US embassy cable - 05GUATEMALA2469

UNCLAS SECTION 01 OF 04 GUATEMALA 002469 
 
SIPDIS 
 
FOR USTR-R.SMITH 
 
E.O. 12958: N/A 
TAGS: ETRD, EINV, ELAB, ECON, GT 
SUBJECT: GUATEMALA'S CABLE SUBMISSION FOR THE 2005 REPORT TO 
CONGRESS ON THE OPERATION OF CBERA 
 
REF: STATE 188288 
 
1.  Below is Post's cable submission of the email version sent 
to USTR for the 2005 Report to Congress on the Operation of 
the Caribbean Basin Economic Recovery Act (CBERA). 
 
STATISTICS 
 
Population statistics are drawn from the 2005 edition of the 
CIA World Fact Book.  Per capita income figures reflect gross 
national income statistics published in the World Bank's 2006 
World Development Report. 
 
Population: 14,655,189 
Per Capita GDP: USD 2,130 (2004) 
 
Department of Commerce 2004 Trade Statistics: 
U.S. Exports: USD 2,511,300,000 
U.S. Imports: USD 3,154,000,000 
U.S. Trade Balance: -USD 602,700,000 
 
ECONOMIC REVIEW 
 
The Guatemalan economy depends largely on agricultural 
production, including coffee, sugar, and bananas.  In recent 
years, tourism and apparel assembly have become increasingly 
important generators of income and foreign exchange.  Non- 
traditional agricultural exports such as winter vegetables and 
specialty fruits have also increased in recent years.  Since 
the signing of the 1996 Peace Accords that ended a long civil 
war, Guatemala has adopted and maintained generally liberal, 
market-oriented economic policies.  However, congressional 
divisions, corruption, a poor security environment, and lack 
of continuity in regulatory, tax, and other government 
policies are preventing Guatemala from achieving its full 
economic potential. 
 
The economy grew by 2.7 percent in 2004, a slight increase 
from 2.1 percent growth in 2003.  Causes for the improvement 
include economic recovery in Guatemala's main trading 
partners, higher prices for coffee, sugar and bananas, 
continued macroeconomic stability, and increased harmony 
between the government and the private sector. GDP is 
projected to grow by 3.2 percent in 2005, but the effects of 
Tropical Storm Stan on agricultural production and 
infrastructure have not yet been figured into these 
projections. 
 
Apparel assembly activities have benefited from increased 
access to the U.S. market as a result of CBI enhancement, but 
some CBTPA adjustments have not favored Guatemala's textile 
industry and have hampered the sector's growth.  Further, 
increased energy and labor costs, an overvalued local 
currency, and the WTO-mandated lifting of quotas in 2005 have 
affected the sector's competitiveness. 
 
Guatemala suffers from one the of the most serious income and 
wealth disparities in the Western Hemisphere.  The 1996 Peace 
Accords commit the government to follow policies that fight 
the roots of poverty, including increased investment in health 
and education.  The government has struggled to raise adequate 
revenue to meet these obligations and, due to congressional 
opposition, has failed to enact the fiscal reforms necessary 
to fulfill the government's commitment to a strengthened, 
progressive tax structure.  It has also failed to provide 
adequate transparency in the use of public funds, although the 
installation of a government procurement web site, and the 
public posting of some reports, including the yearly IMF 
evaluation, are important steps forward. 
 
COMMITMENT TO WTO AND FTAA 
 
The Guatemalan government has generally sought to comply with 
its WTO obligations.  The Central American countries approved 
common Customs Valuation legislation in June 2004, which 
enabled Guatemala to begin implementation of the WTO Customs 
Valuation Agreement in August 2004. 
 
Guatemala is active in the FTAA process and chaired the 
Negotiating Group on Agriculture during the 2001-2002 and was 
Chair of the Services Negotiating Group from 1999-2001.  As a 
member of the CACM, Guatemala, together with other Central 
American Countries has signed free trade agreements with 
Mexico and the Dominican Republic.   In addition, the CAFTA 
negotiations were concluded in December 2003, with entry into 
force targeted for January 1, 2006.  CAFTA will further reduce 
trade barriers, promote economic development, encourage 
investment and provide greater transparency. 
 
PROTECTION OF INTELLECTUAL PROPERTY 
 
Guatemala enacted TRIPs consistent legislation in September 
2000.  This legislation was modified in 2003 to provide test 
data protection more consistent with international practice, 
but December 2004 legislation then effectively removed data 
protection for pharmaceutical products and agricultural 
chemicals.  February 2005 legislation restored data protection 
in an effort to comply with the commitments of CAFTA-DR.  The 
government has sought to address weaknesses in enforcement by 
appointing a special prosecutor to handle violations of 
intellectual property rights, and a number of cases have been 
pursued.  Resource constraints and lack of training continue 
to impede enforcement efforts, however, and piracy of works 
protected by copyright and infringement of other forms of 
intellectual property such as trademarks remain problems. 
 
