RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/120
29 August 2003
(03-4481)
Trade Policy Review Body
TRADE POLICY REVIEW
HONDURAS
Report by the Secretariat
This report, prepared for the  Trade Poli cy Review of Honduras, 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 fr om the Government of Honduras on its
trade policies and practices.
Any technical questions may be addressed to Mr Raymundo Valdes (tel.
022.739.5346, Mr Angelo Silvy (tel. 022.739.5249, or Mr Karsten Steinfatt (tel.
022.739.6759).
Document WT/TPR/G/120 contains the policy statement submitted by the
Government of Honduras.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on Honduras.Honduras WT/TPR/S/120
Page iii
CONTENTS
Page
SUMMARY OBSE RVATI ONS........................................................................................................... .vii
INTRODUC TION ................................................................................................................... ..............vii
ECONOMIC ENVI RONMEN T........................................................................................................... .vii
TRADE AND INVESTMENT  POLICIES...........................................................................................viii
MARKET ACCE SS IN GOODS ......................................................................................................... .viii
OTHER MEASURES A FFECTING TRADE........................................................................................ix
SECTORAL POLICIES .............................................................................................................. ...........ix
I. ECONOMIC ENVI RONMENT.................................................................................................1
(1) INTRODUCTION ............................................................................................................................1
(2) ECONOMIC STRUCTURE AND STRUCTURAL ADJUSTMENT ...........................................................1
(3) MAIN ECONOMIC INDICATORS .....................................................................................................4
(i) Production and employment ..........................................................................................4
(ii) Fiscal  policy.............................................................................................................. .....5
(iii) Monetary, exchange and pricing policies ......................................................................7
(iv) Balance of payments  and external debt .......................................................................10
(4) TRADE IN GOODS AND INVESTMENT FLOWS ..............................................................................12
(i) Composition of  trade ...................................................................................................12
(ii) Geographical distribution ............................................................................................12
(iii) Foreign dire ct investment ............................................................................................13
(5) OUT LOOK ..................................................................................................................... ..........14
II. TRADE AND INVEST MENT REGIME.................................................................................16
(1) INTRODUCTION ..........................................................................................................................16
(2) TRADE POLICY FORMULATION AND IMPLEMENTATION .............................................................16
(i) General legal and in stitutional fr amework...................................................................16
(ii) Trade policy objectiv es and form ulatio n .....................................................................18
(3) FOREIGN INVESTMENT REGIME .................................................................................................20
(4) INTERNATIONAL RELATIONS...........................................................................................23
(i) World Trade Organization ...........................................................................................23
(ii) Preferential  agreements................................................................................................27
III. TRADE POLICIES AND PR ACTICES BY MEASURE........................................................33
(1) INTRODUCTION ..........................................................................................................................33
(2) MEASURES AFFECTING IMPORTS ...............................................................................................34
(i) Registration, document ation and procedures...............................................................34
(ii) Customs valuation........................................................................................................35
(iii) Rules of or igin........................................................................................................... ..36WT/TPR/S/120 Trade Policy Review
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(iv) Tari ffs .................................................................................................................... ......37
(v) Tari ff quotas............................................................................................................... ..42
(vi) Other charges af fecting im ports...................................................................................42
(vii) Import licensing, permits an d other import re quirements............................................45
(viii) Prohibitions and other restri ctions ...............................................................................46
(ix) Anti-dumping and count ervailing measures ................................................................46
(x) Safeguard measures .....................................................................................................47
(xi) Standards and other t echnical requ irements ................................................................48
(3) MEASURES AFFECTING EXPORTS ...............................................................................................55
(i) Registration an d documentation ..................................................................................55
(ii) Taxes and mi nimum prices ..........................................................................................56
