service payments to the United States and other Parts Club creditors. The Paris Club agreement was technically suspended in August 1993, pending agreement with the IMF on an economic program and payment of all Paris Club arrears. The Reina government is currently negotiating with the IFIs and the Paris Club. In 1994, Honduras' total external debt obligations total 36 billion dollars, well in excess of the country's annual gross domestic product (CDP).

5. Significant Barriers to U.S. Exports

Import Policy: While reforms have gone far to open up Honduras to US. exports and investment, a number of protectionist policies remain in place. For example, although all import licensing requirements have been eliminated, Honduras has resorted to an onerous phyto-sanitary system that effectively denies market access to U.S. chicken parts. Similar phyto-sanitary requirements are used to limit U.S. corn exports to Honduras.

Labeling and Registration of Processed Foods: Honduran law requires that all processed food products be labelled in Spanish and registered with the Ministry of Health. The laws are indifferently enforced at present. However, these requirements may discourage some suppliers.

Services Barriers: Under Honduran law, special government authorization must be obtained to invest in the tourism, hotel and banking service sectors. Foreigners are not permitted majority ownership of foreign exchange trading companies. Foreigners cannot hold a seat in Honduras' two stock exchanges, or provide direct brokerage services in these exchanges.

Investment Barriers: Several restrictions exist on foreign investment in Honduras despite the 1992 Investment Law. For example, special government authorization is required for foreign investment in sectors including forestry, telecommunications, air transport and aquaculture. The law also requires Honduran majority ownership in certain types of investment, including beneficiaries of the National Agrarian Reform Law, commercial fishing and direct exploitation of forest resources, and local transportation.

Honduran law also prohibits foreigners from establishing businesses capitalized at under 150,000 lempiras. In all cases of investments, at least 90 percent of a company's labor force must be national, and at least 80 percent of the payroll must be paid to Hondurans. Finally, while a one-stop investment window has been instituted to facilitate investment, this office does not provide complete information or assistance to the foreign investor.

Government Procurement Practices: The Government Procurement Law (Decree No. 148.5) governs the contractual and purchasing relations of Honduran state agencies. Under this law, foreign firms are given national treatment for public bids and contractual arrangements with state agencies. In practice, U.S. firms frequently complain about the mismanagement and lack of transparency of Honduran government bid processes. These deficiencies are particularly evident in telecommunications, pharmaceuticals and energy public tenders.

Customs Procedures: Honduras customs administrative procedures are burdensome. There are extensive documentary requirements and red tape involving the payment of numerous import duties, customs surcharges, selective consumption taxes, consular fees and warehouse levies.

6. Export Subsidies Policies

With the exception of free trade zones and industrial parks, almost all export subsidies have been eliminated. The Temporary Import Law (RIT), passed in 1984, allows exporters to bring raw materials and capital equipment into Honduran territory exempt from customs duties and consular fees if the product is to be exported outside Central America. This law also provides a 10 year tax holiday on profits from these exports under certain conditions.

The export processing zones (ZIPs) exempt the payment of import duties on goods and capital equipment, charges, surcharges and internal consumption, and sales taxes. In addition, the production and sale of goods within the ZIPs are exempt from state and municipal taxes. Firms operating in ZIPs are exempt from income taxes for 20 years and municipal taxes for 10 years.

7. Protection of U.S. Intellectual Property

Until recently, Honduran legislation on intellectual property rights (IPR) dated back to the early 1900s, and provided inadequate protection. In August 1992, a United States government decision to review Honduras' status under the Generalized System of Preferences (GSP), as a result of widespread piracy of U.S. satellite signals by local cable TV companies, forced the Honduran government to move seriously to modernize its IPR regime. On August 31-September 1, 1993, the Honduran congress approved comprehensive, world class copyright, trademark, and patent

laws. Honduras is a signatory to the Berne Copyright Convention and, in May 1993, became a member of the Paris Industrial Property Convention. As part of its appli cation for membership in the GATT, Honduras has committed to the "TRIPS" standard established under the Uruguay Round negotiations. Honduras' recent enactment of modern IPR legislation and its active support of international IPR conventions and agreements pave the way for substantive progress in this area. As part of the GSP review, however, Honduras will have to demonstrate a serious commitment to enforcing IPR protection.

Patents: The Patent Law enacted in September 1993 provides full and effective patent protection for up to 20 years. The exception is patent protection for pharmaceuticals, which are protected for 17 years from the date of patent application. The Patent Law also contains stiff fines and jail sentences for violators.

Trademarks: The registration of notorious trademarks is widespread in Honduras. Several local firms have profited greatly from the loophole in the old law excluding notorious trademarks. The new law has strict regulations on the registration and use of notorious trademarks, and provides strong penalties against violators.

