Download ECONOMIC ENVIRONMENT (1) OVERVIEW 1. Guatemala is the

ECONOMIC ENVIRONMENT
(1) OVERVIEW
1. Guatemala is the largest economy in Central America, representing about one third of
the population and one quarter of the GDP of the Central American Common Market
(CACM). Its per capita GDP was USt$2,532 in 2007. The real annual rate of growth of
GDP was 3.4 per cent during the period 2001-2006, rising to 5.7 per cent in 2007.
However, a slowdown was expected in 2008 because of diminished growth in the United
States, Guatemala's main trading partner and the source of the bulk of remittances
entering the country. In the long term, Guatemala still faces major challenges in
achieving income growth and sustainable poverty reduction.
2. Inflation rose, driven in part by the increase in prices for petroleum and food.
Guatemala is implementing an inflation-targeting scheme which constitutes the nominal
anchor of monetary policy. In principle Guatemala maintains a flexible exchange-rate
system, although in practice the Central Bank intervenes in the exchange market.
Guatemala maintains an operational surplus in its public accounts; the central
Government's overall fiscal deficit is relatively low, and the country has been within
reach of the goal of reducing the fiscal deficit to 1 per cent of GDP. The deficit reduction
has been limited by the income allocation established in the Constitution and by the low
taxation rate.
3. The current account deficit of the balance of payments stood slightly above 5 per cent
of GDP in 2007. Between 2002 and 2007, in-bond processing (maquila) exports, which
represent about one third of total merchandise exports, grew by about 40 per cent, while
other exports grew by two thirds. Total imports grew approximately 70 per cent. The
main exports, in decreasing order of importance, are apparel, coffee, sugar and bananas.
Manufactured products dominate imports. The United States continues to be Guatemala's
main trading partner, followed by Central America and the European Communities.
Trade in goods and services represents approximately 57 per cent of Guatemalan GDP.
(2) MACROECONOMIC DEVELOPMENTS
(i) Structure, growth and employment
4. In 2007, services contributed about 55.4 per cent of Guatemala's GDP; among these,
wholesale and retail commerce continues to play a leading role (Table I.1).1 In the same
year, agriculture, forestry and fishing combined represented 10.3 per cent of GDP, while
manufacturing industry accounted for 18.3 per cent. While most economic sectors grew
during this period, they did so at different paces. The highest growth rates were recorded
in public services and transport.
5. About two thirds of the active population were employed in services in 2006, while
17.2 per cent worked in manufacturing industry, 13.7 per cent in agriculture, 3 per cent in
construction, 0.9 per cent in the electricity, gas, water and sanitation services industry,
and 0.3 per cent in mining.2 Between 2001 and 2006, employment grew more rapidly in
the construction sector (45 per cent), followed by sales (30.8 per cent); employment fell
in agriculture (7.5 per cent), in manufacturing (8.5 per cent) and in public services (11 per
cent). It is estimated that the informal sector represents about 30 per cent of GDP.3
TRADE POLICIES, BY SECTOR
SUMMARY OBSERVATIONS
1. During the period since the previous Review of its trade policy in 2002, Guatemala has
continued to place trade liberalization at the core of its development strategy. It has
adopted liberalization measures through concurrent multilateral, regional and unilateral
initiatives. The specific measures taken include streamlining customs procedures, further
lowering of tariffs and the adoption of new government procurement and intellectual
property rights legislation. Partly as a result of these, trade and investment have expanded
rapidly and, together with remittances from abroad, have continued to make a substantial
contribution to the economy.
2. Throughout the period under review, Guatemala has maintained macroeconomic
stability and growth, even though it is forecast that a slow-down in growth will be seen to
have occurred in 2008. Economic expansion needs to be sustained and increased in order
to achieve the improvements in living standards Guatemala seeks and this in turn means
keeping up the ongoing efforts designed to achieve greater efficiency in the domestic
market, including stronger competition policies, as well as the regulatory framework, in
sectors such as telecommunications, financial services and maritime transport.
Guatemala's efficiency and fiscal situation could also be improved by making better use
of economic policies that do not have a distorting effect and do not favour some groups to
the detriment of others.
(1) ECONOMIC ENVIRONMENT
3. Guatemala is the largest economy in Central America, accounting for one quarter of
the GDP of the Central American Common Market (CACM). In 2007, its per capita GDP
was US$2,532. The real GDP expanded at a rate of 3.4 per cent between 2001 and 2006,
rising to 5.7 per cent in 2007. Nevertheless, it is expected that the final data for 2008 will
show a slowdown in growth, mainly owing to diminished growth in the United States,
Guatemala's main trading partner and the source of the bulk of remittances from abroad.
In this connection, despite positive economic trends in recent years, Guatemala is facing
short-term risks caused by diminished growth in the United States; in the long term,
Guatemala still faces major challenges in achieving sustainable growth in income and
poverty reduction.
4. As far as inflation is concerned, Guatemala has an inflation-targeting scheme which
constitutes the anchor of its monetary policy. Over the period 2005-2006, inflation fell
but rebounded in 2007 owing to internal and external factors and exceeded the upper
limit of the inflation target band (4 to 7 per cent in 2008). The rise in inflation was partly
attributable to rising prices for petroleum and food. Guatemala has a flexible exchange
rate policy, even though there is limited intervention by the Central Bank in the foreign
exchange market. To some extent, these interventions have undermined the effectiveness
of monetary policy. To address this, in mid-2008 interventions were limited further to
focus on interest rate variations in order to achieve the inflation targets.
