WT/TPR/M/336

1 July 2016

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Trade Policy Review Body

2 and 4 May 2016

TRADE POLICY REVIEW

HONDURAS

MINUTES OF THE MEETING

Chairperson: Ms Irene Young (, )

CONTENTS

1 INTRODUCTORY REMARKS BY THE CHAIRPERSON ...... 2 2 OPENING STATEMENT BY THE REPRESENTATIVE OF ...... 4 3 STATEMENT BY THE DISCUSSANT ...... 9 4 STATEMENTS BY MEMBERS ...... 12 5 REPLIES BY THE REPRESENTATIVE OF HONDURAS AND ADDITIONAL COMMENTS ...... 31 6 CONCLUDING REMARKS BY THE CHAIRPERSON ...... 35

Note: Advance written questions and additional questions by WTO Members, and the replies provided by Honduras are reproduced in document WT/TPR/M/336/Add.1 and will be available online at http://www.wto.org/english/tratop_e/tpr_e/tp_rep_e.htm.

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1 INTRODUCTORY REMARKS BY THE CHAIRPERSON

1.1. The third Trade Policy Review of Honduras was held on 2 and 4 May 2016. The Chairperson, Ms. Irene Young (Hong Kong, China), welcomed the delegation of Honduras headed by Mr. Melvin Redondo, Under-Secretary for Economic Integration and Foreign Trade; the rest of the delegation of Honduras; and the discussant, Dr. Shin-Yuan Lai (the Separate Customs of Taiwan, Penghu, Kinmen and Matsu) (hereinafter referred to as ). As agreed by Members earlier, the United Nations Industrial Development Organisation was attending this meeting as observer on an ad hoc basis.

1.2. The Chairperson recalled the purpose of the Trade Policy Reviews and the main elements of the procedures for the meeting. The report by Honduras was contained in document WT/TPR/G/336 and that of the WTO Secretariat in WT/TPR/S/336.

1.3. Questions by the following delegations had been submitted in writing before the deadline and had been transmitted to the delegation of Honduras: ; European Union; Australia; Canada; China; Peru; Brazil; Chinese Taipei; ; Dominican Republic; and Chile. The following delegations submitted written questions after the deadline: ; ; Ecuador; ; and Thailand. These questions had also been transmitted to the delegation of Honduras.

1.4. At the previous TPR meeting in 2010, Members had praised Honduras for its strong economic growth and achievements in reducing , fiscal deficit, and external debt burden. Members had encouraged Honduras to continue its structural and trade reforms, so as to strengthen its resilience to external shocks, reduce widespread poverty, and achieve social progress. It was encouraging to see that, during this review period, Honduras' economy had been able to recover from the aftermath of the global financial crisis and the fall in demand for its main exports such as and . Nevertheless, its GDP growth had not been sufficient to mitigate the huge deficit in its balance of payments, and indeed some development indicators had worsened. Reforms to increase competitiveness, attract investment and improve governance were necessary to bring about more fundamental changes, and this was precisely what Honduras had done. Key initiatives during this review period included a tax reform, and new or revised trade-related laws - two of which seemed to have attracted Members' attention in particular.

1.5. The first one was the new legislation in 2013 to create Employment and Economic Development Zones (ZEDEs), which aimed at, inter alia, developing the services sector. These were independent customs zones, which could help their own internal policies and regulations, including fiscal and monetary policy.

1.6. The second one was the Investment Promotion and Protection Law, which had been introduced in 2011 to provide greater protection to investors and streamline investment procedures. Members recalled that at the last review, there had been questions about Honduras' future initiatives to eliminate restrictions to foreign investment and improve its business environment. So, the new legislation was most welcome and, the Chairperson believed, would be a topic of great interest in the discussion.

1.7. As an economy largely dependent on international trade, Honduras had to maintain strong and mutually beneficial economic relationships with its trading partners. In the last review, Members had acknowledged Honduras' strong commitment to the multilateral trading system and had noted its efforts in regional economic integration. How it had since then reached out to negotiate or implement free trade agreements with other trading partners such as the EFTA and Canada was a matter of interest to some Members. To sustain economic growth in the longer term, it was crucial that Honduras diversify both the products and the markets for its exports, but changes had not been apparent so far. Members wished to know what strategies Honduras had developed to further promote this cause.

1.8. With regard to specific trade measures, in 2010 Members had expressed appreciation for the improvements that Honduras had made in areas such as SPS and TBT, competition policy, and government procurement, and they had encouraged Honduras to remove the price band system and to reduce tariffs on a handful of products for which the applied tariff exceeded bound rates. They were pleased to note that Honduras had made further progress in competition policy and

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- 3 - government procurement. However, judging from the advance questions, it seemed to the Chairperson that those issues relating to the tariff regime were yet to be fully addressed.

1.9. Other issues that continued to feature in Members' advance questions included customs procedures and customs valuation, export support regimes, and intellectual property rights. It would be helpful to hear from Honduras the policy actions that it had taken in these areas.

1.10. This meeting would be a good opportunity for Members to discuss in greater detail issues of interest to them and of systemic importance to the multilateral trading system. The Chairperson looked forward to a fruitful exchange.

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2 OPENING STATEMENT BY THE REPRESENTATIVE OF HONDURAS (MR. MELVIN REDONDO)

2.1. Honduras is particularly pleased this morning to be presenting the third review of its trade policies. I would especially like to thank Dr Shin Yuan Lai, Permanent Representative of the Customs Territory of Taiwan, Penghu, Kinmen and Matsu, for agreeing to serve as the discussant in this review.

2.2. We thank Argentina, Australia, Brazil, Canada, Chile, China, Colombia, the Dominican Republic, the European Union, Ecuador, El Salvador, Guatemala, Mexico, Peru, the Customs Territory of Taiwan, Penghu, Kinmen and Matsu, and the United States for their questions. Our thanks also go to the WTO Secretariat for its report on the trade policies of Honduras and for assisting our Government with the preparation of the review. We have replied to the questions posed by Members and have requested the Secretariat to circulate them for the purposes of this review. However, as some of the questions were received at a late stage, the relevant institutions are still responding to them, so the answers will be submitted at the second review session. We were interested to note some of the questions raised by Members concerning recent aspects of our economic policy, such as those relating to the Employment and Economic Development Zones (ZEDE), public private partnerships, and matters pertaining to 's regional economic integration. We have also noted the interest expressed by Members in topics relating to our country's experience in implementing its preferential trade agreements and in specific issues being discussed in the agreements' joint administrative bodies. These questions have been addressed and replies given in a spirit of transparency, on the understanding that the bodies concerned will be able to provide further details.

2.3. For Honduras, this third trade policy review provides an opportunity to describe the progress made in the conduct and performance of its economic and social policies since the second review in 2010 and to highlight Honduras' commitment, within a long term policy framework, to raising living standards for all Hondurans. Honduras still faces a number of social and economic challenges, which are growing as global economic recovery gathers pace following the 2009 economic and financial crisis, as well as challenges arising from the effects of climate change, to which Honduras is particularly vulnerable.

2.4. Since its second review, Honduras has undertaken to maintain a series of policies geared towards setting the country back on the path to economic growth, remedying fiscal imbalances, promoting job creation, modernizing infrastructure, improving social security, combating corruption and impunity, and fighting crime.

2.5. In terms of macroeconomic policy, the primary feature of the review period is the consolidation of macroeconomic stability, as illustrated by the improvement in macroeconomic variables and recovery in growth. This has helped Honduras regain trust and credibility at international level, as evidenced by the improved risk profiles published by the principal international ratings agencies and the upswing in the country's global competitiveness indices.

2.6. Honduran GDP grew at an annual average rate of 3.5% between 2010 and 2014. Nonetheless, the behaviour of the Honduran economy in recent years has been partly influenced by the impact of climate change and its disruptive effects on production in key economic activities, particularly in the agricultural sector. Between 2010 and 2015, the average annual inflation rate was 5.1%, lower than the rate for the period 2003 2009, when it reached 7.4%. The aim of fiscal policy over that same period was to achieve stability in public finances by focusing on reducing the fiscal deficit.

2.7. As regards fiscal policy, in addition to the measures listed in the Government report, this year saw the introduction of a Fiscal Responsibility Law, whose objective is to lay down the guidelines for more effective public finance management by ensuring the consistency of budget policy over time as well as fiscal consolidation, debt sustainability and poverty reduction, underpinned by a responsible, prudent and transparent fiscal framework. There is also talk of a new Tax Code to encourage voluntary compliance with tax obligations by establishing clear rules and setting out taxpayers' rights and obligations. The country's exchange rate policy has helped to anchor expectations of inflation, going some way to ensure that inflation has remained relatively low and contributing to the accumulation of international reserves.

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2.8. Honduras is aware of the challenges before it in the social and poverty reduction spheres. One of the key social measures being implemented is the "Better Life" programme, which benefited more than 900,000 families in 2014 and 2015. Over the period 2014 2018, social measures are expected to reduce the percentage of households living in extreme poverty from 42.6% to 38.6%, while that of poor households is due to decline from 64.5% to 60.5%. Nonetheless, a great deal obviously still remains to be done.

2.9. The Framework Law for Social Protection was adopted during the current government administration. Its objective is to establish the legal framework for public social protection policies aimed at achieving proper coverage in a dignified, gradual and financially sustainable manner, through social promotion, prevention and management of risks to human life, and securing of medical care, livelihood protection and other social rights necessary to achieve individual and collective wellbeing.

2.10. The creation of jobs and opportunities is one of the three key aims of the current Government. This involves measures covering the agrifood sector and socially responsible and community based micro, small and medium sized enterprises. The Government's goal is to generate sources of employment all over the country. To that end, it has launched the Presidential Employment and Opportunities Programme, under which the main features as far as job creation is concerned are the hourly employment programmes; the socially responsible micro enterprise programmes; the employment for a better life programme; the community employment programme; the youth employment programme; solidarity loans; and the Let's Develop Honduras programme.

2.11. Investment in infrastructure over the coming years is expected to reach US$2.2 billion. The infrastructure investment portfolio includes projects in strategic areas for sustainable development such as urban road infrastructure, ports, airports, and the energy sector. Activities in this sphere will enable Honduras to make the most of its privileged geographic location. The development of infrastructure works benefits from initiatives such as public private partnerships (PPPs), which promote national and foreign investment as a means of boosting the country's economy by creating new business opportunities for all national development actors.

2.12. In order to facilitate investment in the country, since its previous review Honduras has adopted a new Investment Law, the Law on the Promotion of Public Private Partnerships and the Law on Employment and Economic Development Zones (ZEDE), which are modern and innovative instruments aimed at attracting, encouraging and protecting investment. Measures to enhance the investment climate have made Honduras one of the main recipients of investment in Central America.

2.13. The Government of the Republic recently launched the Honduras 20/20: Our Vision for Development Programme. This is the most important economic growth initiative in Honduran history, the result of an alliance between the public and private sectors. The 20/20 Programme will promote investment in four priority sectors driving economic growth; it is expected to generate 600,000 jobs over a five year period and to attract US$13 billion in investment.

2.14. Honduras expects the Programme to generate high levels of national growth by attracting investment, boosting the export sector and creating a vast number of jobs by 2020. The 20/20 initiative prioritizes activities in the four sectors of the economy with the greatest potential for accelerated growth, that is, tourism, textiles and , intermediate manufacturing, and business support services. The plan is also to include food production and housing construction to take advantage of the economic boom that will ensue from strengthening these priority sectors.

2.15. Aware as it is of the effects of climate change, Honduras is fostering projects and programmes to prevent environmental pollution and reduce greenhouse gas emission. Although Honduras is one of the countries most severely affected by global warming, the facts show that it is among those that make the greatest contribution to combating climate change by promoting clean energy projects and new forms of , for example. Honduras is taking the lead in terms of investment in renewable energy at continental level; it is the American continent's largest investor in renewable energy sources in relation to GDP and is moving towards an energy matrix chiefly based on renewables. Though a small country, Honduras makes a global contribution and

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- 6 - assumes its responsibility in helping to preserve the environment for future generations. It fully demonstrated its commitment by signing the recent COP21 agreements last December.

2.16. In order to boost government efforts to combat corruption and impunity, a national dialogue has been established in conjunction with the United Nations and the Organization of American States (OAS). These endeavours recently led to the establishment of the Mission to Support the Fight against Corruption and Impunity in Honduras (MACCIH), aimed at ensuring an effective, transparent and fair judicial system. With support from friendly governments and international cooperation, the government procurement system is also being strengthened and action has been taken to overhaul a number of government institutions. Honduras is also spearheading the fight against money laundering and has adopted a law for the purpose. It is the only country in the world to have signed an agreement with Transparency International with a view to raising standards of integrity in public management.

