Note: Advance written questions by WTO Members and replies provided by Honduras are 
reproduced in document WT/TPR/M/120/Add.1. and will be available online at:  
http://www.wto.org/english/tratop_e/tpr_e/tp_rep_e.htm.WORLD TRADE
ORGANIZATIONWT/TPR/M/120
11 December 2003
(03-6562)
Trade Policy Review Body
29 September and 1 October 2003
TRADE POLICY REVIEW
HONDURAS
Minutes of Meeting
Chairperson:  H.E. Ms. Mary Whelan (Ireland)
Page
I. INTRODUCTORY REMARKS BY THE CHAIRPERSON 3II. OPENING STATEMENT BY THE REPRESENTATIVE OF HONDURAS 4III. STATEMENT BY THE DISCUSSANT 6
IV. STATEMENTS BY MEMBERS OF THE TRADE POLICY REVIEW BODY 8
V. REPLIES FROM THE REPRESENTATIVE OF HONDURAS AND
ADDITIONAL COMMENTS 14
VI. CONCLUDING REMARKS BY THE CHAIRPERSON 17WT/TPR/M/120
Page 3
I. INTRODUCTORY REMARKS BY THE CHAIRPERSON
1. The first Trade Policy Review of Honduras was held on 29 September and 1 October 2003.
The Chairperson welcomed the delegation from Honduras led by Dr. Oscar Núñez, Director of the
Central Bank, and the discussant, H.E. Ms. Amina Chawahir Mohamed (Kenya).  As usual, thediscussant would speak in her personal capacity and, in accordance with the established procedures,
had circulated in advance an outline of the main issues she intended to raise (document
WT/TPR/D/98).
2. The Chairperson recalled the purpose of the Trade Policy Reviews and the main procedures
of the meeting.  The report by the Government of Honduras was contained in document
WT/TPR/G/120 and that of the WTO Secretariat in document WT/TPR/S/120.  The delegations of
Canada, Argentina, Japan, Chinese Taipei, the European Union, India, and the United States hadsubmitted written questions in advance, and these had been transmitted to the Honduran delegation.
These questions, and the replies provided by the delegation of Honduras, are reproduced in
WT/TPR/M/120/Add.1.
3. The Chairperson noted the considerable effo rts by Honduras to reform and liberalize its
economic and trade regimes.  Honduras had adopted many new laws and reduced its tariffssignificantly.  However, economic growth had barely exceeded population growth over the past few
years, leading to the stagnation of per capita income, as indicated by the Reports of the Government
and the Secretariat.  The Government Plan outlin ed a strategy to address this problem, including
through further trade and investment liberalization.  It would be useful to hear from the delegation of
Honduras on whether the Government had plans to address the apparent difficulties in some essentialservice sectors, notably telecommunications, electricity and banking, in the context of its overall
strategy to attain higher rates of economic growth.
4. The Chairperson noted with interest the very important contribution that free-trade zones
(FTZs) had made to the generation of investment and employment in Honduras.  However, in the light
of Honduras' modest economic growth, it would be us eful to hear the Honduran delegation's views on
the Secretariat's perceived need for reconsidering the long-term rationale of Honduras' FTZ-led
strategy of economic growth and integration into the global economy.  The Chairperson also felt that
Members would appreciate hearing the views of th e Honduran delegation on the possible institutional
constraints faced by Honduras to respond to the demands created by the negotiation and
implementation of multiple preferential trade agreements.WT/TPR/M/120
Page 4
II. OPENING STATEMENT BY THE REPRESENTATIVE OF HONDURAS
5. The representative of Honduras (Dr. Oscar Núñez) thanked the Chairperson, the discussant
and the WTO Secretariat.
6. In 1990, Honduras had embarked on a broad process of trade policy reform that had increased
the country's participation in the world economy and deepened its integration with its Central
American neighbours.  It had followed a unilateral trade policy reform programme that included tariff
reductions and negotiations to join the GATT.  This had allowed Honduras to be an original Member
of the WTO.  In parallel, Honduras had concluded regional trade agreements.  The degree of opening
of the economy, as measured by the share of trade in GDP, had increased from about 80% at the
beginning of the 1990s to 95% in 2002, testifying to the importance of international trade to the
Honduran economy.
7. Honduras had also carried out important reforms to its investment framework.  Beginning in
1992, Honduras adopted an investment law and began to de-regulate activities that had previously
been under state control.  As regards sectoral policies, Honduras adopted a Law on the Modernization
and Development of the Agricultural Sector and reformed the legal and institutional frameworks to
promote private investment in infrastructure, particularly in connection with electricity generation,telecommunications, ports and airports, water and sewerage, and public works.
8. At the macroeconomic level, Honduras introduced measures to achieve fiscal discipline,
control inflation, rationalize the external debt, and strengthen the financial system.  A flexible
exchange rate system was also put in place.
9. Although Honduras had embarked on a broad process of macroeconomic and structural
reforms aimed at correcting imbalances and establishing the basis for a more open and competitive
economy, the economy had behaved erratically, largely as a result of exogenous factors such as the
1994 energy crisis, Hurricane Mitch in 1998, the decline in international prices for Honduras' main
export products, the rise in international fuel prices, and the slowdown of world-wide economic
activity.  The Honduran economy was vulnerable to external shocks, which also had a negative impacton the efficacy of adopted policies.  Between 1990 and 2002, annual GDP growth oscillated between
–1.9% and 5.7%.  The annual average growth rate of 2.6% was below the average population growth
rate, resulting in a decrease in real per-capita income.  Although human development indicators
improved during this period, 66% of the population still lived in poverty, and 49% in extreme poverty.
10. The representative noted that, for the period 2002-06, the current Administration had
formulated a Government Plan that sought to assign priorities to different policies, programmes,
actions, and projects.  The principles on which the Government Plan was based were:  (i) long-termapproach, with an emphasis on combatting poverty;  (ii) development focused on the individual;
(iii) broad sectoral participation;  and (iv) transparency in public and private activities.  The
Government Plan also sought to consolidate macroeconomic stability and foster competitiveness.