5. In Guatemala, the Central Government maintains a primary surplus, but a small overall
public sector deficit. Since 2005, the overall deficit has come close to meeting the goal of
1 per cent of GDP. Reducing the deficit has been hampered by inflexibilities linked to
earmarking requirements in the Constitution and a low level of taxation.
6. Guatemala has traditionally had a deficit in the balance-of-payments current account,
mainly owing to a large deficit in the balance of trade in goods and a negative deficit in
the investment income balance. In 2007, the deficit in the balance-of-payments current
account was just over 5 per cent of the GDP. Between 2002 and 2007, exports by the
maquila (in-bond processing) industry, equivalent to about one third of total exports of
goods, grew by some 40 per cent, whereas other exports rose by two thirds. The main
exports (by the maquila industry and other sectors) are, in decreasing order of
importance, clothing, coffee, sugar and bananas. Total imports increased by 70 per cent,
manufactures being the major import. The United States remains Guatemala's leading
trading partner, followed by Central America and the European Union. Trade in goods
and services accounts for around 50 per cent of Guatemala's GDP.
(2) TRADE POLICY AND INVESTMENT FRAMEWORK
7. Trade liberalization plays an important role in Guatemala's trade policy and in its
development strategy, which aim at enhancing competitiveness on global markets.
Guatemala has pursued its trade objectives in parallel at the bilateral, regional and
multilateral levels and gives equal importance to all three levels. The Government seeks
to improve the terms of access for Guatemala's exports to foreign markets while also
promoting greater legal certainty and economic stability.
8. Guatemala became a Member of the WTO on 1 July 1995. It takes an active part in the
Doha Development Round and hopes to obtain tangible benefits from this initiative,
particularly in relation to improved access to foreign markets for its services and
agricultural products, as well as trade facilitation. During the period under review,
Guatemala submitted several notifications to the WTO, even though there are delays in
some, for example on domestic support for agriculture, customs valuation and technical
barriers to trade. Guatemala was a complainant in two cases before the WTO Dispute
Settlement Body during the period under review and reserved its rights as a third party in
six cases. It has not been a defendant during this period.
9. In recent years, regional integration has been especially important. The CACM
provides the framework for Guatemala's trade policy. The Free Trade Agreement
between the Dominican Republic, Central America and the United States (DR-CAFTA)
came into force for Guatemala in July 2006. Implementation of this Agreement has
required Guatemala to adopt and implement large-scale reforms of its trade regime. DRCAFTA is of particular importance for Guatemala as three quarters of its trade in goods
is with parties to the Agreement. In addition, Guatemala has free trade agreements with
the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu; Cuba; the
Dominican Republic; Mexico; and Venezuela. By October 2008, Guatemala had also
signed free trade agreements with Chile, Colombia and Panama, and was negotiating an
association agreement with the European Union and free trade agreements with the
CARICOM and Canada.
10. Guatemala's foreign investment regime allows foreign nationals to invest in most
sectors of the economy. In general, foreign investors receive national treatment. The
exceptions include those imposed by laws governing specific areas, for example:
insurance and some regulated professional services. Guatemala has signed several
international agreements on the promotion and protection of investment.
(3) MARKET ACCESS FOR GOODS
11. Guatemala's trade regime is essentially an open one and market access improved
during the period under review. The average rate of MFN duty applied fell from 7.0 per
cent in 2001 to 5.9 per cent in 2008. The average duty on agricultural products (9.9 per
cent) is still relatively higher than that on other products (5.3 per cent). Guatemala bound
all its tariffs at an average of 42.7 per cent. In this respect, the predictability of
Guatemala's trade regime could be improved by lowering bound rates to close the gap
between bound and applied tariffs. Guatemala has reduced tariff protection for
preferential partners under the free trade agreements it has signed. The average tariff
applied by Guatemala under these treaties ranges from 1.0 to 3.9 per cent.
12. Internal taxes on imported and domestic goods include a value added tax of 12 per
cent, as well as special taxes on certain products. During the period under review,
Guatemala eliminated the differences that used to exist between taxes on domestic and
imported alcoholic beverages.
13. Guatemala makes very limited use of non-tariff barriers. Import licences are not
required even though the import of certain products related to health, safety or
environmental protection requires a prior import permit. During the period under review,
Guatemala did not impose any anti-dumping or countervailing duties or safeguards.
14. Guatemala has continued with the process of reforming its customs, adopting the new
Central American regulations on customs procedures and valuation and taking steps to
improve the functioning of its customs services. During the period under review,
Guatemala ceased to apply minimum customs values when the waiver granted by the
WTO expired.
15. Guatemala has continued to build its capacity to apply technical regulations and
sanitary and phytosanitary measures. One important step in this direction was the
establishment of the National Quality System. Nevertheless, even though Guatemala has
notified several draft technical regulations and sanitary and phytosanitary measures to the
WTO, it would appear that there are some institutional shortcomings in drawing up,
implementing and notifying such measures. It is therefore important for Guatemala to
build its capacity in this respect, which would be of benefit not only to consumers but
also to producers.