2.17. As regards trade policy, Honduras continues to apply a policy based on three pillars: active participation in the multilateral trading system under the WTO; deepening of Central American economic integration; and expansion of its network of preferential trade agreements with strategic partners. Additionally, actions to facilitate trade and increase competitiveness have been prioritized, as have trade promotion and the attraction of investment. Between 2010 and 2015, Honduras made significant progress with its institutional and legal framework, adopting a set of trade related regulations in order to pursue the trade policy set out by the Honduran Government in the Country Vision and National Plan.

2.18. The Sectoral Strategic Plan for Economic Development provides that the objective of external sector policy is to promote national and international investment, tourism, diversification and placement of Honduran exports on international markets in order to help boost investment inflows, exports and tourism.

2.19. Honduras maintains its open foreign trade regime, with an average MFN tariff of 5.9% in 2015, well below the current bound ceilings, as well as minimal use of non tariff barriers and an absence of contingency measures.

2.20. Since its second trade policy review in 2010, Honduras has continued to participate actively in the efforts to improve and deepen Central American economic integration, and especially in those needed to make headway in establishing the Central American Customs Union, which is one of Honduras' strategic priorities. The regional economic area is our country's second trading partner. According to 2015 figures from the , 22.5% of goods exports were bound for Central American markets, and 18.9% of imports originated in Central America.

2.21. The key elements of the Central American economic integration endeavours driven by Honduras are the Central American Strategy for Trade Facilitation and Competitiveness with Emphasis on the Coordinated Management of Borders and the Regional Mobility and Logistics Policy Framework, which will be supplemented by the Aid for Trade Programme currently under discussion at regional level.

2.22. The Regional Trade Facilitation Strategy adopted includes measures to help reduce export and import formalities, the aim being to stimulate trade flows and increase the competitiveness of Central American and Honduran businesses, especially micro and small businesses in the region. An ECLAC study anticipates that when fully implemented, the impact in Honduras of the trade facilitation measures is likely to produce a rise of up to 5% in GDP, an increase in tax revenue (through sales and excise taxes) of up to 0.7% of GDP, and up to 24% growth in exports.

2.23. Honduras and Guatemala have taken a key step towards establishing a customs union between the two countries that will be based on the objectives and principles set out in the legal instruments governing regional economic integration. The model adopted for this customs union is in line with the provisions of Article XXIV of the GATT 1994, which is part of the WTO Agreement; and Article 15 of the Guatemala Protocol establishing the Central American economic integration subsystem. Both countries have accordingly undertaken to work on a bilateral basis to move towards the free movement of goods and natural persons between their . When the customs union between Honduras and Guatemala becomes operational, it is likely to create the

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- 7 - largest economy in Central America, covering 52% of its territory, 58% of its population and 46% of its GDP (excluding ).

2.24. As regards developments concerning regional trade agreements since the previous review, Honduras has implemented agreements with the European Union and Canada, and the Single Free Trade Agreement between Central America and Mexico has entered into force. Honduras' free trade agreement with Peru is expected to come into effect in 2016. This will bring to ten the number of preferential trade agreements in force. For Honduras, the foregoing means that almost all of its exports will be covered by preferential agreements.

2.25. Thus, there is an advanced legal framework for trade that guarantees the transparency and predictability of the trading environment and the promotion and protection of investment. It is worth mentioning that Honduras is aware of the trend towards mega free trade areas, such as those provided for by the Trans Pacific Partnership Agreement (TPP) and the Pacific Alliance Initiative, both of which Honduras has asked to join.

2.26. In the multilateral trading system administered by the WTO, Honduras has done its utmost since it acceded to the former GATT to comply with its obligations under the various agreements that form the basis for the multilateral trade disciplines, harmonizing its legislation with the substantive provisions and invoking special and differential treatment as a .

2.27. Honduras considers that the should be completed, taking into account the principles that gave rise to this multilateral round; it believes in the multilateral trading system and regards the dispute settlement system as crucial for a small and vulnerable economy. Over the review period, Honduras has participated in a number of cases as a third party and in two cases as a complainant, and a case concerning Honduras is currently before a panel. We see the WTO as an evolving organization, as evidenced by the Agreement on Trade Facilitation (TFA), and we have notified our Category A commitments. As regards the TFA, only the publication of the decree approving the agreement is still pending before Honduras can deposit its instrument of acceptance and thus contribute to the development of the multilateral trading rules.

2.28. Aware of its multilateral obligations, Honduras has accepted the 2005 Protocol Amending the TRIPS Agreement, submits the requisite notifications under the various agreements and, as a co sponsor of various relevant proposals both before and after the period under review, it has endeavoured to secure effective special and differential treatment, seeking solutions to protect sensitive economic sectors with a view to better integration in world trade. Honduras is a member of various informal groups such as the Group of Small, Vulnerable Economies and the G 33.

2.29. Lastly, Honduras will continue to duly comply with its international commitments, thereby promoting a stronger national and multilateral trading system. It will also strive to take advantage of the foreign trade platform by promoting exports and investment.

2.30. Honduran trade policy will retain its principal objectives of generating employment, attracting investment, and taking advantage of the opportunities provided under regional trade agreements and the multilateral trading system, with a view to generating sustainable and equitable economic growth.

2.31. Trade policy will continue to be implemented in line with the objectives and actions set out in the Country Vision, the National Plan and the "Everyone for a Better Life" plan. Honduras will also continue to promote action to improve the business climate; increase competitiveness and productivity, particularly in strategic sectors; achieve macroeconomic stability; foster and attract investment; generate sources of employment; boost economic recovery; modernize infrastructure by encouraging projects that will help turn the country into a regional logistics hub; modernize the State; make socially sustainable and environmentally responsible use of natural resources; increase transparency; combat corruption and impunity; fight crime; and improve public safety. The underlying aim is to ensure better living conditions for Honduran society and lead Honduras towards social reform and changes in production patterns that will set it on the road to development.

2.32. In the policies outlined, Honduras will continue to give priority to international trade and to promoting, attracting and protecting investment as engines for growth.

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2.33. We are aware of the complexity of administering a trade regime based on preferential trade agreements in coexistence with multilateral disciplines and the challenges posed by improving Honduras's position in international trade as a tool for poverty reduction; we therefore continue to attach great importance to the Aid for Trade initiatives carried out by both multilateral and bilateral partners, urging them to pursue and intensify the measures taken to improve the situation of countries such as Honduras, which have limited capacity to participate in the global economy.

2.34. As a founding Member of the WTO, Honduras reiterates its commitment to continue making an active contribution to the work of the Doha Round, whose outcome we hope will be fair and balanced and will meet the country's development needs.

2.35. To conclude, and as indicated in the Secretariat report, despite Honduras' positive economic performance and the major shift towards turning the country into a modern, efficient and productive State, a large proportion of the population is living in poverty. The great challenge facing Honduras today is to continue framing its policies with a view to reducing the scourge of poverty and the inequity gap so that it can embark on the right path to sustainable, fair and balanced development – the kind of development that empowers people. That is the ultimate goal of the policies we are pursuing.

2.36. All that remains is for me to thank you, Madam Chair, as well as the Secretariat, and to apologize for the length of this presentation. We are eager to hear the comments of our discussant, Ambassador Lai. Thank you.

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3 STATEMENT BY THE DISCUSSANT

INTRODUCTION

3.1. I am most honoured to be the Discussant for Honduras's third Trade Policy Review. One of the benefits of being the Discussant at a TPR is the unique opportunity it gives you to take an unusually close look at the economic and social development of the country under review. In doing so, I feel I have acquired, in a short period of time, a much better understanding of the social and economic development of Honduras than I could have hoped to do in any other way.

3.2. Let me first extend my very warm welcome to the Honduran delegation led by Mr. Redondo today. I would like to thank both Mr. Redondo and the Chair for their opening statements, which have set the tone for today's discussion.

3.3. And here is a thought, just to begin with. Most of us are probably more closely linked to Honduras than we might think. Many of us drink coffee every day, which could easily have come from Honduras, because it is one of the world's top ten coffee exporters.

3.4. In my discussion, I shall first focus on Honduras's recent economic environment, which includes the positive developments and the challenges faced. Then, I shall share with you my observations on some areas of its trade and investment policies.

ECONOMIC ENVIRONMENT, DEVELOPMENTS AND CHALLENGES

3.5. Honduras is the second largest country in Central America. It enjoys the privileged geographical advantage of being situated in the middle of Central America, conveniently close to the important markets of the U.S. and other Latin American countries.

3.6. Since coming through the global financial crisis of 2008 and the political instability of 2009, Honduras's economy has experienced what could be described as a moderate recovery, growing at an average of 2.5% per year between 2009 and 2014. Last year, it grew faster, by 3.5% and, according to the , a similar rate of growth is expected this year. It is a noteworthy achievement compared with some other countries in the region.

3.7. Also, rather impressively, the average annual rate of inflation in Honduras came down to 5.1% over the period under review, from 7.4% in the previous period. And, last September, inflation actually fell to 2.76%, the lowest for more than 25 years. This is due largely to the Government's sound monetary policy, which is vigorously targeted at controlling inflation.

3.8. It is pleasing to see, as well, that the fiscal deficit has dropped significantly, from 7.9% of GDP in 2013 to 4.4% in 2014, even better than the Government's own target of 4.7%. This would indicate that the Honduran government's tax reform actually works. Not an easy task, this is. In the past, the huge long-term fiscal deficit had seriously constrained the Government's ability to implement sound social and economic policies.

3.9. What is also very encouraging to see is the positive progress made towards fiscal sustainability, supported by the International Monetary Fund (IMF) with its Stand-By Arrangement in 2014. I believe this will continue to benefit Honduras, by helping to maintain macroeconomic stability, and to improve the conditions needed for sustainable economic growth and poverty reduction.

3.10. Despite the favourable economic outlook, however, there is still a great deal of room for improvement, as there is for many other countries. Honduras faces some big challenges on the path to materializing its "Country Vision". For example, its high trade deficit, fiscal deficit and external debt are still present. In particular, two of the greatest challenges are the continued existence of severe poverty and of income inequality, both of which must be tackled actively by the Honduran Government as top policy priorities. It is also important that the Government, as a matter of urgency, combats the rampant crime and violence that currently prevails, if it is to build a solid foundation for a better economic environment.

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3.11. There is also one other economic structural problem, which is common to many developing countries - that of export concentration. Honduras's exports are concentrated on just a handful of items, such as coffee, bananas, , palm-oil and processed goods. This makes its economy particularly vulnerable to natural disasters and external shocks. In manufacturing, the industrial infrastructure is limited to that of simple assembling. It is imperative that Honduras re-adjusts its economic structure over the long-term by further diversification of its exports, and increasing its productivity and competitiveness.

3.12. The programme of institutional reform initiated by the Government is extremely important, and needs to continue and to succeed. For example, a more efficient market-oriented mechanism should be established, administrative efficiency could be improved, judicial systems must be strengthened, and there's a great need to raise the quality of the labour force.

REVIEW OF TRADE AND INVESTMENT POLICIES

3.13. Now, I would like to turn to the subject of trade policies, and some of the areas that have particularly attracted my attention.

3.14. As clearly indicated by its trade-ratio to GDP of 103%, international trade has always been important to Honduras's economy. And, not surprisingly, Honduras has for long been an active participant in all forms of multilateral, regional and bilateral trade negotiations.

3.15. On the multilateral front, Honduras is a strong supporter of the WTO multilateral trading system. It maintains a relatively open trade regime, with a low applied tariff rate averaging around 5.9%.

3.16. Honduras seldom uses non-tariff barriers and trade remedy measures. Moreover, it has bound all of its tariff lines. About 85% of them are bound at 35%. Seven of its tariff lines, however, have applied rates that are beyond the bound rates.

3.17. I am very aware, from my own experience, of the significant benefits that can be gained from the streamlining of a country's customs procedures. Honduras should therefore be encouraged to continue its efforts to modernize its own customs procedures and to include use of the single window. We also look forward to the Honduras's ratification of the Trade Facilitation Agreement (TFA) in the near future.

3.18. And, we welcome the further improvements contained in Honduras's various notifications in the areas of import licensing, safeguard measures and SPS measures.

3.19. Undoubtedly, RTAs must have played an important role in Honduras's foreign trade. Around 80% of its exports with the U.S., Central America and the EU are under its free trade agreements. Honduras would be well advised, however, to diversify its markets.