11. The activities of the Administration were centred around one fundamental objective:  to
reduce poverty significantly.  To this end, the Administration was making efforts to establish theconditions necessary to achieve and sustain high rates of economic growth and ensure a better
distribution of income through the strengthening of human capital and the improved access of the
poor to factors of production and the social safety net.  The overall targets and measures contained in
the Strategy for Poverty Reduction and the country's Vision 2015 had been discussed and evaluated
with civil society in a broad process of consultations.WT/TPR/M/120
Page 5
12. Combatting crime, by tackling the fundamental social causes that generate it, was another key
Government priority.  In this sense, and despite budgetary constraints, the Government had
strengthened police services and had taken measures to improve coordination between Congress, the
Supreme Court and the National Commissioner for Human Rights.  At the same time, the Government
had launched initiatives such as "Safe Community," which sought to increase citizen participation inthe fight against crime.  As a result of the polici es adopted in this area, an improvement was being
observed in several indicators on criminal activity.  Nonetheless, in the medium- and long-term,
additional measures and resources would be required.
13. Another fundamental objective of the Government was the conclusion of an agreement with
the International Monetary Fund as soon as possible.  The current Administration aspired to an
agreement that benefited a majority of the population and contained commitments that could actually
be fulfilled.  The signing of the agreement woul d generate more confidence in the macroeconomic
policies of the country and would have a positive impact on domestic and foreign investment, trade,
and economic growth.
14. Honduras wished to express its support for the principles of non-discrimination, transparency,
and the rule of law in international economic relations.  In this regard, the representative stated that
the multilateral trading system constituted the principal trade policy instrument to ensure marketaccess for Honduran products abroad under competitive and non-discriminatory conditions.  This
emphasis on the multilateral trading system was reflected in the proposals presented by Honduras in
the context of the Doha Round of trade negotiations.
15. The representative concluded his initial statement by noting that Honduras' WTO membership
and participation in preferential trade agreements contributed to a more rapid liberalization of tradeand the consolidation of the country's trade policy regime as an instrument of economic development
and poverty reduction.WT/TPR/M/120
Page 6
III. STATEMENT BY THE DISCUSSANT
16. The discussant (H.E. Ms. Amina C. Mohamed) noted that although growth had been
expanding since 1994, it had barely exceeded population growth.  Per capita GDP was one of the
lowest in Latin America and had not shown improvement despite the important reform efforts
undertaken by Honduras.  Approximately 64% of households were below the poverty line and about47% lived in extreme poverty.  A third of the economically active population was unemployed or
underemployed.  The indicators on health and education had shown insufficient improvement and
economic activity was concentrated in a few sectors.
17. In spite of these difficulties, Honduras had implemented a broad programme of
macroeconomic and structural reforms aimed at creating a more open and competitive economy.  It
had also sought to diversify and become more integrated into the world economy.  The discussant
commended Honduras for these efforts.
18. Since joining the GATT in 1994, Honduras had continuously demonstrated its commitment to
the multilateral trading system through active participation in the WTO, which Honduras saw as
offering the best opportunity to correct imbalances in international economic relations and as the best
avenue to modernize the economy and improve its trade policies and practices.
19. International trade was crucial for the Honduran economy.  Exports were dominated by
products from export processing zones (EPZs), in particular clothing, and by agricultural products
such as coffee, shrimp, and bananas.  In this connection, the discussant felt that Members would be
interested in learning whether there had been other benefits from EPZs besides job creation and
generation of foreign exchange.  She suggested that, in time, due to their distortive effects, it may
become necessary to reassess the net economic benefits of EPZs.
20. Remittances from Honduran workers living abroad and external aid had traditionally financed
Honduras' current account deficit.  Honduras had also benefited from the HIPC Initiative and from the
renegotiation of its official debt under the Paris Club (preferential) Naples terms.  The importance of
foreign direct investment had increased, reaching an accumulated total of US$1.7 billion in 2001,
partly as a result of Honduras' efforts to liberalize its investment framework.  In this regard thediscussant sought further clarification on the policy objectives of the limit placed on investments in
small enterprises.
21. Although Honduras had made numerous notifications to the WTO, several were pending in
areas such as customs valuation, import licensing, quantitative restrictions, technical barriers to trade,
trade-related investment measures, and services.  Honduras had stepped up its efforts to liberalize
its legal framework and fight corruption.  Some  of the reforms, however, had not been fully
implemented, mainly due to a lack of institutional capacity.  The discussant asked whether Hondurasrequired international assistance in this regard.
22. Honduras gave great importance to preferential agreements.  It was a member of the Central
American Common Market and had signed or was negotiating free-trade agreements with several
countries.  In addition, Honduras was participatin g in the FTAA negotiations.  This growing network
of preferential agreements raised concerns about the transparency of Honduras' trade regime and thecountry's institutional capacity to negotiate and administer several agreements. In addition,
preferential trade agreements could result in trade and investment diversion.  The discussant asked
whether the high priority assigned to preferential agreements distracted the authorities from focusing
on the multilateral trading system.
23. As regards Honduras' trade measures, the simple average applied MFN tariff had fallen to 6%
in 2003, from around 17% in 1993.  Bound rates, however, were substantially higher and the tariff
structure showed clear escalation.  The discussant sought the views of the Honduran delegation on theWT/TPR/M/120
Page 7
revenue impact of further reductions in applied tariffs, in line with new proposals under the WTO's
non-agricultural market access negotiations.  The discussant expressed appreciation for the steps taken
by Honduras to expedite customs procedures thr ough the adoption of an automated system.  Honduras
had applied the WTO Customs Valuation Agreement since February 2000 and no longer used
minimum values.  With respect to anti-dumping, countervailing, and safeguard measures, thediscussant sought clarification on the reasons why these measures had never been applied by
Honduras.  The use of non-tariff barriers appeared to be limited, but the discussant encouraged
Honduras to enhance transparency, for example by notifying its technical regulations to the WTO.
