RESTRICTEDWORLD TRADE
ORGANIZATIONWT/WGTI/W/20
20 February 1998
(98-0648)
Working Group on the Relationship
between Trade and InvestmentOriginal:  Spanish
COMMUNICATION FROM BOLIVIA
The following communication, dated 8 December 1997, has been received from the
Permanent Mission of the Republic of Bolivia with the request that it be circulated to Members.
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Trade and development
1. Trends in Foreign Direct Investment (FDI), in particular, in the least-developed countries;
determinants and obstacles and consequences of the policy of FDI promotion
During the 1980s the countries of Latin America and the Caribbean opted for a radical change
in their development strategy.  In so doing, they redefined their relationship with foreign capital,
which they came to view as one of the principal means by which to achieve economic growth.1 The
1990s brought a consolidation of the new policies on foreign capital which were designed to make
them less restrictive and more promotional.  Salient among these measures were the application of the
principle of non-discrimination between foreign a nd domestic investment, the elimination of prior
authorization under domestic regimes, the phasing out of sectors reserved for the State or exclusively
for domestic investors (mass media, energy, some of the means of transport, mining, hydrocarbons,the financial sector, among others), the elimination of restrictions on the immediate remittance of
profits generated by foreign investment and instituting the possibility of unrestricted re-exportation of
capital.
In that connection, Bolivia's basic regulation is Law No. 1182 of 17 September 1990, which is
intended to stimulate and guarantee domestic and foreign investment on a non-discriminatory basis, in
order to promote growth and economic and social development.
This Law opens the way for joint, unlimited investments by domestic and foreign investors in
the form of joint ventures, among others, with the proviso that the registered office is located in
Bolivia.
Furthermore, Bolivian legislation and the agreements on the promotion and mutual protection
of investments signed by Bolivia embody the principle of national or local treatment and the
most-favoured-nation clause.
Law No. 1130 of 24 April 1992 on privatization is also designed to transfer ownership of
State enterprises to the private sector by sale.
                                                     
1 In the 1980s, as a result of the debt crisis, debt-equity swap programmes were implemented at the
same time as FDI began to be accorded new treatme nt.  These programmes were complemented by the
privatization of State-owned enterprises, and gave fresh impetus to the flow of investment towards the region.WT/WGTI/W/20
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It is hoped that the ongoing structural reform process will similarly attract additional foreign
investment that will be matched by domestic savings to constitute private investments.  Mention may
be made here of the process of raising capital for the main government-owned enterprises, such as
those in communications, energy, hydrocarbons, ae ronautics and metal-working (Law No. 1154 of 21
March 1994), which is aimed at attracting investment through strategic partners who will team up andestablish companies jointly with national counterpart enterprises, thereby increasing the capital of the
latter to their true market value at the time of deciding the capital increase.  It is hoped that this policy
will trigger a multiplier effect in other sectors of the economy.
Moreover, this capital formation process will lead to the development of an infrastructure of
basic services (energy, transport, communications) and act as an incentive to investment in other
branches of production.
This important reform gave rise to a specific set of regulations governing each sector in which
capital was to be raised (SIRESE Law - Sistema de Regulación Sectorial), suited to its particular
features.
Mention may also be made of other policies to stimulate foreign direct investment in the
country, such as the creation of industrial and commercial free zones and temporary admission
regimes for export.
What is more, being a member of the Andean Group, Bolivia is subject to Decisions 291
and 292 of the Board of the Cartagena Agreement on the Common Regime for the Treatment of
Foreign Capital (Régimen Común de Tratamiento a los Capitales Extranjeros) and on Trademarks,
Patents, Licences and Royalties (Marcas, Patentes, Licencias y Regalías), respectively.
Over and above these specific measures aimed at attracting foreign capital, the stability of the
macroeconomic environment is of the utmost importance in creating a suitable atmosphere for
stimulating the flow of investment to the country.  Bolivia has therefore followed a judicious
macroeconomic policy in regard to its fiscal, monetary and exchange management.
This package of measures is designed to correct the perception of Bolivia as a risk country
held by foreign and domestic investors, to encourage complementarity between public and privateinvestment, to improve the balance of payments a nd boost the country's rate of economic growth and
development.
In spite of the foregoing, there are still some obstacles to greater domestic and foreign private
investment, such as the changing of the rules of th e game, e.g. changes in the tax system, insufficient
physical infrastructure, inefficiency in the provision of basic services (which will be largely overcome
with the privatization of government-owned enterpri ses), the shortcomings of the judicial system, the
failure to adapt institutions to the new regulatory framework, restrictions or limits on foreign capitalin border areas and in the hydrocarbon and mining industries.