3.20. On the investment front, the Honduran Government is generally open to foreign investment, and, in fact, provides various incentives, for example tax exemptions. During the period under review, certain Employment and Economic Development Zones, the so-called ZEDEs, were created to serve as extraterritorial fiscal and customs zones. The ZEDEs are designed to allow various degrees of autonomy. Although they may not yet be in operation, we should be very interested in having more details of the ZEDEs.

3.21. I should also add that we are delighted to see, as emphasized by the Under-Secretary Mr Redondo just now that Honduras has modernized its investment regime, including the amendment of its regulatory and legal system, the creation of a new institution for promotion, and the setting-up of a single window to facilitate the approval procedures.

CONCLUSION

3.22. In summary, the period under review shows that Honduras is undertaking all the necessary reforms to better integrate into global trading system and to contribute to its economic and social development. The Honduran Government's decisions to prioritize its policy objectives into

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- 11 - improving sustainable economic growth, job creation, poverty reduction, better income distribution, cracking down on crime, and reducing unemployment are widely welcomed.

3.23. Of course, we all know that reform takes time and needs long-term commitment. We look forward to hearing about the realization of Honduras's policy objectives in its next trade policy review.

3.24. Before I conclude, I would just like to thank Ambassador Dacio Castillo for his excellent and constructive contribution to the WTO forum. He never seems to tire of the significant roles that he plays in many WTO activities. He has chaired many important WTO bodies and is currently Chair of the Special Session on TRIPS. He promotes and defends the interests of Honduras relentlessly, especially within the group of SVEs, the G-33 and the IGDC.

3.25. Finally, I wish Mr Redondo and the delegation of Honduras a very successful trade policy review. Thank you very much.

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4 STATEMENTS BY MEMBERS

MEXICO

4.1. We acknowledge the efforts made by Honduras to address the consequences of the global financial crisis and the slump in the price of its main exports. However, these endeavours have not been sufficient to either increase its per capita GDP or reduce poverty. In rural areas, six out of ten households live in extreme poverty. Nor has Honduras managed to reduce its high levels of economic inequality. As stated by Mr Redondo, these are the two main challenges facing the country.

4.2. We also recognize the major efforts Honduras has made to improve a number of aspects of its economic and trade policies; these include the following, as has already been mentioned:

 The introduction of a tax reform aimed at boosting tax revenue and reducing the fiscal deficit, in addition to measures geared towards putting the public debt on a sustainable path.

 The reforms undertaken to increase the transparency of the civil service, including an evaluation of government bodies.

 The large scale constitutional reforms, such as the amendment providing for the creation of Employment and Economic Development Zones (ZEDE) and the enactment of various laws relating to investment, public finances and the energy sector. The Investment Promotion and Protection Law will protect ownership rights and provide more extensive guarantees for foreign investors.

 The implementation of a single window for investment.

 The streamlining of various customs procedures by means of electronic systems; Honduras does not have a single window for foreign trade, however. We would be interested to know whether a date has been set for ratifying the TFA and whether practical steps are being taken to introduce a single window for foreign trade.

 Lastly, Mexico expresses congratulations to Honduras since it appears that it will comply with around 65% of the TFA's provisions when the agreement enters into force.

4.3. Despite all its efforts, Honduras still faces major challenges in terms of logistics performance, particularly in improving the quality of trade and transport infrastructure. In 2014, the World Bank's Logistics Performance Index ranked Honduras 103rd among 160 countries. We hope that some of the reforms undertaken by the Honduran Government will enhance the country's performance in this regard.

4.4. Honduras is not an economy with high trade barriers. The average applied tariff is 5.9%. Agricultural products are subject to an average rate of 10.7%, while that for non agricultural products is 5.1% both below the average for WTO Members. Nonetheless, some products such as and poultry meat are subject to rates of 55%. Honduras makes little use of non tariff barriers and has not imposed any anti dumping or countervailing measures to date.

4.5. Mexico and Honduras have a close historical relationship and in fact were part of the same country for some years. We have long standing preferential trade relations, which were consolidated by a single free trade agreement that entered into force in 2013 and achieved the convergence of Mexico's agreements with , El Salvador, Guatemala, Honduras and .

4.6. Mexico is the fifth largest destination of Honduran exports on the American continent and Honduras' third largest trading partner in import terms. As regards foreign direct investment, Mexico has been a major investor in Honduras: it was the top foreign investor in 2014 and the fourth largest in 2015.

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4.7. As regards agriculture, coffee and bananas still account for close to 40% of Honduran exports. This concentration of production makes the sector highly vulnerable to the prices of these commodities. Diversifying output and exports calls for a series of measures to avoid the negative impact of export fluctuations on the overall performance of the Honduran economy.

4.8. With respect to services, the State still plays a significant role, especially in the electricity, telecommunications and maritime transport subsectors. On the other hand, it is worth mentioning that a concession has been granted for the operation and modernization of Puerto Cortés, the country's largest port.

4.9. All of these measures will undoubtedly help to improve the performance of the Honduran economy. The IMF in fact forecast real GDP growth of 3.5% for 2016 and inflation remaining at 4%. We are convinced that economic growth will lead to a better standard of living for the Honduran people.

EUROPEAN UNION

4.10. Honduras is a lower-middle-income country with one of the highest poverty rates in . As presented in the Secretariat's report, an average annual GDP growth rate of 2.5% between 2009 and 2014 has not been sufficient to improve living conditions or reduce poverty - it is estimated that more than 40% of the population lives in conditions of extreme poverty, particularly in rural areas.

4.11. Nevertheless, the EU acknowledges the efforts of the Government for launching ambitious reforms, which also contain a set of trade-related regulations. The EU notes that these reforms are a step in the right direction.

4.12. The Honduran economy's dependence on international trade is amongst the highest in Central America. The ratio of trade (exports and imports) to GDP increased during the review period up to 103% in 2014.

4.13. Therefore, Honduras has still a long way to go to boost and diversify fully its economy as already highlighted during the previous trade policy review. The Government of Honduras should maintain its strong engagement in improving its institutional and business environment to sustain better its economic development. In this respect, the EU encourages Honduras to pursue further the opening and the diversification of its economy while, at the same time, reinforcing its institutions to ensure a fair, transparent and predictable legal environment, which is crucial to attract FDI.

4.14. As a small economy that is highly dependent on foreign trade and investment, Honduras has a lot to gain from a freer, more stable and more open trading environment. In this respect, while the EU acknowledges that Honduras promptly notified its Category A commitments, the ratification of the Agreement is still outstanding and I would therefore encourage the Government to proceed with final steps without further delay.

4.15. The EU also follows with interest the political initiative of the customs union between Honduras and its neighbouring country Guatemala, which should constitute a milestone towards a closer and deeper economic integration.

4.16. A word on our bilateral relationship. Honduras is an important economic market for many European companies. The EU is the second largest trading partner of Honduras globally. According to the latest data from 2014, the EU is the 4th main source of imports (6.7% market share) and second largest export destination (21.8% of Honduras's sales). The bilateral trade flow proved to be very dynamic as it increased by 21% in 2014.

4.17. The trade relations between Honduras and the EU take place in the framework of the comprehensive EU-Central America Association Agreement signed in 2012 and which includes political dialogue, development cooperation and trade.

4.18. Honduras benefits from the EU support for development cooperation. The bilateral EU cooperation for the period 2014–2020 provides an allocation of €235 million concentrating on food

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- 14 - security, employment and rule of law as main sectors. In addition, Honduras will continue benefiting from the EU sub-regional cooperation programme for Central America (€120 million) during 2014-2020.

4.19. The EU would like to raise two specific issues of concern.

4.20. Firstly, the EU would like to recall the importance attached by the EU to GIs and full implementation of TRIPS, in particular as regards the recent declaration of genericity of certain GI names after these had been protected in Honduras. Therefore, the EU invites the government of Honduras to submit information on this matter.

4.21. Second, the EU would like to underline the importance to avoid the creation of new barriers to trade. In this respect, the EU is concerned about the establishment of a new licensing system for the importation of onions in Honduras and would invite Honduras to submit detailed information on this scheme.

4.22. On behalf of the EU, I look forward to a constructive exchange of views during this review and wish Honduran delegation the utmost success during its Trade Policy Review.

AUSTRALIA

4.23. As noted in the Secretariat's report, the Honduran economy is largely dependent on international trade and, as a consequence, Honduras is a beneficiary and strong supporter of the rules and norms underpinning the multilateral trading system.

4.24. Australia applauds the ongoing economic reform agenda adopted by Honduras during the period of review, and we encourage the Government to continue to promote economic growth through further reforms.

4.25. Australia commends Honduras' recent efforts to attract foreign investment, including simplifying its investment formalities and introducing new guarantees for investors, such as stability contracts and property protection regimes.

4.26. As part of this review, we hope to gain a greater understanding of the Employment and Economic Development Zones (ZEDE), particularly how such zones may develop their own internal policies and regulations, including fiscal and monetary policies.

4.27. Australia looks forward to continuing to work cooperatively with Honduras in forums in which we have a shared interest. This includes the Central American Integration System (SICA), of which Australia became an extra-territorial observer in 2011. Australia supports the trade agenda of SICA and is interested in future steps Honduras and other Central American economies have planned to progress the Central American integration process. In particular, we are interested in any moves to coordinate regional trade facilitation measures in the context of the WTO Trade Facilitation Agreement.

4.28. We congratulate Honduras on notifying its Category A commitments under the WTO Agreement on Trade Facilitation and encourage Honduras to progress its domestic approval processes to allow it to accept the Agreement in a timely manner. The Agreement on Trade Facilitation when implemented will deliver practical measures to strengthen global trade and economic growth, bringing substantial development and job creation benefits for WTO Members including Honduras.

CANADA

4.29. The reports from the Honduran Government and the WTO Secretariat have furnished an interesting picture of developments in Honduras' trade and investment regime.

4.30. Canada recognizes the improvements made by the Government of Honduras in its trade performance in 2015. But we consider that there is still much that the Government of Honduras could do to improve the business environment in the country. We note that Honduras has slipped

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- 15 - by 6 places in the World Bank's Doing Business rankings, from 104 in 2015 to 110 in the current (2016) report. Moreover, Honduras slipped one place (to 88th) in terms of global competitiveness between 2014/15 and 2015/16, according to the World Economic Forum. That being said, we applaud efforts by the Government of Honduras aimed at strengthening Central American Economic Integration, as well as its efforts towards seeking admission to both the Trans Pacific Partnership (TPP) and the Pacific Alliance. Honduras rightly recognizes that increased integration into the global economy, including through bilateral and regional trade agreements and increased participation in global value chains, supports economic growth, which in turn contributes toward poverty reduction.

4.31. Having said that, we are very concerned about the increasing insecurity in the Northern Triangle region of Central America, including Honduras. Fear for personal safety, local corruption, organized transnational crime and the lack of faith in local institutions to combat these and other challenges will continue to limit economic growth and development in the region. They will also undermine the confidence of current and potential foreign investors.

4.32. Indeed, Honduras consistently ranks among the poorest in the hemisphere as well as being one of the most violent countries in the world, rivaling countries that are in active civil war. We are pleased that the Government of Honduras and the OAS signed an agreement to establish the Mission to Support the Fight Against Corruption and Impunity in Honduras (MACCIH) in January and that it was ratified by the Honduran Congress at the end of March. This agreement should have a positive impact in the fight against corruption and impunity in Honduras and could significantly reinforce the rule of law. Accompanying this, we acknowledge recent Government of Honduras' efforts in addressing security and impunity challenges.

4.33. In terms of our bilateral trade relations, Honduras increased its rank among Canada's trading partners in recent years, moving from 85th position in 2010 to 68th in 2015. The entry into force of the Canada-Honduras Free Trade Agreement in October 2014 was an important milestone in our relationship with bilateral merchandise trade between our nations increasing by 30% last year. In this regard, I would like to note that Canada looks forward to the opportunity to present the Canada-Honduras Free Trade Agreement Factual Presentation to WTO Members at the Committee on Regional Trade Agreements meeting next month.

4.34. A number of Canadian companies play an important role in the manufacturing, services and extractive sectors of the national economy of Honduras. In fact, the largest private sector employer in Honduras, among both local and foreign employers, is a Canadian company with a of 24,000 people.

4.35. Accompanying our FTA, we continue in our efforts to assist Honduras to strengthen the rule of law and the capacity of government institutions and oversight bodies to protect human rights, with special attention given to the rights of children, youth, women, workers and marginalized groups. We provide substantial development assistance to Honduras, our largest recipient in Central America.