The discussant suggested that Honduras would bene fit from legislation on competition policy, and
congratulated Honduras for having stepped up action to improve the protection of intellectual property
rights.
24. Although its relative importance had declined with the progression of EPZs, agriculture still
accounted for almost one quarter of GDP and employed 38 % of the working population.  In the wake
of natural disasters and adverse international market conditions, the sector had benefited from official
financial assistance, including debt forgiveness.  The discussant commended Honduras for its efforts
to set up a consultation mechanism encompassing the public and private sectors, and civil society.
25. In the services sector, Honduras had made effort s to reform some essential sectors in the past
few years, in particular electricity and telecommunications, but the results had been modest and not
encouraging.  Although new and stricter regulations had been issued to tackle the serious difficulties
experienced by the banking sector in past years, this sector remained institutionally weak.  Honduras
made GATS commitments with respect to four broad service categories.  A number of horizontal
limitations to foreign investment were included in its schedule of specific commitments.  Thediscussant suggested that Honduras would benefit from locking in the reforms undertaken in its
regulatory system in recent years, which went beyond its WTO commitments.
26. The discussant highlighted the important steps taken by Honduras to liberalize its economy,
including its trade and investment regimes.  As a result, Honduras was more integrated into the world
economy.  The discussant encouraged Honduras to continue along this path.WT/TPR/M/120
Page 8
IV. STATEMENTS BY MEMBERS OF THE TRADE POLICY REVIEW BODY
27. Members welcomed the delegation of Honduras and thanked Dr. Núñez and the discussant for
their statements, and the Government of Honduras and the WTO Secretariat for their reports.  A
number of Members referred to the questions they had submitted in writing and looked forward to
receiving the replies of the Honduran delegation.
28. The representative of Canada noted that the programmes of structural reform and monetary
discipline followed by Honduras had resulted in lowe r inflation.  He encouraged Honduras to place
continued emphasis on fiscal measures to curtail the government deficit and to adopt additional
structural reforms to address weaknesses in the financial services sector and in state-owned
enterprises.  Canada appreciated the steps taken by Honduras to liberalize its investment framework,
fight corruption, and strengthen institutional capacity.  The representative expressed recognition for
Honduras' capacity to attract foreign direct investment in the wake of natural disasters and adverseinternational conditions.  Honduras had taken steps to liberalize its market access regime for goods
and expedite customs procedures.  It used non-tariff barriers sparingly and had never applied anti-
dumping, countervailing or safeguard measures .  Honduras had also recently passed modern
intellectual property legislation, including new copyright and industrial property laws, and legislation
to enhance competition in the electricity and telecommunications sectors.  Although attempts toprivatize had not been successful, and state-owned monopolies remained dominant, Honduras was
moving in the right direction.  Canada encouraged  Honduras to pursue the implementation of reforms
in foreign investment, customs procedures, government procurement, and service activities, and to
ensure a WTO-consistent regime.  Further trad e liberalization, combined with efforts of the
international community to secure lasting inst itutional stability, would contribute to Honduras'
participation in the global economy and further enhance its prospects for long-term economic growth
and social development.
29. Canada's two-way trade with Honduras increased from Can$97 million to Can$145 million
in 2002.  Through the Canadian International Development Agency, Canada had provided
US$45 million over five years to Honduras, which was host to the largest development assistanceprogramme in Central America.  Furthermore, from 2000 to 2004, Honduras had received
US$800,000 through the Central American Trade Readiness Technical Assistance Project to build
capacity in areas such as trade negotiations, customs valuation, and sanitary and phytosanitary
measures.  In 1998, Canada and five Central Am erican countries, including Honduras, signed a
Memorandum of Understanding on Trade and Inve stment.  In 2001, Canada and the CA4 group of
countries, which included Honduras, launched negotiations towards a free-trade agreement.  Canada
looked forward to the prompt conclusion of this  agreement, which would improve and develop trade
and political ties between the parties.  Canada's view was that regional and bilateral liberalization
complemented multilateral efforts in reducing barriers to trade and investment.
30. The representative of Argentina took note of the effort by Honduras to achieve high and
sustained rates of economic growth, macroeconomic stability, and fiscal sustainability, and a more
equal distribution of income.  He encouraged Hondu ras to continue in the path of economic reform.
Honduras faced the challenge of channelling at least part of the resources available from transfers and
debt relief to investment in order to attain the hi gher rates of economic growth required to lift the
standard of living of its growing population.  As some studies had shown, further opening of the
economy through tariff reductions and improvements in customs administration would also contribute
toward that end.  Argentina encouraged Honduras to submit the relevant notifications to the WTO,particularly in areas like customs valuation, import licensing, sanitary and phytosanitary measures,
technical barriers to trade, and trade-related investment measures.
31. The representative of Japan said that his country cooperated with Honduras in many areas,
including infrastructure development, food production, and health and medicine.  Japan welcomed
Honduras' efforts to liberalize trade and investment , and encouraged Honduras to continue along thisWT/TPR/M/120
Page 9
path.  Honduras had enacted both legal and institutional reforms aimed at extending national treatment
to foreign investors and providing investors with greater legal security.  Administrative reforms such
as the simplification of procedures to establish corporations and to collect taxes had also been
adopted.  With respect to market access, Japan appreciated the average applied MFN tariff of 6.1%,
but hoped to see further reductions in Honduras' tariff schedule during the current round ofmultilateral trade negotiations.  Honduras had enhanced the protection of intellectual property rights
through the ratification of the WIPO Copyright Treaty and the WIPO Treaty on Performances and
Programmes.  Japan hoped that Honduras would ra tify the WIPO Patent Cooperation Treaty as soon
as possible.
32. The representative of Chinese Taipei expressed admiration for the efforts made by the people
and Government of Honduras to revitalize their economy in the wake of unwelcome events.  He was
confident that the implementation of the ambitious endeavours contained in the Government Plan andthe Poverty Reduction Strategy would recreate a sound environment for trade and investment.
