Nicaragua: “A transparent judicial system is important for investment”
“Investors look for countries where there is rule of law, transparency, a solid judicial system and efficient customs procedures”
Robert Manogue, head of the US State Department’s Office of Bilateral Trade came to Nicaragua to deliver a message: “We’re going to sign the strategic Trans-Pacific Partnership agreement (TPP), but you shouldn’t worry: the present CAFTA DR (Central America and Dominican Republic Free Trade agreement) will be protecting you for ten more years.” In addition, the functionary spoke of investment, and of the importance of a transparent judicial system, efficient customs procedures, and respect for the rule of law.
The TPP accord was signed on February 4 in New Zealand. When it has been ratified by at least 5 of the 12 countries involved, as long as those signers represent at least 50% of the combined GNP of the entire group, it will go into effect. When it does, it will create a commercial bloc representing 36% of the world’s GNP.
In this interview with Confidencial, Manogue explains that 85% of the products that our country exports to the US duty-free will enjoy a competitive advantage against similar products from the TPP zone for the next 10-12 years, during which the TPP partners will continue paying import duties to the United States.
In that way, Nicaragua – and to different degrees the other CAFTA countries – will maintain an advantage over the signers of the TPP (United States, Canada, Mexico, Peru, Chile, Japan, Vietnam, Malaysia, Singapore, New Zealand, Australia, and Brunei) who will have to continue paying tariffs for the majority of the products that they export to the US, many of which are similar to those that Nicaragua offers the North American market.
That lapse of time should serve the country in order to build the infrastructure and the institutions necessary to attract more foreign investment, generate more employment and taxes, increase exports and diminish poverty.
Nicaragua is making great efforts to broaden and diversify the amount of direct foreign investment that it receives each year. Does Manogue feel that the existing legal framework is appropriate for meeting this objective? What other laws would Nicaragua need to pass to attract more investors?
Basically, international investors – including those from the US – look for several things from the countries where they wish to invest. One of them is the rule of law: they want transparency and a solid judicial system. They also want to see market opportunities like the ones Nicaragua enjoys thanks to the free trade treaty with the United States.
In the current economic environment, countries need to have an excellent infrastructure including factories that produce goods or merchandise, and good highways to transport them to port.
An efficient customs apparatus is also needed, one that isn’t corrupt, so that the goods that Nicaragua imports can pass quickly through customs, without unnecessary delays. Finally, the country needs to have an educated labor force.
Have you carried out an evaluation to know which of these requirements Nicaragua meets?
Robert Manogue: I haven’t done a formal evaluation or a study, but, yes, it seems to me that in the last 5 to 8 years Nicaragua has done pretty well under CAFTA and has been generating more employment. They’ve done a good job creating more jobs.
Does the government of the United States have any programs to help our countries improve judicial security and infrastructure?
RM: The United States does have programs for this, and we’ve helped several countries – including Nicaragua – to facilitate trade. However, after a certain point the countries need to do this on their own.
When I converse with your journalist colleagues at the US embassy in Managua, they tell me that judicial insecurity is a recurring concern for investors within your country. Do you think the United States investors feel any more at ease with respect to this?
RM: Representatives of US businesses have told me of their ongoing concern that the judicial system isn’t as good as they’d wish it to be. It’s very important for all international or foreign investors, including those from the US, that the countries have a transparent judicial system, one that’s not corrupt, so that if they should encounter a legal problem they can appeal to the tribunals and know that they’ll be treated with transparency and justice.
If a country has a reputation for a judicial system that’s not like that, it will be very difficult for them to attract foreign investors.
You came to Nicaragua to speak about our country’s opportunities for achieving greater economic prosperity. What are these opportunities and what do we need to take advantage of them?
RM: Trade relations between the United States and Nicaragua are mainly managed through the CAFTA agreement. Nicaragua has had a lot of success under this agreement, but only with a limited line of products. It hasn’t taken advantage of other possible products that also are exempt from duty payments, even though Nicaragua enjoys preferential access for exporting some of them. Nicaragua needs to diversify its production and its exports under CAFTA.
Another problem that the Nicaragua exporters have is that they’re exporting to a small number of states – only ten – and they’re not exporting anything to the other 40 states that form part of our country. There are many Nicaraguans residing in these states who could help broaden exports.
What impact might the Trans Pacific Partnership Agreement (TPP) have on Nicaragua?
RM: The TPP still has to be ratified by Congress. From the moment it goes into effect, 85% of the products that Nicaragua exports under the CAFTA agreement will have an additional ten years during which they can continue entering the U.S. duty free.
Eventually, though, Nicaragua is going to lose the tariff advantage that it has had under CAFTA; as a result, you need to prepare yourselves. It’s plenty of time. The Nicaraguan economy is strong enough. We’d like to talk with Nicaragua and the other Central American countries about what we can do to strengthen still further our trade relations.
This is important for the government of the United States, and Nicaragua is the first country that we’re visiting to initiate these conversations.
RM: Because we believe that Nicaragua has had some success under CAFTA and we’d like to see the Nicaraguan economy grow still more. We value the relationship we have with Nicaragua and we recognize the concerns that they might have in regards to the TPP. So we’d like to provide them with information they can clearly understand about what is at stake.
In passing, we’d like to take advantage of this as a good opportunity to converse about our trade relations.
Due to the process of lowering mutual tariff barriers that is built into the framework of CAFTA, a number of products from the United States could begin to enter into our country free of import duties. It’s possible that some branches of Nicaraguan production might not be ready for this type of competition. Have you considered the possibility that Nicaragua might request broadening our protective tariffs?
RM: The United States isn’t considering any extension of the period for lowering the tariff barriers that was set out in CAFTA. Nicaraguan industry should prepare itself for the eventual reduction of these duties. We’ve found that when U.S. products reach a market, in reality it helps that market because it brings competition which serves to improve quality and offer more options to the consumers.
But it’s an unfair competition: Nicaraguan producers will be competing with subsidized U.S. producers…
RM: In reality, we spent many years negotiating and concluding the trade agreement with the Central American countries, including Nicaragua. We believe that, in the end, we arrived at a general agreement that is very beneficial to Nicaragua, to the rest of the countries in the region, and also to the United States.
Up until now, the agreement has had a great deal of success and we look forward to its continued success.
Do the bills presented before the United States Congress to expand the TPL (tariff preference levels) offered to Nicaragua under the CAFTA framework have any chance of passing?
RM: The TPL are a matter that must be resolved in Congress. If they choose to expand them, that’s their prerogative. I have no information about it.
This article has been translated from Spanish by Havana Times.