4.36. In conclusion, Honduras increasingly recognizes that prosperity, security and democratic governance, including full respect for human rights, are interconnected and mutually reinforcing. Canada will continue to work with Honduras as both a bilateral trading and development partner to support the Government and people of Honduras in its pursuit of better governance in the economic, political and social fields. In this way, the foundations can be laid for sustainable economic growth and development.

PERU

4.37. I would like to begin my statement on this review by highlighting the excellent relations between Peru and Honduras, which were further enhanced by the official visit to Peru of the President of the Republic of Honduras, His Excellency Mr Juan Orlando Hernández Alvarado, in May 2015. The President was accompanied by various Ministers of State and a delegation of senior government officials, who had important meetings with their Peruvian counterparts in order to strengthen high level dialogue and review the main issues on the bilateral agenda. This official visit provided an unquestionable opportunity to reaffirm the two countries' determination to boost their

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- 16 - economic and trade relations, expand business and investment opportunities, and open up new areas of cooperation, including social and educational aspects.

4.38. Peru and Honduras are complementary economies, and there is considerable potential for expanding trade. Over the past ten years, bilateral trade has increased almost fourfold, from around US$12 million in 2005 to close to US$48 million in 2015.

4.39. In this connection, the aforementioned official visit to Peru by the President of the Republic of Honduras led to the signing of important bilateral agreements, including a free trade agreement to improve market access conditions and establish clear rules and disciplines to promote trade in goods and services, as well as investment between the two countries. This agreement will allow duty free access to Honduras for approximately 81% of Peru's exports, either immediately or within a maximum period of five years. Likewise, Honduras' leading export products will enter Peru free of duty within ten years at the most.

4.40. The free trade agreement between Peru and Honduras will give further impetus to bilateral trade and will essentially benefit small and medium sized businesses seeking markets for value added products.

4.41. Turning to the Secretariat report for this review, I wish to highlight the Honduran Government's efforts to carry out reforms aimed at restoring fiscal discipline, putting the public debt onto a sustainable path, increasing the transparency of the civil service, enacting and amending laws relating to trade development and the promotion and protection of investment, and implementing measures to facilitate trade and streamline customs procedures by introducing electronic systems, particularly for exports.

4.42. It should also be noted that Honduras has a relatively open trade regime, as evidenced by the high foreign trade to GDP ratio. The report emphasizes that there have been no major changes to the regime, that Honduras has made little use of trade barriers, and that it did not impose any anti dumping or countervailing duties during the review period. The report also states the development of technical standards and regulations and sanitary and phytosanitary measures is governed by the principles of consensus and transparency, and generally follows international standards.

4.43. According to the Secretariat report, the Honduran economy has recovered from the negative consequences of the international economic situation of recent years and the country's economic outlook is favourable. On the other hand, economic growth has not been sufficient to improve the population's living conditions or to reduce poverty levels. Honduras thus faces major challenges in driving its economic development forward; these include addressing one of the highest levels of economic inequality in Latin America, raising per capita income that is among the lowest in the region, reducing its vulnerability to the adverse impact of the international economic situation, diversifying its exports, and expanding its markets.

4.44. Peru regards this trade policy review of Honduras as a significant opportunity to obtain valuable information of benefit to all, and it therefore wishes Honduras a successful outcome of this exercise.

4.45. Peru submitted some questions for this review and would like to take this opportunity to thank the Honduran delegation for its replies, which will be forwarded to our competent authorities in the capital for evaluation and follow up.

BRAZIL

4.46. First of all, I would like to extend a warm welcome to the Honduran delegation, led by Under Secretary Melvin Redondo, whom I thank for his comprehensive, clear and transparent presentation at our opening session. As you know, despite differences in scale, among other things, Latin American countries share many challenges, as we diplomats and bureaucrats call problems. Overcoming these challenges or problems, in your case, in our case, and in the case of many others here, is critical if we are to succeed in raising living standards for our populations.

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4.47. It is a matter of great satisfaction for Brazil to take part in the third TPR of Honduras, a sister Latin-American nation with which Brazil has maintained diplomatic relations for precisely 110 years. On the macroeconomic area, the Secretariat report informs that the Honduran economy has recovered from the effects of the global financial crisis although the growth rate has yet to improve to allow for more welfare gains, combat poverty and increase employment, another challenge that many of us face. It is, however, worth noting that Honduras reoriented its fiscal policy to keep public finances in balance and increase expenditures in areas such as education, health, social security and economic and social infrastructure. To deal with the many challenges that Honduras is confronted with, the Government adopted a 2014-2018 Strategic Plan which seems to be very comprehensive and should help to boost the economy.

4.48. We salute the reforms to increase the transparency of the civil service and government procurement that have also been undertaken during the period under review. We positively note that citizens can now evaluate the performance of Government bodies and submit complaints regarding their poor performance. With regard to government procurement, the adoption of streamline procurement procedures will save money and increase society's grasp of government expenditure.

4.49. Regarding trade, the Secretariat report informs that while there have been no major changes in the trade regime since 2010, certain measures were introduced to facilitate trade. Honduras has streamlined its customs procedures by introducing a variety of electronic systems, particularly for exports. New guarantees were established for foreign investors such as stability contracts and property protection regimes. Certain requirements were also eliminated such as prioritization for investment in Honduras.

4.50. At the bilateral level, Brazil and Honduras share a number of common challenges related to enhancing economic growth and reducing social inequality and promoting their populations' welfare. We maintain a fruitful cooperation in areas such as education, science and technology, humanitarian assistance and renewable energy.

4.51. On the trade front, the partnership is yet to develop from very modest current flows. Trade is mostly composed of manufactured products which represented 83.6% of Brazilian exports to Honduras and 58% of our imports. Our exports to Honduras are mainly of mechanical machines, paper, cereals, ceramic products and automobiles. Honduras' exports to us are concentrated in aluminium, garments, electrical machines and other textile products.

4.52. Brazil is convinced that there is much room from improvement in our bilateral trade relations with Honduras. A deeper integration between MERCOSUR and the Central American Integration System (SICA), which encompasses not only a political dialogue and cooperation but also trade, will certainly contribute to the thickening of our economic ties.

4.53. With respect to investment, Brazil has more than tripled its foreign direct investment in Honduras in the last three years. Brazil is involved in important infrastructure products such as the construction of a logistic corridor that would link the Gulf of Fonseca, in the Pacific, to Puerto Cortés on the Caribbean Coast. Brazil hopes to further strengthen its participation in the development of Honduras' infrastructure in the near future, especially in the projects of ports, airports and gas pipelines.

4.54. Let me conclude, Madam Chairperson, Señor Subsecretario, by wishing to Honduras a very successful Trade Policy Review.

GUATEMALA

4.55. Guatemala highly values its close relationship with Honduras in all areas. Honduras is a fellow country with which we not only share a border but also important development and regional integration objectives. We have been working together for more than 60 years in favour of Central American integration. As a result, we have managed to build and gradually strengthen the Central American Common Market (CACM), and have made headway, under a harmonized approach, towards development for our peoples and the strengthening of our economies.

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4.56. Looking beyond the region, Honduras and Guatemala have coordinated their trade policies to negotiate and implement major trade agreements signed, as a Central American bloc, with the United States, the European Union, Mexico and Chile, among others. In order to build even closer ties, Guatemala and Honduras agreed, in 2015, to establish a customs union providing for the free movement of goods and people between the two countries, a reduction in customs processing times and the elimination of some customs procedures. Our countries' legislative bodies have already approved the enabling protocol needed to implement the customs union, and the remaining technical and administrative procedures required for its entry into effect are expected to be completed in the coming months. It should be noted that this will be the first customs union on the American continent and an important step on the way to a Central American customs union an essential building block for regional development.

4.57. In 2015, bilateral trade between Honduras and Guatemala exceeded US$1,269 million and covered over 6,000 products, according to their tariff classification. In percentage terms, this figure represents an increase of more than 300% over total bilateral trade in goods (US$392 million) in 2002. Guatemala's leading exports to Honduras are plastics and plastic products, cereal preparations, and pharmaceuticals. Honduras' main imports into Guatemala are propane gas, detergent and soap, and cereal preparations.

4.58. Turning to the review that brings us here today, we highlight the efforts made by the Honduran authorities to keep inflation within the band established by the Central Bank, and the tax reform implemented to reduce the fiscal deficit and increase tax revenue. The country's relatively open trade regime is a sign of strength, in that foreign trade accounts for a significant share of Honduran GDP. During the review period, Honduras implemented major structural reforms to bolster its institutional framework and increase the efficiency of public administration. One example is the State Secretariat for Economic Development (PROHONDURAS), which replaced the State Secretariat for Trade and Industry, and another is the introduction of new government procurement procedures by means of an electronic system that helps streamline procedures and foster greater transparency. Honduras has also provided a stronger framework for protecting investors and introduced new guarantees, such as property protection regimes. As regards foreign direct investment (FDI) in Honduras, it is worth mentioning that, according to data from the Central Bank of Honduras, US$64.5 million of total incoming FDI in 2015 was invested by Guatemala.

4.59. Among the short and medium term challenges ahead, we note that it is important for Honduras to continue diversifying its economy in order to reduce the impact of external shocks, such as the 2009 global financial crisis and its effects on the country's leading exports. This is a challenge that Honduras shares with all Central American countries, and we are convinced that our growing relations and integration through the Central American Common Market and the customs union will help generate further opportunities and bolster our region's position in world trade.

4.60. We commend Honduras for its efforts and achievements during the period covered by this trade policy review, and we believe that its endeavours will contribute to strengthening both the country itself and our region across the world. Our thanks to Honduras for its replies to Guatemala's questions in the context of this review.

DOMINICAN REPUBLIC

4.61. The Secretariat report shows that the Honduran economy, as indeed almost all of the world's economies, has suffered from the global financial crisis and the slump in external demand and in the price of its main exports, in particular coffee and bananas. On the other hand, it is most encouraging to note that growth has resumed, even though it has not yet been sufficient to improve living conditions or reduce poverty, with GDP rising at an average annual rate of 2.5% between 2009 and 2014. The estimated GDP growth rate for 2015 is 3.5% and the economic outlook is positive. We therefore commend the Honduran authorities for the way in which they have handled the financial crisis.

4.62. We cannot but acknowledge the positive impact of the tax reform implemented by Honduras in 2013 and the 2014 2017 Reform Programme, which seeks to restore fiscal discipline and put the public debt onto a sustainable path. Although the economic outlook is favourable, Honduras is faced with the highest level of economic inequality in Latin America and is vulnerable to external

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- 19 - shocks. We therefore urge the Honduran authorities to implement further social measures to reduce poverty and inequality among the population.

4.63. We note that the country's economic structure has not changed substantially since the previous review in 2010. The agricultural sector continues to play a major role as a source of employment. The Honduran economy also continues to rely heavily on family remittances from abroad, which accounted for 17.2% of GDP in 2014 and played a key part in sustaining domestic demand. These features are common to a number of countries in the region.

4.64. Moreover, the Honduran economy is largely dependent on international trade, and the Secretariat report emphasizes that the ratio of trade (exports and imports) to GDP increased during the review period from 99.6% in 2010 to 103% in 2014. However, in spite of policies aimed at promoting exports and diversifying markets for Honduran products, neither the composition of Honduran exports nor the markets have varied substantially since 2010, since Honduras remains an exporter of agricultural products and clothing, manufactured under the maquila regime, to the United States, Central America and . We accordingly urge the Honduran authorities to continue working towards greater diversification of the economy.

4.65. It is interesting that during the period under review Honduras introduced government reforms to increase the transparency of the civil service. At the same time, efforts were made to enhance citizen participation in public management and in the legislative process by allowing citizens to file complaints regarding poor performance of a public duty, and since 2011, they have been able to submit draft laws. Honduras also introduced a number of amendments to the Constitution, the most significant of which was the amendment providing for the creation of Employment and Economic Development Zones (ZEDE). Other trade related laws were enacted and amended during the review period, including the Law on Fiscal Consolidation, the new Investment Law, the new Law on the Protection of New Varieties of Plants and the Law on the Energy Sector. We welcome these reforms, which will help improve the legal and regulatory framework and be of benefit to the Honduran population.

4.66. We are pleased to note that Honduras has a relatively open trade regime, with a low applied MFN tariff of 5.9%, and that it makes little use of non tariff barriers. It also implemented trade facilitation measures during the review period, streamlined customs procedures by introducing a variety of electronic systems, particularly for exports, improved the legal framework for intellectual property, and enacted a law to protect new varieties of plants.