(4) MEASURES AFFECTING EXPORTS
16. There is a Q 0.10 tax on every 100 kg. of coffee exported. The export of certain wood
logs is prohibited for environmental reasons; this measure also benefits the local
processing industry.
17. Guatemala has notified to the WTO three fiscal concession regimes as including
export subsidies. These regimes concern the maquila industry, free zones, and the free
trade and industrial zone. Guatemala has undertaken to phase out these subsidies before
the end of 2015. It considers that the programmes notified have had a positive impact on
the country, generating close to 40 per cent of its exports of goods. There is, however, no
cost-benefit analysis that takes into account the fiscal burden and the distortions which
these programmes may cause. It would therefore be useful to undertake such an analysis
with a view to developing a concrete strategy that would allow the costs of transition to a
subsidy-free regime to be kept to a minimum.
18. In addition to export incentives, Guatemala also gives incentives to micro, small and
medium-sized enterprises and for research and development.
(5) OTHER MEASURES AFFECTING TRADE
19. Even though the Constitution and certain sectoral laws deal with issues relating to
competition policy, Guatemala still has no general law on competition policy. Since the
previous Review, efforts have been made to adopt such a law, but by mid-2008 draft
legislation was still before Congress. The authorities have indicated that the economy has
monopolies, oligopolies and cartels because of its small size and the numerous
regulations in effect. Consequently, increasing the level of competition is one of the most
important challenges for Guatemala's government policy.
20. Guatemala is neither a signatory nor an observer to the WTO Agreement on
Government Procurement. In 2006, it amended its relevant legislation. The new law does
not discriminate against products and services sold to the State by foreign suppliers.
21. During the period under review, Guatemala ratified four WIPO treaties and adopted
several amendments to its intellectual property legislation, some of which were required
in order to implement DR-CAFTA. Guatemalan legislation on copyright and industrial
property rights goes beyond the obligations under the TRIPS Agreement. There is,
however, no specific domestic legislation on layout designs of integrated circuits or
geographical indications. Parallel imports are allowed in the case of patents and
trademarks but not in relation to copyright.
(6) SECTORAL POLICIES
22. The agricultural sector makes a sizable contribution to employment and production in
Guatemala. The Government gives the sector limited assistance through measures such as
higher than average tariffs and subsidies for fertilizer and extension services. Guatemala
made commitments on tariff quotas at the WTO for 22 agricultural products, but only
applies them for rice, wheat flour, yellow maize (corn) and apples. Quotas only come into
play if there are shortages on the domestic market.
23. The manufacturing sector accounts for the majority of Guatemala's exports of goods,
with clothing being the largest export. This sector and other foreign market-oriented
industries mainly operate under the maquila and free zones regimes and mostly sell their
goods on the United States market. In recent years, these industries have become less
dynamic as a result of increased competition on the United States clothing market when
the ATC expired. In this connection, the fiscal incentives given to the exporting
manufacturing sector do not appear to be the most effective way of counterbalancing
such internal competitiveness problems as the high cost of electricity and shipping.
24. The mining and minerals sector makes a modest contribution to the economy, even
though mining exports have increased. By mid-2008, a new draft law was being drawn up
to revise the current mining law, a reform that was deemed necessary by a special
commission appointed to address it. The electricity sector was reorganized and privatized
in the 1990s. There have, however, been problems in meeting domestic demand and the
average selling price of electricity has risen to become one of the highest in the Americas.
25. The services sector accounts for some 60 per cent of GDP and generates two thirds of
total jobs. Guatemala made limited GATS commitments during the Uruguay Round,
covering just five of the 12 services categories. It did not take part in the negotiations on
financial services and did not ratify the Fourth Protocol, although it adopted the majority
of commitments on basic telecommunications services. Most of Guatemala's
commitments under the GATS bound policies that were already in place at the time of the
Uruguay Round negotiations and therefore do not take into account the autonomous
liberalization that has occurred since then. Consequently, Guatemala could make its legal
framework more predictable by expanding its multilateral commitments and extending
the commitments made in the DR-CAFTA framework to the multilateral level.
26. There were serious problems in the banking sector during the period 2006-2007,
followed by a period of stabilization in 2008. Guatemala has reinforced the legal and
institutional framework for the financial sector by enacting new laws and regulations, but
it would appear that further measures are needed. The average spread between the
lending and borrowing rates of interest in national currency has been decreasing but still
remains relatively high (over eight percentage points in late 2008), which in turn implies
that there are still inefficiencies in the sector. There are no restrictions on foreign
participation in the banking sector. On the other hand, foreign insurers must set up a
subsidiary in Guatemala in order to offer services there and branches or agencies of
foreign firms are not allowed. Every insurance policy and premium must be approved by
the regulatory authority. A new insurance law was before Congress in mid-2008 and it
will perhaps address some of these restrictions.
27. There has been a large increase in the number of mobile telephones since the
privatization of the telecommunications sector. There are no restrictions on foreign
investment in this sector. The traditional operator still has a dominant role in fixed
telephony services and is the second largest supplier of mobile telephony services. Some
aspects of the regulatory regime have been amended as a result of DR-CAFTA.
Nevertheless, the telecommunications sector would benefit from a stronger regulatory
body and more competition in certain parts of the market.
