EMBARGO: NOT FOR PUBLICATION
BEFORE 1300 GMT 13FEBRUARY 1996
PRESS/TPRB/26
7February 1996
ECONOMIC PROBLEMS SHOULD NOT KEEP VENEZUELA FROM
FOCUSING ONTRADE REFORM
Serious economic problems inrecent years, including amajor banking crisis in1994, haveresulted
inalossofmomentum inVenezuela 'strade andeconomic reform programme begun in1989. According
toaWTOSecretariatreportonVenezuela'stradepoliciesandpractices,Venezuelahaslargelyavoidedreversing
thereforms, butforeign exchange controls, introduced in1994 tostemcapital flight, mayhavesignificant
effects onthecountry 'strade régime. Thereport willbethesubject oftwodaysofdiscussion attheWTO
on12and13February 1996.
Venezuela 'sefforts toliberalize itseconomy werespurred bylower prices intheworld oilmarket.
Thepetroleum industry hasadominant position inVenezuela 'seconomy andoil,despite thesignificant impact
oftheproduction quotas maintained byVenezuela within theframework ofOPEC, accounts forthelion's
shareofthecountry'sexports.Petroleumalsosuppliesinexpensiveenergytodomesticindustriesandrepresents
alarge source ofgovernment revenues, usednotonlytofinance major advances ineducation andwelfare,
butalsotosupport theextensive stateinvolvement intheeconomy.
According tothereport, economic liberalization wasaccompanied byasignificant opening ofthe
traderégime. Thisprocess wascomplemented bythesecurity ofaccess andimproved transparency resulting
fromVenezuela 'saccession totheGATT in1990andbyitssubsequent membership intheWTO. Thereport
states thatVenezuela, afounding member oftheWTO, agreed tofurther reduce itsoverall bound rateto
35percentby2004, down by15percentfrom thegeneral ceiling levelnegotiated during itsaccession to
GATT. Since 1992, Venezuela 'sapplied tariff schedule hasbeenbased ontheCommon External Tariff of
theAndean Group,1withmost advalorem ratesbeing 5,10,15and20percent. Anewtariff, introduced
inJuly1995, reduced tariff peaks affecting certain automotive items from 40to35percent.
1Members oftheAndean Group include Bolivia, Colombia, Ecuador, Peru andVenezuela.
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Thereport notes thatsome agricultural items, i.e.meat, dairy products, sugar, various cereals, fats
andprocessed foods, aresubject since 1995 totheAndean Price Band system, aprice system where floor
andceiling prices arelinked tothemoving average andspread overtheprevious fiveyears ofworld prices.
Thisraises questions about thepredictability ofsuchaform ofborder protection which exhibits many of
theproperties associated withvariable levies. Venezuela maintains special safeguard provisions for76
agricultural products.
According tothereport, considerable progress hasbeenmade toliberalize Venezuela 'sservices sector,
which in1993represented 62percentofGDP. Inthepast,shielding services fromforeign competition resulted
inhighcosts andinefficiencies. Thefinancial sector wasfurther weakened bymajor shortcomings inthe
supervisoryandregulatoryframework.Thebankingcrisisof1994,whichspilledovertotheinsuranceindustry,
resulted inthegovernment again having toacquire alarge number ofcompanies. Steps taken since 1994
havelargely liberalized thesector andresulted insignificant changes initsoperations andstructure.
State involvement intelecommunications services isnowlimited. Thelargely privatized national
telephone company hasamonopoly ofbasic services; however, competition isfreeinallnon-basic services,
withprivate operators having expanded rapidly since theopening ofthesector in1991. Thereport states
thattheintroduction ofanewtelecommunications lawandgreater reliance onmarket mechanisms areseen
asimportant steps forfurther improvements inthesector.
Since thelate1980s, Venezuela hasentered intonumerous bilateral andregional trading arrangements
withitsneighbours orwithother countries inCentral andSouth America. Venezuela isalsoinvolved inlonger
term, regional trade projects suchasthefreetrade areafortheAmericas andtheLatin American Integration
Association. Thereport emphasises theneedforsuchagreements toremain openandliberal.
While Venezuela 'smost pressing needistoovercome itsmacro-economic problems, italsoneeds
toadvance itstrade reform programme. Thereport states thatsuchchanges areseenasacondition toallow
Venezuela torespond tothechallenges andopportunities presented bytheUruguay Round results.
Notes toEditors:
TheWTO Secretariat 'sreport, together withareport prepared byVenezuela willbediscussed by
theWTO Trade Policy Review Body (TPRB) on12and13February 1996. TheWTO 'sTPRB conducts a
collective evaluation ofthefullrange oftradepolicies andpractices ofeachWTO member atregular periodic
intervals andmonitors significant trends anddevelopments which mayhaveanimpact ontheglobal trading
system.
Tworeports, together withareport oftheTPRB 'sdiscussion andoftheChairman 'ssumming up,
willbepublished induecourse asthecomplete Trade Policy Review ofVenezuela andwillbeavailable from
theWTO Secretariat, Centre William Rappard, 154ruedeLausanne, 1211 Geneva 21.
Thereports cover development ofallaspects ofVenezuela 'strade policies, including domestic laws
andregulations, theinstitutional framework, trade policies bymeasure andbysector. Since theWTO came
intoforce, the"new areas" ofservices trade andtrade-related aspects ofintellectual property rights arealso
covered. Attached arethesummary observations from theSecretariat andgovernment reports. Fullreports
willbeavailable forjournalists from theWTO Secretariat onrequest.
Since December 1989, thefollowing reports havebeencompleted: Argentina (1992), Australia (1989
&1994), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992), Cameroon (1995), Canada (1990,
1992 &1994), Chile (1991), Colombia (1990), Costa Rica(1995), Côted'Ivoire (1995), Egypt (1992), the
European Communities (1991, 1993 &1995), Finland (1992), Ghana (1992), Hong Kong (1990 &1994),
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Hungary (1991), Iceland (1994), India (1993), Indonesia (1991 and1994), Israel (1994), Japan (1990, 1992
and1995), Kenya (1993), Korea, Rep.of(1992), Macau (1994), Malaysia (1993), Mauritius (1995), Mexico
(1993), Morocco (1989 &1996), NewZealand (1990), Nigeria (1991), Norway (1991), Pakistan (1995),
Peru(1994), thePhilippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992), Slovak
Republic (1995), South Africa (1993), SriLanka (1995), Sweden (1990 &1994), Switzerland (1991), Thailand
(1991 &1995), Tunisia (1994), Turkey (1994), theUnited States (1989, 1992 &1994), Uganda (1995),
Uruguay (1992) andZimbabwe (1994).
