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as nontariff barriers to protect domestic producers. Licenses are also required to import apples and wheat flour.

In addition, all processed foods are required to have Spanish language labels attached. In the past this rule has not been enforced. However, on October 25, 1994, the Government began a to crack down on violators, a move which could significantly impact the 26 million dollars per year in U.S. exports of processed foods to Guatemala, a figure which had been growing rapidly.

6. Export Subsidies Policies

Significant tax exemptions are granted to both foreign and domestic enterprises producing for export. With the rise in coffee prices, there has been no effort to repeat the coffee sector's 1993 bond program which provided a 15 dollar per hundred weight subsidy to exporters (to be repaid with higher coffee prices). The country is not a member of the GATT Subsidies Code.

7. Protection of U.S. Intellectual Property

The level of protection provided intellectual property remains inadequate. In general, the Criminal Code contains ineffective penalties for infringement of intellectual property rights and a poorly trained judiciary is slow to provide injunctive relief. However, there have been significant recent improvements. The 1991 GSP petition against Guatemala filed by the Motion Picture Export Association of America was dropped in 1994 after Guatemala passed an antipiracy law and local cable operators generally ceased illegal retransmission of signals. In addition, the current legislature is considering laws to afford more effective protection of intellectual property rights. The government has also announced its intention to accede to the Paris Convention for the Protection of Industrial Property and to the Berne Convention for the Protection of Literary and Artistic Works. Guatemala is named on the Special 301 "Watch List."

Copyrights: While the right to copy, publish and distribute is clearly protected, control over leasing or renting of protected works is not clear under Guatemalan law. Despite membership in the Rome and Geneva Conventions, Guatemalan law does not generally protect sound recordings. Legislation was enacted in 1992 to prohibit pirating for commercial use of satellite television transmissions. As a result, unauthorized retransmission of signals has dropped significantly. However, video piracy remains a problem. Pirated videos are both locally produced (but not for export) and brought in via parallel imports. At the urging of a legitimate distributor, the Government has begun to crack down on video clubs that rent pirated copies. The distributor also plans to work with these clubs to develop a plan for voluntary compliance. In addition, a new copyright law has been drafted for consideration by the Guatemalan Congress early in 1995. This law would impose greater sanctions for noncompliance, as well as protect sound recordings, computer programs, videos and films and the transmission of these works.

Patents: Guatemala's patent law is old and does not protect mathematical methods, living organisms, commercial plans, surgical, therapeutic or diagnostic methods, or chemical compounds or compositions. Protection is circumscribed by short patent terms (15 years, except for the production of food, beverages, medicines and agrochemical products, which last only 10 years), compulsory licensing provisions and local exploitation requirements. Patent rights do not extend to any action executed in the pursuit of education, research, experiments or investigation. Patent rights do not prevent the importation of counterfeits, unless the product is being produced in Guatemala. Protection lapses six years from the date of the patent if the product is not being produced locally. To address these issues and bring Guatemalan law in line with international standards, the government is currently drafting new patent legislation for submission to Congress in early 1995.

Trademarks: The Central American Convention for the Protection of Industrial Property (CACPIP) forms the legal basis for the protection of trademarks in Guatemala. Guatemalan law does not provide sufficient protection against counterfeiters, nor does it afford adequate protection for internationally famous trademarks. The right to exclusive use of a trademark, for instance, is granted to whoever files first to register the mark. There is no requirement for use, nor any cancellation process for nonuse. As a result, foreign firms whose trademark has been registered by another party in Guatemala have often had to pay royalties to that party, or buy him out. The Central American countries are currently revising the Convention to bring it more in line with emerging international standards and to simplify the registration process. It is expected that the Government will approve the changes to the Convention in November and submit the Convention to Congress for ratification.

New Technologies: Guatemala makes no specific provision for the protection of trade secrets or semiconductor chip design, although it has signed the Washington

Treaty on Intellectual Property in Respect of Integrated Circuits. Guatemalan copyrights do not currently extend to databases, audiovisual works, or software.

The International Intellectual Property Alliance estimates that in 1993 trade losses due to piracy of motion pictures, records and music, computer programs and books in Guatemala were 2.7 million dollars.

8. Worker Rights

a. The Right of Association.-Approximately five percent of the Guatemalan work force is unionized in approximately 900 unions. Bureaucratic procedures necessary to obtain legal authorization to form a union were significantly eased in late 1992, as part of a successful effort to amend the Labor Code. Regulations to implement these changes remain under discussion with trade union leaders, in an effort to make the procedure as quick and as transparent as possible. Even though the regu lations have yet to be adopted, the time and steps required to register a union have been significantly reduced since the labor code amendments. Union leaders continue to charge, however, that it is more difficult to register a trade union than it is to register a business. They also claim that management often encourages competing unions and/or "solidarity" associations to form when negotiating contracts and that these groups make "no strike" agreements.