4.67. Lastly, we submitted questions to Honduras concerning, among other things, its investment regime, the services sector, employment and economic development zones, and the application of tariffs. We appreciate receiving its replies and will examine them with interest.

CHILE

4.68. We submitted five questions for this review. We appreciate the work done by the Secretariat and the Honduran Government to produce their respective reports, and congratulate Dr Shin Yuan Lai, Permanent Representative of Chinese Taipei, for her contributions as discussant.

4.69. Honduras and Chile have had diplomatic relations for 150 years. We have strengthened these relations by seeking diverse opportunities for mutual cooperation in areas such as trade and investment, science and technology, defence, justice, security and policing. We also have a high degree of convergence on regional topics.

4.70. We have close bilateral ties with Honduras, based on a relationship of friendship, cooperation and exchange, as proven by the official visit to Chile of President Juan Orlando Hernández last May, which also aimed to broaden and diversify foreign investment and trade.

4.71. The current Chile Honduras Cooperation Programme seeks to support two of the four goals of the Honduras Country Vision: "a nation that is growing in democracy and security, without violence" and "a productive country that generates opportunities and decent jobs, sustainably exploits its resources and sustainably reduces its environmental vulnerability".

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4.72. Our economic and trade relations are governed by the Free Trade Agreement between Chile and Central America, concluded in 2002, and the 2008 Chile Honduras bilateral protocol. Trade between our two countries grew 12% between 2014 and 2015. Since the entry into force of the bilateral protocol, Honduran exports to Chile have increased by a factor of six. Honduras is our third largest export market in Central America.

4.73. Since the latest meeting of the Central American Free Trade Commission in December 2014, we have emphasized our interest in upgrading our trade agreement in order to liberalize the lists of products still outstanding and include chapters on investment, the environment and labour.

4.74. We would also like to take this opportunity to ask Honduras to disseminate our bilateral agreement more widely given the low level of utilization of the tariff quotas granted. This would also contribute to diversifying the trade basket.

4.75. Turning to the report, we are very interested to note the Honduran Government's efforts, set out in the Strategic Plan 2014 2018, to improve welfare and social inclusion levels, modernize and simplify the State and foster competitiveness and good use of the country's human and material resources. In particular we welcome the goals to reduce extreme poverty, improve the quality of education and health services, increase employment, promote investment and vitalize foreign trade.

4.76. On the same note, we believe that the following are positive signs: (a) the 2013 tax reform aimed at reducing the fiscal deficit and boosting tax revenue; (b) the reforms to public administration to make public services more transparent; and (c) the pursuit of a monetary policy which has kept the inflation rate within the fluctuation band established by the Central Bank.

4.77. Specifically, we consider that it was appropriate to enact and amend the following trade related laws during the period under review: the Law on Fiscal Consolidation, the new Investment Law, the new Law on the Protection of New Varieties of Plants and the Law on the Energy Sector. We know that these reforms are not easy and we encourage Honduras to continue driving them forward.

4.78. We hope that will take advantage of its positive economic prospects to reduce social inequality and address the country's external vulnerability. We wish PROHONDURAS every success in defining and implementing trade policy.

4.79. We note from the report that Honduras makes little use of non tariff barriers, and that it generally follows international standards with respect to the development of technical standards and regulations and sanitary and phytosanitary measures.

4.80. The country has made important advances in order to facilitate investment formalities. For example, it is establishing a Single Window for investments and has streamlined and digitalized a number of procedures.

4.81. The report also shows us that Honduras must continue to, inter alia, strengthen its institutions, develop human capital, implement reforms that promote investment, and modernize its services and public services sectors.

4.82. Nonetheless, we would like to point out that, as a small economy, Honduras attaches high importance to its participation in the multilateral trading system.

COLOMBIA

4.83. The economy of Honduras saw more stable growth in the period under review than in the preceding period, when it was affected by the global economic crisis. Nevertheless, and as the review documents show, the recent growth has occurred in a context of low productivity and fiscal deterioration which led to a rise in poverty over the period. The Government's response is directed at dealing with those problems that limit the potential for growth through the Strategic Plan 2014 2018, which was approved and supported by the IMF and multilateral banks.

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4.84. We would like to highlight the Investment Promotion and Protection Law as one of the most ambitious reforms carried out in the review period. This law gives favourable treatment to national and foreign investors, provides some of the guarantees already granted under the old investment regime, and introduces new ones such as stability contracts and protection regimes. One of the most significant changes is that prior authorization is no longer required in order to invest in Honduras, with some exceptions. This marks a departure from what occurred previously, when there were tighter controls on the main sectors of the economy.

4.85. As for the tariff structure, the average MFN applied duty remained at almost the same level in 2015 as it was in 2010 (5.9%). However, as the Secretariat reported in the previous review, there remain seven tariff lines where the applied rates exceed the bound rates. As in many other Members, the agricultural sector benefits from greater tariff protection than that accorded to industrial products.

4.86. Honduras' strategies prioritize economic development through trade. According to the Government report, "the signing of preferential trade agreements caused the country to improve its services platform and its facilities for production and export". Honduras is investing heavily in various sectors such as infrastructure and energy, which has led to the expansion of exports and diversification of export destinations. To date, the country has preferential access for its exports to more than 40 countries around the world. It faces a challenge experienced by many, namely how to make the most of this access and translate the benefits into a more balanced distribution of wealth and better living conditions for its citizens.

4.87. As regards trade relations between our countries, we share similar trade objectives and some export products such as coffee, bananas and . At the recent presidential meeting in early April this year, President Hernández of Honduras and President Santos of Colombia reiterated the commitments made in 2015 to intensify our bilateral Free Trade Agreement. We are seeking to promote synergies that will lead to stronger and more effective integration in global trade by conquering third markets such as the European Union through cumulation of origin between countries and by promoting production linkages. We are also looking to strengthen government procurement and customs cooperation, and are exploring the possibility of including a chapter on financial services in the Agreement in order to promote, among other things, information exchange.

4.88. To conclude, we wish Honduras every success in this third review of its trade policies and encourage Ambassador Castillo and his Permanent Mission to continue playing an active role in the WTO with a view to improving the functioning of the multilateral trading system.

UNITED STATES

4.89. Since Honduras' last review in 2010, we recognize the economy suffered the challenges of the global financial crisis and the slump in both demand and price for bananas and coffee, key Honduran export products. Nonetheless, Honduras has continued on a path toward integration into the global economy with a focus on active participation in multilateral, regional and bilateral negotiations and implementing policies to attract investment in strategic sectors and to promote and facilitate trade. We look forward to learning more about Honduras' trade policies and its engagement through various regional and bilateral trade agreements, during the course of this TPR. We would also like to thank our discussant, Dr. Lai, for providing helpful and insightful contributions to this review.

4.90. The United States and Honduras continue to enjoy a strong trade and economic relationship. The United States is Honduras' leading partner in both exports and imports. Our bilateral trade in goods was US$10 billion in total (two-way) trade in 2015. Trade and economic integration between the United States and Honduras is an important element of our bilateral relations and generates important benefits for both countries and the region.

4.91. The United States and Honduras are partners under a regional free trade agreement, the Dominican Republic-Central America-United States Free Trade Agreement (DR-CAFTA), among the Dominican Republic, the United States and five Central American countries (Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua). Over the last ten years, since the implementation

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- 22 - of the DR-CAFTA, our trade relationship with Honduras has transitioned to one based on reciprocal free trade.

4.92. In general, the United States commends Honduras on the positive direction of its trade liberalization strategy, as it continues to pursue greater integration in the global economy by opening markets with partners around the globe, stimulating domestic production and promoting national efficiency, diversification and competitiveness.

4.93. Honduras is an active participant in various WTO groups, and we are particularly pleased to hear that it has introduced domestic legislation to accept the Trade Facilitation Agreement. We encourage the Government to work closely with its legislature towards rapid approval.

4.94. It is clear that regional and bilateral economic integration and preferential trade agreements have been increasingly important elements of Honduran trade liberalization. Honduras has focused on improving and deepening Central American Economic Integration and harmonizing regulatory frameworks and renegotiating, updating, and consolidating old agreements with the other Central American countries and Mexico. Honduras implemented the agreement with the European Union with its Central American Common Market partners, and bilaterally with Canada, to add to its list of bilateral agreements in force with Colombia, Panama, Chinese Taipei and Chile. This year, Honduras will enter into a free trade agreement with Peru and will continue negotiations with the Republic of Korea and Ecuador. Finally, negotiations on a Customs Union with Guatemala are also addressing movement of goods and natural persons. The United States would appreciate further explanation about the Customs Union approach with Guatemala, any plans for expanding that to the rest of Central America and how Honduras' Customs Union approach differs from its other regional trade agreements. We also encourage Honduras to notify any non-notified FTAs, including its agreement with Venezuela.

4.95. In intellectual property (IP) rights, the Secretariat raised, and the United States strongly supports, ongoing Honduran efforts to improve compliance. The Secretariat further notes the enactment in 2012 of a Law on the Protection of New Varieties of Plants. The United States would appreciate more details on the status of Honduras' accession to the International Convention for the Protection of New Varieties of Plants (UPOV) and if Honduras' law fully complies with UPOV 1991.

4.96. The Secretariat and the Honduran Government highlight the importance to the Honduran economy of traditional and new niche market agriculture. And, as such, the Secretariat notes the importance of technical standards and regulations and sanitary and phytosanitary (SPS) measures and import controls. The United States urges Honduras to ensure that issuance of imports permits is fully transparent and consistent with its trade commitments and that SPS measures are transparent. According to the Secretariat, Honduras has notified 20 SPS measures from early 2010 to mid-2015. But, the United States questions why we have not seen any SPS measures notified by Honduras since May 2014.

4.97. In closing, we would like to reiterate our appreciation for Honduras' active participation in the work of the WTO and efforts on the TFA.

4.98. We also thank the delegation of Honduras for its willingness to consider these points and welcome the opportunity to engage with Honduras and other delegations in a discussion of Honduras' trade policy regime.

ECUADOR

4.99. We are participating with great interest in this trade policy review, since relations between Ecuador and Honduras have been growing stronger in recent years, as evidenced by the signing of the agreement to launch negotiations for a Partial Scope Economic Complementarity Agreement on 18 August 2014. On this occasion, an action plan was agreed to make progress on tariffs and to deepen economic links through a bilateral framework which would promote the expansion and diversification of trade, cooperation and economic partnerships.

4.100. According to data from the Central Bank of Ecuador, the value of Ecuadorian exports to Honduras exceeded US$105 million in 2013.

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4.101. The first round of trade negotiations was held in Tegucigalpa in November 2015; the second round took place in Quito in February 2016 and involved six working groups: Market Access, Sanitary and Phytosanitary Measures, Technical Barriers to Trade, Dispute Settlement, Trade Defence and Origin.

4.102. With the launching of trade relations the two countries will be in a position to generate greater opportunities for trade and investment, and in the case of Ecuador, to secure tariff preferences, especially for non traditional products in sectors such as metalworking, white goods, construction, plastics and agroindustry.

4.103. The third round of negotiations is expected to take place by June 2016, when the final offers relating to products should be reviewed and a final revision made of the complete text of the Agreement.

4.104. In addition, a cooperation framework agreement between PRO ECUADOR and PRO HONDURAS has been signed with the aim of putting together, harmonizing and setting out the full set of institutional commitments to support and implement a variety of activities, processes and initiatives for non financial export and foreign investment promotion and institutional development.

4.105. As regards the Secretariat report, we note that the Honduran economy suffered from the global financial crisis and the slump in external demand and in the price of its main exports, in particular coffee and bananas.

4.106. On the positive side, it is important to emphasize that a cautious monetary policy has enabled Honduras to keep its inflation rate within the fluctuation band established by the Central Bank. The average annual inflation rate in 2010 2014 was 5.6%, while for the third quarter of 2015 the rate was 3.2%.

4.107. Ecuador also recognizes the contribution made by the maquila regime, which has enabled Honduras to continue to be an exporter of agricultural products and manufactured clothing. The country's leading exports are coffee, bananas, palm oil, , vegetables and , which shows that the objective of Honduran agricultural policy has been to increase productivity and promote exports, without neglecting production for the domestic market in order to ensure food security.

4.108. Among the successes achieved by Honduras, the Secretariat report highlights the amendments made to the Constitution during the review period, one of the most significant being the amendment that provides for the creation of Employment and Economic Development Zones (ZEDE), which, as extraterritorial fiscal and customs zones, may develop their own internal policies and regulations, including fiscal and monetary policies. This new incentive scheme constitutes one of the most pronounced changes to Honduran trade policy since the previous review.

