ProNicaragua

1
NicaraguaGeneral Information of the Regulations
and Administration of TPLs

• ProNicaragua
• and
• TPL Quota Office
• May 2006

2
Industry Overview
Firms Operating in Export Processing Zones in
Nicaragua as of March 2006
3
Industry Overview
Nicaragua Apparel Industry Information 2005
- Exports to the U.S. totaling 203.9 million SMEs
in volume and 715.6 million in value (Compared
to 2004 16 increase in quantity and 20
increase in value) - To the US, Nicaragua is
5 provider of M/B cotton trousers shorts
9 provider of M/B cotton knit shirts 9
provider of MMF brassieres body support
garments 10 provider of M/B MMF woven
shirts 12 provider of W/G cotton knit shirts
and blouses 14 provider of W/G cotton trousers
shorts 14 provider of W/G MMF trousers
shorts
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Industry Overview
5
Expected Industry Growth Post CAFTA
Industry Forecast
Source ANITEC 2005
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General Characteristics
Trade Preference Levels

• Trade Preference Levels (TPL) is a DR-CAFTA
  benefit which allow free access to US Market for
  garments produced with fabric or yarn that do not
  comply with rules of origin
• Quota 100 million square meter equivalent (SME)
  per year
• Period Constant for 9 years
• Applies to Apparel Exporters only (in or out of
  the Free Zone Regime)
• Pocketing rule does not apply to TPL garments
• Not retroactive
• Not Negotiable nor Transferable among Apparel
  Exporters
• Textile Mills may receive TPL assignation which
  has to be distributed among their clients
  (apparel exporters)

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Trade Preference Levels Limitations

• Wool products
• 1.5 million SME per year
• One for One Purchasing Rule  For each SME of TPL
  exported in categories of 347/348 and 647/648,
  Nicaragua has to export an equivalent amount of
  the same category, using U.S. formed fabric of
  U.S. formed yarn.
• Categories 647/648 (woven bottoms, synthetic
  fiber) 1 to 1
• rule applies from the start of TPL use
• Categories 347/348 (woven bottoms, cotton)
• 1 to 1 needs to be matched up to
• 1st year up to 20 million SME
• 2nd year up to 30 million SME
• 3rd year up to 40 million SME
• 4th and subsequent years up to 50 million SME

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The Role of TPLs

• What is Nicaraguas objective?
• Protect and expand the existing industry and
  attract new investors.
• Utilize the TPL as a transition tool to take the
  industry from a basic to a vertically integrated
  operation oriented towards higher value added,
  high fashion and designer products.
• Strengthen the industry to optimize job
  oportunities in volume and in quality.
• Create a true partnership with the United States
  textile/apparel industry.

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Basic Premises

• Distribution mechanism should be
• Efficient TPLs should be used completely
• Predictable Amount received estimated in
  advance
• Transparent Clear rules of the game
• Fair Equal treatment based on established
  parameters
• Incentive Growth of Textile / Apparel Companies

10
Administrative Outline

• Ministry of Industry and Commerce (MIFIC)
• Issue of regulations that will control the
  administration of the TPLs
• National Free Zone Commission (CNZF)
• TPL Regulation approval
• Supervision and application of the administrative
  policies
• Assignation of the quotas according to the
  regulations established
• Technical Committee
• Advisor to the National Free Zone Commission
• Supervision of the Administrative Office
• Administrative Office
• Support the committee in the administration and
  execution of its operation

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The TPL Administration Office

• Functions
• Maintain registry of Manufacturers and exporters
• Collect, process, and analyze production and
  export data
• Maintain industry statistics
• Distribute and monitor usage of TPLs
• Verify shipment of TPL goods
• Issue domestic visas
• Issue internal communications
• Verify information with national and
  international entities

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TPL Distribution

• Start-Up of Apparel Manufacturers with no
  historical production
• Expansions of existing companies
• Start-Up of Vertical Operations/ Textile
  Manufacturing
• TPL allocation based on export projections

CONTINGENT QUOTA 30
BASIC QUOTA 70

• Established Apparel Manufacturers
• Historical Production of at least 1 year
• TPL allocation based on export records

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TPL Distribution

• Distribution Mechanism for Garment Manufacturers
• 1. Total export to US in square meter equivalent
  (SME)
• 2. Export value per category
• 3. Duties per category exported
• 4. Labor content per category
• Distribution Mechanism for Vertically Integrated
  Cos- Textile Companies
• 1. Maximum assignment of up to 25 of production
  in SME
• 2. Level of Integration
• - Spinning
• - Knitting or weaving
• - Dyeing and Finishing
• 3. Investment Amount

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TPL Distribution Example of Assignation-Apparel
Company
Export Records
Categories exported
Company A
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TPL Distribution Example of Assignation-Apparel
Company
Export Records
Categories exported
Company B
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The Contigent Quota
Vertical Integrated Companies Textile Mills
Distribution Criteria
Maximum Assignment of up to 25 of Production
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The Contigent Quota
Vertical Integrated Cos Textile Mills

• - The TPLs can be used during the start-up phase
  (construction) of the project
• Companies must present a detailed development
  program
• Distribution takes place after signing an
  Investment Contract
• - Textile Mills receive a permanent FIXED TPL
  assignment for the duration of the
  benefit
• The first 10 Million of permanent assignments
  will come out of the contingent quota reducing it
  to 20 Million for the following years

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Example
Vertically Integrated Co. Textile Mill
Textile Mill A Production 20 Million SME Level
of Integration Fully Vertical Investment Amount
100M
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Summary

• The automated distribution mechanism is
  efficient, predictable and transparent
• Gives equal treatment to established and new
  companies coming to the country
• Vertical operations are specially benefited since
  it is the main TPLs strategic role