In 1992, petitions filed by the International Labor Rights Education and Research Fund (ILKERF) and the AFL-CIO to remove GSP benefits from Guatemala for failure to protect internationally recognized worker rights were accepted for review by the US Government. The review was extended through the end of the 1993-1994 review cycle.

b. The Right to Organize and Bargain Collectively.-The Labor Code allows collective bargaining, but emphasizes the protection of individual worker rights. Antiunion practices are forbidden, but enforcement requires court action and this is generally subject to inordinate delay. The labor court system is badly overloaded. One new labor court was added in 1993 and a second new court was established in 1994. The greatest obstacles to union organizing and collective bargaining are not the law, but the inability of the legal system to enforce the law adequately, the weakness of the labor movement and a continuing enormous excess of labor. A series of tripartite discussions took place in 1993 to address these problems, signaling a major change in attitude by both management and labor.

c. Prohibition of Forced or Compulsory Labor.-The Guatemalan Constitution prohibits forced labor and specifically states that service in civil defense partols is voluntary. Human rights groups claim, with some justification in conflictive zones, that coercion is used to recruit some people for these patrols.

d. Minimum Age for Employment of Children.—The Constitution provides a minimum age of 14 for the employment of children and, then, only in certain types of jobs. Government statistics indicate that 50,000 children under this age are employed in the formal sector, including agriculture, with only 10 percent having legal permission to work. An unknown number are employed in the informal sector as street vendors, beggars and menial laborers. Enforcement of labor regulations has been given greater emphasis by the de Leon administration; the Labor Ministry has started a program designed to educate parents about the rights of children in the work force.

e. Acceptable Working Conditions.-The Constitution provides for a 44 hour work week. While occupational safety and health regulations exist, they have not been effectively enforced. The corps of labor inspectors was expanded in 1993, to provide greater coverage to all aspects of the Labor Code. As noted above, however, the major problem remains an overcrowded and lethargic labor court system. The selection of all new judges on the supreme court and appellate courts in mid-1994, based on new selection procedures designed to protect against incompetent, corrupt, or politically biased judges is expected to make a major difference, over time, in the honesty and efficiency of the court system. A minimum wage applies to most workers; although the the minimum wages remain low, they were increased for all sectors of the private economy in late 1994 by an average of 35 percent. Surveys carried out by the Labor Ministry indicate, however, that many workers do not receive the minimum wage.

f. Rights in Sectors With U.S. Investment.-Guatemala does not register foreign investment, so accurate records of U.S. investment are not available. Union officials say that, in general, international corporations in Guatemala have been respectful of worker rights. The high profile exception continues to be some, mostly Asianowned firms in the maquila sector, which assemble garments primarily for the U.S. market. U.S. companies operating in Guatemala are more likely to have unions than their Guatemalan competitors and are also generally credited with providing better wages and working conditions.

Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis-1993

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Exchange rates used are the average official rate for each year cited: 5.75 (1992), 6.82 (1993), 8.8 (1994). 21994 figures are all estimates based on available monthly data in October 1994.

GDP at factor cost.

Figures are actual, average annual interest rates, not changes in them.

"Merchandise trade.

1. General Policy Framework

Despite abundant natural resources and substantial U.S. economic assistance, Honduras remains one of the poorest countries in the hemisphere. In the 1980's, the Honduran economy was buffeted by declining world prices for its traditional exports of bananas and coffee. The unfavorable terms of trade, high external debt levels, and flawed economic policies doomed Honduras to a decade of low growth rates and declining living standards.

From 1990 until 1993, the Government of President Callejas embarked on an ambitious economic reform program, including dismantling price controls, lowering import tariff duties and removing many nontariff barriers to trade. The Government of Honduras adopted a free market exchange rate regime and legalized/licensed foreign exchange trading houses. Interest rate ceilings were removed. Modern national investment legislation was enacted which mandated generous, nondiscriminatory incentives for local and foreign investment. To confront the chronic fiscal deficit, the Callejas government took measures to increase revenues and slash credit and exchange rate subsidies. Unfortunately, in 1992 and 1993, a sharp rise in public sector investment spending reversed the progress on the fiscal front and raised the deficit to 11.2 percent of GDP for 1993. External grant inflows financed part of the fiscal gap, but the monetized fiscal deficit resulted in a resurgence in domestic inflation. President Carlos Roberto Reina, inaugurated in January 1994, has taken a series of measures to deal with the fiscal deficit. Reina ordered a 10 percent cut in current spending and negotiated with the IMF a series of economic measures designed to cut the fiscal deficit by four percent. Under President Reina, the restrictive (antiinflationary) monetary and fiscal policies of the Central Bank have been further tightened. Absolute limits have been imposed on public sector borrowing. The reserve requirement (currently 42 percent) remains the favored policy tool to control money supply growth and inflation.

