2013 Investment Climate Statement - Guatemala
Openness to, and Restrictions Upon, Foreign Investment
Inaugurated in January 2012, President Otto Pérez Molina continued programs initiated by prior administrations to promote foreign investment, enhance competitiveness and expand investment in the export, energy, and tourist sectors. In the World Bank’s 2013 Doing Business Report, Guatemala improved five positions. The Report also listed Guatemala as one of the top 50 improvers in the world and one of the top six improvers in the Latin American and Caribbean region since 2005. President Pérez Molina and his key economic staff have frequently called attracting greater investment, including foreign direct investment, a high priority for his administration.
According to preliminary data from the Guatemalan Central Bank (Banguat), the flow of foreign direct investment (FDI) in 2011 was USD 984.6 million, a 22% increase compared with 2010. FDI is estimated to have increased 26.7% in 2012 to USD 1.2 billion
Hundreds of U.S. and other foreign firms have active investments in Guatemala. Guatemala passed a foreign investment law in 1998 to streamline and facilitate foreign investment. The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) entered into force in Guatemala on July 1, 2006. CAFTA-DR established a more secure and predictable legal framework for U.S. investors operating in Guatemala. Under CAFTA-DR, all forms of investment are protected, including enterprises, debt, concessions, contracts and intellectual property. U.S. investors enjoy, in almost all circumstances, the right to establish, acquire and operate investments in Guatemala on an equal footing with local investors. The U.S. Embassy in Guatemala places a high priority on improving the investment climate for U.S. investors.
As part of the CAFTA-DR implementation process, the Guatemalan Congress approved a law that strengthened existing legislation on intellectual property rights (IPR) protection, government procurement, trade, insurance, arbitration, and telecommunications, as well as the penal code, to ensure compliance with CAFTA-DR. An e-commerce law was approved by Congress in August 2008, which provides legal recognition to communications and contracts that are executed electronically; permits electronic communications to be accepted as evidence in all administrative, legal and private actions; and allows for the use of electronic signatures.
The United States raised concerns with the Government of Guatemala’s adherence to its CAFTA-DR obligations with respect to the effective enforcement of both its labor laws and its environmental laws. Regarding the labor law case, an arbitral panel was established, pursuant to the CAFTA-DR procedures, to consider whether Guatemala is conforming to its obligations to effectively enforce its labor laws. As of April 2013, after lengthy negotiations, the United States and Guatemala have agreed to an ambitious and comprehensive enforcement plan that includes significant, concrete actions that the Guatemalan government will implement within specified time frames to improve enforcement of labor laws. Regarding the environmental case, following a 2011 request by the U.S. Government, the CAFTA-DR Secretariat for Environmental Matters is conducting a fact-finding investigation on the extension of an oil exploitation concession in the Maya Biosphere Reserve in northern Peten department.
Complex and confusing laws and regulations, inconsistent judicial decisions, bureaucratic impediments and corruption continue to constitute practical barriers to investment. Complicated tax regulations meant to reduce tax evasion result in foreign and domestic companies incurring high costs to comply with tax laws. There is no law regulating monopolistic or anti-competitive practices.
There are no impediments to the formation of joint ventures or the purchase of local companies by foreign investors. The absence of a developed, liquid and efficient capital market, in which shares of publicly-owned firms are traded, makes equity acquisitions in the open market difficult. Most foreign firms, therefore, operate through locally incorporated subsidiaries.
There are no restrictions on foreign investment in the telecommunications, electrical-power-generation, airline, or ground-transportation sectors. The Government of Guatemala (GoG) privatized a number of state-owned assets in industries and utilities in the late 1990s including: power generation and distribution, telephone services, and grain storage. The Foreign Investment Law removed limitations to foreign ownership in domestic airlines and ground-transport companies in January 2004.
Foreign banks may open branches or subsidiaries in Guatemala subject to Guatemalan financial controls and regulations. These include a rule requiring local subsidiaries of foreign banks and financial institutions operating in Guatemala to meet Guatemalan capital and lending requirements as if they were stand-alone operations.
Some professional services may only be supplied by professionals with locally-recognized academic credentials. Public notaries must be Guatemalan nationals. Foreign enterprises may provide licensed, professional services in Guatemala through a contract or other relationship with a Guatemalan company. In July 2010 the Guatemalan Congress approved a new insurance law, which allows foreign insurance companies to open branches in Guatemala, a requirement under CAFTA-DR. This law requires foreign insurance companies to fully capitalize in Guatemala.
