Approval of the Regulations for the Authorization Enabling and Operation of Public Special Economic Development Zones ZDEEPS

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

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.

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.

Agreement between Guatemala and the United States concerning a Temporary Agricultural Workers Program

-TAWP AGREEMENT-

The 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 ”.

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.

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.

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.

Approval of the Regulations for the Authorization, enabling and operation of Public Special Economic Development Zones –ZDEEPS-

The 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

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.