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"Doing Business in Honduras Under
CAFTA*" A presentation by H.E. Mario M. Canahuati April 16, 2004 I am honored and delighted to be with you today. I feel at home and have a reason to feel that way. The special relationship between New Orleans, Louisiana and Honduras goes back over 100 years. The history of this special friendship has seen us through good and bad times. Honduras is forever grateful for the unconditional solidarity of this state and this city in particular, during Hurricane Mitch, its aftermath and the reconstruction process. Many Hondurans came many years ago – and they also have adopted New Orleans and Louisiana as their home. We also come to enjoy the hospitality and diversity of recreation offered by this beautiful state. Our youths come to acquire knowledge in the excellent Louisiana universities: LSU, University of New Orleans, Tulane. Some boast to have as alumni Hondurans who have achieved success in different fields such as President (Carlos Flores 1998 –2002), Mayor ( Miguel Pastor – the current Mayor of Tegucigalpa) and the Consul General in New Orleans (Maria Eugenia Lobo). This state also gave us a fabulous first lady, Mary Flakes. These are some of the many reasons why Louisiana occupies a special place in the hearts of every Honduran. I am here today to share with you the most recent achievements of the Honduran government– and concentrate on the implications that the Central American Free Trade Agreement (CAFTA) has for Central America and the United States, and specifically the benefits and opportunities that it presents to our business communities of Honduras and Louisiana. HONDURAS ADVANCING THE REFORM AGENDA Honduras today has achieved significant progress in its reform process. We have a committed pro-development government facing the challenges of poverty reduction, health and education upgrading in the social agenda. The social agenda is complementary to our development strategy and therefore a key factor for securing an environment suitable for investment. Let me take a step back, to describe the context in which CAFTA fits in as an element of Honduras’ and Central America’s development strategies. A series of reforms were undertaken since the beginning of President Maduro’s administration – they pave the way to improved transparency, rule of law and governance. Some of them are:
As Honduras moves forward to establish a secure growth and investment environment, it also has been negotiating the CAFTA. This agreement fits into Honduras’ strategy as an essential element for creating the opportunities that will allow economic growth, thus contributing to the stability brought about by hope while improving living standards. CAFTA: OPPORTUNITIES FOR CENTRAL AMERICA AND THE STATE OF LOUISIANA Trade between Central America and the United States totaled $22.7 billion in 2003. Central America ranks as the United States’17th largest export market. With the addition of the Dominican Republic, the region is the 13th largest export market for U.S. merchandise. LOUISIANA’S MERCHANDISE EXPORTS TO CAFTA COUNTRIES
The most significant increases for the 1999-2003 period in Louisiana exports to Central America were in the following sectors:
Exports from other U.S. states to Central America and the Dominican Republic have evolved similarly. In your neighboring states, Mississippi and Alabama, exports have increased 40 % and 85%, respectively, since 1999. The growth of Fabric Mill products has been quite significant in Alabama, from $14.5 million in 1999 to $121 million in 2003. This is a perfect example of the direct result of GOOD trade policy, in which mutually beneficial alliances are established and developed. This explosion of demand from the region for Fabric Mill products derives directly from the Caribbean Basin Initiative. Mississippi has increased processed food exports by 1,105% - from $1.7 million in 1999 to $180 million in 2003. South Carolina has increased its total exports 56% from US$163.9 million to US$256.5 million. To the West Coast – California has increased its total exports to the region by 49% since 1999. And Ohio a 113% - from $90.8 million in 1999 to $169.9 million in 2003. In turn, Central America will be able to provide non-traditional fruit and vegetables, more ethnic foods to please the taste of our communities throughout the U.S – as well as cementing its relationship with cotton growers, since in order to enter duty free, garments must be made of regional yarn. 56% of the apparel shipped from the region has United States content ( products from China have 0.26%) This means our demand for yarns, fiber mill and other products is helping maintain and even generate jobs in the U. S., that otherwise would have gone elsewhere. Again, this is an example of what true partnerships are about. These already increasing exports will grow even more when CAFTA is implemented, generating jobs in your home state. PORTS BENEFIT FROM TRADE Increased trade will also favor our ports - the Port of New Orleans and Puerto Cortés. Honduras ranks 5th among the Latin American countries shipping merchandise through New Orleans, after Brazil, Argentina and Mexico. CAFTA – THE AGREEMENT/SOME PROVISIONS The negotiations for this agreement were concluded in December 2003 – one of the negotiating rounds took place here in New Orleans. We reached an agreement that is good, both for the United States and Central America.