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TRADE POLICY REVIEW BODY
VENEZUELA
Report bytheSecretariat -Summary Observations
Introduction
Despite serious economic problems inrecent years, Venezuela haslargely avoided reversal ofthe
important tradereforms initiated in1989together withamajor macro-economic reform programme. However,
foreign exchange controls, introduced in1994 tostemcapital flight, mayhavesignificant trade effects.
The1989reform programme, undertaken inresponse toadeteriorating tradebalance andmajor foreign
exchange problems, entailed fiscal adjustments, tightening ofmonetary policy andalifting ofcontrols on
prices andinterest rates. Aunified, flexible exchange ratewasadopted. Theeconomic reforms brought
some visible signsofsuccess in1990-92, helped bytherecovery ofoilprices in1990; GDPgrowth accelerated
andinflation fellrapidly. In1991, bothGovernment finances andthetradeaccount turned tosurplus, while
theexternal debtwascompletely restructured. However, thestringency ofthefiscal measures contributed
toaserious political crisis, andthepaceofadjustment hasslackened since 1992. Theeconomy alsosuffered
aseries ofsetbacks, including amajor banking crisis; realGDP fellin1993 and1994; inflation reached
some 6percentin1995.
Theauthorities havetriedtocounteract inflationary pressures through newcontrols onprices ofbasic
goods andservices. Because ofconcerns about social consequences, theGovernment hasbeenreluctant to
takenewsevere measures toreduce thefiscal deficit, which wasexacerbated bytheneedtoprovide support
forthefailing banks. InJune1994, seeking tostemthefallininternational reserves, theauthorities imposed
exchange controls onalltransactions andfixed thenominal exchange rate(against theU.S.dollar), leading
toarealappreciation andlossofcompetitiveness formany Venezuelan exports. Thebolivar wasdevalued
bysome 70percentagainst theU.S.dollar inDecember 1995.
Theliberalization ofthetrade régime, initiated in1989, wascomplemented bythesecurity ofaccess
andimproved transparency resulting fromVenezuela 'saccession totheGATT in1990. Theprocess involved
arationalization andbinding oftariffs, aswellasthelowering ofboththemaximum andaverage applied
rates. However, escalation ofapplied tariffs, intended topromote localprocessing ofdomestic rawmaterials,
remains afeature ofthetariff structure, andsome reductions ontheratesonimported inputs forautomobile
assembly areconditional oncompliance withlocalcontent requirements. Import prohibitions andlicensing
havegenerallybeenreducedtotheextentnecessaryforsecurityorhealthreasonsorinkeepingwithinternational
commitments; current exceptions include certain important consumer goods. Agriculture remains relatively
protected. There havebeenadvances inintellectual property protection andincompetition policy.
Liberalization measures havealsoincluded steps toattract private investment andprovide amore
secure, levelplaying fieldfordomestic andforeign capital. Thisprocess hasresulted intheextension ofthe
public debtconversion programme toforeign investors aswellasacomprehensive opening ofthebanking
andinsuranceindustriesandcertainpublicworksandservices.Nevertheless,constitutionalconstraintscontinue
tolimitforeign participation inanumber ofkeyindustries andservices; access offoreign investors toactivities
suchasthemassmedia, maritime transport andcertain professional services iseither prohibited orrestricted,
while mining (including hydrocarbons) isreserved totheState.
TheState isthusstillakeyplayer inmining, manufacturing andservices, including thesupply of
fuelsandelectricity, banking, insurance, transport andtourist facilities. However, steps arebeing taken to
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allow theparticipation ofprivate capital, forexample, through jointventures andoperational agreements in
petroleum andtheprivatization ofallstate-owned hotels andtourist developments. Thismaygosome way
toopenupVenezuela 'smarket structure, inwhich vertically integrated groups, many state-controlled, are
stillprevalent.
In1993, manufacturing other thanoilrefining generated about 15percentofVenezuela 'sGDP,
agriculture about 5percentandtheservices sector 62percent; theshare ofthepetroleum sector inGDP
wasclose to18percent. Thisfigure understates therôleofpetroleum asthecornerstone oftheVenezuelan
economy andthekeytounderstanding major economic developments inthelast20years. Oilaccounts for
thelion'sshare ofVenezuelan exports, inspiteofthesignificant impact oftheproduction quotas maintained
byVenezuela within theframework oftheOrganization ofPetroleum Exporting Countries (OPEC). The
sector alsoprovides anabundant source ofinexpensive energy fordomestic industries andaccounts for
60percentofgovernment revenues, usedtofinance major advances ineducation andwelfare aswellas
extensive State involvement intheeconomy. Theappropriate balance between oilandother sectors ispart
ofabroader debate onpolicies tomanage highly variable oilrevenues while fostering amore diverse economic
structure thatalsoreflects thelong-term comparative advantage ofnon-oil activities.
Venezuela inworld trade
Fuels andother mining products made up76percentofexports ofgoods andservices in1993, down
from94percentin1980; manufactures accounted forabout 12percent. Keyexports other thanfuelsare
aluminium, motor vehicles (mainly totheAndean Group), ironandsteelproducts, coalandcoke, andcanned
andsimply preserved fish.
Theshares ofmanufactures andminerals inimports ofgoods andservices, atabout 59and3percent
respectively, changed littlebetween 1980 and1993. Agricultural andtourism imports fellslightly tosome
10and13percent,while transport services increased to12percent. Themain manufactures imported are
automotive products andnon-electrical machinery, eachrepresenting some 13percentoftotalmerchandise
imports in1993.
TheUnited States isVenezuela 'smost important trade partner; between 1980 and1993 itsshare
ofimports decreased slightly to46percent,while thatofexports increased toabout 56percent.TheEuropean
Union isthesecond largest partner, imports having grown toreach 32percentin1993andexports remaining
relatively stable atabout 22percent. Imports fromother Latin American countries havealsogrown, reaching
some 18percentin1993; exports, however, felltoaround 32percent. Merchandise tradewithMERCOSUR
andColombia, inparticular, showed especially large increases.
