Belize-Guatemala Dispute and Bilateral Trade

The recent escalation of tensions between Belize and Guatemala, especially following the latter’s apparent sidestepping of the confidence building measures, is something for the international economic relations’ textbooks and scholarly journals. Particularly, if the recent reports by the Belizean media of declining bilateral trade in Melchor de Mencos are accurate, then the Guatemalan government has just become a real-time confirmation of what recent international relations research have predicted.

For instance, in a 2015 study by Ryan Brutger and Austin L. Wright, entitled “The Costs of Conflict: Border Disputes and Trade Diversion”, it was found that two things are likely to happen “when a dispute between two states becomes particularly intense”: bilateral trade declines by “an average of 82%”, and it is likely that trade with third party, non-disputing trading partners increases by 2.5%.  

Now, let’s be clear here. Brutger and Wright’s 82 percent figure was in respect to monetary losses between the disputing countries. However, it is just noteworthy that last week’s local report suggested that immigration officials have reported “a decrease of 80% in Belizean visitors” to Melchor.

According to Channel Seven News, the decline in bilateral trade has motivated the affected Guatemalans to go to the streets. “It seems that since the Guatemalan government seriously stepped up its aggression one month ago, the flow of Belizeans over to Melchor has slowed to a trickle. Guatemalan Immigration authorities report a decrease of 80% in Belizean visitors, and that has put a serious hurting on businesses in that border town. And so, reports to security forces in Belize say that tomorrow (i.e. Saturday, May 21, 2016), Melchor business owners will be protesting against their capital, Guatemala City, for sponsoring the aggression against Belize which has had a serious business backlash.”

It is an interesting turn of events, and the probability of which someone should have advised the relevant Guatemalan authorities was theoretically and practically likely to occur, if they abandoned the specifications of the Confidence Building Measures (CBMs) that clearly outlines how both governments should operate when there’s a border incident.

Trades’ Opportunity Cost Dissuades Conflict?

We shall certainly discuss the CBMs a bit further below, but before any premature conclusions are made here, it is important to note that although Brutger and Wright underscored that bilateral trade does suffer losses due to a dispute, they did not find evidence to support the argument that the loss of such economic relations incentivizes speedy resolutions to border disputes.

“Although border disputes have a significant impact on trade between the disputing parties,” the researchers explain, “we were surprised to discover that foregone bilateral trade, in the absence of an escalated dispute, does not lead to significant trade diversion with other countries. … If the latter is true, this suggests that the joint-gains derived from a well-functioning border institution may not be large enough to mobilize domestic businesses, which could dampen the incentives for states to avoid border disputes.”

The above finding defies some earlier beliefs that the higher profits from closer economic relations would be enough to spur countries towards ending disputes, but the story does not change even when the dispute escalates. Instead, disputing states were found to simply sell their goods to a third-party country.

“The expansion of trade with non-disputing countries offsets the economic opportunity costs of engaging in militarized border disputes,” they added, “and suggests that foregone economic gains between neighboring states can be compensated for through trade diversion.”

If we divert our attention briefly to the recently rekindled dispute between Guyana and Venezuela, headlines like “Venezuela will stop buying rice from Guyana amid escalating border dispute”, “Guyana seeks alternatives to PetroCaribe as tensions flare with Venezuela”, and “Venezuela dumps Guyana, turns to Suriname for rice under PetroCaribe deal” say mouthfuls to support Brutger’s and Wright’s trade diversion argument.

Loftier Goals?

The ability of states to substitute trade with other countries weakens the argument that says economic relations incentivize speedy de-escalation of dyadic disputes. While the finding is quite troublesome, it is quite plausible, because the cost of foregone trade with Belize has obviously not spurred the Guatemalan Government to aggressively seek a final solution to a claim they know is meritless.

Instead, as Guatemalan Archibishop Óscar Julio Vian Morales told Guatemalan media last week, the Belize-Guatemala territorial dispute should have been solved forty years ago, but his government has preferred to use it to “divert attention” from more serious internal affairs of the country.

Is it safe to suppose that the opportunity cost of foregone trade with Belize is overshadowed by the political benefits gained by keeping the claim alive? According to the Archbishop and other Guatemalans who’ve shared a similar view regarding the futility of their claim—including former Guatemalan President Jorge Serrano Elías—it would seem that way. Besides, it’s not farfetched to assume that a party to a dispute may have “loftier goals” than simply acquiring economic benefits.

If I may return briefly to the Guyana-Venezuela situation, an interesting and suspected ulterior motive to the above-world-market price at which Guyanese rice was sold to Venezuela is outlined in an article in the NewAfrican Magazine, entitled “Guyana calls for African diplomatic help”. In the article experts suggest that the higher prices at which Venezuela bought rice from Guyana was a gambit to gain support among Guyanese rice farmers and their beneficiaries. This, the article alleges, was eventually to have those farmers “pressure the Guyanese government to accede to Venezuela’s territorial demands”. However, observers suggest that the May 2015 election that brought the David Granger-led government to power damaged this plan.

“No wonder, soon after the May elections, Venezuela stopped purchasing rice from Guyana, hoping, experts believe, to trigger unrest in the rice-producing areas of Guyana,” the NewAfrican Magazine added.