(iii) Prohibitions, licences and other rest rictions ................................................................56
(iv) Subsidies, free-trade z ones (FTZs) a nd the like...........................................................56
(v) Financing, insuran ce and guar antees ...........................................................................60
(vi) Export promotion and marketing a ssistance................................................................61
(vii) Measures applied in third markets ...............................................................................62
(4) OTHER MEASURES AFFECTING PRODUCTION AND TRADE .........................................................62
(i) Competition policy ......................................................................................................62
(ii) Government procurement ............................................................................................63
(iii) Price fixing, production contro ls and marketin g agreements ......................................66
(iv) State trading and State enterprises ...............................................................................67
(v) Incen tives .................................................................................................................. ...67
(vi) Trade-related inve stment measures..............................................................................69
(vii) Intellectual pr operty ri ghts...........................................................................................69
IV. TRADE POLICIES  BY SE CTOR............................................................................................75
(1) OVERVIEW ............................................................................................................................... ..75
(2) AGRICULTURAL AND LIVESTOCK SECTOR .................................................................................76
(i) Main fe atures ............................................................................................................... 76
(ii) Policy objectives  and instruments................................................................................77
(iii) Main products and subsectors :  performance and policies ..........................................80
(3) MANUFACTURING ......................................................................................................................87
(i) Main features and gene ral policy ob jectives................................................................87
(ii) Maquila  industry..........................................................................................................90
(4) ELECTRICITY .............................................................................................................................92
(i) Feat ures.................................................................................................................... ....92
(ii) Legal and instit utional fra mework...............................................................................94
(5) SERVICES ............................................................................................................................... ....96
(i) Main fe atures ............................................................................................................... 96
(ii) Financia l serv ices......................................................................................................... 98
(iii) Telecomm unications..................................................................................................108
(iv) Transport.................................................................................................................. ..113
REFERE NCES ..................................................................................................................... ...............117
APPENDIX TABLES................................................................................................................ ..........119Honduras WT/TPR/S/120
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CHARTS
Page
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Escalation of manuf actured produ cts, 2003..............................................................................39
IV. TRADE POLICIES BY SECTORIV.1 Coffee production, exports and export prices, 1993-2001........................................................82
IV.2 Banana production, exports and export prices, 1993-2001.......................................................83
IV.3 Tariff protection in the industrial se ctor, 2003 .........................................................................89
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Basic economic in dicators, 1995-2002 .......................................................................................2
I.2 Financial accounts of th e Central Government, 1996-2002........................................................5
I.3 Main monetary in dicators, 1995-2002........................................................................................9
I.4 Balance-of-payments, 1995-2002 .............................................................................................1 1
I.5 Flows of foreign dire ct investment , 1997-2001........................................................................14
II. TRADE AND INVESTMENT REGIME
II.1 Treaties and agreements concluded by Honduras
on the promotion and reciprocal  protection of investment .......................................................22
II.2 Notifications submitted by Honduras pursuant
to the WTO Agreements, February 2003..................................................................................24
II.3 WTO dispute settlement cases to which Honduras
is or has been a part y, 1996-February 2003..............................................................................26
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Summary analysis of th e Honduran tari ff, May 2003...............................................................37
III.2 Goods subject to special import arra ngements under the CACM, June 2003 ..........................40
III.3 Average tariffs under the main Hondu ran preferential ag reements, May 2003........................41
III.4 Honduras:  Main taxes on g oods and services, June 2003........................................................43
III.5 Main import procedures  and documents, May 2003.................................................................46
