Guatemala FTA mostly politics: economists

Like Taiwan's first free trade agreement (FTA) with Panama its second free trade pact, with Guatemala, will have more significance politically than economically, economists said yesterday.

President Chen Shui-bian (陳水扁) and Guatemalan President Oscar Berger signed the FTA in Guatemala City on Thursday.

"The pact shows that Taiwan is willing to strengthen its relationship with its allies in Central America," said Tu Chiao-hsia (杜巧霞), a research fellow at the Chung-Hua Institute of Economic Research's (中經院).

"But the economic benefits of the FTA will be limited, as Guatemala's market is too small, and language and geographic difficulties make it difficult to improve bilateral economic ties," Tu said, adding that increased exports to Guatemala are the most likely outcome.

Following the signing of an FTA with Taiwan in August 2003, exports to Panama amounted to NT$246.73 million last year, more than double the figure in the previous year, according to government statistics.

Guatemala is the largest economy in Central America, with a GDP of US$59.47 billion last year. Its main economic activity is agriculture. Guatemala is well-known for its sugar exports, as well as coffee, petroleum, apparel and bananas.

Guatemala is Taiwan's 75th largest trade partner, with a trade volume of NT$114.75 million last year.

Guatemala agreed to drop tariffs on 447 agricultural products and 3,509 industrial goods imported from Taiwan as soon as the FTA goes into effect on Jan. 1 next year.

Taiwan will cancel tariffs on 5,003 agricultural and industrial imports from Guatemala, as well as allowing the country to export 60,000 tonnes of sugar to Taiwan every year, said James Wu (吳新華), deputy director-general of the Bureau of Foreign Trade.

Although the Guatemalan market is relatively small, the FTA could result in Taiwanese products gaining entry to the much larger US market, as Guatemala is a member of the Central American Free Trade Agreement (CAFTA), under which exports from the member countries to the US enjoy either zero tariffs or tax breaks, Wu said.

This would mean that Taiwanese goods can be processed in Guatemala and then shipped to the massive US market, Wu said.

But the effect would still be limited, as CAFTA has strict requirements on the origin of goods, Tu said.

After Panama and Guatemala, Taiwan's third free-trade partner will likely be Nicaragua, another diplomatic ally of Taiwan in Central America.

Wu estimates that negotiations on a Taiwan-Nicaragua FTA will be concluded by the end of the year.