28. During the period under review, Guatemala further opened up the air transport sector.
Since 2004, companies providing domestic air transport services may be wholly foreign
owned, even though they must have their principal domicile in the country. Guatemala
has 11 bilateral air transport agreements, three of which are open skies agreements.
29. Guatemala does not have any special legislation on maritime transport.
International maritime transport services are exclusively provided by foreign vessels,
which are authorized to offer national cabotage services. There are no restrictions on
foreigners operating ports or providing ancillary services. Nevertheless, in practice, all
the maritime ports, except for one which is privately owned, belong to the State. The
authorities are developing a strategy to implement reforms designed to facilitate private
participation and lower the cost of port services.
30. The supply of professional services in Guatemala requires registration with the
competent professional body. Guatemalan citizens and foreigners with professional
qualifications from foreign universities must have these revalidated by the National
University of Guatemala. Guatemalan citizenship is required in order to act as a notary.
In order to practise as architects, Guatemalan professionals must pay 1 per cent of their
fees to the Architects Professional Association, while foreigners have to pay 2 per cent.
TRADE AND INVESTMENT REGIME
(1) OVERVIEW
1. The stated strategy of Guatemalan trade policy forms part of a more general economic
development agenda aimed at consolidating market mechanisms and providing incentives
to improve competitiveness. Guatemala attaches equal importance to the multilateral
system and to regional and bilateral integration procedures, with a view to improving
access conditions for its exports and promoting greater legal certainty and economic
stability.
2. Guatemala became a member of the WTO on 1 July 1995 and has been participating
actively in the Doha Development Round. It has submitted a large number of
notifications to the WTO, although as of August 2008 a few were delayed, e.g. regarding
domestic support for agriculture, customs valuation and technical barriers to trade.
Guatemala has been a complainant in the WTO dispute settlement mechanism in two
cases during 2002-2008, and it has reserved third-party rights in six other cases. It has not
acted as defendant during this period.
3. Guatemala's trade policy is formulated in the context of its participation in the Central
American Common Market (CACM) - an integration process that has been gathering
pace in recent years. The Free Trade Agreement between the Dominican Republic,
Central America and the United States (DR-CAFTA), which has been in force in
Guatemala since July 2006, is specially relevant given the changes it has entailed for the
country's trade regime, and the fact that three quarters of Guatemala's merchandise trade
is with the parties to this agreement. Guatemala also has free trade agreements (FTAs) in
force with the Dominican Republic, Mexico, and Chinese Taipei; and it has concluded
FTAs that had not yet entered into force as of October 2008, with Panama (in conjunction
with the rest of Central America); with Colombia (together with El Salvador and
Honduras); and with Chile (along with the rest of Central America). Guatemala also has
preferential agreements in force with Cuba and Venezuela; and, as a member of the
CACM, it is currently negotiating an association agreement with the European Union and
FTAs with CARICOM and Canada.
4. Guatemala's foreign investment regime allows foreign nationals to invest in the vast
majority of economic sectors, and it grants national treatment to foreign investors. The
exceptions include sectors that impose laws governing specific areas, namely insurance
and a number of regulated professional services. Guatemala has signed various reciprocal
investment promotion and protection agreements.
(2) TRADE POLICY AND INVESTMENT FRAMEWORK
(i) General legal and institutional framework
5. Guatemala is a unitary republic. Its territory is divided into 22 departments, which are
subdivided into 333 municipalities. The Decentralization Law, Decree No. 14-2002, has
steadily been transferring decision-making power from the Government to the
municipalities, in respect of administrative, economic, social and political jurisdictions,
and funding to implement national public policies. Priority areas for decentralization are
agriculture, communications, infrastructure, housing and the economy. While several
responsibilities and resources in relation to Government procurement have been
decentralized from the Government to the municipalities, all taxation issues remain the
exclusive preserve of Congress.
6. The Political Constitution of the Republic of Guatemala was adopted in 1985 and
amended by Legislative Agreement No. 18-93 of 17 November 1993.1 The Constitution
establishes separation of powers between the executive, legislature and judiciary; defines
the main individual guarantees and the functional organization of each State agency; and
specifies the separation of powers and functional autonomy in each case.
7. The President of the Republic, who is elected by universal suffrage for a nonrenewable four-year term, exercises executive power and is responsible for concluding
and ratifying international treaties. The Political Constitution of the Republic of
Guatemala requires the President of the Republic to submit all international treaties and
conventions, public utility contracts and concessions, for consideration by the legislature
before ratification. Nonetheless, in practice this requirement is restricted to agreements
which: (i) affect current laws; (ii) affect national sovereignty, or establish full or partial
Central American economic or political union; (iii) transfer competencies to agencies or
institutions to pursue regional objectives in the Central American framework; (iv)
commit the State financially; (v) represent a commitment by the State to submit to
international arbitration; and (vi) contain a general clause on arbitration or submission to
international jurisdiction.
8. Any agreement that is not covered by the aforementioned categories can be ratified by
the President without the need for congressional approval. Congress cannot directly
request amendments to specific aspects of an agreement; any alterations must pass
through the procedure used for the agreement's approval; i.e. the President of the
Republic must request amendments and, once these have been negotiated, submit the
corresponding reform initiative to the Congress of the Republic, which will either
approve and implement it or reject it.
