USTR Section 301 Investigation on Nicaragua – Response by the Nicaragua Solidarity Coalition

This document was submitted in response to an investigation of Nicaragua launched by the US Trade Representative, in late 2024, clearly aimed at disrupting trade with Nicaragua and possibly at excluding it from the trade treaty, CAFTA.

About the Nicaragua Solidarity Coalition

The Nicaragua Solidarity Coalition is an international coalition of organizations and individuals in solidarity with Nicaragua, supporting its sovereignty and affirming its achievements. We are not affiliated with any governmental entity of any nation. We provide accurate, verifiable information and other resources about Nicaragua, and we work to counter misinformation about the country disseminated by the media, public events, and other sources. We share information from a variety of sources, including our personal experiences, in light of Nicaraguan history and current conditions.

This submission has been prepared by a group of people with detailed knowledge of Nicaragua, including longstanding residents of the country with experience of labor conditions.

Response to the USTR investigation

Section 301 of the Trade Act of 1974 is designed to address “unfair foreign practices affecting U.S. commerce”. It can be used to respond to “unreasonable or discriminatory foreign government practices that burden or restrict U.S. commerce”. Yet the USTR appears to have little prior evidence of such practices in relation to Nicaragua. For example, we note that the USTR’s 2024 Special 301 Report includes reference to 27 countries, many of them in Latin America, but makes no reference to Nicaragua. Similarly, the USTR’s 2023 report also made no reference to Nicaragua.

It is therefore surprising and disturbing that the USTR should suddenly launch an investigation into Nicaragua, given that it was not on its “watch list” of countries and it appears to hold no evidence of problems that would warrant an investigation.

It is understood that a Section 301 investigation concerns acts, policies or practices of a foreign government that violate an international trade agreement or are unjustified, unreasonable, or discriminatory, and that burden or restrict U.S. commerce. In the case of Nicaragua, for the US, this apparently signifies acts, policies, and practices that may violate labor rights, human rights, and dismantle the rule of law that may burden U.S. commerce.

It is further understood that the investigation should be confined to trade and business issues of interest to the US, and should not be a wider investigation into human rights or other issues, where these are not relevant to US business interests. We therefore urge the USTR to confine itself to business-related issues and to reject evidence that does not address them. It would be unfortunate if the investigation strayed into wider political issues relating to Nicaragua, which are highly contentious but have little effect on trade between the two countries.

Our submission addresses the following issues:

The extent of US trade with Nicaragua and of US companies with a presence in the country.
The risks to these interests of the USTR investigation, specifically to the US apparel industry.
The significance of the trade agreement with Nicaragua – CAFTA.
Issues of possible concern – trade union and labor rights, women’s employment rights, Indigenous and afro-descendant rights, safety and crime issues and human rights.

We urge the USTR to confine its investigation to trade-related matters and look forward to a satisfactory conclusion to the investigation that does not imperil US-Nicaragua trade relations.

The significance of US trade with Nicaragua

The United States is Nicaragua’s largest trading partner, accounting for over 50% of Nicaragua’s exports and 35% of its imports. In 2022, the United States exported $2.72 billion in goods and services to Nicaragua, which was an increase of 23% from 2021. U.S. goods imports from Nicaragua totaled $5.7 billion in 2022, up 23.3 percent ($1.1 billion) from 2021.

The top exports to Nicaragua were: Refined petroleum: $588 million, Crude petroleum: $331 million, Knit t-shirts: $135 million. Other exports to Nicaragua include: Mineral products, Textiles, and Machines. The United States also exports agricultural products to Nicaragua, including: Pork and pork products, Cotton, Dairy products, Wheat, Rice, Corn, Chicken meat, and Food preparations.

U.S. exports of services to Nicaragua were an estimated $448 million in 2022, 26.6 percent ($94 million) more than 2021. U.S. foreign direct investment in Nicaragua (stock) was $334 million in 2022, a 16.4 percent increase from 2021.

Some 1.2 million tourists visited Nicaragua in 2023, of whom one-fifth were from the US. US tourists are calculated to have spent $215 million in the country.

