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Viewing cable 09GUATEMALA263, Making CAFTA-DR Produce in a Down Market

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Reference ID Created Released Classification Origin
09GUATEMALA263 2009-03-19 13:08 2011-08-26 00:00 UNCLASSIFIED Embassy Guatemala
VZCZCXRO4265
RR RUEHLA
DE RUEHGT #0263/01 0781308
ZNR UUUUU ZZH
R 191308Z MAR 09
FM AMEMBASSY GUATEMALA
TO RUEHC/SECSTATE WASHDC 7146
INFO RUEHC/CENTRAL AMERICAN BASIN COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 0052
UNCLAS SECTION 01 OF 04 GUATEMALA 000263 
 
SIPDIS 
 
STATE PLEASE PASS TO USTR - A. MALITO 
 
E.O. 12958: N/A 
TAGS: ETRD ECON ELAB PGOV PREL GT
SUBJECT:  Making CAFTA-DR Produce in a Down Market 
 
1.  Summary:  CAFTA-DR has substantially improved Guatemala's 
ability to participate and compete in global markets.  Regulatory 
structures were modernized and wide swaths of the Guatemalan economy 
were opened to international competition.  As a result, trade 
increased substantially, foreign direct investment trebled and 
poverty began to decline.  However, continued lack of capacity has 
slowed Guatemala's ability to take full advantage of the agreement 
to reduce poverty, and protect workers and the environment.  The 
current global economic crisis, with consequent reductions in tax 
revenue is slowing Guatemala's progress in alleviating poverty, 
improving environmental protection and enhancing labor rights. 
While gains have been made, more needs to be done to help the GOG 
build the capacity needed to fulfill its obligations under the 
Dominican Republic-Central American Free Trade Agreement (CAFTA-DR) 
to enhance environmental protection, improve worker rights, and 
extend the benefits of trade to all sectors of Guatemala.  This 
cable examines each of these areas and outlines technical assistance 
projects that can mitigate the negative impact the economic crisis 
will have in these areas and continue to help the GOG expand its 
capacity to reduce poverty and fully meet its labor and 
environmental obligations.  End summary. 
 
---------------- 
Labor Protection 
---------------- 
 
Obligations: 
----------- 
 
2.  Under CAFTA-DR, Guatemala reaffirmed its obligations as a member 
of the International Labor Organization (ILO) and pledged to ensure 
that labor principles enshrined in the 1998 ILO Declaration were 
protected including: 1) the right of association; 2) the right to 
organize and bargain collectively; 3) a prohibition on the use of 
any form of forced or compulsory labor; 4) a minimum age for the 
employment of children and the prohibition and elimination of the 
worst forms of child labor; and 5) acceptable conditions of work 
with respect to minimum wages, hours of work, and occupation safety 
and health. 
 
3.  The agreement provides wide latitude in how member states 
enforce these standards and notes specifically that member parties 
can "exercise discretion with respect to investigative, 
prosecutorial, regulatory, and compliance matters and to make 
decisions regarding the allocation of resources to enforce labor 
matters." 
 
4.  CAFTA-DR includes a Labor Cooperation and Capacity Building 
Mechanism to improve labor protection in member countries.  As an 
annex to the CAFTA-DR labor chapter, the mechanism encourages points 
of contact to coordinate the development of priorities, seek support 
from international organizations (such as the ILO, the IDB, the 
World Bank and the OAS) to advance labor rights through technical 
assistance, information exchange, and joint conferences and 
projects. 
 
Performance since CAFTA-DR entry into force: 
------------------------------------------- 
 
5.  The Capacity Building Mechanism has been used to deliver 
technical assistance (via DRL, DOL and USAID) in the labor area 
including projects to eliminate the worst forms of child labor and 
reduce discrimination and harassment against women in the maquilas, 
and increase and improve the capacity of the labor inspectorate. 
While some advances have been made, Guatemala has fallen short of 
expectations for protecting worker rights.  The GOG needs to express 
its commitment to labor protections through vigorous investigation 
and prosecution of labor complaints and murders of labor unionists. 
The GOG would also benefit from additional technical assistance to 
QThe GOG would also benefit from additional technical assistance to 
strengthen its capacity to enforce existing labor legislation. 
 