Chinese Taipei applauded the strong determination of  the Government to press ahead with reform and
liberalization policies, which would facilitate the country's further integration into the global
economy.  Chinese Taipei appreciated its economic partnership with Honduras, with which it
cooperated closely in numerous areas, including agriculture, fisheries, technology transfer,
investment, and trade.
33. The representative of the European Union noted that Honduras had taken visible steps to
strengthen democracy, but needed to make further progress in areas such as the participation of civil
society, decentralization, good governance, the fight against crime and corruption, and legal stability.
The EU had followed with great interest the importa nt steps Honduras had taken to liberalize its trade
and investment regimes.  In spite of measures to accelerate growth, including structural reforms and
programmes of monetary discipline, Honduras ne eded to continue to address macroeconomic and
social imbalances.  Honduras had one of the lowest GDP per capita levels in Latin America, a large
dispersion of revenues, and weak social cohesion.  Furthermore, in 2002, the fiscal deficit remained
high and growth was limited.  Tax collection was inefficient and the taxation laws were riddled withexemptions and inconsistencies, which resulted in a regressive tax system.  The situation in 2003 was
clouded by macroeconomic, particularly fiscal, imbalances.  The structural deficit of the current
account was mainly due to a high and growing merchandise trade deficit.  Net transfers from abroad
had been increasing over recent years, not only as a result of remittances, but also from official
development assistance.  The level of foreign investment was low, in part due to the lack of
transparency and clear rules, and could fall even further in the light of current macroeconomic
instability.  The EU encouraged Honduras to conso lidate its macroeconomic situation, in particular by
creating an environment favourable to private activities.  The EU believed that an agreement between
Honduras and the International Monetary Fund to ob tain the debt relief promised under the HIPC
Initiative was vital for Honduras' economy.  However, it appeared that internal difficulties between
the Government and the National Assembly concerning the control of public-sector salaries would
further delay the conclusion of the agreement.  In this regard, the representative was interested inlearning more about the state of play of the on-going negotiations with the IMF.
34. Since 1984, Honduras had been part of the Interministerial San Jose Dialogue between the
Central American countries and the EU.  Originally set up to support the peace process and
democracy in the region, the annual dialogue had been expanded in the mid 1990s to include issues of
sustainable and equitable economic and social development, the fight against crime, and the rule oflaw.  The San Jose Dialogue had served as a platform to strengthen cooperation, economic links and
regional integration.  In order to further strengthen relations, the EU and Central America had already
held two rounds of negotiations towards a Political Dialogue and Cooperation Agreement, which
could pave the way for a possible upgrading of relations at a later stage.  For the period 2002-06, the
European Commission's cooperation programmes would focus primarily on supporting localdevelopment and decentralization, education, and the sustainable management of natural resources.
The EU accounted for only 6% of Honduras' total trade:  Honduras' exports to the EU consistedWT/TPR/M/120
Page 10
mainly of agricultural and fish products, and textiles;  its imports consisted of manufactured goods.
Honduras benefited from preferential access to the EU market under the GSP and under the so-called
GSP drug regime, which foresaw special arrangements to combat illicit production and trafficking of
drugs.  There was a need to diversify production and to boost non-traditional exports.  A better use of
the GSP instrument could assist Honduras in attaining this goal.
35. The EU followed with great interest the active role played by Honduras in the process of
Central American integration.  The representative noted Honduras' support to the Central American
Common Market and the planned establishment of a regional customs union, which would reduce
costs, enhance competitiveness and promote H onduras' exports.  The EU encouraged Honduras to
continue to play an active role to complete the customs union by the end of 2003, as initially planned.
The EU saw a contradiction between the willingness to progress on the front of the Central American
Common Market and the multiplication of independent free-trade agreements with third partners.This seemed incompatible with WTO principles and undermined efforts to complete the customs
union.  The representative sought the Honduran delegation's views on this issue.  In addition, he asked
whether Honduras had the resources to negotiate on multiple fronts.
36. The representative of the United States noted that his country had close trade ties
with Honduras, particularly in the textiles and apparel sectors.  U.S. exports to Honduras were
US$2.6 billion and imports were US$3.3 billion.  The st ock of foreign direct investment in Honduras
in 2001 was US$49 million and was primarily concentrated in the manufacturing sector. Both
the United States and Honduras were seeking to integrate their economies even further through the
negotiations on the Free Trade Area of the Americas (FTAA) and the U.S.-Central America Free
Trade Area (CAFTA).  As Honduras' largest trad ing partner and foreign direct investor, the
United States fully appreciated the importance that the U.S. market would play in Honduras'
continued economic development.
37. The United States recognized the significant ef fort Honduras was making to recover from the
economic and social crises of the 1990s, combat widespread poverty, make structural reforms, and
liberalize its economy.  It was essential for Honduras to implement its planned privatizationprogrammes in a timely manner.  The representative noted that although regulatory requirements had
been streamlined in recent years, such requirem ents remained time-consuming and costly.  Rapidly
growing public-sector wages and a predominance of administrative personnel contributed to fiscal
problems and difficulties in expanding the level and quality of social services. Honduras' fiscal
incentives programmes, although successful in attracting export-oriented investment, had also resulted
in decreased fiscal revenue.  The representative requested additional information on the Government's
plans to phase out or discipline these programmes, particularly given the need to increase governmentrevenue.  Other areas in which Honduras could make further progress to reduce barriers to trade and
investment included:  market access in services, protection of intellectual property rights, and
agriculture.  In this regard, the United States strongly opposed Honduran policies on corn and
sorghum, which limited access for U.S. agricultural exports to Honduras.