9. The President of the Republic has exclusive power to appoint and dismiss Ministers of
State; and he or she chairs the Council of Ministers, consisting of the President, the Vice
President and Ministers of State. The most recent presidential election was held in two
rounds of voting on 9 September and 4 November 2007; the next is scheduled for 2011.
10. Legislative power is vested in the single-chamber Congress of the Republic,
comprising 158 deputies elected for a four-year term, under a system based partially on
representation of electoral districts and partially on proportional representation using a
national list. Deputies can be re-elected. The most recent election was held on 9
September 2007. Congress has the exclusive right, inter alia, to enact, reform and repeal
laws; approve or modify the public budget; and approve before their ratification, all
international treaties that, among other things, could involve submitting issues to
international arbitration or affect existing laws for which the Constitution requires the
same majority vote. Congress also has the exclusive right to establish national taxes
(local taxes are set by municipalities) and to modify the State budget. Through Decree
123-84 of 28 December 1984, Congress delegated the right to alter tariffs to the Council
of Ministers Responsible for Economic Integration.
11. Following approval by the legislature, the procedure for ratifying an international
agreement involves the enactment by Congress of a decree formally approving the
agreement, and a ratification instrument issued by the Ministry of Foreign Affairs on
behalf of the Executive, to be signed by the President. Both the decree and the ratification
instrument must be published in the Official Journal for the agreement to come into force.
12. Judicial power is vested exclusively in the judiciary and distributed among various
bodies. The Judiciary Law (Ley del Organismo Judicial) establishes a single jurisdiction
to be exercised by the following: the Supreme Court of Justice and its various chambers;
the Court of Appeals, the Magistrates Courts, the Tribunal for Administrative Disputes,
the Public Accounts Court of Second Instance; the Military Tribunals, the Court of First
Instance, the Juvenile Courts and the Justices of the Peace. The Supreme Court consists
of 13 judges appointed by Congress for renewable five-year terms. A separate permanent
Constitutional Court, which is an independent tribunal with exclusive jurisdiction, is
charged with upholding the constitutional order by ruling on whether laws of any kind,
including international treaties, and acts subject to public law are constitutional.
13. Guatemala has significantly improved governance since the last Review in 2002,
although challenges remain. A recent study shows that, while the peace accords have
brought favourable changes to the country, particularly in relation to the strengthening of
democracy and civil liberties, several improvements are still needed, such as
strengthening the public sector and Government institutions.2
(ii) Trade policy objectives, formulation and implementation
14. The Guatemalan economic and political system has undergone far-reaching reforms
since the signing of the Peace Agreements in 1996, and several laws have been passed to
create a more favourable climate for investment and transparency, as discussed in
Guatemala's previous Review. During the period under review, a number of measures
have been introduced to make the most of these reforms both domestically and externally.
In addition to greater devolution of powers from the Central Government to the
municipalities, Guatemala has also actively promoted the implementation of economic
reforms by negotiating bilateral, regional, plurilateral and multilateral agreements, and
has also introduced domestic reforms in areas such as financial services (Chapter
IV(5)(iii)). International initiatives have recently targeted deeper integration with its
Central American partners, and the negotiation of the FTA between Central America, the
Dominican Republic and the United States (DR-CAFTA). Guatemala has reaffirmed its
commitment to the multilateral trading system during WTO ministerial meetings.3
15. Guatemala is a relatively open and highly export-oriented economy. The national
authorities have stated that it therefore gives equal importance to the multilateral system
and to regional and bilateral integration processes, with a view to improving access
conditions for its products and services, and to promote greater legal certainty and
economic stability. The authorities have further stated that the 2004-2006 National
Negotiation Agenda sets trade policy priorities in relation to WTO negotiations and
Central American integration in the CACM framework. While the authorities do not
envisage any conflict between these priorities, they acknowledge that multilateral
commitments would take priority if one should arise. They have also pointed out that
Guatemalan trade policy has always been aimed towards fulfilling its commitments.
16. Guatemalan trade policy forms part of an economic development programme aimed
at fully consolidating market mechanisms and giving incentives to competitiveness.
Economic and trade reforms are included in the implementation of a National Action
Plan (PAN). The first PAN, which was in implemented from 2003 onwards, attempted to
identify the country's trade capacity. The National Action Plan: Strategy for
Strengthening and Creating Trade Capacities (2007) is a version of the 2003 PAN,
updated by an ad hoc group involving the public and private sectors, with technical
assistance from the United Nations Economic Commission for Latin America and the
Caribbean (ECLAC). The changes proposed in the new plan reflect the adjustments that
Guatemala needs to make following approval and implementation of DR-CAFTA. The
main objective of the PAN is to identify and establish trade priorities, with a view to
creating and strengthening the trade capacities of institutions that implement and use DRCAFTA. This plan is complemented with the Social Action and Economic Revival Plan,
and the National Competitiveness Programme.
17. The Social Action and Economic Revival Plan, better known as "¡Vamos
Guatemala!" is based on five lines of action aimed at strengthening competitiveness,
supporting agriculture, making sure that social and economic development policies are
mutually complementary, promoting investments and creating a favourable investment
climate that respects the environment. In addition, the National Competitiveness
Programme (PRONACOM) seeks to promote interagency alliances to achieve the
objectives set in the National Competitiveness Agenda. The responsibilities of
PRONACOM are to promote investment, support the formation of productive clusters,
and support local development programmes.
