Guatemala - July 2004 Appendix to 2003

UNCLAS SECTION 01 OF 02 GUATEMALA 001791

SIPDIS

STATE FOR EB/IFD/OIA

PASS TO USTR, TREASURY, AND COMMERCE

E.O. 12958: N/A
TAGS: EINV KIDE KTDB EFIN ECON GT OPIC
SUBJECT: Guatemala - July 2004 Appendix to 2003
Investment Climate Statement

REF: STATE 141379

This appendix serves as an update to the 2003
Investment Climate Statement for Guatemala. It
has been provided to assist investors in the
interim period resulting from the U.S.
Government's decision to begin publishing the
Country Commercial Guide (of which the Investment
Climate Statement is a chapter) on a calendar year
basis, in January instead of August.

The United States Government has reviewed the 2003
Investment Climate Statement for Guatemala, and
has noted the following changes that have occurred
since its publication. In most circumstances, if
a portion of the 2003 Investment Climate Statement
has not been modified in this appendix, it is
because the U.S. Government is satisfied that it
continues to reflect accurately the state of
affairs in Guatemala as of July 2004.

Openness to Foreign Direct Investment: A new
administration took office in January 2004, ending
the atmosphere of confrontation that existed
between the government and the private sector
during the previous four years. The Foreign
Investment Law removed limitations to foreign
ownership in domestic airlines and ground
transport companies in January 2004.

Conversion and Transfer Policies: No significant
changes since 2003.

Expropriation and Compensation: No significant
changes since 2003.

Dispute Settlement: No significant changes since

2003.

Performance Requirements and Incentives: The
IEMA, an alternative minimum tax based on assets
or gross income, was declared unconstitutional in
December 2003. The Guatemalan Congress approved
in June 2004 a Temporary and Extraordinary Tax to
Support the Peace Agreements (IETAP),which will
be phased out over three and a half years, to
replace the IEMA. Investors benefiting from the
incentives granted by the Law for the Promotion
and Development of Export Activities and Drawback
are also exempted from IETAP during the 10-year
Income Tax exemption period. However, the Income
Tax exemption will be eliminated if the U.S.
Central America Free Trade Agreement enters into
force.

Right to Private Ownership and Establishment: No
significant changes since 2003

Protection of Property Rights: High piracy rates
remain an ongoing concern. The piracy rate for
software applications, as reported by the Business
Software Alliance, increased to 77 percent in 2003
(principally due to a worldwide change in
measurement methodology).

Transparency of the Regulatory System: No
significant changes since 2003.

Efficient Capital Markets and Portfolio
Investment: As a result of strong measures taken
by Guatemala to combat money laundering, e.g.,
enactment of regulation to control offshore
activities and establishment of a Financial
Intelligence Unit, the Financial Action Task Force
removed Guatemala from the list of non-cooperating
countries in the fight against money laundering in
July 2004. As of July 2004, the Superintendence
of Banks has approved the establishment of 14
financial groups, 11 of which include licensed
offshore banks.

Political Violence: No significant changes since

2003.

Corruption: Illicit enrichment has still not been
criminalized; although enrichment related to
narcotics trafficking activity is now illegal.
Several senior officials who served during the
Portillo Administration are under investigation
for their role in corruption scandals, and the
former Finance Minister, Comptroller General and
Superintendent of Tax Administration are in jail
pending trial.

Bilateral Investment Agreements: Guatemala signed
in conjunction with the other Central American
countries a Free Trade Agreement with the United
States in May 2004. The Agreement is pending
ratification from both the U.S. Congress and the
Central American Congresses.

OPIC And Other Insurance Programs: No significant
changes since 2003.

Labor: USTR closed its review of worker rights in
Guatemala at the conclusion of the 2003 annual
review of the Generalized System of Preferences as
a result of positive steps taken by the government
in conjunction with the recently concluded U.S.
Central America FTA, which includes binding labor
provisions.

Foreign Trade Zones/Free Ports: No significant
changes since 2003.

Foreign Direct Investment Statistics: Statistics
will be updated in the next full revision of the
Investment Climate Statement, which will be
published in January 2005.

Wharton