III.6 Standards and standardization pr ojects in Honduras, March 2003...........................................50
III.7 Principal sanitary and phytosanitary laws and regulations of Honduras, May 2003 ................53III.8 Central American Bank for Economic Integration:
Export promotion programmes be nefiting Honduras, May 2003 .............................................61
III.9 Threshold values for the applicat ion of tendering procedures, May 2003................................65
III.10 Record of patent a nd trademark re gistrations ...........................................................................70
IV. TRADE POLICIES BY SECTOR
IV.1 Production indicators for staple grains, 1995-2002 ..................................................................84
IV.2 Volume and value of shrimp exports, 1995-2001.....................................................................85
IV.3 Breakdown of gross value added in  the industrial sector, 1996-2001 ......................................88
IV.4 Priority areas identified in the Nati onal Competitiveness Programme, March 2003................90
IV.5 Main indicators relating to free-trade zones and
industrial export proces sing zones, 1995-2001.........................................................................91WT/TPR/S/120 Trade Policy Review
Page vi
IV.6 Main indicators in the el ectricity subsec tor, 1994-2002 ...........................................................93
IV.7 Summary of Honduras' GATS commitments ...........................................................................97
IV.8 Trends in the banking sector's net loan portfolio and deposits received, 1999-2002 .............100
IV.9 National insurance system, indicators  of insurance acti vities, 1997-2001 .............................104
IV.10 Telecommunications indicators, 1996-2001...........................................................................108
IV.11 Indicators for Honduras' in ternational airp orts, 1997-2001....................................................115
APPENDIX TABLES
I. ECONOMIC ENVIRONMENT
AI.1 Honduras:  Exports by country, 1995-2001............................................................................121
AI.2 Honduras:  Imports by country, 1995-2001............................................................................122
AI.3 Honduras:  Exports by product, 1995-2001............................................................................123
AI.4 Honduras:  Imports, 1995-2001 .............................................................................................. 124
III. TRADE POLICIES AND PRACTICES BY MEASURE
AIII.1 Honduran labelling re quirements, May 2003 .........................................................................125
AIII.2 Participation of Honduras in  international IPR agreements....................................................127
AIII.3 IPR le gislation.......................................................................................................... ...............128
AIII.4 Honduran IPR enfo rcement regime ........................................................................................12 9
IV. TRADE POLICIES BY SECTOR
AIV.1 Financial system institutions, office s and employees, as at 31 December 2002.....................131
AIV.2 Financial system laws , regulations and decrees......................................................................134Honduras WT/TPR/S/120
Page vii
SUMMARY OBSERVATIONS
INTRODUCTION
Honduras has taken important steps to
liberalize both its trade and investmentregimes, and thus become increasingly
integrated into the global economy.  Applied
MFN tariffs have been lowered to an average
of 6 per cent, and limited use is made of non-
tariff trade measures.  New laws have beenpassed in areas such as foreign investment,
customs procedures, government procurement,
and several service activities, although their
implementation is yet to be completed in some
cases.  The anti-export bias still present in thetrade regime has been in part counteracted
through the use of free-trade zones (FTZs).
These have been key generators of
employment and investment but their long-
term rationale may need reconsideration in
the light of Honduras' modest rates of overall
economic growth.
The rapid growth of FTZ production
has transformed manufactures into a key
export, but market and product diversification
for merchandise exports remains limited.Remittances from Hondurans living abroad
make a vital contribution to external balances.
Relations with the United States are
paramount on both accounts.  Honduras'
increasing participation in preferentialagreements may help diversify its economic
links, but its weak institutional capacity makes
it exceptionally difficult to negotiate and
implement effectively multiple agreements.
Honduras thus has much to gain by seeking tostrengthen the multilateral trading system, and
by expanding its multilateral commitments to
lock in its own reforms and thus shore up its
efforts to improve the living standards of the
Honduran population.
E
CONOMIC ENVIRONMENT
In recent years, Honduras' economy
has been growing steadily but at a slow pace,
although available data may underestimate the
actual level of economic activity.  AverageGDP growth over the 1995-2002 period was
3.1 per cent, barely higher than the rate of
population growth.  Honduras' per capita
GDP, at some US$900, thus remains one of
the lowest in Latin America.  Althoughdevelopment indicators have improved during
the last decade, it is estimated that some two
thirds of the population still live in poverty.
Honduras has followed programmes
of structural reform and monetary discipline
to try to accelerate economic growth.  As a
result, inflation has fallen but competitiveness
has been undermined by a real currency
appreciation.  On the fiscal side, measureshave been introduced to curtail the Central
Government deficit which, however, remains
relatively high.  Structural reform has been
slow in addressing the inefficiencies in State-
owned enterprises, the regulatory weakness in
financial services, and the low level of
competition in certain domestic markets.
International trade plays a crucial
role in the Honduran economy.  The share in
GDP of trade in goods and services was
95 per cent in 2002.  Exports are dominatedby products from the maquila industry, in
particular clothing, and by agricultural
products such as coffee, shrimps, and
bananas.  The United States is by far
Honduras' main trading partner, including inmaquila products.