Nicaragua’s GDP grew by 4.6% in 2023, up from 3.8% in 2022, driven by growth in the services sector, especially in hotels, restaurants and retail trade. Foreign direct investment represented 6.7% of GDP in 2023. According to the Economic Commission for Latin America and the Caribbean (ECLAC), foreign direct investment in Nicaragua was higher than in El Salvador or Honduras, and slightly below that of Guatemala, suggesting that Nicaragua does not compare unfavorably with neighboring countries as a prospect for foreign investment.[1]

US companies operating in Nicaragua

A significant number of US companies have operations or franchises in Nicaragua and appear to have no issues about maintaining or expanding their operations. As an example, Walmart owns 91 supermarkets in Nicaragua in its own name or in the name of other brands which it owns, and regularly expands its business in the country. It is most unlikely that it would do this if there were not a favorable climate for US businesses.

Subway has 20 branches in Nicaragua and is currently opening a new one. Its publicity stresses its wish to encourage “local talent” and the majority of its workers are recruited locally.

US airlines operating in Nicaragua include United, American Airlines and Spirit Airlines. All of these have recently increased their services because of the high demand from passengers flying from the US.

The many other examples of US businesses operating satisfactorily in Nicaragua include:

Franchises: McDonald’s, Pizza Hut, Papa John’s, Quizno’s, Napa Auto Parts, Avis, Budget Rent a Car, DHL.
Companies including Best Western, Holiday Inn, Carl’s Jr., American Standard Inc., Chevron Corp., H.B. Fuller Co., General Mills Inc., Hercules Inc., Intercontinental Hotels Corp., Kem Manufacturing Co. Inc., Nabisco Brands Inc., PriceSmart, Texaco Inc., Cargill, Fedex and United Brands Co.
Call centers based in Nicaragua: Colgate-Palmolive, Kraft Foods, Nabisco, PriceSmart, DHL, NAPA Auto Parts, and Best Western
Kontoor Brands, Inc. (KTB) owns manufacturing facilities in Nicaragua and Mexico and is the parent company of Wrangler, Lee, and Rock & Republic
US mining companies include Calibre, B2Gold, Invesco, Van Eck Associates, ASA Gold and Precious Metals, and BlackRock.

Risk to US interests in Nicaragua posed by the USTR investigation

US textile and apparel exports to Nicaragua are very significant – though it is a very small country, Nicaragua was the sixth most important US export market in textiles in 2021.[2]

The National Council of Textile Organizations has pointed out, in response to the USTR investigation,[3] that there is $1.1 billion in two-way textile and apparel trade primarily between the Northern Triangle countries and Nicaragua to make apparel for the U.S. market. These intra-regional shipments, combined with U.S. exports to Nicaragua, represent an estimated $1.5 billion in overall trade of textile inputs within the coproduction chain among the U.S., Nicaragua, and the rest of the CAFTA-DR region. It warns that “Destabilizing the U.S.-CAFTA-DR production platform would have serious implications for U.S. and regional workers, migration, economic development, and pending and future investment.”

The United States Fashion Industry Association also points out that “Nicaragua plays an important role in the Western Hemisphere textile and apparel supply chain.” It adds that Nicaragua is a free trade agreement partner, and that “as a CAFTA partner and a critical element in the expanding sourcing opportunities in the Western Hemisphere, we hope that the 301 case will not destabilize the integration of U.S. and CAFTA textile and apparel manufacturers and U.S. brands and retailers.”

It is notable that neither of these trade organizations offers any examples of issues affecting their business in Nicaragua, and both warn against the possible risks to US interests if the investigation were to result in retaliatory action against trade with Nicaragua, which is intricately tied-in to production for the US apparel industry.

The same is almost certainly true for the seat-belt manufacturing industry.

US trade treaty with Nicaragua – CAFTA

The US is a party to the treaty known as CAFTA-DR, the Dominican Republic-Central America Free Trade Agreement (called here “CAFTA”, for short). The treaty was signed in 2004 by the United States, Nicaragua and four other Central American countries, and the Dominican Republic, and ratified by all of them. Treaties signed and ratified by the US are binding under both international law and US federal law.

