US embassy cable - 04GUATEMALA3198

UNCLAS SECTION 01 OF 04 GUATEMALA 003198 
 
SIPDIS 
 
DEPT FOR EB/MTA/MST, WHA/EPSC AND WHA/CEN 
USTR FOR GLORIA BLUE 
 
E.O. 12958 N/A 
TAGS: ECON, EFIN, ETRD, GT 
SUBJECT:  GUATEMALA NATIONAL TRADE ESTIMATE 2005 
 
REF:  (A) STATE 240980 
 
      (B) OLSON-BLUE E-MAIL 12/15/04 
 
Embassy Guatemala's submission for the 2005 National Trade 
Estimate follows: 
 
TRADE SUMMARY (data marked XX to be supplied in Washington) 
 
The U.S. trade deficit with Guatemala was $XX million in 
2004, a decrease of $XX million from 2003.  U.S. goods 
exports in 2004 were $XX billion, up XX percent from the 
previous year.  Corresponding U.S. imports from Guatemala 
were $XX billion, up XX percent.  Guatemala is currently 
the XX largest export market for U.S. goods. 
 
The stock of U.S. foreign direct investment (FDI) in 
Guatemala in 2004 was $XX million, up XX percent from 2003. 
 
IMPORT POLICIES 
 
Free Trade Agreement 
 
The United States and four Central American countries (El 
Salvador, Guatemala, Honduras, and Nicaragua) concluded 
negotiations on the U.S.-Central American Free Trade 
Agreement (CAFTA) in December 2003.  The United States and 
Costa Rica finalized negotiations for Costa Rica's 
participation on January 25.  The United States and the 
Dominican Republic concluded market access negotiations in 
March 2004 to integrate the Dominican Republic into the 
CAFTA. The United States and the five Central American 
countries signed the Agreement in May 2004.  The Agreement 
is pending ratification from all Congresses. 
 
The CAFTA will not only liberalize bilateral trade between 
the United States and the region, but also will further 
integration efforts among the countries of Central America, 
removing barriers to trade and investment in the region by 
U.S. companies.  The CAFTA will also require the countries 
of Central America to undertake needed reforms to alleviate 
many of the systemic problems noted below in areas 
including customs administration; protection of 
intellectual property rights; services, investment, and 
financial services market access and protection; government 
procurement; sanitary and phytosanitary (SPS) barriers; 
other non-tariff barriers; and other areas. 
 
Tariffs 
 
Guatemala's tariffs on most goods from outside the Central 
American Common Market are currently within the zero to 15 
percent range, though there are exceptions of up to 40 
percent for alcoholic beverages and up to 20 percent for 
precious and semiprecious stones, various types of 
vehicles, watches, and firearms and munitions.  Other 
exceptions include agricultural commodity imports in excess 
of any applicable tariff rate quota (TRQ).  The average 
applied rate on all products is approximately 5 to 6 
percent.  Once CAFTA goes into effect, about 80 percent of 
U.S. industrial and commercial goods will enter Guatemala 
duty free, with the remaining tariffs being eliminated 
within ten years. 
 
The CAFTA will eliminate tariffs on virtually all 
agricultural products within a maximum of fifteen years 
(dairy in 20 years and rice and poultry in 18).  Textiles 
and apparel will be duty-free and quota-free immediately if 
they meet the Agreement's rules of origin, promoting new 
opportunities for U.S. and Central American fiber, yarn, 
fabric and apparel manufacturing.  The Agreement requires 
transparency and efficiency in administering customs 
procedures, including rules of origin.  Under the CAFTA, 
Guatemala commits to ensure procedural certainty and 
fairness, and all parties agree to share information to 
combat illegal transshipment of goods.  The agreement 
includes a dispute resolution mechanism that provides an 
alternative to Guatemala's problematic judicial system. 
 
Non-tariff Barriers 
 
The government of Guatemala committed to implement the WTO 
Customs Valuation Agreement by November 2001.  The Central 
American countries approved a common Customs Valuation 
regulation in June 28, 2004, which enabled Guatemala to 
begin implementation of the WTO Customs Valuation Agreement 
on August 10, 2004. 
 
STANDARDS, TESTING, LABELING AND CERTIFICATION 
 
Guatemalan law requires that food products sold in the 
domestic market be tested, registered and labeled in 
Spanish, although stick-on labels are permitted.  Products 
sold in bulk are exempt from the labeling requirement 
unless they are to be sold at the retail level as an 
individual unit.  Enforcement of product registration and 
labeling requirements has been inconsistent but is 
improving. 
 