Private investment in the country has nevertheless shown an upturn in recent years, with
significant amounts of foreign investment going chiefly into mining, hydrocarbons, trade and services,
agriculture and modern agri-business.  To some ex tent this reflects the headway made in structural
reform, in market management and in creating conditions appropriate to private enterprise in general.
According to the secretariat for Industry and Tr ade (see Table 1), foreign investment surged
considerably, increasing from US$169 million in 1992 to US$401.6 million in 1995 (a 137 per cent
increase for that period), and stood at US$310 million for the first half of 1996.WT/WGTI/W/20
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TABLE 1
Foreign Private Investment in Bolivia
Cumulative Total by Sector for 1992, 1993, 1994, 1995 and First Half in 1996
(in US$)
Sector 1992 1993 1994 1995First half
1996*Cumulative total
1992-first half
1996%
Hydrocarbons 37,933,871 65,266,348 62,823,279 137,716,000 59,422,940 363,162,438 30.6
Mining 112,000,000 42,002,500 26,088,449 47,405,422 28,681,571 258,177,942 21.8
Industry 10,097,000 5,242,850 6,485,000 51,190,186 46,166,115 119,181,151 10.0
Agri-business 8,000,000 15,649,709 25,000,000 1,720,899 18,604,000 68,974,608 5.8
Trade and
services 1,000,000 606,612 51,476,966 163,645,834 157,183,469 373,892,881 31.6
Grand total 169,030,871 128,768,019 173,873,694 401,678,341 310,038,095 1,183,389,020 100.0
* Preliminary data.  National Secretariat for Industry and Trade, Directorate for Investment Promotion.
Table 2 shows the origin of the investment.  The United States accounts for the largest flow of
investment in recent years, followed by Chile.
TABLE 2
Foreign Private Investment in Bolivia by Country
Cumulative Total by Sector for 1993, 1994, 1995 and First Half 1996
Largest Investors for the Period
(in US$)
First half Country total 1993 1994 1995 1996*
United States 364,902,003 85,128,073 66,870,579 130,104,022 82,799,329
Chile 160,158,510 528,708 30,500,000 109,447,269 19,682,533
Canada 74,115,988 10,320,000 13,240,000 18,607,367 31,948,621
Bahamas 64,773,328 64,773,328
Netherlands 43,254,079 640,000 850,000 1,250,000 40,514,079
Argentina 43,053,518 11,181,314 6,522,700 10,366,504 14,983,000
Brazil 41,441,381 73,000 240,000 4,652,898 36,475,483
Italy 40,676,413 500,000 30,058 40,146,355
Colombia 35,720,244 10,000,000 25,000,000 715,274 4,970
Australia  31,439,057 6,477,315 4,488,960 15,527,782 4,945,000
Spain 29,388,863 500,000 450,000 9,896,465 18,542,398
Peru 15,551,275 809,709 350,000 309,819 14,081,747
                                                     
* Preliminary data.  National Secretariat for Industry and Trade, Directorate for Investment Promotion.WT/WGTI/W/20
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2. Linkages between investment, trade and technology and the implications for development
The prevailing atmosphere of globalization is marked by an increase in the volume of trade
and world production, a great upsurge in foreign direct investment and in the activities of
transnational corporations, the emergence of more flexible, dynamic and integrated financial systems
and a new organization of production and trade wh ich emphasizes subcontracting and intra-industry
trade.
The present trend towards the transfer of technology is taking place in a context of
deregulation, privatization, global integration of financial and capital markets, increasing privatization
of technological know-how and ever shorter products cycles, greater interest in energy-saving and
environmental protection.
The result is that investment now goes hand in hand with technology and is a key element in
developing the production sectors of countries, in particular the least-developed ones.  The world-wide competition for capital is leading the least-developed economies to place greater emphasis on
attracting investments together with the transfer of technology.  Like other countries, Bolivia too has a
liberal regime for direct foreign investment and t echnological transfer, which is being matched by the
dismantling of controls on enterprises in hitherto regulated, government-owned sectors, which are
now being opened to foreign capital through capital formation processes.
One consequence of the imperative to adapt to the new setting is that in many branches of
developing economies, the capital base of installed production capacity is being depleted as the
technology becomes obsolete.  This is posing new challenges in regard to competitiveness on both
domestic and international markets.  Companies must vie with foreign ones in possession of state-of-
the-art technology on increasingly open domestic markets.  This means that enterprises from the least-developed countries will continue to depend largely on external sources to obtain the technology they
need to industrialize and be internationally comp etitive.  Not only does attaining international
competitiveness call for macroeconomic and trade policies, but also for the modernization of
enterprises by incorporating new technology.
The effectiveness of the technological transformation process will depend on several factors,
such as whether recipients are able to acquire and adapt technology on favourable terms, the domestic
technological support infrastructure (including local availability of skilled and professional human
resources) and the degree of success in obtaining the transfer of technology on optimum terms, based
on equitable and well negotiated contracts.
