RESTRICTED
WORLD TRADE WT/TPR/G/10
12January 1996
ORGANIZATION(96-0091)
Original: Spanish
TRADE POLICY REVIEW
VENEZUELA
Report bytheGovernment
Inpursuance oftheAgreement establishing theTrade Policy Review Mechanism (Annex 3
oftheMarrakesh Agreement Establishing theWorld Trade Organization), thesecond policy statement
submitted bytheGovernment ofVenezuela isattached.
Note: Thisreport issubject torestricted circulation andpress embargo untiltheendofthemeeting
oftheTrade Policy Review Body onVenezuela.Venezuela WT/TPR/G/10
Page iii
CONTENTS
Page
I. EXECUTIVE SUMMARY 1
II. ECONOMIC AND TRADE ENVIRONMENT 1
III. TRADE POLICY DEVELOPMENTS 1990-1995 3
(i) Uruguay Round 4
(ii) Cartagena Agreement 4
(iii) Group ofThree 5
(iv) Participation intheLatin American Integration Scheme 5
(a) Economic Complementarity Agreement withChile 5
(b) Trade andInvestment Agreements withCentral American
countries andtheCaribbean Community 6
(c) Economic Complementarity Agreements with
Brazil andArgentina 6
(v) Summit oftheAmericas 6
IV. OUTLOOK FOR FOREIGN TRADE 6
(i) WTO 7
(ii) Integration intheAmericas 7
(iii) Latin America andtheCaribbean 7
(iv) Bilateral trade relations withother partners 7Venezuela WT/TPR/G/10
Page 1
I. EXECUTIVE SUMMARY
Venezuela isacountry endowed withgreat natural wealth; itsvastpetroleum, mineral,
hydroelectric andother resources havemade itapower intheenergy sector intheAmericas.
Thepresent world economic situation, characterized byglobalization andinternationalization
ofeconomies, hasobliged Venezuela toreorient production activity andredefine itstrade policy.
Since early1989, ithasbeenextremely active intheareaoftradepolicy, including inparticular
fullparticipationinthemultilateraltradingsystemthroughitsaccessiontoGATTin1990andsubsequent
membership oftheWorld Trade Organization (WTO) inJanuary 1995.
Ithasintensified tradeintegration withitsclose neighbours, consolidating theCustoms Union
oftheAndean Group (Cartagena Agreement), andconcluding freetrade agreements withColombia,
Mexico (Group ofThree) andtheCentral American countries (Trade andInvestment Agreement).
Ithasalsoconcluded a"lopsided" freetrade agreement withtheCaribbean Community, aswellas
anumber ofbilateral trade agreements withCaribbean countries.
Inaddition, theLatinAmerican integration process hasbeenspeeded up(agreements withChile,
Brazil andArgentina), andthere hasbeenconcrete progress insetting uptheFreeTrade Areaforthe
Americas.
During thenextfewyears, Venezuela willpursue itspolicy ofnegotiation andopening upof
trade soastoestablish abroader economic areathatwillenhance thecompetitiveness ofitseconomy
internationally.
II. ECONOMIC AND TRADE ENVIRONMENT
Theperiod beginning in1989 wasoneofstructural reform andadjustment forVenezuela.
Itmarked thelaunching oftheGovernment 'sadjustment andstabilization programme, aimed at
attenuating thefinancial, monetary, exchange andbalance-of-payments imbalances thataffected the
country 'seconomic growth anditsability topenetrate foreign markets.
Thenewfocus ofeconomic policy wasmainly onopening uptheeconomy totheoutside,
promoting greater diversification ofexports andprivate investment inorder tostimulate increased
production, andredefining theState'srole.
Asaresult oftheeconomic policy measures adopted, economic activity shrank by8.6percent
thatyear. Onthesupply side,thiswasmainly duetoincreased costsresulting fromalower exchange
rate,and,onthedemand side,tostagnation indomestic markets asaresult ofthesurge ininflation,
which increased by81percentfollowing theliberalization ofprices andunification oftheexchange
rate. Thedecline indomestic activity inturnhadanegative impact onemployment levels andresulted
inanunemployment rateof9.7percent.
