FOREIGN MINISTER BRIZ DESCRIBES AMBITIOUS AGENDA

C O N F I D E N T I A L SECTION 01 OF 02 GUATEMALA 000305

SIPDIS

TREASURY FOR OASIA: CHRIS KUSHLIS AND BILL BLOCK
USTR FOR REGINA VARGO

E.O. 12958: DECL: 02/09/2009
TAGS: ECIN ETRD PGOV GT
SUBJECT: FOREIGN MINISTER BRIZ DESCRIBES AMBITIOUS AGENDA
FOR REGIONAL CUSTOMS UNION, BEGINNING WITH EL SALVADOR

REF: GUATEMALA 207

Classified By: EconCouns Steven S. Olson for reason 1.5 (d)

Summary
--------------

1. (C) EconCouns and an AID delegation called on Foreign
Minister Briz Feb. 6 to discuss integration. Briz confirmed
that a customs union, beginning with El Salvador, was a top
priority of President Berger. He noted that El Salvador and
Guatemala already had harmonized 96% of their external
tariffs and that Nicaragua and Honduras were close behind.
Costa Rica was "something else" to be taken up later.
Guatemala is withdrawing immigration controls from the
Salvadoran border unilaterally. Briz said the biggest
problem would be with products where tariff phase-out
schedules differed under CAFTA (read: beer). He said El
Salvador's President Flores wanted to finish before leaving
office, but Econ Minster Lacayo was opposed. Deciding how to
share revenues collected on the periphery was easier than it
had been made to appear, as businesses would report the
proper jurisdiction in order to access tax credits or
deductions. He wants discretion taken away from customs and
was interested in our concerns over noncompliance with the
WTO customs valuation agreement and SIECA's draft of regional
contraband regulations. He supports contracting customs
services to an outside firm and emphasized the importance of
removing internal customs controls to eliminating corruption
and organized crime. End Summary.


2. (U) EconCouns accompanied an AID delegation during a
Feb. 6 call on Foreign Minister Jorge Briz. AID had sought
the meeting to review Guatemala's plans and assistance needs
for the coming years in the area of Central American regional
integration. EconCouns sought to learn more concerning
recent statements by President Berger and his cabinet
(reftel) on Guatemala's desire to open its borders with El
Salvador within 90 days, with Honduras and Nicaragua to
follow when ready. The press had just announced Guatemalan
plans to remove its immigration officials unilaterally and
immediately from its borders with El Salvador. (Note: This
cable does not cover discussion of how AID's regional program
could best interface with Guatemalan priorities.)

Customs Union a Top Priority
--------------

3. (C) Briz confirmed that building a customs union was
among Berger's top priorities, although it would take a
little longer than the 90 days Berger announced. He said
that El Salvador and Guatemala already applied the same
common external tariff on 96% of all items, and Honduras and
Nicaragua were in the 90%-92% range. Costa Rica was
"something else," and not an immediate priority like the
others but an eventual partner in the scheme. Most of the
products not yet harmonized could be with a minimum of
political will. Sugar was still complicated on the
Salvadoran side, but it could be resolved. Coffee was "not a
problem." He said that the "only real problems" were ones
created by differing tariff rate reduction schedules
negotiated in the CAFTA, and he said he assumed that
EconCouns knew what he meant (Comment: Beer, where Guatemala
gave immediate access at the very end of the negotiation, to
the surprise and consternation of many (reftel). End
Comment.) He said it would make a mess of internal efforts
to create the customs union if there were large volumes of
internal trade of foreign goods that customs union members
taxed differently.

Little Risk in Removing Immigration Controls
--------------

4. (C) Briz said that removing immigration from the borders
with El Salvador posed no real risks. He said that
Salvadoran controls over arrivals from third countries were
much better than anything Guatemala had on its land borders
with El Salvador. The Guatemalan system on the land borders
was a mess and would not detect anyone from outside the
region who had made it past the Salvadorans. There was no
real interest in controlling Salvadorans, particularly as
integration was what the President wanted.