Mining has historically been a sensitive issue in Guatemala, and operations in Guatemala have been subject to protests. Subsurface minerals and petroleum are the property of the state. The Ministry of Energy and Mines is in charge of approving mining licenses. For mining, an initial exploration license is issued for three years, which can be extended for two additional two-year periods if needed. After completing the exploration phase, a company may then apply for a separate exploitation license. Mining exploitation licenses are granted for twenty-five years and can be extended for an additional twenty-five years. In January 2012 the extractive industries association signed a voluntary agreement with the GoG to pay higher royalties than those established in the mining law. In October 2012 the Minister of Energy and Mines submitted to Congress a draft law to reform the mining law, which includes among other changes, a provision to increase royalties to percentages similar to those included in the voluntary agreement. Allegations in 2010 that the GoG attempted to cancel and resell a long-standing nickel concession in Izabal raised concerns among investors; the Canadian holders of that concession sold their interest to a Russian firm in 2011.
Petroleum contracts are granted through a public tender process. One contract is awarded covering both exploration and exploitation. This contract is granted for a period of twenty-five years and can be extended for an additional fifteen years. Contracts for petroleum extraction are typically granted through production-sharing agreements.
Over the past year, a number of U.S. companies have had significant at-risk investments in the mining and petroleum sectors that required the approval of contracts or exploitation licenses by Guatemalan government regulatory bodies, particularly the Ministry of Energy and Mines (MEM), in order to realize any return on their investments. One such company just recently received its approved license, but after more than a year of delays by the MEM. Another continues to suffer delays, now lasting more than one year, despite having satisfied all legal requirements to move forward. In addition, another U.S. mining investment, which received an exploitation license in 2011, has been significantly delayed by pending social conflicts. The government has made some efforts to provide security for the projects and accurate information to project opponents, but those efforts have not yet been sufficient to permit the projects to go forward. The future of these sunk investments is not guaranteed. A more active presence by MEM, environmental and other government authorities in the project areas, and government dialogue with local communities, likely will be crucial for the success of these investments.
Domestic and foreign firms must publish their intent to conduct business, agree to Guatemalan legal jurisdiction and register with the Ministry of Economy in order to incorporate formally in Guatemala. Foreign firms are subject to additional, time-consuming requirements, including: demonstrating solvency, depositing operating capital in a local bank, supplying financial statements, contractually agreeing to fulfill all legal obligations before leaving the country and appointing a Guatemalan citizen or foreign resident (who must have a Guatemalan work permit) as legal representative. The requirements are not used specifically to screen or discriminate against foreign companies, but the procedures can serve as a disincentive to investment.
Transparency Int’l Corruption Index
Heritage Economic Freedom
World Bank Doing Business Report
MCC Government Effectiveness
MCC Rule of Law
MCC Control of Corruption
MCC Fiscal Policy
MCC Trade Policy
MCC Regulatory Quality
MCC Business Start Up
MCC Land Rights and Access
MCC Natural Resource Management
(Note: MCC is the Millennium Challenge Corporation)
Conversion and Transfer Policies
The right to hold private property and to engage in business activities is specifically recognized by the Guatemalan Constitution. Foreign private entities can establish, acquire and dispose freely of virtually any type of business interest, with the exception of some professional services as noted above. Guatemala’s Foreign Investment Law and CAFTA-DR commitments protect the investor’s right to remit profits and repatriate capital. There are no restrictions on converting or transferring funds associated with an investment into a freely usable currency at a market-clearing rate. U.S. dollars are freely available and easy to obtain within the Guatemalan banking system. In October 2010 monetary authorities approved a regulation to establish limits for cash transactions of foreign currency to reduce the risks of money laundering and terrorism financing. The new regulation establishes that monthly deposits over USD 3,000 will be subject to additional requirements, including a sworn statement by the depositor stating that the money comes from legitimate activities. There are no legal constraints on the quantity of remittances or any other capital flows, and there have been no reports of unusual delays in the remittance of investment returns.
The Law of Free Negotiation of Currencies allows Guatemalan banks to offer different types of foreign-currency-denominated accounts. In practice, the U.S. dollar is used most frequently. Some banks offer "pay through" dollar-denominated accounts in which depositors make deposits and withdrawals at a local bank while the actual account is maintained on behalf of depositors in an offshore bank.