Between 1990and1992, despite political difficulties thatledtoanunstable social climate and
theglobal economic crisis thatwasmainly reflected inlower prices forVenezuela 'smajor exports
(petroleum,aluminium,steel,coalandchemicals),thestructuraladjustmentprogrammeandtheeconomic
reforms implemented since1989wereintensified inorder tomove ahead witheconomic development.
Action wastherefore taken tospeed uptheopening oftheeconomy, promote political andadministrative
decentralization, meet social commitments, andenhance democracy, privatization andthebalanced
management ofpublic finances.WT/TPR/G/10 Trade Policy Review
Page 2
Theprivatization policy isakeyinstrument ofeconomic policy andfocuses mainly onthe
promotion ofinvestment soastorevitalize theproduction ofgoods andservices inanumber of
State-owned companies. Since 1989, Venezuela hastransferred 29enterprises andotherassets, bringing
inUS$2.4 billion astheproceeds oftransparent operations. Inaddition totheincome yielded, these
operations represent thetransfer of44,000 jobstotheprivate sector andasaving onoperating costs
andinvestment thatwould havehadtobemetbytheState ifithadretained ownership.
Withregard totheperformance ofmacroeconomic variables overthisperiod, itcanbenoted
thatbetween 1990 and1992 thegross domestic product (GDP) increased atanannual rateof6.5per
cent, 10.4percentand6.8percent, respectively. Themain reason fortheslowing down in1992
wasthe1.9percentdropinGDP intheoilsector asaresult ofslacker demand; consumer needs
weresatisfied through higher utilization ofstocks byindustrialized countries andtherewasexcess supply
ofcrude ontheinternational markets, thus affecting price levels, which felltoanaverage
US$15.25/barrel.
After fouryears oftheadjustment programme, political andsocial instability delayed the
implementation ofsome oftheplanned reforms, especially those related tothefinancial system and
tothefiscal sector andtheGovernment 'ssearch forincreased revenue inorder tofinance thehigh
fiscal deficit andcontinue tocombat inflation.
Thetransitional Government ofRamón J.Velásquez, using thespecial powers granted bythe
Congress oftheRepublic, therefore introduced aValue Added Taxattheendof1993, asanimportant
measure forobtaining fiscal resources andfinancing thedeficit.
Thetaxwassubsequently abolished byRafael Caldera, when hebecame President ofthe
Republic, andreplaced byataxonwholesale salesandluxury goods, soasnottotaxconsumers directly.
Thedifficulties encountered inimplementing these reforms interaliacontributed tothemost
serious crisis everexperienced bythefinancial system, which reached apeakinearly 1994. The
monetary assistance provided bytheGovernment tocounter theinability offinancial entities tomeet
theirliabilities withthepublic drove upVenezuela 'sbudgetary andexternal deficits, putting increasing
pressure onitsinternational reserves. ThisledtheNational Executive totakeemergency measures
tocurbthepressure onprice levels andexchange rates, andinmid-1994 itadopted exchange controls
andprice controls forbasic goods.
Atthesametime, anemergency fiscal plan,known astheSosaPlan,wasimplemented toreduce
thehighfiscal deficit thatwasaggravated bytheGovernment 'sdebtwiththeCentral BankofVenezuela.
ThePlanincluded anumber oftaxreforms andaswellasataxonbusiness assets andbank debits
foraperiod ofonlyoneyear.
Asaresult, in1994 economic activity shrank by3.3percentandinflation reached 70.8per
cent(nevertheless lower thanin1989) while thefiscal deficit remained atthesamelevel, asthereforms
hadnotyetstarted totakeeffect.
Itisexpected thatgross domestic product willincrease bylessthan1percentin1995, mainly
asaresult ofactivity intheoilsector, which should offset thedecline indomestic production.
