Caribbean & Central America - October 2014 (ISSN 1741-4458)

President Juan Orlando Hernández has ruffled feathers in the US State department since taking office in late January, shaking up the long close-knit bilateral political and security ties in a declared bid to set them on a more even keel. He is now also training his sights on the commercial relationship with the country’s main traditional trade partner and investor, arguing that the US-Central America-Dominican Republic Free Trade Agreement (Cafta-DR) is not working as well as it should for Central America.

On 7 October Honduras’s deputy minister for trade and investment Melvin Redondo announced that the Hernández government had formally submitted a request to the US commerce department for a revision of the 2004 Cafta-DR. Redondo said that the Honduran government feels that the treaty needs to be “reinvigorated”, mentioning specifically a need for a re-examination of the rules of origin, as well as market access and phyto-sanitary rules.

The request, he made clear, was at the bilateral level, although he did not rule out a general request from the region for a revision at a later stage. Honduran and US officials are scheduled to meet in Tegucigalpa in February 2015 for talks on how to revitalise bilateral trade and commercial relations, he told local journalists.

President Hernández first mentioned the need to revise the Cafta-DR deal in August, at a forum organised by the Honduran branch of the American Chamber of Commerce (Ancham) in Tegucigalpa, where he declared that the agreement could be made to “work better”.

According to the Office of the US Trade Representative (USTR), bilateral trade in merchandise goods between the US and Honduras was valued at US$9.8bn in 2013, with US exports to Honduras worth an estimated US$5.3bn and imports from there valued at US$4.5bn, giving the US a goods trade surplus of US$735m (figures for trade in services were not available).

US exports to Honduras are up 62% from 2005 (pre-Cafta-DR), while imports from Honduras are up 21% over the same period, on USTR calculations. The increase in Honduran exports to the US has been dominated by the textile assembly sector (the ‘maquila’ sector), which has boosted sales to the US by 88% since 2005, according to Daniel Facussé, president of the Honduran Association of Maquiladores (Asociación Hondureña de Maquiladores [AHM]).

The US sells Honduras fuel oil (worth US$1.4bn in 2013), cotton, yarn and fabric (US$609m in 2013), electrical machinery (US$438m), special other low value shipments (US$350m), and manmade staple fibres (US$333m). The vast proportion of these are inputs for the (often US-owned) maquila industry. The five largest US import categories from Honduras in 2013 comprised – unsurprisingly – knit apparel (US$2.1bn), electrical machinery (US$617m), woven apparel (US$523m), edible fruit and nuts (mostly bananas, US$280m), and precious stones (gold, US$199m). US imports of agricultural products from Honduras were estimated at US$572m in 2013, led by bananas and plantains (US$222m), unroasted coffee (US$159m), and fresh fruit (US$57m).

Meanwhile, the stock of US foreign direct investment (FDI) in Honduras was US$881m in 2012 (latest data available), up 7.3% from 2011, and again most of that has been destined primarily for the manufacturing (i.e. maquila) sector.

• Exports to the US

Total goods exports from Central America to the US were valued at US$57bn in 2013, up 54% from US$37bn in 2006, on USTR figures. US exports of goods to the five Central American countries and the Dominican Republic were worth US$29.5bn in 2013, up 74% on 2005 (pre-Cafta-DR).