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RESTRICTED
WORLD TRADE
WT/TPR/S/167
19 June 2006
ORGANIZATION
(06-2809)
Trade Policy Review Body
TRADE POLICY REVIEW
Report by the Secretariat
NICARAGUA
This report, prepared for the second Trade Policy Review of Nicaragua, has been
drawn up by the WTO Secretariat on its own responsibility. The Secretariat has,
as required by the Agreement establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), sought clarification from Nicaragua on its trade policies and
practices.
Any technical questions arising from this report may be addressed to Mr Ricardo
Barba (tel. 022.739.50.88).
Document WT/TPR/G/167
Nicaragua.
Note:
contains the policy statement submitted by
This report is subject to restricted circulation and press embargo until the end of the first
session of the meeting of the Trade Policy Review Body on Nicaragua.
Nicaragua
WT/TPR/S/167
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS
I.
II.
III.
vii
(1)
INTRODUCTION
vii
(2)
ECONOMIC ENVIRONMENT
vii
(3)
TRADE POLICY AND INVESTMENT FRAMEWORK
viii
(4)
MARKET ACCESS FOR GOODS
ix
(5)
OTHER MEASURES AFFECTING TRADE
ix
(6)
SECTORAL POLICIES
x
ECONOMIC ENVIRONMENT
1
(1)
MAIN FEATURES OF THE ECONOMY
1
(2)
RECENT ECONOMIC RESULTS
2
(3)
TRADE AND INVESTMENT RESULTS
(i)
Trade in goods and services
(ii)
Foreign direct investment
4
4
10
(4)
PROSPECTS
11
TRADE AND INVESTMENT REGIME
13
(1)
GENERAL FRAMEWORK
13
(2)
TRADE POLICY GOALS
14
(3)
TRADE LAWS AND REGULATIONS
14
(4)
INTERNATIONAL TRADE RELATIONS
(i)
World Trade Organization (WTO)
(ii)
Preferential agreements
(iii)
Other preferential trade agreements
15
15
18
22
(5)
INVESTMENT FRAMEWORK
23
(6)
TRADE-RELATED TECHNICAL ASSISTANCE
24
TRADE POLICIES BY MEASURE
25
(1)
OVERVIEW
25
(2)
MEASURES DIRECTLY AFFECTING IMPORTS
(i)
Registration and documentation
(ii)
Customs procedures, clearance and customs valuation
(iii)
Rules of origin
(iv)
Tariffs, other duties and taxes
(v)
Import prohibitions, restrictions and licensing
(vi)
Contingency measures
(vii)
Standards and other technical requirements
(viii)
Government procurement
(ix)
Local content requirements
25
25
27
28
29
41
42
43
45
46
WT/TPR/S/167
Page iv
IV.
Trade Policy Review
(3)
MEASURES DIRECTLY AFFECTING EXPORTS
(i)
Registration and documentation
(ii)
Export taxes and minimum prices
(iii)
Export prohibitions, restrictions, licensing and quotas
(iv)
Export subsidies, financing, support and promotion
(v)
Free zones
47
47
47
47
48
48
(4)
MEASURES AFFECTING PRODUCTION AND TRADE
(i)
Incentives
(ii)
State-owned enterprises and privatization
(iii)
Competition policy and price controls
(iv)
Intellectual property rights
49
49
50
51
52
TRADE POLICIES BY SECTOR
57
(1)
OVERVIEW
57
(2)
AGRICULTURE AND RELATED ACTIVITIES
(i)
Main features
(ii)
Policy developments
(iii)
Crops
(iv)
Livestock
(v)
Fisheries
(vi)
Forestry
57
57
59
63
65
66
67
(3)
MINING AND ENERGY
(i)
Mining
(ii)
Energy
69
69
70
(4)
MANUFACTURING SECTOR
(i)
Main features
(ii)
Selected industries
73
73
77
(5)
SERVICES
(i)
Main features
(ii)
Financial services
(iii)
Telecommunications and postal services
(iv)
Transport
(v)
Tourism
78
78
80
82
84
87
REFERENCES
91
APPENDIX TABLES
93
Nicaragua
WT/TPR/S/167
Page v
CHARTS
Page
I.
ECONOMIC ENVIRONMENT
I.1
I.2
I.3
Nicaragua: exports, 1997-2005
Structure of merchandise exports and imports, 1995-2004
Direction of merchandise trade, 1995-2004
III.