Cumulative inflation uptoOctober 1995 wasaround 40percent, lower thanin1994, asaresult of
higher(non-oil)domestictaxrevenues,andpeggingtheexchangerateatBs170/US$,thelevelprevailing
when exchange controls were introduced. Theopenunemployment ratewas11percentduring the
firsthalfof1995, which isareasonable figure taking intoaccount thescale ofthefinancial crisis in
Venezuela in1994 anditsadverse impact ondomestic production.Venezuela WT/TPR/G/10
Page 3
Themaintenance ofafixed exchange ratehasledtosignificant realappreciation ofthebolivar
andcontinuing pressure onthelevel ofoperational reserves, which inNovember amounted to
US$4.5 billion, afigure which theCentral BankofVenezuela hasfixedastheminimum. Nevertheless,
restrictions onfreeconvertibility havenothindered trade flows; onthecontrary there wasa25per
centincrease inVenezuela 'simports from therestoftheworld between 1994 and1995.
Theimprovement intheGovernment 'staxrevenue under theIntegrated TaxAdministration
Scheme (SENIAT), together withprogrammes toreduce Government spending, havebrought down
thefiscal deficit, which itishoped willprovide aclearsignal oftheGovernment 'sintention torestore
public financial balance.
Nevertheless, during allthese years ofrecession, recovery andsubsequent recession, foreign
trade results havebeenpositive. Oilexports peaked in1991 andthenfellbetween 1992 and1994,
onlytorecover again in1995.
Thesalient feature inthisareaisthetrend innon-traditional exports, i.e.other thanoiland
ironore,which grew atanannual average rateof6.2percentbetween 1989 and1994, from
US$2,994 million in1989toUS$4,580 million in1995. Thistrendshows theimportant diversification
bothofproducts exported byVenezuela andalsoofitsmarkets, withColombia taking overthefirst
place previously occupied bytheUnited States.
Itshould beemphasized that66percentofthese exports aregenerated bytheprivate sector,
thusdiminishing dependence onexports ofrawmaterials byState enterprises.
Thisperformance istheresult oftheorientation ofthetrade policy pursued, which focuses
onpromoting non-traditional exports andintensifying participation inintegration schemes and
international negotiations.
Themacroeconomic imbalances mentioned above mean thatanadjustment programme has
tobeadopted torestore themacroeconomic balances andthusallow asustained process ofgrowth
tobegin from1996 onwards, primarily based onprivate initiative andoutward-looking growth. The
Government istherefore negotiating acomprehensive adjustment programme withtheInternational
Monetary Fund thatincludes thefollowing priorities: gradual reduction ofthefiscal deficit; more
flexible exchange controls; strengthening ofthefinancial sector; structural reform ofthesocial security
system; expanded social programmes; reactivation ofproduction; extension ofthecompetitive price
system; newinterest ratepolicies; jobtraining; reform ofpublic administration; andprivatization.
III. TRADE POLICY DEVELOPMENTS 1990-1995
During theperiod 1990-1995 Venezuela 'strade policy wasimplemented along thelineslaid
down inDecree No.239of30May1989, which fixestherules fortrade policy.
Decree No.239establishes thefollowing measures interalia:tariff reform; theabolition
ofpara-tariff restrictions; more flexible administrative procedures forexports; theestablishment of
mechanisms todealwithunfair competition; theoutline ofanintegrated export promotion policy;
adaptation ofthecommitments undertaken within theAndean Group; andVenezuela 'saccession to
GATT.
During thefirsttwoyears ofimplementation oftheaforementioned Decree, important results
wereachievedintheareaoftradepolicy.Firstly,thecustomstariffwasthoroughlyoverhauled,bringing
down thetariff ceilings from 40percentto20percentby1992 andfixing fourtariff levels, basedWT/TPR/G/10 Trade Policy Review
Page 4
onthedegree ofprocessing ofthegoods concerned, of5percent,10percent,15percentand20per
cent, withafewexceptions at35percentforautomobiles. Non-tariff restrictions onimports were
alsoreduced toaminimum, leaving onlythose allowed under theGeneral Agreement onTariffs and
Trade fortheprotection ofhuman, animal andplant health, public morals, theenvironment, security
ornational defence.