Honduras became a member of the General Agreement on Trade and Tariffs (GATT) in April 1994, and the accession was ratified by the Honduran Congress that same month. Honduras ratified the Uruguay Round in May 1994 in Marrakesh. Honduras has ratified the Uruguay Round agreements and became a founding member of the World Trade Organization (WTO) on January 1, 1995.

2. Exchange Rate Policy

Beginning in 1990, the Honduran government abandoned the fixed exchange rate system and gradually moved to a flexible exchange rate mechanism. These phased policy measures allowed for a smooth transition to a floating exchange rate regime in June 1992. To provide a more transparent and efficient foreign exchange market, the Honduran Central Bank legalized and licensed the operations of foreign exchange trading houses (cases de cambio). As of June 1992, the Central Bank authorized commercial banks to buy and sell foreign exchange at freely-determined rates. These foreign exchange reforms improved Honduras' export competitiveness in a wide range of industries.

In June 1994, the Central Bank changed to a more restrictive foreign exchange regime. A foreign exchange auction system was introduced by which all foreign_exchange in the formal financial system was auctioned daily by the Central Bank. The auction rate then became the legal exchange rate for foreign exchange transactions. This rate is revised with every auction, but is permitted to rise by not more than one percent every three weeks. Commercial banks and exchange houses are no longer allowed to retain foreign exchange purchased from the public, but are required to sell this foreign exchange to the Central Bank within 24 hours. In January 1990, the lempira-per-dollar exchange rate had been two to one for many decades. Since January 1994, the lempira-per-dollar exchange rate has moved from 7.3 to the current rate of 9.2 lempiras per dollar, a 26 percent depreciation.

3. Structural Policies

Trade Policy: A critical component of the structural adjustment reforms has been to end the debilitating effects of decades long import-substitution policies. These remedial policies were designed to open up the economy to global competition, force local entrepreneurs to reduce costs, increase productivity, and provide incentives for export-oriented business activity. An important byproduct of trade liberalization is the promotion of technology transfer. Among other measures taken was the reduction of tariff barriers to trade, by gradually cutting import duties from a past range of 5 to 20 percent. The Government also removed many protectionist/cumbersome import licensing and prior import deposit requirements.

Pricing Policy: In an effort to boost production incentives, the Government lifted price controls on several hundred consumer and industrial products in 1990 and suspended the operations of the State Marketing Board. In the period 1990-92, price hikes were adopted on gasoline, electricity, water and telephone services. In December 1992, the Government moved to a flexible petroleum pricing system reflecting changes in world market prices. As of September 1994, the only existing government controlled prices were for utilities, public transport, fertilizer, cement, ground roasted coffee and air fares. In October 1994, the Honduran Congress enacted legislation mandating price controls on 26 basic market basket items through the end of 1994.

Tax Policies: Honduras has long maintained a high corporate tax rate. This rate has been generally considered a major disincentive to direct foreign investments not covered by the tax exemptions for export-oriented firms operating in free trade zones and industrial parks. Early in his term, President Reina lowered the top marginal corporate tax rate from above 40 percent to 35 percent. The most important sources of government revenue are the seven percent sales tax and various consumption taxes.

4. Debt Management Policies

Since early 1990, the Honduran government has been working to restore the country's creditworthiness, reschedule its 3.3 billion dollar external debt and regain support from the multilateral development banks. In early 1990, negotiations began with the World Bank (IBRD), Inter-American Development Bank (IDB) and International Monetary Fund (IMF) to pay off arrears and reestablish pipeline disbursements being withheld by these institutions. The payments of 245.7 million dollars in arrears were made possible by a bridge loan from the U.S. Treasury Department. This bridge loan was complemented by additional financing from Venezuela, Mexico and Japan.

In July 1990, the IMF approved a 12-month standby arrangement, later extended for seven additional months. The standby provided Honduras with 30 million dollars in balance of payments support funds. In the second half of 1990, the IDB and IBRD renewed pipeline disbursements. The IMF program, and repayment of international financial institution (IFI) arrears, paved the way for favorable debt rescheduling terms for 350 million dollars of debt. The Paris Club accord strengthened Honduras' capacity to service its debt with a number of other creditors, including Venezuela, Mexico and OPEC. In 1991, the U.S. government also provided 430 million dollars in debt forgiveness for Honduras. The Honduran government reduced its debt obligations with international commercial banks from 245 million dollars in 1982 to 45 million dollars in 1992. A series of privatizations and conversion mechanisms was used to settle these obligations.

In 1992, Honduras was classified as an IDA-only country. This opened the door to concessional loans from the IBRD's soft loan window. In June 1992, the IMF approved a three-year (1992-95) enhanced structural adjustment facility (ESAF), allowing Honduras to obtain a second favorable Paris Club Agreement in October 1992. In 1993 the Callejas government took on substantial new commercial debt obligations for public investment projects and began to fail to make scheduled debt

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