Since the free trade zones law was amended, almost 100 companies have closed in Guatemala in the last two years, and by 2019 the figure is expected to keep growing if the regulatory framework is not modified.
Data from the Bank of Guatemala detail that from January to October of this year, exports of companies in free trade zones totaled $471 million, 2% less than the $479 million registered in the first ten months of 2017.
In the first quarter of 2018, the manufacturing and services sectors recorded falls of 4,000 and 7,000, respectively, in the monthly average number of affiliates to the social insurance scheme compared to 2017.
One example of the contraction observed in industrial activity is what occured in free zones.The Association of Private Free Zones of Guatemala explained that due to the closure of more than one hundred companies, some 1,500 jobs have been lost.
In Guatemala, only 141 of the 205 free zone companies that had to report their 2016 activities presented their reports, and half of them declared not having made any investment during the year.
"...As part of a budget regulation for last year, companies in free zones were required to send investment portfolio information with investment amounts, new jobs generated and wages paid in 2016.Only 141 out of 205 complied with the delivery of information, but almost half reported not making any investment or generating employment."
In 2016 exports from the free zone regime fell by 4% compared to 2015, and those from companies covered under the maquila incentive law, fell by 6%.
The negative results in foreign sales of companies operating under one of the two incentive schemes is due in part to the departure of several companies from the free zone regime, having been affected by the Emergent Employment Act.
The private sector has denounced the fact that 67 companies have already closed or are in the process of leaving the free zone regime because of the implications of the Emergent Employment Act.
With the Emergent Act for Conservation of Employment, rules for enterprise zones have changed, prohibiting them from carrying out 42 activities, among them some related medicines, electronics, cosmetics, animal feed, leather and footwear, plastics, toys, building materials, furniture and importing machinery and equipment.
The formal closure of 15 companies in free zones has been reported from October 2015 to date and sixty other users have already suspended their operations.
The problems facing the free zone regime have not stopped increasing since the Emergent Law for the Conservation of Employment came into force, which eliminates tax exemptions which used to benefit companies operating under the free zone regime.
It has been reported that one of the 17 free zones operating in the country has started the process of closing its operations entirely due to the legal uncertainty generated by the emergent employment law.
Companies operating in free zones have spent several months denouncing the serious situation they have faced since the Emergent Act for the Conservation of Employment was implemented, instead of encouraging investment and job creation, it has become a good example of how to discourage investment in a country.
By filing of a lawsuit arguing unconstitutionality the union of free zones aims to once again include the 25 sectors which were excluded from receiving tax benefits under the new law.
The regulations of the controversial Emergent Act for the Conservation of Employment are still under review by the Attorney General's Office and authorities at the Ministry of Economy stated they would evaluate the possibility of modifying it, since the law is already in force and can only be revised by Congress.
Free zone companies denounce lack of legal certainty in the implementation of a new law (Ley Emergente de Empleo), which established a list of activities and goods that they can no longer make or sell.
The Association of Free Zones of Guatemala expects jobs and foreign investment to be lost if there are no modifications to the Agreement 65-89 "Ley Emergente de Conservación de Empleo", a law which came into effect in March.
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