Capital can be transferred from Guatemala to any other jurisdiction without restriction. Guatemalan firms have been active investors in Central America, the Dominican Republic and the United States.
Expropriation and Compensation
The Constitution prohibits expropriation, except in cases of eminent domain, national interest or social benefit. The Foreign Investment Law requires advance compensation in cases of expropriation. Investor rights are protected under CAFTA-DR by an impartial procedure for dispute settlement that is fully transparent and open to the public. Submissions to dispute panels and dispute panel hearings are open to the public, and interested parties have the opportunity to submit their views.
In June 2007, a U.S. company operating in Guatemala filed a claim under the investment chapter of CAFTA-DR against the Government of Guatemala with the International Centre for Settlement of Investment Disputes (ICSID). The claimant alleged the Government of Guatemala indirectly expropriated the company’s assets by negating a contract, and requested USD 65 million in compensation and damages from the Guatemalan Government. The ICSID court issued its ruling on this case in June 2012 and stated that the Government had breached the minimum standard of treatment under Article 10.5 of CAFTA and required the Government to pay more than $11.3 million to the company.
Resolution of business and investment disputes through Guatemala’s judicial system is time-consuming, and civil cases can take years to resolve. Corruption, intimidation and ineffectiveness in the judiciary have led to confusing, even contradictory, decisions and frequent delays. U.S. companies, however, face the same conditions as local companies and are not subject to any pattern of discrimination in the legal system.
Guatemala has a written and consistently-applied commercial law (Codigo de Comercio). Guatemala does not have an independent bankruptcy law, but the Code on Civil and Mercantile Legal Proceedings (Codigo Procesal Civil y Mercantil) contains a specific chapter on bankruptcy proceedings. Under the code, creditors can request to be included in the list of creditors, request an insolvency proceeding when a debtor has suspended payments of liabilities to creditors and constitute a general board of creditors to be informed of the proceedings against the debtor.
The Government of Guatemala has signed the United Nations Convention on the Recognition and Enforcement of Arbitral Awards (New York Convention), the Inter-American Convention on International Commercial Arbitration (Panama Convention) and the Convention on the Settlement of Investment Disputes between States and Nationals of other States (ICSID). Guatemala’s foreign investment law also permits international arbitration or alternative resolution of disputes, if agreed to by the parties.
Guatemalan procedures for enforcing agreements are similar to those of the United States. Guatemala’s Arbitration Law of 1995 is based on the U.N. Commission on International Trade Law (UNCITRAL) Model Law for International Commercial Arbitration and regulations are in line with the New York Convention. Default awards and arbitral agreements are fully enforceable in Guatemala. In addition, CAFTA-DR added an additional dispute resolution mechanism for investors. The first claim under that system was filed in June 2007, as described in the previous section, and the Government of Guatemala followed all procedures required of it under the process. In October 2010, a U.S. company operating in Guatemala filed the second U.S. claim under the investment chapter of CAFTA-DR against the Government of Guatemala with the ICSID (a Spanish firm filed a claim in 2009). Through this claim, the U.S. company is seeking to resolve a dispute with the Government of Guatemala regarding the regulation of electricity rates. The case remains pending before the ICSID.
Performance Requirements and Incentives
Guatemala’s 1998 Foreign Investment Law eliminated trade-related investment restrictions and ensured Guatemala was compliant with World Trade Organization (WTO) obligations under the Agreement on Trade Related Investment Measures (TRIMS). In 1999, Guatemala notified the WTO that it was TRIMS compliant.
Guatemala does not impose performance; purchase or export requirements other than those normally associated with free trade zones and duty drawback programs. Companies are not required to locate operations in specific geographic areas or include local content in production.
Investment incentives are specified in law and are available, with few exceptions, to both foreign and Guatemalan investors without discrimination. There are two main programs, one focused on garment exports and the other on reforestation.
The major Guatemalan incentive program, the Law for the Promotion and Development of Export Activities and Drawback, is aimed mainly at "maquiladoras" – mostly garment manufacturing and assembly operations – in which over half of production inputs/components are imported and the completed products are exported. Investors in this sector are granted a 10-year exemption from both income taxes and the Solidarity Tax, Guatemala’s temporary alternative minimum tax. Additional incentives include an exemption from duties and value-added taxes on imported machinery and a one-year suspension (extendable to a second year) of the same duties and taxes on imports of production inputs and packing material. Taxes are waived when the goods are re-exported. The waiver for customs duties, value-added tax and income tax was scheduled to expire on December 31, 2007, with a phase out period of two years. However, in July 2007 the WTO adopted a decision that allows the WTO Subsidies Committee to continue to grant annual extensions of the transition period of export subsidies to Guatemala and other countries until the end of 2013, with a final phase out period of two years.