38. The representative praised Honduras' efforts to work multilaterally, regionally, and bilaterally
to strengthen its trade ties with the rest of the world.  Honduras was also actively working to create
the necessary infrastructure to participate effec tively in trade negotiations and to implement its
commitments under negotiated agreements.  The United States was working to bolster these efforts,
and had committed over US$60 million in projects to build capacity in Honduras and other Central
American countries through the purchase of additional computers, the design of programmes toincrease citizen input into trade negotiations, assistance to strengthen science-based food-safety
inspection programmes, and initiatives to promote cleaner production.  The representative pointed out
that the U.S. engagement with Honduras in the FTAA and U.S.-CAFTA would help to build the civil
institutions, public trust, transparency and the rule of law that Honduras needed to ensure economic
stability and prosperity.WT/TPR/M/120
Page 11
39. The representative of Brazil congratulated Honduras for its efforts to liberalize trade and
investment over the past decade.  These efforts had taken place against the backdrop of an overall
process of economic and structural reform and institutional capacity building.  He urged Honduras to
continue taking steps towards a broad and solid integration into international trade flows and
expressed the hope that Honduras would attain macr oeconomic stability and growth in order to speed
up social development.
40. The representative of Colombia commended Honduras for its efforts to make its economy
more competitive.  Countries opening their economies unilaterally faced many challenges, particular
when doing so in the context of profound social problems.  The representative expressed confidence
that the inclusive process through which national priorities were being identified would contribute
towards meeting the objectives of Honduras' long-term policies.  Colombia understood the reasons
why it was important for Honduras to diversify its trade relations and to participate in different tradeliberalization forums.  The representative expressed the hope that both countries would continue to
work constructively in the context of their bilateral relationship and other regional trade initiatives.
41. The representative of India noted the progress of the structural reform programme carried out
by Honduras over the past ten years.  Between 199 5 and 2002, the average annual growth rate of the
economy had been around 3%, although in the past three years it had been only 1.9%.  The high rateof demographic growth and the heavy debt-ser vicing burden had constrained economic growth.
Natural calamities and subsequent global economic recession had had similar effects.  India had
particular sympathy for the Government’s efforts to improve the condition of the poor, who
constituted 66% of the population.  The representative lauded the objectives contained in the Poverty
Reduction Strategy Paper and complimented the Government’s ongoing efforts to fight poverty, asreflected in the Government Plan 2002-06.
42. Honduras was one of the founding members of the WTO and was an active participant in the
multilateral trading system.  The crucial role of international trade in the economy of Honduras could
be gauged from the weight of goods and services trade in GDP.  The Government had undertaken a
number of measures to make the trade regime very open and transparent, and India congratulatedHonduras for that.  The entire tariff schedule of Honduras was bound and all rates were ad valorem .
It had applied the WTO Agreement on Customs Valuation in its entirety since 2000.  Intellectual
property legislation had been adopted to make its intellectual property regime WTO consistent.
These tasks were not easy for a developing country.  The exposure of the Honduran economy to
natural disasters illustrated the need to provide developing countries with sufficient policy space to
address their particular economic vulnerabilities.  Honduras had concluded several regional economic
arrangements.  India hoped that the arrangements under negotiation would be compatible with WTOrules.  Although trade relations between India a nd Honduras were weak, there was potential for
expansion.  India and Honduras shared similar intere sts and concerns.  India looked forward to the
continued cooperation with the Honduran delegati on to the WTO, with which it had worked closely
for several years.
43. The representative of Costa Rica said that his country shared with Honduras several
objectives related to regional and global integration.  Costa Rica enjoyed close trade ties with
Honduras.  Exports to Honduras amounted to US$150 million in 2002.  Costa Rica had also increased
its investment in Honduras.  A ccording to the Secretariat Report, in 2002 Costa Rican foreign direct
investment in Honduras amounted to more than US$24 million, which made it the second largest
foreign investor in the country.  The representative recognized the efforts made by Hondurasto establish a solid legal framework for investment  and encouraged it to continue along this path.
Costa Rica appreciated Honduras' efforts to liberalize trade through tariff reductions.  Furthermore,
Honduras had never resorted to anti-dumping, count ervailing, or safeguard measures.  Costa Rica
encouraged Honduras to continue to avoid the us e of these instruments, and of sanitary and
phytosanitary measures for merely protectionist purposes.  The representative highlighted theWT/TPR/M/120
Page 12
WTO Secretariat's assertion that Honduras had much to gain from a stronger multilateral trading
system and from expanding its multilateral commitments as a means to consolidate past reforms.
44. The representative of Guatemala noted that more than 10% of her countries' exports were
directed to Honduras.  Honduras' exports to Guatemala accounted for around the same share.  The
boundary between the two countries was gradually weak ening as a result of the intensification of the
process of Central American economic integration and a customs union between Guatemala and
Honduras.  The ties between the two countries were  rooted in culture, language, and geographic,
historical, and family links.  Guatemala was deeply appreciative of all the efforts made by Honduras
to reconstruct and reform its economy.  Hurricane Mitch had hit Honduras particularly hard and led to
a decrease in GDP of 1.9%.  This was followed by the fall in international coffee prices, the world-
wide economic slowdown, and other adverse influences.  The representative was pleased to see that
these circumstances had not in any way deterred Honduras from its commitment to the multilateral
trading system.
45. The representative of El Salvador stressed that Honduras was one of El Salvador's most
important trading partners.  In 2002, approximately 15% of El Salvador's total exports (not including
exports originating in free-trade zones) were directed to Honduras.  Honduras and El Salvador were,
together with Costa Rica, Guatemala, and Nicaragua, making significant progress towards the creationof a customs union.  El Salvador highlighted efforts made by the Government of Honduras to
integrate into the world economy.  Honduras' activ e participation in the current WTO negotiations
showed its commitment to the pursuit of trade liberali zation that resulted in benefits for all countries.
El Salvador recognized Honduras' efforts to mainta in a constant rate of growth, and a low rate of
inflation, in spite of the difficult world-side economic situation.
46. The representative of the Dominican Republic pointed to the efforts made by the Government
of Honduras to discipline fiscal policy, control inflation, and achieve a constant rate of economic
growth despite external shocks.  Honduras had also reformed its investment regime, which extended
national treatment to foreign investors.  Applied MFN tariffs, which averaged 6%, had been
progressively reduced.  The representative encouraged the Government of Honduras to continue thereform process, which should lead to a better standard of living for its population.
