ESTELI, Nicaragua -- This town's residents have gotten a taste of prosperity. And a whiff. The savory odor of tobacco from Esteli's cigar factories is a reminder of how this region helped Nicaragua become the third-largest foreign cigar supplier to the U.S.

At the Grupo Plasencia factory, William Espinoza and other workers earn comfortable salaries by drying, cutting, sorting and rolling squares of tobacco leaf. But instead of satisfaction, the workplace is full of unease and dark humor these days, such as when a co-worker points out the duffel bag near Espinoza's work station.

"He's packing his suitcase," the colleague said. "He'll be out that door tomorrow."

Government officials and industry leaders say thousands of jobs are at risk in Nicaragua, Honduras and the Dominican Republic because of U.S. legislation that would hike taxes on cigars to help fund an expansion of children's health insurance.

A $10 cigar, for example, would go from incurring a few pennies in U.S. excise taxes to $3 under a Senate bill. Price hikes for the cigars of 30 to 40 percent would be devastating, industry officials argue, because many consumers will simply stop buying cigars.

Far-reaching effects

The worry has spread to the small towns of Nicaragua's tobacco country, which exported 56 million cigars to the U.S. last year. Employees quiz their bosses daily on the U.S. proposal and make plans if their jobs disappear.

"I wish we could bring those senators and congressmen down here to tell them that it's nice to help the children of the United States, but look what you are doing to the people here," said Maria Jose Morales, a Plasencia executive.

It has been a tough climb for Nicaragua's tobacco industry. The Marxist government seized several large tobacco plantations, including the Plasencia family's operation, after the Sandinista Revolution of 1979.

The renowned Joya de Nicaragua cigar factory was burned to the ground during the ensuing civil war between the Sandinistas and U.S.-backed contra rebels. The tobacco industry was especially at risk because it is centered near the border with Honduras, the site of some of the heaviest fighting.

As recently as 1994, Nicaragua exported no cigars to the U.S. The following year, it sent about 1.5 million cigars, about 1 percent of U.S. imports, according to the Washington-based Cigar Association of America.

Nicaragua now represents 18 percent of U.S. imports and its overall output has nearly tripled since 2000, even as exports from the Dominican Republic and Honduras have registered modest jumps. The Nicaraguan tobacco leaf is so well-regarded that other countries import it to produce their own cigars.

Alejandro Martinez, an executive with the Nicaragua Cigar Guilders Association, a trade group, said the tobacco industry is important because it produces a wide range of jobs.

Farmers can remain in the countryside if they cultivate tobacco. Even as China lures away factory jobs, the specialized nature of rolling cigars by hand ensures that the work will remain in-country. And, at least at the Plasencia factory, women dominated the cigar-rolling work stations, winning praise for their meticulous technique.

That economic boost doesn't even include the spinoff industries, such as companies that produce cellophane for packaging, trucking firms that carry the finished product for export and white-collar agencies that do the marketing and sales, Martinez said.

'This would be an earthquake'

"This [bill] wouldn't be an economic storm," he said. "This would be an earthquake."

With cigars, bosses prize workers who master their company's recipes and technique. To keep their workers happy, Plasencia offers child care and tuition assistance for college. A cigar roller typically makes $100 a week, not a fortune but good pay in a country where most people make less than $7.

The U.S. bill presents the same risks in the Dominican Republic, which sends about 55 percent of all imported cigars to the U.S. Honduras, the second-largest exporter, has about 20,000 jobs in the cigar industry, many in rural areas without any factories or other cash crops.

"Without a demand for cigars, we would have a lot of people without economic opportunities," said the diplomat handling the issue at the Honduran Embassy in the U.S.

When Congress reconvenes in September, it will attempt to reconcile House and Senate versions that would expand the State Children's Health Insurance Program. The House bill is more favorable to the tobacco industry, capping the tax at $1 for each cigar.

President Bush has vowed to veto the legislation, but Latin American officials note that his opposition stems from the health-insurance component, not from concerns about the cigar tax. So even with a veto, that leaves the risk that lawmakers could return to a cigar tax to help fund other proposals, Martinez said.

Sensing that momentum wasn't going their way, Nicaraguan cigarmakers this month met with members of the National Assembly, where they crafted a two-pronged strategy.

There, congressmen said they would inform GOP lawmakers that a blow to the cigar industry could boost illegal immigration as Nicaraguans head north for jobs. Espinoza, the Plasencia worker, said he likely would try to go to the U.S. if he lost his job.

Meanwhile, lawmakers would try to convince Democrats that, if the U.S. government wants a more humane foreign policy toward Latin America, it cannot pass legislation that would harm some of the region's most vulnerable citizens.

"If we could say that those who support this bill are against Latin America, we could have a great impact," congressman Gabriel Rivera told the cigarmakers. "As Nicaraguans, we are obligated to come together to defend the interests of this sector. Even a great power like the United States has to understand that."