Property owners who engage in reforestation activities may qualify for government incentives through the National Institute of Forests (INAB). This incentive program (PINFOR) is scheduled to run through 2016.
Guatemalan law requires that food products sold in the domestic market be tested, registered and labeled in Spanish, although stick-on labels are permitted.
Under CAFTA-DR, 100 percent of U.S. industrial trade will enter Guatemala duty-free by 2015. Nearly all textile and apparel goods that meet the agreement’s rules of origin are now traded duty-free and quota-free, promoting new opportunities for U.S. and regional fiber, yarn, fabric and apparel manufacturing.
Under CAFTA-DR, more than half of U.S. agricultural exports now enter Guatemala duty-free. Guatemala will eliminate its remaining tariffs on nearly all agricultural products by 2020 (2023 for rice and chicken leg quarters and 2025 for dairy products). For the most sensitive products, Tariff Rate Quotas (TRQs) permit some duty-free access for specified quantities during the tariff phase-out period, with the duty-free amount expanding during that period. Guatemala will liberalize trade in white corn through expansion of a TRQ, rather than by tariff reductions.
Right to Private Ownership and Establishment
The right to hold private property and to engage in business activity is recognized in the Guatemalan Constitution. The foreign investment law specifically notes that foreign investors enjoy the same rights of use, benefit and ownership of property as afforded Guatemalans. Foreigners are prohibited, however, from owning land immediately adjacent to rivers, oceans and international borders.
CAFTA-DR established a more secure and predictable legal framework for U.S. investors operating in Guatemala. Under CAFTA-DR, all forms of investment are protected, including enterprises, debt, concessions, contracts and intellectual property. U.S. investors enjoy, in almost all circumstances, the right to establish, acquire and operate investments in Guatemala on an equal footing with local investors.
There are no impediments to the formation of joint ventures or the purchase of local companies by foreign investors. The absence of developed, liquid and efficient capital markets, in which shares of publicly-owned firms are traded, makes equity acquisitions in the open market difficult. Most foreign firms therefore operate through locally-incorporated subsidiaries.
Protection of Property Rights
Guatemala has registries for both real property and intellectual property. Inadequately documented titles and gaps in the public record can lead to conflicting claims of land ownership. The government has stepped up its efforts to enforce property rights where title is clear or where title disputes have been resolved; however, it can be difficult to obtain and enforce eviction notices.
Mortgages are available to finance homes and businesses, and about half of the banks offer mortgage loans with terms as long as 15-20 years for residential real estate.
The legal system is accessible to foreigners and does not systemically discriminate against foreign firms. However, in practice, it favors local attorneys accustomed to maneuvering a case through the process. Foreign investors are advised to seek reliable local counsel early in the investment process.
Regarding intellectual property rights (IPR), Guatemala belongs to the WTO and the World Intellectual Property Organization (WIPO). It is also a signatory to the Paris Convention, Bern Convention, Rome Convention, Phonograms Convention and the Nairobi Treaty. Guatemala has ratified the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT). In June 2006, as part of CAFTA-DR implementation, Guatemala ratified the Patent Cooperation Treaty and the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure. Also in June 2006, the Guatemalan Congress approved the International Convention for the Protection of New Varieties of Plants (UPOV Convention); however, implementing legislation that would allow Guatemala to become a party to the convention remains pending.
The Guatemalan Congress passed legislation in August 2000, to bring the country's intellectual property rights laws into compliance with the WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. This legislation was modified in 2003 to provide pharmaceutical test data protection consistent with international practice, and in 2005 the law was again amended to comply with IPR protection requirements in CAFTA-DR. CAFTA-DR provides for improved standards for the protection and enforcement of a broad range of IPR, which are consistent with U.S. standards of protection and enforcement as well as emerging international standards. A law to prohibit the production and sale of counterfeit medicine was approved by Congress in November 2011. Enforcement of IPR laws, however, has been inconsistent. A number of raids, cases and prosecutions have been pursued; however, resource constraints and lack of coordinated government action impede efficient enforcement efforts. Piracy of works protected by copyright and infringement of other forms of intellectual property, such as trademarks including those of some major U.S. food and pharmaceutical brands, remains problematic in Guatemala.