Institutional framework
Venezuela hasnobasic tradelaw;trademeasures arebased mainly onaseries oflaws, implemented
through decrees andregulations. Anumber ofmodifications made inrecent years totrade-related lawshave
resulted from commitments inregional fora, especially theAndean Group, andintheGATT andWTO.
Suchchanges haveaffected lawsonanti-dumping, standards andcompetition matters; newlegislation isunder
preparation inareassuchascustoms valuation, export credit insurance, thefree-zones régime andtheprotection
ofindustrial property rights.
TheForeign Trade Institute (ICE), currently partoftheMinistry ofExternal Relations, isresponsible
fortradepolicyformulationandimplementation,includingsectoralcoordination.Italsoprovidesrepresentation
inmultilateral forasuchastheWTO andregional orbilateral negotiations. TheMinistry ofFinance is
responsible fortariff policy. Foreign exchange andmonetary policies areformulated bytheCentral Bank
ofVenezuela. Policies affecting services aretheresponsibility ofseveral public sector institutions, withthe
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ICEcoordinating international negotiations. Under legislation awaiting approval, ICEandtheMinistry of
Development aretobereplaced byaMinistry ofIndustry andCommerce.
Venezuela became aformal participant intheUruguay Round fouryears afterthelaunching ofthe
negotiations. Itratified theMarrakesh Agreement on29December 1994 tobecome afounder member of
theWTO. Forthetimebeing, Venezuela doesnotplantosignanyPlurilateral Agreement. Theauthorities
considered theresults oftheUruguay Round particularly beneficial inareas suchastextiles andclothing,
anti-dumping, countervailing measures andprofessional andfinancial services, while issues concerning
environmental andworkers 'rights protection arebeing approached cautiously.
Since thelate1980s, thestrengthening andexpansion ofregional andbilateral agreements havebeen
important elements inVenezuela 'strade policy. Atpresent, Venezuela participates infreetrade area
commitments intheAndean Group, where itapplies theCommon External Tariff (CET), andtheGroup of
Three (with Colombia andMexico). Bilateral arrangements existwithindividual Central American Common
Market (CACM) members, LAIA partners, MERCOSUR countries andCuba, while Venezuela provides
unilateral preferential treatment tocertain imports fromCACM andCaribbean Common Market (CARICOM)
countries. Venezuela isalsoinvolved inlonger termprojects suchasthenegotiations foraFreeTrade Area
fortheAmericas andtheLatin American Integration Association (LAIA).
Trade policy features andtrends
Evolution oftrade policies andinstruments
Venezuela 'strade policies changed direction in1989, when animport-substitution policy began to
bereplaced byamoreopenrégime, whose objective wastoreduce anti-export biasandintegrate theVenezuelan
economy more closely intoworld markets. Under thispolicy, tariffs, import restrictions andexport incentives
haveallbeenreduced.
Onaccession totheGATT, Venezuela bound itstariffatageneral ceiling levelof50percent. These
commitments werestrengthened intheUruguay Round byagreeing toreduce theoverall bound rateto35per
centby2004.
Since 1992, Venezuela 'sapplied tariff schedule hasbeenbased ontheCommon External Tariff of
theAndean Group, withadvalorem rates of5,10,15and20percent(with certain exceptions). Tariff
escalation isintended topromote industrial development, encouraging thefurther processing ofregional raw
materials inAndean countries. Anewtariff, introduced inJuly1995, reduced tariff peaks affecting certain
automotive items from40to35percent. Most ratesareadvalorem, butspecific andcompound duties are
levied oncertain items.
Tariff concessions have been rationalized; concessional entry islimited toimports covered by
preferential agreements orentering freezones, temporary admission, admission forimprovement andstock
replacement. Reduced orzerotariffs apply toinputs, rawmaterials andcapital goods notproduced oravailable
intheAndean sub-region. Reduced ratesalsoapply tocompletely-knocked-down (CKD) motor vehicle kits
forassembly, subject tocompliance byassemblers withlocalcontent requirements. Effective protection for
theassembly industry isthussubstantially higher thanisevident from nominal rates.
In1995, Venezuela adopted theAndean Price Band system toreplace asimilar national scheme in
place since 1991. TheAndean system applies toimports ofcertain agricultural items (including meat, dairy
products,sugar,andvariouscereals,fatsandprocessedfoods)originatingoutsidetheregion.Itsstatedobjective
istostabilize thedomestic price ofthose products inamanner consistent withtheimplementation ofthe
Common External Tariff byallAndean Group countries. Thesystem operates byadding anadvalorem levy
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totheCETratewhenever areference price fallsunder afloor, orsubtracting fromsuchrateifthereference
price exceeds aceiling; floor andceiling prices arelinked bothtothemoving average andthespread of
prices prevailing inworld markets during theprevious fiveyears. Asunder thissystem applied ratescould
increase, inprinciple, beyond bound levels, questions ariseabout thepredictability ofsuchaformofborder
protection which exhibits many oftheproperties associated withvariable levies.
InMay1995 customs clearance feeswereabolished. Since April 1992, tariff surcharges havebeen
applied toimports of15ten-digit NANDINA agricultural products, including certain types ofcheese, maize
andmineral waters. According totheauthorities, these surcharges weretobeeliminated byJanuary 1996.
Since September 1994, aVAT-type wholesale and(luxury) consumption taxhasbeenapplied atrates
ranging from 12.5to32.5percentonallgoods, except some basic foods; onservices; andonroyalties
fromtheexploitation ofalltypesofintellectual property rights. Additional internal taxesonalcoholic beverages
exclusively affect imported items; details ofapplied rateswere notavailable totheSecretariat atthetime
ofcompletion ofitsreport.
Import prohibitions arelimited tousedoroldmodel roadvehicles, usedclothing, usedtyres and
gambling games. Restrictive import licensing seems generally tohavebeeneliminated, while import permit
requirements aremaintained onseveral items forenvironmental, health andsecurity reasons. Exclusive import
rights aremaintained forafewitems requiring prior import authorization. Inrecent years efforts havebeen
made tomodernize legislation andinstitutional arrangements instandards; inJune1993, newcompulsory
regulations wereintroduced affecting, interalia,automotive parts, chemicals, foodstuffs, health products and
toys.
