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TRADE POLICY REVIEWS: FIRST PRESS RELEASE, SECRETARIAT AND GOVERNMENT SUMMARIES
Nicaragua: October 1999

Since the early 1990s, Nicaragua has taken significant steps towards establishing a market-based, outward-oriented economy, reversing the import-substitution policies of earlier years and addressing severe economic imbalances. As a result, Nicaragua has become a more open and secure market for trading partners. The expansion of Nicaragua's trade growth is set to continue with its accelerated integration into the world economy, says a new WTO report on the trade policies of Nicaragua.

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See also:

Second press release
Chairperson’s concluding remarks


PRESS RELEASE
PRESS/TPRB/118
18 October 1999

Increased integration into the world economy is to sustain Nicaragua's development Back to top

Since the early 1990s, Nicaragua has taken significant steps towards establishing a market-based, outward-oriented economy, reversing the import-substitution policies of earlier years and addressing severe economic imbalances. As a result, Nicaragua has become a more open and secure market for trading partners. The expansion of Nicaragua's trade growth is set to continue with its accelerated integration into the world economy, says a new WTO report on the trade policies of Nicaragua.

Along with a policy statement by Nicaragua's government, this report will serve as a basis for the first trade policy review of this country, that will be conducted by the Trade Policy Review Body of the WTO on 25 and 27 October 1999.

The report notes that the liberalization of the trade, foreign exchange, and investment regimes, accompanied by progress in de-regulation and on-going public sector reforms, have resulted in a resumption of economic growth, the reduction of inflation and a decline in unemployment from 17.8 % in 1993 to 13.2 % in 1998, with new jobs being created in expanding sectors. Nicaragua's private sector and export competitiveness have been considered by the authorities as the key elements for economic growth. Foreign investment in Nicaragua has grown and diversified under the guarantees and incentives provided by the regulatory framework.

Despite damages equivalent to 50-65 % of Nicaragua's GDG from the hurricane Mitch's passage in 1998, projections for 1999 indicate an acceleration of real GDP growth to 6 %. However, GDP per capita remains lower than two decades ago, and progress in social welfare remains a challenging task, says the report. With an estimated US $ 446 GDP per capita in 1998, Nicaragua is still the second poorest nation in the hemisphere and approximately half the population lives in poverty. External debt remains high, despite several restructuring and forgiveness initiatives.

During the 1990s, Nicaragua has undertaken autonomous reforms in trade and related policies, while pursuing greater integration in the world economy, both at the multilateral level through the completion and implementation of the results of the Uruguay Round, and at the sub-regional level through the Central American Common Market (CACM) and bilateral agreements. Trade policies objectives have included the reduction of the anti-export bias of past distortive policies as well as the improvement of access and diversification of Nicaraguan exports. More precisely :

Nicaragua has restructured its customs tariff in order to comply with its WTO binding commitments and to converge progressively to levels agreed within CACM. This process has brought a considerable decrease in its average MFN rate, from 20.6 % in 1994 to 4.1% in July 1999. Recourse to other forms of protection has been limited to a few instruments and sectors.

Under the Uruguay Round, Nicaragua bound its entire tariff at a general ceiling level of 40 %, except for "tariffied" agricultural products and certain industrial items.

A temporary protection tariff, introduced in 1994, is to be fully phased-out by 2001. Since January 1999, this surcharge, which does not act to breach WTO bound rates, has affected 33 items, including beer, spirits and tobacco products, at rates ranging from 5 to 20 %.

Furthermore, under an autonomous tariff-reduction plan (1997-2004), the dispersion and levels of Nicaragua's applied tariff structure are being reduced. Protection for sensitive agricultural items, such as dried beans, maize, sorghum and poultry, is to be reduced progressively. In July 1999, CACM-related changes reduced maximum tariff levels for finished consumer goods to 10 %.

Efforts have been made to streamline customs clearance procedures; Nicaragua is expected to replace its present customs valuation basis with the "transaction" value method by September 2000. The amount of consular fees depends on the import value and a customs service tax is levied on a weight basis.

Nicaragua has had virtually no recourse to contingency protection. It has prohibited all WTO inconsistent non-tariff barriers and has not introduced import prohibitions on commercial grounds. Regulations on import prohibitions intended to protect exclusive representation arrangements at the border were eliminated in 1997. A CACM phytosanitary prohibition on imports of low-cost rice from Vietnam was lifted unilaterally in March 1998. Trade monopolies have been eliminated, and, in government procurement, national treatment is granted to foreign bidders represented legally in Nicaragua.

For the time being, export prohibitions affect a few forestry and fishery items, with a view to avoiding the depletion of natural resources. Prior authorization is required for certain exports such as capital goods (re-exports), sawn woods and metal scrap; export certificates are used to administer quotas related to access to certain markets, such as for meat, sugar, groundnuts/peanuts to the United States, and meat, milk powder, cheese and dried beans to Mexico.

Direct assistance to non-traditional exports, which had grown considerably, was eliminated in 1997. And by 2003 Nicaragua is expected to bring any prohibited export subsidies (i.e. other than contingent upon export performance) into line with relevant WTO provisions.

The report notes that Nicaragua has undertaken changes in its legislative and institutional framework, driven by constitutional reform, agreements with multilateral financial institutions and incorporation of regional and multilateral trade commitments. Despite the lack of extensive enforcement resources, efforts are being made to update and expand the legal framework for the protection of intellectual property rights.