47. The representative of Uruguay highlighted the active participation of Honduras in all WTO
spheres, its firm commitment to the multilateral trading system, and its efforts to promote trade
liberalization.  The active participation of Honduras in the current WTO negotiations was worth
mentioning.  As the Secretariat Report pointed out, the economy had grown, albeit at a slow pace.
48. The representative of Venezuela recognized Honduras’ efforts to reform its economy.  The
measures adopted by Honduras provided stability to the macroeconomic environment, and fostered
investment and economic growth.  The representati ve encouraged Honduras to continue improving its
productive capacity, take measures to diversify exports, and push for better access conditions to the
markets of developed countries.  Venezuela congratulated Honduras for its bilateral, regional, and
multilateral trade liberalization initiatives and expressed the hope that such initiatives would increase
the access of Honduran products to foreign markets and translate into improved opportunities and abrighter future for the Honduran population.  The implementation by Honduras of disciplines to
improve access to its own market and the changes made to its legal framework were proof of its
commitment to the WTO.  However, developing c ountries' participation in the multilateral trading
system was not always easy, as it involved great risks.  Countries that adopted policies to integrate
into the world economy did not appear to benefit from such policies in the short run.  Venezuela hadwitnessed Honduras' active participation in all WTO sphe res of activity to attain improvements for the
benefit of developing countries, including small developing economies.
49. In the on-going round of multilateral trade negotiations, Venezuela and Honduras shared
common positions in several areas, including agriculture.  Together with other developing economies,WT/TPR/M/120
Page 13
both countries were part of an alliance known as "friends of special products" and of the special
safeguard mechanism.  Both countries expected that the negotiations would lead to a balanced
outcome that took into account the weaknesses of developing countries.  In this regard, the
representative noted that developing countries were willing to participate in the process of trade
liberalization, but in a manner that was sustainable and ensured that the process of reforms led to asystem of trade in agricultural products that wa s just and from which small farmers in Honduras,
Venezuela, and the rest of the developing world could benefit.  The representative referred to
Venezuela's disposition to work jointly with H onduras in the on-going multilateral and Free Trade
Area of the Americas negotiations.
50. The representative of Egypt noted that the macroeconomic and structural reform programmes
implemented by Honduras signalled the country's firm  intention to integrate more closely into the
international economy and to achieve a macroeconomic environment favourable to private initiative.Both the Government and the Secretariat Reports showed clearly the efforts Honduras had undertaken
to liberalize its economy while seeking to alleviate poverty.  The international community was called
to assist economic reform in developing countries, including Honduras.  Although considerable
progress had been made following the signature of the Paris Club IV agreements and the acceptance
of Honduras as a beneficiary of the HIPC Initiative, Egypt believed that the international communityshould recognize the basic needs of developing countries by giving material expression to the
aspirations of the Doha Ministerial Declaration and moving from an approach based on statements
and declarations to an approach based on concrete considerations.  The representative encouraged
Honduras to persevere in its efforts to reform the economy and pursue sound trade policies.
51. In a letter to the Chair of the Trade Policies Review Body, dated 1 October 2003, the
representative of Nicaragua recognized the effort a nd will of Honduras to integrate further into the
world economy.  Honduras participated actively in regional and multilateral negotiations.  It had
embarked on important macroeconomic and structural reform processes aimed at correcting its
economic and social imbalances and constructing a solid base from which to foster the country's
economic development.  It had also carried out significant efforts to combat poverty.  The successfulfulfilment of the latter objective, however, also  depended on external variables, including the
application of the debt relief measures in the context of the HIPC Initiative.WT/TPR/M/120
Page 14
V. REPLIES FROM THE REPRESENTATIVE OF HONDURAS AND ADDITONAL
COMMENTS
52. The Chairperson invited the representative of Honduras to focus his responses on three main
themes:  (a) the economic environment;  (b) trade measures and policies;  and (c) sectoral policies.
(a) Economic environment
53. The representative of Honduras noted that in 2002, real GDP grew by 2.5% due to the
recovery of the agriculture, electricity and water, and mining sectors.  The Consumer Price Index
increased by 8.1%, compared with 8.8% in 2001, as a result of a relatively stable exchange rate, an
active monetary policy, and an adequate supply of basic grains.  The 2002 trade deficit was
US$1,019.2 million and was driven by high imports and the stagnation of exports, among other
factors.  Net transfers from abroad rose to US$972.5 million, of which US$719.8 millioncorresponded to family remittances.  Honduras’ international reserves rose by US$71.9 million,
reaching US$1,851.7 million.  Real GDP growth was estimated at 3.2% in 2003, as a result of the
favourable evolution of output in the textile and apparel, and agri-food sectors.  The Consumer Price
Index would continue its downward trend in 2003 a nd would increase by 7.4%.  As at August 2003,
the trade deficit exceeded its 2002 level by US$135.5 million.  At US$1,775.4 million, internationalreserves continued to be adequate and were equivalent to over four months' worth of imports.  The
Government of Honduras was focussing all its effort s on the conclusion of an agreement with the
International Monetary Fund as soon as possible.  Honduras aspired to an agreement that benefited the
majority of its population and that could actually be implemented by the Government.  The
representative estimated that an agreement could be reached by the end of 2003 or in early 2004.  Thecurrent Administration was aware that the delay in reaching an agreement with the IMF had negative
consequences for Honduras, as it postponed the debt relief foreseen under the HIPC Initiative and
limited outlays by multilateral credit agencies.
54. The Government continued to work actively with  civil society in the formulation of trade
policy through consultations.  At the beginning of 2003, the Government had created an ExternalTrade Commission, a discussion forum to advise the President on matters related to international trade
negotiations.  Business, farmers, workers and the public sector were represented in the External Trade
Commission.  In addition, the Government was carr ying out public information campaigns on trade
policy, in particular on the current status of trade negotiations.  The Ministry of Industry and Trade
coordinated its activities closely with the Ministry of the Environment and Natural Resources.  This
coordination took various forms, including impact assessments of trade policies on natural resources
and environmental quality.  With respect to the Doha Development Agenda, and the results of theWTO Ministerial held in Cancún, Mexico, Honduras was of the view that Members would need to
work harder to reach the consensus necessary to fulfil the Ministerial mandate.  Honduras’ efforts
would continue to focus on seeking special and differential treatment for countries with small and
vulnerable economies.  Honduras was committed to  deepening multilateral trade liberalization and
would continue efforts to strengthen relations at the bilateral and regional levels.