Transparency of the Regulatory System
Tax, labor, environment, health and safety laws do not directly impede investment in Guatemala. Bureaucratic hurdles are common for both domestic and foreign companies, including lengthy processes to open and close a business, obtain permits and licenses and receive shipments. The legal and regulatory systems are confusing and not transparent. Regulations often contain few explicit criteria for government administrators, resulting in ambiguous requirements that are applied inconsistently by different government agencies and the courts. While there is no apparent systematic discrimination against foreign companies in these processes, these inconsistencies can favor local firms who are more familiar with these challenges.
Public participation in the promulgation of regulations is rare; companies and individuals are able to submit comments to the issuing government office, but with limited effect. There is no consistent legislative oversight of administrative rule-making.
Laws that are being debated in Congress are placed on the institution’s public website; however, last-minute amendments often are not publicly disclosed before Congressional decisions. Final versions of laws, once signed by the President, must be published in the official gazette before taking effect.
Efficient Capital Markets and Portfolio Investment
Guatemala’s capital markets are weak and inefficient. There is no securities regulator, but rather only a registry, which lacks regulatory authority. The one principal commercial exchange (Bolsa Nacional de Valores) deals almost exclusively in commercial paper, repurchase agreements (repos) and government bonds. A new capital markets law is being drafted by Banco de Guatemala and the Superintendence of Banks with technical assistance from the U.S. Treasury and the Securities Exchange Commission. Notwithstanding the lack of a modern capital markets law, the government debt market has continued to develop: domestic treasury bonds now represent 42% of total public debt. Guatemala also made strides in the international bond market with the issuance of a benchmark US$700 million, 10-year Eurobond in 2013, targeted mostly to foreign institutional investors.
There is no market in publicly-traded equities, the absence of which raises the cost of capital and complicates mergers and acquisitions. As of October 2012, borrowers faced a weighted average annual interest rate of 16 percent, with some banks charging over 50 percent on consumer or microcredit loans. Foreigners rarely rely on the local credit market to finance investments.
In April 2002, the Guatemalan Congress passed a package of financial sector regulatory reforms that increased the regulatory and supervisory authority of the Superintendent of Banks (SIB), which is responsible for regulating the financial services industry. These reforms brought local practices more in line with international standards and spurred a round of bank consolidation and restructuring. The 2002 reforms required that non-performing assets held offshore be included in loan-loss- provision and capital-adequacy ratios. This forced a number of smaller banks to seek new capital, buyers or mergers with stronger banks. From October 2006, to October 2009, seven bank mergers and acquisitions were completed.
The Guatemalan Congress has been actively working on new laws in the business and finance sector. In July, 2010, the Guatemalan Congress approved a new insurance law, which strengthens supervision of the insurance sector and allows foreign insurance companies to open branches in Guatemala. In August 2012, the Guatemalan Congress approved reforms to the banking and financial groups law and to the Central Bank Organic Law that should strengthen supervision and prudential regulation of the financial sector and resolution mechanisms for failed or failing banks.
Groups of affiliated credit card, insurance, finance, commercial banking, leasing, and related companies must issue consolidated financial statements prepared in accordance with uniform, generally accepted accounting practices. The groups are audited and supervised on a consolidated basis.
Guatemala’s 18 commercial banks had an estimated USD 25.2 billion in assets among them in 2012. The five largest banks control about 80 percent of total assets. In addition, there are 14 non-bank financial institutions, which perform primarily investment banking and medium- and long-term lending and two exchange houses.
Overall, the banking system remains stable. Two bank failures, one in 2006 and one in 2007, were managed effectively and did not affect the financial system or broader economy. In October 2006, the SIB recommended that Guatemala’s then-fourth-largest bank, Bancafe, be suspended due to financial problems arising from an off-shore investment of USD 204 million in the bankrupt U.S. commodities brokerage company Refco. As a result, the financial group headed by the suspended bank was dissolved and the license of its off-shore bank was cancelled. In January 2007 the license for Banco de Comercio was suspended after the bank requested intervention by the SIB due to its overextended loan portfolio.