18. A key objective of the Government's trade expansion strategy is to ensure that the
benefits of new trade opportunities are accessible to small and medium-sized enterprises
(SMEs), both directly through access to export markets and indirectly by developing
strategic links both abroad and with local export enterprises.
19. The Ministry of the Economy is the lead agency in trade policy formulation and
implementation, in coordination with other government agencies. The Ministry handles
all foreign trade matters, negotiates trade agreements and monitors their implementation.
It also represents Guatemala in the WTO and has responsibility for related negotiations.
Within the Ministry of the Economy, the Directorate for the Administration of Foreign
Trade (DACE) in the Vice-Ministry for Integration and Foreign Trade, administers the
international economic-trade instruments that are in force for Guatemala. The authorities
have stated that the Ministry's aim is to be able to provide specialized assistance to the
country's trade community on foreign trade issues and protect the legitimate interests of
national production, facilitating access to international markets for its products by
exploiting the trade agreements to which Guatemala is a party.
20. Other ministries that participate in the formulation and implementation of trade policy
include: the Ministry of Foreign Affairs, the Ministry of Agriculture, Livestock and Food
(MAGA), the Customs Directorate, which is part of the Tax Administration Supervisory
Authority (SAT), and the Ministry of Public Finance, among others.
21. The private sector participates in trade policy formulation through ad hoc groups, and
it is also represented on the National Council for Export Promotion (CONAPEX) and the
National Export Coordination Commission (CONACOEX). The private sector
coordinates its own positions and assesses the negotiations in which Guatemala
participates through the Business Commission for International Trade Negotiations
(CENCIT), which encompasses firms engaged in the goods and services sectors.
(3) FOREIGN INVESTMENT REGIME
22. The Constitution establishes that the fundamental obligations of the State include
protecting capital formation, saving and investment, and creating adequate conditions to
promote the investment of national and foreign capital. The Foreign Investment Law,
Decree No. 9-98, regulates this type of investment in Guatemala and prohibits all forms
of discrimination against foreign investors or investments. Foreign investors may engage
in any lawful economic activity in the country, and hold unlimited shareholdings in
profit-making companies organized in accordance with Guatemalan legislation. The
Constitution specifies certain exclusions to protect the general interest. According to
Article 120, the State may, in situations of force majeure and as long as is strictly
necessary, intervene in firms providing essential public services to the community when
their operations are impeded. The only sectors that are reserved for the State are the
exceptions stipulated in the Guatemalan Constitution and legislation, which impose
restrictions on foreign investment in the following sectors: transport, insurance and
regulated professional services.4 The main guarantees and rights covered by the Foreign
Investment Law are as follows: guarantee of private property, free trade, access to foreign
exchange, security of investment, double taxation and dispute settlement. Domestic and
foreign investors alike must register at the one-stop window (Ventanilla Ágil) of the
Ministry of the Economy. Pursuant to the Foreign Investment Law, no review is needed
to approve or accept foreign investments in Guatemala.
23. Article 40 of the Constitution defines the legal framework governing expropriation
and establishes that in specific cases, private property can be expropriated for reasons of
duly proven collective utility, social benefit or public interest. Expropriation requires
prior compensation, unless other terms are negotiated with the parties involved.
24. Guatemala has a number of export promotion institutions in place, including the
National Competitiveness Programme (PRONACOM) and the Investment Attraction
Office ("Invest in Guatemala") which are mixed public-private forums. "Invest in
Guatemala" was set up in 1997 to promote investments in light industry, tourism, call
centres, the outsourcing of business processes, and agribusiness.5
25. As of June 2008, Guatemala was a party to 18 bilateral investment treaties (BITs),
involving 19 trading partners.6 Of the 12 BITs negotiated since the last Review in 2002,
seven had come into force by June 2008. Responsibility for negotiating bilateral
investment treaties rests with the Technical Inter-Institutional Investment Group,
coordinated by the Ministry of Foreign Affairs. The National Commission for
International Economic Negotiations (CONEI), which encompasses most institutions
supervised by the Ministry of the Economy, also participates in defining the goals to be
pursued in trade negotiations.
26. The provisions of the BITs and FTAs guarantee most-favoured-nation (MFN)
treatment to foreign investors, who can avail themselves of the same incentives as those
granted to Guatemalan companies (see Chapter III(4)(iii)).
27. Some of the FTAs signed by Guatemala also include provisions to protect investors.
Chapter 10 of DR-CAFTA, for example, provides a mechanism for settling disputes
between investors and the State, offering the possibility of recourse to the International
Centre for the Settlement of Investment Disputes (ICSID) or the United Nations
Commission on International Trade Law (UNCITRAL).
28. Guatemala is also a member of the Multilateral Investment Guarantee Agency
(MIGA) and of ICSID. Although Guatemala signed the Convention establishing the
ICSID in 1995, this did not enter into force in the country until 20 February 2003. The
ICSID is the dispute settlement mechanism used by DR-CAFTA.
29. Up to June 2008, only one case involving Guatemala had been initiated in the ICSID:
Railroad Development Corporation v. Republic of Guatemala (ICSID Case No.