4.109. As regards the regulatory framework for government procurement, various legislative amendments have also been adopted to establish a new electronic government procurement system with a view to streamlining procedures and fostering transparency and economies.

4.110. It should be acknowledged that Honduras accords high importance to its participation in the multilateral trading system, which it considers fundamental for small, vulnerable economies. Under the Doha Development Agenda, Honduras has advocated the implementation of special and differential treatment provisions along with other flexibilities that help to protect the most sensitive sectors of developing economies.

4.111. To conclude, we thank the delegation of Honduras for its replies to the questions we have raised on some specific aspects of the country's trade policy. These answers will provide important information for strengthening bilateral and multilateral foreign trade relations.

ARGENTINA

4.112. Argentina notes with interest the development of Honduras' economy and trade. The efforts made by Honduras to strengthen its economic base, consolidate an orderly fiscal policy, encourage investment in infrastructure and promote institutional transparency are worthy of mention.

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4.113. In 2015, Argentina's leading exports were goods transport vehicles, medicines and protein concentrates and substances. The main imports were ignition wiring sets, T shirts and shirts, and plates, rods, profiles and the like for use in construction.

4.114. We believe that bilateral economic relations have ample potential for development. In particular, we note the project on tax information exchange; the Memorandum of Understanding on Cooperation between the Ministry of Agriculture, Livestock and Fisheries of the Argentine Republic and the Ministry of Agriculture and Livestock of the Republic of Honduras; and the Framework Agreement on Cooperation between our country and the Honduran National Telecommunications Commission (CONATEL).

4.115. At the same time, Argentina considers that trade can be increased and diversified, and believes that the best path forward is to tighten linkages between the regional blocs to which our countries belong – the Southern Common Market (MERCOSUR) and the Central American Integration System (SICA).

4.116. Lastly, we reiterate our appreciation of this renewed opportunity to exchange information and comments on the trade policies and practices of Honduras. We would like to draw attention, once again, to the importance of this exercise in transparency from every point of view, and we wish the Honduran authorities a successful a conclusion to this review.

EL SALVADOR

4.117. We are pleased to participate in this review of the trade policies of Honduras, with which we share historical, economic, cultural and trade ties. We are fellow countries with common goals both in the framework of the Central American integration process and at bilateral and multilateral level.

4.118. The Secretariat report highlights that despite suffering from the global financial crisis, particularly the slump in external demand and in the price of its main exports, the Honduran economy grew at an average rate of 2.5% per year in the period under review. However, efforts are still being made to address various social challenges and reduce poverty.

4.119. It is also important to recognize Honduras' work in preparing fiscal measures geared towards reducing the deficit and boosting tax revenue in order to promote stability in this area.

4.120. Likewise, it should be emphasized that Honduras has a relatively open trade regime, as evidenced by the high foreign trade to GDP ratio, which rose during the review period from 99.6% in 2010 to 103.0% in 2014. While there have been no major changes to the regime since 2010, measures have been introduced to facilitate trade. For example, Honduras has streamlined its customs procedures by introducing a variety of electronic systems, particularly for exports.

4.121. Agriculture continues to be a major source of foreign exchange in Honduras: in 2014, agriculture accounted for 33.8% of the foreign exchange generated by merchandise exports. We acknowledge the policy objectives in this important sector of the Honduran economy, such as increasing productivity, promoting exports and undertaking efforts to ensure food security for the population.

4.122. As regards bilateral trade, Honduras is El Salvador's second largest export destination and its fourth largest source of imports. Trade between El Salvador and Honduras totalled US$1,349 million in 2015, making Honduras one of our country's main trading partners, not only in the Central American region but also in the world.

4.123. In 2015, El Salvador's exports to Honduras totalled US$760 million, headed by T shirts, fabrics, toilet paper, bakery products and flour. Imports from Honduras totalled US$589 million, consisting chiefly of cotton T shirts, dyed knitted fabrics, cleaning products, palm oil and wheat flour.

4.124. Trade figures underscore ever more clearly the importance of maintaining tight coordination between the two countries' trade authorities. In the last few months, major joint trade facilitation initiatives have been driven forward, which will help reduce the costs of trade

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- 25 - transactions and boost competitiveness. On this point, it is worth highlighting the consolidation of production chains between the two countries in recent years, the most obvious examples being industries such as the clothes manufacturing industry.

4.125. As regards the multilateral sphere, El Salvador acknowledges the active participation of the Honduran delegation in the day to day work of the WTO, as well as in the negotiations and the , in which Honduras has participated as a complainant or third party.

4.126. In addition, El Salvador and Honduras share similar interests in various negotiating topics, encouraging initiatives in favour of small, vulnerable economies with the aim of promoting greater integration of their countries in global trade. They also work together closely in the agriculture negotiations, pushing items such as Special Products and the Special Agricultural Safeguard, as part of the G 33.

4.127. Lastly, we praise Ambassador Castillo for his outstanding work in promoting Honduran interests in the multilateral framework as well as for his leadership and contribution as Chairman of the TRIPS Council in Special Session.

SINGAPORE

4.128. Honduras and Singapore's economies share several similarities. Both are small, open and heavily dependent on international trade. Singapore welcomes a number of trade facilitative measures that Honduras put in place during the review period. These include the new Investment Promotion and Protection Law, which eliminated investment requirements and restrictions, such as the prior authorization for investment in Honduras. We also welcome efforts to streamline customs procedures. We note that Honduras has started internal processes for ratifying the Trade Facilitation Agreement (TFA) and we look forward to its early completion.

4.129. On tariffs, Honduras has a relatively low average applied MFN rate. This is especially so for non-agriculture products, with an average applied MFN rate of 5.1% in 2015. However, we note that there are seven tariff lines for which Honduras' applied MFN rates exceeded its WTO bound rates. We also strongly encourage Honduras to consider joining the Information Technology Agreement (ITA) Expansion, to build on its participation in the ITA.

4.130. With regard to non-tariff measures, we are pleased to note that Honduras' TBT and SPS measures are generally aligned with international standards. Honduras also did not impose any anti-dumping or countervailing duties during the review period. The only use of trade remedy action was a safeguard measure concerning certain iron and steel products in February last year. However, this measure was not notified to the WTO. We hope Honduras will abide by its WTO notification obligations in its future imposition of trade remedy measures.

4.131. In concluding, there is certainly potential for Singapore and Honduras to deepen our bilateral economic engagement, given our common pro-trade orientation. Finally, the Singapore delegation in Geneva has always enjoyed warm working relations with Ambassador Dacio Castillo and his team in Geneva. We look forward to continuing this excellent working relationship towards our common goal of upholding the multilateral trading system.

PANAMA

4.132. Panama and Honduras have strong diplomatic and trade relations, bolstered by the Central American Integration System (SICA) and our Free Trade Agreement, which entered into force in 2009.

4.133. These frameworks are tools that foster market access and trade in goods and services between our two countries, while promoting trade facilitation in respect of investment and financial services.

4.134. Starting with the entry into force of our agreement in 2009, trade between our two countries has increased considerably. For example, in 2015, 37% of bilateral trade in goods between Panama and Honduras was covered by tariff preferences granted under the agreement.

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4.135. Panama's re exports and imports in its trade with Honduras through the Colon Free Zone increased by 14.5% over the previous year. Honduran foreign direct investment in Panama grew by 189%.

4.136. The entry into force of the protocol consolidated the presence of branches of Panamanian financial institutions in Honduras, in sectors such as insurance, reinsurance, and insurance of risks relating to international and maritime shipping, which are obviously highly important for Panama.

4.137. The Secretariat report highlights measures adopted by Honduras to address significant challenges. One example is the Government Strategic Plan 2014–2018. The Under Secretary has provided details of the Plan and other programmes which will undoubtedly contribute to the country's economic growth.

4.138. Honduras is providing for a set of laws and regulations to achieve more efficient and transparent public administration, reduce poverty and public expenditure and overcome structural impediments that generate macroeconomic instability. Its commitment to the environment is to be commended.

4.139. The efforts of the Honduran Government are noteworthy, the economic outlook positive. Undoubtedly, there is still room for improvement in some areas, specifically by building up physical and human capital and infrastructure, which will lead to better living conditions, reduce poverty and curb economic inequality.

4.140. The discussant and other speakers have emphasized a number of priority areas which I will not repeat. We urge Honduras to give careful consideration to the questions, recommendations and comments put forward today.

4.141. We have not submitted any questions to Honduras during this review, largely because, owing to our close relationship, we tend to deal with enquiries in a bilateral manner.

4.142. I conclude by congratulating Honduras on its commitment to and participation in the multilateral trading system and its role in the trade negotiations, as evidenced by the excellent work of its Permanent Mission to the WTO. I also commend Ambassador Castillo for his commitment and outstanding work as Chairman of the TRIPS Committee in Special Session and in other posts that he has held.

INDIA

4.143. During the period under review, Honduras posted an average annual GDP growth of over 3.0% notwithstanding weak import demand and the turbulence in the global economy, which is commendable. Honduras maintains a generally open economy and we note the continued focus of the Honduras Government to make its trade policy regime more transparent and predictable. International trade clearly plays an important part in the economy of Honduras as evident from the high foreign trade to GDP ratio of over 103%.

4.144. During the period under review, Honduras has undertaken several institutional reforms in areas such as customs procedures, fiscal management, transparency in public services, investment promotion and protection, government procurement, and framework of protection of intellectual property. As part of Government's "2014-2018 strategic plan" and country's vision document, Honduras is attempting to foster competitiveness, stimulate external trade, consolidate public finances, supporting the development of small and rural enterprises, increased focus on social sector spending and job creation and investment in programmes to reduce the incidence of poverty and inequality. We commend the Government of Honduras in their continued efforts to boost economy, overcome its vulnerabilities to economic shocks and to reduce poverty and economic inequality. We are confident that as a result of the initiatives taken by Honduras and with the support of its international partners, it will gain meaningfully from the regional integration processes and the multilateral trading system.

4.145. At the bilateral level, India and Honduras enjoy cordial relations and a close trade and development partnership. Our bilateral trade has been growing steadily from a level of about US$75 million in 2010 to about US$200 million last year. India has been a close development

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- 27 - partner of Honduras and has undertaken capacity building, infrastructure development and technical assistance programmes. While our trade ties have expanded in recent years, there is immense scope for further expansion in our bilateral trade and we look forward to working with the Government of Honduras in realizing these objectives.

4.146. Finally, we applaud the commitment of Honduras to the multilateral trading system and the positive contribution of Ambassador Dacio Castillo and his entire team here in Geneva. Honduras has been an active voice in the WTO, particularly in promoting the interest of small and vulnerable economies in the ongoing work in the WTO. We look forward to working closely with the Honduras delegation in Geneva.

COSTA RICA

4.147. Costa Rica and Honduras are countries with close historical and cultural links. It is no wonder: on 15 September 2016 the two countries, together with El Salvador, Guatemala and Nicaragua, will celebrate 195 years of Central American independence. Honduras is also an important strategic and trade partner for Costa Rica: in the last ten years our bilateral trade1 has grown at an average annual rate of 4.4%, reaching US$448 million in 2015.

4.148. Costa Rica acknowledges the importance that Honduras attaches to the multilateral trading system, and applauds its active participation in the work agenda to improve and deepen Central American economic integration, especially with regard to the action needed to make headway in establishing the Central American customs union.

4.149. Honduras has also been making noteworthy efforts since 2010 in developing and implementing short-, medium- and long-term policies and work plans geared towards eradicating poverty, improving levels of education, reviving the production sector to generate employment, sustainably exploiting its resources and reducing environmental vulnerability. Costa Rica invites Honduras to pursue its efforts to open up markets and further its integration in international trade through this multilateral forum, the Central American regional integration process, and its ongoing trade negotiations.

4.150. The Secretariat report shows Honduras' progress in opening up trade as well as the significant improvements it has made to its institutional and legal framework for international trade and foreign investment. Costa Rica encourages Honduras to pursue its endeavours to streamline customs procedures through the use of electronic systems and to move forward with the process of implementing a Single Window.

4.151. Specifically, we welcome the establishment of guidelines for the promotion of investment; tourism; and the diversification and placement of Honduran exports on international markets through the Sectoral Strategic Plan for Economic Development (PES-DE). We invite Honduras to continue to inform the Membership of the progress made on these important topics.