Although Nicaragua has met several regular GATT/WTO notification requirements relating to its legislation, the transparency of its trade regime could be further enhanced through timely communication of all trade measures, says the report.

Regional and bilateral trade agreements are seen by the authorities both as complementary to Nicaragua's participation in the multilateral trading system and as a means to balance the effect of similar third-party agreements (e.g. NAFTA) on its exports. Integration within the Central American Common Market (CACM) has advanced significantly. Within CACM, Nicaragua has been a driving force for open regionalism and has participated in the group's efforts to negotiate trade and/or investment agreements with other regional groups or individual partners.

Since 1993, Nicaragua's trade structure has changed slightly. Exports, which totalled US $ 666.6 million in 1997, against US $ 266 million in 1993, are now less dominated by primary and mining products, as a result of considerable growth in the share of manufactured goods – now a fourth of Nicaragua's exports against 9.4 % in 1993. The same trend is seen for imports of manufactures, which represent now 71.6 % of the US $ 1,469.6 million total imports.

Trade expansion has largely been with respect to the United States, which reinforced its position as Nicaragua's single largest supplier and export outlet. The European Union increased its share as Nicaragua's second most important export destination. Trade with Latin-American and CACM countries expanded more slowly and their share declined.

Notes to Editor

The WTO's Secretariat report, together with a policy statement prepared by Nicaragua, will be discussed by the WTO Trade Policy Review Body (TPRB) on 25 and 27 October 1999. The WTO's TPRB conducts a collective evaluation of the full range of trade policies and practices of each WTO member at regular intervals and monitors significant trends and developments which may have an impact on the global trading system. The Secretariat report covers the development of all aspects of each of Nicaragua's trade policies, including domestic laws and regulations, the institutional framework, trade policies by measure and by sector. Since the WTO came into force, the areas of services and trade-related aspects of intellectual property rights are also covered.

To this press release are attached the summary observations from the Secretariat report and a summary of the government report. The full Secretariat and government reports are available for the press in the newsroom of the WTO internet site (www.wto.org). The Secretariat report, together with the government policy statement, a report of the TPRB's discussion and the Chairman's summing up, will be published in hardback in due course and will be available from the Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

Since December 1989, the following reports have been completed: Argentina (1992 & 1999), Australia (1989, 1994 & 1998), Austria (1992), Bangladesh (1992), Benin (1997), Bolivia (1993 & 1999), Botswana (1998), Brazil (1992 & 1996), Burkina Faso (1998), Cameroon (1995), Canada (1990, 1992, 1994, 1996 & 1998), Chile (1991 & 1997), Colombia (1990 & 1996), Costa Rica (1995), C˘te d'Ivoire (1995), Cyprus (1997), the Czech Republic (1996), the Dominican Republic (1996), Egypt (1992 & 1999), El Salvador (1996), the European Communities (1991, 1993, 1995 & 1997), Fiji (1997), Finland (1992), Ghana (1992), Guinea (1999), Hong Kong (1990, 1994 & 1998), Hungary (1991 & 1998), Iceland (1994), India (1993 & 1998), Indonesia (1991, 1994 & 1998), Israel (1994 & 1999), Jamaica (1998), Japan (1990, 1992, 1995 & 1998), Kenya (1993), Korea, Rep. of (1992 & 1996), Lesotho (1998), Macau (1994), Malaysia (1993 & 1997), Mali (1998), Mauritius (1995), Mexico (1993 & 1997), Morocco (1989 & 1996), New Zealand (1990 & 1996), Namibia (1998), Nigeria (1991 & 1998), Norway (1991 & 1996), Pakistan (1995), Paraguay (1997), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992 & 1999), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), the Solomon Islands (1998), South Africa (1993 & 1998), Sri Lanka(1995), Swaziland (1998), Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Togo (1999), Trinidad and Tobago (1998), Tunisia (1994), Turkey (1994 & 1998), the United States (1989, 1992, 1994, 1996 & 1999), Uganda (1995), Uruguay (1992 & 1998), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).

The Secretariat’s report: summary Back to top

TRADE POLICY REVIEW BODY: NICARAGUA
Report by the Secretariat – Summary Observations

Economic Environment

Since the early 1990s, Nicaragua has taken significant steps toward establishing a market-based, outward-oriented economy, reversing the import-substitution policies of earlier years and addressing severe economic imbalances. The liberalization of the trade, foreign exchange, and investment regimes, progress in de-regulation, and ongoing public sector reforms, have resulted in a resumption of economic growth, the reduction of inflation and a decline in unemployment. However, GDP per capita remains lower than two decades ago, and progress in social welfare remains a challenging task. Public finances have improved, largely due to increased tax revenue, tighter public spending, and disbursement of reform-tied foreign aid; efforts are being made to broaden the tax base to reduce dependence on indirect taxes. Despite the effects of hurricane Mitch on economic performance in 1998, real GDP growth is set to accelerate, with inflation moving to pre-hurricane levels, during the course of 1999.

Nicaragua's success in reducing inflation owes much to its commitment not to monetize fiscal deficits. In combination with improved fiscal and monetary policies, a crawling peg arrangement has helped to stabilize exchange-rate expectations and protect Nicaragua’s external competitiveness. Nicaragua has expressed sizeable current account deficits, financed largely by inflows of foreign assistance; protectionist trade measures have been avoided. Despite several restructuring and forgiveness initiatives, external debt remains high; in the light of progress of domestic policy reforms, further sharp reductions or a write-off of the debt through special assistance under the HIPC (Heavily-Indebted Poor Country) initiative, are under examination.