Trade between the US and Nicaragua has to be conducted within the terms of CAFTA as both are parties to the treaty. Depending on the outcome of its investigation, the USTR is required to request formal dispute proceedings as provided by the trade agreement. The following points should be borne in mind:

Nicaragua cannot be excluded from CAFTA without the agreement of all its member countries.
The US could only impose sanctions that conflict with CAFTA by claiming that Nicaragua is a threat to international or US security, which is not an issue within the scope of USTR.
Reviewing Nicaragua’s compliance with requirements under CAFTA would be lengthy and complicated under CAFTA procedures. Any penalties would be financial, not exclusion from the treaty.
Nicaragua cannot plausibly be sanctioned on the basis that it is a “nonmarket economy” (one of the provisions in CAFTA that allow a country to be sanctioned).
CAFTA prevents general trade sanctions being applied; such sanctions could be challenged under CAFTA rules.
Any restrictions on US citizens investing in Nicaragua would appear to conflict directly with the CAFTA provisions on investment.

It is important to note that, in complying with the treaty, Nicaragua has a policy of welcoming US investment and is open to US entrepreneurs. Its Secretariat to Promote Investment and Exports (SPIEX) produces a “guide for investors” which explains the benefits of investing in Nicaragua and the favorable circumstances that exist in the country.[4] SPIEX offers various services for potential investors.

Rule of law

We understand that the USTR investigation should be concerned solely with the rule of law as it applies to US businesses operating or potentially operating in Nicaragua.

Nicaragua’s legal system offers:

A specific law (Law 344) to promote foreign direct investment in the country.
A specific law relating to free trade zones (where some 126,000 Nicaraguans are employed).
Tax concessions for businesses which export at least 25% of their products.
According to the World Economic Forum, Nicaragua has few bureaucratic procedures to open new businesses compared with other countries.

The World Bank Group’s Doing Business guide[5] ranks Nicaragua at the average for Latin America in terms of ease of starting a new business.

Doing Business categorizes Nicaragua as better than average in the region for enforcing contracts, and better than neighboring countries such as Costa Rica. It also does better than other countries on resolving insolvency.

Thomson Reuters’ Doing Business in Nicaragua: Overview gives more detail on the legal context for business in Nicaragua and provides a generally very positive overview.[6]

Labor rights, trade unions, the right to organize and labor disputes

Nicaragua has several constitutional rights in this respect:

Article 85 of the constitution: Every Nicaraguan has the right to choose and to practice their profession or trade with no other requirement than the relevant formal qualification or knowledge fulfilling their social function, in accordance with the Political Constitution and the applicable laws.
Article 86: There is full freedom of association in Nicaragua. Men and women workers may organize voluntarily in labor unions, and those enjoy full autonomy as trades unions in accordance with the applicable law.
Article 87: The rights of workers are guaranteed and the right of workers to subscribe to employers’ individual contracts and/or collective agreements. Both in accordance with the law.

There are various labor union confederations each made up of hundreds of constituted labor unions. 1.2 million Nicaraguan workers are affiliated in unions. In 2023, 61 collective bargaining agreements were signed, benefiting nearly 1.8 million workers, 52% of them women.

Labor rights and labor relations

Labor rights are set out in detail in the 400 articles of Nicaragua’s Labor Code, which applies to all employment, including in the free trade zones. This and other legislation relating to work is available on the Ministry of Labor website.^[7] Nicaragua observes international standards for the right to organize, the right to bargain collectively, prohibition of racial discrimination and discrimination against women, a minimum wage, restrictions on number of hours that may be worked, overtime pay, sufficient days of rest, etc. By law an increase in the minimum wage is negotiated every year between labor unions and employers’ organizations, including companies operating in the free trade zones.