PROVISION OF INTERNATIONALLY RECOGNIZED WORKER RIGHTS 
The Guatemalan Constitution and Labor Code provide the rights 
of association and collective bargaining to workers.  Labor 
laws apply equally in export processing zones (EPZs) as in the 
rest of the country.  The Constitutional Court overruled the 
2001 revisions to the Labor Code in August 2004.  The chief 
effect of this ruling was to remove sanction authority from 
the Labor Inspectorate, which must now submit its findings to 
labor courts to assign fines to employers found not in 
compliance with the law.  Moreover, implementation of the 
Labor Code has been weak due to budget constraints and 
institutional problems.  During 2003 the Ministry of Trade 
worked closely with the Labor Ministry, threatening the 
revocation of export licenses of maquilas in EPZs that were 
not complying with labor laws.  This resulted in the first 
fully implemented collective bargaining agreements between EPZ 
employers and trade unions since EPZs began operating in 
Guatemala.  Only two of the more than 200 maquilas in 
Guatemala have labor unions, but both of them have achieved 
collective bargaining agreements. 
 
The Government of Guatemala invited the ILO to conduct a labor 
law study in 2003.  The study entitled, "Fundamental 
Principles and Rights at Work: A Labor Law Study," found that 
the Guatemalan Government gives effect through its laws to the 
core rights and principles identified in the ILO Declaration 
on Fundamental Principles and Rights at Work.  The study does 
identify some ways in which the government could improve labor 
laws to enhance conformity with core ILO principles; however, 
it also notes that Guatemala carried out revisions of its 
Labor Code in 2001 with ILO advice and assistance.  These 
revisions improved protections for workers against employer 
reprisal for engaging in union activities, facilitated the 
organization of unions and collective bargaining, and improved 
the Guatemalan Labor Ministry's capacity for enforcing labor 
laws.  In 2004-2005, ahead of the Dominican Republic - Central 
American Free Trade Agreement (DR-CAFTA), Guatemala and the 
other negotiating countries requested that the Inter-American 
Development Bank (IDB) conduct an independent review of labor 
practices in the region.  The resulting "white book" is now a 
blueprint for the Government of Guatemala to strengthen labor 
rights in the country. 
 
Violence against workers and their representatives in 
Guatemala, and lack of prosecution in cases of such violence, 
have been matters of longstanding U.S. concern.  Partly in 
response to those concerns, the U.S. Trade Representative has 
regularly received petitions for the withdrawal of Guatemala's 
GSP and CBI trade privileges due to failure to adequately 
protect labor rights.  The U.S. Government has thoroughly 
reviewed these petitions, but judged that the charges did not 
warrant withdrawal of GSP and CBI benefits.  The Government of 
Guatemala has taken a series of steps to address these 
concerns, including the creation of an inter-ministerial 
committee charged with protecting the rights of workers.  The 
Labor Ministry actively participates on this committee.  In 
addition, the Government has created a Special Prosecutor to 
investigate and prosecute these types of crimes, with 
increased staff and funding for this new office. 
 
The Government of Guatemala can benefit from strengthening the 
labor court system.  In 2003, the labor courts generally 
vindicated the majority of workers' claims.  Nonetheless, 
Guatemalan courts have experienced difficulty disciplining 
parties that do not fully comply with legally binding court 
orders. 
 
The Guatemalan Labor Ministry oversees a tripartite committee 
with labor and management representation, which makes 
recommendations for revisions in labor law, including 
increases in the minimum wage.  In the event that agreement is 
not possible, the Government may decree such increases.  The 
last such increase occurred in July 2004.  Currently, the 
committee is reviewing proposals by employers and labor for 
another increase.  In addition, the Government created a unit 
in the Labor Ministry to verify compliance with minimum wages 
and to overcome weaknesses in enforcement.  The standard 
workweek is forty-four hours.  As almost 70 percent of the 
economy is in the informal sector, there are numerous 
allegations of workers compelled to work more hours without 
overtime or premium pay.  Indeed, in many such cases workers 
do not receive the minimum wage or any ancillary benefits. 
Guatemala is engaged in labor cooperation activities with the 
U.S. Department of Labor, which include a regional technical 
assistance program aiming to increase the Labor Ministry's 
capacity to protect worker rights.  The Central America 
project, which is funded with a fiscal year 2004 grant of 
USD6.75 million, will focus on increasing workers' and 
employers' knowledge of Guatemalan labor laws, strengthening 
labor inspections systems, and developing dispute resolution 
mechanisms.  In 2005, Congress authorized an additional USD19 
million for the Department of Labor and the U.S. Agency for 
International Development to undertake additional projects to 
strengthen labor rights in the region.  These projects will 
receive an additional USD38 million per year for the three 
following years. 
The application of occupational health and safety standards in 
Guatemala can be improved with modernization, as well as with 
more effective enforcement mechanisms.  Notwithstanding 
antiquated laws dating back to 1957 and scarce resources, the 
Labor Ministry has made it a priority to train labor 
inspectors in health and safety standards.  Workers have the 
legal right to remove themselves from dangerous workplace 
situations, and the law provides them with protection for 
their continued employment.  Not all workers are fully 
confident that they may exercise this right without 
jeopardizing their employment. 
 
Forced and compulsory labor are constitutionally prohibited 
and generally do not exist, with the exception of trafficking 
in persons for the purposes of sexual exploitation. 
 