Foreign investment in Nicaragua has grown and diversified under the guarantees and incentives provided by the regulatory framework. Nevertheless, cash proceeds from privatization efforts have been low, as many nationalized companies were returned to former owners or exchanged for government bonds, and the divestment process in certain activities (including public utilities) has been delayed; in 1999, progress was expected on the privatization of the oil distribution company, financial institutions, the telephone company, and services in major ports.

The composition of trade has changed slightly under the structural reform programme. Outward-looking sectoral development and increased domestic demand have induced import concentration in investment-related items and consumer goods; there has been a concurrent reduction in the dominance of primary and mining exports. Overall, trade expansion has been faster with partners outside Latin America, particularly those offering unilateral preferential treatment, like the European Union and the United States; trade with the Central American Common Market (CACM) countries, which accounts for about one fifth of Nicaragua's foreign trade, has grown at a slower pace and remained largely dominated by agriculture-related items.

Trade policy framework

Nicaragua has undertaken autonomous reforms in trade and related policies, while pursuing greater integration in the world economy, through the completion and implementation of the results of the Uruguay Round, and in the subregional economy, through CACM and bilateral agreements. As a result, Nicaragua has become a more open and secure market for trading partners.

Regional and bilateral trade agreements are seen by the authorities both as complementary to Nicaragua's participation in the multilateral trading system, and as a means to balance the effect of similar third-party agreements (e.g. NAFTA) on its exports. Integration within CACM has advanced significantly with the suppression of virtually all barriers, on intraregional trade except on certain sensitive items, including coffee, sugar, and wheat flour; however, Nicaragua maintains a temporary protection tariff and border adjustments for domestic taxes. Some aspects of CACM convergence toward a common external tariff remain unclear, as the WTO tariff commitments of its members are set at different overall levels. Within CACM, Nicaragua has been a driving force for open regionalism and has participated in the group's efforts to negotiate trade and/or investment agreements with other regional groups or individual partners.

Nicaragua has undertaken changes in its legislative and institutional framework, driven by constitutional reform, agreements with multilateral financial institutions, and the incorporation of regional and multilateral trade commitments. In this context, legislation has been passed on tariffs, concessional entry, standards, consumer protection, export restrictions, export assistance, and the protection of satellite signals. CACM regulations have been adopted in areas such as customs matters, preferential rules of origin, price bands, phytosanitary, anti-dumping and countervailing measures, safeguards, and industrial property rights (enforcement pending). A general foreign trade law, and legislation on customs valuation, temporary admission, government procurement, sanitary and phytosanitary measures, domestic processing of fishery, competition policy, industrial property rights and copyrights were under preparation in mid 1999.

Nicaragua has met several regular GATT/WTO notification requirements relating to its legislation and responded to questions raised by WTO Members; tariff information has been submitted to the Integrated Data Base. The transparency of the Nicaragua's trade regime could be further enhanced through timely communication of all trade measures. For example, by July 1999 certain measures, including a price band with variable-levy elements (1992-1997), a temporary protection tariff (1994), and safeguard action on fowl cuts and offals bovine meat (1993, 1994), had not been communicated to the WTO.

Trade policy developments

During the 1990s Nicaragua has been restructuring its customs tariff to converge progressively to levels agreed within CACM and to comply with its WTO binding commitments; so far, this process has brought a considerable decrease in the average MFN rate, from 20.6% in 1994 to 4.1% in July 1999. Recourse to other forms of protection has been limited to a few instruments and sectors.

Under an autonomous tariff reduction plan (1997-2004), the dispersion and levels of Nicaragua's basic nine-tier applied tariff structure are being reduced; protection for sensitive agricultural items, such as dried beans, maize, rice, sorghum and poultry is to be reduced progressively. In July 1999, CACM-related changes reduced maximum tariff levels for finished consumer goods to 10%. The process has slightly affected the previous pattern of tariff escalation, which is geared to domestic and subregional policy objectives.

Under its Uruguay Round commitments, Nicaragua bound its entire tariff at a general ceiling level of 40%, except for "tariffied" agricultural items and certain industrial items; this implies an average gap of about 36 percentage points between bound and applied rates. Nicaragua's bindings are subject to a waiver under GATT 1994. Provisions for tariff exemptions or concessions on imported inputs and capital goods have been revised, with the aim of reducing administrative discretion, but several possibilities for the exemption of customs duties (mostly temporary) and indirect taxes remain in force, mainly to encourage export and basic-development activities, including the development of the oil and energy sectors.

A temporary protection tariff, introduced in 1994, is to be fully phased out by 2001; since January 1999, this surcharge, which does not act to breach WTO bound rates, has affected 33 items, including "fiscal goods", such as beer, sports and tobacco products, at rates ranging from 5% to 20%. Efforts have been made to streamline customs clearance procedures; Nicaragua is expected to replace its present customs valuation basis with the "transaction value" method by September 2000. The amount of consular fees depends on the import value and a customs service tax is levied on a weight basis.

