AmCham in Action - English

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AMCHAM IN ACTION 2020

The Guatemalan-American Chamber of Commerce is the largest binational chamber in Guatemala. Its objective is to promote trade relations between Guatemala and the United States, by strengthening economic activity and free enterprise, and further advancing the legitimate interests of its members and promoting social responsibility.

Guatemala has the largest economy in Central America, with a gross domestic product (GDP) of 3.1% percent growth rate in 2019. Remittances, mostly from the United States, increased in 12% and were equivalent to approximately 11% percent of GDP.

The United States is Guatemala’s most important economic partner. The Guatemalan government continues to enhance competitiveness, promote investment opportunities, and work on legislative reforms aimed at supporting economic growth.

More than 200 U.S. and other foreign firms have active investments in Guatemala, benefitting from the U.S. Dominican Republic-Central America Free Trade Agreement (DR-CAFTA). Foreign direct investment stock was USD 1,031,5 million in 2018. Some of the activities that attracted most of the Foreign Direct Investment flows in the last three years were electricity, commerce, manufacturing, agriculture, and mining.

Despite positive steps to improve Guatemala’s investment climate, international companies choosing to invest in Guatemala face significant challenges. Complex and confusing laws and regulations, inconsistent judicial decisions and bureaucratic impediments continue to constitute practical barriers to investment.

The following document includes resumĂŠs of current topics of great importance to the Nation and a set of proposals worked by AmCham Guatemala to improve the business climate and bring prosperity to Guatemalan people.

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Content Rule of Law ........................................................................................................................................... Institutional Strengthening and Rule of Law ................................................................................... 4 Government Procurement Law ....................................................................................................... 5 Consultation with Indigenous People in the framework of ILO´s Convention 169 ………………9 ILO Convention 175 Regulation …………………………………………………………………………………………11 Tax Credit Refund ......................................................................................................................... 13

Infrastructure Improvements............................................................................................................... Emergency Rescue Plan for Road Infrastructure .......................................................................... 15 Strengthening Public Private Partnerships in Guatemala ............................................................. 23 Migratory Issues ................................................................................................................................... Agreement between Guatemala and the US on Cooperation Regarding the Examination of Protection Claims ................................................................................................ 25 Agreement between Guatemala and the US concerning a Temporary Agricultural Workers Program -TAWP Agreement -................................................... 27 Trade Facilitation .................................................................................................................................. Emerging Law for the Conservation of Employment, Decree 19-2016 Analysis and Impact on Guatemala´s Economy ............................................................................ 28 Approval of the Regulations for the Authorization Enabling and Operation of Public Special Economic Development Zones -ZDEEPS- ...................................................................................... 30

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Institutional Strengthening and Rule of Law The Guatemalan-American Chamber of Commerce -AmCham- firmly believes that upholding and respecting the Rule of Law of the country through the fight against impunity and corruption is essential. It is important to continually strengthen the institutions, democracy and the independence of the Jurisdictional Bodies that play an important role in the transformation of the country. Discretionary court rulings and weakness in the judicial institutions have created an environment of uncertainty that is resulting in private sector distrust for the judicial system. The weakness of the Rule of Law is materialized through concrete situations that affect businesses such as judicial and administrative proceedings in which the principles of presumption of innocence are not respected; judicial institutions that fail to comply with the terms of the law; and arbitrary interpretations of the law. In the other hand, lack of response from the institutions to questions and requirements that the companies make in the framework of administrative or judicial processes. It is important for Guatemalan society to live in a climate of political and social harmony and stability, respecting the private property and contributing to the economic growth of Guatemala by prioritizing legal certainty, transparency and common good. These are all essential principles to ensure economic development and growth to promote new investment and the creation of jobs, to avoid the internal and external displacement of the population, by improving their quality of life. AmCham believes that the main focus for Guatemala's public and private sectors and civil society should be institutional building aimed at maintaining the stability and harmony of the country. We firmly believe in the fight against corruption through strong institutions and their presence throughout the country, while providing legal certainty to investors and entrepreneurs.

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Government Procurement Law Key Aspects

In order to achieve a more efficient government procurement system in Guatemala, it’s necessary to develop a new regulatory framework that guarantees an adequate balance between contracting checks and balances and the necessary freedom to contract efficiently and competitively, without neglecting the need to strengthen transparency.

Thus, following the recommendations of the Public Governance Committee of the Organization for Economic Co-operation and Development, and the Agreement on Government Procurement of the World Trade Organization, it’s considered that any regulatory framework proposed over this topic should take into consideration the following strategic pillars: Institutional Strengthening

The Government Procurement System must be endowed with a solid institutional infrastructure to promote efficiency and mitigate arbitrary decision-making. Therefore, it is necessary: •

That any new regulation strengthens the entity with the legal mandate, within the Ministry of Finance, of coordinating and supervising the Government Procurement System by endowing it with legal hierarchy, resources, and clearly established institutional coverage to manage information, statistical databases, execute an administrative control, and, above all, establish the technical requirements to participate in bids, specifications of works, goods and services to be provided, criteria for evaluation of proposals, framework agreements, guidelines for the management of acquisitions, and model documents to which all entities in charge of Government procurement must comply in order to avoid the proliferation of scattered regulations subject to the different criteria of each government entity.

Professionalization

The efficiency of the system goes hand in hand with the professionalization of public officials. In this way, tools must be designed so that all of the officials in charge of public procurement have a high level of integrity, technical training, and skills for implementation. For this purpose: •

A special administrative career for procurement managers that establishes the required capacities, defines their specific responsibilities and evaluates their performance should be created. This training has to be focused not only on legal aspects, but also on market structures, price monitoring, best worldwide practices, and efficiency analysis, among others. 5


• • •

Management quality control must be regulated and efficiency in acquisitions monitored through periodic evaluations of staff performance. The law must provide the specific profile for procurement officials and for members of Qualification Boards, as well as determine different levels of authorization to celebrate contracts. The law should establish the regulation of a constant training for the members of the boards, as well as for the specific departments of each executing unit in charge of contracting.

Public Budget and Planning

In order to make contracting processes more efficient and to optimize public spending, public procurement must be integrated into the management of public finances, in this way: •

• •

Procurement planning should be regulated in such a way that there exists coordination between procurement and budget management, establishing the obligation and procedure for multi-year budgeting and financing to optimize the design and planning of procurement cycle. It should be established that at the beginning of each fiscal year, all contracting entities have the obligation to schedule their purchases and contracts. This programming should be subject to review by the Ministry of Finance and then published on the entity's electronic portal and GUATECOMPRAS. The hiring ban when there’s no budget availability must be maintained in any new regulation. It’s necessary to establish accurate and fixed payment mechanisms since the absence of these represents a high risk for suppliers, promoting a lack of trust in the system.

Anticorruption System and Accountability

Linked to the above, the Public Procurement System must have internal controls, measures to ensure compliance with contracts and anti-corruption programs, aimed at both contracting entities and suppliers. Thus: •

It must be ensured that public contracts include guarantees of exemption from corruption and carry measures to verify the veracity of statements and guarantees of suppliers that they did not participate in corrupt behaviors in relation to the contract and that they will abstain from this type of behaviors. The internal control of the procurement system must have a preventive approach. For this purpose, it’s necessary to strengthen the audit procedures by regulating the existence of a government audit specialized in public procurement to be carried out compulsorily at least once a year. The external control exercised by the Contraloría General de Cuentas must focus more on results and impacts than on processes. Also, it´s findings should be delivered on time. 6


• •

There must be systematic management reports on basic aspects such as efficiency, opportunity quality, and paid prices, among others. There has to be a regulatory body on corruption in public procurement.

