Guatemala has competitive advantages over other countries in the region to attract foreign direct investment, such as its geographical location and the fact that it is the largest economy in Central America. In addition, foreign direct investment plays a particularly important role in the Guatemalan economy, being the third largest generator of foreign currency income, after exports and family remittances. The strong growth in the demand of energy and telecommunications services, as well as the massive consumption of goods are the main sectors where direct foreign investment is conducted, being the United States of America, Mexico and Spain the countries of origin of the main investors.
In general terms, foreign investment contributes to the economic growth of the countries that receive it, since in some cases it may represent the transfer of technology for the production processes, as well as the increase in the professionalization of local workers and their working conditions. Additionally, foreign investment encourages the efficiency of local companies through competition; and, it intensifies the productivity of the economy that obtains the foreign investment. It is for such reasons that in the last decades the different economies of the world, and mainly those in development, have entered a fierce competition to attract foreign investment from the capital exporting countries.
This situation has meant that the economies that seek to be more attractive to foreign investors have developed different mechanisms for promoting and protecting foreign investment. These mechanisms include different legal instruments that grant foreign investors additional rights and guarantees than they normally would have and imply greater legal certainty by reducing the usual risks that any international business entails.
Guatemalan legislation has several mechanisms for promoting and protecting foreign direct investment that make Guatemala the ideal destination for foreign investment in the Central American region. Guatemala has concluded with several Countries, Bilateral Investment Treaties (BITs) and Multilateral Investment Treaties (MITs) for the promotion and reciprocal protection of investments; additionally, it has also enacted national legislation with the purpose of providing a safe and predictable environment for foreign investment.
As of October 19, 2017, the date on which the last BIT was ratified by Guatemala, 19 BITs or Agreements for the Promotion and Reciprocal Protection of Investments (APRPIs) are in force with the following countries: Germany; Argentina; Austria; Belgium - Luxembourg; Chile; China (Taiwan); South Korea; Cuba; Finland; France; Israel; Italy; Netherlands; Kingdom of Spain; Czech Republic; Sweden; Switzerland; Trinidad and Tobago; and Turkey. In addition, in 2013, Guatemala signed a BIT with Russia, but this has not been approved by the Congress and, therefore, the issuance of the instrument of ratification by the President is also pending. Also, Guatemala currently negotiates the celebration of BITs with Morocco and Kuwait.
The structure of the BITs ratified by Guatemala is quite similar and tends to have the common provisions of all BITs regulated in a similar way. Regarding the standards of protection, most of them contain the typical ones: fair and equitable treatment; national treatment; most-favourednation treatment; full protection and security; protection against expropriation; free transfer of capital; and umbrella clause, that guarantees the observance of obligations assumed by the host state in relation to the investor.
Regarding the MITs, there are various treaties to which Guatemala is a party and which contain provisions related to foreign investment, among which are the following: Free Trade Agreement between Central America and the Dominican Republic (Chapter IX); Free Trade Agreement between the United States of America, Central America and the Dominican Republic (Chapter X); Free Trade Agreement Free Trade Agreement between the Republic of Guatemala and the Republic of China (Chapter 10); Free Trade Agreement between the Republic of Colombia and the Republics of El Salvador, Guatemala and Honduras (Chapter 12); Free Trade Agreement between Central America and Panama (Chapter 10); Free Trade Agreement between Central America and Chile (Chapter X); Free Trade Agreement between the United Mexican States and the Republics of Costa Rica, El Salvador, Honduras, Guatemala and Nicaragua; Free Trade Agreement between Guatemala and Peru (Chapter 12); Protocol to the Treaty on Investment and Trade in Services between the Republics of Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua (Chapter 3); Partial Scope Agreement between Guatemala and Belize (Chapter IX); and, Agreement establishing an Association between Central America and the European Union (Chapter 2).
The Guatemalan domestic legal framework also reflects its interest in promoting economic and social development through the protection and promotion of foreign investment. In that regard, Guatemalan Congress has enacted various laws that seek to protect and promote the foreign investment in the country, which are: Decree 22-73, Ley Orgnica de la Zona Libre de industria y comercio Santo Toms de Castilla (Organic Law of the Free Zone of industry and commerce Santo Toms de Castilla); Decree 29-89, Ley de Fomento y Desarrollo de la actividad exportadora y de maquila (Law of Promotion and Development of the exporting and maquila industry); Decree 65-89, Ley de Zonas Francas (Law of customs-free zone); Decree 2-91, Ley de Nacionalidad para inversionistas extranjeros (Nationality Law for foreign investors); Decree 94-2000, Ley de libre negociacin de divisas (Law of Free Negotiation of Foreign Currencies); Decree 52-2003, Ley de incentivos para el desarrollo de proyectos de energa renovable, (Law of incentives for the development of renewable energy projects); Decree 16-2010, Ley de Alianzas para el desarrollo de infraestructura econmica, (Law of public-private partnerships for the development of infrastructure); and, Decree 19-2016, Ley emergente para la conservacin del empleo (Law for the retention of employment) that introduced reforms to the Decrees 29-89 and 65-89. However, there are also several pending issues of regulation, among which are: The Plant Variety Protection Law; the Data Protection Law; Competition law; and, the regulation to Convention 169 of the International Labor Organization.
As for the domestic regulation strictly related to the promotion and protection of foreign investments, the Guatemalan Congress has enacted the Decree 9-98, Ley de Inversin Extranjera (Law of Foreign Investment). The purpose of this law is to protect and promote foreign investments, as well as to grant foreign investors with the necessary protection to develop their investments in Guatemala, regardless their nationality. In the absence of an applicable investment treaty, free trade or other similar agreement, the Foreign Investment Law acquires special importance. This law has its constitutional foundation in article 119 of the Political Constitution of the Republic of Guatemala, which recognizes as a fundamental obligation of the State to protect the formation of capital, savings and investment and create the appropriate conditions to promote the investment of national and foreign capital. Articles 2 and 3 of the Foreign Investment Law contain a fundamental principle of International Investment Law: the foreign investor enjoys treatment no less favorable than that which Guatemala accord to its own investors, which means that national treatment is recognized.
Chapter III of the Foreign Investment Law, called "Guarantees and Rights", covers most of the internationally recognized investment standards of protection. Article 5 of said law recognizes the foreign investor the full right, use, enjoyment and ownership of the property over his investment. Article 6 addresses the issue of protection against expropriation and, being consistent with Foreign Investment Law and international case law, regulates that this will be lawful if it is done for a public purpose, on non-discriminatory basis, carried out with due process of law and through prior and effective compensation.
Regarding the free transfer of capital, Article 8 of the Foreign Investment Law provides that the foreign investor will have free access to the purchase and sale of available foreign currency and to the free convertibility of currency, so that he can freely make transfers abroad related to its invested capital, or any profit generated by it in Guatemala. With respect to the provisions related to dispute resolution, the Foreign Investment Law regulates that the differences that may arise in matters of investment between a foreign investor and the State of Guatemala, its dependencies or other state entities, may be submitted to international arbitration or other alternative dispute resolution mechanisms, in accordance with the applicable legal instruments.
Finally, it is important to highlight that the mechanisms of promotion and protection of foreign investment are two-way mechanisms, since they also allow Guatemalan investors to have a safe and predictable environment if they decide to invest abroad and increase the possibility for national products to be commercialized in a greater markets.