US embassy cable - 04GUATEMALA1791

UNCLAS SECTION 01 OF 02 GUATEMALA 001791 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA 
 
PASS TO USTR, TREASURY, AND COMMERCE 
 
E.O. 12958: N/A 
TAGS: EINV, KIDE, KTDB, EFIN, ECON, GT, OPIC 
SUBJECT: Guatemala - July 2004 Appendix to 2003 
Investment Climate Statement 
 
REF: STATE 141379 
 
This appendix serves as an update to the 2003 
Investment Climate Statement for Guatemala.  It 
has been provided to assist investors in the 
interim period resulting from the U.S. 
Government's decision to begin publishing the 
Country Commercial Guide (of which the Investment 
Climate Statement is a chapter) on a calendar year 
basis, in January instead of August. 
 
The United States Government has reviewed the 2003 
Investment Climate Statement for Guatemala, and 
has noted the following changes that have occurred 
since its publication.  In most circumstances, if 
a portion of the 2003 Investment Climate Statement 
has not been modified in this appendix, it is 
because the U.S. Government is satisfied that it 
continues to reflect accurately the state of 
affairs in Guatemala as of July 2004. 
 
Openness to Foreign Direct Investment:  A new 
administration took office in January 2004, ending 
the atmosphere of confrontation that existed 
between the government and the private sector 
during the previous four years.  The Foreign 
Investment Law removed limitations to foreign 
ownership in domestic airlines and ground 
transport companies in January 2004. 
 
Conversion and Transfer Policies: No significant 
changes since 2003. 
 
Expropriation and Compensation: No significant 
changes since 2003. 
 
Dispute Settlement: No significant changes since 
2003. 
 
Performance Requirements and Incentives:  The 
IEMA, an alternative minimum tax based on assets 
or gross income, was declared unconstitutional in 
December 2003.  The Guatemalan Congress approved 
in June 2004 a Temporary and Extraordinary Tax to 
Support the Peace Agreements (IETAP), which will 
be phased out over three and a half years, to 
replace the IEMA.  Investors benefiting from the 
incentives granted by the Law for the Promotion 
and Development of Export Activities and Drawback 
are also exempted from IETAP during the 10-year 
Income Tax exemption period.  However, the Income 
Tax exemption will be eliminated if the U.S. 
Central America Free Trade Agreement enters into 
force. 
 
Right to Private Ownership and Establishment: No 
significant changes since 2003 
 
Protection of Property Rights: High piracy rates 
remain an ongoing concern.  The piracy rate for 
software applications, as reported by the Business 
Software Alliance, increased to 77 percent in 2003 
(principally due to a worldwide change in 
measurement methodology). 
 
Transparency of the Regulatory System: No 
significant changes since 2003. 
 
Efficient Capital Markets and Portfolio 
Investment:  As a result of strong measures taken 
by Guatemala to combat money laundering, e.g., 
enactment of regulation to control offshore 
activities and establishment of a Financial 
Intelligence Unit, the Financial Action Task Force 
removed Guatemala from the list of non-cooperating 
countries in the fight against money laundering in 
July 2004.  As of July 2004, the Superintendence 
of Banks has approved the establishment of 14 
financial groups, 11 of which include licensed 
offshore banks. 
 
Political Violence:  No significant changes since 
2003. 
 
Corruption:  Illicit enrichment has still not been 
criminalized; although enrichment related to 
narcotics trafficking activity is now illegal. 
Several senior officials who served during the 
Portillo Administration are under investigation 
for their role in corruption scandals, and the 
former Finance Minister, Comptroller General and 
Superintendent of Tax Administration are in jail 
pending trial. 
 
Bilateral Investment Agreements:  Guatemala signed 
in conjunction with the other Central American 
countries a Free Trade Agreement with the United 
States in May 2004.  The Agreement is pending 
ratification from both the U.S. Congress and the 
Central American Congresses. 
 
OPIC And Other Insurance Programs: No significant 
changes since 2003. 
 
Labor: USTR closed its review of worker rights in 
Guatemala at the conclusion of the 2003 annual 
review of the Generalized System of Preferences as 
a result of positive steps taken by the government 
in conjunction with the recently concluded U.S. 
Central America FTA, which includes binding labor 
provisions. 
 
Foreign Trade Zones/Free Ports: No significant 
changes since 2003. 
 
Foreign Direct Investment Statistics: Statistics 
will be updated in the next full revision of the 
Investment Climate Statement, which will be 
published in January 2005. 
 
Wharton