Absence ofcomprehensive dataontheextent ofstate-owned enterprises doesnotpermit afullappraisal
ofthedegree ofstateinvolvement inproduction andtrade. Government procurement legislation permits,
butdoesnotrequire, preferential treatment fordomestic suppliers; nodataonprocurement operations other
thanthatoftheState oilcompany, PDVSA, wasavailable from theauthorities.
Aspromised onitsaccession totheGATT, Venezuela hasintroduced aninjury test,applicable on
areciprocal basis, initsanti-dumping andcountervailing legislation. Between 1992and1995anti-dumping
duties havebeenimposed onthree occasions onmanufactured goods while countervailing duties havebeen
usedagainst cheese imports.
Export licensing applies toafewitems including fertilizers, certain metals andradioactive substances.
Asurcharge, tobephased outin1996, affects petroleum exports. Thescope ofexport assistance foragricultural
products, atarateof10percentofthef.o.b. value, hasbeenreduced overrecent years. IntheUruguay
Round, Venezuela committed itselftocutting budgetary outlays forexport subsidies by24percentandeligible
quantities by15percent. Manufactured goods benefit from adutydrawback system onimports ofinputs
[andcapital goods]. Export finance indomestic currency isprovided onpreferential terms, while foreign
currency loans forthispurpose aremade oncommercial terms.
Thefreezonerégime, inexistence forovertwenty years, istheonlyregional development instrument;
itsincidence onthedomestic economy remains limited.
Venezuela hasmetitsWTO notification requirements intheareas ofTRIMs, SPS(national enquiry
points), rules oforigin, anti-dumping, subsidies andcountervailing measures, safeguards andtextiles and
clothing. Notifications haveyettobemade onimport restrictions, import prohibitions, licensing requirements
andState trading, aswellasonthefiscal credit andexport finance programmes. Alsonotyetnotified is
theAndean Price Band system introduced in1995.
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Assistance todomestic production isprovided through thesupply ofrefined petroleum products at
below world prices andthrough various other subsidies. Forexample, agriculture benefits fromcertain tax
incentives, input subsidies onirrigation, electricity, andfixed producer prices oncertain items. While the
monitoring andfixing ofmaximum retail prices ofcertain foodandservices maydisadvantage certain local
firms, imported tobacco andcigarettes cannot besoldatapricelower thanthatofdomestic brands. Competition
policy introduced in1992hasallowed fortheexamination ofpractices suchascartelization, mergers, boycotts
andabuse ofdominant position andcould leadinthelongruntostronger competition inthedomestic market.
Under theminimum access opportunities oftheWTO Agreement onAgriculture, thequantity ofmost
agricultural imports subject totariff quota commitments istoincrease progressively byaround 67percent
by2004; however, there willbenoincreases foranumber ofitems including milk, grains andsugar. The
mechanism fortheadministration oftariffquotas wastoenterintoforcein1996. Venezuela maintains Special
Safeguards Provisions on76agricultural items. Under itsobligations relating totheAggregate Measurement
ofSupport (AMS), Venezuela isexpected toreduce support todomestic producers through price fixing and
input subsidies, by13.3percent.
Protection ofintellectual property rights isbased ondomestic legislation introduced in1993 and
complementary Andean Group measures of1994. Thenewlegislation covers abroad range ofworks but
problems allegedly existwithitsenforcement. Venezuela isasignatory toalmost allmajor international
conventions onintellectual property, trademarks, copyrights andpatent protection, andisamember ofthe
World Intellectual Property Organization. Theauthorities consider thattheimplementation oftheAgreement
onTRIPS should require nosignificant changes, except forsome border measures where modifications are
under way.
Sectoral policies
Under thereforms initiated in1989, serious efforts weremade toreduce theanti-export biasofearlier
policies, including through privatization andderegulation oftheeconomy. However, suchabiaspersists
through thecontinued application ofsectoral policies favouring "activity leader" groups. Themisallocation
ofdomestic resources implied bysuchmeasures maynotbeoffset bypositive externalities generated bythe
sectors concerned.
Mining andpetroleum, which receive littleimport protection, aremostlikely negatively affected by
thepresent régime. While assistance toagriculture appears moderate compared withsome major world
agricultural producers, protection anddomestic supports havefostered ahigh-cost agricultural sector isolated
frominternational markets. Thesector wasgreatly affected bytheinitial implementation oftheliberalization
programme; morerecently, newsupports havebeenintroduced, mainly through themeasures described earlier
(theAndean PriceBandsystem, preferential credit, etc.). Currently under study areadraftlawonagricultural
development andfoodsecurity aswellasatrade defence system andproduction incentives tocounteract
perceived distortions inworld agricultural markets.
Thecurrent thrust ofindustrial policies isthepromotion ofselected industrial groups anddomestic
value added, mainly through tariffescalation. Some sub-sectors, suchaspetroleum refineries, ironandsteel
andaluminium, aremajor exporters. Apart fromthese, themanufacturing sector (particularly, foodprocessing
andthevehicle industry) hasbeeninward-oriented andnotparticularly competitive inworld markets beyond
theAndean region .Lowefficiency hasbeencompensated inpartbyState subsidies through inexpensive
inputs, especially under-priced fuels andother refined petroleum products. Assistance hasmore recently
beenprovided through government-supported debtrescheduling andrecapitalizations.
Liberalization hasgonerelatively farintheservices sector, withfurther advances expected. Inthe
past,highcosts andinefficiencies resulted from theshielding ofservices from foreign competition; many
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services, particularly banking, were subject topowerful distortionary forces. Competition inthefinancial
sector washampered bysevere restrictions ontheentry offoreign banks andmajor weaknesses inthe
supervisory andregulatory framework. Amajor banking crisis erupted in1994, when theauthorities were
compelled tonationalize orclose asignificant percentage ofthebanks inoperation. Thecrisis spilled over
totheinsurance industry, withtheGovernment again having toacquire alarge number ofcompanies. Steps
taken since1994haveresulted inaseries ofconsolidations andtheintroduction ofneworrevised lawswhich
areexpected tochange significantly theoperation andstructure ofthefinancial sector.