The Guatemalan Labor Code sets the minimum age for employment 
at 14 years.  In some exceptional cases, the Labor Inspection 
Agency or a child's legal guardian can authorize work for 
children under the age of 14, provided that the work is 
related to an apprenticeship, is light work of short duration 
and intensity, is necessary due to conditions of extreme 
poverty within the child's family, and enables the child to 
meet compulsory education requirements in some way.  Children 
are prohibited from working at night, overtime, and in places 
that are unsafe and dangerous. 
 
COMMITMENTS TO ELIMINATE THE WORST FORMS OF CHILD LABOR 
 
Guatemala ratified ILO Convention 182 on October 11, 2001. 
The government is taking steps to implement the Convention in 
order to address systemic problems in this area.  The Labor 
Ministry administers a National Program for the Prevention and 
Eradication of Child Labor and Protection of Adolescent 
Workers and cooperates with programs run by non-governmental 
organizations to combat child labor.  Guatemala has signed a 
Memorandum of Understanding with the ILO-IPEC and is working 
with the ILO on various programs aimed at eliminating 
exploitative child labor. 
 
The ILO reported in December 2002 that the number of child 
workers in Guatemala totaled 937,530.  Between 3,000 and 5,000 
children were employed in the illegal cottage-based fireworks 
industry, despite legal protection against the employment of 
children in dangerous occupations.  Trafficking of children 
into prostitution is also an ongoing problem.  The Government 
is taking steps to address this problem with the 2001 approval 
of the National Action Plan Against Commercial Sexual 
Exploitation of Adolescents. 
 
Guatemalan law prohibits employment of children under the age 
of 14 and provides compulsory education through the sixth 
grade; however, only one-half of children actually complete 
primary school. 
 
COUNTER-NARCOTICS COOPERATION 
 
Guatemala is considered a major transshipment point for 
cocaine destined for the United States.  In March 2003, the 
U.S. Government determined that Guatemala had "failed 
demonstrably during the previous 12 months to adhere to their 
obligations under counter-narcotics agreements."  The 
Guatemalan government responded to the deteriorating quality 
of cooperation and anticipated de-certification by disbanding 
and reforming its corrupt anti-narcotics police.  The 
Government subsequently created special narcotics, money 
laundering, organized crime and anti-corruption task forces 
incorporating police, prosecutors, and judges.  The Guatemalan 
Government also ratified a bilateral maritime interdiction 
treaty.  Due to these steps, President Bush on September 15, 
2003, announced that Guatemala had taken initial steps to 
better its counter-narcotics practices and that the Government 
would be re-certified as cooperating with U.S. counter- 
narcotics efforts.  Since that 2003 determination, Guatemala 
has continued to cooperate with counter-narcotics efforts. 
 
The Government has also developed a series of implementing 
regulations for the control of chemical precursors that bring 
Guatemala into compliance with UN conventions.  The Financial 
Investigations Unit has made substantial progress in its 
ability to investigate financial crimes under comprehensive 
money laundering legislation enacted at the end of 2001.  In 
recognition of this progress and other improvements in 
financial sector supervision, Guatemala was removed from the 
Financial Action Task Force list of non-Cooperating Countries 
and Territories in June 2004.  The U.S. Government continues 
to work with Guatemala to advance development of comprehensive 
training programs to improve performance of the country's 
narcotics enforcement agents. 
 
IMPLEMENTATION OF THE INTER-AMERICAN CONVENTION AGAINST 
CORRUPTION 
 
The Guatemalan Government signed and completed ratification of 
the IACAC in July 2001, but there has been little action to 
implement the convention's requirements and recommendations, 
such as criminalizing "illicit enrichment."  However, 
enrichment related to narcotics trafficking activity is now 
illegal.  The Berger administration has taken steps to turn 
around the dramatic increase in government corruption under 
the previous administration, but solidifying institutional 
reform remains slow.  Former president Portillo, Vice 
President Reyes and several senior officials that served 
during the previous administration are under investigation for 
their role in corruption scandals, and the former 
Superintendent of Tax Administration and Minister of Interior 
are in jail pending trial.  The former Comptroller General was 
recently found guilty of fraud related charges and sentenced 
to 17 years in prison.  The former Minister of Finance was 
released after spending one year in prison. 
 
TRANSPARENCY IN GOVERNMENT PROCUREMENT 
 
Government procurement is regulated under a 1992 law that 
establishes procedures for national and local government 
entities and quasi-state enterprises.  Though the legislation 
is comprehensive in scope, transparency procedures are often 
avoided in cases where a project is declared to be of 
"national emergency."  In an early 2002 "Consultative Group" 
meeting with donors and civil society groups, the Government 
committed to a series of legislative reforms, including reform 
of government procurement legislation.  That commitment 
remains unfulfilled.  In March 2004, the new administration 
made mandatory the use of Guatecompras, an Internet-based 
electronic system to publicize Guatemala's procurement needs, 
which is improving transparency in the government procurement 
process.  Implementation of CAFTA-DR provisions should further 
improve government procurement transparency. 
 
 
DERHAM