Accountability plays a decisive role, which is why supervisory and control mechanisms should be implemented that favor it throughout the cycle of public procurement, including the appropriate procedures for complaints and sanctions. Thus: • •

A simple procedure should be created to encourage the reporting of corruption acts, with specific deadlines for them be resolved. The applicable sanctions directed at both public and private sector participants must be clearly established proportionally to the level of illegality to be sufficiently dissuasive, but without generating unfounded fear of consequences or aversion to risk in public procurement personnel or among the suppliers.

Dispute Resolution

The efficiency of the contracting system will also depend on the functioning of the dispute resolution mechanisms established in the law. Because of that: • • •

The non-conformities raised through GUATECOMPRAS must be considered by the entities and answered in a timely way. An administrative authority specialized on appeals should be created. There must be a guarantee of immediate application of arbitration awards.

Regulation Concentration

The public contracting system must be endowed with a wide margin of certainty to foster the confidence of the applicants and avoid the arbitrariness of the entities in charge of contracting. Therefore, the law must contain reasonable and solid provisions so that the terms for bidding and contracting are as clear and simple as possible, avoiding introducing conditions that reduplicate or contradict those of other laws or regulations. In this way: •

The publication of "regulations" and "board of directors' agreements" must be regulated in such a way that all information relevant to the application of the law is found and is derived from a single regulatory body. This becomes a greater ease to inspect each government entity because there is no need to adapt to the regulations of each independent entity.

Minimum Exceptions

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The abuse of exceptions has resulted in an unpredictable, ungovernable, difficult to control, inefficient system with very high risks of corruption. Therefore, exceptions should be limited, as well as hiring with a single provider. Likewise, the hiring process in cases of emergency and public calamity should be regulated.

Exceptions must be minimal and, in addition, the process must be established so that there must always exist requirements to comply with an efficient and transparent mechanism.

Specific Regulation for the Contracting of Goods and Services

A specific regulation must be created for different types of specialty goods and services, according to their characteristics, which deserve a different regulation, such as the contracting of public works, services, or medicines.

Contracting System and Accessibility of Information

It is essential that the regulatory framework fosters transparent and effective participation of all interested parties, seeking to boost efficiency throughout the public procurement cycle. The implementation of information and communication technologies is an important aspect to achieve this objective because it represents a means to guarantee transparency and access to public tenders, promoting competitiveness, simplifying contract award procedures and the management of these. For this purpose, the GUATECOMPRAS portal must meet the following requirements: • • • •

The obligation to publish comparative information should be established in which it can be verified who are the entities that buy and at what price they do it, efficiency indicators, price comparisons, execution status of the works, and concentration of suppliers. The obligation to carry out management reports on basic aspects such as efficiency, opportunity, and quality must be regulated. It’s necessary to regulate the restructuring of the purchase modalities and the incorporation of new ones. It must be established that the members of the qualification boards, responsible for technical and legal opinions, are identified in GUATECOMPRAS.

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Consultation with Indigenous Peoples in the framework of ILO’s Convention 169 The Government of Guatemala ratified ILO’s Convention 169 in June 1996, whereby it assumed the responsibility of implementing non-binding consultation processes prior to authorizing administrative measures that may affect the rights of indigenous peoples concerning their culture, forms of life, institutions, traditions, collective rights and the right to participate effectively in decisions that impact their forms of development. At the moment there is no document that provides the Executive branch with an appropriate procedure to hold consultation processes which respect the criteria of prior, informed consultation made in good faith.

The Court system has ordered consultation for mining, hydroelectric and electric transmission projects in different stages: preparation, construction and operation. The operation of two hydroelectric projects were cancelled for 105 days and two mining projects were temporarily suspended.

In most rulings, the Constitutional Court has instructed the Ministry of Energy and Mines to implement consultation processes using ILO’s Convention 169 as a sufficient guideline. The Ministry of Energy and Mines developed a methodology to implement these procedures to fulfill its instructions, and took advantage of the experiences of other countries such as Peru, Colombia and Chile. This methodology was shared with the representatives of communities in each case.

The Ministry of Labor and Social Welfare is the agency in charge of handling International Labor Organization matters and through it, the Government of Guatemala took the initiative to work on an Operations Guide for the implementation of Consultations with Indigenous Peoples.

This Operations Guide was created with the help of AmCham as a tool to guide the Executive branch in the implementation of consultation processes through a framework to guide the relationship with Indigenous Peoples. It provides a detailed process with specific activities to be met and assess as part of the process, it includes a participatory process that is respectful of Indigenous Peoples’ customs, and allows the joint construction of a mechanism of permanent dialogue to accomplish agreements, monitoring and compliance.

To fulfill the ruling issued by the Constitutional Court in the case of the Oxec I and Oxec II hydroelectric projects, the President of Guatemala, acting in his capacity as the representative of the Executive Branch, presented to the Speaker of Congress the Operations Guide for the Implementation of Consultation Processes with Indigenous Peoples within the framework of ILO’s 9


Convention 169, as a guide for the drafting of the law by Congress to meet the consultation process obligation.

Through the Ministry of Labor and Social Welfare, the Government of Guatemala engaged in important efforts with representatives of various sectors, particularly Indigenous Peoples’ leaders, to build consensus for the immediate practical enforcement of this Operations Guide. Support was received from the ILO, UNDP, the Legislative Branch, Embassies and Indigenous Leaders. Despite efforts by the Executive Branch to create a mechanism for the implementation of Consultation Processes under ILO’s Convention 169, clarity about Indigenous Leaders’ representation, and understanding of the spirit and scope of the Convention by Indigenous Peoples is necessary.

Nevertheless, the process of consultation with Indigenous Peoples within the framework of ILO’s Convention 169 still needs a robust and articulated institutional framework, with presence in rural areas and the capacity to cover basic needs in Indigenous Peoples territories. It is therefore necessary to take into account the conditions that must be in place to implement these processes and that the operations guide is just a tool to give certainty, but this guide should be followed by the creation of the complete framework.

The cancellation or suspension of mining and hydroelectric projects needs to be stopped. These rulings sabotage the objectives of the Alliance for Prosperity Plan for the Northern Triangle with the United States, which seeks to reduce the high costs of electric power, enhance the low levels of investment, create employment and much more.

For example, by suspending operations of Minera San Rafael – Tahoe, more than 17,000 direct jobs have been put at risk, which are the livelihood of more than 85,000 Guatemalans. Furthermore, revenues of over 5 million dollars per day stop flowing into the country in the form of payments to suppliers, taxes and royalties, plus more than 120 million dollars in annual investment and payments to suppliers. The operations of the mining were suspended for more than 300 days, meanwhile in other cases of this matter the companies were able to continue their operations while the consultation is done.

After more than 1 year of suspension the Constitutional Court issued a ruling on the constitutional action for relief of the suspension, ordering the Ministry of Energy and Mining to proceed with the consultation and the mining to renew operations after the consultation. This is a clear example of the lack of rule of law that the country is experiencing and we truly believe that if this kind of issues stays unsolved the competitiveness of Guatemala will be negatively affected.