TRADE POLICIES BY MEASURE
III.1
III.2
III.3
Breakdown of applied MFN tariffs, 2005
Breakdown of MFN tariffs by ISIC sector, 2005
Tariff escalation at the ISIC 2-digit level, 2005
IV.
TRADE POLICIES BY SECTOR
IV.1
Nicaragua's MFN tariffs by ISIC heading, 2005
6
8
9
32
33
34
76
TABLES
I.
ECONOMIC ENVIRONMENT
I.1
I.2
I.3
I.4
Main economic indicators, 2000-2005
Balance of payments, 2000-2005
Foreign direct investment, 2000-2004
Nicaragua: economic prospects, 2006-2010
II.
TRADE AND INVESTMENT REGIME
II.1
II.2
Nicaragua's main trade legislation, 2006
Main notifications made by Nicaragua to the WTO, as at 30 April 2006
III.
TRADE POLICIES BY MEASURE
III.1
III.2
III.3
III.4
III.5
III.6
III.7
III.8
Import documentation requirements according to the origin of the goods, 2006
Comparison of documentation requirements for exports and imports, 2005
Structure of MFN tariffs in Nicaragua, 1999-2005
Summary analysis of Nicaragua's MFN tariffs, 2005
Exceptions to the bound ceiling of 40%
Tariff quotas determined by Nicaragua, 2001-2005
Breakdown of MFN and preferential rates in Nicaragua's tariff
Main intellectual property legislation
IV.
TRADE POLICIES BY SECTOR
IV.1
IV.2
IV.3
IV.4
IV.5
IV.6
IV.7
IV.8
IV.9
IV.10
Agriculture: area, production and yields, 1999-2004
Agricultural support programmes, 1999-2004
Livestock, 1999-2005
Fisheries production, 2000-2004
Volume authorized for commercial forestry, 2000-2004
Value added, formal jobs generated and payment of mining royalties, 1999-2004
Gold and silver production and exports, 2000-2005
Relative levels of electricity production and consumption, 1999-2004
Size of the manufacturing sector, 2002
Cost structure for cotton trousers imported into the United States, 2005
2
4
10
11
15
16
26
27
29
30
35
37
39
52
58
61
65
66
68
69
69
72
73
78
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Trade Policy Review
Page
IV.11
IV.12
IV.13
IV.14
IV.15
Services and central government, 2004
Selected telecommunications indicators, 1999-2005
Port traffic in Nicaragua, 1999-2004
Comparative costs of shipping goods to the United States from Central America, 2005
Tourist arrivals in Nicaragua by geographical region, 2001-2005
79
82
84
85
87
APPENDIX TABLES
I.
ECONOMIC ENVIRONMENT
AI.1
AI.2
AI.3
AI.4
Structure of exports, 1995-2004
Destination of exports, 1995-2004
Structure of imports, 1995-2004
Origin of imports, 1995-2004
III.
TRADE POLICIES BY MEASURE
AIII.1
Applied MFN tariff averages by HS chapter, 2005
IV.
TRADE POLICIES BY SECTOR
AIV.1
AIV.2
Applied MFN tariffs, by ISIC Rev.2 category, 2005
Summary of Nicaragua's sector specific commitments under the GATS
95
96
97
99
100
104
108
Nicaragua
SUMMARY OBSERVATIONS
(1)
INTRODUCTION
1.
Since its first Trade Policy Review in
1999, Nicaragua has continued its transition
to a more market-oriented economy.
It
eliminated the temporary import tariff
introduced in 1994, and redrafted or amended
its legislation in many areas, including the
adoption of the Central American Regulations
on Customs Valuation, the enactment of a new
government procurement law, the approval of
several laws and agreements relating to
intellectual property rights, and the reform of
the free zone regime. Moreover, a draft
foreign trade law reorganizing the existing
legislation, a new customs law and a law on
competition are in preparation or ready for
approval. With the exception of safeguards on
certain agricultural products, Nicaragua has
not resorted to any contingency measures
since 1999, and non-tariff trade barriers
appear to be limited. But although the
average MFN tariff is relatively low, it has
increased over the past years owing largely to
the continued harmonization of the Common
External Tariff (CET) of the Central American
Common Market (CACM).
Within the
framework of the CACM, Nicaragua has also
been active in negotiating a number of
preferential trade agreements. In this respect
it is particularly important, for the sake of
efficiency and economic diversification, for
Nicaragua to continue liberalizing its economy
on an MFN basis and to anchor these efforts
in multilateral commitments.