Under the Caribbean Basin Initiative (CBI), the majority of Central American products enter duty free to the U.S. already. CAFTA consolidates those preferences and makes them permanent – which means they will not represent a threat to U.S. industries since they have found their niches over the years since CBI was enacted. More than 80% of U.S. exports of consumer and industrial products to Central America will be duty-free within five years. All remaining tariffs will be eliminated within ten years. Key U.S. exports, such as information technology products, agricultural and construction equipment, paper products, chemicals and medical and scientific equipment will gain immediate duty-free access to Central America. There is one outstanding and groundbreaking aspect of this agreement and that is TRADE CAPACITY BUILDING - APPLYING DEVELOPMENT AND TRADE TOGETHER In a first for any free trade agreement, CAFTA will include a Committee on Trade Capacity Building, in recognition of the importance of such assistance in promoting economic growth, reducing poverty, and adjusting to liberalized trade. Private and non-government organizations joined in the effort in trade capacity building – and New Orleans and the state of Louisiana have risen to the challenge: The City of New Orleans and the State of Louisiana worked with local universities and entrepreneurs to establish "Idea Village International", an institute to train entrepreneurs in Central America. Today, Marcia Sergent and Jeremy Coon join us - they are with the Idea Village International / Trade Capacity Building Institute here in New Orleans – created specifically for CAFTA in order to achieve growth through entrepreneurship and education . Most (there are a few exceptions) of the business community in the United States has come out in support of this agreement, including:
There are countless opportunities through CAFTA for Louisiana specific sectors – which have already have been identified in and by your states – in your case the Louisiana Economic Development agency as being:
We have identified the Leading Sectors for Exports and Investment in Honduras – and we have found a match in most of them. Allow me to share a few cases with you:
Telecommunications equipment and services The telecommunications sector in Honduras is undergoing a major restructuring process, evolving towards competitive markets led by the private sector. On September 2003, the Government of Honduras formally launched the project "Telephone for All". An Executive Decree containing the conditions for the modernization, development and expansion of the telecom services market was ratified on October 2003. Through this Decree, the state-owned telecommunications company (Hondutel) may subscribe non-exclusive and non-discriminatory commercialization contracts with multiple telecom providers. Among the services that can be provided by telecom sub-operators are: local fixed telephony, national long distance, public telephones, carrier services and long distance international service. Access to telecommunications service in Honduras remains well below the Latin American average. As of October 2003, total unmet demand was 342,191 lines, with only 4.6 lines per one hundred inhabitants. Estimated telephony demand for 2006 is 752,605 lines. By encouraging private sector participation, this new program is expected to modernize, expand and upgrade the Honduran telecommunications network; service the growing unsatisfied demand; introduce competition for voice fixed services; and stimulate the provision of new telecom Food processing and packaging The total market for food processing and packaging equipment in Honduras has increased steadily over the past few years and further increases are expected in the years to come. The United States continues to be Honduras’ largest supplier of food processing and packaging equipment, enjoying a high level of acceptance and reputation for high quality. The total market for food processing and packaging machinery in Honduras increased from $9.2 million in 2002 to $9.5 million in 2003. Honduran exporters are pursuing expansion plans to increase production and improve the quality of their exports, particularly non-traditional agricultural products such as melons, watermelons, mangoes, winter vegetables, fruits and flowers. In addition, the constant opening of fast food and casual dining restaurants, bakeries, and sandwich stands also offer good opportunities for food processing and handling machinery. Agricultural products- Corn Honduras is ranked 6th among the leading 35 country markets for U.S. rice imports. Of all the grains produced in Honduras, rice is produced on the smallest scale. Chronic production problems have not allowed domestic rice farmers to increase their output and keep up with demand. As a result, rice imports have become a necessity in Honduras. Historically, virtually all rice imports have been from the U.S. Local rice millers prefer to import paddy rice for price reasons and to keep their plants running. However, milled rice is also imported into Honduras. In year 2001 the U. S. exported 135,573 MT of rice to Honduras, in 2002 exports increase to 145,441 MT. Honduran import demand is expected to remain strong in 2003.
Honduras ranks 26th among the leading 35 country markets for U.S. soybean meal exports. The growing poultry and shrimp sectors in Honduras have triggered increasing demand for soybean meal in recent years. Traditionally, Honduras has filled virtually all of its soybean meal demand with U.S. product. Domestic production is negligible and is not likely to increase significantly in the near future. During calendar year 2002 the U.S. exported 71,000 MT of soybean meal to Honduras and in 2003 it is expected to export 76,000 MT. Continued expansion in the feed industry, particularly for poultry production, should continue to fuel the demand for U.S. soybean meal in coming years. CURRENT POLITICAL ENVIRONMENT IN THE US CONGRESS AND ITS IMPLICATIONS FOR THE PASSAGE OF CAFTA
Thank you for your attention and I look forward to your questions. ************* Appendix ALABAMA: EXPORTS TO CENTRAL AMERICA AND DOMINICAN REPUBLIC
Source: Office of Trade and Economic Analysis, International Trade Administration, Department of Commerce ALABAMA: EXPORTS TO CENTRAL AMERICA
Source: Office of Trade and Economic Analysis, International Trade Administration, Department of Commerce MISSISSIPPI: EXPORTS TO CENTRAL AMERICA AND DOMINICAN REPUBLIC
Source: Office of Trade and Economic Analysis, International Trade Administration, Department of Commerce MISSISSIPPI: EXPORTS TO CENTRAL AMERICA
Source: Office of Trade and Economic Analysis, International Trade Administration, Department of Commerce SOUTH CAROLINA: EXPORTS TO CENTRAL AMERICA AND DOMINICAN REPUBLIC
Source: Office of Trade and Economic Analysis, International Trade Administration, Department of Commerce SOUTH CAROLINA: EXPORTS TO CENTRAL AMERICA
Source: Office of Trade and Economic Analysis, International Trade Administration, Department of Commerce CALIFORNIA: EXPORTS TO CENTRAL AMERICA AND DOMINICAN REPUBLIC
Source: Office of Trade and Economic Analysis, International Trade Administration, Department of Commerce CALIFORNIA: EXPORTS TO CENTRAL AMERICA
Source: Office of Trade and Economic Analysis, International Trade Administration, Department of Commerce OHIO: EXPORTS TO CENTRAL AMERICA AND DOMINICAN REPUBLIC
Source: Office of Trade and Economic Analysis, International Trade Administration, Department of Commerce OHIO: EXPORTS TO CENTRAL AMERICA
Source: Office of Trade and Economic Analysis, International Trade Administration, Department of Commerce IDAHO: EXPORTS TO CENTRAL AMERICA AND DOMINICAN REPUBLIC
Source: Office of Trade and Economic Analysis, International Trade Administration, Department of Commerce IDAHO: EXPORTS TO CENTRAL AMERICA
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