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There is a need for a clear regulation and processes for the consultation, considering that the convention 169 does not have a complete procedure on how to fulfill the requirements of an efficient consultation, and this as a result will bring more unsolved cases and lack of rule of law for the investors.

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ILO Convention 175 Regulation Background

The ILO Convention No. 175 was approved in June 1994, and ratified by Guatemala in January 2017. By express provision of the text of the Convention, each signatory party undertook the obligation of regularizing its through internal national legislation.

On June 3, 2019, the Executive Branch approved the Regulation of Convention No. 175 by means of the Agreement 89-2019 of the Ministry of Labor and Social Security. On October 3, 2019, the Constitutional Court provisionally suspended some articles of the regulation, which rendered it inoperative.

Based on the foregoing and in compliance with the obligation to regularize the content of Convention No. 175, the Congress of the Republic resumed the discussion and approval of the initiative No. 5477 presented on July 12, 2018 that contains the bill that regularizes said Convention. Currently the initiative is pending to be discussed by the Congress in its first debate.

Content

The initiative contains eleven articles intended to allow the application of the part-time work regime as provided in the Convention.

Firstly, the initiative defines relevant terms for the correct interpretation of its content. Among them, the concept of part-time worker stands out, referring to the worker who provides his personal services in a labor relationship for less hours than the established for the ordinary day of work in the Labor Code.

The initiative provides that part-time personnel can be hired complying with the provisions of the Labor Code and the Convention. For this purpose, it is established that workers under this regime enjoy all the rights established in ordinary laws and international conventions on labor and social security.

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Under the terms of the initiative, part-time workers are entitled to receive a wage on an hourly basis, which cannot be less than the minimum hourly wage fixed for each year. All the labor benefits that apply for the regular workers are to be determined proportionally.

Lastly, it establishes that the transfer of a full-time worker to part-time or vice versa is allowed, as long as it is voluntary, so the worker's consent must be stated expressly and in writing.

Conclusion

The approval of the initiative will be positive as it would facilitate the hiring of personnel by increasing the flexibility of the country's labor regulatory framework in an unprecedented way. This, therefore, without further regulation, provides that the payment of the minimum wage may be proportional to the number of hours worked, and the rest of the benefits must be calculated in the same way. In addition, it solves aspects that were not regulated in the Agreement 89-2019 of the Ministry of Labor and Social Security that is currently suspended.

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Tax Credit Refund Background

In Guatemala, the Superintendence of Tax Administration (SAT) is the State body responsible for planning, programming, organizing, directing, executing, and controlling all activities that are linked to the tax relationships that arise as a result of the application, collection and control of taxes.

Considering the need of the State of Guatemala to meet its economic and social development objectives, the Congress of the Republic decreed the Value Added Tax (IVA) Law that creates a tax with a rate of twelve percent (12%) that taxes various acts and contracts. IVA is a consumption tax that moves in a chain until it reaches the final consumer. The latter is the one responsible for paying the tax in question.

The tax credit comes from the affected operations that the taxpayer generates during a period of time for the acquisition of goods and the use of services. The acquisition of such goods and use of services is supposed to be necessary to produce, transform, market, transport or distribute the goods or services that are put on sale.

Procedure

Taxpayers who are dedicated to export and those who sell or provide services to exempt people in the domestic market, will have by law the right to the refund of the tax credit when the tax has been generated by the importation, acquisition of goods or the use of services, which apply to acts affected by IVA, as long as they are linked to the taxpayer's production or marketing process. Due to the above, the return of tax credit to exporters and/or exempt companies is justified as a result of the compensation between the credit and the taxpayer's debit.

The SAT estimates that for the year 2019 the return of the tax credit should amount to GTQ 3,092 million with a growth rate of 8.5 percent compared to 2018. The estimates of the collecting entity show that the return of the tax credit will continue to increase until reaching the almost GTQ 4 billion by the year 2023.

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Current Situation

The State of Guatemala stops returning on average GTQ 800 million annually. When analyzing the data and projections of the SAT, it can be established that the impact is large for the country's productivity, since approximately USD 6 billion per year is no longer circulated in the economy. According to the estimates made by Central American Business Intelligence (CABI), they indicate that the accumulation of files that the SAT has not concluded from 2012 until 2018 has left losses that exceed the GTQ 40 thousand, due to the effects they have on financial liquidity, the consumption, investments and the payment of taxes that could be generated by these activities. This happens because entrepreneurs and exporters let invest in more products, jobs, and investment in general.

The big problem with the return of the tax credit is that, over the years, the SAT has not been able to create an efficient, transparent and systematized mechanism to expedite this payment. In addition, problems of administration, blurring and expenditure of resources are generated within the different companies that by law enjoy the right to the refund of the tax credit. It also causes discretion of public officials causing the rules to be unclear. The result of poor management in the return of the tax credit translates into the flight of capital from the country and lack of incentives to attract investment, as this has a direct impact on the productivity of capital. The State, by not complying with the return of the tax credit in the term and in the manner established by law, contributes to the weakening of legal certainty and institutions.

Proposal

The economic mechanism that the Government of Guatemala uses for the operation of the refund of the fiscal credit must be improved. Improving the mechanism should immediately reduce the leverage, deficit and debt generated by the incompetence of the tax authorities regarding the authorized return of financial resources that belong to companies and that are indispensable for their working capital.

Currently the State fails to comply with the law and procedures, which has led companies to initiate legal processes to obtain the refund, generating additional costs and deteriorating the relationship with the tax administration. That is why compliance with the law must be strengthened and tax credit return processes must be improved. The law determines the terms and procedures that must be met for the return of financial resources. To this we must add the need to simplify the process of refund of the tax credit and include the reduction of the number of steps and documents for the registration and updating of as people subject to the refund of the tax credit.

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Prevention and Eradication of Smuggling Background The Prosecutor's Office against Crimes of Fraud and Smuggling was created in May 2019. Since its creation, it has received 365 complaints, of which it has only resolved 74. However, the delay that exists in the resolution of cases is extensive, both those that are in the power of this specific Prosecutor's Office, as well as those that began prior to its creation. In the course of 2020, the Superintendency of Tax Administration estimates that up to July, 110 million Quetzales have been seized in smuggled merchandise. In addition, the Superintendency estimates that in that same period of time, 2.5 billion Quetzales were no longer received, due to smuggling. In this way, it is evident that smuggling implies a scourge for the economic development of the country. Beyond the perception of fewer taxes by the State, unfair competition is generated from foreign products illegally entered into the country, which translates into a disincentive for the legal industry and national commerce. Current Situation The Organic Law of the Superintendence of Tax Administration is clear in establishing that it is responsible for exercising the leadership of the policy to combat smuggling and customs fraud in collaboration with other government entities. Furthermore, the Legal Provisions for Strengthening the Tax Administration indicate that the Superintendency must exercise total control of the country's customs. As mechanisms to combat smuggling, the entities of the State of Guatemala have designed and implemented different mechanisms. In the first place, the legal framework that governs the fight against smuggling and customs fraud is the Law Against Customs Fraud and Smuggling, which develops the sanctioning regime that applies to those who commit actions framed in said law and creates the Interinstitutional Council for the Prevention and Combat of Tax Fraud and Customs Smuggling. As a complement to the above, the Criminal Code and the Criminal Procedure Code regulate aspects related to smuggling and customs fraud crimes. On the other hand, the Judicial Organism has created specific courts to hear cases of smuggling and customs fraud, such as the one in the municipality of Ayutla, based in the city of TecĂşn UmĂĄn. This has been an effective strategy for the prosecution of crimes of smuggling and customs fraud, since the Court is positioned within the perimeter of one of the country's customs. Based on this regulatory body, the Office of the Attorney General, the Prosecutor's Office, the Executive Branch and the Superintendency of Tax Administration created the National Policy for the Prevention and Combat of Customs Fraud and Smuggling 2018-2020. Proposal In this way, it is clear that there are legal tools to combat smuggling and customs fraud, so that beyond issuing new regulations or laws on smuggling, concrete actions are required within the current legislation, among which includes:

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1. The implementation of technological tools in customs is essential, since the countries in which customs processes are carried out digitally offer more transparency and efficiency in the processing of daily commercial transactions. When making the entire customs process more technical, it is important to minimize the participation of individuals, so that the customs clearance of merchandise is not subject to arbitrary criteria that lead to acts of corruption to expedite the clearance of merchandise. 2. It is necessary to create a specific Prosecutor's Office to combat smuggling, because although in 2019 a Prosecutor's Office was created that is dedicated to the prosecution of customs fraud and smuggling as a whole, they are two fields that require specialization and specificity in the treatment of cases. Said prosecutors must have a presence at the country's borders, and be able to carry out operations in conjunction with the National Civil Police, the Army and the Judicial Branch, for the rapid and efficient capture of those who transgress the law. 3. As a complement to the previous point, it is relevant to create specialized courts only for smuggling and customs fraud, close to all border and customs crossings in the country.

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Insolvency Law Background COVID-19 has impacted not only people's health but also their economy. The market naturally adjusts faster than the legal framework. This pandemic anticipates a significant economic slowdown that will affect mostly small and medium-sized entrepreneurs. The first symptoms of this situation begin to be seen with an increase in the unemployment rate and it can be assumed that many of these companies will have an insolvency situation in the future. Legally, the Civil and Commercial Procedural Code regulates collective executions through voluntary and necessary competition;[1] It is within these legal figures that the insolvency of a debtor is dealt with. Despite the fact that the current regulations were enacted in 1963,[2] There are few collective execution processes that have been processed and are currently being processed in the Civil and Commercial Courts of Justice of the Republic of Guatemala. The regulations currently in force, the Civil and Commercial Procedural Code, dates from 1963. Basically in 53 articles (from 347 to 400) the Guatemalan legal system develops the insolvency of natural and legal persons. Unlike other countries, this regulation, for its time, is very visionary since it includes both the possibility of insolvency of a natural person and a legal person.[3] The current regulations also have an order of priority for creditors and seek to establish precisely how each type of creditor should be treated,[4] providing a logical order and payment structure. Perhaps, where this regulation presents a greater limitation is in the speed and practicality of the process, because even when there is an agreement between creditors and debtor, it has always been interpreted that this must be approved by a judge.[5] In practice, judicial insolvency or bankruptcy proceedings have rarely been concluded in an adequate time, either due to judicial delay, the number of processes assigned by the courts or due to the lack of technical knowledge on the part of the operators. of justice to process the process. In other words, the rule has a substantive foundation and support, but from a practical point of view, the insolvency process has not been able to be concluded in a fast and agile way. Legal regulations are an obstacle to the solution of the legal conflict. Initiative No. 5446 In the case of the initiative No. 5446 of the Congress of the Republic, named "Insolvency Law", it is currently under discussion. It regulates certain principles that are already recognized at constitutional level, in the Judicial Organism Law and in the Civil and Commercial Procedural Code. This regulation is based on two pillars. First, it proposes a reorganization plan approved by the majority of creditors. However, to do so, it contemplates the creation of a bankruptcy judicial bulletin where the agreement will be published. At the same time, it proposes the creation of specialized bankruptcy courts and a National Insolvency Directorate in charge of the Ministry of Economy, whose purpose is to support insolvency proceedings by promoting conciliation in a technical way. This model, even though it provides solutions to many current questions such as the payment of taxes or the consideration of a loan as uncollectible, has exactly the same problem as the Civil and Commercial Procedural Code: the procedure, far from being a quick and practical solution, is it becomes an obstacle to solving the problem. This logically will only, as it happens now, that those who are in a state of insolvency simply do nothing. In a situation such as the economic slowdown caused by the COVID19 pandemic, regulations such as this must seek a real and executable solution in the short term for the following reasons: (1) It proposes the creation of specialized courts, that is, they are Courts that do not currently exist and that the Judicial Body must create and implement. If we take as a parameter the response that

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the Judicial Body has currently had to COVID-19, the reality is that these courts will not see the light until one or two years after the entry into force of the rule.

(2) The modification of the written process to the oral process. Although it is true that orality facilitates the agility with which a process can be processed, the Judicial Branch in civil matters is not ready for a radical change in the short term. In addition, that a simple reference to the Oral Trial of the Civil and Commercial Procedural Code is the equivalent of disregarding the practice in Courts in that these processes, with few exceptions, are still processed in writing. (3) It creates an additional entity, dependent on the Ministry of Economy to provide technical advice in this type of process, both to debtors and creditors. Waiting for an entity to be created and worse, for it to come into operation is the equivalent of not providing a short-term solution to the citizenry. Conclusions

The discussion and approval of an insolvency law is positive. Reforms and modifications to the insolvency procedures in Guatemala are necessary. However, attention must be paid to the content of this initiative and that it does have a positive impact, that it does not fall into the same problem that exists today.

An adequate proposal should seek to generate a simple change that can allow people, who do have the proper knowledge of insolvencies and bankruptcy, to process legal processes. The proposal should include reform s to the Civil and Commercial Code to allow the debtor and creditors handle the process of insolvency and bankruptcy before a notary. Currently there is experience with various legal processes in which a notary acts as a judge. Among these processes, it is especially important to highlight the succession processes, since they have very similar characteristics to insolvencies and are an example of agility in the face of the judicial apparatus. While a succession process in a notary office can take between 6 months and 1 year, in court the minimum term is 2 years. A proposal like this, which would involve reforming the Civil and Commercial Procedural Code establishing the possibility of processing the insolvency process in full before a Notary, has a real and plausible benefit. There are more notaries than judges in the legal market and this allows adaptation in the legal market to be much faster and more efficient than creating a series of specialized courts and a new Directorate of the Ministry of Economy.

[1] Vid., Articles 347 to 400 of the Civil and Commercial Procedural Code regulate collective execution. These standards regulate

[2] The Civil and Mercantile Procedural Code, Decree 107 was promulgated on September 14, 1963 by the then Head of Government Enrique Peralta Azurdia .

