Guatemala fights textile woes

Guatemalan Ambassador to Korea Gustavo Lopez

By Kang Hyun-kyung

Guatemala has been viewed by Korean investors as one of the best countries to operate textile businesses due to its geographical proximity to the U.S. market and cheap labor.

Recently, however, some industry observers have voiced concern over a triple whammy facing Korean textile companies there, namely rising wages, the scrapping of tax benefits and a decrease of demand for garments in the United States.

Guatemalan Ambassador to Korea Gustavo Lopez said that his government is doing its utmost effort to help them keep doing business there and attract more investment.

“Our government is creating new incentives for foreign investors, like Korean businesses. Tax benefits are going to be better as we know the importance of foreign investment,” Lopez said during a recent interview with The Korea Times at his office.

“The U.S. economy is recovering. And our economy has grown 3.5 to 4 percent annually. I think these are positive elements for Korean companies.”

But he said the Guatemalan government’s hands are tied when it comes to a minimum wage.

“I think we don’t have much to do with an increase of minimum wage because it has something to do with international labor standards,” Ambassador Lopez said.

He noted an increase of the minimum wage is, in a sense, positive because it proves that Guatemala fully complies with international labor norms, which is a sign of development.

Korean textile companies, which account for 45 percent of the industry there, are critical to the Central American economy. Nearly 60 percent of garment products in Guatemala are sold in the U.S. market.

In 2012, garment products reportedly account for 11.7 percent of the entire exports of the country, followed by coffee (9.5 percent) and sugarcane (7.9 percent).

The Guatemalan envoy pointed out that the textile industry created nearly 90,000 jobs in his country, noting that one Korean company created 7,000 jobs.

These businesses are operated by Korean emigrants who migrated to Guatemala in the 1980s when a textile boom was created. Over 8,000 Koreans are now living in Guatemala.

In recent years, Korean companies have been grappling with a challenging business environment after the global financial crisis in 2009.

Those who are familiar with the garment industry in Guatemala said that corporate tax benefits now available for foreign businesses will be disappearing from next year.

Plus, they pointed their fingers at an increase in the minimum wage and a sharp decrease in demand for garment products in the United States following the financial crisis as two additional challenges facing Korean textile companies.

Feeling pressure, some Korean companies are mulling relocating their factories to neighboring countries, such as Nicaragua and Haiti, in search of a better business environment.

Some experts say relocating their businesses to other countries is not as easy as it sounds and therefore many of them will wait to see if things get better.

New opportunities

On trade, Ambassador Lopez expressed hope to expand Guatemala’s bilateral trade with Korea considerably during his tenure here.

He singled out Antigua coffee, Guatemalan rum and beer, and tourism as exemplary areas where the two countries can increase trade.

“Our rum is made from home-grown sugarcane, and the taste and flavor of Guatemalan beers are similar to those of European beers which Koreans love,” Lopez said.

Korea is the second-largest importer of Guatemalan sugarcane, following China, importing nearly 13 percent of total sugarcane production there. Antigua coffee is one of Korean consumers’ favorite brands.

Lopez claimed that these new areas have the potential to increase trade and that chances for this will exponentially increase if the ongoing negotiations between Korea and SICA countries, also known as the Central American Integration System, lead to the conclusion of a free trade agreement.

Lopez said he asked for his government to send two more officials to fully concentrate on tourism and commerce. He believes that the embassy’s lack of contact with Korean travel agents is one of the reasons behind a relatively small number of Korean tourists to his country.

Guatemala sees two million tourists annually from around the world.

The envoy said the Guatemalan government has taken serious measures to battle crime, a main stumbling block to its endeavor to attract more investment and tourists.

He admitted that his government is facing an uphill battle in its endeavor to root out organized crime.

“We have made tremendous steps to improve security during the incumbent government. Unfortunately, drugs are produced in South America and are mostly consumed in North America,” he said.

Ambassador Lopez hinted that a coordinated international effort is needed to remove the root cause of organized crime in Guatemala.

“Instead of a regional effort, I think every country (in North and South America) should take responsibility.”

As long as there is a demand for the products, the ambassador claimed that suppliers will continue to commit illegal activities and this will result in continuing crime in Guatemala.