Inefficient labour practices inports alsorepresented aserious handicap tonon-mineral exporters;
toaddress theseproblems theauthorities initiated arestructuring process in1991which hasseenportservices
privatized ortransferred tostategovernments. Reforms undertaken toincrease competition inshipping appear
tohaveresulted inasignificant fallinthenumber ofshipyards andvessels under Venezuelan flag.
Stateinvolvementintheoperationoftelecommunicationsservicesisnowlimited.Thelargelyprivatized
national telephone company hasamonopoly ofbasic services; however, competition isfreeinallnon-basic
services, withprivate operators having expanded rapidly since theopening ofthesector in1991. The
introduction ofanewtelecommunications lawandgreater reliance onmarket mechanisms areseenasimportant
steps forfurther improvements inthesector.
Newinitiatives
In1995, legislation wasunder preparation tointroduce anewcustoms valuation scheme, adjust the
freezones legislation totheWTO Agreement onSubsidies, create aBank ofForeign Trade, andamend the
regulations onconsumer protection andindustrial property rights; theintroduction ofregulations onimport
cartel practices wasunder study.
Trade policies andtrading partners
Venezuela wasrecently included inthegroup ofAndean Group countries which willreceive extended
benefits under theEuropean Union 'sGSPscheme until1998. Theauthorities consider thismeasure asan
important incentive fornon-traditional exports totheEUmarket. Atariff quota affects banana exports to
theEU.Venezuelan exports ofcertain manufactured items havebeensubject toanti-dumping orcountervailing
duties intheEUandtheUnited States, while asimilar casehasrecently beenunder examination inMexico.
Venezuela, together withother contracting parties, hasbeenacomplainant intwoGATT dispute
settlement casesconcerning EUandmember Stateimport measures affecting bananas. Acasehasbeeninitiated
under WTO dispute settlement procedures onstandards applied bytheUnited States onimports ofconventional
orreformulated gasoline.
Conclusion
While Venezuela 'smost pressing needistoovercome itsmacro-economic problems, italsoneeds
tocarry forward thereform ofitstradeandrelated polices. Thisisacondition forachieving greater adaptability
inthedomestic economy torespond tothechallenges andopportunities presented bytheimplementation of
theresults oftheUruguay Round. Thus, there isaneedtoextend theprocess ofliberalization initiated in
1989 andtoensure thattheapplication offoreign exchange controls doesnotadversely affect theinterests
ofVenezuela 'strading partners.
While integration within theAndean Group, inparticular, andother regional agreements maypresent
opportunities foreconomies ofscaleinanenlarged regional market, itisimportant thatsuchagreement retain
anopen, liberal character aspartofthemultilateral system. Theescalating structure oftheAndean Group 's
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common external tariff andother arrangements within thegroup suggest thatcertain sectors willretain
significantlyhigherlevelsofprotectionandthatothers,includingexportindustries,willcontinuetobeimplicitly
taxed bythetrade régime.
Further liberalization, andasustained attack onanti-export bias,would imply moving away from
thecurrent policy ofpromoting selected industrial groups andeliminating inter-sectoral distortions toamore
neutral trade régime. Suchanapproach would alsobeassisted byeliminating distortions provided through
inexpensive inputs, especially under-priced fuelsandother refined petroleum products. Greater reliance on
market prices andreductions intheState'srôleintheeconomy, accompanied bychanges totheinvestment
régime, would goalongwaytogenerating amore resilient economy andsolid export base.
TRADE POLICY REVIEW BODY
VENEZUELA
Report bytheGovernment -Summary Extracts
Executive Summary
Venezuela isacountry endowed withgreatnatural wealth; itsvastpetroleum, mineral, hydroelectric
andother resources havemade itapower intheenergy sector intheAmericas.
Thepresent world economic situation, characterized byglobalization andinternationalization of
economies, hasobliged Venezuela toreorient production activity andredefine itstrade policy.
Since early 1989, ithasbeenextremely active intheareaoftrade policy, including inparticular full
participation inthemultilateral trading system through itsaccession toGATT in1990 andsubsequent
membership oftheWorld Trade Organization (WTO) inJanuary 1995.
Ithasintensified tradeintegration withitsclose neighbours, consolidating theCustoms Union ofthe
Andean Group (Cartagena Agreement), andconcluding freetradeagreements withColombia, Mexico (Group
ofThree) andtheCentral American countries (Trade andInvestment Agreement). Ithasalsoconcluded a
"lopsided" freetrade agreement withtheCaribbean Community, aswellasanumber ofbilateral trade
agreements withCaribbean countries.
Inaddition, theLatin American integration process hasbeenspeeded up(agreements withChile, Brazil
andArgentina), andthere hasbeenconcrete progress insetting uptheFreeTrade Area fortheAmericas.
During thenextfewyears, Venezuela willpursue itspolicy ofnegotiation andopening upoftrade
soastoestablish abroader economic areathatwillenhance thecompetitiveness ofitseconomy internationally.
Economic andtrade environment
Theperiod beginning in1989wasoneofstructural reform andadjustment forVenezuela. Itmarked
thelaunching oftheGovernment 'sadjustment andstabilization programme, aimed atattenuating thefinancial,
monetary, exchange andbalance-of-payments imbalances thataffected thecountry 'seconomic growth and
itsability topenetrate foreign markets.
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Thenewfocus ofeconomic policy wasmainly onopening uptheeconomy totheoutside, promoting
greater diversification ofexports andprivate investment inorder tostimulate increased production, and
redefining theState'srole.
Asaresult oftheeconomic policy measures adopted, economic activity shrank by8.6percentthat
year. Onthesupply side,thiswasmainly duetoincreased costs resulting fromalower exchange rate,and,
onthedemand side,tostagnation indomestic markets asaresult ofthesurge ininflation, which increased
by81percentfollowing theliberalization ofprices andunification oftheexchange rate. Thedecline in
domestic activity inturnhadanegative impact onemployment levels andresulted inanunemployment rate
of9.7percent.