Next steps to improve performance: 
--------------------------------- 
 
6.  Technical assistance should be devoted to increasing Guatemala's 
capacity to inspect work sites, issue and enforce arrest warrants, 
prosecute cases and investigate labor violations.  Specific projects 
could strengthen the Special Prosecutor's Unit for Crimes against 
Journalists and Unionists and help the Ministry of Labor develop a 
robust system for regularly inspecting conditions at worksites. 
Inspectors should be hired as professional civil servants, be given 
specific technical training and provided adequate security against 
intimidation.  Regulations should be reformed to ensure inspector 
access to work sites, expand alternative dispute resolution 
mechanisms and enhance inter-agency collaboration to improve the 
effective promotion and protection of labor rights and follow 
through on labor court cases. 
 
7.  These are all areas that were specifically recommended by 
DOL/OTLA and in its recent CAFTA-DR labor submission report. The 
 
GUATEMALA 00000263  002 OF 004 
 
 
provision of technical assistance to help the GOG address some of 
these deficiencies could help ease the financial burden of 
implementing measures to better enforce labor laws, particularly in 
a year in which the economic downturn is putting additional pressure 
on budgetary resources.  Efforts should be devoted to assistance 
areas that will help build robust and self-sustaining institutions 
that will employ high-quality technical staff hired under special 
arrangements shielding them from the likelihood they would be 
replaced at the end of the current Colom administration.  Technical 
assistance would need to be accompanied by continued Embassy 
demarches to the GOG to protect worker rights. 
 
------------------------ 
Environmental Protection 
------------------------ 
 
Obligations: 
------------ 
 
 
8.  CAFTA-DR reserves the right of each party to establish its own 
levels of domestic environmental protection but specifies that each 
Party will ensure its laws and polices encourage "high levels of 
environmental protection."  It also prohibits CAFTA-DR countries 
from waiving environmental laws to promote trade or attract 
investment.  The annex to Chapter 17 calls on the Parties to work 
together to share best practices, exchange information and foster 
partnerships to address current or emerging conservation and 
management issues, including personnel training and capacity 
building. 
 
Performance since CAFTA-DR entry into force: 
------------------------------------------- 
 
9.  CAFTA-DR provided an important policy framework upon which to 
center discussions on ways to improve environmental protection in 
Guatemala and deliver technical assistance.  Since the inception of 
CAFTA-DR we have worked with Guatemala to strengthen its ability to 
review and evaluate Environmental Impact Assessments (EIAs), worked 
with the Ministry of Environment and Natural Resources (MARN) to 
develop science-based regulations for monitoring water, air and soil 
around mines, improved monitoring and control of waste water 
discharges, worked to improve the environmental law capacity of the 
Courts and established a public complaint unit to manage 
environmental claims and oversee environmental obligations set out 
in Chapter 17 of CAFTA-DR. 
 
Next steps to improve performance: 
--------------------------------- 
 
10.  Improvements to Guatemala's environmental protection regime 
should focus on: 1) ensuring the Ministry of Environment and Natural 
Resources and the other principal entities with environmental 
protection responsibilities are equipped to make sound, 
science-based judgments with respect to enforcing the legal 
framework as well as granting approval for development projects, 
issuing regulations, and monitoring compliance with environmental 
laws; 2) protecting bio-diversity in the sensitive Maya Biosphere 
region; and 3) creating incentives for Guatemala to protect the 
rainforest through active development of and participation in a 
carbon trading regime.  All such efforts should involve the active 
participation of private sector businesses and NGOs.  Efforts in 
these areas will also positively impact many of the issues related 
to Global Climate Change and Guatemala's high risk susceptibility to 
climate change. 
 
