In
2006, Guatemala finds itself in a critical situation that continues
to worsen. Over half the population (56%) is poor, and 21% live in
extreme poverty. Sixty-three percent of the GDP is concentrated in
the hands of 20% of the population (GINI Index) and 80% of the
population is not covered by health care.1
Unemployment is on the rise, increasing crime and insecurity.
Conflicts over land, education, health, and the environment are
tense.

Under
these conditions, on July 1 Guatemala became the fourth Central
American country to sign on to the Central American Free Trade
Agreement (CAFTA). The nation seems to have no awareness of where
this will lead. There was no negotiation, but rather, compliance to a
text drafted in Washington along a one-size-fits-all model. The only
thing that changes is the condition for free trade of a particular
product. The agreement was accepted, praised, and declared without
any prior research into its consequences.

Guatemala's
Congress did recognize that CAFTA would have negative social effects,
but did not specify how. The promise to legislate compensatory
measures was an empty gesture to get the measure passed. To date, no
studies have been carried out or legislation passed, but Congress
continues to comply with Washington's demands.

Life
Under CAFTA

The
passing months provide some colorful examples of how things have been
managed under the agreement. The solution to these problems should
have been studied before implementation; now we are scrambling behind
with makeshift measures.

Chicken

The
deregulation of chicken imports has caused a row in the business
community over who should get the candy from the piñata. The
dumping of North American chicken on the Guatemalan market is
damaging to some and beneficial to others in the private sector.

The
negative consequences of buying subsidized chicken are felt by all
those who depend on any part of the productive chain of raising
chickens.

The
benefit, in theory, is that dumping lowers the price for the
consumer. But to assume this ignores two facts: a) competition is not
always something importers want, and b) between importation and
retail are highly controlled and monopolized distribution channels.

Chicken
requires a refrigerated distribution system, and that cannot be
improvised. In Guatemala, the system belongs to the
already-established importers, so all 21,800 metric tons (MT) of
imports under the duty-free quota end up with them. The auction
really only divvied up the first half among the same old clients.

At 0.25
Guatemalan Quetzals per pound (US$0.03), the pushing and shoving for
the 10,900 MT is justified because it is sold to the public at seven
Quetzals a pound. These healthy profits have already inspired the
curious ‘Portillo decree,' prohibiting producers or people
related to them from importing chicken. Federico Polá, who
opposed this, set the record for the shortest stint as Economy
Minister.

Now
President Berger whispers threats of denouncing the dumping at the
World Trade Organization (WTO), but a dumping case requires proof of
damage to the producer. This can be difficult if the producer is also
an importer and even retails to restaurants.

Even
more interesting is to examine why Guatemala can't export its chicken
breasts to the United States. U.S. chicken producers get such a high
price for the breasts that they raise chickens just to sell the
breasts and throw away the rest at us. Since Guatemala already
adopted, and later translated, the U.S. sanitary inspection norms,
what is approved for consumption in Guatemala should be fine for
consumption there. One would think.

Textiles

The way
in which the United States applies CAFTA preferences, staggering
their application as more countries join—without a transitory
equivalence to the current preferences under the Caribbean Basin
Initiative—has generated confusion in the application of the
rules of origin for textiles. The effect is to fragment Central
American production as a whole as well as its complementary nature to
North American industry—two basic strategic requirements to
confront Chinese competition.

According
to the U.S. Department of Commerce, in the first trimester of 2006
textile exports from Guatemala fell by U.S. $51 million. This was due
to a delay in integrating their inputs into the agreement, in turn
due to a delay in legislative implementation of new North American
demands that are not contained in the text of the agreement.

Fall
of textiles and clothing exports to the United States by CAFTA
countries since it took effect (Five Main Products)

Product
Category

2005
Textile and Clothing Exports to the U.S., USD

2006
Textile and Clothing Exports to the U.S., USD

Change
from 2005 to 2006

Knit
clothing

$1,957,289,948

$1,719,137,
521

-12%

Non-knit
clothing

$1,016,436,450

$786,897,675

-22.6%

Textile
articles

$42,776,605

$35,691843

-16.6%

Footwear

$43,456,642

$39,506,966

-9.15

Accessories
and hats

$8,368,405

$5,968,486

-28.7%

All
17 categories

$3,059,959,645

$2,581,234,005

-15%

Source:
U.S. International Trade Commission, (K.Yung, Dallas Morning News,
29 June 2006)

Changes
made in the rules of origin after they were signed, engineered by the
Bush Administration in exchange for support from members of congress,
are not based on competitive and industrial logic. In August, one
year and three months after the signing of the agreement, the United
States continues to impose changes. According to the written rules of
origin, the lining material for pockets could be imported from third
countries who sell it cheaper; now it must be bought from “a
CAFTA country,” meaning, the United States. It was a unilateral
decision by the United States, in exchange for some non-specified
compensation.