Although technological change opens up many new possibilities, it also entails risks such as
the already mentioned obsoletion of certain skills and expertise and the need to create new ones.
Combined with the globalization of trade, this situation has in some instances worsened trade
imbalances and renewed tendencies towards protectionism and less-open economic groupings.
Nevertheless, the Final Act of the Uruguay Round and the most recent trade agreements reaffirm
multilaterlism and adopt new rules, procedures and institutions to govern international trade and better
integrate the least-developed countries into the world economy.
3. Examination and review of existing agreements and the identification and analysis of topics
relevant to a possible multilateral investment structure and the implications for development
Recent investment agreements such as the North American Free Trade Agreement, the Group
of 3, the liberalization of the investment system  of the Andean Group through Decision 291, as well
as the two MERCOSUR protocols for the promotion and protection of investment are aimed at
encouraging foreign investment by according national treatment and removing restrictions on mostcapital and profit remittances.WT/WGTI/W/20
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As a member of the working groups preparing the negotiations to establish the Free Trade
Area of the Americas (ALCA), Bolivia has played an active part in the Group on Investment, chaired
by Costa Rica.  On the instructions of the Heads of State of the 34 countries in the hemisphere, the
Group commissioned the Inter-American Development Bank to conduct a comparative study of
foreign investment regimes in the countries of the hemisphere in order to identify common ground aswell as divergences.
As part of the study, an outline was drafted of  the most important foreign investment-related
topics, drawn from the four agreements mentioned above.  The topics are classified into seven
sections, namely, sphere of application, admission, treatment, transfers, expropriation, dispute
settlement among contracting parties and dispute settlement between a contracting party and an
investor.  Each section breaks down as follows:
- Sphere of application
Forms of investment
Investors
Natural persons
Legal persons
- Clause on admission
- Clause on treatment
Standards
Fair and equitable treatment and full protection and safety
Non-discrimination
National and most-favoured-nation treatment
Exceptions
Performance requirements
Other aspects
- Clauses on transfers
Types of payment
Convertibility, rates of exchange and timing of transfer
- Expropriation
Definition of expropriation measures
Conditions
Public utility and non-discrimination
Due legal process
Compensation
- Disputes among contracting parties
- Disputes between a contracting party and an investorWT/WGTI/W/20
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If these topics of importance to treatment of foreign direct investment are brought together in
one multilateral framework, that would encourage the circulation of foreign capital and boost
international trade and the development of the countries participating in it.
FOREIGN PRIVATE INVESTMENT BY COUNTRY
Years:  1993, 1994, 1995, 1996
Country 1993 1994 1995 1996
Italy 500,000 30,058 161,159,227
United States 85,128,073 66,870,579 130,104,022 127,838,600
Brazil 73,000 240,000 4,652,898 66,587,569
Canada 10,320,000 13,240,000 18,607,367 47,934,294
Chile 528,708 30,500,000 109,447,269 44,403,719
Spain 500,000 450,000 9,896,465 28,484,398
Argentina 11,181,314 6,522,700 10,366,504 28,370,545
Australia 6,477,315 4,488,960 15,527,782 15,364,777
Peru 809,709 350,000 309,819 15,189,892
Germany 1,540,000 4,718,804 5,604,494
Cayman Islands 469,746
Japan 51,454 391,389
United Kingdom 950,000 800,000 2,650,000 300,000
Netherlands 640,000 850,000 1,250,000 119,880
China 600,000 150,000 22,248 75,521
Barbados 19,760
Korea 700,000 1,429,906 15,805
Colombia 10,000,000 25,000,000 715,274 14,970
New Zealand 46,565 7,107
Mexico 5,190
France 5,000 60,265 100,000 4,015
Ecuador 2,000
Paraguay 150,813 1,957
Bahamas 64,773,328
Switzerland 986,359
South Africa 250,000
Panama 41,625
Uruguay 10,681
Austria 10,000
Cayman Islands 4,939
Others 25,524,161
Total 127,213,119 152,262,504 401,678,341 542,364,855
FOREIGN INVESTMENT IN BOLIVIA
By sector:  for 1992, 1993, 1994, 1995, 1996
Sector 1992 1993 1994 1995 1996
Hydrocarbons 37,933,871 65,266,348 62,266,348 137,716,000 116,325,880
Mining 112,000,000 42,002,500 28,088,449 47,405,422 52,963,225
Industry 10,097,000 5,242,500 6,485,000 51,190,186 52,967,789
Agri-business 8,000,000 15,649,709 25,000,000 1,720,899 19,122,200
Trade and Services 1,000,000 606,612 51,476,966 163,645,834 300,985,761
Yearly totals 169,030,871 128,768,019 173,873,694 401,678,341 542,364,855
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