4.152. On the other hand, there is still much room for improvement in combating poverty, reducing violence and boosting economic growth. In particular, we are struck by the existence of a number of tariff lines where Honduras applies rates above the bound rates, as was already noted in the 2010 review.

4.153. Although Costa Rica did not submit questions on this occasion, we have an ongoing interest in the trade policies of a partner as close and important as Honduras, and in particular in the development of its policies to diversify production, attract investment and increase regional integration. We therefore appreciate the replies Honduras has provided in the framework of this review.

1 Trade measured as the sum of exports and imports. Source: PROCOMER and Central Bank of Costa Rica.

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PARAGUAY

4.154. We welcome Honduras' participation in this exercise at a time when its economy is performing well and overcoming the obstacles created by the recent international financial crisis.

4.155. As all of us here know, Honduras may be a small economy, but it is one of the most dynamic in the region, with an export oriented production platform. Thanks to this and to the country's sound economic policy, real GDP grew at an average annual rate of 3.5%.

4.156. I would like to highlight the fact that Honduras continued to implement trade facilitation measures during the period under review, as shown by the streamlining of customs procedures for some customs purposes, and the introduction of various measures contained in the Trade Facilitation Agreement (TFA). Another point worthy of mention is that the delegation of Honduras takes an active part in the TFA negotiations.

4.157. Honduras has also adopted the Law on the Promotion of Public–Private Partnerships and the Law on Employment and Economic Development Zones (ZEDE), both of which will undoubtedly increase investors' interest in the country.

4.158. While there are many positive points to highlight, we also see challenges, such as the elimination of the price band system, applied tariffs exceeding the bound rates, and import licensing procedures, which must be addressed in order to ensure that the measures taken are consistent with the country's WTO commitments. We are sure that the Honduran Government is working in that direction.

4.159. I also wish to emphasize the excellent bilateral relations between my country and Honduras, not only here at the WTO but also in the various regional forums to which we both belong.

4.160. Nonetheless, we must acknowledge that our bilateral trade relationship is well below potential. Honduras' leading goods exports to Paraguay include construction materials, polishes and creams for footwear, and made up articles, while its main imports from Paraguay are made up articles, textiles, medicines, active ingredients, and footwear.

4.161. In conclusion, Paraguay and Honduras share the same vision for the future of the multilateral trading system. We support the early implementation of the Trade Facilitation Agreement and a post Nairobi programme focusing on development.

JAPAN

4.162. Although Japan and Honduras are located very far apart from each other geographically, we have enjoyed a friendly and growing bilateral relation for years. What is fresh in our minds is that last year we celebrated the 80th anniversary of the establishment of diplomatic ties between us.

4.163. Based on this friendly relationship, we have cooperated with each other and have discussed and tackled various issues including common challenges, such as cyclones. Japan will make continuous efforts to maintain and further develop the good relationship between our two nations.

4.164. Despite the positive GDP growth at an average annual rate of 2.5% during the review period, the GDP per capita income has been steady since the last review, and has remained the lowest in Latin America.

4.165. Honduras continues to face a number of challenges, including a vulnerable economy to exogenous shocks as a result from high dependency on international trade and agriculture; a huge economic inequality among people, as well as a deteriorating condition of public safety, among other matters. Frequent natural disasters further intensify the already severe challenges Honduras is facing.

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4.166. We were glad to read the Secretariat's report that explained Honduras' national strategy 2014-2018 Strategic Plan, where the appropriate course to address those challenges were outlined, and which are highly commendable. The Strategic Plan was followed by other more concrete plans such as the 2014-2017 Economic Programme, which we also commend. Japan would like to reiterate its support to the efforts made by the Honduran people and its Government.

4.167. In this regard, Japan, as one of the largest donors, has supported Honduras to improve its social and economic situation for years. In particular, we believe that improvements in the quality of education, health services and vulnerable infrastructure are the top priorities, since all of those are fundamental elements to improve the situation and eventually unleash the country's full potential. Last year, for instance, Japan decided to assist/support the Cañaveral and Rio Lindo Hydropower Strengthening Project.

4.168. We hope that Honduras will make continuous efforts to tackle the challenges that it is facing. Japan is ready to support these efforts.

4.169. In conclusion, I would like to express our strong wish to continue to cooperate with Honduras.

OMAN

4.170. We recognize the significant progress made by Honduras in relation to its institutional and legal framework, adopting an important set of trade-related regulations in order to pursue the trade policy objectives set out by the Honduran Government's Country Vision and National Plan. Moreover, as noted by the World Economic Forum, Honduras was ranked up 12 places in State competitiveness reflecting the progress made in the infrastructure, falls in crime and violence, among others.

4.171. We note in their report the measures taken by the Honduran Government to strengthen the security system and the arrangements it has made to promote investment, which has enabled foreign investors to regard Honduras as an important destination for investment in the region. We note, in particular, the Law on the Promotion of Public-Private Partnerships, the Law on Employment and Economic Development Zones (ZEDE), and the National Intellectual Property Strategy which we consider to be useful instruments that are conducive to attracting foreign investment.

4.172. We welcome the Honduras 20-20 initiative, which was recently launched by President Hernandez and considered the most important and ambitious economic growth initiative in the country's history. It aims to create more than half a million jobs over a 5-year period through various economic sectors like tourism, textiles, services and others. We wish Honduras all the best in its implementation of this programme.

4.173. We would be remiss if we did not acknowledge the positive role of the Geneva-based team of Honduras in WTO affairs. Ambassador Dacio Castillo and his team have been actively participating in the various WTO committees, including as Chairpersons of a number of important councils and committees. We thank Ambassador Castillo and his team for their positive engagement and contribution in the WTO.

PAKISTAN

4.174. Since the last review in 2010, the Honduran economy has performed reasonably well despite suffering from the effects of global financial crisis and the slump in demand and the price of its main exports: average annual GDP growth rate was 2.5% between 2009 and 2014, and for 2015 it is estimated at 3.5%.

4.175. Similar to Pakistan's economy, Honduran economy continues to depend heavily on family remittances from abroad, which accounted for 17.2% of GDP in 2014 and played a key role in sustaining domestic demand. The Honduran economy is largely dependent on international trade. The ratio of trade (exports and imports) to GDP increased during the review period from 99.6% in 2010 to 103% in 2014. As with exports, the composition of imports remained stable between 2010 and 2014, and they grew at an annual average rate of 8.9%.

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4.176. Since its last Trade Policy Review (TPR) in 2010, Honduras initiated a number of measures, which are aimed at improving the profile of Honduras in international trade. Honduras adopted the Law for the Optimization of Public Administration, Improvement of Citizen Services and Strengthening of Government Transparency, aimed at improving the legal framework for better governance. During the review period, Honduras introduced reforms to increase the transparency of the civil service. Honduras also introduced a number of amendments to the Constitution during the review period, notably the amendment providing for the creation of Employment and Economic Development Zones (ZEDE).

4.177. It is very heartening to note that the World Economic Forum in its 2016 report ranked Honduras at 88th position in its competiveness ranking, up 12 places from its previous position.

4.178. Pakistan appreciates Honduras' effort to prioritize the country's effective integration into the world economy based on a strategy that combines participation in multilateral trade fora, regional integration and strategic alliances with full awareness of new trade-related trends such as the establishment of trading mega-blocs, the formation of value chains and trade facilitation.

4.179. Pakistan hopes that Honduras will continue to coordinate its trade policy with the objectives and actions outlined in its Country Vision, National Plan and the "Everyone for a Better Life" Plan.

4.180. The overriding feature of the period under review is that Honduras has achieved a fair degree of consolidation of macroeconomic stability as illustrated by the improvement in macroeconomic variables and the recovery in economic growth. This has helped the country regain trust and credibility at international level. Evidence of this can be found in the improved risk profiles published by the principal international ratings agencies and the upswing in the country's global competitiveness indices. It follows therefore that Honduras is on the road to economic recovery and to equitable and sustainable economic growth commensurate with the country's social needs.

4.181. Pakistan sees as a positive step the notification by Honduras of its Category A commitments under the Agreement on Trade Facilitation (TFA) and its starting work and formalities to ratify the TFA. Pakistan hopes Honduras will ratify the TFA soon.

4.182. In the light of several reforms and the pro-growth policies carried out by the Honduran Government, Honduras is in the right track towards stable economic growth. We therefore encourage Honduras to stay on that track to achieve its economic growth.

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5 REPLIES BY THE REPRESENTATIVE OF HONDURAS AND ADDITIONAL COMMENTS

5.1. On behalf of the Government of Honduras, I would like to thank all the delegations that have participated in this third trade policy review of Honduras. Their input and questions have played a significant role in enriching this meeting. I would also like to thank the WTO Trade Policies Review Division for its work; you, Madam Chair; and of course, our discussant.

5.2. Honduras has taken due note of the comments made by the delegations in the first session of this review. I would like to state that most of the questions have already been answered in my country's responses, which are available in electronic format. We welcome the additional questions submitted by Argentina, El Salvador, Singapore, Ecuador and Chile. We will reply to these additional questions in accordance with the relevant procedures.

5.3. We note with special attention the statements expressing interest in topics such as the Employment and Economic Development Zones (ZEDE); the process for a customs union with Guatemala; the entry into force of the Agreement on Trade Facilitation (TFA); the safeguards applied by Honduras; the Single Window for foreign trade; topics relating to tariff lines with duties above the bound levels; geographical indications; the price band; and issues relating to the structure of exports and the ensuing challenges for an economy such as Honduras. I will now briefly discuss these topics.

5.4. Regarding the ZEDEs, Article 329 of the Constitution of the Republic of Honduras stipulates that they are an inalienable part of the Honduran State, subject to the Constitution of the Republic and the national Government in matters relating to sovereignty, application of justice, territory, national defence, foreign relations, elections, and the issuing of passports and official documents. The ZEDEs have legal personality, are authorized to establish their own policies and regulations in various areas of the economy, and are created for the purpose of accelerating achievement of the goals set out in the National Plan and facilitating conditions to further the country's integration into global markets under highly competitive and stable rules. The ZEDEs aim to implement best practices for doing business. Over the last few months, a series of domestic regulations have been developed to enable ZEDEs to operate, as well as a set of requirements for their approval and implementation. The creation of ZEDEs depends entirely on private investors and not on the Government. It should be mentioned that there are currently four groups in different parts of the country and it is hoped that they will begin their work in the course of this year.

5.5. Regarding the customs union between Guatemala and Honduras, the process was launched in December 2014 and is based on the objectives and principles laid down in the legal instruments governing regional economic integration and on the WTO rules, as mentioned in my opening statement. Both countries have accordingly undertaken to work on a bilateral basis to move towards the free movement of goods and natural persons between their territories. I am pleased to announce that today, 4 May 2016, the Enabling Protocol for the process of deep integration towards the free movement of goods and natural persons between the Republics of Guatemala and Honduras will be deposited with the General Secretariat of the Central American Integration System (SG SICA). The entry into force of the Protocol will enable gradual and progressive implementation of the customs union between the two countries.

5.6. The process has been developed by technical bodies which have examined customs procedures, conditions for the free movement of goods, sanitary procedures, harmonization of tariffs in respect of third countries, exceptions to free movement, and internal taxation aspects. It has been agreed that a working group will be established to examine issues relating to convergence of the various preferential trade agreements to which Honduras and Guatemala are party. A roadmap of work has already been agreed for 2016 with a view to implementing the process in the course of this year, and we hope to approve the customs procedures by early 2017.

5.7. With the entry into force of the enabling protocol, ministerial, vice ministerial and technical bodies will be set up; the regulations required for the operation of the customs union will be adopted; a structural fund will be implemented; and the rules and regulations necessary to implement, deepen and refine the bilateral customs union will be issued.

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5.8. The process between Honduras and Guatemala does not exclude the possibility of it being extended to the other Central American countries, which have been invited to join since the beginning.

5.9. Honduras will notify the relevant WTO Committee of the customs union between Guatemala and Honduras. Likewise, it will update its notifications in this respect as regards other regional trade agreements to which it is party.

5.10. In accordance with Honduras' commitments under the Decision on the Trade Facilitation Agreement within the framework of the , under Decree No. 146 2015 of 14 December 2015 the National Congress of Honduras adopted the Protocol Amending the Establishing the in order to incorporate the Trade Facilitation Agreement. Only the publication of the decree in the Official Journal is pending. Honduras hopes to deposit the instrument of acceptance with the WTO Secretariat before the end of the first half of 2016.