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[3] Article 347 of the Code of Civil and Commercial Procedure establishes: “Natural or legal persons, whether or not they are merchants, who have suspended or are about to suspend the current payment of their obligations, may propose to their creditors the celebration of a agreement. They may also do so, even when they have been declared bankrupt, provided that it has not been judicially classified as fraudulent or guilty. ”

[4] Article 392 of the Code of Civil and Commercial Procedure establishes : “The classification and graduation of credits, except as provided in other laws, will follow the following order: 1. Acreedurías for food present and for personal work. 2. Creditors for last illness and funeral expenses, will, inventory and succession process. 3. Accreditations established in public deed, according to the order of their dates. 4. Common credentials , which includes all those not included in the previous numerals. As for the mortgage and pledge credits, once paid, if there is a surplus, it will be delivered to the depositary of the bankruptcy. Accepted the graduation of credits by the General Meeting or the cars that resolve the challenges that have been made, the trustee will formulate the liquidation of the bankruptcy, establishing the amount that corresponds to each creditor in the resulting balance, after deducting the legal expenses . The bankruptcy costs will be paid of all preference. ”

[5] Article 367 of the Civil and Commercial Procedural Code establishes: “If the agreement has not been judicially accepted and approved, the debtor will be declared insolvent and the necessary bankruptcy or bankruptcy will proceed, as the case may be. ”

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Initiative for the Simplification of Administrative Procedures Currently, in Guatemala, there is a high complexity in the procedures due to excessive deadlines, lack of implementation of technology and electronic government, the involvement of different actors in the processes, the high management costs and unnecessary requirements. This is demonstrated by the Doing Business Index in which Guatemala has the 96th position out of 190 countries, according to a 2020 report. Said study was carried out by the World Bank in order to evaluate and compare the ease or difficulty of doing business in a country, analyzing the impact that legislation and institutions have on the creation, operation and expansion of companies in a country. The index analyzes 10 indicators: time to open a business, access to electricity, access to credit, cross-border commerce, taxes, construction permits, property registering, fulfillment of contracts, protection of minority investors, and insolvencies.

For this reason, the Initiative for the Simplification of Administrative Procedures seeks to optimize, simplify and reduce paperwork in public institutions, aiming to improve the efficiency and productivity of the Executive Branch .

The initiative contains three important points:

(i) Governance

An entity responsible to promote the simplification of administrative procedures is the Presidential Commission for Open and Electronic Government, with the support of the Ministry of Economy. To strengthen governance, a sanctioning regime is established in which infractions and sanctions are established to the regulations for employees and public officials responsible for committing the described infractions . Finally, it is important that it establishes procedures for complaints derived from the implementation of the law.

(ii) Digitalization of administrative procedures and use of electronic government

The initiative contains regulations that allow the implementation of mechanisms for the use of technology and electronic means for greater agility in the procedures. Among which we can mention: • The signatures of the people in applications or forms that are presented can be physically or electronically to carry out the administrative procedures, and said signature is presumed authentic and does not require the legalization of the signature before a notary.

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• The payment methods are extended to be able to do it by means of electronic payment, through virtual banking or bank applications that the entity works, or directly at any branch of the banks that the entity works or other electronic payment services. • Entities should implement the necessary technologies to use and implement progressive media electronics that allow the completion of formalities at a distance or improving your files with security conditions coming. To do this, it establishes: (i) obligations to report on administrative procedures on the internet with information on the procedures, requirements, costs, procedures, time and applicable regulations; (ii) implementation of the technology necessary to carry out procedures remotely, seeking to automate them; (iii) place on the internet available to users in the form or application for managing administrative process and arrangement can perform the procedures in line ; (iv) Any document electronic or digitized, signed with signature electronic advanced and sent the entities through tools that are available to perform procedures on line , they will be exempt from the sent copies physical and entities it will retain in digital form ( v) record and archive mail that will contain all the documents linked to the tr to limit administrative ; (vi) access to the information in the public registry; v) validity of documents and information transmitted electronically • Within the framework of simplification , the entities will work in a coordinated manner and create Inter-institutional Portals aimed at specific procedures or sectors . They will carry out all the administrative actions to facilitate the services to the user.

(iii) Simplification of procedures

The bill also contains rules that will help assist the simplification of procedures that will allow reducing time and costs for management, such as: (I) M echanisms rating service; ( i i) single rating and not partial reviews ; (ii i ) Avoid unnecessary rejections that do not result n relevant to define the bottom of the AFF AIRS or; (iv) Prohibit the requirement of d TATEMENTS j uradas, records or information that is generated by the entity that requires or legalization of documents produced or emanating from authorities public and validity of documents issued abroad duly accredited or certified in accordance with the Hague agreement, without the need for accreditation before a public entity or translation of the apostille seal; (v) no requirement to report a loss of documents; vi) rules on request for renewal of permits, licenses or authorizations.

Therefore, with adequate governance and implementation of the three edges described, it will allow the digitization of administrative procedures allowing electronic government and the use of technology, the effectiveness of government in its response capacity for the benefit of users , as well as significant savings. resource government , which will have a direct impact on developing economic , facilitation of trade and attraction of investment .

Emergency Rescue Plan for Road Infrastructure 22


Legal Feasibility Background

Investments in infrastructure work contribute to increasing the coverage and quality of public services (for example, health, education and recreation), reducing the costs associated to mobility and logistics, improving access to different markets (goods and services, work and finance), thus allowing a favorable environment to increase the population’s well-being.

According to the work of World Bank’s César Calderón and Luis Servén (2010) “Infrastructure in Latin America” (World Policy Research Working Paper 5317)”, it is estimated that the impact that an additional growth of infrastructure of 1.0% may increase the rate of growth of GDP per capita by 0.5 percentage points, average. Also, the author states that the economic growth is benefited not only by the amount of infrastructure, but also by the quality of such.

In Guatemala, the levels of joint investment (public and private) have decreased by 3.5 percentage points of GDP, with respect to the levels recorded prior to the 2008-2009 global economic and financial crisis, affecting to a large extent private investment, which represents around 90.0% of the total investment.

It is worth noting that public investment on the country’s infrastructure is one of the lowest in Latin America and in emerging markets, limiting the ability of growth in the economy and the possibilities of improving the population’s standard of living.

According to estimates made by ECLAC (2014), the countries of the region should have invested 6.2% of GDP between 2012 and 2020 in order to fulfill the estimated infrastructure needs for the period. However, according to ECLAC, in Guatemala investment on potable water, energy, telecommunications and transportation has been around 2.5% of GDP, average, between 2008 and 2015, which is why the deficit in infrastructure is increasing.

Flamini and Teodoru (2017) point out that a greater investment in infrastructure in Guatemala, would have a positive impact in terms of economic growth, as well as in the reduction of poverty and income inequality. Improvement in the land transportation network will facilitate regional trade and internal transportation, which would increase supply of goods and lower prices; in addition, such reductions on logistic costs would contribute to an improvement on competitiveness and an increase in employment, among other benefits. They also indicate that a sustained increase of 1.0% of GDP in public investment in the next five years would increase the product by 1.2%. Which is 23


consistent with the International Monetary Fund’s conclusion that an increase of 1.0% of GDP in infrastructure spending, on average, would increase GDP by approximately 1.5%, both in advanced and emerging economies. According to the “Analysis of the country’s performance in terms of competitiveness” conducted by the National Competitiveness Policy, in which businesspeople were asked to determine which are the most problematic factors for doing business in the country, answers pointed that the 5 most relevant factors are crime and theft, corruption, inadequate infrastructure, inefficient government bureaucracy and inadequately trained workforce.