Between 1990 and1992, despite political difficulties thatledtoanunstable social climate andthe
global economic crisis thatwasmainly reflected inlower prices forVenezuela 'smajor exports (petroleum,
aluminium, steel, coalandchemicals), thestructural adjustment programme andtheeconomic reforms
implemented since 1989 wereintensified inorder tomove ahead witheconomic development. Action was
therefore taken tospeed uptheopening oftheeconomy, promote political andadministrative decentralization,
meet social commitments, andenhance democracy, privatization andthebalanced management ofpublic
finances.
Theprivatization policy isakeyinstrument ofeconomic policy andfocuses mainly onthepromotion
ofinvestment soastorevitalize theproduction ofgoods andservices inanumber ofState-owned companies.
Since1989,Venezuelahastransferred29enterprisesandotherassets,bringinginUS$2.4billionastheproceeds
oftransparent operations. Inaddition totheincome yielded, theseoperations represent thetransfer of44,000
jobstotheprivate sector andasaving onoperating costs andinvestment thatwould havehadtobemetby
theState ifithadretained ownership.
With regard totheperformance ofmacroeconomic variables overthisperiod, itcanbenoted that
between 1990 and1992 thegross domestic product (GDP) increased atanannual rateof6.5percent, 10.4
percentand6.8percent,respectively. Themain reason fortheslowing down in1992wasthe1.9percent
dropinGDP intheoilsector asaresult ofslacker demand; consumer needs weresatisfied through higher
utilizationofstocksbyindustrializedcountriesandtherewasexcesssupplyofcrudeontheinternationalmarkets,
thusaffecting price levels, which felltoanaverage US$15.25/barrel.
Afterfouryearsoftheadjustmentprogramme,politicalandsocialinstabilitydelayedtheimplementation
ofsome oftheplanned reforms, especially those related tothefinancial system andtothefiscal sector and
theGovernment 'ssearch forincreased revenue inorder tofinance thehighfiscal deficit andcontinue tocombat
inflation.
Thetransitional Government ofRamón J.Velásquez, using thespecial powers granted bytheCongress
oftheRepublic, therefore introduced aValue Added Taxattheendof1993, asanimportant measure for
obtaining fiscal resources andfinancing thedeficit.
Thetaxwassubsequently abolished byRafael Caldera, when hebecame President oftheRepublic,
andreplaced byataxonwholesale salesandluxury goods, soasnottotaxconsumers directly.
Thedifficulties encountered inimplementing these reforms interaliacontributed tothemostserious
crisis everexperienced bythefinancial system, which reached apeakinearly1994. Themonetary assistance
provided bytheGovernment tocounter theinability offinancial entities tomeettheirliabilities withthepublic
drove upVenezuela 'sbudgetary andexternal deficits, putting increasing pressure onitsinternational reserves.
ThisledtheNational Executive totakeemergency measures tocurbthepressure onpricelevels andexchange
rates, andinmid-1994 itadopted exchange controls andprice controls forbasic goods.
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Atthesame time, anemergency fiscal plan, known astheSosaPlan, wasimplemented toreduce
thehighfiscal deficit thatwasaggravated bytheGovernment 'sdebtwiththeCentral Bank ofVenezuela.
ThePlanincluded anumber oftaxreforms andaswellasataxonbusiness assets andbankdebits foraperiod
ofonlyoneyear.
Asaresult, in1994 economic activity shrank by3.3percentandinflation reached 70.8percent
(nevertheless lower thanin1989) while thefiscal deficit remained atthesame level, asthereforms hadnot
yetstarted totakeeffect.
Itisexpected thatgross domestic product willincrease bylessthan1percentin1995, mainly as
aresult ofactivity intheoilsector, which should offset thedecline indomestic production. Cumulative inflation
uptoOctober 1995 wasaround 40percent,lower thanin1994, asaresult ofhigher (non-oil) domestic tax
revenues, andpegging theexchange rateatBs170/US$, thelevelprevailing when exchange controls were
introduced. Theopenunemployment ratewas11percentduring thefirsthalfof1995, which isareasonable
figure taking intoaccount thescale ofthefinancial crisis inVenezuela in1994 anditsadverse impact on
domestic production.
Themaintenance ofafixed exchange ratehasledtosignificant realappreciation ofthebolivar and
continuing pressure onthelevelofoperational reserves, which inNovember amounted toUS$4.5 billion,
afigure which theCentral Bank ofVenezuela hasfixed astheminimum. Nevertheless, restrictions onfree
convertibility havenothindered tradeflows; onthecontrary therewasa25percentincrease inVenezuela 's
imports 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 in1991andthenfellbetween 1992and1994, onlytorecover
again in1995.
Thesalient feature inthisareaisthetrend innon-traditional exports, i.e.other thanoilandironore,
which grew atanannual average rateof6.2percentbetween 1989 and1994, from US$2,994 million in
1989toUS$4,580 million in1995. Thistrend shows theimportant diversification bothofproducts exported
byVenezuela andalsoofitsmarkets, withColombia taking overthefirstplace previously occupied bythe
United States.
Itshould beemphasized that66percentofthese exports aregenerated bytheprivate sector, thus
diminishing dependence onexports ofrawmaterials byState enterprises.
Thisperformanceistheresultoftheorientationofthetradepolicypursued,whichfocusesonpromoting
non-traditional exports andintensifying participation inintegration schemes andinternational negotiations.
Themacroeconomicimbalancesmentionedabovemeanthatanadjustmentprogrammehastobeadopted
torestore themacroeconomic balances andthusallow asustained process ofgrowth tobegin from 1996
onwards, primarily based onprivate initiative andoutward-looking growth. TheGovernment istherefore
negotiating acomprehensive adjustment programme withtheInternational Monetary Fund thatincludes the
following priorities: gradual reduction ofthefiscal deficit; more flexible exchange controls; strengthening
ofthefinancial sector; structural reform ofthesocial security system; expanded social programmes;
reactivation ofproduction; extension ofthecompetitive pricesystem; newinterest ratepolicies; jobtraining;
reform ofpublic administration; andprivatization.
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Trade policy developments 1990-1995
During theperiod 1990-1995 Venezuela 'strade policy wasimplemented along thelineslaiddown
inDecree No.239of30May1989, which fixestherules fortrade policy.