55. Honduras’ legal framework, in particular the Constitution and the Investment Law, provided
incentives to domestic and foreign investment.  A National Competitiveness Commission was set up
in 2002 to serve as a coordination mechanism for the formulation of proposals and implementation of
changes to improve the investment and business climates in Honduras.  Its specific objectives were to
increase competition, continue to streamline administrative procedures and improve quality systems,standards and technical regulations, among others.  Honduras maintained a limit on foreign
investment in small industrial and commercial ente rprises, defined as enterprises whose share capital
was below 150,000 lempiras (around US$8,500).  Although Honduras included this limitation in itsWT/TPR/M/120
Page 15
WTO list of specific commitments, domestic law placed no limitations on co-investments between
foreign and domestic investors.  This promoted the formation of linkages.
(b) Trade policies and measures
56. Honduran customs would soon begin to use version 1.17 of ASYCUDA++, which would
reduce import clearance times.  With respect to the traffic light system used by customs authorities to
determine whether to subject imports to a physical inspection or to an examination of the relevant
documentation, 16% of imports are subject to the yellow channel (document examination), 33% to the
red channel (physical inspection), and 51% to the green channel (no physical inspection or document
examination).  The entities responsible for resolving disputes related to customs valuation and
classification were the Technical Commission on Valuation and the National Tariff Commission.  In
March 2003, Honduras had adopted the Uniform Central American Customs Code, the common
customs legislation among parties to the Central American Common Market.  Honduras had reducedits tariffs in the context of a process of fiscal harmonization with other Central American countries.
Imports of raw materials, capital goods and medicines were duty free;  intermediate goods were
subject to tariffs of 5% or 10%;  the 15% tariff ceiling applied to final goods.  The representative
pointed out that the application of tariffs in excess of their bound rates concerned a limited number of
isolated cases and did not result from a deliberate policy of the Honduran Government, but ratherfrom the transposition of Honduras’ list of commitments from the 1992 version of the Harmonized
System to the 1996 version.  The price band sy stem, whose operation was amply explained during
Honduras' accession to the WTO, sought to soften the effect on domestic prices of extreme variations
in international prices.  In this regard, the representative noted that only seven products were subject
to the price band system and that the variable tariffs applied to them never exceeded their bound rates.The representative underscored that Honduras did not maintain quantitative restrictions on imports.
Concerning the operation of the so-called “absorption agreements,” the representative pointed out that
producers and processors, in coordination with the Mi nistry of Agriculture and Husbandry, agreed on
the process to be followed depending on the expected shortage in domestic production.  Further
details on this mechanism were contained in Honduras’ written replies to Members’ questions(WTO document WT/TPR/M/120/Add.1).  The restriction of exports of unprocessed wood from
tropical forests was maintained for environmental reasons.
57. Honduras accepted the results of other countries’ testing and inspection procedures, except in
the cases of food, medicines, agri-chemicals and similar products, which needed to be registered and
approved prior to being sold in Honduras.  No pr ocedure for the acceptance of suppliers' declaration
of conformity had been established.  Honduras had applied sanitary and phytosanitary measures only
to protect human, animal, or plant life and health.  These types of measures had been adopted on thebasis of scientific information.  Honduras’ utmost preoccupation in this field was to strengthen
sanitary services and to improve epidemiological monitoring procedures and programmes for the
control and eradication of diseases.  This policy had resulted in Honduras achieving a privileged
sanitary status.  In the area of government proc urement, Honduras had adopted a new law in October
2001.  This law was based on the principles of publicity, transparency, free competition, and equalityof opportunity.  Its objective was to modernize and increase trust in government procurement
processes.  Honduras’ intellectual property rights  legislation, which fully conformed with the WTO
TRIPS Agreement, had been examined by the TRIPS Council in June 2001.  The representative
highlighted the efforts by Honduras to strengthen  the protection of intellectual property rights,
including through the conclusion of several international agreements, and the modernization of itslegal framework and administrative structure.
58. Honduras was making efforts to comply with  its WTO notification obligations and would
update its notifications as soon as possible.WT/TPR/M/120
Page 16
(c) Sectoral policies
59. The impact of special regimes such as export-processing zones could be measured in terms of
Honduras’ competitive position in international markets, among other things.  Thus, the granting of
fiscal incentives was justified.  Honduras was listed in Annex VII of the WTO Agreement on
Subsidies and Countervailing Measures.  In the light of this, Honduras was allowed to grant suchincentives and would only consider their elimination once it had reached the per capita income level
established in the Agreement.
60. As regards the electricity sector, the participation of private investors in electricity generation
had been permitted since 1994.  Currently, private sources supplied more than 40% of total energy.
With respect to telecommunications, in 2002 the Gove rnment of Honduras sought to privatize the
state telecommunications company HONDUTEL, by organizing a call for bids for 51% of the
company’s shares.  The only bid submitted did not reach the minimum price fixed by theGovernment.  HONDUTEL’s exclusive rights in the area of fixed telephony would expire in
December 2005.  The opening of the sector was planned for 2006.  The objective of the Government
in this area was to broaden and modernize the telecommunications sector.  To this end, it had
launched a new policy that would permit the expansion of the network and would allow new
companies to provide services under contract s with HONDUTEL.  A sec ond licence to provide
cellular phone services had been granted.  In the context of current WTO negotiations, the
representative informed Members that Honduras was preparing a broad offer that would include basic
and value-added telecommunication services.
