VenezuelaWT/TPR/S/108
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WorldTrade
Organization / RESTRICTED
WT/TPR/S/108
30 October 2002
(02-5914)
Trade Policy Review Body
TRADE POLICY REVIEW
VENEZUELA
Report by the Secretariat
This report, prepared for the Trade Policy Review of Venezuela, has been drawn up by the WTO Secretariat on its own responsibility. The Secretariat has, as required by the Agreement establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), sought clarification from the Government of Venezuela on its trade policies and practices.
Any technical questions arising from this report may be addressed to Mr. Angelo Silvy (739 5249) and Mr. Raymundo Valdés (739 5346).
Document WT/TPR/G/108 contains the policy statement submitted by the Government of Venezuela.

Note:This report is subject to restricted circulation and press embargo until the end of the meeting of the Trade Policy Review Body on Venezuela.

VenezuelaWT/TPR/S/108
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CONTENTS

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SUMMARY OBSERVATIONS...... ix

(1)introduction...... ix

(2)economic environment...... ix

(3)trade and investment policy; institutional framework...... x

(4)market access...... xi

(5)other measures affecting trade and investment...... xii

(6)sectoral policies...... xii

I.the economic environment...... 1

(1)Introduction...... 1

(2)Recent economic trends...... 1

(i)Structure of the economy...... 1

(ii)Economic growth and employment...... 3

(iii)Prices...... 6

(iv)Monetary policy...... 6

(v)Exchange-rate policy...... 7

(vi)Fiscal policy...... 9

(vii)Balance of payments...... 11

(3)Developments in Trade...... 12

(i)Direction of trade...... 14

(4)Trends and patterns in foreign direct investment (FDI)...... 14

(5)Outlook...... 16

II.TRADE AND INVESTMENT REGIME...... 18

(1)introduction...... 18

(2)constitutional and general legal framework...... 19

(3)trade policy formulation and implementation...... 21

(i)Trade policy objectives and formulation...... 21

(ii)Main trade laws and regulations...... 21

(iii)Trade policy executing agencies...... 22

(iv)World Trade Organization...... 23

(4)preferential agreements...... 24

(i)Andean Community...... 25

(ii)LAIA...... 26

(iii)Group of Three...... 26

(iv)Other partial-scope regional agreements...... 27

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(v)Association of Caribbean States...... 27

(vi)Free Trade Area of the Americas...... 27

(vii)Other international agreements...... 28

(5)petroleum supply agreements...... 28

(6)investment regime...... 29

(i)Legal and institutional framework...... 29

(ii)Privatization...... 31

(iii)The investment tax regime...... 31

(iv)Bilateral investment and tax arrangements...... 32

III.Trade policy by measure...... 33

(1)General overview...... 33

(2)import regime...... 33

(i)Customs procedures and documentation...... 33

(ii)Customs valuation...... 34

(iii)Rules of origin...... 36

(iv)Tariffs...... 37

(v)Other charges and levies...... 44

(vi)Import licences, prohibitions and restrictions...... 45

(vii)Contingency measures...... 48

(viii)Government procurement...... 53

(ix)Technical regulations and standards...... 58

(x)Sanitary and phytosanitary measures...... 61

(3)measures directly affecting exports...... 63

(i)Registration, documentation...... 63

(ii)Export taxes, charges and levies; reference prices...... 64

(iii)Export restrictions...... 64

(iv)Export subsidies, tax concessions and free zones...... 65

(v)Export financing, insurance and guarantees...... 67

(vi)Export promotion...... 68

(4)measures affecting production and trade...... 69

(i)Legal framework for production and investment...... 69

(ii)Incentives...... 70

(iii)State trading, public enterprises and privatization...... 75

(iv)Competition policy...... 76

(v)Enforcement of intellectual and industrial property rights...... 78

IV.trade policy by sector...... 84

(1)Introduction...... 84

(2)Agricultural sector...... 85

(i)Features...... 85

(ii)Institutional and legal framework...... 85

(iii)Measures at the border...... 87

(iv)Domestic support measures...... 87

(v)Export subsidies...... 90

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(3)Fisheries...... 91

(4)Mining (other than hydrocarbons)...... 92

(i)Features and market access...... 92

(ii)Institutional and legal framework...... 93

(5)Hydrocarbons...... 94

(i)Features...... 94

(ii)Institutional and legal framework...... 97

(iii)Activities related to the petroleum sector...... 100

(6)Non-petroleum manufacturing activities...... 101

(i)Features and market access...... 101

(ii)General policy framework...... 102

(iii)Main manufacturing activities...... 103

(7)Electricity...... 105

(8)Services107

(i)Introduction...... 107

(ii)GATS commitments...... 107

(iii)Financial services...... 108

(iv)Telecommunications...... 116

(v)Transport...... 120

REFERENCES...... 127

APPENDIX TABLES...... 129

CHARTS

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I.THE ECONOMIC ENVIRONMENT

I.ISectoral composition of gross domestic product, at current prices, 2001...... 3

