Trade and Commercial Law Assessment - Honduras - Economic ...

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TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS ♦ ♦ ♦ can be taken to re-establish public confidence. Necessary reforms include prosecuting corruption and reconsidering the issue of separation of powers, in particular the method of appointing judges; educating attorneys, law students, and the business community in commercial law topics and the benefits of alternative dispute resolution (ADR); updating the Commercial Code, including incorporation of oral proceedings; and reviewing the notary practice to ensure that the licensing of notaries is impartial and ethical. Bankruptcy. Although Honduras has a well-drafted, detailed insolvency law, which was promulgated as part of its Commercial Code in 1950, the country has virtually no bankruptcy practice. Typically, businesses in Honduras carry out de facto insolvency proceedings by simply shutting their doors and ceasing to exist. One of the major reasons for this lack of a formal bankruptcy practice is that insolvency proceedings fall to Honduras’s all-purpose trial courts, which may not have the capability to handle complex bankruptcy cases. These courts have no experience with insolvency proceedings. With respect to banks, the failure of certain institutions in recent years has resulted in more careful scrutiny and control by the Commission for Banking and Insurance. Banks do not now fall under insolvency laws. Competition Law and Policy. Recognizing the benefits of a competition law and policy, the Government of Honduras has engaged in significant efforts to adopt a competition law. Substantial initial efforts began in 2001, with renewed interest and activity in 2003. The well-publicized anticompetitive practices in the cement sector in 2004, combined with pressures created by the preparations for CAFTA and related internal and external concern about the lack of a competition law, have all driven forward the process of adopting a competition law. In September 2004 a draft competition law was “officiated,” i.e., submitted to the Economics Committee of the Legislative Assembly, where it remained as of December 2004. International Trade. Many steps remain before Honduras will have a complete legal and administrative structure for its international trade. To date, Honduras’s foreign trade concerns have focused on promoting and facilitating export operations to the relative exclusion of import controls other than simple tariffs. Honduras has enjoyed Generalized System of Preferences (GSP) privileges in industrialized markets for which it did not have to reciprocate by opening its borders. At these conditions change, necessary improvements will include (a) encouraging the growth of cooperation between the private and public sectors; (b) encouraging and supporting increased efficiency and transparency in Customs administration and operations; (c) addressing the lack of a national legal framework for international trade, perhaps first through internal administration and development of procedures for applying countervailing duties; and (d) engaging in further regionalization of Honduras’s international trade practices and structures. ♦ Flow of Goods and Services. Notwithstanding certain recent improvements, trade-related institutions in Honduras still encumber traders with unnecessary transaction costs through delays and administrative burdens. By eliminating unwarranted and onerous constraints embodied in laws, regulations, and procedures, Honduras can capture greater savings and efficiencies. In fact, improving the trade facilitation environment could reduce trade costs by as much as 15 percent of the value of traded goods. Even in Honduras’s relatively I-7
TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS ♦ ♦ small market, where just over $6 billion in goods and services were exchanged in 2003 1 , improved trade facilitation could lead to significant savings. In turn, these savings could improve Honduran economic development in several ways: making Honduran exports more competitive, resulting in more exports; lowering prices for Honduran consumers; and enhancing Honduras’s overall attractiveness as an investment environment. Flow of People. Honduran laws, public agencies, and private institutions generally facilitate the flows of trade-related people. In an additional effort in this direction, Honduras is streamlining processes at land border crossings, upgrading its automation, and amending its laws. However, Honduran people-flow institutions are insufficiently professional and overly politicized. Also, Honduras could further simplify its system for handling highly skilled visitors seeking longer stays. Work permits now require more than 12 separate pieces of paperwork and involve five or more government agencies. Further, the issue of illegal people flows remains a significant problem. Honduras’s borders with Guatemala, El Salvador, and Nicaragua are long and porous. Financial Crimes. Money laundering in Honduras results from a variety of crimes, including drug-trafficking, auto theft, kidnapping, bank fraud, prostitution, and corruption. The banking sector, which had until recently been largely unregulated, has been one focus for money laundering. Vigilance is necessary to ensure that Honduran financial institutions are protected from illicit opportunists seeking to abuse the financial system. Flow of Money. Cross-border goods and services transactions reflect a significant amount of monetary exchange that pays for the goods and services traded (more than $6 billion in goods and services traded in 2003). Of the goods flows, $1.37 billion was exported and $3.08 billion was imported. and 2 Services include $1.09 billion in exports $687 million in imports. 3 Free zones accounted for $560 million of services exports (51 percent) 4 , which are included because they are a value-added category. Tourism makes up another $291 million in service exports (27 percent). 5 Remittances also represent a major trade-related financial flow; in 2003, an estimated $773 million poured into Honduras through remittances of workers and families abroad. 6 Overall, Honduras’s laws, public agencies, and private institutions support these trade-related money flows. ♦ Supporting Infrastructure for Trade. Honduras’s stock of trade infrastructure presents two pictures, depending on one’s perspective within the country. There are two primary production/consumption zones in Honduras: one located within the nation’s capital, Tegucigalpa, and the other along the nation’s Caribbean coast at Puerto Cortez/San Pedro Sula. These locations present a stark contrast to each other with respect to installed capacity, infrastructure quality, and overall effectiveness. Installed infrastructure within the Tegucigalpa consumption/production zone suffers from capacity constraints and poor 1 Economic Intelligence Unit (2004), Country Profile for Honduras. 2 Id. 3 Id. 4 Id. 5 Id. 6 Id. I-8
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