As part of its effort to fortify the domestic financial system against global financial turmoil, monetary authorities issued a resolution in December 2008, which required financial groups to increase their reserve requirements to 100% for all non-performing loans as of June 30, 2011.
Competition from State Owned Enterprises
The Government of Guatemala (GoG) owns 30% of the shares of the Bank of Rural Development (BanRural), the third largest bank in Guatemala, and it is allotted 3 out of 10 seats on the board of directors. The GoG also appoints the director of GUATEL, the former state-owned telephone company dedicated to providing rural and government services that were split off from the fixed-line telephone company during its privatization in 1998. GUATEL’s operations are small, and it continuously fails to generate sufficient revenue to cover expenses. The GUATEL director reports to the Guatemalan President and to the board of directors. GUATEL is required by law to publish annual reports. The National Electricity Institute (INDE) is a state-owned electricity company responsible for expanding the provision of electricity to rural communities. INDE generates about 40% of the hydroelectric power produced in Guatemala, and it participates in the wholesale market under the same rules as its competitors. It also provides a subsidy for the first 100 kilowatt-hours (kWh) to consumers of less than 300 kWh per month. The board of directors comprises representatives from the government, municipalities, business associations and labor unions. The general manager is appointed by the board of directors.
Corporate Social Responsibility
There is a general awareness of Corporate Social Responsibility (CSR) on the part of producers and service providers as well as Guatemalan business chambers. The American Chamber of Commerce in Guatemala (AmCham) and a local organization called the Center for Socially Responsible Corporate Action in Guatemala (CentraRSE) annually award companies for their CSR activities. U.S. companies such as McDonald’s, Starbucks and Denimatrix have been recognized for their CSR programs that aim to foster a safe and productive workplace as well as provide health and education programs to aid workers, families and communities. Many international companies have found that CSR programs targeted to the local communities they serve help to build trust and are generally expected to be provided given the low level of government funds available for investment in health, education and infrastructure.
The Guatemalan government and the guerrillas of the Guatemalan National Revolutionary Unity (URNG) signed the Accord for a Firm and Lasting Peace on December 29, 1996, ending the 36-year internal armed conflict. Though there are occasional incidents of violence associated with organized land invasions and protests against mining and large infrastructure projects such as hydroelectric and cement plants, political violence has virtually disappeared.
Guatemala, however, has one of the highest violent crime rates in Latin America. The murder rate in 2012 was 34 per 100,000, making Guatemala one of the most dangerous countries in the world even if the rate declined from 38.5 in 2011 (according to an independent private sector consultant group, the rate was 34 per 100,000 in 2012 and 39 in 2011). Rule of law is lacking as the judicial system is weak, overworked and inefficient and the police understaffed and often corrupt. The impunity rate for homicides in Guatemala City declined from 97% in 2010 to 70% in 2012 according to a report issued by the Public Ministry.
Given the weak rule of law, violent common crime is a major problem in Guatemala. Gangs are a constant concern in urban areas and gang members are often well-armed, sometimes with military weapons. Widespread narcotics and alien smuggling activities make some remote areas dangerous, especially along Guatemala’s border with Mexico. Security, therefore, remains a widespread concern; however, foreigners are not usually singled out as targets of crime.
Guatemala has an approximately 180-year-old border dispute with Belize and territorial sea disputes with Belize and Honduras. Guatemala and Belize are each scheduled to hold referenda in October 2013 to ask their citizens to vote whether to refer to the International Court of Justice resolution of their border dispute. A Guatemala remains committed to resolving these disputes through diplomatic means but as of April 2013 was seeking to postpone the date of the Belize referendum.
Bribery is illegal under the penal code; however, corruption remains a serious problem that companies may encounter at many levels. Guatemala’s score on the Transparency International 2012 Corruption Perceptions Index was 33 points out of 100, ranking it 24th out of 32 countries in the region.