(2)
ECONOMIC ENVIRONMENT
2.
Nicaragua's recent macroeconomic
performance has been broadly positive: the
average annual real GDP growth rate was
3.7 per cent during the 1997-2005 period (up
from -0.1 per cent for the period 1987-1996);
inflation has been contained to some extent
despite the increase in oil prices (9.6 per cent
in 2005); its fiscal deficit (before foreign
grants) went from 8.9 per cent of GDP in 2000
to 4.9 per cent in 2005; and the current
account deficit as a percentage of GDP
WT/TPR/S/167
Page vii
decreased from 20.1 per cent to 16 per cent in
the same period. Nevertheless, about 40 per
cent of Nicaragua's population lives below the
poverty line, and the economy remains
vulnerable, particularly because of the high
public debt, extensive dollarization, and the
weakness
of
the
financial
system.
Furthermore,
the
difficult
political
environment in Nicaragua has complicated the
steady implementation of its economic
reforms, discouraging investment.
3.
International trade in goods and
services is increasingly important to the
Nicaraguan economy, reaching 102.9 per cent
of GDP in 2005 (as compared to 82.4 per cent
in 2000), while the ratio of exports to imports
of goods and services rose from 51.4 per cent
to 56.5 per cent during the same period. The
current account has traditionally recorded a
deficit, but this has been financed by growing
inflows of foreign direct investment and
international assistance.
4.
Since its previous Trade Policy
Review, trade in goods in Nicaragua has
recorded a growing deficit:
from
US$1.01 billion in 2000 (25.6 per cent of
GDP), it rose to US$1.52 billion (30.4 per cent
of GDP) chiefly as a result of the increase in
fuel prices and the expansion of private
consumption and investment.
5.
Goods exports from Nicaragua
increased from US$880.6 million in 2000 to
US$1.552 billion in 2005. Meanwhile, exports
under the special free zone regime grew from
US$231 million in 2000 to US$682 million in
2005 while their share in total exports rose
from 26.2 per cent to 43.9 per cent. This is
partly the result of the increase in incentives
granted under the free zone regime.
6.
Nicaragua's export base is chiefly
concentrated in agricultural goods (in
particular coffee, peanuts, meat and
crustaceans), which represent more than
80 per cent of total goods exports.
Approximately one third of Nicaraguan goods
exports go to the United States, a figure which
is expected to increase with the entry into
WT/TPR/S/167
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force for Nicaragua of the Central America–
Dominican Republic Free Trade Agreement
with the United States (CAFTA) on 1 April
2006. Practically two thirds of total goods
imports are manufactures, chiefly machinery
and transport equipment, and chemical
products. Goods imports come mainly from
the United States, which accounts for almost
one fifth of the total.
(3)
TRADE POLICY AND INVESTMENT
FRAMEWORK
7.
Nicaragua is an original Member of
the WTO, and attaches considerable
importance to its participation in the
multilateral trading system. It considers the
multilateral trading system to be a vital
guarantee against discrimination and the use
of unilateral trade measures. Nicaragua
accords at least MFN treatment to all WTO
Members. It has been an active participant in
the Doha Development Agenda (DDA), having
submitted numerous proposals individually or
together with other WTO Members. Its main
focus in the DDA has been on agricultural
issues.
8.
Under the GATS, Nicaragua has made
commitments in practically all of the major
services categories for the purpose of
promoting
investment,
developing
an
appropriate services infrastructure, and
improving the sector's trade balance.
However, in line with its CACM obligations,
Nicaragua listed in relation to financial
services an MFN exemption under Article II of
the GATS, as regards the free transfer of
capital.
Nicaragua participated in the
WTO negotiations on financial services and
the Fifth Protocol to the GATS; it maintained
its observer status in the negotiations on basic
telecommunications services.
Nicaragua
submitted an initial offer on services in the
context of the DDA.
9.
Nicaragua maintains an active
programme of notifications to the WTO, but
there have been some delays in areas such as
agriculture, subsidies and countervailing
measures, and State trading enterprises. It
Trade Policy Review
has made relatively little use of the WTO
dispute settlement mechanism since its last
Trade Policy Review, having participated in
only four disputes: two as respondent (with
respect to a tax on goods and services from
Honduras and Colombia), and two as
claimant.