“The legal framework governing labor relations in Nicaragua is established by the Labor Code, which outlines the rights and responsibilities of both employers and employees. This Code aims to promote fair labor practices and protect workers’ rights. It provides a structure for addressing disputes through various mechanisms, such as mediation, arbitration, and litigation. Furthermore, institutions such as the Ministry of Labor oversee the enforcement of labor laws, ensuring that disputes are addressed according to established regulations.”[8]

“Nicaragua’s system for resolving labor disputes emphasizes conciliation and arbitration before cases reach formal labor courts. The Ministry of Labor plays a crucial role in initial dispute resolution, facilitating negotiation and mediation between parties. If disputes cannot be resolved through these means, they are taken to specialized labor courts. Arbitration panels, formed on an ad hoc basis per agreement between parties, are also frequently used as a pre-court dispute resolution methodology.”^[9]

Women’s rights

Women’s rights in society and in the workplace are enshrined in its constitution and in legislation.

Business Insider notes[10] that Nicaragua is the leader for gender parity among economies in Latin America and the Caribbean. It is in sixth position in the World Economic Forum’s “top 10” for gender parity in 2024.[11] Additionally, Nicaragua is one of only 12 countries that managed to close more than 50% of their political empowerment gender gap. It remained fifth at global level in the political empowerment ranking with top scores in both women in parliament and in ministerial positions.

Business Insider also praises “women’s participation in professional and technical roles as well as for legislators, officials and senior managers.” Nicaragua is one of the countries that tied for the top spot in the educational attainment subindex on gender parity.

Indigenous and afro-descendant rights

Constitution

Article 5: It is the principle of our Nicaraguan nation to recognize the indigenous and Afro-descendant peoples in their own identity and culture, within a unitary, indivisible state.

Article 9: The State recognizes the existence of the indigenous and Afro-descendant peoples, who enjoy the rights, duties and guarantees set forth in the Political Constitution and in the autonomy laws of the autonomous regions of the Caribbean Coast of Nicaragua.

Article 58: Indigenous and Afro-descendant peoples have the right to education in their mother tongue.

Article 89: The peoples of the Caribbean Coast are an indissoluble part of the Nicaraguan nation and as such enjoy the same rights and have the same obligations as all Nicaraguans.

Autonomy Laws

Law 28: “Statute of Autonomy of the Regions of the Atlantic Coast of Nicaragua” of 1987

Law 445: “Law of Communal Property Regime of the Indigenous Peoples and Ethnic Communities of the Autonomous Regions of the Atlantic Coast of Nicaragua and of the Bocay, Coco, Indio and Maíz Rivers” of 2005.

These constitutional norms and laws have guaranteed the peoples of the Caribbean coast their own democratically elected autonomous regional governments which control the interaction between municipal local government and traditional territorial and communal governments covering all areas of regional life, including health care, education, environmental controls, infrastructure development agricultural development, business activity and foreign investment.

Indigenous and afro-descendant peoples have formal communal property rights via 24 title deeds to land equivalent to 31% of the national territory and more than 55% of the territory of Nicaragua’s Caribbean Coast, an area larger than the national territory of El Salvador,

Safety and crime

Low homicide rate

Nicaragua is one of the safest countries in Latin America. In 2023, the recorded homicide rate was 6.2, considerably lower than neighboring countries Honduras (31.1) and Costa Rica (17.2). Only El Salvador (2.4) has a lower rate in Central America.[12] In the rest of Latin America, only three countries (Paraguay, Chile and Peru) have a lower homicide rate.

Low on organized crime

Nicaragua is not a significant center of organized crime. The Organized Crime Index,[13] produced by the US government, ranks Nicaragua sixth out of eight Central American countries: only Costa Rica and Belize have lower indices. Furthermore, its ‘criminality score’ on this index (5.72) is lower than all of the major countries in the broader neighborhood, for example: Mexico (7.57), Colombia (7.75), Venezuela (6.72), Peru (6.4), Ecuador (7.07) and Brazil (6.77).

The Global Initiative Against Transnational Organized Crime (GI-TOC) has an index of organized crime in the Western Hemisphere, placing Nicaragua 15^th out of 35 countries (the USA is 16^th). Nicaragua has improved its score on this index since 2021, and scores much better than neighboring Honduras (5^th), Panama (6^th), Guatemala (9^th) or El Salvador (13^th).[14]

Low risk of extortion

GI-TOC recognizes extortion as a considerable problem in countries neighboring Nicaragua (Honduras, El Salvador, Guatemala) but not Nicaragua itself.[15]

Tackling money laundering

In Nicaragua, the primary law aimed at preventing money laundering is Law 977, officially called the “Law Against Money Laundering, Terrorism Financing, and Financing for the Proliferation of Weapons of Mass Destruction” which outlines measures to combat money laundering and related criminal activities by establishing mechanisms for prevention, investigation, and punishment of such offenses; it also includes provisions to strengthen national legislation and comply with international standards related to Anti-Money Laundering/Combating the Financing of Terrorism/Financing of Proliferation.