ARB/07/23). This involves a complaint by a firm based in the United States that alleges
indirect expropriation of assets owned by its local subsidiary (Ferrovías de Guatemala) in
2006. The Guatemalan Government considers the complaint to be groundless.
(4) INTERNATIONAL RELATIONS
(i) World Trade Organization
30. Guatemala is an active participant in the Doha Round, having made several
submissions especially in conjunction with other members, focusing essentially on the
agriculture negotiations. It is one of the countries that define themselves as small and
vulnerable economies, and is a member of the Tropical Products Group. Guatemala is
also a member of the Cairns Group, the G-20 and the G-33 (also known as Amigos de los
Productos Especiales or "friends of special products".) Guatemala believes that its
participation in several groups gives it the chance to influence the proposals of each
group and thus seek balances that reflect national interests.7 Guatemala is among the 14
countries that in 2002 recommended not taking action on issues relating to the extension
of geographical indications for products other than wine and spirits.8
31. Table AII.1 contains the list of notifications made by Guatemala to the WTO between
January 2002 and March 2008. Despite the numerous notifications made in that period,
several remained pending as at June 2008, including those relating to domestic support
for agriculture, technical barriers to trade and customs valuation.
32. Guatemala has acted as complainant in the WTO dispute settlement mechanism in
two cases since 2002, and it has reserved third-party rights in six cases.9 It was not
involved as a defendant during the period 2002-2008. The two cases in which Guatemala
has been a complainant related to measures adopted by Mexico. In 2003, it requested
consultations with the Government of Mexico regarding the application of estimated
prices, minimum prices, or minimum values for customs valuation.10 In 2005,
Guatemala notified the DSB that it had reached a mutually satisfactory solution on this
issue.11 In 2005, it requested consultations over anti-dumping duties imposed by Mexico
on certain types of steel pipes originating in Guatemala.12 The Panel Report, circulated
in June 2007, found that several aspects of the Mexican measure were inconsistent with
the provisions of the Anti-Dumping Agreement.13 In September 2007, Guatemala and
Mexico notified the DSB of their agreement on a deadline for implementing DSB
recommendations of six months from the date of adoption of the Panel Report; and if
possible, Mexico would try to implement the DSB recommendations within a shorter
time period.
(ii) Preferential agreements
33. Most of Guatemala's trade involves partners with which Guatemala has preferential
agreements in place. It participates in a customs union, and also in several FTAs and
partial scope agreements. In 2007, exports to countries with which Guatemala had
preferential agreements in force accounted for 77.2 per cent of its total exports and 61.7
per cent of its imports.14
34. The main characteristics of the customs union and FTAs that have entered into force
are outlined in Table AII.2. The Central American Common Market and the FTA
between the Dominican Republic, Central America and the United States are described
below, these being the most important for Guatemala in terms of value of merchandise
trade.
(a) Central American Common Market (CACM)
35. The Central American integration process is recognized in Article 150 of the
Constitution. Guatemala is a founding member of the Central American Common Market
(CACM) established in 1961, which also encompasses Costa Rica, El Salvador,
Honduras, and Nicaragua. The Tegucigalpa Protocol to the Charter of the Organization of
Central American States, which has been in force since June 1995, amended the regional
legal framework by creating the Central American Integration System as the institutional
framework for Central American regional integration. The Guatemala Protocol to the
General Treaty on Central American Economic Integration, signed in 1993, entered into
force on 6 May 1996. It defines the objectives, principles and measures to achieve
economic union.
36. The institutional structure of the CACM consists of the Council of Ministers of
Economic Integration (COMIECO), the Executive Committee for Economic Integration
(CEIE), and the Secretariat for Central American Economic Integration (SIECA). The
Central American Bank for Economic Integration (CABEI) acts as a support agency.15
The CACM has a number of regional regulations, including the Uniform Central
American Customs Code (CAUCA), together with Central American regulations on rules
of origin, unfair trade practices, safeguard measures, standardization, and sanitary and
phytosanitary measures. The CACM has had its own dispute settlement mechanism since
2003.
37. Changes to the Central American Tariff are made by COMIECO, pursuant to Article
38 of the Guatemala Protocol as amended on 27 February 2002. Article 24 of the Tariff
Agreement authorizes the State of Guatemala to implement COMIECO decisions on
tariff amendments through an executive agreement or decree. In the case of Guatemala,
decisions are published through a ministerial decision issued by the Ministry of the
Economy.
38. The vast majority of intra-CACM trade satisfying regional rules of origin receives
duty-free treatment in Guatemala and other member countries. The authorities have stated
that the common external tariff was 95.7 per cent harmonized in April 2008. To achieve
this level of harmonization, COMIECO has adopted 77 resolutions between 2001 and
2008, implementing an equal number of tariff amendments. In addition, the tariff
schedule has also incorporated the third and fourth amendments to the Harmonized
System. The list of products excluded from regional free trade has been steadily reduced.
Several exclusions were made during the period under review, with the result that, at June
2008, Guatemala maintained exceptions to regional free trade for only unroasted coffee
and sugar.
39. The Framework Agreement Establishing the Central American Customs Union was
signed on 12 December 2007. The Agreement, which will be submitted to the legislative
assemblies of the individual countries for review and ratification, envisages three stages
in the customs union process: (1) institutional strengthening; (2) trade facilitation; and (3)
regulatory convergence.