10.
Nicaragua pursues an autonomous
trade policy which, however, must be
compatible with its membership in the CACM.
In addition to the CACM and CAFTA,
Nicaragua has a bilateral trade agreement
with Mexico that dates back to 1998.
Moreover, together with the other member
countries of the CACM (Costa Rica,
El Salvador, Guatemala and Honduras), over
the past few years Nicaragua has initiated or
completed the following negotiations: an FTA
with the Dominican Republic which is already
in force; an FTA which has been completed
but has not yet been approved with
Chinese Taipei; and three that are currently
being negotiated with Canada, Chile and
Panama. CACM members are also holding
talks on possible extra-regional FTAs, inter
alia with the EC and CARICOM. Preferential
agreements have become an important
component of trade liberalization in
Nicaragua, but their growing number raises
concerns as to their administrative cost, their
impact on market access transparency, and the
risk of trade diversion.
11.
Through its Law on the Promotion of
Foreign Investment, which entered into force
in 2000, Nicaragua opened up its investment
regime to private investment, including foreign
investment, except in areas of activity that are
reserved for the State (for example electric
power transmission and the water and
sewerage system) or that are subject to certain
restrictions, such as the pension fund, border
zones, and certain specific transport areas.
Nicaragua accords national treatment in the
granting of investment incentives. It has
signed bilateral investment agreements with
several countries which complement the
general principles of non-discrimination and
investment guarantees laid down in its
Constitution.
Nicaragua
(4)
MARKET ACCESS FOR GOODS
12.
The simple average of Nicaragua's
MFN tariff rose from 4.2 per cent in 1999 to
5.8 per cent in 2005, owing largely to the
continued harmonization of the CACM's
Common External Tariff. According to the
WTO definition, the average applied
MFN tariff on agricultural products was
11.4 per cent in 2005 (7.9 per cent in 1999)
compared to 4.8 per cent for non-agricultural
products (3.4 per cent in 1999). Nicaragua
has bound all its tariffs, most of them (with
64 exceptions) at a ceiling rate of 40 per cent.
This creates a considerable discrepancy
between the applied and the bound rates,
generating uncertainty as to the applied rates.
All applied and bound tariffs are ad valorem.
13.
In addition to customs tariffs,
Nicaragua levies certain additional taxes on
imports.
These include a selective
consumption tax (ISC) that applies to a limited
number of non-essential goods, whether
domestic or imported;
a goods import
services tax (TSIM) consisting of a customs
commission of US$0.50 or the local currency
equivalent on each gross tonne or fraction
thereof; and VAT at a standard rate of 15 per
cent.
14.
Nicaragua has legislation that allows
the use of contingency measures to restrict
imports, and activated the special safeguard
provisions of the WTO Agreement on
Agriculture for four types of rice during the
period 2002-2003. It has not used any special
safeguards for those products since 2004.
Nicaragua has not had recourse to antidumping or countervailing measures since
1999.
15.
Nicaragua applies import prohibitions
to protect human health, animal and plant life,
the environment, or essential security or
military interests, in conformity with its
legislation or international commitments.
Imports of certain categories of product are
subject to non-restrictive licensing in the form
of prior authorization, which is imposed to
protect the public and/or national interest.
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Page ix
During the period under review, Nicaragua
notified the WTO of a significant number of
new sanitary and phytosanitary measures as
well as technical regulations.
16.
Nicaragua has adopted measures to
streamline import procedures and adjust its
import regime to multilateral rules, in
particular by adopting the WTO Customs
Valuation Agreement's transaction value
definition and eliminating minimum import
prices.
(5)
OTHER
TRADE
MEASURES
AFFECTING
17.
Nicaragua grants fiscal incentives to
exports essentially under the free zone regime.
Enterprises operating under that regime are
exempted from the following taxes: tariffs,
levies and sales tax on imports of machinery,
equipment (including transport equipment for
in-zone use) and inputs; export taxes on
goods produced in the zone; VAT; income
tax, 100 per cent for the first 10 years and
60 per cent thereafter; capital gains tax on
real estate in free zones; taxes on the
establishment, transformation, merger or
reorganization of a company as well as stamp
duty; municipal taxes; and indirect, sales or
selective consumption taxes.
18.
Between 1990 and 1995, most of
Nicaragua's State-run firms were privatized,
leased, returned to former owners or
liquidated by the General National Public
Sector Corporations Board (CORNAP).