The Problem

During 2015, the Congress of Guatemala approved the amendments made to the “State Procurement Law” in an attempt to ensure greater transparency. Unfortunately, it resulted in additional steps that ended up harming government purchases, creating a gap between budget and spending. As a result, the ability of government institutions to execute was damaged, particularly that of investment institutions (infrastructure) such as the Ministry of Communications.

The result has been road systems in precarious state due to the lack of ability of the government to execute the budget for the construction new roads and/or to repair them. The spending of the Ministry of Communications, as a percentage of the budget allocated for infrastructure, has reached an historic minimum point (close to 40% in 2016), which could explain the current condition of the road system in Guatemala. During 2017 the Ministry of Communications succeed on increasing the budget execution by almost 30% more than 2016.

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Ministry of Communications (Expenses as % of Total Budget Allocated) 120 100

% Spent

80 60 40 20 0

2010

2011

2012

2013

2014

2015

2016

2017

Total Expense

73.9

84.7

91.6

86.9

83.4

60.8

56.9

71.1

Current Expense

96.6

97.7

87.9

85.9

79.1

72.8

72.4

68.3

Investment Expense

71.2

83.1

93.2

87.4

85.5

53.9

45.8

73.2

In March, 2015 in a joint statement 1 of the Presidents of Guatemala, El Salvador and Honduras and the Vice-President of the United States “manifested their shared commitment to promote the strategic matters of the Alliance for Prosperity, such as: boosting the productive sectors of economy; create economic opportunities; develop human capital, citizen security and social inclusion; improve public safety and access to the legal system; and strengthen institutions to improve trust in State”. In this document the establishment of a Public-Private Dialogue was proposed as a mechanism of control and implementation of the Alliance for Prosperity called “Consultative Body of the Alliance Plan for Prosperity”

Despite several civil society and private sector organizations have requested the amendment of the “Procurement Law” there has not been substantial debate in addition to the proposals that the Ministry of Public Finance and congressman Amilcar Pop of the Congress of the Republic have said they will present. Meanwhile, there is a problem that must be resolved and cannot wait for the Congress to draft, discuss and approve a new “Procurement Law”. This needs to be done, but to achieve a good proposal that balances the efficiency of spending with transparency is the main challenge.

https://2009-2017.state.gov/r/pa/prs/ps/2015/03/238138.htm

1

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The Proposal

Therefore, a temporary mechanism is proposed that allows the prompt execution of the national budget oriented to invest in road infrastructure.

The mechanism would work through the action of the government declaring “state of calamity” which is a mechanism described in the Constitution and has the intention of allowing expeditiously budget execution in emergency cases.

According to article 15 of the “Public Order Law” the government is allowed to request for assistance and cooperation from civil entities. Here is where the Consultative Body enters by designing an emergency plan to rescue infrastructure in Guatemala, without forgetting that consensus is necessary regarding medium and long-term amendments that allow the government to operate properly and efficiently.

The main objective of the Consultative Body of the Alliance for Prosperity in this emergency plan would be to observe that the government guarantees transparency, effectiveness and civil rights, and to act as a social audit platform in such emergency. That is the reason why it is important to ensure the participation of private organizations and civil society, so that trust on government actions can improve. The proposal would consist of 2 main and essential components for its effective execution:

1. Road Development Plan 2018-2032 of the Ministry of Communications, Infrastructure and Housing: In order to determine the main needs in terms of infrastructure, the Plan that the Ministry of Communications, Infrastructure and Housing already has, must be the principal axis of the proposal. Any investment made under this mechanism must respect the previously carried out study that determines in which areas it can and should be invested. 2. Transparency Guarantees: it is necessary that the Comptrollership of Accounts act as an inspection body in order to minimize the risk of corruption.

In the understanding that this proposal is to address the emergency, with what is temporary, the approach of medium and long-term solutions is just as important.

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Legal Feasibility and the Proposal of Emergency Rescue Plan for Road Infrastructure Policy. The Political Constitution of the Republic, the Public Order Law and the Public Contracting Law contain the legal basis for this proposal. In this regard, a "state of calamity" is that State of Emergency that can be decreed by the Executive Branch to avoid the damages caused by any calamity. Given that the definition of calamity is considerably broad, the approval of a State of Calamity would be constitutionally valid, provided the reasons that justify it are clearly stated. In this case, the justification lies in the obstacle to the economic development of the country that the deteriorated infrastructure represents. Once it is decreed by the Executive Body, the Congress of the Republic must approve it, modifying it if deemed necessary.

The State of Calamity would be declared in order to be able to execute the Road Development Plan 2018-2032 of the Ministry of Communications, Infrastructure and Housing, allowing the emergency contracting for reconstruction, repairing and maintenance works in the roads, through an agile and transparent contracting process that guarantees competition between potential contractors.

The proposal includes mechanisms that guarantee the existence of available budget credits and correct budget execution in accordance with the Budget Law, such as certifications of budget and financial availability.

As a transparency mechanism, it is proposed to use as a basis the one implemented for the emergency of the tropical storm Agatha in 2010, establishing that all contracts must have a photographic record, a chronological record of the executed work, and a certification of the damage to be repaired.

In addition to the audit of the Comptrollership of Accounts, it would be mandatory to compy with the Principles for Open Contracting of the Open Contracting Partnership and the disclosure parameters of the CoST Transparency Initiative contemplated in the Public Contracting Law.

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Strengthening Public-Private Partnership in Guatemala Currently, Guatemala faces major challenges in the country's infrastructure, which has impacted the quality of life of the inhabitants, as well as the productivity and competitiveness of the country, due to the various limitations of the traditional model in the development of infrastructure and provision of services, such as: fiscal and investment limitations, lack of planning and project execution capacity.

Other countries have overcome the problem by using the public private partnerships (PPP) contracting scheme, in which there is cooperation between the government and the private sector, allowing the efficient and high quality development of infrastructure, achieving the development of large-scale projects, such as the expansion of the road network, ports, airports, among others.

Guatemala, through the Government Procurement Law, decree No. 57-92, contemplated the possibility of public-private participation in a broad sense, through the figure of public concession to individuals, which allows the State to grant individuals, for that at their own risk, build, improve and / or administer a work, good or public service, under the control of the granting public entity, in exchange for a renumbering that the individual charges users of the work, good or service .

However, said legal framework needed an update and modernization for the development of PPP projects, which is why, in 2010, a new legal and institutional framework for contracting is created through PPP modality, with the approval of Partnerships for the Development of Economic Infrastructure, approved in decree 16-2010 and its regulation approved by government agreement 360-2011, which allows the development of economic infrastructure projects through the creation, construction, development, use, exploitation, maintenance, modernization and expansion of infrastructure, highways, roads, ports, airports, generation projects, driving, and commercialization of electricity and railways, including the provision of necessary equipment.

This legal framework allows: a) long-term relationship between the public and private sectors; b) private sector participates in financing; c) private sector participates in the operation of the infrastructure; d) There is a distribution of risks between the public and private sectors.

The National Agency of Alliances for the Development of Economic Infrastructure (ANADIE), is the specialized entity of the State, which is responsible for the promotion, contracting and supervision of PPP contracts, whose maximum body is the National Council of Alliances for the Development of Economic Infrastructure, integrated by the public and private sector. 28


Currently, there is a significant portfolio of projects. However, despite the institutional and regulatory modernization that Guatemala has done regarding the PPP modality, no project has been carried out under that modality.

