacks a regulatory framework 
that would encourage free competition.  Enitel, the former state 
telephone company now owned by a Mexican investor, operates all 
fixed lines and splits the mobile phone market with a Spanish firm. 
In 2006, the Supreme Court blocked an effort by TELCOR, the 
telecommunications regulator, to make switching infrastructure 
owned by Enitel available to other fixed and mobile phone 
operators. In widely criticized process, TELCOR awarded spectrum in 
September 2009 to a company with ties to senior government 
officials. The executive branch has proposed legislation that would 
strengthen TELCOR's regulatory capacity and improve competition 
among telephone companies. However, some have expressed concern 
that it would allow the government to introduce political factors 
in the renewal of broadcast licenses. 
 
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 return of their property or to receive 
compensation. Compensation is most commonly granted via 
low-interest bonds issued by the government. As of October 2009, 
the Nicaraguan government had settled more than 4,600 U.S. citizen 
claims. A total of 563 Embassy registered U.S. claims remain 
outstanding. The United States continues to press the Nicaraguan 
government to resolve outstanding claims. 
 
In 2009, the government cancelled a provisional license for 
electricity generation granted to a wind energy consortium that 
included a U.S. partner. The government claimed the consortium had 
violated the terms of its license by beginning construction. After 
a six-week delay, the government granted a permanent license, and 
the consortium resumed construction. In 2008, the government 
restored four oil exploration concessions to two U.S. companies. 
These companies renegotiated some of the terms of concession 
agreements, which had been tendered in an otherwise transparent 
manner, after the government ruled they were invalid in 2007 
because autonomous regional governments had not been properly 
consulted. In 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. In a negotiated settlement, the government 
subsequently purchased the storage tanks from the company and paid 
for the use of the tanks during the seizure. 
 
ELECTRONIC COMMERCE 
 
¶30.  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 
 
¶31.  U.S. companies have raised concerns that Nicaragua's legal 
system is weak, cumbersome, and subject to political influence and 
that many members of the judiciary, including those at high levels, 
are believed to be corrupt. Enforcement of court orders can be 
erratic and 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 indefinitely. Foreign investors are not 
specifically targeted but often find themselves at a disadvantage 
in any dispute with Nicaraguan nationals. 

Law 364 
  
¶32. U.S. companies and the U.S. Chamber of Commerce have concerns 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, the 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