However, some activities that were
traditionally administered by the State were
not privatized until recently: the Northern
Electricity
Distribution
Company
(DISNORTE) and the Southern Electricity
Distribution Company (DISSUR) were
privatized in 2000, and the privatization of the
Nicaraguan Telecommunications Company
(ENITEL) was completed in 2005.
19.
Since 1999, Nicaragua has introduced
a series of initiatives to boost competition in
its domestic markets, including the approval in
2005 of the Agreement on the Promotion and
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Page x
Protection
of
Competition
in
the
Telecommunications Market;
and at the
beginning of 2006, the General Assembly was
examining a draft law on competition. This
effort to boost competition is important, since,
the Nicaraguan economy, partly owing to its
small size, tends to generate market
concentration as, for example, in the case of
financial services.
20.
Prices in Nicaragua are generally
market-determined, although there are a
certain number of administered prices such as
electricity rates, profit margins for
pharmaceuticals for human consumption, and
the retail selling price of butane gas.
21.
Nicaragua is not party to the WTO
Plurilateral Agreement on Government
Procurement. However, in January 2000 it
replaced its former legislation with the Law on
Government Procurement, which enhances the
transparency of the procurement process.
Nicaraguan law provides for procurement to
take place chiefly through open public
tendering. According to the authorities, no
price preferences are given to Nicaraguan
suppliers over foreign suppliers.
22.
Nicaragua has significantly updated
its intellectual property legislation in recent
years. A number of laws have been adopted
with a view to bringing the country's domestic
regulations into conformity with the TRIPS
Agreement.
At the same time, as a
prerequisite for the entry into force of CAFTA,
in March 2006 Nicaragua strengthened its
legislation on patents, copyright, marks and
other distinctive signs, and industrial designs.
But although Nicaragua has consolidated the
legal framework for the protection of
intellectual property rights, some concern has
been expressed as to the enforcement of those
rights.
(6)
SECTORAL POLICIES
23.
Agriculture remains a key sector,
accounting for more than 80 per cent of goods
exports and employing a third of the labour
force. In recent years, producers of export-
Trade Policy Review
oriented crops (for example coffee, peanuts
and sesame) have improved their productivity
more than the producers of traditional crops
such as maize, beans, sorghum and rice. The
output and efficiency of Nicaraguan fishing
has also been steadily on the rise. Average
tariff protection in the agricultural sector
(Major Division 1 of the ISIC, Revision 2)
increased from 6.6 per cent in 1999 to 8.5 in
2005. However, in the case of certain poultry
cuts, tariffs were as high as 170 per cent.
24.
All of Nicaragua's natural resources
are owned by the State, which grants
concessions for their exploitation. Crude
petroleum is Nicaragua's largest import,
accounting for about 10 per cent of total
goods imports. Slightly more than half the
population has access to electricity. The
mining industry, whose basic legal framework
dates back to the 1950s and 1960s, is currently
being restructured.
MFN applied tariffs
average 2.2 per cent in the mining and
quarrying sector (Major Division 2 of the
ISIC, Revision 2) as opposed to 2 per cent in
1999.
25.
Most of Nicaragua's manufacturing
sector produces food and beverages.
Generally speaking, the country's textiles and
clothing industry has competed successfully at
the international level since the expiry of the
Multifibre Arrangement. The expansion of
Nicaragua's free zones over the past few years
has benefited the manufacturing industries
through tariff concessions and tax credits.
The average applied MFN tariff on
manufactures (Major Division 3 of the ISIC,
Revision 2) is 5.7 per cent, or excluding food
processing, 4.7 per cent.
26.
Services are the most important sector
in terms of their share of GDP (54.2 per cent
in 2005) and employment (68.4 per cent in
2004).
Among the services subsectors,
tourism is the main source of foreign
exchange, with earnings from tourism
accounting for 3.7 per cent of GDP in 2005.
Nicaragua has taken steps to overcome some
of the structural problems in specific areas of
services activity:
the financial services
Nicaragua
supervisory framework has been strengthened,
and the telecommunications sector is being
opened up. Nevertheless, Nicaragua needs to
substantially improve its infrastructure
(particularly roads and ports); build up an
efficient
financial
system
with
WT/TPR/S/167
Page xi
reduced intermediation margins that would
foster increased economic activity;
and
reduce telecommunications and transport
costs in order to improve the competitiveness
of its exports.