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

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TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS 2. Supporting Institutions The Judiciary Appeals of the Institute’s decisions are made to the courts. Although the judiciary has traditionally been weak, the current president has introduced successful initiatives, such as depoliticizing the judicial selection process. Now a panel composed of lawyers, parliamentarians, and representatives of civil society selects judges. These and other judicial reforms suggest that the capacity of the judicial system will continue to grow in the years to come. Industry, Business, and Professional Associations Certain members of the business community, including chambers of commerce and industry and business associations, are among the foremost supporters of the adoption of a competition law. They view competition law as a necessary element of market reform and a key component of attracting investment. The Cámara de Comercio e Industria de Tegucigalpa recently offered comments on the draft competition law. The Consejo Hondureño de la Empresa Privada also is now preparing comments. NGOs Fundación para la Inversión y Desarrollo de Exportaciones (FIDE), the largest and most respected think tank in Honduras, has worked very closely with the private sector and with the executive and legislative branches of government to promote the adoption of a competition law. Law Faculties No courses in competition law are offered in the law schools in Honduras. 3. Social Dynamics Regarding competition policy, the most striking aspect of the Honduran economy is the lack of competition in nearly all sectors, reflected in anecdotal evidence and in global competitiveness indicators. In the Heritage Foundation’s Index of Economic Freedom for 2004, for example, Honduras ranks extremely low, and considerably worse than its neighbors (Honduras ranks 121 st of 155, compared with 24 th for El Salvador, and 67 th for Nicaragua). 160 In the World Economic Forum’s Growth Competitiveness Index Rankings, Honduras was ranked 94 th of 102; and in the World Economic Forum’s Business Competitive Index Rankings, 89 th of 95. 161 Initiatives aimed at improving the competitive environment have met with limited success. Although recent governments have attempted privatization, for example, these efforts have met with little success in the face of opposition in Congress. The 2004 Economist Intelligence Unit 160 The Index of Economic Freedom is available by country at http://www.heritage.org/research/features/index/countries.html (last visited September 14, 2004). 161 The World Economic Forum’s Competitiveness rankings are available at http://www.weforum.org/pdf/Gcr/GCR_2003_2004/Competitiveness_Rankings.pdf (last visited September 21, 2004.) IX-6
TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS country report states, “Since the mid-1990s, three governments have pledged to accelerate the privatization program, with the partial privatization of the state-owned telecoms company, the Empresa Hondureña de Telecomunicaciones (Hondutel), a priority, but the sale has repeatedly stalled. The part-privatization of the generation and billing arms of the state-owned electricity company, the Empresa Nacional de Energía (ENEE), went ahead in 2000. Some successful privatizations have occurred in the transport sector, with concessions awarded to manage four international airports and some roads.” 162 The “partial privatization” within the energy sector has been minimal. Only 20 percent of power generation, for example, is privately owned. There has been progress in improving competitiveness especially since the beginning of 2004. In 2000 the World Bank and the International Monetary Fund (IMF) confirmed that Honduras had qualified for debt relief under the heavily indebted poor countries (HIPC) initiative, contingent on its adherence to an economic adjustment program. In February 2004 the Government of Honduras agreed with the IMF on the specifics of the economic adjustment program and is now working to meet the poverty reduction and growth facility goals to reach the completion point for HIPC. The economic adjustment program includes the introduction of a great number of reforms that will increase the competitiveness of the economy. Specifically, regarding a competition law, World Bank conditions for disbursement of funds require adoption of a competition law. 163 External pressure is merely one driver of the process of adopting a competition law. Internal pressure has increased enormously since the widely-publicized events in the cement industry. In brief, in 2003 a Japanese cement company, Taiheyo Cement, entered the Honduran market and started a price war, resulting in average prices’ falling from La 80 to La 44 per bag by early 2004. The price war continued until the two dominant cement companies—one operating in the north and one in the south—were able to push the Japanese company out of the market using pricing strategies.. As soon as the Japanese company was forced out of the market, prices began to rise, exceeding pre-2003 levels. The public was outraged at what they considered illegal activities on the part of the cement companies. The government eventually imposed price controls on cement in the summer of 2004. Proponents of a competition law have used the cement example to highlight the need for a law. Allegations of anticompetitive conduct have also surfaced in the dairy sector and in the sugar and flour industries. For example, in the dairy sector, a dominant dairy producer created a plant to produce powdered milk. Shortly thereafter, a new tax was imposed on imported powdered milk, making the locally produced powdered milk cheaper than the imported product. In the sugar industry allegations have been made that an association of sugar mills conspires to fix prices for the sale of sugar across regions. Certain members of government, private legal practitioners, and members of FIDE have a solid understanding of competition law policy. FIDE and the executive branch of government appear to be the strongest local drivers of reform. 162 Economic Intelligence Unit (2004), Country Profile for Honduras at 21. 163 In 1993, through the Protocol of Guatemala to the General Treaty on Central American Economic Integration, Honduras and its neighbors committed themselves to adopting a competition law. As noted above, efforts to date have been unsuccessful. IX-7
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