Benefits a Decade after the Signature of DR- CAFTA

By Rubén Morales, Minister of Economy of Guatemala

Ten years after the entry into force of CAFTA DR, the benefits of creating a regional economy with our most important trade partner are undeniable.

Negotiation of this trade agreement was not easy. Guatemala had to adapt to the trends in international trade, to globalization, but there was resistance to change among certain sectors.

A team from the Ministry of Economy led the negotiation of this trade instrument. At that time I was in charge of the Trade in Trans-border Services negotiating group.

Our Trade with the United States Prior to CAFTA DR.

Trade Balance of Guatemala and the United States prior to the Agreement

Millions of U.S. Dollars

YEARS 2001 2002 2003 2004 2005

Exports 642.5 2,215.7 2,384.3 2,660.3 2,686.4

Imports 2,414.3 3,269.9 3,373.0 3,674.5 3,982.8

Trade balance -1,771.8 -1,054.2 -988.7 -1,014.2 -1,296.3

Trade exchange 3,056.8 5,485.6 5,757.3 6,334.8 6,669.2

Source: Bank of Guatemala

Before we entered into a trade agreement that governed transactions with our main trading partner, Guatemalan exports to the United States of America consisted mainly of garments (52%), bananas (9%), oil (8%), coffee (7%), fruit (3%) and sugar (3%).

Our main imports included goods such as oil by-products (16%), machinery and mechanical devices (12%), vehicles (9%), textiles (6%) and plastics (6%).

The Executive subscribed the agreement in 2004. Congress approved it on March 10, 2005, and it entered into force on July 1, 2006. Since then, Guatemala has enjoyed such benefits as a two-way customs duty exemption program, preferential entry of goods and services into the United States market and a stable legal framework that guarantees trade rules for all Guatemalans with the United States.

Trade with the U.S.A. after CAFTA DR

Trade Balance of Guatemala and the United States after the Agreement

Millions of U.S. Dollars

YEARS 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Exports 2,782.8 2,909.6 3,014.4 2,924.4 3,258.7 4,307.6 3,955.0 3,823.0 3,863.0 3,810.6

Imports 4,198.2 4,642.9 5,242.4 4,211.9 5,124.7 6,508.6 6,460.4 6,488.2 7,344.2 6,509.5

Trade Balance -1,415.4 -1,733.3 -2,227.9 -1,287.5 -1,866.0 -2,201.0 -2,505.4 -2,665.1 -3,481.2 -2,698.9

Trade Exchange 6,981.0 7,552.5 8,256.8 7,136.3 8,383.4 10,816.2 10,415.4 10,311.2 11,207.2 10,320.1

Source: Bank of

Guatemala

Our exports to the United States increased between 2006 and 2015 since the entry into force of CAFTA DR, from US$2,782.8 million in 2006 to US$3,810.6 million in 2015. Imports went from US$4,198.2 in 2006 to US$6,509.5 in 2015.

Clear and stable rules in our trade relations with our main trading partner have led to an increase in trade. There have been few changes in the type of products we export (exportable supply) but now we export larger quantities of those products. The share of those goods in the total amount exported has also varied. Garments now account for 32%, bananas for 18%, precious stones and metals for 9%, fruits for 7% and coffee for 7%.

Today, like ten years ago when we negotiated the CAFTA DR, we are convinced that CAFTA DR will help us build economic growth in Guatemala, a growth that must be inclusive and sustainable. We see that CAFTA DR has brought us benefits.

CATA DR has allowed us to attract more investments. For 2015, the Bank of Guatemala recorded US$347.8 in investments from the United States, which represents 28.8% of the total Foreign Direct Investment (FDI). Investments have been made in sectors such as Energy, Manufacturing, Commerce, Telecommunications and others.

Major United States investments have been made in the call-center industry, which is a major source of formal employment, especially for young people; it provides income three times higher than the minimum wage.

We must attract and promote even more public and private investment to grow our economy. The Economic Policy we are fostering contemplates a 16% increase in investments as a percentage of GDP, to 20.8%.

CAFTA DR promotes productive chains. We must take better advantage of them. Through rules of origin, it allows us to use raw materials from the member countries to manufacture the end products and export them as original products. This promotes regional trade by taking advantage of tariff preferences.

Challenges

We should take more advantage of trade agreements in general. Guatemala currently has 13 trade agreements in force and preferential access to more than 40 markets, including the United States.

The challenge for us is to invest strategically in the territories, develop the potential of the local economy in sectors that, with technological innovations, encourage diversification and improve the quality and variety of the goods offered to domestic, regional and global markets.

The Ministry of Economy is working towards that end by implementing an economic policy that will allow us to create sufficient and appropriate human development opportunities for the entire population through an inclusive and sustainable economic growth model.

CAFTA has benefited us as consumers, with more goods at better prices, but we can benefit even more as vendors on that great market by exporting more and diversifying our exportable supply.

As suppliers, we should take more advantage of the Customs Duty Exemption Program. Guatemala currently has free trade for more than 90% of tariff headings.

To achieve long-term sustainable economic and commercial growth we must take more advantage of our global links with regional liberalization and integration actions such as the ones included in the Economic Policy.

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