11.  Specific projects for Guatemala could include: 
 
-- Continued support for the development of science-based 
regulations for the monitoring of air, soil and water in industry in 
general and mining zones:  Monitoring and enforcement bodies need 
strengthening to more effectively carry out their important role. 
Qstrengthening to more effectively carry out their important role. 
Mining remains a polemical activity in Guatemala with powerful 
domestic and international interests advocating both for and against 
mining activities.  Guatemala possesses substantial mineral 
resources that, if more fully developed, could support substantial 
employment and provide important revenue streams for the national 
government and local communities.  While there is also substantial 
social controversy surrounding mining, from a strictly environmental 
point of view, the best way to ensure that mineral resources are 
responsibly developed and robust environmental safeguards are 
implemented is through rigorous application of science-based 
regulations to monitor the environmental impact of mining.  Projects 
should include: 1) the creation of a database of best practices and 
regulations; 2) technical training and the development of Standard 
Operating Procedures on how to properly conduct monitoring visits, 
including maintaining samples and submitting them for certified 
testing; and 3) working with industry, government and civil society 
to increase trust and information sharing between the all interested 
parties.  That said, mining remains a "third wire," with sensitive 
 
GUATEMALA 00000263  003 OF 004 
 
 
political and social issues for affected communities. 
 
-- Expanded use of SERVIR:  Guatemala's Ministry of Environment and 
the Institute of Seismology, Weather, and Meteorology would like to 
expand their understanding and usage of the regional global climate, 
land use and weather monitoring system SERVIR (Regional 
Visualization and Monitoring System).  SERVIR was created by NASA 
and supported by USAID, the World Bank, and CCAD (the Central 
American Commission for the Environment and Development), to provide 
live satellite images, earthquake records and fire monitoring of 
Central America.  Guatemalan officials would benefit from training 
in how to use information from SERVIR to monitor and control forest 
fires, track deforestation and work to address the largest threats, 
protect natural parks and cultural areas, and develop a benchmark 
survey of water and soil quality across the country that could be 
overlain onto a map.  The enhanced capacities of SERVIR would be 
available to others in the region as well as the public via its web 
portal. 
 
-- Protection of Biodiversity:  Linking of biodiversity and natural 
resources conservation with sustainable forestry practices (timber 
and non-timber), eco-tourism and environmental services in general 
is critical for attaining long-term improvements.  More needs to be 
done in this area. 
 
-- Participation in Carbon Markets:  Despite market limitations, 
USAID estimates Guatemala has potential for sequestering 89 million 
tons of carbon verifiable annually.  The development of five or more 
pilot carbon sequestration projects, including one in the Maya 
Biosphere Reserve, would contribute to generating a national program 
within the framework of the global climatic challenge.  The projects 
would contribute to establishing carbon baselines, development of 
prospectus for carbon sequestration projects, certification of 
carbon sequestration projects and approaching potential buyers for 
these projects in international carbon markets. 
 
 
----------------- 
Poverty Reduction 
----------------- 
 
Obligations: 
------------ 
 
12.  CAFTA-DR makes no specific provision for poverty reduction, but 
the benefits of the overall agreement were intended to be shared by 
all sectors of society.  In the agreement's preamble the creation of 
new employment opportunities and improved working condtions and 
living standards is specifically citedas one of the purposes of the 
agreement.  To facilitate poverty reduction through trade, the 
Committee on Trade Capacity Building was created to seek the 
prioritization of trade capacity building projects, coordinate with 
international donor institutions, NGOs and private sector entities 
and promote reforms and investment necessary to foster trade-driven 
economic growth, poverty reduction and adjustment to liberalized 
trade. 
 
Performance since CAFTA-DR entry into force: 
------------------------------------------- 
 
 
13.  Since the entry into force of CAFTA-DR, substantial efforts 
have been devoted to developing trade capacity to ensure the 
benefits of trade extend to all Guatemalans.  However, more needs to 
be done.  Trade capacity building assistance is an important tool in 
poverty alleviation.  Technical assistance has helped Guatemala 
comply with rules of origin, customs administration and sanitary and 
phytosanitary (SPS) requirements.  Training on these and other 
issues necessary for small- and mid-sized business owners to compete 
in the export markets has drawn substantial numbers of new 
entrepreneurs into the export market.  USAID/Guatemala's Economic 
Qentrepreneurs into the export market.  USAID/Guatemala's Economic 
Growth program has provided technical assistance to rural small and 
medium-scale enterprises using a supply-chain approach in high-value 
services.  The supply-chain approach links producers directly with 
markets and generates employment and income for rural small and 
medium scale producers.  This supply-chain focus on a wide variety 
of products and services including high-value gourmet vegetables and 
agricultural products, gourmet coffee, forest floral greenery, 
non-traditional species quality hardwood, handmade ceramics, 
hand-woven textiles and community eco-tourism.  Perhaps most 
importantly, is the employment generation/poverty reduction impact 
of such assistance, where one-half of small-scale producers 
increased income in the highlands is spent locally, resulting in a 
major economic multiplier effect, more than for any other 
investment.  USDA in conjunction with the USAID Regional office in 
El Salvador has provided technical assistance to both government 
officials and the private sector on sanitary and phytosanitary 
issues enabling the country to meet many US regulations and access 
to the US market for new agricultural products. 
 