Decree No.239establishes thefollowing measures interalia:tariffreform; theabolition ofpara-tariff
restrictions; more flexible administrative procedures forexports; theestablishment ofmechanisms todeal
withunfair competition; theoutline ofanintegrated export promotion policy; adaptation ofthecommitments
undertaken within theAndean Group; andVenezuela 'saccession toGATT.
During thefirsttwoyears ofimplementation oftheaforementioned Decree, important results were
achieved intheareaoftrade policy. Firstly, thecustoms tariff wasthoroughly overhauled, bringing down
thetariff ceilings from 40percentto20percentby1992 andfixing fourtariff levels, based onthedegree
ofprocessing ofthegoods concerned, of5percent, 10percent, 15percentand20percent, withafew
exceptions at35percentforautomobiles. Non-tariff restrictions onimports werealsoreduced toaminimum,
leaving onlythose allowed under theGeneral Agreement onTariffs andTrade fortheprotection ofhuman,
animal andplant health, public morals, theenvironment, security ornational defence.
Onefundamental aspect ofVenezuela 'stradepolicy hasbeentheemphasis onmultilateral andbilateral
negotiations andtradeintegration, withtheobjective ofbroadening access tointernational markets, especially
LatinAmericanmarkets,forVenezuelanproducts.ActionstakeninthisregardincludeVenezuela'sparticipation
intheUruguay Round negotiations anditsaccession totheWorld Trade Organization asanoriginal member,
theconsolidation oftheCartagena Agreement, thesigning oftheGroup ofThree Agreement, participation
ininitiatives fortheSummit oftheAmericas andother action within theLatin American integration scheme,
forexample, thesigning ofaFreeTrade Agreement withChile andEconomic Complementarity Agreements
withBrazil, Argentina, Central American countries andtheCaribbean Community.
Uruguay Round
ForVenezuela, thesuccessful conclusion oftheUruguay Round wasofextreme importance because
ifthiscomplex round ofnegotiations hadfailed thefuture ofthemultilateral trading system would havebeen
shrouded inuncertainty, anditwould havebeenmore difficult tohalttheprotectionist trends andunilateralism
inworld tradepractised bysome countries orgroups ofcountries, which haveanegative effect ondeveloping
countries inparticular.
Venezuela isconfident thatimplementation oftheresults oftheUruguay Round, which itbelieves
areglobally positive, willleadtomore stable, reliable andpredictable trade conditions based ontheopening
ofmarkets andthestrengthening ofmultilateral trade rules anddisciplines. Ofparticular importance to
Venezuela aretheimprovements made totheGATT dispute settlement mechanism, which Venezuela has
invoked onseveral occasions. Thesystems 'seffectiveness hasbeenreinforced bytheautomatic adoption
ofpanel reports andthepossibility ofhaving recourse totheAppellate Body, whose conclusions and
recommendations willbebinding.
These aspects areallofparticular importance toVenezuela, especially since itstrade relations have
greatly expanded inrecent years. Aspartoftheprocess ofadjusting tothenewcircumstances oftheglobal
economy, Venezuela 'sparticipation firstofallinGATT andthenintheWTO isdeemed tobeanelement
oftheutmost importance inadevelopment strategy thatincludes thepromotion ofproduction sectors, growth
ofnon-oil exports andmodernization ofVenezuela 'slegalframework forforeign trade. InDecember 1994,
theCongress oftheRepublic ratified theAgreement Establishing theWTO, thusunderlining theimportance
Venezuela attaches tothisAgreement.
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Cartagena Agreement
During thisperiod, considerable headway wasmade inconsolidating theAndean integration scheme.
In1992, despite thetemporary withdrawal ofPerufromallcommitments relating tothefree-trade areaand
thecustoms union, theliberalization programme forautomatic tariff andpara-tariff reduction wasfully
implemented. Ecuador 'sfullmembership ofthefree-trade areagaveaboost totheconsolidation oftheAndean
Group. Abilateral agreement wasconcluded withPeruonfreetrade inalarge number ofproducts onboth
sides, covering almost 80percentofreciprocal trade.
Inaddition, thefollowing specific measures wereadopted withaviewtostrengthening theintegration
process: adoption ofaCommon Industrial Property Regime; regulation ofAndean Policy ontheElimination
ofCargo Reservations; regulation oftheAndean Open Skies Policy; adoption oftheAndean Rules onCustoms
Valuation; establishment oftheAndean Rules onCustoms Transit; adoption ofAndean Regulations on
Livestock Health; andelimination ofexport subsidies fortrade within thesubregion.
Subsequently,in1994,theAndeanGroup'sCommonExternalTariff(AEC)enteredintoeffect,marking
animportant stepforward toamore advanced stage ofintegration, aswellasenhancing thetransparency
intrading andproviding further opportunities toincrease trade andinvestment. Inaddition, theAEC gives
Andean countries astronger negotiating position vis-à-vis thirdcountries.
Itwasalsoagreed toabolish, asof1January 1996, theuseofspecial customs regimes intradewithin
thesubregion, soastoprevent distortions inthecustoms union.
Intheagricultural sector, theAndean System ofAgricultural Price Bands wasestablished withthe
aimofstabilizing theimport costsofaspecific group ofagricultural products characterized byhighly unstable
prices.
Theprogress made intheAndean integration process hasmeant thatrelations withAndean countries
intheareas oftradeandinvestment arehighly satisfactory. Venezuelan non-oil exports tomember countries
oftheAndean Group in1994accounted for31percentofitstotalexports, making themthebiggest customer
forthese products.
Group ofThree
In1990, Venezuela, Colombia andMexico initiated negotiations onanEconomic Complementarity
Agreement thatwould leadtotheestablishment ofafree-trade area. On1January 1995, theFreeTrade
Agreement oftheGroup ofThree entered intoforce, marking animportant stepforward ineconomic relations
among thesignatories andforthefuture oftheLatin American integration processes.
TheAgreement isnotconfined totrade ingoods butismuch broader andmore ambitious. Itcovers
other important areas oftheeconomy, suchastheso-called newsubjects ininternational trade, orienting and
regulating relations among theGroup ofThree intheareas oftrade inservices, investment andintellectual
property. When thecurrent negotiations onservices andinvestment havebeenconcluded, theentire Agreement
willbenotified totheWTO.