I.2Nominal and real effective exchange rate, 1989 – September 2002...... 8

III.TRADE POLICY BY MEASURE

III.1Distribution of applied MFN tariff, 2001...... 39

III.2Percentage of tariff lines subject to technical regulations, by HS Section, 2001...... 61

TABLES

I.THE ECONOMIC ENVIRONMENT

I.1Sectoral composition of gross domestic product, 1996-2001...... 2

I.2Basic macroeconomic indicators, 1996-2002...... 4

I.3Balance-of-payments, 1995-2002...... 11

I.4Exports and imports of commercial services, 1996-2000...... 13

I.5Trade within the Andean Community, 1999-2001...... 14

I.6New foreign direct investment, 1997-2001...... 15

I.7Foreign direct investment by country of origin, 1997-2001...... 16

III.TRADE POLICY BY MEASURE

III.1Summary analysis of Venezuelan tariffs, 2001...... 39

III.2Prior import permits, 2002...... 46

III.3Anti-dumping and countervailing measures in force, definitive duties in force...... 49

III.4Commercial safeguard investigations carried out by CASS, 1999-01...... 53

III.5Economic importance of government procurement...... 54

III.6Government procurement procedures, 2002...... 55

III.7Statistics on patents, utility models and industrial design registrations, 1995-2002...... 81

III.8Statistics on copyright protection, 1996-2001...... 82

IV.TRADE POLICY BY SECTOR

IV.1Producer subsidy equivalent, 1995-1998...... 88

IV.2Export subsidies, outlay by major product and annual commitments under the WTO

Agreement on Agriculture, 1996-1998...... 90

IV.3Mining (excluding hydrocarbons), 1996-2001...... 92

IV.4Petroleum activities, 1995-2000...... 94

IV.5Foreign direct investment in the hydrocarbons and petrochemicals sector, 1993-2000.....96

IV.6Main indicators in the telecommunications sector, 1996-2001...... 117

APPENDIX TABLES

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I.THE ECONOMIC ENVIRONMENT

AI.1Exports (f.o.b.) by product, 1996-2001...... 131

AI.2Imports (f.o.b.) by product, 1996-2000...... 132

AI.3Exports (f.o.b.) by country, 1996-2001...... 133

AI.4Imports (f.o.b.) by country, 1996-2001...... 134

II.TRADE AND INVESTMENT REGIME

AII.1Status of notification requirements to the WTO, 1996-2002...... 135

AII.2Terms of participation of Venezuela in regional agreements in 2002...... 138

III.TRADE POLICY BY MEASURE

AIII.1Preferential tariff by trading partner and HS chapter...... 140

AIII.2Imports of products to which Venezuela has the right to apply tariff quotas...... 144

AIII.3Anti-dumping and countervailing duty actions, 1993-2001...... 146

AIII.4Main sanitary and phytosanitary measures, 2001...... 148

AIII.5Intellectual property rights enforcement regime in Venezuela...... 150

AIII.6Overview of the protection of intellectual property rights in Venezuela, 2001...... 152

IV.TRADE POLICY BY SECTOR

AIV.1Manufacturing sector: tariff protection and trade...... 155

AIV.2Summary of Venezuela's commitments under the GATS...... 158

VenezuelaWT/TPR/S/108
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summary oBSERVATIONS

(1)Introduction

  1. Since Venezuela's first Review in 1996, trade policy formulation and implementation have taken place against the background of major changes to the institutional and legal framework. Venezuela has continued to consolidate the process of implementation of its commitments under the multilateral trading system, which has resulted in market opening and liberalization in some areas. While tariffs have remained at an average of some 12 per cent, there has been an increase in the use of non-tariff measures, including contingency measures, the active use of local preferences in government procurement, preferential credit schemes, technical regulations, and minimum local requirements. This points to a policy of protection for selected sectors, which is probably no more than a second-best solution to longstanding structural distortions.
  2. Economic performance has been erratic since 1996, reflecting both long-term problems and the complex interaction of domestic and external developments. The economy has grown ever more dependent on the oil sector, the fiscal deficit and public debt are large, and the net foreign capital account is negative. Low investment is an entrenched problem, which should have been partially alleviated by the steps taken in recent years to relax foreign direct investment restrictions and generally grant national treatment to foreign investment. However, little additional investment has been attracted so far. This suggests the need to address the perception of insufficient predictability in Venezuela's institutional and legal framework, which could be done in part by following stricter practices on the use of trade instruments, binding multilaterally the liberalization measures already adopted, and taking on new commitments.