That is why, it is considered that ANADIE should have a more significant role in promoting this type of project with state entities, as well as institutional and technical capacities of the institutions is necessary.

Likewise, the need to make legal reforms to the Law has also been identified. First, the development of social infrastructure projects must be allowed under the PPP scheme, such as education, health and water projects, which are currently being excluded. In the second term, the approval of the Congress of the Republic of the project contracts must be modified, since currently, the approval is subsequent to the bidding process, and has caused bureaucratic delays that do not allow starting with the execution of the projects.

In sum, the development of PPPs in Guatemala is considered essential, which will increase the country's productivity and competitiveness, and thus boost economic growth and job creation through infrastructure investment, to meet the needs of the population.

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Agreement between Guatemala and the U.S. on Cooperation Regarding the Examination of Protection Claims On July 26, 2019, the Guatemalan Minister of the Interior and the Interim Secretary of National Security of the United States signed the Agreement between Guatemala and the U.S. on Cooperation Regarding the Examination of Protection Claims.

In general terms, the the agreement establishes that the United States may send to Guatemala people requesting refuge or asylum in its territory to carry out the process and await its resolution. Under the Agreement, Guatemala undertakes two obligations: 1) not expel or deport those people from Guatemala until this process is completed; and 2) to adjust the immigration system for this purpose.

While it is true that it has been indicated that this is a Safe Third Country Agreement, the Agreement does not specify it. It can be said that the agreement has an effect similar to that of a secure third country agreement, but does not comply with the formalities necessary to be officially it. This is because the 1951 Convention Relating the Status of Refugees establishes in Article 31 that the countries that sign the Agreement must grant refugees who are illegally in the country of refuge a reasonable period of time and all the necessary facilities to obtain their admission in other country. According to the Convention Relating the Status of Refugees, such refugees may legally remain in the country of refuge enjoying certain rights, these being paid employment, housing, health and public education, among others. In the case of the Agreement signed between Guatemala and the U.S., such obligations are not contemplated.

The Agreement was signed by the Guatemalan Minister of the Interior, Enrique Degenhart. Article 173 subsection o) of the Guatemalan Constitution provides that it is up to the President of the Republic to direct foreign policy and international relations, as well as to celebrate, ratify and denounce treaties and conventions in accordance with the Constitution. It is important to clarify that article 3 of the Law of the Executive Branch provides that the Ministry of the Interior is responsible for formulating the policies, complying with and enforcing the legal regime related to the immigration regime.

In addition, the provisions of the Vienna Convention on the Law of Treaties must be observed. According to Article 6 of said Convention, the State must represent and express its consent by a person with full powers to adopt said agreement. Also the Convention in article 2 indicates that "full powers" means a document that emanates from the competent authority of a State and by which 30


one or more persons are appointed to represent the State in the negotiation, adoption or the authentication of the text of a treaty, to express the consent of the State to be bound by a treaty, or to execute any other act with respect to a treaty.

Taking into account that, according to the Guatemalan legal system, the President is the competent authority of the State to sign the Agreement in question, he must have granted full powers to the Minister of the Interior, Mr. Enrique Degenhart. In that sense, the Minister may be empowered by the President of the Republic to sign such agreements on immigration matters. From the same text of the Agreement it is deduced that full powers were accredited, since textually it indicates, prior to signing, that it is done “in faith of which the undersigned duly authorized by their respective governments”.

The Agreement itself mentions that the Parties must indicate that they have complied with the national legal processes necessary for it to enter into force. In the case of Guatemala, according to subsection l) of article 171 of the Constitution, Congress must “approve, prior to ratification, treaties, conventions or any international arrangement when: (…) Financially obliges the State, in proportion to exceed one percent of the Ordinary Revenue Budget or when the amount of the obligation is undetermined ”.

Due to the fact that the “implementation plan” of the Agreement is still unknown, and since this will be done after the ratification of the Agreement, the measures that Guatemala must adopt to adjust the institutions for the fulfillment of its obligations under the it, are still unknown.

The Constitutional Court has been answered by establishing that “international treaties or conventions can have effects in Guatemala only if they are approved by Congress”, provided that it incurs in any of the cases contemplated in article 171, subsection l). In Guatemala there have been cases in which agreements are concluded that do not bind the State financially, however, due to the need to adjust the institutional framework to fulfill the acquired obligations, indirect financial obligations are created. Such is the case of the Agreement Between the United Nations Organization and the Government of Guatemala regarding the Establishment of an International Commission Against Impunity in Guatemala -CICIG Agreement- which was approved by the Congress through Decree 35-2007.

By virtue of the CICIG Agreement, Guatemala undertook to provide all the necessary assistance to carry out the functions and activities of the CICIG. Although this agreement did not mention the acquisition of financial obligations by Guatemala, that institutional adjustment that required modifications to the internal Public Prosecutor's Office, assignment of national security agents to the Commission's service, among others, represented a financial obligation that did not It was expressly contemplated in the agreement but was derived from it. 31


The same happens in the case of the Agreement between Guatemala and the U.S. on Cooperation Regarding the Examination of Protection Claims, although it is established that no provision of the agreement should be interpreted in a way that obliges the Parties to disburse or commit funds, Guatemala is indirectly obliged to do so as the migratory institutions must comply with the fulfillment of such purposes.

In its most recent resolution on the subject, the Constitutional Court established that, inexcusably, the process established in Article 171 of the Constitution explained above must be followed, whereby the Agreement between Guatemala and the U.S. on Cooperation Regarding the Examination of Protection Claims must be approved by Congress prior to ratification. However, of the statements that President Jimmy Morales and other members of the Executive Branch have given, it is unknown at this time whether they will follow the Court's instruction.

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Agreement between Guatemala and the United States concerning a Temporary Agricultural Workers Program -TAWP AGREEMENTThe TAWP Agreement seeks to strengthen the U.S. H-2A visa program under which U.S. employers hire foreign temporary agricultural workers, facilitating the granting of visas with focus on the territories with the highest risk of irregular migration.

The emphasis of the Agreement lies in the implementation of protective measures for Guatemalan workers, so that they are not exploited by foreign labor recruiters. In this way, it is sought to prevent the creation of a framework that allows the operation of human trafficking structures using the H2A visa program. Within the terms of the Agreement, companies dedicated to recruiting Guatemalan workers must be registered with both the Guatemalan Ministry of Labor and the United States Embassy in Guatemala. These companies will be the onlyl legal link between U.S. companies that wish to hire Guatemalan workers.

The use of H-2A visas has increased over the last decade. In 2018, 196,409 visas of this type were granted, with an increase of 21 percent over those issued in 2017. In the case of Guatemala, in 2018, 7337 type H visas were issued, although the State Department's report does not make a breakdown by subcategory. With this new Agreement, a considerable part of the growth of H2-A visas that will take place next year could be filled with Guatemalans.

According to available statistics, the average salary for agricultural workers in the US. with an H-2A visa in 2017, ranged between USD 11.10 and USD 13.01 per hour, while the average salary in Guatemala for agricultural activities per hour is of USD 1.43.