Onefundamental aspect ofVenezuela 'stradepolicy hasbeentheemphasis onmultilateral and
bilateral negotiations andtrade integration, withtheobjective ofbroadening access tointernational
markets, especially Latin American markets, forVenezuelan products. Actions taken inthisregard
include Venezuela 'sparticipation intheUruguay Round negotiations anditsaccession totheWorld
Trade Organization asanoriginal member, theconsolidation oftheCartagena Agreement, thesigning
oftheGroup ofThree Agreement, participation ininitiatives fortheSummit oftheAmericas andother
actionwithintheLatinAmericanintegrationscheme,forexample,thesigningofaFreeTradeAgreement
withChile andEconomic Complementarity Agreements withBrazil, Argentina, Central American
countries andtheCaribbean Community.
(i) Uruguay Round
ForVenezuela, thesuccessful conclusion oftheUruguay Round wasofextreme importance
because ifthiscomplex round ofnegotiations hadfailed thefuture ofthemultilateral trading system
would havebeenshrouded inuncertainty, anditwould havebeenmore difficult tohalttheprotectionist
trends andunilateralism inworld tradepractised bysome countries orgroups ofcountries, which have
anegative effect ondeveloping countries inparticular.
VenezuelaisconfidentthatimplementationoftheresultsoftheUruguayRound,whichitbelieves
areglobally positive, willleadtomore stable, reliable andpredictable trade conditions based onthe
opening ofmarkets andthestrengthening ofmultilateral trade rules anddisciplines. Ofparticular
importance toVenezuela aretheimprovements made totheGATT dispute settlement mechanism, which
Venezuela hasinvoked onseveral occasions. Thesystems 'seffectiveness hasbeenreinforced bythe
automatic adoption ofpanel reports andthepossibility ofhaving recourse totheAppellate Body, whose
conclusions andrecommendations willbebinding.
These aspects areallofparticular importance toVenezuela, especially since itstraderelations
havegreatly expanded inrecent years. Aspartoftheprocess ofadjusting tothenewcircumstances
oftheglobal economy, Venezuela 'sparticipation firstofallinGATT andthenintheWTO isdeemed
tobeanelement oftheutmost importance inadevelopment strategy thatincludes thepromotion of
production sectors, growth ofnon-oil exports andmodernization ofVenezuela 'slegalframework for
foreign trade. InDecember 1994, theCongress oftheRepublic ratified theAgreement Establishing
theWTO, thusunderlining theimportance Venezuela attaches tothisAgreement.
(ii) Cartagena Agreement
During thisperiod, considerable headway wasmade inconsolidating theAndean integration
scheme. In1992, despite thetemporary withdrawal ofPerufrom allcommitments relating tothe
free-trade areaandthecustoms union, theliberalization programme forautomatic tariffandpara-tariff
reduction wasfullyimplemented. Ecuador 'sfullmembership ofthefree-trade areagaveaboost to
theconsolidation oftheAndean Group. Abilateral agreement wasconcluded withPeruonfreetrade
inalarge number ofproducts onbothsides, covering almost 80percentofreciprocal trade.
Inaddition, thefollowing specific measures were adopted withaview tostrengthening the
integration process: adoption ofaCommon Industrial Property Regime; regulation ofAndean Policy
ontheElimination ofCargo Reservations; regulation oftheAndean Open Skies Policy; adoptionVenezuela WT/TPR/G/10
Page 5
oftheAndean Rules onCustoms Valuation; establishment oftheAndean Rules onCustoms Transit;
adoption ofAndean Regulations onLivestock Health; andelimination ofexport subsidies fortrade
within thesubregion.
Subsequently, in1994, theAndean Group 'sCommon External Tariff (AEC) entered intoeffect,
marking animportant stepforward toamore advanced stage ofintegration, aswellasenhancing the
transparency intrading andproviding further opportunities toincrease tradeandinvestment. Inaddition,
theAEC gives Andean countries astronger negotiating position vis-à-vis thirdcountries.
