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Guatemala: Cafta's unfulfilled promises

Proponents of the Dominican Republic-Central American Free Trade Agreement (CAFTA-DR) with the US had trumpeted a number of purported benefits for the signatory countries, including Guatemala. But three years after the agreement was signed, these benefits have yet to materialize, especially in terms of rural development.

The Dominican Republic-Central American Free Trade Agreement (CAFTA), one of the most controversial free trade agreements approved to date, came into effect three years ago on July 1, 2006. Since then, Guatemala's trade with the US has been marked by a huge trade deficit.

According to the US Census Bureau, the trade balance with the US, which was positive for Guatemala by a narrow margin in 2005, turned into a US$1,270.7 million deficit by 2008.

These figures show a rapid increase in imports as opposed to exports. In 2008, imports grew 15.8 percentcompared to the previous year whereas exports only rose by 13.8 percent compared to 2007.

Although the figures published by the Bank of Guatemala (BANGUAT) differ from those published by the US government, they reveal a similar trend. In fact, the Ministry for the Economy (MINECO) admits that the trade balance has been negative since CAFTA came into effect: "The trend favours imports and leads to a greater trade deficit."

Recent developments

Imports experienced sustained growth in 2006-2008. Meanwhile, in 2007, the value of exports was 2 percent less than in 2006.

During the first quarter of 2009 (see table), both imports and exports fell compared to the first quarters of the past four years. In order to explain the decrease in trade with the US, it is important to take into account recent developments in the US economy, which is in the midst of a recession with global implications.

However, it is important to note that exports experienced the sharpest fall in 2009, as they are 19.5 percent lower in 2009 than in the previous year.

The changes in the trade balance cannot only be attributed to CAFTA. In 2004-2005 - before the agreement came into effect - although Guatemala enjoyed a favourable trade balance, the surplus was already experiencing a sharp fall. The unilateral liberalization of tariff barriers had already begun in the 1980s to allow US goods to enter the country, leading to an increase in imports, particularly agricultural products. Then, CAFTA worsened the trade balance.

What is also clear is that the claims made by those who promoted CAFTA, regarding an increase in exports and better trade relations which would benefit the population at large, have failed to materialize. According to the Ministry for the Economy, "the use of CAFTA as an instrument has not generated significant changes in the volume of exports to the US market".

A recent study published by the Institute of Agrarian and Rural Studies (IDEAR) analyzes the impact of increasing food imports on Guatemala's food security.

CAFTA worsens the crisis

According to the study, since the tariff liberalization of basic grains under both CAFTA and the World Trade Organization (WTO) agreements, there has been an important increase in the import of these products. This has created a dependence on food imports and a loss in food security.

IDEAR states that in 2007, 85 percent of the country's rice supply was imported.

Seventy-two percent of the yellow corn supply and 100 percent of the wheat supply is imported. With regard to white corn and beans, these products have not been affected by the free trade agreement. The former is protected under CAFTA and it is only possible to import a few tons. Beans are not included in the tariff liberalization process although they are included in the trade agreement. This means that Guatemala is self-sufficient in terms of white corn and beans.

As a result of the dependence on US imports, the country has been hit harder by the financial crisis and the global increase in grain prices. Between January 2006 and January 2009, the price of bread increased by 75 percent, the price of corn by 62percent, the price of rice by 70 percent, wheat flour by 39 percent, and chicken by 31 percent, according to the National Institute of Statistics (INE). International food prices peaked in mid-2008 and then began to decrease. However, Guatemalan consumers have failed to benefit from the decrease in prices.

Beans and white corn have also increased in price. Although this is not directly related to tariff liberalization, IDEAR argues that the international price of yellow corn increased the local demand for white corn, causing distributors to raise their prices.

According to AGEXPORT, one of the main objectives of the free trade agreement was to "fight poverty, secure rural development and benefit consumers". However, the figures show that the increase in imports has led to less incentives for production, which has had a detrimental impact on national producers. Consumers, far from benefiting from lower food prices, have suffered huge price hikes.

Monopolized

Another problem identified by IDEAR is the concentration of basic grain contingents (quotas) under CAFTA and the WTO treaties. According to IDEAR, of the 38 companies that restricted yellow corn imports, 10 have benefited from 50 percent of the contingents. In 2008, 10 companies were using 69 percent of the contingent. These 10 companies actually belong to just three corporate groups.

The importation of white corn has also been monopolized by three companies. Two of- them belong to the same corporation, MASECA. In the case of wheat, all the imports enjoy zero-tariff status.

No information

However, IDEAR estimates that all wheat imports are monopolized by the Multi-Inversiones and Molinos Modernos corporations. The latter owns several brands of pasta, cookies and different types of flour. It is also estimated that these companies monopolize the importation of yellow corn although there is no exact information on this due to government restrictions on information regarding importers.

The government decided to open new tariff contingents for certain products as a measure to fight the rise in prices. According to the Ministry for the Economy, "82 percent of the contingents of rice, chicken, powdered milk, yellow corn and wheat flour was assigned to companies linked to Grupo Buena, which belongs to businessman." The monopoly of Grupo Buena also represented 82 percent of the total contingents expanded this year as an emergency measure.

This means that the object of establishing quotas in the first place in order to push food prices down, was defeated. As a single company monopolized almost the entire contingent, there was no competition to make it possible to adjust prices.

According to AMCHAM, the purpose of CAFTA was "to regulate the trade of goods and services." However, in practice, monopolies over the importation of basic grains are unregulated.

The lack of legislation on monopolistic practices makes it impossible to take any actions against unfair competition, supposing that there were any companies able to compete with these large corporate groups.

Central America Report

CAFTA's third

anniversary

- Third World Network Features

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