61. The financial services sector was open to foreign investment.  As at December 2002, four of
the 19 banks operating in the country were majority owned by foreigners.  The requirements toestablish a financial institution were clearly defined in domestic legislation and were consolidated in
Honduras’ list of specific commitments.  The criteria  applied to the transfer of shares between
founding and other shareholders of private financial institutions had not changed with respect to the
criteria determined when authorizations for establishment were originally issued.  Foreign banking
institutions could operate in Honduras through branches, subsidiaries or representative offices.Foreign bank subsidiaries or branches had to comply with the same minimum capital requirements
and were authorized to carry out the same operations as national banks.  In the context of the
liberalization of the financial sector, in Fe bruary 2001 Honduras had adopted the new Law on
Insurance and Reinsurance, which eliminated differences in minimum capital requirements based on
nationality.  As at September 2003, the Central Bank of Honduras had never denied an authorization
to establish, merge or break-up an insurance company.  If the Central Bank were to deny an
authorization in the future, it would have to give reasons for its decision.  The representativeunderscored the importance of the Trade Policy Review exercise for Honduras as it sought to
strengthen its trade policy framework.  The Trade Policy Review had allowed the Honduran
delegation to update and broaden its views on the ar eas that needed to be strengthened to allow
Honduras to continue participating in the work of the WTO.
62. The discussant stated that the responses provided by the Honduran delegation had been
complete and extremely useful in understanding the trade policies and practices of Honduras.  Many
of the issues and challenges facing Honduras were also faced by other Members.  In this sense, she
was encouraged by the progress achieved in such a short period.  It was also impressive that Honduras
had been able to chart a direction for its future development.
63. The representative of the United States agreed that prospects for Honduras were encouraging.
The speed and enthusiasm with which the Honduran delegation had produced a document containing
detailed answers to Members’ questions was testament to the Government's ability to handle
numerous policy initiatives simultaneously.WT/TPR/M/120
Page 17
VI. CONCLUDING REMARKS BY THE CHAIRPERSON
64. This first Trade Policy Review of Honduras has shed considerable light on its trade and
investment policies and practices, also contributing to a better understanding of the economic and
institutional framework within which they are formulated and implemented.  We owe this to thedocumentation prepared for the meeting, to the active participation of the Honduran delegation led by
Dr. Núñez, and to the constructive comments of the discussant and the Members.
65. Members expressed their support for Honduras' ongoing economic and institutional reform
efforts, including trade and investment liberaliza tion.  Honduras has shown discipline in the conduct
of monetary policy, and has become more closely integrated into the global economy.  However,
Members noted Honduras' large trade deficit and encouraged it to diversify its production and export
base, including by taking further advantage of unilateral trade preferences offered by some tradingpartners.
66. Members noted with concern the modest rate of economic growth, partly the result of a series
of external shocks.  As a result, living standards have stagnated, and poverty continues to affect a
large proportion of the population.  To achieve faster growth, Members referred to the need to redress
the fiscal imbalance, to improve regulatory transpar ency, and to persevere with efforts to restructure
the economy.  Reaching an agreement with the IM F was also considered important, as was support
from the international community.
67. Members took note of Honduras' commitment to the multilateral trading system, and
commended the steps it has taken to implement its WTO obligations.  They welcomed Honduras
statement that the multilateral trading system represents the main instrument to ensure non-
discriminatory access to foreign markets.  Hondu ras was invited to complete its WTO notification
commitments, in particular with respect to techni cal regulations, which Honduras engaged to do as
soon as possible.
68. Noting Honduras' rapidly growing network of preferential trade agreements, Members
expressed the view that these agreements should complement multilateral efforts.  Some Memberswelcomed the growing integration within the Central American Common Market, including through
the establishment of a customs union.  They were worried, however, that the negotiation of
independent free-trade agreements might be incompatible with a common market.  A few Members
also asked questions regarding Honduras' institutional capacity to negotiate and implement a number
of agreements in parallel.
69. Members praised Honduras for its application of the WTO Agreement on Customs Valuation
and efforts to modernize customs procedures, and sought further details on the latter.  Theycommended Honduras for not using contingency measures, for its low applied average MFN tariff,
and for binding the full tariff schedule.  Honduras was encouraged to lower its bindings in the context
of the Doha Development Agenda.  Its use of a price-band system for certain agricultural imports
gave rise to questions.
70. Interest was expressed in Honduras' application of other trade measures, including technical
regulations, quantitative restrictions on imports and wood exports, and on "absorption agreements".
The effects on trade of certain sanitary measures were of concern to some Members.  Honduras'
efforts to enhance transparency in government procurement were welcomed.  Some Members noted
that Honduras had adopted new intellectual property legislation and enhanced IPR protection, and
considered that Honduras would benefit from adopting competition policy legislation.WT/TPR/M/120
Page 18
71. Members recognized the important contribution that free-trade zones (FTZs) had made to the
generation of investment and employment in Honduras.  However, attention was drawn to the impact
on fiscal revenue and the possible economic distortions, which could arise from the FTZ regime.
72. Members commended Honduras' efforts to liberalize and open its services sectors, but some
referred to some market access impediments.  Although reforms have been introduced, it was pointedout that the financial sector remains institutionally weak.  Members also remarked on the reforms in
the telecommunications and electricity sectors.  Members observed that commitments under the
GATS did not reflect the actual openness in services, in part as a result of unilateral liberalization.
Honduras indicated that it is preparing a new, mo re ambitious schedule.  This would improve the
predictability of Honduras' legal framework.
73. Members also sought clarification on specific issues, including:
• trade policy formulation, the role of civil society, and environmental considerations;  and
• criteria for the authorization of foreign investment.
74. The delegation of Honduras provided written and oral answers to the questions posed during
the Review and undertook to supply replies in writing to any outstanding issues.  The replies provided
made a considerable contribution to the Review and Members clearly appreciated them.
75. This brings us to the conclusion of the first Review of Honduras.  It has given Members a
better understanding of the numerous reforms undertaken by Honduras in recent years, and of thechallenges that lie ahead.  I am heartened by Honduras' statement that it sees its closer integration in
the world economy as an instrument to further its economic development.
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