Nicaragua has had virtually no recourse to contingency protection. It has prohibited all WTO inconsistent non-tariff barriers and has not introduced import prohibitions on commercial grounds; regulations on import prohibitions intended to protect exclusive representation arrangements at the border were eliminated in 1997. A CACM phytosanitary prohibition on imports of low-cost rice from Viet Nam was lifted unilaterally in March 1998. Trade monopolies have been eliminated, and, in government procurement, national treatment is granted to foreign bidders represented legally in Nicaragua.

Export prohibitions affect a few forestry and fishery items, with a view to avoiding the depletion of natural resources. Prior authorization is required for certain exports such as capital goods (re-exports), sawn wood and metal scrap; export certificates are used to administer quotas related to access to certain markets, such as for meat, sugar, groundnuts/peanuts to the United States, and meat, milk powder, cheese and dried beans to Mexico.

Direct assistance to non-traditional exports, which had grown considerably, was eliminated in 1997; a drawback regime, now covering all exports, has applied since 1998. Additional drawback has been provided to fishery exports since April 1999. Legislation authorizing the establishment of free-trade zones has allowed for exemption for firms in the zones from payment of duties and internal taxes, as well as income, capital gains, and other taxes; these zones have had positive effects on exports and employment. Nicaragua is expected to bring any prohibited export subsidies (i.e. other than incentives contingent upon export performance) into line with relevant WTO provisions by 2003.

Financial support from multilateral, regional, and bilateral sources is being provided to a wide range of processing, technology transfer, technical assistance, training, marketing, and infrastructure projects. Price controls now affect certain public utilities and pharmaceuticals, while maximum retail prices are set for certain petroleum products.

Despite the lack of extensive enforcement resources, efforts are being made to update and expand the legal framework for the protection of intellectual property rights. Under a 1998 comprehensive bilateral Intellectual Property Rights Agreement with the United States, Nicaragua undertook to provide a level of protection exceeding its commitments under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights and advance its implementation date by six months, as well as to implement provisions of treaties that it has not yet ratified or signed. Action is being taken to defend consumer rights but no competition policy regulations have been put in place so far.

Sectoral policy developments

Government assistance for the agriculture, livestock, fishery and forestry sectors, the backbone of the economy, remains modest but largely focused on border protection for sensitive agricultural items. Since 1994, nominal tariff protection has been raised to 8.7%; this rate is above the overall average level and much higher than the average for manufactured goods. This rising trend, which was set to cope with recovery, profitability and other problems of agricultural sector, is being reversed in the context of the autonomous tariff reduction plan. Regional trade liberalization (including the Free Trade Agreement with Mexico) has reduced the bias against the sector by allowing for cheaper inputs and improved export opportunities. Food aid terms have been revised to reduce prejudice against domestic producers of sensitive items. Fiscal incentives for agriculture are limited, and credit from the state banks (with subsequent debt forgiveness measures) has been declining as private banks become the main source of finance.

Some sectors have benefited from higher than average assistance. Although reduced, high tariffs continue to apply for certain poultry items (ranging to 190%) and sugar (55%, strengthened by specific customs valuation provisions). In compliance with Uruguay Round market-access commitments, since 1995 Nicaragua has operated a tariff quota for certain poultry items, which was allocated to a single importer; for other items subject to this undertaking, applied duties have been lower than bound rates and no tariff quota limitations have been used in this context. In addition to higher-than-average tariff protection, the sensitive domestic consumption crops (rice, dried beans, maize, sorghum) have been supported by price stabilization devices such as a price band system (1992-1997), allowing for variable import duties, and minimal marketing guarantees from the state grain-buying agency; these crops have also received priority treatment in the funding of rural, technology, and sectoral development projects.

In the Uruguay Round, Nicaragua consolidated its access to the United States and EU markets for several agricultural items. However, due to the base years used for quota calculations, Nicaragua did not manage to obtain a country-specific tariff quota guaranteeing access levels for items like beef and groundnuts/peanuts to the U.S. market, where their exports previously had unrestrained preferential treatment under the Caribbean Basin Initiative. Zero-rate tariff quotas for cheese, dried beans, meat and milk-powder have also been obtained under the recent agreement with Mexico.

The rapid expansion in fisheries has been assisted by duty and tax exemptions (strengthened by additional export assistance in 1999), and financial support from regional and bilateral donors; regulations on the domestic processing of the catch and catch levels are to be enforced in the course of 1999. Efforts to restrain overfishing have been some hampered by budgetary restraints. In forestry, a complete suspension of felling precious woods (until 2003), tariff escalation, and export restrictions are aimed at preserving certain types of timber and at increasing value added.

The mining and energy sectors have expanded as a result of trade liberalization and a growing involvement of the private sector. Purchases of machinery and equipment for mining have been exempt from taxes; pending the issue of new mining legislation, the granting of new concessions has been suspended since 1997. Changes in the regulatory framework for electricity allow for construction, maintenance and/or operation of power plants by private firms, as well as the participation of private investors in the state electricity company in the near future. Distortions reflected in electricity tariffs remain to be corrected.

Progress in the manufacturing sector, largely based on the processing of agricultural, livestock, and fishery commodities, has occurred in certain well protected activities (e.g. soft drinks, processed food, alcoholic beverages, cigarettes), offshore assembly operations, and construction-related industries. Although the nominal tariff protection of 4.4% is below average, average rates for processing activities related to agriculture and fisheries as well as minimum tariff rates for certain textile and wood articles have risen. By 1999, "fiscal goods" were also subject to a temporary protection tariff, at a rate of 20%. State involvement seems to remain in several manufacturing activities (e.g. coffee, rice, alcoholic beverages, tobacco, textiles, chemicals and pharmaceuticals production).