40. In the CACM framework, Guatemala has acted as complainant once during the
review period, in a dispute with Costa Rica concerning imports of ice cream prepared
using imported milk. The arbitral panel issued its final ruling in June 2006.
(b) Free Trade Agreement between the Dominican Republic, Central America and the
United States of America (DR-CAFTA)
41. In January 2003, Guatemala and its four CACM partners embarked upon formal
negotiations for an FTA with the United States, which were completed on 17 December
2003. DR-CAFTA was signed on 5 August 2004 by Guatemala and the other four CACM
countries, the Dominican Republic and the United States, and entered into force in
Guatemala on 1 July 2006. Guatemala has notified the treaty to the WTO.16
42. While the vast majority of the mutual commitments assumed by the parties under
DR-CAFTA are identical for all, certain obligations, such as tariff quotas, are applied
bilaterally between the United States and each of the Central American countries or the
Dominican Republic.
43. Through Decree No. 11-2006 of 18 May 2006, Guatemala passed the legal reforms
needed to comply with the provisions of DR-CAFTA. These included changes to the
Government Procurement Law, the Commercial Code, the General Telecommunications
Law, the Industrial Property Law, the Law on Copyright and Related Rights, the Penal
Code, the Law on Arbitration, and the Executive Branch Organic Law (Ley del
Organismo Ejecutivo).17
44. Guatemala granted concessions to the United States under DR-CAFTA across its
tariff universe, with most industrial products and consumer goods becoming tariff free
when DR-CAFTA entered into force. Tariffs on other products will be eliminated over
periods of five to ten years, while agricultural products enjoy longer tariff reduction
periods ranging from 15 to 20 years. For Guatemala, these periods are ten years in the
case of beef and yellow maize (corn), 15 years for pig meat, beans and potatoes, 18 years
for poultry legs and rice, and 20 years for dairy products. Tariff quotas were set for the
transition periods in the case of 40 agricultural products (see Chapter IV(2)).
45. A World Bank study predicts that the products likely to experience the largest
increase in exports to the United States under DR-CAFTA are man-made filaments (34.4
per cent), footwear (42.0 per cent), tobacco (57.1 per cent), and knitted fabrics and
garments (58.4 per cent). The study also shows that the agreement could help reduce
poverty in Guatemala.18 Although the results for DR-CAFTA as of mid-2008 are highly
preliminary, the authorities have reported that, following a growth period in the first five
months of 2007, exports to the United States then stalled and declined slightly in the rest
of the year.
(c) Other agreements and arrangements
46. Guatemala also has the following free trade agreements (FTAs): the FTA signed by
Guatemala, El Salvador and Honduras (Northern Triangle) with Mexico; the FTA with
the Dominican Republic; and the FTA with the Separate Customs Territory of Taiwan,
Penghu, Kinmen and Matsu (Table AII.2). The Mexico-Northern Triangle Agreement
stipulates that the provisions of the FTA shall prevail in the cases of incompatibility with
other international treaties, including the WTO Agreement.
47. Guatemala has concluded several agreements under the Latin American Integration
Association (LAIA), including partial scope agreements signed with Panama (1974),
Colombia (1984), Venezuela (1985 and 1992) and Cuba (1999).19 Guatemala also
participates in LAIA's Framework Agreement between MERCOSUR and the CACM,
which was concluded in 1998; this agreement aims to foster trade, investment, and
technology transfer but does not include tariff preferences.
48. Guatemala enjoys tariff preferences granted unilaterally by Australia, Canada, Japan,
Norway, New Zealand, Russia and the European Union under the Generalized System of
Preferences (GSP). It does not participate in the Global System of Trade Preferences
among Developing Countries.
49. Guatemala is a member of the International Coffee Agreement and, in a provisional
manner, the International Sugar Agreement.
(d) Agreements awaiting approval or under negotiation
50. As of September 2008, Guatemala had also concluded three FTAs which had not yet
entered into force: with Panama (together with the rest of Central America); with
Colombia (in conjunction with El Salvador and Honduras); and with Chile (along with
the rest of Central America). Once ratified, the agreements with Panama and Colombia
will represent an improvement on the partial scope agreements already existing between
Guatemala and those countries. As of September 2008, Guatemala had also concluded a
bilateral partial scope agreement with Belize; and the FTA with Panama was awaiting
approval by the Congress of the Republic, as also was the FTA with Colombia. The FTA
with Chile was with the Ministry of Foreign Affairs pending approval from the public
entities involved in the agreement, for subsequent submission to the General Secretariat
of the Presidency, which will forward it to Congress.
51. In conjunction with the other CACM members, Guatemala is negotiating an
association agreement between the CACM and the European Union, which aims to
improve political dialogue between the regions, intensify cooperation in several fields,
and facilitate trade and investment flows. Two further rounds of negotiations had been
held by September 2008.20 The negotiations cover aspects relating to trade in goods,
trade in services and company formation, government procurement, intellectual property,
competition, trade and sustainable development, and dispute settlement and institutional
aspects. If possible it is hoped to conclude the negotiations by mid-2009. The CACM is
also negotiating free trade agreements with Canada and with CARICOM. In conjunction
with the other CACM members, Guatemala is working to standardize the various FTAs,
signed or to be signed, particularly in relation to rules of origin.