US embassy cable - 04GUATEMALA305

C O N F I D E N T I A L SECTION 01 OF 02 GUATEMALA 000305 
 
SIPDIS 
 
TREASURY FOR OASIA: CHRIS KUSHLIS AND BILL BLOCK 
USTR FOR REGINA VARGO 
 
E.O. 12958: DECL: 02/09/2009 
TAGS: ECIN, ETRD, PGOV, GT 
SUBJECT: FOREIGN MINISTER BRIZ DESCRIBES AMBITIOUS AGENDA 
FOR REGIONAL CUSTOMS UNION, BEGINNING WITH EL SALVADOR 
 
REF: GUATEMALA 207 
 
Classified By: EconCouns Steven S. Olson for reason 1.5 (d) 
 
Summary 
------- 
1.  (C)  EconCouns and an AID delegation called on Foreign 
Minister Briz Feb. 6 to discuss integration.  Briz confirmed 
that a customs union, beginning with El Salvador, was a top 
priority of President Berger.  He noted that El Salvador and 
Guatemala already had harmonized 96% of their external 
tariffs and that Nicaragua and Honduras were close behind. 
Costa Rica was "something else" to be taken up later. 
Guatemala is withdrawing immigration controls from the 
Salvadoran border unilaterally.  Briz said the biggest 
problem would be with products where tariff phase-out 
schedules differed under CAFTA (read:  beer).  He said El 
Salvador's President Flores wanted to finish before leaving 
office, but Econ Minster Lacayo was opposed.  Deciding how to 
share revenues collected on the periphery was easier than it 
had been made to appear, as businesses would report the 
proper jurisdiction in order to access tax credits or 
deductions.  He wants discretion taken away from customs and 
was interested in our concerns over noncompliance with the 
WTO customs valuation agreement and SIECA's draft of regional 
contraband regulations.  He supports contracting customs 
services to an outside firm and emphasized the importance of 
removing internal customs controls to eliminating corruption 
and organized crime.  End Summary. 
 
2.  (U)  EconCouns accompanied an AID delegation during a 
Feb. 6 call on Foreign Minister Jorge Briz.  AID had sought 
the meeting to review Guatemala's plans and assistance needs 
for the coming years in the area of Central American regional 
integration.  EconCouns sought to learn more concerning 
recent statements by President Berger and his cabinet 
(reftel) on Guatemala's desire to open its borders with El 
Salvador within 90 days, with Honduras and Nicaragua to 
follow when ready.  The press had just announced Guatemalan 
plans to remove its immigration officials unilaterally and 
immediately from its borders with El Salvador.  (Note:  This 
cable does not cover discussion of how AID's regional program 
could best interface with Guatemalan priorities.) 
 
Customs Union a Top Priority 
---------------------------- 
3.  (C)  Briz confirmed that building a customs union was 
among Berger's top priorities, although it would take a 
little longer than the 90 days Berger announced.  He said 
that El Salvador and Guatemala already applied the same 
common external tariff on 96% of all items, and Honduras and 
Nicaragua were in the 90%-92% range.  Costa Rica was 
"something else," and not an immediate priority like the 
others but an eventual partner in the scheme.  Most of the 
products not yet harmonized could be with a minimum of 
political will.  Sugar was still complicated on the 
Salvadoran side, but it could be resolved.  Coffee was "not a 
problem."  He said that the "only real problems" were ones 
created by differing tariff rate reduction schedules 
negotiated in the CAFTA, and he said he assumed that 
EconCouns knew what he meant (Comment:  Beer, where Guatemala 
gave immediate access at the very end of the negotiation, to 
the surprise and consternation of many (reftel).  End 
Comment.)  He said it would make a mess of internal efforts 
to create the customs union if there were large volumes of 
internal trade of foreign goods that customs union members 
taxed differently. 
 
Little Risk in Removing Immigration Controls 
-------------------------------------------- 
4.  (C)  Briz said that removing immigration from the borders 
with El Salvador posed no real risks.  He said that 
Salvadoran controls over arrivals from third countries were 
much better than anything Guatemala had on its land borders 
with El Salvador.  The Guatemalan system on the land borders 
was a mess and would not detect anyone from outside the 
region who had made it past the Salvadorans.  There was no 
real interest in controlling Salvadorans, particularly as 
integration was what the President wanted. 
 