Increased openness in the services sector has improved supply and pricing. Commerce is the leading services activity, but travel and transportation are the main components of services trade. Banking requirements and supervision have been reinforced. Foreign banks are authorized to establish and undertake all operations other than receiving domestic deposits; this limitation is to be eliminated soon. State involvement in banking is being downsized, and public monopolies in insurance and postal services were eliminated in 1996. The privatization of the basic telecommunications monopoly was authorized in 1998; competition in other telecommunication services is being increased through the gradual introduction of more operators. Concessions have been granted for stevedore services and those for other portuary services are under consideration. Two Open Skies agreements apply in air transport, and the privatization of the airport and of some aircraft handling services is under consideration. Investment in tourism receives an extensive range of fiscal incentives.

Nicaragua's commitments under the General Agreement on Trade in Services (GATS) cover several sectors and are in line with sectoral objectives; those on financial services were improved with the inclusion of insurance in 1997, but ratification is pending. Nicaragua maintains a GATS Article II MFN exemption providing for freedom of capital transfers among CACM Countries.

Trade policies and foreign trading partners

In the 1990s, Nicaragua's major reforms have reversed the policy orientation of the previous decade by changing progressively several aspects of its economic orientation. A relatively sustainable path to economic recovery has been assisted by temporary border protection and export assistance measures (subsequently removed), as well as by the resumption, strengthening or expansion of economic and trade ties with main trading partners. The market-opening process has been consolidated by increased security of access resulting from extended trading commitments at the multilateral level. The expansion of trade growth is set to continue as Nicaragua looks for trade opportunities within and beyond the region, and accelerated integration into the world economy.

Government report  Back to top

TRADE POLICY REVIEW BODY: NICARAGUA
Report by the Government - Part III to VI

III. External Debt Burden and Future Challenges

23. Nicaragua is one of the poorest countries in the western hemisphere. Debt servicing has exceeded its financial capacity and the payment of interest alone represents an average of 12.4 per cent of GDP, 41.7 per cent of earnings from export of goods and services, and 20 per cent of the Government's ordinary revenue. Since 1998, Nicaragua's financial situation has started to improve as a result of the reduction in debt servicing following the third round of the Paris Club, which rescheduled payment flows for the period 1998-2000. In 1999, the cost of interest and servicing the external debt represented 3.6 per cent and 9.8 per cent of GDP respectively, which is a decisive improvement in comparison with previous years.

24. Debt servicing has been an important constraint on the Government's determination to increase social spending and investment in the economic and social infrastructure. To make a comparison with social spending for 1997, debt servicing represented 5.2 times the amount of the resources allocated to health and 5.5 times the amount spent on education. Per capita debt is now US$1,318.8, and the total amount of the debt represents almost three times the country's GDP and eight times the value of all exports of goods and services. For 1999, debt servicing amounts to US$224.5 million, whereas public investment amounts to US$329.8 million, going mainly to the social sectors.

25. An inspection of the data on Nicaragua's debt and the economic indicators used to assess a country's sustainability clearly show that Nicaragua is eligible for the initiative in favour of highly-indebted poor countries (HIPC). The debt relief granted to Nicaragua should be on the most favourable terms so that sustainability can be achieved in the medium and long terms: these resources should mainly go to the social sectors.

26. In order to ease the debt burden and maintain a level of social spending consistent with the policy of alleviating poverty, Nicaragua will incur additional debt only on highly concessional terms for carefully evaluated projects that meet the economic, political and social priorities identified by the Government. At the same time, the efforts made by Nicaragua at the domestic level and the Government's strong commitment to adhere closely to its programme will provide the framework to allow the international community to give Nicaragua the benefit of the HIPC initiative. Recently, the Consultative Group meeting in Stockholm decided to allocate large sums to the Central American region to finance investment programmes in production and social infrastructure and Nicaragua benefits from these resources. A solution to the debt problem and financial support from the Stockholm Consultative Group will mean that the Government of Nicaragua can face the future challenges of alleviating poverty and unemployment through sustainable economic growth.

IV. Nicaragua's Trade Policy

1. Major trade policy objectives

27. The central objective of Nicaragua's trade policy is more effective integration in the international economy. Nicaragua has a small and open economy, and the opening up and liberalization of trade, together with the promotion of exports and the guarantees afforded by a stable regulatory framework for both domestic and foreign investment are the core of its growth strategy. This strategy includes an autonomous liberalization process, and participation in and strengthening of multilateral, regional, subregional and bilateral trade links. In order to achieve these objectives, a number of complementary measures have been taken: unilateral liberalization, participation in the Central American integration system, FTAA regional integration negotiations, the signing and implementation of the Free Trade Agreement with Mexico and, of course, the adoption of the commitments negotiated under the Uruguay Round.

28. The policies and action in these sectors have yielded positive results and have helped to strengthen Nicaragua's export capacity and enhance its integration in the global economy. Between 1993 and 1998, average export growth was 20 per cent. In 1998, for the first time since 1993 exports fell by 12 per cent as a result of the impact of El Ni˝o and hurricane Mitch, as well as the international crisis whose effects included a substantial drop in international prices of agricultural and livestock products. At the close of the 1990s, the structure of exports has changed, with a noticeable reduction in Nicaragua's dependency on traditional crops and an increase in non-traditional exports, which now account for over 46 per cent of the total. In addition, Nicaragua's export markets have diversified and 41.6 per cent of its trade is now with the United States of America, 22 per cent with the Central American Common Market (CACM) and 18 per cent with European countries.