Itwasalsoagreed toabolish, asof1January 1996, theuseofspecial customs regimes intrade
within thesubregion, soastoprevent distortions inthecustoms union.
Intheagricultural sector, theAndean System ofAgricultural Price Bands wasestablished with
theaimofstabilizing theimport costs ofaspecific group ofagricultural products characterized by
highly unstable prices.
Theprogress made intheAndean integration process hasmeant thatrelations withAndean
countries intheareas oftrade andinvestment arehighly satisfactory. Venezuelan non-oil exports to
member countries oftheAndean Group in1994accounted for31percentofitstotalexports, making
them thebiggest customer forthese products.
(iii) Group ofThree
In1990, Venezuela, Colombia andMexico initiated negotiations onanEconomic
Complementarity Agreement thatwould leadtotheestablishment ofafree-trade area. On
1January 1995, theFreeTrade Agreement oftheGroup ofThree entered intoforce, marking an
important stepforward ineconomic relations among thesignatories andforthefuture oftheLatin
American integration processes.
TheAgreement isnotconfined totrade ingoods butismuch broader andmore ambitious.
Itcovers other important areasoftheeconomy, suchastheso-called newsubjects ininternational trade,
orienting andregulating relations among theGroup ofThree intheareasoftradeinservices, investment
andintellectualproperty.Whenthecurrentnegotiationsonservicesandinvestmenthavebeenconcluded,
theentire Agreement willbenotified totheWTO.
(iv) Participation intheLatin American integration scheme
Venezuela 'sparticipation intheLatin American integration scheme tookanumber offorms:
(a) Economic Complementarity Agreement withChile: On2April 1993 anEconomic
Complementarity Agreement wassigned withChile; itentered intoforceinJuly1993,
withtheobjective ofestablishing anextended economic areawithin aperiod not
exceeding sixyears.
TheAgreement provides forthegradual anddifferentiated liberalization oftariffs
according tothesensitivity oftheproduction sectors inbothcountries. Itcontains
alistofproducts subject toanaccelerated tariff-cutting process thatwillendin1996,
alistofproducts subject toaslower tariff-cutting process toendin1999, andalist
ofexemptions forproducts considered tobeespecially sensitive.WT/TPR/G/10 Trade Policy Review
Page 6
Special mention should alsobemade oftheagreements oninvestment andmaritime
transport, under which national treatment willbeapplied toinvestment bytheother
country andaccess tocargo willbefree.
(b) TradeandinvestmentagreementswiththeCentralAmericancountriesandtheCaribbean
Community:TheobjectiveoftheseagreementsistostrengthenVenezuela'scooperation
withthese countries. Under theagreement withtheCaribbean Community, which
wassigned inOctober 1992andentered intoforceon1January 1993, Venezuela grants
non-reciprocal trade preferences.
Concerning theCentral American countries, thefirststagewascompleted in1992and
consisted ofspecial treatment forexports fromthesecountries. Subsequently, inearly
1993, aFramework Agreement onTrade andInvestment wassigned providing for
negotiations onafree-trade areaamong Venezuela, Colombia andthefivemember
countries oftheCentral American Common Market, buttheyhave notyetbeen
concluded.
(c) EconomicComplementarityAgreementswithBrazilandArgentina:In1992,thevarious
trade agreements withArgentina within theframework ofLAIA were combined in
asinglelegalinstrument,EconomicComplementarityAgreementNo.20.Subsequently,
in1993, theexisting preferences wereimproved andthenumber ofproducts covered
bytheAgreement andthussubject topreferential treatment intrade between thetwo
countries wasincreased.
Economic Complementarity Agreement No.27withBrazil wasrenegotiated in1994
soastoimprove theexisting preferences andincrease thenumber ofgoods benefiting
from preferential treatment.
(v) Summit oftheAmericas
Venezuela 'strade relations withNorth America havebeenimportant historically. Formany
years, theUnited States hasbeenthemainmarket forVenezuela 'sexports and,asinthecaseofMexico
andCanada,ispotentiallythemajorrecipientofVenezuelanproductsintheAmericas.Thisrelationship,
together withVenezuela 'srapprochement andtrade links withtheCaribbean, Central America and
Latin America, isanessential partofourforeign trade policy.
