72727 v1 World Trade Indicators 2009/10 Nicaragua Trade Brief Trade Policy Since the early 1990s, Nicaragua has taken significant External Environment steps towards establishing a more outward-oriented According to the Market Access TTRI3 (including economy by opening up its trade policy. This is preferences), on which it is ranked 26th (out of 125 reflected in the latest MFN Tariff Trade countries), Nicaragua’s exports enjoy very low barriers. Restrictiveness Index (TTRI)1 of 5.0 percent, which Since 2006, the MA-TTRI has fallen to a seventh of its ranks Nicaragua 59th out of 125 countries. The trade value and now stands at 1.2 percent, compared to the regime is more open than that of an average Latin LAC and lower-middle-income country averages of America and Caribbean (LAC) or lower-middle- 2.0 and 2.3 percent, respectively. The 2008 rest of the income country (with TTRIs of 7.8 and 8.6 percent, world simple average applied tariff (including respectively). The barrier to agricultural goods (11.9 preferences) on Nicaragua’s exports grew to 9.8 percent) is approximately three times as large as the percent from 4.7 percent in 2006. When taking into barrier to non-agricultural goods (4.0 percent), as account the level of exports, however, it is much lower judged by the TTRI. Including preferences, the TTRI at 2.1 percent, with its agricultural exports facing a on all goods is lower at 3.3 percent, which represents a tariff of 5.7 percent and its non-agricultural exports of significant decrease from 6.0 percent in 2006. The 0.6 percent. latest simple average MFN tariff is very low at 5.6 percent. Nicaragua has kept its maximum tariff Nicaragua’s most important trade arrangement is the (excluding alcohol and tobacco) relatively stable in DR-CAFTA with the United States that became recent years at 67.6 percent. The trade policy space, as effective in 2006. DR-CAFTA consolidates and measured by the wedge between bound and applied expands the current access that Central American tariffs (the overhang), was maintained at 36.1 percent countries currently have to the U.S. market, while in 2007. Regarding the extent of its commitment to extending broadly reciprocal access for U.S. goods to trade liberalization in services, Nicaragua ranked 85th their own markets. The decision to make the out of 148 countries according to the GATS provisions of the agreement applicable multilaterally is Commitment Index. deepening regional integration efforts and facilitating the creation of a Central American Customs Union.4 In response to the food crisis, in February 2008 Negotiations for an Association Agreement between Nicaragua and three of its fellow Central American the EU and six Central American countries, including Common Market countries canceled import taxes on Nicaragua, which began in 2007 and include a free wheat flour until the end of 2008 or up to a maximum trade agreement, have been postponed as of July 2009, of 10,000 imported tons. In May 2008, the due to the political instability in Honduras.5 The real government removed the tariff on beans and reduced effective exchange rate of the Nicaraguan córdoba tariffs to zero or five percent for some vegetable oils.2 appreciated by 6.6 percent over the course of 2008, making exporters less competitive abroad. Unless otherwise indicated, all data are as of August 2009 Behind the Border Constraints and are drawn from the World Trade Indicators 2009/10 Nicaragua ranked 117th in the Ease of Doing Business Database. The database, Country Trade Briefs and index in 2009, which compares the business Trade-at-a-Glance Tables, are available at environment of 183 countries. The Logistics http://www.worldbank .org/wti. Performance Index, a measure of the ease of trade If using information from this brief, please provide the facilitation, rates Nicaragua at 2.21 on a scale from 1 following source citation: World Bank. 2010. “Nicaragua to 5 with 5 being the highest performance. This is Trade Brief.� World Trade Indicators 2009/10: Country Trade compared with 2.57 for the LAC region and 2.47 for Briefs. Washington, DC: World Bank. Available at countries in the lower-middle-income group. http://www.worldbank.org/wti. Nicaragua ranked 70th in the world and 9th in the LAC World Trade Indicators 2009/10 Nicaragua Trade Brief region (with Chile leading the regional group). The Notes area in which it performed the best was domestic transport costs and it needs most improvement in 1. TTRI calculates the equivalent uniform tariff that increasing the quality of transport and information would keep domestic welfare constant. It is weighted by technology (IT) infrastructures. import shares and import demand elasticity. 2. FAO, 2009. 3. MA-TTRI calculates the equivalent uniform tariff of Trade Outcomes trading partners that would keep their level of imports constant. It is weighted by import values and import Nicaragua’s real (in constant 2000 U.S. dollars) trade demand elasticities of trading partners. growth reached 13.8 percent in 2007, and then 4. SICE, 2009. decelerated to 8.8 percent in 2008. It is expected to shrink by 3.5 percent in 2009, due to falling imports 5. Bilaterals.org, 2009, and European Commission, 2009. and exports. Nicaragua’s exports grew in real terms by 6. All quarterly data is from IMF, 2009. 9.7 percent in 2007, and its growth rate decreased to 4 7. ECLAC, 2007. percent in 2008. Imports of goods and services grew 8. Banco Central de Nicaragua, 2009. in real terms by 11.4 percent in 2008. Both exports and imports are expected to decline in 2009 by 3.8 and References 3.2 percent, respectively. Banco Central de Nicaragua. 2009. Anuario De Estadísticas In nominal terms, total trade grew by 15.9 percent in Económicas 2001–2008. . although growth slowed to 0.3 percent in the last Bilaterals.org. April 2009. “EU-Central America.� quarter over the same quarter in 2007.6 Maquilas play . an important role in Nicaragua’s trade, amounting to Economic Commission for Latin America and the approximately half of total exports of goods and Caribbean (ECLAC). October 2007. “Analisis de helping diversify its traditional export basket.7 Outside Indicadores de Comercio Exterior y Política of the maquila sector, agriculture is the largest export Comercial.� United Nations, New York, NY. sector for Nicaragua. As commodity prices rose in Economist Intelligence Unit (EIU). 2009. Country Profile 2008, coffee and meat exports, which make up close 2008: Nicaragua. to 20 and 14 percent of all goods exports, respectively, European Commission. July 1, 2009. “EU-Central grew by 48 and 17.4 percent in 2008.8 Although the role of the United States has been declining in America: Association Agreement’s Talks Postponed importance in recent years in favor of Nicaragua’s Following The Situation in Honduras.� . exports. El Salvador and Honduras are the next largest Food and Agriculture Association of the United Nations export markets, together importing 12 percent of (FAO). 2009. “Policy Measures Taken by Nicaragua’s exports. Exports are expected to shrink by Governments to Reduce the Impact of Soaring 3.5 percent in 2009, and in the first quarter of the year Prices (As of 15 December 2008).� FAO, New have outpaced this forecast, falling by 10.5 percent York, NY. over the first quarter 2008. Nominal imports increased Foreign Trade Information Service (SICE). 2009. by 17.3 percent in 2008 but are expected to fall by 10.1 “Central America-Dominican Republic-United States.� percent in 2009. Nicaragua’s import markets are more . the United States, followed by Mexico, Guatemala, International Monetary Fund (IMF). August 2009. Costa Rica, and República Bolivariana de Venezuela. International Financial Statistics (Country Tables). Imports fell by 22.3 percent in nominal U.S. dollar IMF, Washington, DC. terms in the first quarter of 2009. Remittances accounted for a share of 12.4 percent of GDP in 2008. FDI inflows accounted for a high 9.5 percent of GDP in 2008.