29. One of the aims of the present Government's trade policy is to mitigate the anti-export bias of the former distortive policies and to improve access to regional and international markets for Nicaraguan exports, together with their diversification. The immediate or gradual reduction of tariffs according to product category, the elimination of all non-tariff barriers and the abolition of export subsidies for non-traditional products have helped to achieve this aim.

30. Nicaragua's trade policy is based on strict compliance with the WTO principles and obligations. During the Uruguay Round negotiations, Nicaragua bound all its tariffs and undertook many commitments within the framework of the General Agreement on Trade in Services (GATS); the harmonization of domestic legislation with the WTO provisions has almost been completed. For Nicaragua, bilateral and sub-regional agreements are a catalyst for job creation and the alleviation of poverty, notably by boosting production for export and increasing foreign investment.

31. During the 1990s, the sectoral targets of trade policy led to temporary protection of certain agricultural and livestock activities and promoted the use of raw materials and capital goods from the sub-region. Live animals, meat (especially poultry), fisheries, coffee, sugar, basic cereals, tobacco, precious woods and refined petroleum products were some of the sub-sectors that benefited to varying degrees from tariff measures and fiscal incentives. The objectives in the services sector have been to expand supply, increase competition and consequently lower consumer prices by reducing State participation, and gradually to abolish the monopolies in insurance, telecommunications and port services, thereby providing a strong impetus for the development of the domestic economy and attracting investment, which in turn will lead to the creation of new jobs, the expansion and diversification of trade and, ultimately, an improvement in the population's living standards.

2. Opening up the economy

32. During the period covered by this report, Nicaragua has significantly lowered import barriers and increased competition in domestic markets, in order to eliminate the anti-export bias in its economy and promote more efficient allocation of resources. The following are some of the measures adopted unilaterally for this purpose:

- Accelerated tariff reduction. In 1990, the average level of nominal protection was 43.2 per cent, which fell to 6.8 per cent on 1 January 1999.

- Reduction of the temporary import tariff (ATP). After reaching a maximum of 30 per cent and a minimum of 5 per cent in June 1997, in 1999 the maximum rate was 20 per cent and the minimum 5 per cent. The ATP has been abolished for 83.8 per cent of tariff headings.

- Reduction and amalgamation into the single temporary tariff (ATP) of the 5 per cent customs value tax which applied to all imports.

- Abolition of prior import deposits, which had amounted to as much as 100 per cent of the value of the imported good.

- Prohibition of non-tariff restrictions on foreign trade.

- Simplification and streamlining of trade procedures by eliminating taxes and fees for administrative services, which hampered the movement and efficiency of tradeable goods, and creation of a single window for exports.

- Abolition of production and export subsidies.

- Elimination of State participation in the marketing of agricultural, livestock and industrial products.

- Abolition of price controls (except for fuels and medicines).

- Abolition of export taxes.

- Adoption of the Harmonized Commodity Description and Coding System.

- Enactment of the Law on Copyright and Related Rights.

33. Nicaragua has made progress in the privatization process, adopting a modern regulatory framework that contains special provisions or regulations on competition in specialized markets. Some of these are contained in the following Laws: Law Creating the Superintendency of Banks and Other Financial Institutions, General Telecommunications and Postal Services Law, Law on the Supply of Hydrocarbons, Law on the Electricity Industry, Law Reforming the Basic Law on the Nicaraguan Energy Institute (INE) and Consumer Protection Law.

34. A number of draft laws are currently at the approval stage, including the following: a law regulating public services, legislation to modernize the banking system, a foreign investment law, a foreign trade law, and a government procurement law. The aim of all these laws is to open up and transform the economy on the basis of competition principles.

3. Nicaragua and Central American Integration

35. Nicaragua has been a member of the General Treaty on Central American Integration (CACM) since it was set up in 1960 as one of the first regional groups in Latin America. Since the mid-1990s, the members of the CACM have made efforts to become integrated in the global economy by implementing accelerated tariff reduction programmes, jointly negotiating trade agreements with third countries and modernizing trade legislation on the basis of the Uruguay Round Agreements. Nicaragua has played an important role in the institutional modernization efforts made by the Central American Integration scheme, advocating a conceptual change in the process by promoting an "outward-looking" focus whose main objective is to serve as a platform for integration with the rest of the world. Nicaragua views Central American integration as a means of contributing towards its more effective integration in the international economy and as a tool in the quest for balanced economic relations with other regions.

36. Nicaragua is continuing to reduce external tariffs to a maximum level of 10 per cent as part of the liberalization efforts made under the Central American Integration Scheme. It is also working towards the completion of the Central American free trade area and the establishment of a full-scale customs union with low external tariffs. This area is an important market for Nicaragua, accounting for 22 per cent of its exports and 40 per cent of its imports. Nicaragua has strongly supported the revision and modernization of the legal instruments of the Central American scheme, particularly as regards rules of origin, unfair trade practices, safeguard measures, sanitary and phytosanitary measures, standardization, intellectual property and others.