Copyrights: The piracy of books, music cassettes, records, video tapes, compact discs, cable TV and computer software is widespread in Honduras. The new Copyright Law provides strong protection for copyright owners, however. The Honduran government has committed itself to legalizing the activities of its cable TV companies and video store operators. There are no reliable data on the cost of local piracy to U.S. industry. Before the Honduran cable industry legalized most of its operations, the Motion Pictures Exporters Association of America (MPEAA) estimated the annual loss of revenues from local cable piracy at 2.5 million dollars. 8. Worker Rights

a. The Right of Association.-Workers have the legal right to form and join labor unions and, with few exceptions, the unions are independent of the government and political parties. Although only about 20 percent of the work force is organized, trade unions exert considerable political and economic influence. The right to strike, along with a wide range of other basic labor rights, is provided for by the constitution and honored in practice. The Civil Service Code, however, stipulates that public workers do not have the right to strike.

A number of private firms have instituted "solidarity" associations, which are essentially aimed at providing credit and other services to workers and management who are members of the association. Organized labor strongly opposes these associations.

b. The Right to Organize and Bargain Collectively. The right to organize and bargain collectively is protected by law, and collective bargaining agreements are the norm for companies in which the workers are organized. In practice, management often discourages workers from attempting to organize. Workers in both unionized and nonunionized companies are under the protection of the labor code, which gives them the right to seek redress from the Ministry of Labor. Depending upon the decision of the labor or civil court, employers can be required to rehire employees fired for union activity. Such decisions are uncommon. Generally, however, agreements between management and their union contain a clause prohibiting retaliation against any worker who participated in a strike or union activity.

c. Prohibition of Forced or Compulsory Labor.-There is no forced or compulsory labor in Honduras. Such practices are prohibited by law and the constitution.

d. Minimum Age for Employment of Children. The constitution and the labor code prohibit the employment of children under the age of 16, but the Ministry of Labor lacks resources to exercise its responsibility to ensure enforcement. Children between the ages of 14 and 16 can legally work with the permission of the parent and the Ministry of Labor. Violations of the labor code occur frequently in rural areas and in small companies. High adult unemployment and underemployment have resulted in many children working in small family farms, as street vendors, or in small workshops to supplement the family income. According to the Ministry of Labor, human rights groups and organizations for the protection of children, there were no significant child labor problems in Honduras in 1994.

e. Acceptable Conditions of Work.-The constitution and the labor code require that all labor be fairly paid. Minimum wages, working hours, vacations, and occupational safety are all regulated, but the Ministry of Labor lacks the staff and other resources for effective enforcement.

The law prescribes an eight-hour day and a 44-hour workweek. There is a requirement for at least one 24-hour rest period every eight days, a paid vacation of 10 workdays after one year and 20 workdays after four years. The regulations are frequently ignored in practice as a result of the high level of unemployment and underemployment.

f. Rights in Sectors with U.S. Investment.-The same labor regulations apply in export processing zones (EPZs) as in the rest of private industry. U.S. firms employ. ing garment workers are active in several EPZA. Working conditions and wages in the EPZs are generally considered superior to those prevailing in the rest of the country. Unions are active in the government-owned Puerto Cortes Free Trade Zone, but factory owners have resisted efforts to organize the new privately-owned industrial parks.

While progress has been made in some maquiladoras towards unionization, a hard line in other, mostly Korean-owned, maquilas has led to plant seizures and blockage of public highways.

Blacklisting is clearly prohibited by the labor code, but nevertheless occurs in the privately owned industrial parks. Some companies in the industrial parks have dismissed union organizers before union recognition was granted.

There are still as many as 50 deaths per year resulting from serious health and safety hazards facing Miskito indian scuba divers employed in lobster and conch harvesting off the Caribbean coast of Honduras. The seafood is destined primarily to the U.S. market.

Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis-1993

Services

Other Industries

TOTAL ALL INDUSTRIES

1 Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

768.7
1.4

251.2

297.6

619.1

407.9

745.1

242.7

392

1 Projected.

-557.3

- 694.4

8 194.8

- 1030.0

-731.2

2 Growth rate is based on Jamaican dollars whereas real GDP is shown in U.S. dollars. Figure is based on January-June data.

Economic Structure: Jamaica is an import-oriented economy with imports of goods and services accounting for two-thirds of GDP. Tourism and the bauxite/alumina industry are the two major pillars sustaining the economy. In 1993 these two industries accounted for about 77 percent (USD 1535.9 million) of the country's foreign exchange earnings. Hence, both GDP and foreign exchange inflows are extremely sensitive to external economic factors. Agriculture employs 24 percent of the workforce, and contributes about eight percent of GDP. The relatively small size of the Jamaican economy, and relatively high costs of production (e.g., interest rates) has reduced the contribution of the manufacturing sector over the last several years to about 18 percent in 1993. However, the Government of Jamaica has made some progress in promoting investment in certain nontraditional export-oriented manufacturing enterprises (especially the garment industry) in the last few years. About 56 percent of Jamaica's work force is employed in the services sector, contributing 59 percent of GDP.

