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
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