Honduras Trade Policy

Jun 18, 2020 in Economics Essays

Honduras Trade Policy Essay Sample

The economic complexity index (ECI) lists Honduras at the ninety-ninth position concerning sizes of exports and the eighty-seventh most complex economy (OEC, 2016). Such performance can be linked to Honduran foreign trade liberalization that started in the 1990s with emphasis on the establishment of sustainable export activities as part of the country’s overall development agenda. Due to an extended period of slow economic growth, a competitive economic program replaced old development strategies that were based on government intervention and import substitution policies. The new development plan included tariffs reduction, elimination of import exemptions and tariff barriers, and the radical liberalization of agricultural trade by eliminating prices control and guarantees. Fluctuations of the lempira helped liberalize exchange rates. The legislation of that time improved the security of property rights, and the financial market was reviewed to eliminate control on interest rates. Honduras continues to improve on its trade legislation with no explicit setback experienced except distrust created by the occasional use of non-tariff barriers to discourage the import of some agricultural products.

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The Honduran National Tariff Commission bears responsibility for formulating tariff policies at the national level, while the Central American Treaty Commission develops the ones on the regional scale. The government involves other governmental agencies in the development of trade and investment policies (OEC, 2016). Bodies participating in the process include the Ministry of Finance, central bank, Ministry of Agriculture and Livestock, and the Ministry of Natural Resources. The Foundation for Investment and Development of Exports (FIDE) and the Honduran Private Sector Council (COHEP) provide the link between the private sector and government policies and activities. While the FIDE concentrates on advocating for the legislation that will improve the business climate within the country, the COHEP has a leadership role in advancing state international trade (International Monetary Fund, 2005). All these agencies work together with the aim of ensuring that tariffs enacted benefit and do not hurt the economy. 

As one of the founding members of the Central American Common Market (CACM), the country adheres to the Central American Tariff System (SAC). Honduras harmonizes most of the external tariffs on the majority of items at 15% except some products (OEC, 2016). Since 2015, industrial and consumer goods from the United States have entered the country duty-free. Under the CAFTA-DR, nearly all apparel and textile products that satisfy the rules enter Honduras duty-free and quota-free. It has created a great opportunity for U.S. apparel, fiber, fabric, and yarn manufacturers. Over half of the U.S. agricultural exports access Honduran market duty-free, and the projection indicates that all remaining tariffs on agricultural products will have been eliminated by 2025. Primary commodities record a higher average tariff as compared to manufactured goods. Apart from the USA, Honduras has also set tariffs mainly on primary products of its major trade partners, which include Mexico, European Union, Panama, Chile, Colombia, Venezuela, Canada, Taiwan, and the Dominican Republic (OEC, 2016). 

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In addition to being a member of regional trade unions and entering into numerous trade agreements with other nations, Honduras is among the founding members of the World Trade Organization (WTO). It places importance on active participation in the multilateral trading system. As a member, the country considers the system a fundamental assurance of non-discrimination and the protection against the utilization of unilateral trade measures. Consequently, Honduras accords all WTO members most-favored nation (MFN) treatment (WTO, 2016). Country’s commitment to the organization has been demonstrated in the development of the Doha Development Agenda (DDA), wherein Honduras has participated through making a proposal both as an individual member and collectively. The national primary interest remains agriculture. In its obligation as a WTO member, Honduras signed the Firth Protocol to the General Agreement on Trade in Services (GATS) even without having contributed to its formulation. It is worthwhile noting that none of the Honduran trade practices has been challenged by the WTO rules. On the other hand, the country has received complaints in at least six cases (WTO, 2016).

According to the Honduran trade liberalization endeavor, preferential agreements are a fundamental element that cannot be handled casually. In addition to CACM membership, Honduras has free trade agreements with Chile, United States, Colombia, Mexico, Dominican Republic, Panama, and Chinese Taipei. Pursuant to the CAFTA-DR certificate of origin, exporters from the United States receive preferential tariff treatment. However, a preference claim depends on Honduran importers raising it to the authorities (WTO, 2016). Honduras and other members of the CACM enter into a negotiation or agreement with the European Union with the intention of establishing some trade preferences among countries. Honduras signed a deal with the nations involved in the Latin American Integration Association (LAIA) and a partial agreement with the Venezuela government. Negotiations for a free trade agreement are ongoing between the CACM members and Canada. 

In addition to guaranteeing national treatment through a preferential agreement, the enacted investment legislation protects foreign investors. The law requires the investor to obtain authorization from the authorities before investing in some areas. The approval requirement ensures that the government protects the public interest. Limits of investments are set in some areas, such as the agro-industry and agricultural activities (WTO, 2016). Other areas with limits of foreign investment include the insurance sector, financial services and the private education system. The country has enacted numerous bilateral agreements with nations around the globe, but has not signed any double taxation policy agreements.

As indicated by the WTO (2016), Honduras has been involved in numerous trade disputes. The country has participated in cases as a complainant, respondent, and as a third party. From the first perspective, together with the United States, Mexico, and Guatemala, Honduras sued the European Communities regime concerning the importation, sales and distribution of bananas. The country participated in seven other cases in the capacity of a complainant. The most interesting thing is the absence of even a single case where Honduras participates as a respondent. It means that the nation engages in international trade with caution, avoiding offensive business practices. The World Trade Organization (2016) recorded twenty-six cases, in which this country acted as a third party. The most recent one is the case filed by Denmark against the European Union concerning measures on Atlanto-Scandian Herring.

In conclusion, the adoption of the competition legislation is a significant change witnessed in the Honduran trade policy since the last review in 2003. Several institutions have been established with the aim of implementing this policy. The latter is an important initiative, especially because of the degree to which the plan focuses on the Honduran market. The country continues to hold and enact tariffs that benefit the public and help in establishing a trade balance that favors the nation. The trade balance recorded in 2013 saw the country importing goods amounting to 9.8 billion dollars and exporting 8.01 billion dollars (OEC, 2016). Such a trade balance is fair for Honduras that has suffered tremendous damage because of a harsh climate. As part of the WTO, the nation exercises MFN treatment to all other members. The evidence of this is the lack of any case filed against the nation. The government system appreciates the importance of preferential agreements, especially with major exporters like the USA, Mexico, and Guatemala. Such approaches continue to help the country reduce the poverty rate and improve economically.                  

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