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

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TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS XI. FLOW OF GOODS AND SERVICES Recently, Honduras has taken some strides in facilitating trade. Indications are that a number of aspects of the trading system have improved, including (a) development of a stronger customs agency; (b) development of open markets nationally, regionally, and internationally; (c) improved relationships between the public and the private sectors; (d) efficient trade-related visa and immigration processes; and (e) adequate basic infrastructure for current trade volumes. Nevertheless, the trade-related institutions still encumber traders with trade transaction costs in the form of delays and administrative burdens. By eliminating the unwarranted and onerous constraints embodied in laws, regulations, and procedures, Honduras can capture greater savings and efficiencies. In fact, improving the trade facilitation environment can reduce trade costs by as much as 15 percent of the value of traded goods. Even in Honduras’s relatively small market, where somewhat over $6 billion in goods and services were exchanged in 2003 169 , improved trade facilitation can lead to significant savings. In turn, these savings can improve Honduran economic development in a number of ways: (a) making Honduran exports more competitive, resulting in more exports; (b) lowering prices for Honduran consumers; and (c) enhancing Honduras’s overall attractiveness as an investment opportunity. The United States is the dominant trade partner of Honduras. In 2003, 53 percent of its import trade and 69 percent of its export trade was with the United States. 170 Honduras has based much of its economic stability and future on the maquila textile apparel industry, which represents the majority of the country’s U.S. exports. The following discussion evaluates Honduras’s current status of trade facilitation and identifies areas where Honduras can reduce trade transaction costs. The assessment looks at the efficiency and security of cross-border flows of goods, services, people, and money and the infrastructure that supports these flows. Currently, trade-related people and money flows pose few problems. Major areas in which improvement could lead to significant results include (a) the development of a professional civil service, especially among key trade-related agencies; (b) professionalizing relevant agencies and implementing strong integrity measures; (c) better integrating and simplifying processes among all trade-related agencies; (d) implementing and updating key functions, such as risk assessment; (e) improving the security environment; and (f) enhancing infrastructure. A. INTRODUCTION In 2003 flows of goods amounted to more than $6 billion. Of these goods flows, $1.37 billion was exported while $2.80 billion was imported. Services include $1.09 billion in exports, and $687 million in imports. Free zones accounted for $560 million of service exports (51 percent), which are included because they are a value-added category. Tourism makes up another $291 million in service exports (27 percent). 171 169 Economic Intelligence Unit (2004), Country Profile for Honduras. 170 Id. 171 Id. XI-1
TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS Honduras’s top five trading partners include the United States, Venezuela, Costa Rica, Guatemala, and Mexico, with the United States accounting for approximately 50 percent of exports and 40 percent of imports and other traders accounting for approximately 10 percent or less. Major products flowing out of the country include textiles, apparel, coffee, bananas, and seafood. Major products flowing into the country include consumer goods, automobiles, machinery, transport equipment, and food. 172 These flows of goods and services are needlessly encumbered by a trading system troubled by weak institutions and corruption. Although there has been some recent progress, serious obstacles hinder the efficient and secure movement of trade across Honduran borders. Major challenges facing Honduras include (a) professionalizing relevant public agencies (Customs, National Police, Ministry of Agriculture, Ministry of Health, and the export agency Centro de Trámites de Exportación (CENTREX); (b) stamping out corruption; (c) improving the security environment; (d) further streamlining trade processes, including the import and export processes handled by Customs, the Ministry of Health, and CENTREX; (e) increasing the integration of border institutions; and (f) fostering greater cooperation among the public and private sectors. To further facilitate goods and services flows, Honduras must improve the laws, institutions, and operations of its trade-related institutions, including its customs agency. It must also develop modern institutions that are managed, staffed, and equipped to achieve the appropriate balance between facilitation and control and to provide reduced trade transaction costs. Honduras’s traderelated institutions are making progress in developing more modern and reliable public services through numerous and significant changes to its regulations, organization, and operations. The following subsections provide an analysis of the legal, institutional, and operational constraints that impede trade expansion and recommend ways to minimize those constraints. The analysis focuses on legal framework for the primary border institution, Customs; the institutional issues regarding Customs management, organizational capacity, and operations; and the other key public institutions involved in trade facilitation, including the Ministries of Agriculture and Health and the National Police, and their role in trade facilitation. Finally, major recommendations for improving trade facilitation in Honduras are also provided. B. LEGAL FRAMEWORK The state of the law is a problematic area for trade facilitation in Honduras. To provide such facilitation, it is most important that the legal and regulatory framework provide (a) an adequate and coherent authority structure for the essential trade-related institutions and (b) clearly stated regulations and procedures for implementing these authorities that strike a balance between facilitation and necessary control. The basic legal framework is in place, because Honduras, like other CAFTA members, has adopted the Central American regional code (CAUCA) and its implementing regulations (RECAUCA). Honduras also has national legislation that covers other basic Customs procedures. Those sections are found within the Honduran Revenue Code and involve Customs processes and penalty provisions. (The Customs Service is an integral part of the Revenue 172 Id. XI-2
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