Guatemala ratified the U.N. Convention against Corruption in November 2006, and the Inter-American Convention against Corruption in July 2001, but had not implemented all of the latter document’s provisions, such as criminalizing illicit enrichment. In October 2012, the Guatemalan Congress approved an anti-corruption law that increases penalties for existing crimes and adds new crimes such as illicit enrichment, trafficking in influence, and illegal charging of commissions. Guatemala enacted measures to reverse the perceived increase in government corruption that occurred under the Portillo administration (2000-2003). Various senior officials who served during the Portillo administration were investigated and sentenced for their role in corruption scandals including the former Superintendent of Tax Administration (SAT), Minister of Interior, Comptroller General and Minister of Finance. However, six of these individuals were released from jail and placed under home arrest in 2008. One former president of Congress was sentenced to three years in prison for his involvement in a 2008 embezzlement scandal and a second former president of Congress will face trial on the same case. Former President Alfonso Portillo was tried in Guatemala for embezzlement and was acquitted by a first instance court. Portillo is also fighting an extradition request from the United States for charges of conspiracy to engage in money laundering. On August 29, 2012, the Constitutional Court rejected a request from Portillo’s lawyers for an injunction against former President Colom’s administrative approval of the extradition. As of mid-April 2013, Portillo’s extradition was pending possible appeals of his acquittal by a Guatemalan second instance court on domestic embezzlement charges, as well as other injunction requests which may be filed by his attorneys.
In December 2012, the Guatemalan Government created a temporary Presidential Commission for Transparency and Electronic Government (COPRET by its Spanish acronym) to coordinate Executive Branch efforts on transparency, anti-corruption, electronic government, and open government issues. This Commission replaced the Transparency and Control Secretariat created by the Guatemalan Government in February 2012, but which subsequently was declared invalid by the Constitutional Court in November 2012. The Guatemalan Government’s official anti-corruption entity is the Office of the Comptroller General (the Contraloria General de Cuentas), but its effectiveness is limited by resources and legal authority.
Investors have historically found corruption especially pervasive in customs transactions, particularly at ports and borders away from the capital. Guatemala became a full party to the WTO Customs Valuation Agreement on August 10, 2004. The Superintendency of Tax Administration (SAT) launched a customs modernization program in November 2006, which implemented an advanced electronic manifest system and removed many corrupt customs officials. However, reports of corruption at major ports remain prevalent.
Guatemala’s Government Procurement Law requires most government purchases over 900,000 Quetzals (approximately USD 115,000) to be submitted for public competitive bidding. Since March 2004, Guatemalan government entities have been required to use Guatecompras, an Internet-based electronic procurement system, which has improved transparency in the government procurement process. Guatemalan government entities must also comply with Guatemalan government procurement commitments under CAFTA-DR. Some government agencies continue to use other procurement modalities, such as direct purchases or purchases by exception, to avoid the lengthier but also more transparent public bidding process. The use of these modalities can put U.S. companies bidding for government contracts at a disadvantage or discourage their participation due to concern that the bidding process will not be fair and transparent. In August 2009, the Guatemalan Congress approved reforms to the Government Procurement Law, which simplified bidding procedures, eliminated the fee previously charged to receive bidding documents, and provided an additional opportunity for suppliers to raise objections over the bidding process. Despite these reforms, large government procurements are often subject to appeals and injunctions based on claims of faults in the bidding process (e.g., documentation issues and lack of transparency).
Bilateral Investment Agreements
In 2004, the United States, the Dominican Republic, Guatemala, Costa Rica, El Salvador, Honduras and Nicaragua signed the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR). The agreement entered into force in Guatemala on July 1, 2006. CAFTA-DR contains a chapter on investment similar to a Bilateral Investment Treaty with the United States. The United States and Guatemala do not have a bilateral taxation agreement due to the prevalence of corporate bearer shares. However, a seized asset law, which took effect in June 2011, requires all newly-formed companies to issue nominative shares only and for bearer shares to be converted to nominative shares by June 2013.
Guatemala has bilateral investment agreements with Argentina, Belgium, Cuba, Chile, Finland, France, Germany, Israel, Italy, South Korea, Spain, Sweden, Switzerland, Taiwan, the Czech Republic and The Netherlands.
In addition to CAFTA-DR, Guatemala has signed bilateral or regional free trade agreements with Chile, the European Union, Peru, Mexico, Colombia, Taiwan and Panama, and is currently negotiating a free trade agreement with Canada and the European Free Trade Agreement (EFTA) countries. The agreements with the European Union and Peru are pending Congressional approval. Guatemala has also signed partial-scope agreements with Belize, Cuba, Ecuador and Venezuela, which cover a reduced number of products and do not include chapters beyond trade. The agreement with Ecuador is pending Congressional approval. It is currently negotiating a partial scope agreement with Trinidad and Tobago.