 
GUATEMALA 00000263  004 OF 004 
 
 
Next steps to improve performance: 
--------------------------------- 
 
14.  To ensure the impact of the global economic downturn is 
minimized, particularly for vulnerable populations such as the rural 
poor, we should continue to fund programs to ensure that the 
economic benefits of CAFTA-DR are effectively distributed. 
Technical assistance should be devoted to helping micro, small and 
mid-sized businesses, especially farmers, adopt new technologies, 
meet international quality standards and open new markets, 
principally in the agricultural, coffee, tourism, and forestry 
sectors.  In doing so we should take advantage of the full range of 
USG technical assistance and leverage international financial 
institutions and the private sector to ensure maximum impact of USG 
assistance. 
 
15.  Specific projects should include technology transfer, training 
and institutional strengthening programs to assist small-farmers and 
cooperatives understand and take advantage of export potential. 
 
-- We should leverage international financial institutions and 
others in the donor community to improve essential small 
infrastructure (key community bridges, farm-to-market roads, small 
scale irrigation systems) and reduce the costs of market access for 
rural Guatemalans. 
 
-- Significant work is needed to rebuild Guatemala's agricultural 
research and extension service.  Without it, the successes in 
employment generation/poverty reduction from increased high-value 
agriculture exports are at risk in the short- to medium-term due to 
inadequate capacity to treat continuously developing threats from 
plant pests and diseases. 
 
-- We should utilize technical assistance under the U.S. Treasury's 
Small Business Lending Initiative to help Guatemala create a more 
robust legal and supervisory framework for lending to small and 
medium sized businesses. 
 
-- If the program expands, Guatemala should be included in the next 
tranche of countries under the U.S.-Chile Infrastructure Finance 
Experts Corps (IFEC) project.  IFEC aims to leverage the potential 
of Public-Private Partnerships in mobilizing the private sector to 
ensure adequate financing of larger infrastructure projects and 
improve transparency in project execution. 
 
-- We should utilize the U.S.-Brazil Biofuels Initiative as a 
catalyst to bring together interests in renewable energy to create 
the legal framework necessary to develop a robust domestic market 
for the production and consumption of biofuels. 
 
-- Technical assistance should also be dedicated to expanding 
research into the development for use as biodiesel of Jatropha 
curcus - a promising feedstock for biodiesel native to Guatemala, 
cultivated by small farmers and can be grown in areas unsuitable for 
most food crops.  Preliminary studies show Jatropha grown in 
marginal agricultural areas of Guatemala could substitute up to 80 
percent of imported diesel.  Successful development of biodiesel for 
domestic consumption would improve Guatemala's balance of payments, 
and provide an important alternative cash crop for small farmers. 
 
16.  Comment:  To ensure the current global economic environment 
does not slow or reverse important gains in poverty alleviation made 
in the wake of CAFTA-DR, the USG, together with partners in the 
donor community, should work to deepen engagement, especially with 
vulnerable populations, to ensure they enjoy the benefits of the 
free trade agreement.  Similarly, CAFTA-DR provides important 
frameworks and remedies to enhance worker rights and improve 
environmental protection.  Important gains have been made, but 
Qenvironmental protection.  Important gains have been made, but 
institutional weakness and capacity constraints, and to some extent 
political will, have weakened the Guatemalan government's ability to 
take full advantage of the labor and environmental provisions of 
CAFTA-DR.  Continued USG engagement is necessary to ensure the 
Guatemalan government continues to improve its capability to ensure 
high standards of environmental protection and safeguards for 
workers.