Under the CAFTA, Guatemala agreed to apply the science- 
based disciplines of the WTO Agreement on SPS measures, and 
will move toward recognizing export eligibility for all 
plants inspected under the U.S. food safety and inspection 
system.  The United States and Central America initiated an 
active working group dialogue on SPS barriers to 
agricultural trade that met alongside the CAFTA market 
access negotiations.  The objective was to use the impetus 
of active trade negotiations to seek difficult changes to 
the countries' SPS regimes.  Through the work of this 
group, additional commitments to resolve specific 
unjustified measures restricting trade between Guatemala 
and the United States have been agreed.  The SPS Working 
Group will continue its work on resolution of outstanding 
issues even after the negotiations concluded. 
 
GOVERNMENT PROCUREMENT 
 
Guatemala is not a party to the WTO Government Procurement 
Agreement.  Currently, Guatemala's Government Procurement 
Law requires most government purchases over $113,000 to be 
submitted for public competitive bidding.  Contracts can be 
awarded when there is only one bidder.  The government 
occasionally declares certain projects a matter of national 
emergency, thereby avoiding the competitive bidding 
process.  Foreign suppliers must submit their bids through 
locally registered representatives, a bureaucratic process 
that can place foreign bidders at a competitive 
disadvantage.  Additionally, U.S. companies have long 
alleged that significant corruption exists in the public 
procurement process and is a barrier to entry.   In March 
2004, the new Berger Administration made mandatory the use 
of Guatecompras, an Internet-based electronic system to 
publicize its procurement needs, which is improving 
transparency in the government procurement process. 
 
Under the CAFTA, Guatemala will grant U.S. suppliers non- 
discriminatory rights to bid on contracts from most 
government entities, including key ministries and state- 
owned enterprises.  This removes current burdensome 
requirements to use local representation in government 
procurement bids.  The CAFTA requires fair and transparent 
procurement procedures, such as advance notice of purchases 
and timely and effective bid review procedures.  The CAFTA 
anti-corruption provisions ensure that bribery in trade- 
related matters, including in government procurement, is 
specified as a criminal offense under Central American and 
U.S. laws. 
 
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION 
 
 Legislation passed in 2003 reinstated IPR protections to 
levels similar to those applied in the United States. 
However, the Guatemalan Congress approved in November 2004 
new legislation that effectively eliminates data protection 
provisions for pharmaceuticals and agricultural chemicals. 
The President has not signed this law yet.  Effective 
enforcement of existing laws remains a problem. 
 
However, the CAFTA provisions will strengthen Guatemala's 
IPR protection regime to conform with, and in many areas 
exceed, WTO norms and will criminalize end-user piracy, 
providing a strong deterrence against piracy and 
counterfeiting.  The CAFTA will require Guatemala to 
authorize the seizure, forfeiture, and destruction of 
counterfeit and pirated goods and the equipment used to 
produce them.  It will also mandate both statutory and 
actual damages for copyright infringement and trademark 
piracy.  This will serve as a deterrent against piracy, and 
ensures that monetary damages can be awarded even when it 
is difficult to assign a monetary value to the violation. 
 
Patents 
 
Guatemala's 2000 Industrial Property Law also made 
improvements to the protection afforded to patent holders, 
increasing the term of protection for a patent to 20 years 
from the date of filing the patent application.  It also 
increased the number of products and services that are 
considered patentable, including living organisms, 
commercial plans and chemical compounds or compositions. 
This law provided patent protection for pharmaceutical and 
agricultural products for the first time and established a 
mailbox system to process cases filed since 1995.  The most 
recent but not yet enacted legislation has a troublesome 
definition of "new chemical entity" that could undermine 
not only the protection of test data but also the ability 
to patent pharmaceuticals and agricultural chemicals, 
depending on how the law is interpreted if it comes into 
force.  The legislation currently in place for protection 
of test data and trade secrets submitted to a government 
for the purpose of product approval is consistent with the 
requirements of CAFTA:  test data is protected against 
unfair commercial use for a period of 5 years for 
pharmaceuticals and 10 years for agricultural chemicals. 
 
