US embassy cable - 05GUATEMALA2656

UNCLAS SECTION 01 OF 04 GUATEMALA 002656 
 
SIPDIS 
 
FOR USTR:GBLUE 
FOR STATE:EB/MTA 
 
E.O. 12958: N/A 
TAGS: ETRD, EFIN, ECON, PREL, GT 
SUBJECT: GUATEMALA: CABLE SUBMISSION FOR THE 2006 NATIONAL 
TRADE ESTIMATE REPORT 
 
REF: STATE 186328 
 
1.  Below is Post's cable submission of the email version sent 
to USTR for the 2006 National Trade Estimate Report.  Post was 
not required to update the trade summary section of the 
report. 
 
IMPORT POLICIES 
 
Free Trade Agreement 
 
The United States began free trade negotiations with five 
Central American countries (Costa Rica, El Salvador, 
Guatemala, Honduras, and Nicaragua) in 2003.  The United 
States concluded negotiations with El Salvador, Guatemala, 
Honduras, and Nicaragua in December 2003 and with Costa Rica 
in January 2004.  In May 2004, the six countries signed the 
United States - Central America Free Trade Agreement.  During 
2004, the United States and the Central American countries 
engaged in negotiations with the Dominican Republic to 
integrate that country into the free trade agreement.  On 
August 5, 2004, the seven countries signed the Dominican 
Republic - Central America - United States Free Trade 
Agreement (CAFTA-DR).   El Salvador ratified the Agreement in 
December 2004 and Honduras ratified it in March 2005.  The 
Agreement was approved by the Guatemalan Congress in March 
2005 and ratified in August 2005. 
 
The CAFTA-DR will remove barriers to trade and investment in 
the region and will further regional economic integration. 
The CAFTA-DR will also require the Central American countries 
and the Dominican Republic to undertake needed reforms to 
confront many of the 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; and other non-tariff barriers. 
It will also require improved administration and enforcement 
of labor and environmental standards. 
 
Tariffs 
 
Guatemala's tariffs on most goods from outside the Central 
American Common Market (CACM) are currently within the zero to 
15 percent range.  There are exceptions, however, including 
tariffs of up to 40 percent for alcoholic beverages and up to 
20 percent for white corn, sugar, cigarettes with tobacco 
content, various types of vehicles, and firearms and 
munitions.  Other exceptions include the higher tariffs 
applied to agricultural commodity imports in excess of any 
applicable tariff rate quota (TRQ).  The average applied rate 
on all products is approximately 5 percent to 6 percent.  Once 
the CAFTA-DR goes into effect, about 80 percent of U.S. 
industrial and commercial goods will enter the region duty- 
free, with the remaining tariffs phased out over ten years. 
 
Nearly all textile and apparel goods that meet the Agreement's 
rules of origin will be duty-free and quota-free immediately, 
promoting new opportunities for U.S. and regional fiber, yarn, 
fabric and apparel manufacturing.  (The Agreement's tariff 
treatment for textile and apparel goods may be made 
retroactive to January 1, 2004.) 
 
Under the CAFTA-DR, Guatemala will eliminate its tariffs on 
nearly all agricultural products within 15 years (18 years for 
rice and chicken leg quarters and 20 years for dairy 
products).   For the most sensitive products, tariff rate 
quotas will permit some immediate zero-duty access for 
specified quantities during the tariff phase-out period, which 
will expand over time.  Guatemala will slowly liberalize trade 
in white corn, a particularly sensitive product, through 
expansion of a TRQ projected to increase on a 2 percent annual 
rate, slightly increasing to 24 percent by the end of 2025. 
This is non significant considering that Guatemala's imports 
of corn are currently limited to yellow corn, 90 percent of 
which is already coming from the U.S. (500,000 MT). 
 
The Agreement requires transparency and efficiency in 
administering customs procedures, including the CAFTA-DR rules 
of origin. Under the CAFTA-DR, Guatemala committed to ensure 
greater procedural certainty and fairness in the 
administration of these procedures, and all Parties agreed to 
share information to combat illegal transshipment of goods. 
 
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.  Labeling standards are 
required for food, pharmaceuticals, pesticides, footwear and 
distilled beverages. 
 