Theinitiatives taken toestablish aFreeTrade AreaoftheAmericas (FTAA) bytheyear2005
areconsistent withVenezuela 'sintegration objectives. InDecember 1994theprinciples forthecreation
oftheFTAA werelaiddown attheSummit oftheAmericas andsince thenthegovernmental bodies
inVenezuela responsible forforeign trade relations havegiven priority towork inthisareasoasto
ensure that,inaccordance withthetimetable fixed, thebases canbelaidfornegotiating anareafree
oftrade barriers intheAmericas, sothatwewillbeabletoincrease ourproduction capacity and
strengthen trade relations withother countries ofthecontinent.
IV. OUTLOOK FOR FOREIGN TRADE
Venezuela 'stradestrategy focuses onthefollowing threemainspheres ofaction: (i)multilateral
action inthebroadest sense, forexample, participation intheWorld Trade Organization; (ii)regional
action inLatin America andtheCaribbean; (iii)bilateral action withitsmaintradepartners: theUnited
States, theEuropean Union andJapan.Venezuela WT/TPR/G/10
Page 7
(i) WTO
Participation intherecently established WTO implies aserious commitment onthepartof
allitsmembers aswellaspractical involvement intheactivities ofthisimportant Organization byall
government authorities andeconomic actors concerned withthevarious issues dealt withinthe
Organization. Thisiswhyoneofthepriorities ofVenezuela 'strade strategy istofoster awareness
atalllevels within thecountry bothofthecommitments undertaken byVenezuela ineachofthe
agreements, soastoprevent anypossible non-compliance, aswellasoftherights under theagreements
soastobenefit from them.
Inaddition, Venezuela 'sstrategy willfocus onadequate preparation fortheprogramme of
future negotiations, inregard bothtothereview andmonitoring ofthepractical implementation of
theagreements, andtothenewissues thatemerged attheendoftheUruguay Round negotiations and
willbeontheWTO 'Sfuture agenda.
(ii) Integration intheAmericas
Since theSummit oftheAmericas heldinMiami inDecember 1994, Venezuela hasplayed
anactive roleinthewhole initial negotiating process withtheaimofsupporting action thatitishoped
willleadtotheestablishment oftheFreeTrade Area fortheAmericas bytheyear2005.
(iii) Latin America andtheCaribbean
Theestablishment oftrade links andagreements withcountries andgroups ofcountries in
Latin America isalsoapriority forVenezuela. Itintends tointensify intra-regional cooperation not
onlyintrade butalsoinother areas according toitsgeographical, economic andcultural affinities.
Italsosupports thedefinition ofgeopolitical andgeoeconomic areasbased oncommon identity features.
With theAndean Group, itwillpromote further integration inthesubregion withtheaimof
harmonizing themacroeconomic policies ofthemember countries anddeciding upon jointaction in
international negotiations. With MERCOSUR, itistaking partintalkstoinitiate negotiations ona
freetradeagreement incoordination withother Andean Group countries. Itwillalsotakefurther steps
toimprove thefree-trade areawithChile.
Venezuela alsointends topursue itscooperation withcountries intheCaribbean Basin and
willstrengthen linkswiththem. Inearly1996, theTrade andInvestment Agreement between Venezuela
andtheCaribbean Community willbereviewed tomonitor itsfunctioning andstrengthen it.
Venezuela willcontinue itscooperation activities within therecently established Association
ofCaribbean States (ACS), which includes allCaribbean Basin States, bringing together countries of
Central America, South America andtheCaribbean islands.
Itishoped thatnegotiations ontheFreeTrade Agreement withtheCentral American countries
willbefinalized in1996, thusconsolidating trade relations withthisregion.
(iv) Bilateral trade relations withother partners
Action willbetaken atthebilateral leveltostrengthen existing linkswithVenezuela 'strade
partners andthusderive greater advantages fromthepossibilities offered bythesecountries intheareas
oftrade cooperation andinvestment.