(2)Economic Environment

  1. The hydrocarbons sector, particularly petroleum, continues to be the backbone of the Venezuelan economy. Despite efforts to diversify economic activity, the sector's share of GDP increased during the 1996-2002 period, while the shares of manufacturing and agriculture declined. Changes in domestic petroleum output and world prices have been reflected in the relatively large GDP fluctuations. After two years of moderate growth in 2000 and 2001, real GDP shrank by 7 per cent in the first half of 2002 compared with the same period the previous year.
  2. Linked to its high dependency on petroleum, Venezuela's economy shows clear symptoms of an anti-export bias, and "Dutch disease" appears present. The international competitiveness of its non-oil tradeable sector was reduced by a real currency appreciation up to February 2002. Reflecting the above, exports show little diversification. Hydrocarbons exports account for over 80 per cent of total merchandise exports; almost 60per cent of total exports (mostly petroleum products) are directed to the United States. Imports consist of a wide range of manufactured goods, which account for over 80 per cent of the total, as well as of primary goods.
  3. GDP changes have been largely the result of inventory and investment swings, particularly in the petroleum sector. Venezuela has a low investment/GDP ratio, which seems to be a structural trait of the economy, reflecting low private investment. The latter is in turn the result of the considerable State involvement in the economy, in particular in such vital sectors as hydrocarbons, mining, electricity and other activities, implying that the bulk of investment is in public sector hands. To succeed in diversifying its economy, Venezuela needs to attract more private investment.
  4. Venezuela adopted a floating exchange rate system in February 2002 to replace the previous regime based on fluctuation bands. Although the latter was instrumental in reducing inflation, it led to a significant real appreciation of the bolivar. The introduction of a flexible exchange rate led to a 90 per cent depreciation of the bolivar. The new system is, however, an important step towards regaining competitiveness and stimulating production while, by abandoning the use of the exchange rate as an instrument against inflation, enhancing monetary policy effectiveness.
  5. Monetary policy is geared at achieving price stability, with the Central Bank of Venezuela setting annual inflation targets. Inflation declined considerably between 1996 and 2001, but the cumulative CPI reached some 20 per cent in the first eight months of 2002 in the wake of the currency depreciation.
  6. The Central Government accounts have shown a deficit since 1998, countered, in 1999 and 2000, by a surplus in the rest of the public sector, due mainly to the operational surplus of the state petroleum company. As of 2001, however, partly due to lower revenue from oil and partly to a substantial increase in expenditure, this surplus has been insufficient to offset the Central Government's deficit. The fiscal deficit has led to a substantial increase in internal debt, which reached US$13.8 billion or 11 per cent of GDP in 2001. The reliance on internal debt has been putting further pressure on the fiscal accounts, since this debt is at a high cost and short maturity, and increased the internal debt service from 3.2 per cent of GDP in 1996 to 5.5 per cent in 2001.
  7. Venezuela traditionally runs a current account surplus in the balance-of-payments, due to a significant merchandise trade surplus. The current account surplus peaked at 10.8per cent of GDP in 2000, but fell to 3.2per cent of GDP in 2001, due mainly to a reduction in oil prices and an increase in imports partly fed by the real appreciation of the bolivar. The services balance traditionally shows a deficit, which was between 2.5 per cent and 4.6 per cent of GDP in 1996-2001. The capital account generally shows a deficit.

(3)Trade and Investment Policy; Institutional Framework

  1. Venezuela adopted a new Constitution in 1999. Since then, a large number of laws have been passed under the umbrella of Enabling Laws that granted the President the right to legislate in economic areas. In 2001, 49 new laws, involving a wide range of economic activities, were adopted under the Enabling Law of November 2000. The numerous legislative changes introduced since 1999 have generally aimed to modernize the legal framework, but there has been strong opposition to a number of those changes. Following an attempted coup d'état in April2002, the Government has embarked on a process of consultation and dialogue which includes the revision by the National Assembly of laws passed under the Enabling Law of November 2000.
  2. Venezuela is an original Member of the WTO and participated in the multilateral negotiations on financial services and basic telecommunications. The implementation of WTO Agreements has not led to major changes in legislation; these Agreements prevail in case of conflict or discrepancy with national legislation. Venezuela has been directly involved in two disputes in the WTO, once as a plaintiff and once as a defendant.
  3. Venezuela participates in several regional integration agreements. It is a member of the Andean Community and of the Free Trade Agreement of the Group of Three (G-3), in which Colombia and Mexico also participate. As a member of the Latin American Integration Association (LAIA), Venezuela participates in a number of preferential trade agreements with countries in the region.
  4. Since its last Review, Venezuela has sought to adopt policies to attract larger inflows of foreign direct investment. To this end, it has liberalized its investment regime, by relaxing restrictions. Foreign investors are granted national treatment, except in some specific areas.