Honduras' external current account
traditionally posts a deficit, due mainly to a
high merchandise trade deficit.  Remittancesfrom workers living abroad, mainly in the
United States, and external aid play important
roles in financing the current account deficit.
Foreign direct investment has increased in
importance, having reached an accumulated
total of close to US$1.7 billion in 2001.  The
United States is the largest investor, but FDIinflows from countries in Central America and
Mexico are also important.  Honduras has
benefited from the Highly-Indebted Poor
Countries programme and from the
renegotiation of its debt in the Paris Clubunder the Naples terms.WT/TPR/S/120 Trade Policy Review
Page viii
TRADE AND INVESTMENT POLICIES
Honduras joined the GATT in 1994
and became a WTO Member in 1995.  It
grants at least MFN treatment to all its
trading partners.  To facilitate theimplementation of multilateral agreements,
Honduras has adapted several domestic
statutes.  As a developing country, Honduras
has made use of the transition periods
provided for in the different WTO Agreements.
Honduras has made numerous
notifications to the WTO, but as of March
2003 several were pending in areas such as
customs valuation, import licensing,quantitative restrictions, technical barriers to
trade, trade-related investment measures, and
services.  Honduras participated in the WTO
negotiations on financial services in the
framework of the GATS;  the Fifth Protocol
was ratified in 1999.  Honduras did not
participate in the WTO negotiations ontelecommunications, nor does it participate in
the Information Technology Agreement.
Important steps have been taken to
liberalize Honduras' legal and investmentframework.  However, some reforms have not
been fully implemented.  Honduras has
stepped up its efforts to fight corruption and to
strengthen its institutional capacity, which are
both important initiatives to promote tradeand investment.
Honduras has given growing
importance to its participation in preferential
agreements.  It has been a member of theCentral American Common Market since
1961.  Although most intra-regional trade is
now duty-free, a few exceptions persist;
market access is also hindered by technical
barriers to trade, and sanitary and
phytosanitary requirements.  As a member of
the Central American Common Market,Honduras has signed or is negotiating free-
trade agreements with Canada, Chile,
Dominican Republic, Mexico, Panama and the
United States.  The latter is seen as crucial
and Honduras has given priority to itssuccessful negotiation.  In addition, Honduras
participates in the negotiations on a Free
Trade Area of the Americas.
As is the case for many other countries
following similar strategies, Honduras'growing network of preferential agreements
raises concerns about the transparency of the
trade regime, and possible trade and
investment diversion.  The burden of
negotiating and administering suchagreements is of special concern in the case of
Honduras, given its limited institutional
capacity.
M
ARKET ACCESS IN GOODS
Since the early 1990s, Honduras has
made significant strides towards liberalizing
its market access regime for goods.  The
simple average applied MFN tariff fell to 6 per
cent in 2003, from around 17 per cent in 1993.
The tariff structure shows clear escalation;  a
more uniform tariff structure would promoteeconomic efficiency.  All tariffs are ad valorem
and bound at a ceiling rate of 35 per cent or
lower, except for a few products with ceiling
rates of up to 60 per cent.  For a handful of
products, applied tariffs may exceed boundlevels.  Lower bindings would further improve
market access predictability.
As part of a price band system,
imports of maize, some of its products, andsorghum are subject to tariffs that vary in
inverse proportion to world prices.  Domestic
processors may import certain grains at
preferential duties provided they also
purchase the local production.  Imports ofcertain goods needed for the development of
FTZs, and tourist and mining operations are
exempt from tariffs.
Internal taxes are generally applied in
a non-discriminatory manner.  Domestically
grown flowers are exem pt from sales tax.
Apparently, sales taxes applied to imported
cigarettes and certain beverages are
calculated on the basis of the price of the
corresponding domestically produced goods.Honduras WT/TPR/S/120
Page ix
Steps have been taken to expedite
customs procedures through the adoption of
an automated system.  Honduras has applied
the WTO Customs Valuation Agreement since
February 2000 and ceased using minimum
values at the beginning of 2003.