4. Free-trade agreements signed or being negotiated

37. Trade negotiations are an important instrument of Nicaragua's trade policy aimed at integrating the national economy with the economies of the rest of the world. The major objectives in negotiations for the conclusion of free trade agreements are to promote growth and diversification of exports while at the same time attracting new investment. In the medium term, it is hoped that they will help to raise the population's standard of living and enhance the competitiveness of Nicaragua's production sectors.

38. As part of its open trade policy promoted since 1990 and confirmed by the Law on Fair Taxation and Trade, Nicaragua signed a Free Trade Agreement with Mexico on 18 December 1997, which entered into force on 1 July 1998. Another integration instrument in the trade sector is the Free Trade Agreement between Central American countries and the Dominican Republic, which was signed on 16 April 1998. This Agreement liberalizes trade in most goods with immediate effect and will enter into force when the protocol listing the exemptions to free trade negotiated bilaterally has been signed.

39. These Agreements are between economies at similar levels of development that are complementary in terms of production, and they seek to encourage the expansion and diversification of trade in goods and services, provide more investment opportunities and strengthen the competitiveness of the production sector. They also seek to force strategic alliances among these countries with regard to global negotiations.

40. Nicaragua, together with other Central American countries, is negotiating free trade agreements with Chile and Panama that contain the trade rules characteristic of modern trade agreements. The main objective of the negotiations with Chile is to attract investment and transfer technology. In the case of Panama, the aim is mainly to ensure better access for exports. Nicaragua is also taking part in the negotiations on the Free Trade Area of the Americas, in which it chairs the negotiating group on services. The aim of participation in this process is to enhance prosperity by opening up markets, achieving integration and sustainable development at the level of the American continent.

41. Nicaragua is a beneficiary of the Caribbean Basin Initiative (CBI) and the Generalized System of Preferences. In this connection, the Government hopes that the preferential treatment given under these schemes will be maintained and expanded.

5. Free Trade Agreement Between Nicaragua and Mexico

42. The Free Trade Agreement between Nicaragua and Mexico was the first global agreement concluded by Nicaragua. This FTA entered into force on 1 July 1998 and, like the North American Free Trade Agreement, it comprises ten chapters: General Aspects, Trade in Goods, Trade in Services, Technical Barriers to Trade, Government Procurement, Investment, Intellectual Property, Administrative Provisions, Settlement of Disputes, and Other Provisions. In conformity with Article XXIV of the GATT 1994, the Agreement establishes a free trade area between Nicaragua and Mexico, defining a liberalization programme for the majority of trade between the parties, including the elimination of tariffs immediately for over 50 per cent of tariff headings, over five to ten years for other headings, and fifteen years for a limited number of products. In the services sector, the Agreement binds the status quo and lays down the bases for subsequent liberalization of this sector.

43. The negotiation and approval of the FTA received strong support from Nicaragua's business community, which actively backed the Government's efforts to reach a high-quality agreement that guarantees better access to Mexican markets and an increase in investment flows. This negotiating process was also seen as providing valuable experience for future participation in larger economic integration schemes

6. Investment protection and guarantee agreements

44. Private investment in Nicaragua is guaranteed on the basis of various agreements and arrangements, such as the Multilateral Investment Guarantee Agency (MIGA), the Overseas Private Investment Corporation (OPIC), the International Centre for the Settlement of Investment Disputes (ICSID), the World Intellectual Property Organization, and the Agreement on Trade-Related Aspects of Intellectual Property Rights. In order to create favourable conditions to encourage the transfer of capital and technology among parties by promoting and protecting investment, between 1990 and 1999 Nicaragua signed ten bilateral agreements on reciprocal promotion and protection of investment with the Republic of China, Taiwan, (29 July 1992), Spain (16 March 1994), United States of America (13 July 1995), Germany (6 May 1996), Denmark (13 March 1995), United Kingdom (4 December 1996), France (13 February 1998), Argentina (10 August 1998) and El Salvador (23 January 1999).

45. Nicaragua has pursued an economic policy that has enabled it to provide and maintain a favourable climate for private investment, both national and foreign, by guaranteeing economic, political and social stability. The essential conditions for such a climate are the maintenance of financial stability, a low rate of inflation, and a progressive tax policy in support of investors and exporters. The Investment Law (Law No. 127 of 12 April 1991) grants foreign investors national treatment. There is no discrimination according to the country of origin of capital, investors are guaranteed repatriation of their capital, they may transfer abroad the net profits generated by registered capital, and they are assured of prompt and adequate compensation in case of expropriation for reasons of public necessity or social interest. In order to encourage foreign private investment, Nicaragua's regulations and institutional structure are being improved, particularly in the tourism sector.

46. Nicaragua's investment policy is based on a regulatory system that promotes free competition and facilitates foreign direct investment (FDI). The State's role is to administer basic services to the population, and it is therefore reducing its participation in the management of companies producing goods and services, transferring these to private economic agents. State investment, determined by the level of public savings and concessionary financing, is made only in sectors with a substantial social component, leaving the private sector to invest in sectors of greater economic and financial profitability.

47. The Government is fully aware of the importance of capitalizing its economy. It is therefore promoting the establishment of public limited companies to boost the equity of State enterprises by providing private capital so as to improve production and economic development in Nicaragua. This capitalization has made it possible to transfer State enterprises to private investors. The privatization process initiated in 1992 has led to the sale of 95 per cent of State enterprises. It is intended to complete the process by the privatization of State enterprises in the services sector.