Copyrights 
 
Piracy of copyrighted material, including videos and 
software, remains widespread, and enforcement of existing 
legislation remains a concern.  Some progress has been 
achieved in reducing the incidence of pay television piracy 
and in concluding valid licensing agreements with copyright 
holders.  Guatemala has ratified the WIPO Copyright Treaty 
(WCT) and the WIPO Performances and Phonograms Treaty 
(WPPT).  CAFTA enforcement provisions are designed to help 
reduce copyright piracy. 
 
Trademarks 
 
Exclusive rights for trademarks are granted on a first-to- 
file basis, thus permitting third parties to register and 
gain exclusive use of well-known or famous trademarks.  A 
dispute resolution system has been established in the event 
that a well-known or famous trademark is granted to a third 
party.  The local Internet domain name registrar does not 
accept applications for well-known and famous names from 
applicants who are not the trademark holders as frequently 
as it once did.  Additionally, when receiving an Internet 
domain name registration, the domain name owner is required 
to submit the registration to the WIPO online dispute 
resolution system in the event of a challenge by a third 
party. CAFTA enforcement provisions are designed to help 
reduce trademark piracy. 
 
SERVICES BARRIERS 
 
Currently, international telephone traffic must be routed 
through the facilities of an enterprise licensed by the 
Guatemalan Superintendence of Telecommunications.  U.S. 
companies have raised allegations of anti-competitive 
behavior, including unilateral changes of interconnection 
rates, by the country's dominant fixed line telephone 
service provider, Telgua, which is a subsidiary of Telmex 
of Mexico.  Guatemala's courts have ruled against Telgua in 
those cases where a verdict was reached, but the 
anticompetitive practices continue.  The CAFTA will require 
that Guatemala further open its telecommunications market 
to competition on a nondiscriminatory basis. 
 
Foreign banks may open branches or subsidiaries in 
Guatemala subject to the conditions of the Monetary Board, 
including capital and lending requirements based 
exclusively on the balance sheet of the local entity. 
Branches and subsidiaries must be inscribed in the 
Mercantile Registry, as is the case with any business. 
 
Guatemalan law forbids the operation of foreign insurance 
companies, except via locally established subsidiaries, or 
the supply by foreigners or foreign companies of many 
professional services reserved for professionals with 
locally recognized academic credentials.  Many 
professionals must have graduated from a recognized 
university and must be registered in a professional 
association.  Notary publics must be Guatemalan nationals. 
Guatemala's National University can validate foreign 
degrees but often requires additional course work or 
examinations.  Under the CAFTA, as with banks, U.S. 
financial service suppliers would have full rights to 
establish subsidiaries, joint ventures or branches for 
insurance companies.  The right to provide professional 
services will be granted on a reciprocal basis depending on 
the requirements in individual U.S. states. 
 
INVESTMENT BARRIERS 
 
Guatemala's 1998 investment law generally provides for 
national treatment of foreign investment.  However, 
specific restrictions remain in several sectors of the 
economy, including auditing, insurance and forestry, 
although these restrictions are not always enforced. 
Complex and confusing laws, regulations, red tape, and 
corruption constitute practical barriers to investment. 
When the CAFTA is implemented, the agreement will establish 
a more secure and predictable legal framework for U.S. 
investors operating in Guatemala. 
 
Under the CAFTA, all forms of investment will be protected, 
including enterprises, debt, concessions, contracts and 
intellectual property.  U.S. investors will enjoy in almost 
all circumstances the right to establish, acquire and 
operate investments in Guatemala on an equal footing with 
local investors.  Among the rights afforded to U.S. 
investors are due process protections and the right to 
receive a fair market value for property in the event of an 
expropriation.  Investor rights will be backed by an 
effective, impartial procedure for dispute settlement that 
is fully transparent.  Submissions to dispute panels and 
panel hearings will be open to the public, and interested 
parties will have the opportunity to submit their views. 
 
OTHER SIGNIFICANT BARRIERS 
Corruption 
Past allegations of official corruption, security concerns 
and an anti-business attitude under the previous 
administration (there was a change in administration in 
January 2004) may have weakened investors' confidence and 
affected investment and trade decisions related to 
Guatemala.  Anti-corruption provisions in the CAFTA aim to 
help alleviate these problems in many areas related to 
trade and investment, including making it a criminal 
offense to bribe a public official in any manner related to 
trade. 
 
HAMILTON