Economic Policies: The Jamaican economy grew by 1.2 percent in 1993, following a growth of 1.4 percent in 1992. The pace of economic growth thus far in 1994 has been modest due to tight monetary and fiscal policies. However, continued high inflation (arising from wage increases, high interest rates, and drought during the latter part of the year, among other factors) has led to declining real incomes for the majority of the population. The government has reduced public sector operations through privatization of certain public entities. To date, about 29 entities have been divested and the government is seeking to divest some 78 entities in the next few years to increase economic efficiency. Under the Common External Tariff, the tariff rate is to be phased down from the current 5-30 percent to 5-20 percent by 1998.

Fiscal Policy: The Jamaican fiscal year (JFY) 1994/95 budget calls for Jamaican dollars (JD) 55.2 billion in outlays, an increase of 27.2 percent over the previous fiscal year's budget, but will be about 10 percent lower in real terms given the 37.1 percent inflation rate in JFY 93/94. The present budget reflects a tight budgetary situation with only 38 percent of the outlay directed to meet the economic development and social needs of the country. The other 62 percent will be used for debt servicing costs (49 percent), Bank of Jamaica losses (3.5 percent), and government employee compensation (8.5 percent).

The government hopes to finance the budget through an expected total revenue of JD 39.9 billion through recurrent, capital revenue, and the capital development fund. The balance is proposed to be financed from external debt (44.7 percent of total deficit) and internal debt (55.3 percent). Furthermore, in order to ease the pressure for foreign exchange and to reduce inflation to the target of one percent per month for FY 94/95, the government has increased the issue of local registered stocks, treasury bills and certificates of deposit (offering high interest rates) to mop up excess liquidity. In the past, the Bank of Jamaica's open market operations were a means by which the Government of Jamaica funded its fiscal deficit. The current budget, however, is a departure from the recent practice of reliance on massive central bank assistance.

Monetary Policy: The Bank of Jamaica (BOJ) continued to reduce spending demand by issuing long term securities (Local Registered Stock, short-term certificates of deposit (CDs), and T-bills) at very high interest rates (varying from 52 percent in January 1994 to 37.5 percent in October 1994). These increases in deposit yields were transmitted through the financial system and had the effect of raising commercial bank lending rates as high as 65 percent in September 1994. Interest payments on the maturing securities have served to increase liquidity, necessitating additional security offerings. Funds acquired by the BOJ through issuance of CDs were generally borrowed by the government and used to finance current expenditures. It is contemplated that the BOJ will reduce its reliance on CDs as an instrument for mopping up excess liquidity in the future. The BOJ has increased the ceiling on treasury bills recently from JD 7.5 billion to JD 12 billion. Other instruments used by the government to control aggregate demand and stabilize the exchange rate include the reserve requirements of financial institutions (50 percent), and issuing a USD 12.5 million bond (the first such issuance was in September 1993 for USD 20 million). The Bank of Jamaica achieved a positive stock of net international reserves (NIR) by the end of 1993 for the first time since the mid 1970's. The NIR has remained positive through 1994 and has reached the level of USD 316.4 million as of July 1994.

2. Exchange Rate Policy

On September 26, 1991, exchange controls were eliminated to allow for free competition on the foreign exchange market. The principal remaining restriction is that foreign exchange transactions must be effected through an authorized dealer. Licenses are regulated. Any company or person required to make payments to the government by agreement or law (such as the levy and royalty due on bauxite) will continue to make such payments directly to the BOJ. There is also a requirement that 20 percent of foreign exchange purchases by authorized dealers must be paid directly to the BOJ. This represents a significant reduction from the earlier requirement, lifted in July 1994, for 28 percent of foreign exchange purchases to go to the BOJ. A requirement that 25 percent of foreign exchange purchases go to Petrojam (the government monopoly for imports of petroleum) is still in effect but is not fully utilized given the availability of foreign exchange in the system. When Petrojam is privatized, this requirement will, of course, be terminated completely.

With the increased use of foreign currency by importers and other earners of foreign exchange, together with the decline in official inflows, the Jamaican dollar lost ground by 47 percent in December 1993 over December 1992. In an effort to increase the official inflows of foreign exchange, the government introduced and increased the number of cambios as authorized dealers in April 1994. To date, 116 licenses have been issued, although only 46 are in operation. This increase in authorized dealers, along with high interest rates offered on the government securities, has had a positive impact on the inflows of foreign exchange. For the period January-September 1994, foreign exchange inflow into the official trading market increased remarkably by 93.5 percent over the corresponding period in 1993 to USD 996.6 million. The weighted average selling rate of one U.S. dollar was JD 33.45 in September 1994. If this positive trend continues, U.S. exports to Jamaica are likely to increase.