Honduras has never applied anti-
dumping or countervailing duties, nor has it
implemented safeguard measures.
The use of non-tariff barriers appears
to be limited.  However, transparency needs to
be improved, as none of the technical
regulations currently in force has been
notified to the WTO.  Two WTO Members haveraised concerns about Honduras' sanitary and
phytosanitary measures, but no formal
complaints have been lodged.
O
THER MEASURES AFFECTING TRADE
Honduras' last remaining export tax
was eliminated in 2000 and no export quotasare in force.  Export prohibitions reflect
international commitments and security
considerations, except in the case of wood
from certain forests, which cannot be exported
unless incorporated into furniture or furnitureparts.
Honduras assists its exports through
two, largely equivalent, FTZ regimes.  Both
exempt eligible firms from import duties andother taxes, including income tax.  Another
scheme, known as the Temporary Import
Regime, is more limited and allows eligible
firms to import free of duty and other charges
inputs and machinery for the production ofexport goods.  Honduras reserved its right to
use the special procedure agreed to by the
WTO Ministerial Conference at Doha to
request an extension of the transition period to
phase out export subsidy programmes.
Honduras is not a party to the
Plurilateral Agreement on Government
Procurement.  A new law adopted in 2001 is
likely to diminish discretion in this area and
increase competition and transparency, but
much will depend on the establishment of aninstitutional structure to implement the law.
The law establishes a margin of preference for
domestic producers and products, and limits
the extent to which foreign-based firms can
participate in public procurement.
Honduras has no general competition
policy legislation, and certain legal provisions
currently in force might encourage anti-
competitive behaviour.  The State plays a key
role in certain sectors, such astelecommunications and electricity, and
controls the prices of a limited number of
products.
The TRIPS Agreement came into force
in Honduras on 1 January 2000.  Honduras
has stepped up action to improve IPR
protection, including through new legislation
on copyright and industrial property;  this has
been notified to the WTO and reviewed by the
TRIPS Council.
S
ECTORAL POLICIES
Agriculture accounts for almost one
quarter of GDP and is a crucial source of
jobs, employing some 38 per cent of the
working population.  Production isconcentrated on a few products, with bananas,
coffee, maize, and sugar cane representing
almost half of agricultural value added.  No
legal constraints exist on the production or
marketing of agricultural products.  In thewake of natural disasters and adverse
international market conditions, most notably
for coffee, the sector has benefited from
official financial assistance, including debt
forgiveness.  In late 2002, the Governmentlaunched the Agricultural RoundTable, a
consultation mechanism between the public
and private sectors to design a comprehensive
agricultural policy to confront the sector's
long-standing problems.
The contribution of manufacturing to GDP is
around 15 per cent.  Two sectors account for
the bulk of manufacturing value added:  food,
beverages, and tobacco;  and textiles and
clothing.  The latter has grown rapidly and is
mostly located in FTZs, whose importance asWT/TPR/S/120 Trade Policy Review
Page x
generators of employment and foreign
exchange continues to increase.  In time,
however, and because of their distorting
effects, it may become necessary to reassess
the net economic benefits of these schemes.
The services sector is of considerable
importance for Honduras, contributing over
half of GDP.  Honduras has made efforts to
reform some essential service sectors in the
past few years, in particular electricity andtelecommunications, but results have been
modest.  Although new legislation has been
adopted to enhance competition in both
sectors, attempts to privatize have not been
successful, and State-owned monopoliesremain dominant.  The banking sector
experienced serious difficulties in past years,
leading to the enactment of new and stricterregulations.  Despite the changes, however,
the sector remains institutionally weak.
In the WTO, Honduras has bound
commitments with respect to four broad
service categories.  It has included a numberof horizontal limitations to foreign investment
in its Schedules of Specific Commitments.  The
reforms undertaken in its regulatory system in
recent years go way beyond its WTO
commitments.  The legal regime could thus bestrengthened and its predictability enhanced
by binding multilaterally this autonomous
liberalization.  This could also help attract
more FDI and contribute to the modernization
of sectors vital for the development of thecountry.