It should be noted that the agreement will not enter into force until the Agreement between Guatemala and the U.S. on Cooperation Regarding the Examination of Protection Claims does.

According to subsection l) of article 171 of the Guatemalan Constitution, Congress must “approve, before ratification, treaties, conventions or any international arrangement when: (…) it financially obliges the State, in a proportion that exceeds one percent of the National Budget or when the amount of the obligation is undetermined ”.

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While it is true that the TAWP Agreement does not establish financial obligations of a determined amount for Guatemala, there is an undetermined amount since the Executive Branch must make an investment in relation to the implementation of the content of the TAWP Agreement through the Guatemalan Ministry of Labor.

Thus, it is necessary for the TAWP Agreement to be approved by Guatemalan Congress for its subsequent ratification. The implementation of the TAWP Agreement is essential to expedite the process of granting visas to people who intend to migrate to work in the US. In that sense, it is important that such migration be carried out within a framework of legality.

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Emerging Law for the Conservation of Employment, Decree 19-2016: Analysis and Impact on Guatemala’s Economy Amendments to The Law For The Development Of Exports And In-bond Assembly Business, Decree No. 29-89 Of The Congress Of Guatemala Decree No. 19-2016 of the Emerging Law for the Conservation of Employment was published in the Official Gazette on March 30, 2016. The purpose of the law is to promote, encourage and develop activities within the national customs territory able to operate under the customs regimes created through the law.

This Decree responds to the commitment made by the Government of Guatemala to the World Trade Organization (WTO) in 2010, which establishes the elimination of prohibited subsidies to exports.

Decree 19-2016 amended the Law on the Promotion and Development of Exports and Maquila, Decree 29-89, as well as the Free Zone Act, Decree 65-89. With the entry into force of this new legal framework, only companies engaged in the making of apparel-textiles and contact or call centers can qualify as Producers under the Temporary Entry or Service Provider Regime.

In this sense, Decree No. 19-2016 represented significant changes for the companies that were then operating under the aforementioned tax benefit laws, and established new requirements and conditions to be met by companies wanting to use such benefits.

Since becoming effective, more than 60 companies have sought to meet the qualification to obtain the benefits of Decree 29-89, Law on the Promotion and Development of Exports and Maquila, of which 42% are new companies, and the rest are businesses aiming at being admitted again.

As of December 31, 2016, 1,394 companies classified under Decree 29-89, 477 (34%) carry out their productive activity in the apparel and textiles sector. They created 39,684 jobs in that year (25% of the total employment created by this sector). The remaining 66% are 917 companies that created 118,549 jobs in the same period of time. Overall, the country's exports in 2016 amounted to US$10,449.6 million, of which US$3,329.1 million, equivalent to 31.9% of the total, were exported under Decree 29-89.

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Amendments to The Free Trade Zone Act, Decree No. 65-89 Of The Congress Of Guatemala The purpose of this law is to encourage and regulate the establishment of Free Trade Zones in the country to promote national development through the activities carried out in those trade zones, particularly in activities aimed at strengthening foreign trade, employment generation, and technology transfer.

According to data given by users and administrators of this system to the Ministry of Economy, in 2016 free trade zones reported 4,55 jobs representing approximately an investment of Q905 millions.

According to estimates by the Guatemala Private Free Trade Zone Association, since the effective date of the Emerging Law for the Conservation of Employment, Decree No. 19-2016, more than 100 companies have closed, causing the loss of approximately 1500 jobs, and another 50 businesses are expected to close operations in the Guatemalan Free Trade Zones by the end of 2017.

Due to the above, it is estimated that exports under these regimes have dropped by 40%, causing a negative impact on taxes collected from this trade flow. The reforms to the Free Trade Zones law are urgent for the development of other industries, for example, pharmaceuticals, cosmetics and other that already left the country since there are no clear actions regarding the reforms of the law to allow their productive activities to have this incentive.

CURRENT ACTIVITIES FREE TRADE ZONE LAW: apparel, textile and exporters of services (BPO / call centers) •

10 years exemption of income taxes and solidarity tax

•

Exemption of duties and value added taxes on imported machinery, production inputs and packing material. (period will depend on the product)

Free trade zones reported 14,201 users, 75% commercial, 12% of services and 13% industrial. Until June 2016, the total amount of employees reported by the free trade zones reached 4,555 in which 97% corresponded to users and 3% to administrators of the zones. Amendments To The Free Trade Zone Act aim to mitigate the uncertainty caused by Decree No. 192016 by reducing to a list of 31 activities, the list of 42 prohibited activities that can be developed in Free Trade Zones. In this way, activities that were already developed in the Free Zones would be restored, thus restoring the rights acquired by investors prior to the approval of Decree No. 192016. 36


Approval of the Regulations for the Authorization, enabling and operation of Public Special Economic Development Zones – ZDEEPSThe Free Zone of Industry and Commerce Santo Tomás de Castilla -ZOLIC- was created through the Organic Law of the ZOLIC, Decree No. 22-73 of the Congress of the Republic and its Reforms.

The Organic Law of the ZOLIC, Decree 22-73, establishes that it has the objective of promoting the realization of activities of industrial, commercial production or provision of licit services not excluded by this or another law, which are carried out under cover of the tax incentives established therein.

For the realization of these activities, the Free Zone is constituted as an extra customs area, which as established in article 3 of the Organic Law of the ZOLIC, Decree 22-73, can operate both within the perimeter demarcated in the regulatory plan of the Puerto Santo Tomás de Castilla, as in any part of the national territory through the creation of Special Public Economic Development Zones approved in regulations to be issued by the ZOLIC Board of Directors.

The Regulation for the Authorization, Enabling and Functioning of Special Public Economic Development Zones, Resolution J.D. No. 04/05/2019 -ZDEEP Regulation- was approved by the ZOLIC Board of Directors, as established by the Organic Law of the ZOLIC, Decree 22-73, published on February 1, 2019 in the Official Gazette and entered into force on February 2, 2019.

The ZDEEP Regulation oxygenates the strict legal framework to which all special zones, free zones and special customs regimes were subjected since its creation and subsequent reforms. With the promulgation of the Emerging Law for the Conservation of Employment, Decree 19-2016, the benefits of the Free Zones were deprived of 11 activities already operating in these areas, from 31 to 42 prohibited activities.

With the ZDEEP Regulation, it is allowed the establishment of all kinds of productive activities of commerce, industry and services by which any individual or legal person can benefit from this regime, and the activities that operated in free zone and were excluded can opt for this regime.

Those who establish themselves in a ZDEEP enjoy all the prerogatives that the Organic Law of the ZOLIC grants to the latter. By expanding the ZOLIC Free Zone so that ZDEEPS can be established 37


throughout the country, the constitution, promotion and establishment of users thereof is facilitated. Likewise, empowering private agents to establish ZDEEPS is considerably relevant.

The approval of the ZDEEP Regulation represents an important milestone in the country's economic development agenda. This new regulation will encourage investments through tax incentives, simplification of customs processes and facilities to carry out productive chains, not only in the region where the ZOLIC is currently established but at the national level.

The implementation of these Special Public Economic Development Zones will be an important challenge for interested private sector actors, not only in being users of them, but also in being administrators in charge of their operation as the approved regulations seek to increase the efficiency of the areas promoting that it is the private sector that helps develop them and is allowed to operate under market mechanisms.

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