Flores Wants a Legacy; Lacayo Not Enthusiastic
-------------- -

5. (C) Briz said that Salvadoran President Flores was eager
to move ahead, telling Berger emphatically that he wanted the
custom union on his watch, "not Tony Saca's." EconCouns said
he'd heard that not everyone was so enthusiastic. Briz
responded that (Salvadoran Minister of Economy Miguel)
"Lacayo is against it, for some reason."

Distributing Revenues Easier than it Seems
--------------

6. (SBU) EconCouns commented that previous talks within the
regional economic integration body SIECA reportedly ran into
serious problems over how to distribute among members the
taxes collected when goods entered the customs union's
periphery. How would that be resolved? Briz said it would
be much easier than people had thought, as it would rely on
businesses rather than customs officials to decide.
Businesses knew in what jurisdiction they needed tax
deductions and/or value added tax credits to offset income or
taxes received on their sales, and they would have every
incentive to declare that jurisdiction when they imported a
product or bought it from a wholesaler.

Combating Corruption by Eliminating Customs
--------------

7. (C) Briz added that customs officials and the organized
crime figures who controlled them were the principal sources
of corruption in the country. That is why internal borders
had to go and external borders had to be simplified as much
as possible. He said there was simply too much discretion
given to bureaucrats, and it had to be eliminated. He was
aware of arbitrary valuation of goods by customs officials
but not that Guatemala was obliged to do away with such
practices as part of the WTO Customs Valuation Agreement. He
seemed delighted when EconCouns told him that there was an
international obligation, and he asked his staff to follow
up.

Integration Isn't Bureaucratization
--------------

8. (C) EconCouns commented that there were other areas
where SIECA's work seemed to be creating more problems than
solutions. AID Deputy Director added that the USG was
looking for efficiency and best practices, not harmonization
at the level of the country with worst practices. EconCouns
described draft regional contraband legislation that
decriminalized contraband of value less than $100,000 per
incident, a de minimis level far higher than contained in any
country's current regulations. Briz responded, "That's just
about everything." The draft also called for all confiscated
merchandise to be auctioned to the public, including pirated
goods and pharmaceutical products that couldn't meet national
health standards. Briz shook his head knowingly and asked if
we could get him a copy of the draft. He commented,
"Integration shouldn't mean bureaucratization."

Best Solution is to Privatize Customs
--------------

9. (C) Briz said that he thought the best solution for a
customs union would be to contract customs inspection and
collection to a single private company for all of the union's
members. The current system was simply too entrenched and
penetrated by organized crime. If there was a reason for El
Salvador to be reluctant to open its internal border with
Guatemala, it was because Guatemala's corruption and
contraband had become a problem for them.

Comment
--------------

10. (C) The talk is revolutionary. It also makes a lot of
sense, but that means less, politically, than it should. We
have known Jorge Briz well as the outspoken President of the
Chamber of Commerce from days when he was one of the most
acerbic critics of the FRG government and its ties to
organized crime. He led the successful revolt against
raising taxes in August 2001 on grounds that the government
would simply steal them, and he was the target of thousands
of anonymous trash-talk flyers allegedly printed at the
government's print shop on orders from then Vice President
Reyes. (Minugua investigated and found evidence to back the
allegations, but Reyes successfully invoked his immunity and
blocked any further action.) Briz's contempt for borders and
Guatemala's corrupt customs apparatus is something he, a
businessman, feels personally and passionately. It's not
something he picked up from reading about trade theory or
political science. It's going to take a little "fire in the
belly" and pragmatic entrepreneurial vision to get
integration moving after decades of studying it in places
like SIECA. Briz and Berger make it sound simple, and if
only it were, but it will take a tremendous effort on many
people's part to develop the leadership and follow-through
necessary to move from words to a functioning customs union.
HAMILTON