(4)Market Access

  1. Venezuela passed a new Customs Law in 1999 and has started to automate its customs procedures. A new customs valuation regime was introduced in March 2001 to implement the provisions of the WTO Agreement on Customs Valuation. The new regime was notified to and examined by, the WTO Committee on Customs Valuation in 2002.
  2. Venezuela applies the Andean Community Common External Tariff, with some exceptions. The average applied MFN tariff in 2001 was 12 per cent, the same level as in 1996. Including variable levies, the average tariff was 12.4 per cent in 2001. The applied MFN average for non-agricultural goods was 11.6 per cent, while the average for agricultural goods (WTO definition) was 14.6per cent. Preliminary calculations for 2002 show that the average MFN tariff increased marginally, to 12.2 per cent, due to higher tariffs on a number of steel products, some of which were raised up to their WTO bound levels. The tariff shows moderate dispersion and is characterized by escalation. Venezuela has bound in the WTO its entire tariff at a general level of 35 per cent for non-agricultural products, and of between 10 per cent and 135 per cent for agricultural goods.
  3. Venezuela grants tariff preferences on imports from other Latin American and Caribbean countries. Imports from other Andean Community members enter Venezuela duty-free, while imports from Mexico, Chile, Brazil and Argentina benefit, in this order, from preferences on a wide range of their exports. Apart from the tariff, Venezuela applies a customs service charge of 1 per cent on all imports, including those from other Andean Community countries. In November2001, an additional tariff surcharge of 1 per cent of the f.o.b. value of imports was introduced but had not been implemented up to September 2002.
  4. Under the Andean System of Price Bands, Venezuela can apply variable levies on imports of a number of agricultural products other than from Andean Community countries. The resulting applied tariff levels can be high in case of a sharp decline in international prices; however, applied rates may not exceed WTO bound rates. For products that are also subject to tariff quotas under the WTO Agreement on Agriculture, Venezuela applies the in-quota bound rate (with maximum rate is 40 per cent).
  5. Tariff quotas are applied on 17products corresponding to 70 HS subheadings. Most of these quotas have been administered since 2000 through the use of non-automatic import licences. Venezuela also maintains import-licensing requirements for health, safety, and environmental reasons.
  6. Venezuela's legislation on anti-dumping and countervailing measures predates the WTO, but the Anti-Dumping Agreement is used in investigations involving WTO Members. Since 1996, 12 anti-dumping investigations have been initiated by Venezuela, resulting in most cases in the application of provisional and definitive anti-dumping duties. In mid 2002, there were 19definitive antidumping duty orders in place, affecting products from a range of industries, including steel, chemicals and footwear. Three countervailing duty orders are in place, all on cheese from the European Union. Venezuela introduced legislation on safeguards in 1999. Up to mid-2002, five investigations had been conducted, and the application of measures had been recommended in one case, although not yet applied.
  7. Venezuela does not participate in the WTO Plurilateral Agreement on Government Procurement. Venezuela's government procurement exceeds US$10 billion annually. Despite a margin of preference of 5 per cent granted to domestic suppliers, and due to the substantial weight of inputs and capital goods, the share of purchases to foreign suppliers is large, some 80-85 per cent of the total. The Government is thus trying to increase the share of domestic suppliers through temporary measures such as those introduced in July 2002, which grant additional preferences of up to 20 per cent depending on domestic value added and the type of enterprise.
  8. Standards and technical regulations are generally adapted from international norms. Venezuela has adopted some 300 technical regulations but, as at late September 2002, had notified only 24 to the WTO Committee on Technical Barriers to Trade. Current legislation on technical regulations and standards dates from 1979; a new law was drafted and notified to the WTO for comments in 2001, but by mid 2002 had not been yet implemented. Venezuela applies a relatively large number of sanitary and phytosanitary measures, but up to September2002 no notifications had been made to the WTO Committee on Sanitary and Phytosanitary Measures.

(5)Other measures affecting trade and investment

  1. Venezuela has a number of fiscal incentive programmes in place that grant tariff and tax reductions and exemptions. There are also a number of preferential credit and guarantee schemes, and technical assistance and training programmes. Some of these schemes and programmes are geared towards supporting higher value added or export activities and are financed through the resources of state funds or development banks. A programme is also in place, through agreements with private banks, for a certain percentage of credit to be channelled for agricultural activities at preferential conditions.
  2. Venezuela is an advocate of multilateral rules for competition policy. Competition policy is regulated both at the national and the subregional levels. The Constitution forbids conduct or agreements geared at establishing a monopoly or a cartel, or which may lead to an abuse of dominant position. A bill is under examination by the National Assembly to create a body with stronger enforcement and supervisory power than the current supervisory entity, Pro-competencia.