When the United States and Central America launched the free 
trade agreement negotiations, they initiated an active working 
group dialogue on SPS barriers to agricultural trade that met 
alongside the negotiations to facilitate market access.  The 
objective was to leverage the impetus of active trade 
negotiations to seek difficult changes to the Central American 
countries' SPS regimes.  Through the work of this group, 
Guatemala has committed to resolve specific measures affecting 
U.S. exports to Guatemala.  In particular, for meat, dairy and 
poultry, Guatemala will move toward recognizing import 
eligibility for all plants inspected under the U.S. food 
safety and inspection system.  For distilled spirits, U.S. 
industry welcomes the trade-facilitative initiative of the 
five Central American countries, including Guatemala, to 
develop common standards for distilled spirits products. 
However, outstanding concerns remain, such as alcohol content, 
brand registration and certification requirements. 
 
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, although this 
practice is becoming less common as transparency improves. 
Contracts may 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 Guatemala's 
procurement needs, which is improving transparency in the 
government procurement process.  However, many government 
offices, including a large number of municipalities, do not 
use Guatecompras yet. 
 
The CAFTA-DR requires fair and transparent procurement 
procedures, including advance notice of purchases and timely 
and effective bid review procedures.  Under the CAFTA-DR, U.S. 
suppliers will be permitted to bid on procurements covered by 
the Agreement for most Guatemalan government entities, 
including key ministries and state-owned enterprises on the 
same basis as Guatemalan suppliers.  The anti-corruption 
provisions in the Agreement require each government to ensure 
that bribery in matters affecting trade and investment, 
including in government procurement, is treated as a criminal 
offense, or is subject to comparable penalties, under its law. 
 
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION 
 
CAFTA-DR obligations for IPR will strengthen Guatemala's IPR 
protection regime to conform with, and in many areas exceed, 
WTO norms.  CAFTA-DR obligations will also provide stronger 
deterrence against piracy and counterfeiting by criminalizing 
end user piracy and requiring Guatemala to authorize the 
seizure, forfeiture, and destruction of counterfeit and 
pirated goods and the equipment used to produce them. The 
CAFTA-DR text also mandates both statutory and actual damages 
for copyright and trademark infringement that will ensure 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 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 provides patent 
protection for pharmaceutical and agricultural products for 
the first time and established a mailbox system to process 
cases filed since 1995.  To comply with CAFTA-DR the 
Guatemalan Congress must ratify the Patent Cooperation Treaty 
and the Budapest Treaty on the International Recognition of 
the Deposit of Microorganisms for the Purposes of Patent 
Procedure.  Ratification was expected by the end of 2005. 
 
Copyrights 
 
Piracy of copyrighted material, including videos, optical 
discs (CD-R & DVD-R formats), and software, remains 
widespread, and enforcement of existing legislation remains a 
concern.  Some progress has been achieved in concluding valid 
licensing agreements with copyright holders and in reducing 
the incidence of pay television piracy (though rural operators 
still remain outside the legitimate system).  Guatemala has 
ratified the WIPO Copyright Treaty (WCT) and the WIPO 
Performances and Phonograms Treaty (WPPT).  CAFTA-DR 
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. 
However in practice companies have had to go through the 
courts, which can take several years.  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-DR enforcement provisions 
are designed to help reduce trademark infringement. 
 
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-DR 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. 
 
Some professional services may only be supplied by 
professionals with locally recognized academic credentials. 
Notaries public must be Guatemalan nationals.  Under the CAFTA- 
DR, as with banks, U.S. insurance companies would have full 
rights to establish subsidiaries and joint ventures upon entry 
into force of the agreement, with branching rights phased in. 
U.S. insurance suppliers would also be able to provide 
insurance cross-border in areas such as Marine, Aviation and 
Transportation, goods in international transit, reinsurance as 
well as services auxiliary to insurance such as claims 
settlement, actuarial, risk assessment and consulting. 
Foreign enterprises may provide licensed professional services 
in Guatemala through a contract or other relationship with an 
enterprise established in Guatemala. 
 
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. 
 
The CAFTA-DR will establish a more secure and predictable 
legal framework for U.S. investors operating in Guatemala. 
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 BARRIERS 
 
Allegations of official corruption under the previous 
administration and a poor security environment may have 
weakened investors' confidence and affected investment and 
trade decisions related to Guatemala.  The anti-corruption 
provisions in the Agreement require each government to ensure 
that bribery in matters affecting trade and investment is 
treated as a criminal offense, or is subject to comparable 
penalties, under its law. 
 
 
WHARTON