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has given rise to a number of new free trade agreements (FTAs) that have led directly to an increase in production for the many varied sectors of the Guatemalan econo- my. CAFTA-DR and EFTA-CAFTA are two large regional agreements, but Guatemala has also signed protocols with Mexico, Colombia, Venezuela, the European Union, and Taiwan. Guatemala is current- ly in negotiation for an FTA with Canada and has recently signed agreements with Peru and Trini- dad and Tobago.
CAFTA-DR OPENS THE REGION
The Dominican Republic–Central
America Free Trade Agreement
(CAFTA-DR) is the first free trade agreement between the United States and a group of developing economies: Costa Rica, El Salvador, Honduras, Nicaragua, the Dominican Republic, and Guatemala. Total trade between the United States and CAFTA- DR countries has increased over 70 percent since the FTA went into effect. Under CAFTA-DR, approximately 90 percent of U.S. goods enter the country duty-free.
As the biggest economy in Central America, Guatemala is cur- rently a significant trading partner with the United States, with US $10.18 billion in total, two-way goods traded in 2014. For the year, Guatemala exported more than US $4.2 billion in goods to the United States, an increase of 1.1 percent over 2013, but sig- nificantly down from the peak year of 2011, which saw US $4.7 billion exported. Imports from the United States to Guatemala totaled US $5.96 billion in 2014, a 7 percent increase over 2013. Guatemala exports knit and woven apparel; agricultural prod- ucts, including coffee, bananas, and spices; gold; and processed fruits and vegetables to the United States, its largest trading partner. Guatemala imports from the United States include oil, machinery, plastics, and agricultural products, including poultry, soybean meal, wheat, and other grains.
According to the United States Agency for International Devel- opment (USAID), one goal of CAFTA-DR is to establish a “secure and predictable legal framework” for U.S. investors in Guate- mala. This framework covers enterprises, debt, concessions, contracts, and intellectual property. Nonetheless, some U.S. companies doing business in Guatemala have found laws and reg- ulations to be cumbersome, complex, and unclear. The judiciary in particular is often characterized as corrupt, weak, and incon- sistent. The Office of the United States Trade Representative continues to work with Guatemalan officials and institutions to ensure compliance to the nation’s obligations under CAFTA-DR.
These barriers aside, the United States is still the leading source of foreign investment in Guatemala, with an inflow to the country of US $1.3 billion in 2013. Investment sectors include manufacturing, mining, agro-industry, energy, call centers, finan- cial services, and tourism development.
EFTA WELCOMES GUATEMALA
On June 22, 2015, in Schaan, Liechtenstein, Guatemala became the first country to sign the Protocol of Accession to the EFTA– Central America Free Trade Agreement. EFTA, the European Free Trade Association, was founded in 1960 as a means of achieving growth and prosperity among its member states, as well as promoting closer economic cooperation between them. To- day, the EFTA member states are Iceland, Liechtenstein, Norway, and Switzerland.
Trade between the EFTA states and Guatemala was already strong, with total merchandise trade in 2014 amounting to around US $120 million; that number has been growing at an annual rate of 15 percent over the last five years. Guatemala exports coffee, tea, spices, sugars, fruits, and other food products to the EFTA nations. In turn, it imports machinery, mechanical appliances, chemicals, clocks and watches, vehicles, and other manufactured items.
DIVERSIFYING INTO LIGHT INDUSTRY
Guatemala is trying to position the light manufacturing industry as a global investment destination for products including elec- tronics, refrigeration, automobile parts, plastics, cosmetics, phar- maceuticals, and medical devices. The first quarter of 2015 saw manufacturing exports go up 14 percent over the same period in 2014, for a total of US $1.076 billion. In 2013, light manufactur- ing accounted for 19.1 percent of the nation’s GDP, generating US $10.273 billion in exports, up from US $3 billion in 2001. In terms of foreign direct investment (FDI) inflows, it accounted for 14.6 percent of the total FDI into Guatemala in 2013. Investment comes primarily from the United States, Mexico, and South Korea. The industry is evolving as it focuses on producing goods with high added value and intensive use of technology.
From 2007 to 2013, machinery and equipment manufacturing grew 47 percent, chemical products by 53 percent, and plastics and rubber by an impressive 63 percent. Light manufacturing now employs approximately 70,000 people in Guatemala. Its main markets are the United States and Mexico, followed by
SPECIAL REPORT
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*Estimated Data Source: Bank of Guatemala