In Guatemala’s case, one could argue that this “loftier goal” is simply to keep the dispute—as the Archbishop and others have suggested publicly—as a tool for distracting the ire of the Guatemalans from their more serious domestic affairs.

However, someone would ask: ‘Isn’t trade with Belize worth it?’ A cold hard look at the numbers would show that Guatemala’s total export averages about US$10 billion, of which just about US$80 million represents sales to Belize—that’s barely one percent of Guatemala’s cross-border sales. The reaction of the cash-strapped folks in Melchor—who rely on the Belizean business, and reportedly expect little help from their own government—is most likely the result of the fact that the long-term option of finding and then switching to new trade partners is easier said than done for this group of people.

The Confidence Building Measures

What do these “loftier goals” have to do with the CBMs? To answer this question, one must first understand the role of bilateral institutional arrangements. Brutger and Wright analyzed the role of formal security alliances over other forms of institutional ties such as entente cordiale—which could be defined as friendly agreements between countries—and neutrality pacts.

Literature in this field suggests that the “presence of security alliances is expected to decrease the effect of a border dispute on trade, since states that face a border dispute, but also cooperate through formal institutional arrangements are less likely to jeopardize engagement on other issues by escalating the border dispute” (Brutger and Wright, 2015, p. 15).

Now, any Belizean who regularly consumes local news would have heard the head of the Belize Defense Force (BDF) consistently refer to the good relations between the two countries’ armed forces. One such instance was just before the inauguration of the current Guatemalan President Jimmy Morales, when Brigadier General David Jones—responding to a question about the potential changes the new Guatemalan president might have on military-to-military relations—explained:

“If politicians decide otherwise then the military will have to follow because the military works under the directive of their politicians; but with the long standing relationship that we’ve had with the Guatemalan armed forces, I don’t expect things to change. If it is going to change, we are going to discuss the best way forward for both forces to work together because we are both professionals, and we only execute our political directives, but we try to work with each other on a professional manner.”

Jones’ sentiments aren’t isolated, as the Confidence Building Measures (CBMs) that were agreed to by both countries, under the auspices of the Organization of American States (OAS), speaks to the coordination of patrols within the Adjacency Zone, and the ability to cooperate in the fight against drug trafficking and other international crimes. The CBMs go as far as to state that the “General Secretariat of the OAS shall be informed of the time and location of such patrols”. Continuing on the motif of military action, the CBMs also state: “Neither Party shall use force, or the threat of force, to pursue their positions with respect to the Territorial Differendum”.

According to the Brutger-Wright study, such alliances tend to have a positive correlation with bilateral trade, suggesting that the stronger the ties, the better the trade relations, as businesses would feel reassured and safe to conduct trade under such conditions. Therefore, within this context, Brutger and Wright’s findings seem to hold water, as the Melchor scenario emerged after Guatemala’s officials opted to disregard the guidance of the CBMs following the April 20th unfortunate shooting of the 13-year-old Guatemala boy in the Cebada area of the Chiquibul.

The effects of Jurisdictional Uncertainty

But, beyond the built-in security alliances and assurances, the CBMs—after providing an unambiguous disclaimer that the Adjacency Zone in no wise represents a relinquishment of sovereignty claims of any party—goes on to state whose jurisdiction falls where.

“Without prejudice to each Party’s claims of sovereignty over any part of the Adjacency Zone, all persons residing to the west of the Adjacency Line shall be required to abide by and respect the laws, including human rights laws, and law enforcement authorities of Guatemala, and all persons resident to the east of the Adjacency Line shall be required to abide by and respect the laws, including human rights laws, and law enforcement authorities of Belize.”

The above statement is significant, because it clearly articulates jurisdictional institutions along the border. Having established that borders are a form of international institution (border institution), Brutger and Wright underscored the harmful economic effects of jurisdictional uncertainty. “If jurisdictional uncertainty is high,” the researchers explained, “economic agents [businesses and consumers] will face greater risks and higher transaction costs, which lead to decreased cross-border trade flows.”

Observers could argue that this is what Melchor has begun to experience since their political leaders opted to step outside of the CBMs; thereby, creating a certain level of instability and uncertainty that is not usually suitable for business activity.

In the End

In the end, the Guatemalan government should take note of the fact that their “loftier-goals” tactics are backfiring, as their citizens become more aware of their distraction strategy. Moreover, the people in Petén have it hard enough already, and do not need their political leadership to put them into more unnecessary hardships due to ill-advised policies that defy best practices of international relations. Asking cash-strapped folks to divert trade elsewhere is a tall order; ask the Guyanese rice farmers who had to recently locate new markets after Venezuela had cut ties.

While the benefits of bilateral trade with Belize is probably not strong enough of an incentive to appeal to the entire Guatemalan economy, the reported reaction of the folks in Melchor to reduced business activity, and comments from reputable sources such as Archbishop Óscar Julio Vian speak volumes about the eroding political benefits of keeping the unfounded claim alive. The gambit seems to no longer be working.

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One thought on “Belize-Guatemala Dispute and Bilateral Trade

  1. This is a great read and an eye opener for many! We have to realize that this dispute is multifaceted and needs to be considered from a holistic point of view by all Belizeans and Guatemalans alike. This is an issue that requires people to be objectively informed and united as it affects this present generation and all the ones to come.

    Like

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