Participation intheLatin American Integration Scheme
Venezuela 'sparticipation intheLatin American integration scheme tookanumber offorms:
(a) Economic Complementarity Agreement with Chile: On2April 1993 anEconomic
Complementarity Agreement wassigned withChile; itentered intoforce inJuly1993, with
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theobjective ofestablishing anextended economic areawithin aperiod notexceeding six
years.
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, andalistofexemptions forproducts
considered tobeespecially sensitive.
Special mention should alsobemade oftheagreements oninvestment andmaritime transport,
under which national treatment willbeapplied toinvestment bytheother country andaccess
tocargo willbefree.
(b) Trade andinvestment agreements withtheCentral American countries andtheCaribbean
Community: Theobjective oftheseagreements istostrengthen Venezuela 'scooperation with
these countries. Under theagreement withtheCaribbean Community, which wassigned
inOctober 1992andentered intoforce on1January 1993, Venezuela grants non-reciprocal
trade preferences.
ConcerningtheCentralAmericancountries,thefirststagewascompletedin1992andconsisted
ofspecial treatment forexports from these countries. Subsequently, inearly 1993, a
Framework Agreement onTrade andInvestment wassigned providing fornegotiations on
afree-trade areaamong Venezuela, Colombia andthefivemember countries oftheCentral
American Common Market, buttheyhavenotyetbeenconcluded.
(c) Economic Complementarity Agreements withBrazil andArgentina: In1992, thevarious
trade agreements withArgentina within theframework ofLAIA werecombined inasingle
legalinstrument, Economic Complementarity Agreement No.20.Subsequently, in1993,
theexisting preferences wereimproved andthenumber ofproducts covered bytheAgreement
andthussubject topreferential treatment intrade between thetwocountries wasincreased.
Economic Complementarity Agreement No.27withBrazil wasrenegotiated in1994 soas
toimprove theexisting preferences andincrease thenumber ofgoods benefiting from
preferential treatment.
Summit oftheAmericas
Venezuela 'strade relations withNorth America havebeenimportant historically. Formany years,
theUnited States hasbeenthemainmarket forVenezuela 'sexports and,asinthecaseofMexico andCanada,
ispotentially themajor recipient ofVenezuelan products intheAmericas. Thisrelationship, together with
Venezuela 'srapprochement andtrade links withtheCaribbean, Central America andLatin America, isan
essential partofourforeign trade policy.
Theinitiatives taken toestablish aFreeTrade Area oftheAmericas (FTAA) bytheyear2005 are
consistent withVenezuela 'sintegration objectives. InDecember 1994 theprinciples forthecreation ofthe
FTAA werelaiddown attheSummit oftheAmericas andsince thenthegovernmental bodies inVenezuela
responsible forforeign traderelations havegiven priority toworkinthisareasoastoensure that,inaccordance
withthetimetable fixed, thebases canbelaidfornegotiating anareafreeoftrade barriers intheAmericas,
sothatwewillbeabletoincrease ourproduction capacity andstrengthen traderelations withother countries
ofthecontinent.
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Outlook forforeign trade
Venezuela 'strade strategy focuses onthefollowing three main spheres ofaction: (i)multilateral
action inthebroadest sense, forexample, participation intheWorld Trade Organization; (ii)regional action
inLatin America andtheCaribbean; (iii)bilateral action withitsmain trade partners: theUnited States,
theEuropean Union andJapan.
WTO
Participation intherecently established WTO implies aserious commitment onthepartofallits
members aswellaspractical involvement intheactivities ofthisimportant Organization byallgovernment
authorities andeconomic actors concerned withthevarious issues dealtwithintheOrganization. Thisis
whyoneofthepriorities ofVenezuela 'strade strategy istofoster awareness atalllevels within thecountry
bothofthecommitments undertaken byVenezuela ineachoftheagreements, soastoprevent anypossible
non-compliance, aswellasoftherights under theagreements soastobenefit from them.
Inaddition, Venezuela 'sstrategy willfocus onadequate preparation fortheprogramme offuture
negotiations, inregard bothtothereview andmonitoring ofthepractical implementation oftheagreements,
andtothenewissues thatemerged attheendoftheUruguay Round negotiations andwillbeontheWTO 'S
future agenda.
Integration intheAmericas
Since theSummit oftheAmericas heldinMiami inDecember 1994, Venezuela hasplayed anactive
roleinthewhole initial negotiating process withtheaimofsupporting action thatitishoped willleadto
theestablishment oftheFreeTrade Area fortheAmericas bytheyear2005.
Latin America andtheCaribbean
TheestablishmentoftradelinksandagreementswithcountriesandgroupsofcountriesinLatinAmerica
isalsoapriority forVenezuela. Itintends tointensify intra-regional cooperation notonlyintrade butalso
inother areas according toitsgeographical, economic andcultural affinities. Italsosupports thedefinition
ofgeopolitical andgeoeconomic areas based oncommon identity features.
WiththeAndeanGroup,itwillpromotefurtherintegrationinthesubregionwiththeaimofharmonizing
themacroeconomicpoliciesofthemembercountriesanddecidinguponjointactionininternationalnegotiations.
WithMERCOSUR, itistaking partintalkstoinitiate negotiations onafreetradeagreement incoordination
withother Andean Group countries. Itwillalsotakefurther stepstoimprove thefree-trade areawithChile.
Venezuela alsointends topursue itscooperation withcountries intheCaribbean Basin andwill
strengthen linkswiththem. Inearly 1996, theTrade andInvestment Agreement between Venezuela andthe
Caribbean Community willbereviewed tomonitor itsfunctioning andstrengthen it.
VenezuelawillcontinueitscooperationactivitieswithintherecentlyestablishedAssociationofCaribbean
States (ACS), which includes allCaribbean Basin States, bringing together countries ofCentral America,
South America andtheCaribbean islands.
Itishoped thatnegotiations ontheFreeTrade Agreement withtheCentral American countries will
befinalized in1996, thusconsolidating trade relations withthisregion.
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Bilateral trade relations withother partners
Action willbetaken atthebilateral leveltostrengthen existing linkswithVenezuela 'strade partners
andthusderive greater advantages from thepossibilities offered bythese countries intheareas oftrade
cooperation andinvestment.
END