According to the internationally recognized Financial Action Task Force (FATF), Nicaragua has strengthened its efforts against money laundering and counter-terrorist financing. In its last report,[16] FATF noted that the country had addressed various deficiencies identified by FATF and was “no longer subject to the FATF’s increased monitoring process.”

Human rights

In the words of the United Nations, “human rights” range from “the most fundamental – the right to life – to those that make life worth living, such as the rights to food, education, work, health, and liberty.”

Nicaragua has made huge advances in social and economic rights. Just one example, highlighted in a 2024 report[17] from ECLAC, is that Nicaragua is devoting a larger proportion of its budget to public health than most Latin American countries, and that one of the direct benefits is high life expectancy compared with the majority of the other, wealthier countries. This clearly suggests investment is of huge benefit to Nicaraguan workers. The public health system is open to foreign visitors to Nicaragua, with no charge.

We note that the USTR press release says that “numerous reports suggest the Government of Nicaragua is engaging in repressive acts that harm Nicaragua’s own workers and people, undermine fair competition, and destabilize our region”. We strongly contest that assessment, and give one example below.

The press release refers to reports from various bodies; one of these is the UN Group of Human Rights Experts on Nicaragua (GHREN). The Nicaragua Solidarity Coalition and many other organizations have made representations to the GHREN which have been ignored. The GHREN has created open channels of communication to political opponents of Nicaragua’s government, but will not provide equal access to organizations whose evidence shows how opposition groups have undermined human rights in Nicaragua through violence, kidnappings, arson, robbery and assassinations. Nor will they accept evidence which identifies the many serious errors and omissions in their reports.

Similar points could be made about various other “human rights” reports which have deliberately avoided examining the wider picture of how the rights of ordinary Nicaraguans, and businesses (including, of course, US businesses) were badly affected by the violence, lootings and other crimes carried out by government opponents in 2018 and in some cases since then.

We therefore urge the USTR to review these “credible reports” critically, as they represent very limited perspectives on human rights in Nicaragua which do not accord with the experiences of most Nicaraguans. Few, if any, of the allegations in these reports are relevant to the circumstances of Nicaraguans in their places of work.

The purview of the USTR is not political posturing, but the rights of workers, the climate for US business, and the existence of fair competition. In our experience, Nicaragua is exemplary in all of these respects.

[1] See https://repositorio.cepal.org/entities/publication/32d5b875-8a81-429e-9962-97f5ef34d23f

[2] See https://www.usitc.gov/research_and_analysis/tradeshifts/2021/textiles

[3] See https://www.etextilecommunications.com/news/ncto-issues-statement-on-section-301-investigation-into-nicaragua-s-acts-policies-practices/article_b37f068c-b8fe-11ef-a916-3bbe850979f4.html

[4] See https://www.spiex.gob.ni/es/inicio

[5] World Bank Group Doing Business guide: Nicaragua.

[6] See https://content.next.westlaw.com/practical-law/document/I89288256de0611e498db8b09b4f043e0/Doing-Business-in-Nicaragua-Overview

[7] See http://www.mitrab.gob.ni/documentos/leyes72d10057bf0c?OpenDocument

[8] See https://generisonline.com/overview-of-labor-dispute-resolution-mechanisms-in-nicaragua/

[9] See https://www.rivermate.com/guides/nicaragua/dispute-resolution

[10] See https://www.businessinsider.com/gender-parity-world-economic-forum-pay-gap-education-womens-rights-2022-7#7-nicaragua-7

[11] See https://www.weforum.org/publications/global-gender-gap-report-2024/digest/

[12] See https://www.statista.com/statistics/947781/homicide-rates-latin-america-caribbean-country/