7. Agreement on the protection of intellectual property rights

On 8 January 1998, the Governments of Nicaragua and the United States of America signed an Agreement on the protection of intellectual property rights. This is the first such Agreement signed by a Central American country and one of the first in Latin America. The Agreement reaffirms Nicaragua's compliance with its commitments in the World Trade Organization and in some cases, for example, copyright, it expands protection. It provides for the compulsory use of distinctive signs so as to prevent counterfeiting of trademarks. For inventions, it provides protection both for products and for the processes for a minimum term of 20 years. The Agreement also gives plant varieties broad protection.

I. Nicaragua and the WTO

Nicaragua negotiated its accession to the GATT during the Annecy Round and became a contracting party to the GATT 1947 on 28 May 1950. It participated actively in the Uruguay Round and became a founding Member of the World Trade Organization (WTO) on 3 September 1995. Among Nicaragua's commitments are the binding of all its tariffs at a maximum ceiling of 40 per cent and the liberalization of access in the services sector, telecommunications, tourism, professional services and retailing, inter alia. Nicaragua also played an active role in the negotiations on financial services and made a substantial offer in the banking and insurance subsectors which guarantees full access to financial markets. The National Assembly ratified the Fifth Protocol in July 1999.

Nicaragua believes that the WTO is a fundamental pillar for the development of trade. Consequently, the National Assembly adopted Decree AN No. 1013 approving the implementing legislation for the Uruguay Round texts and subsequently set about revising and adapting its national and regional legislation so as to give the country a legal framework consistent with its new commitments. Nicaragua has therefore drawn up a number of laws and regulations, especially in the areas of sanitary and phytosanitary measures, technical standards and intellectual property rights. The customs structure needed to implement the Customs Valuation Code is currently being put in place. At the regional level, Nicaragua has played a leading role in drafting and approving agreements to incorporate the WTO rules in Central American legislation.

In general terms, Nicaragua considers the results of the Uruguay Round to be positive, particularly the establishment of a framework of disciplines to regulate trade in agricultural products and clearer rules regarding subsidies and countervailing duties, but above all, the strengthening of the dispute settlement mechanism. Regarding the latter, Nicaragua hopes that the implementation of the new provisions and observance of their compulsory character by all trade partners will ensure that multilateralism will prevail and unilateral action become altogether a thing of the past.

Nevertheless, Nicaragua considers that the results of the Uruguay Round do not fairly reflect its national interests, especially as regards access to markets for agricultural and livestock products. Firstly, the restrictive policies applied by many countries, based on administrative and technical barriers, subsidies and high tariffs, hamper export growth and the obtention of equitable and profitable prices. More specifically, the methodology used during the negotiations on agriculture, based on statistical data for the period 1986-89 to determine access levels, did not allow Nicaragua to obtain a market share consistent with its production and export potential for products of particular interest such as meat, dairy produce and groundnuts inter alia. It must be pointed out that during the 1980s Nicaragua's exports did not have access to its major traditional market. The Government hopes that this situation will change as soon as possible through the fixing of specific quotas for products subject to tariff quotas.

1. Nicaragua believes that the opening up of trade should be accompanied by the inflow of financial resources and investment needed to sustain the structural adjustment programmes of developing countries. The WTO and other international organizations should therefore redouble and coordinate their efforts to provide the technical and financial support needed by these countries, especially countries with small and vulnerable economies.

54. The new round of negotiations to be initiated in Seattle, Washington, provides an unparalleled opportunity to pursue in greater depth the reform and liberalization of the agricultural sector. Nicaragua in particular hopes that important results will be obtained in this area through the elimination of production and export subsidies, the lowering of tariff peaks and the abolition of tariff

quotas or, at least, a significant increase in quotas. Nicaragua awaits important commitments for progressive liberalization in the negotiations on services so as to create new development opportunities in this sector, in which growth rates are highest.

II. nicaragua's trade policy for the future

55. Nicaragua is situated in one of the most promising regions of the world and is a natural bridge between North and South and the Pacific and the Atlantic, making it a future centre of operations and links among the largest markets in the world. The fertility of its soil, the wealth of its fishing, marine and forestry sectors, as well as its natural beauty, constitute a potential that will enable it to reach a level of development that will make it once again one of the most prosperous countries in Latin America, with one of the highest levels of exports per capita, as it was during the 1970s. The leading role played by foreign trade in Nicaragua's economy necessitates a foreign trade policy that promotes greater access to markets within the framework of a strengthened multilateral system. This is why Nicaragua is adopting measures to respond more effectively to the new challenges of the future and strengthen its institutional capacity, which at the same time allow it to play an active and constructive role.

56. Nicaragua's economic policy will pursue the path of open trade, in accordance with the principles of the WTO. The Government will give priority to making Nicaraguan products more competitive on foreign markets and will strive to ensure that they meet international technical and quality standards. It will foster private investment in infrastructure projects, in order to develop the potential afforded by its geographical location.

57. In international trade negotiations, Nicaragua will continue to defend transparency, flexibility and genuinely open trade in goods and services and investment. It will therefore do its utmost to ensure that the agreements reached within the WTO are carried into practice and that the forthcoming negotiations reach a successful outcome. These negotiations should aim to eliminate subsidies and restrictive practices and establish transparent rules for trade that will lead to fair competition.

58. As a poor country with an open and small economy, Nicaragua needs better access for its exports. Trade creates investment opportunities and is thus the only path to growth.