5.11. As regards the safeguard measures relating to certain iron and steel products, referred to by several Members, Honduras wishes to clarify that these measures do not concern actions under Article XIX of the GATT 1994 or the WTO Agreement on Safeguards. The measure adopted falls under the powers derived from the legal instruments governing regional economic integration, which allow Central American countries to temporarily suspend import duties applied to third countries on a (MFN) basis. It must be stressed that the tariff levels adopted do not exceed the bound ceilings in place. Honduras will notify the applicable tariffs for entry into the WTO Integrated Data Base.

5.12. The Single Window for Foreign Trade was created through Executive Decree PCM 075 2015 published in the Official Journal La Gaceta on 13 January 2016. Article 2 of the Decree establishes that the Foundation for Investment and Development of Exports (FIDE) is responsible for the implementation, administration and promotion of Honduras' Electronic Window for Foreign Trade (VECEH). Through the Single Window, domestic and foreign companies will be able to carry out central and local government and private sector procedures electronically in order to obtain all the requisite registrations, permits and licenses for import and export. This includes the procedures for creating and running companies in the country. The VECEH is not yet operational.

5.13. As regards tariff lines with duties higher than the bound ceilings identified in the Secretariat report, the Honduran Government will work together with the WTO Secretariat after this review in order to remedy the problem, which stems from the process of transposing Honduras' schedule of commitments to the different versions of the Harmonized System.

5.14. Several delegations have referred to the issue of import licensing. Honduras is currently working on amending the regulations in question in order to simplify the applicable procedures, bearing in mind its commitments in this respect as a WTO Member.

5.15. A detailed response on geographical indications is available in the document containing the replies for this review. Nevertheless, Honduras would like to clarify that at no point did it approve 26 generic indications corresponding to 23 of those registered by the European Union. What Honduras did was to publish an explanatory note on the last paragraph of Article 128 of the Industrial Property Law, intended for the general public, along with an illustrative table of typical cases; however, as 97% of registrations of geographical indications and appellations of origin in Honduras relate to the European Union, these are the reference cases used in the illustrative tables. Honduras would like to make it clear that the aforementioned publication does not in any way impair the scope of legal protection of geographical indications and appellations of origin protected in Honduras. We reiterate our willingness to engage in bilateral discussions with the EU on the subject, as already signalled to the authorities in Brussels.

5.16. Honduras believes that its price band system is consistent with its obligations under WTO law. It also considers that it has opted for a legitimate public policy to ensure the proper functioning of its market in accordance with the WTO legal system. We would like to clarify that although the price band mechanism is currently in force, it is not used for imports.

5.17. Honduras is aware of the challenges identified by the Secretariat and various Members as regards the need to diversify its export matrix in terms of both products and destinations. This is

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- 33 - why it has launched the Honduras 20/20: Our Vision of Development Programme, which is the most important economic growth initiative in recent Honduran history, the result of a clear alliance between the public and private sectors. This initiative sets clear targets for export growth, job creation, the positioning of priority sectors and export diversification. All the above will have tangible effects on economic growth and poverty reduction, and will be buttressed by macroeconomic policies to consolidate stability and economic growth and adequately address social needs in Honduras.

5.18. Honduras has made significant progress in diversifying its exports since it initiated its policies of integration in the global economy. Although coffee and bananas continue to be the main agricultural exports, when you think of Honduras you should also think of it as the world's top exporter of fresh tilapia; the sixth largest global exporter of coffee; the second largest Latin American exporter of palm oil; the world's seventh largest exporter of cigars; the fourth largest exporter of frozen shrimp in the ; the fifth largest global exporter of cotton T shirts; the third largest exporter of electrical harnesses in the Americas; and the regional leader in the export of oriental vegetables. As part of our endeavours to penetrate other markets, we are currently exporting Honduran melons as far as Hong Kong and Singapore, and we are about to enter the Japanese market. We emphasize the efforts we are making to comply with sanitary regulations in order to put our poultry products on the United States market after a lengthy process of sanitary certification.

5.19. The challenges are not easy but Honduras is prepared to face them in order to secure better conditions for its population. We will continue working to substantially improve the business climate, generate opportunities, and continually enhance competitive conditions for Honduras.

5.20. As regards security, it is important to highlight that the current government administration has significantly reduced violence, and Honduras no longer figures in the list of the most violent countries in the world. The Government of President Hernández is committed and determined to restore peace for Honduran families. We would like to thank friendly governments that support the efforts of Honduras to combat insecurity. Special mention goes to the initiative known as the Plan for the Alliance for Prosperity in the Northern Triangle of Central America (Guatemala, El Salvador and Honduras), driven by the United States, which contains specific actions and support to improve the security climate in Honduras. We are nevertheless conscious that much remains to be done and will continue working to that end.

5.21. By way of a conclusion, we would like to stress that our Government remains committed to following the path that will consolidate Honduras as an efficient, modern State which generates opportunities and security, properly addresses the needs of its population, and integrates into the global economy through sound and sustainable policies.

5.22. All that remains is for me to once again thank you, Madam Chair, as well as the Secretariat and our distinguished discussant. We stand ready to work closely with Members to deal with specific questions resulting from this third review. Thank you.

DISCUSSANT

5.23. I would like to start by thanking Mr. Melvin Redondo and his team for their comprehensive responses to the issues raised in this trade policy review of Honduras which was just presented very well by Mr Redondo. I am of the view that the information provided today helps to clarify many concerns of the Members.

5.24. I would also like to acknowledge the interventions made by the Members on Monday. One of the purposes of the TPR is to collect comments and viewpoints of other Members as seen from their own perspectives, which may then serve as positive references for the country under review.

5.25. My impression is that Members generally have commended the Honduran Government on the efforts it has been making to implement economic reforms, and on the various improvements made in certain aspects of government policy aimed at promoting trade and investment. However, despite the better macroeconomic prospects that have emerged over the period under review, it has also been commonly recognized by Members that some problems such as severe poverty, income inequality, unemployment, social crime and violence, corruption, and low-levels of

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- 34 - education still remain although we also observed that under the period of this review these problems have also been improved. However, these problems are still big challenges that need to be tackled by the Honduran Government as a matter of urgency.

5.26. Members have acknowledged Honduras's strong commitment to the multilateral trading system. They have also noted that Honduras's important trade policy agenda on regional and bilateral trade agreements is a worthy part of its efforts to further integrate into the regional and global economy. Some Members have also expressed an interest in acquiring further details regarding the recent implementation of the customs union between Honduras and Guatemala.

5.27. The modernization of the Honduras's legal system in trade-related areas, including the introduction of new investment guarantees for investors to ensure a fair and predictable environment, and the creation of ZEDEs as well, have all been welcomed by many Members. I personally believe that the full implementation of these policies will attract more FDI to Honduras.

5.28. Members have commented positively on the fact that Honduras maintains a relatively open trade regime and, in general, a comparatively low applied tariff rate. However, we have also heard many Members urging Honduras to swiftly review the 7 tariff lines that are still kept at levels beyond its maximum binding commitment. There were concerns, too, over some agricultural products which are subject to higher tariffs. And some Members emphasized that it is important to eliminate the price band system.

5.29. Honduras has been congratulated by Members on the notification of its Category A commitments under the Trade Facilitation Agreement (TFA), and urged to speed up its domestic procedure to ratify the Agreement as soon as possible. Its early implementation will certainly benefit all Members, including Honduras itself.

5.30. Members have also pointed to areas where Honduras should continue its efforts to improve compliance and achieve greater liberalization, such as intellectual property rights, government procurement, import licensing, and SPS measures.

5.31. Many were of the view that Honduras should continue its reform process to diversify its economy in order to overcome its vulnerability to external shocks, improve its business climate, enhance competitiveness, and strengthen foreign investment attraction.

5.32. All in all, Mr Redondo, I believe that this TPR meeting has provided an excellent opportunity to review Honduras's trade policies by engaging Members in a constructive dialogue. My sincere hope is that the comments and observations discussed at this policy review will give the Government of Honduras food for thought. In six years' time, Members will be very pleased to see that the reform policies of the Honduran Government are being implemented successfully, and its policy objectives are being realized for the benefit of the people of Honduras.

5.33. Finally, I would like to wish Mr Redondo and his delegation a very successful conclusion to this policy review, and a very safe trip back to Honduras tomorrow. Thank you.

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6 CONCLUDING REMARKS BY THE CHAIRPERSON

6.1. This third Trade Policy Review of Honduras has shed considerable light on its trade and investment policies and practices, and contributed to a better understanding of the institutional framework within which they are formulated and implemented. We owe this to the informative documentation prepared for the meeting, the active participation of the Honduran delegation led by Mr Redondo, and the constructive comments of the discussant and all Members.

6.2. In their interventions, Members acknowledged Honduras' ongoing economic, trade and institutional reform efforts, including trade and investment liberalization. They noted that Honduras had shown prudence in the conduct of monetary and fiscal policies, and had experienced moderate growth during the review period. This, however, was insufficient to raise living standards and reduce poverty. To achieve faster growth, Members urged Honduras to redress the fiscal imbalance, improve regulatory transparency, and persevere in its efforts to restructure the economy. In this regard, Members noted that, in 2013, Honduras had introduced a tax reform and other measures to improve governance and increase transparency.

6.3. Members welcomed Honduras' commitment to the multilateral trading system and acknowledged its statement that the system represented the main instrument to ensure non-discrimination for small vulnerable economies. Members congratulated Honduras on its active participation in the WTO; they noted that, under the Doha Development Agenda (DDA), Honduras had advocated the implementation of special and differential treatment provisions and other flexibilities for developing economies, and had supported the elimination of agricultural distortions. While commending the steps taken by Honduras to implement its WTO obligations, they also took note of some pending issues, such as compliance with notification requirements, in particular with regard to import licensing, safeguard measures, SPS, and preferential trade agreements.

6.4. Members referred to Honduras' network of preferential trade agreements, some of which had become even more relevant in terms of trade flows since the last Review. The United States continued to be Honduras' main trading partner, as it had been the case since the entry into force of CAFTA-DR, followed by Central America, due to the continuous integration of the Region, and the European Union. Members noted that these agreements should complement multilateral efforts and sought more information on the Customs Union with Guatemala. As Honduras became more closely integrated into the global economy, Members encouraged it to diversify its production and export base, including by taking further advantage of unilateral trade preferences and of those negotiated through the preferential trade arrangements.

6.5. Referring to the investment regime, many Members welcomed Honduras' reforms, in particular through the 2011 Investment Promotion and Protection Law, which aimed at promoting private sector cooperation in the execution, development, and management of major infrastructure and services projects. The new law provided the same guarantees as those granted under the old investment regime, and also introduced new ones such as those contained in legal stability contracts. It also introduced investment incentives, including fiscal incentives. A few activities were retained by the State, but no further restrictions or prohibitions were imposed on foreign investors. Members also noted with interest a new legislation in 2013 which allowed the establishment of Employment and Economic Development Zones (ZEDE) with their own internal policies and regulations, including fiscal and monetary policies.

6.6. Noting that Honduras had a relatively open trade regime, Members commended it for not using anti-dumping and countervailing measures, for its low applied average MFN tariff, and for having bound its full tariff schedule. They were concerned, however, that, as had been the case in the previous Review, applied tariff rates for a few products remained above bound rates, and they encouraged Honduras to address this issue. Honduras was also invited to remove the price-band system which was applicable to certain agricultural products.

6.7. Members praised Honduras' efforts to modernize and streamline customs procedures through the implementation of a Single Window and the submission of customs declarations for exports in electronic format; and for engaging in a trade facilitation initiative at the regional level. To complement these efforts, Honduras was urged to promptly ratify the Trade Facilitation Agreement.

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6.8. Interest was expressed in Honduras' application of other trade measures, including TBT/SPS measures, which Members noted were usually in line with international standards; the safeguard measure imposed on certain iron and steel products; and the new import licensing regime that applied to onions. Honduras' endeavours to enhance transparency in government procurement were commended. Members also noted Honduras' continued efforts to improve compliance with intellectual property rights both at the border and within the country. They highlighted enforcement efforts such as the revision of the legal framework in order to impose more severe penalties, and the organization of campaigns to promote awareness among civil society and to train government officials. In addition, Members sought clarification on the protection of GIs and on Honduras' accession to the International Conventions for the Protection of New Varieties of Plants (UPOV).

6.9. Honduras has provided answers to almost all advance written questions, and undertakes to reply to any outstanding ones within one month, which will bring us then to the successful conclusion of this Trade Policy Review. I hope Honduras will benefit from the deliberations in this Review, and will continue its good work in pursuing economic reforms and trade liberalization.

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