OPIC and Other Investment Insurance Programs
Guatemala ratified the Multilateral Investment Guarantee Agreement (MIGA) in 1996. The Overseas Private Investment Corporation (OPIC) is active in Guatemala, providing both insurance and investment financing. OPIC applicants have generally been able to quickly obtain Foreign Government Approval (FGA). For more information on OPIC programs, U.S. investors should contact OPIC headquarters in Washington, D.C. at (202) 336-8799 or go to www.opic.gov.
According to the Central Bank of Guatemala, the reference exchange rate of Quetzals to the U.S. Dollar remained relatively stable during 2012 with a high of 8.01 and a low of 7.67.
An estimated 1.5 million individuals in the formal sector workforce are augmented by about 4.5 million more who work in the informal sector, including some who are too young for formal sector employment. In rural areas in particular, child labor remains a serious problem in certain industries, according to the 2012 Survey on Employment and Income. The availability of a large, unskilled and inexpensive labor force has led many employers, such as construction and agricultural firms, to use labor-intensive production methods. Over a quarter of the overall workforce is illiterate. In developed urban areas, however, education levels are much higher, and a workforce with the skills necessary to staff a growing service sector has emerged. Even so, highly capable technical and managerial workers remain in short supply, with secondary and tertiary education focused on social science careers.
No special laws or exemptions from regular labor laws are provided for the export processing zones. Managers of Guatemalan companies must be either Guatemalan citizens or resident aliens with work permits. Employer responsibilities regarding working conditions, especially health and safety standards, benefits, severance pay, premium pay for overtime work, minimum wages, and bonuses are specified in the labor code. Mandatory benefits, bonuses, and employer contributions to the Social Security system can add up to over 60 percent of an employee's base pay. Many workers, however, especially in agriculture, do not receive the full compensation package mandated in the labor law. The Constitution guarantees the right of workers to unionize and to strike and commits the state to support and to protect collective bargaining, as well as to respect international labor conventions. A combination of inadequate allocation of budget resources to the Ministry of Labor and other relevant state institutions, and inefficient administrative and justice sector processes act as significant impediments for more effective enforcement of labor laws to protect these workers’ rights. As a result, investigating, prosecuting, and punishing employers who violate these guarantees remain a challenge. In 2010, a U.S. interagency delegation engaged in formal consultations under Chapter 16 of the CAFTA-DR Free Trade Agreement with the Government of Guatemala regarding its apparent systematic failure to investigate alleged labor law violations, to take enforcement action once labor law violations have been identified, and to enforce labor court orders in cases of labor violations. An arbitral panel was established to consider whether Guatemala is conforming to its CAFTA-DR obligations to effectively enforce its labor laws. After lengthy negotiations, the United States and Guatemala have agreed to an ambitious and comprehensive enforcement plan that includes significant, concrete actions that the Guatemalan government will implement within specified time frames to improve enforcement of labor laws. The rate of unionization in Guatemala is very low. According to statistics from the Ministry of Labor, approximately eight percent of the country's formal labor sectors were union members in 2006, the last year reported.
Foreign Trade Zones / Free Trade Zones
Guatemalan law permits the establishment of free trade zones (FTZs). As of December 2012, nineteen of twenty-seven authorized FTZs were operational. Commercial activities and apparel assembly operations are the main beneficiaries of Guatemala’s free trade and “maquiladora” (in-bond assembly) laws. Investment incentives are specified in law and are available, with few exceptions, to both foreign and Guatemalan investors without discrimination.
Foreign Direct Investment Statistics
According to preliminary data from the Guatemalan Central Bank (Banguat), the flow of foreign direct investment (FDI) totaled USD 984.6 million in 2011 (2.1% of GDP) and is estimated to have increased 26.7% in 2012 to USD 1.2 billion (2.47% of GDP) (confirmed 2012 data are not yet available). There is no reliable data on the stock of FDI.
Major U.S. companies present in Guatemala, including investors (representative, but not a complete listing):
- 3M Company
- American International Group
- Ashmore Energy
- Bristol Myers Squibb
- Chevron Corporation
- Chiquita Brands International
- Duke Energy International
- Federal Express
- Frito Lay
- Kimberly Clark Corp.
- Microsoft Corporation
- Pepsi-Co Bottling Co.
- Pfizer Warner Lambert Co.
- Procter & Gamble Co.
- Ralston Purina
- Sherwin Williams
- Westin Hotels and Suites
- Xerox Corporation