Flores Wants a Legacy; Lacayo Not Enthusiastic 
--------------------------------------------- - 
5.  (C)  Briz said that Salvadoran President Flores was eager 
to move ahead, telling Berger emphatically that he wanted the 
custom union on his watch, "not Tony Saca's."  EconCouns said 
he'd heard that not everyone was so enthusiastic.  Briz 
responded that (Salvadoran Minister of Economy Miguel) 
"Lacayo is against it, for some reason." 
 
Distributing Revenues Easier than it Seems 
------------------------------------------ 
6.  (SBU)  EconCouns commented that previous talks within the 
regional economic integration body SIECA reportedly ran into 
serious problems over how to distribute among members the 
taxes collected when goods entered the customs union's 
periphery.  How would that be resolved?  Briz said it would 
be much easier than people had thought, as it would rely on 
businesses rather than customs officials to decide. 
Businesses knew in what jurisdiction they needed tax 
deductions and/or value added tax credits to offset income or 
taxes received on their sales, and they would have every 
incentive to declare that jurisdiction when they imported a 
product or bought it from a wholesaler. 
 
Combating Corruption by Eliminating Customs 
-------------------------------------------- 
7.  (C)  Briz added that customs officials and the organized 
crime figures who controlled them were the principal sources 
of corruption in the country.  That is why internal borders 
had to go and external borders had to be simplified as much 
as possible.  He said there was simply too much discretion 
given to bureaucrats, and it had to be eliminated.  He was 
aware of arbitrary valuation of goods by customs officials 
but not that Guatemala was obliged to do away with such 
practices as part of the WTO Customs Valuation Agreement.  He 
seemed delighted when EconCouns told him that there was an 
international obligation, and he asked his staff to follow 
up. 
 
Integration Isn't Bureaucratization 
----------------------------------- 
8.  (C)  EconCouns commented that there were other areas 
where SIECA's work seemed to be creating more problems than 
solutions.  AID Deputy Director added that the USG was 
looking for efficiency and best practices, not harmonization 
at the level of the country with worst practices.  EconCouns 
described draft regional contraband legislation that 
decriminalized contraband of value less than $100,000 per 
incident, a de minimis level far higher than contained in any 
country's current regulations.  Briz responded, "That's just 
about everything."  The draft also called for all confiscated 
merchandise to be auctioned to the public, including pirated 
goods and pharmaceutical products that couldn't meet national 
health standards.  Briz shook his head knowingly and asked if 
we could get him a copy of the draft.  He commented, 
"Integration shouldn't mean bureaucratization." 
 
Best Solution is to Privatize Customs 
------------------------------------- 
9.  (C)  Briz said that he thought the best solution for a 
customs union would be to contract customs inspection and 
collection to a single private company for all of the union's 
members.  The current system was simply too entrenched and 
penetrated by organized crime.  If there was a reason for El 
Salvador to be reluctant to open its internal border with 
Guatemala, it was because Guatemala's corruption and 
contraband had become a problem for them. 
 
Comment 
------- 
10.  (C)  The talk is revolutionary.  It also makes a lot of 
sense, but that means less, politically, than it should.  We 
have known Jorge Briz well as the outspoken President of the 
Chamber of Commerce from days when he was one of the most 
acerbic critics of the FRG government and its ties to 
organized crime.  He led the successful revolt against 
raising taxes in August 2001 on grounds that the government 
would simply steal them, and he was the target of thousands 
of anonymous trash-talk flyers allegedly printed at the 
government's print shop on orders from then Vice President 
Reyes.  (Minugua investigated and found evidence to back the 
allegations, but Reyes successfully invoked his immunity and 
blocked any further action.)  Briz's contempt for borders and 
Guatemala's corrupt customs apparatus is something he, a 
businessman, feels personally and passionately.  It's not 
something he picked up from reading about trade theory or 
political science.  It's going to take a little "fire in the 
belly" and pragmatic entrepreneurial vision to get 
integration moving after decades of studying it in places 
like SIECA.  Briz and Berger make it sound simple, and if 
only it were, but it will take a tremendous effort on many 
people's part to develop the leadership and follow-through 
necessary to move from words to a functioning customs union. 
HAMILTON