These circumstances resulted in a
juicy anecdote.2
The United States offered to give each country a concession in
exchange for the pockets, and the Guatemalan Ambassador to
Washington, Guillermo Castillo, a great free trade negotiator3
and shareholder of the Guatemalan beer producing company, proposed a
15 year delay for the liberalization of ... beer.

Another
amusing situation is the way CAFTA socks are made. Bush promised
Congressman Robert Aderholt (R-IL), in exchange for his support of
CAFTA, a 10-year delay in the liberalization of socks or a change in
their rules of origin. Bush recently declared that the future law
will include a measure (Section 1634(e)) about socks, “that
will be consistent with the Presidential authority to decide the
international affairs of the country.”4
A little arrogant for socks, but Aderholt wants them to be knit in
the United States and that only the finishing seams be done by other
partners. The sock paranoia began when Honduras increased their
exports by 20% in the first half of 2006.

Investments

As
noted, there would be no reason to expect new investments for trade
reasons since not much has changed, but there could possibly be new
investment because of concessions of public services. In this area
the information is contradictory.

The
general manager of Invest in Guatemala, Rodolfo Batres,
assures that new capital entering Guatemala so far this year is up to
U.S. $290 million (Q2,204 million). But the Bank of Guatemala
statistics reveal a negative balance in the movement of private
capital of US$720 million (Q5,472 million). The income reaches
US$1,091.4 million (Q8,294.6 million) and the expenditures US$1,812
million (Q13,771 million)”.5
It looks like capital flight. In national balances there is a line
for Direct Foreign Investment, so either the Bank is behind in its
calculations or Mr. Batres is adding up ghost figures.

There
are other dubious findings. Juan Carlos Paiz, president of the
Agexpront (Association of Non-traditional Exporters), speaks about
the new U.S. investment in the region in conjunction with a proposal
to push Guatemala as a logistical center to supply Mexico and the
Caribbean. “Some companies already do it, as is the case of
Bimbo Bread, that works in that manner.” And here we thought
that Bimbo was a Mexican company, which recently moved from Guatemala
to El Salvador.

In
Prensa Libre6
the Executive Director of the American Chamber in Guatemala, Carolina
Castellanos, declares that investment “will not arrive if law
and order, and text of the agreement, are not respected.” Her
statement makes it sound like it has not yet arrived—and if
they wait for law and order, they will wait even longer.

Taxes

Finance
Secretary Maria Antonieta de Bonilla recently announced that the
tariffs that will no longer be recovered due to CAFTA create a fiscal
deficit of Q400 million. She adds that this shortfall will have to be
filled with new taxes.7
It seems that the decrease in customs revenue with CAFTA surprised
the Berger administration. His government seems to have the perverse
certainty that this deficit, which produces a profit for U.S.
exporters and national importers, should be filled by Guatemalan
taxpayers.

Conclusion

Two
months is not much time, but we can sense that life in CAFTA's
universe will provide material for Guatemalan satire. Imports
increase and exports decrease; no evidence on new investment, but
there are new taxes in sight. Business continues in the hands of the
same people as always.

Endnotes

1.      
Carlos Barrada, DR-Cafta Imposition and poverty in Guatemala;
Monitoring Report: www.stopcafta.org.

2.      
Inside US Trade; July 14, 2006. “Guatemala to delay pocket
lining change until beer deal done”

3.      
He negotiated, as Vice-Secretary of the Economy, the FTA with Mexico.
He participated in the negotiation of CAFTA as a member of the CENCIT
(CACIF).

4.      
Inside US Trade, August 25, 2006; “Bush statement undercuts
sock provision in pension bill”

5.      
Beatriz Lix, Siglo 21, 18/09/2006; Q2,204 million have been invested.

6.      
Prensa Libre, 15/09/06

7.      
Prensa Libre, 13/09/06. Eduardo Smith explains that the
secretary did not mean to say that, she meant to say the same thing.

Translated
for the IRC Americas Program by Katherine Kohlstedt.
Umberto
Mazzei is Director of the Institute for International Economic
Relations in Geneva (www.ventanaglobal.info)
and member of the Mesa Global coalition in Guatemala. This article
was originally published in the magazine Este País,
October 2006 edition.