The U.S. Department of Agriculture’s Foreign Agricultural Service (FAS) in Guatemala has learned that the Ministry of Economy (MINECO) will eliminate select tariff lines currently being used to import U.S. poultry leg quarters duty free outside the tariff rate quota (TRQ) of the Central American Free Trade Agreement plus Dominican Republic (CAFTA-DR). This will force U.S. poultry to enter under an out-of-quota tariff of 12.5%, ultimately affecting more than $55 million of chicken leg quarter (CLQ) exports that the U.S. sends to Guatemala each year.

FAS Guatemala said in a “Global Agricultural Information Network (GAIN) Report” that a small amount of U.S. CLQs currently enters Guatemala under the TRQ, which was set at 11,285 metric tons in 2015. However, more than 60,000 mt of additional U.S. CLQs entered outside of the TRQ that same year. FAS Guatemala said the large volume of out-of-quota imports entered at zero duty due to what was paramount to an administrative error that gave Guatemalan importers access to tariff lines for U.S. CLQs with zero import duty. The Guatemalan government plans to correct the error in 2017.

According to the report, the government, importers and poultry producers of Guatemala have an ongoing internal debate concerning the use of four HTS codes -- 0207.13.93, 0207.13.94, 0207.14.93 and 0207.14.94. These codes were created in 2006-07 outside of CAFTA-DR negotiations and were originally designed for use for regional trade among Central American countries. They were defined as poultry thighs, drumsticks and other pieces, including joined-together – which, by definition, is a CLQ. These tariff lines first appeared in 2008 with an import duty of 10.5% that decreased 1.5% annually. The tariff lines were never intended to be made available for use by importers of U.S. CLQs, but FAS Guatemala said they were mistakenly published under the CAFTA-DR tariff category, which made them available for U.S. CLQs.

“The tariff lines went unused until 2012, and by Jan. 1, 2015, the import duty of the disputed tariff lines reached 0%, which was the year Guatemala imported a record volume of chicken leg quarters outside the CAFTA-DR quota. These tariff lines allowed importers to circumvent the CAFTA-DR TRQ,” the FAS report noted.

In late 2015, however, FAS said Guatemala’s Customs tax and import duty collection agency (SAT) recognized the mistake and began changing the classification of U.S. shipments of CLQs under tariff lines 02071493 and 02071494 (02071393 and 0201394 were never used) to the CAFTA-DR out-of-quota tariff line 02071499B, which incurred a 15% import duty.

SAT also petitioned MINECO to change the Harmonized Tariff Schedule to eliminate the disputed tariff lines. On Feb. 4, 2016, MINECO accommodated SAT’s request and simply removed the codes from the MINECO posted tariff schedule on its webpage, without any announcement, notification or grace period for importers to make adjustments. This action led to an immediate reduction of imports of U.S. CLQs outside the CAFTA-DR TRQ. Importers complained and filed several lawsuits against MINECO and its officials.

A Guatemalan court ruled in June 2016 that MINECO did not have the authority to remove the codes since the Harmonized Tariff System is approved by Congress every year and can only be changed by Congress. The disputed codes, in essence, were then re-established, and U.S. leg quarters again entered Guatemala duty free, but only for the remainder of the calendar year.

Trade impact

In 2015, Guatemala imported a record 60,000 mt of U.S. CLQs out of quota. As of October 2016, Guatemala is on pace to import approximately 28% more leg quarters out of quota utilizing the disputed duty-free tariff lines.

“If importers have to pay 12.5% for these imports in 2017, it is likely overall imports will decline, and prices for chicken leg quarters will rise. In addition, the TRQ for leg quarters in 2017 will be reduced to 8,000 mt as per provisions under CAFTA-DR, further reducing U.S. imports imported at zero duty,” FAS Guatemala said. “The full impact on imports will not be known until the new policy is actually published and importers and exporters make their pricing adjustments.”

MINECO usually would have published the Harmonized Tariff Schedule by Dec. 15, 2016. However, FAS Guatemala was told that the delay in publication is due to the change in CLQ tariff lines.