The stock of U.S. foreign direct investment in Venezuela totaled $3.0 billion in 1994, up 23.1 percent from 1993. U.S. direct investment in Venezuela is concentrated largely in the manufacturing and wholesale.

The effects of the recession and financial crisis Venezuela experienced in 1994 worsened in 1995. The price and foreign exchange controls introduced by the Caldera Administration in June 1994 remain in place. By mid-year 1995, access to dollars for repatriation was virtually nonexistent. Although some opening to foreign investment occurred in the petroleum sector, additional progress toward liberalization of Venezuela's trade and investment regime has been sluggish. According to the Venezuelan Government, Venezuela's total imports rose by 43.8 percent in 1995, driven by an overvalued currency that made imported goods artificially cheap.

IMPORT POLICIES

Tariffs

Venezuela's average tariff rate is roughly 10 percent. As a result of the Uruguay Round, however, Venezuela bound most of its rates at 35 to 40 percent and entry at the lower rates is not assured.

Venezuela and its Andean Pact partners established a common external tariff (CET) that took effect on February 1, 1995. The CET has a four-tier structure, with levels of 5, 10, 15, and 20 percent for most products. In accordance with the Andean Pact CET, Venezuela is harmonizing its four-tier tariff schedule with Colombia and Ecuador, with some exceptions taken by each country. (Bolivia retains its two-tier tariff structure of 5 and 10 percent, and Peru maintains a two-tier tariff structure of 15 and 25 percent.)

Venezuela adopted a harmonized automotive policy with Colombia and Ecuador -- which entered into effect on January 1, 1995 -- establishing common external tariff rates of 35 percent for passenger vehicles, 15 percent for mass transit and cargo vehicles, and 3 percent for kits. The policy includes regional content requirements.

Venezuela has continued its efforts to conclude trade arrangements with other countries in Latin America and the Caribbean. Venezuela extends preferential tariffs on a limited variety of products to member states of the Latin American Integration Association (ALADI). Venezuela already has a partial free trade agreement with Chile and it recently concluded a free trade agreement with Mexico and Colombia (the "G-3" Agreement) which entered into force January 1, 1995. Venezuela also has a one-way preferential agreement with CARICOM. Venezuela, jointly with Colombia, negotiated a free trade arrangement with several Central American countries, but it has not yet taken effect.

Despite a highly developed chemical industry, Venezuela maintains high chemical tariffs, ranging from 5 to 20 percent, which impede U.S. exports in this sector. Venezuela remains a "priority country" according to the U.S. chemical industry's classification system which indicates the level of importance, which the industry places on the entry of particular countries into the Chemical Tariff Harmonization Approach (CTHA) -- which was agreed to in the Uruguay Round by over 20 countries.

Venezuela maintains relatively high tariffs of 20 percent ad valorem on imports of wines and all distilled spirits. Eliminating these barriers could increase U.S. exports by $1 to $5 million. In addition to the tariffs and a one percent customs service fee, a 10 percent luxury tax and a 12.5 percent "wholesale" tax are levied on all imports of alcoholic beverages while a 5 percent duty is imposed on imports of compound preparations and undenatured ethyl alcohol used in the production of spirits. Wines from Argentina, Chile, and Mexico are subject to the same set of taxes, but to lower duties of 4.0, zero, and 7.2 percent respectively, due to the existence of partial free trade agreements.

Venezuela also maintains 20 percent ad valorem duties on canned soups, mixed vegetable juice, biscuits, and cookies; a reduction in the tariff would result in a potential increase of $5 to $25 million in U.S. exports. The reduction of the 20 percent tariff on film and cameras would result in a potential increase in U.S. exports of $5 to $10 million in each category.

According to U.S. industry, Venezuela modified its application of its import duties on computer software such that the 15 percent import duty on pre-packaged software is assessed over the entire value of the software package, resulting in a marked increase in the cost of commercializing software in Venezuela. Venezuela also imposes a 20 percent luxury tax on imported theatrical prints and home video sales and rentals.

Non-tariff Measures

The Government of Venezuela (GOV) applies a "wholesale" tax on most goods and services, at both the wholesale and import level. The wholesale tax is adjusted annually within a range of 5 to 20 percent, with the current rate set at 12.5 percent. A special consumption tax, which varies by product between 10 and 20 percent, is also levied on luxury items.

In Venezuela there are virtually no quantitative import restrictions for industrial products except for prohibitions on used cars, used clothing, and used tires. As part of its accession to the GATT, Venezuela agreed to eliminate progressively all GATT-inconsistent quantitative restrictions by December 31, 1993 for manufactured products and by December 31, 1995 for agricultural products.

The Andean Pact's price band system for agricultural products went into effect in Venezuela on April 1, 1995. Under the system, the ad valorem CET rates for feed grains, oilseeds, oilseed products, sugar, rice, wheat, milk, pork and poultry meat, and derivative products are adjusted according to the relationship between marker commodity reference prices and established floor and ceiling prices. These variable duties can drive up effective tariff rates and impede the expansion of trade and investment in Venezuela. (The price band for yellow corn will be implemented in Venezuela on April 1, 1996.) The GOV also halts the issuance of phytosanitary permits for grain imports to protect domestic producers during the domestic rice and sorghum harvest.

STANDARDS, TESTING, LABELING, AND CERTIFICATION

Venezuela's denial of certain sanitary and phytosanitary certificates lacks a scientific basis and is discriminatory. Venezuela refuses to issue sanitary certificates for beef, hogs, pork products, poultry and poultry products in order to deny entry of these imports into the market. If lifted, U.S. exports of poultry, poultry products, pork and pork products could amount to more than $40 million a year. According to the U.S. cosmetic industry, Venezuela maintains qualitative restrictions which, if lifted, would increase U.S. exports by less than $5 million a year. Venezuela also imposes high taxes on point-of-sale items for trade advertising, requiring that a tax stamp be affixed to every single sheet or poster used for display purposes.

In 1993, the Venezuelan Commission for Industrial Standards (COVENIN) began to apply obligatory domestic standards for commodities to certain imports; by the end of 1995, there were nearly 300 standards. Some Venezuelan importers of U.S. products have alleged that the GOV applies these standards more strictly to imports than to domestic products. The certification process is at times expensive, increasing the cost of U.S. exports vis a vis domestic products. COVENIN requires certification from independent laboratories -- which is often impossible in the United States, where many industries have no such facilities.

GOVERNMENT PROCUREMENT

The 1990 Law of Tenders, its associated regulations, and modifying decree of 1991 together establish three classifications for government procurement based principally on the value of the goods and services being procured: general tenders, selective tenders, and direct purchases. For general and selective tenders, the law states that for offers that are within a "reasonable" range of each other for similar conditions, preference will be given according to various criteria, including national content, labor impact, national value- added, local participation, and technology transfer. For the purchase of goods, the government also applies a policy, not stated in the Law of Tenders, that local goods be purchased, unless the price of such products is 25 percent more than the landed cost of competing foreign products. In the petroleum industry, the national oil company PDVSA is required to purchase national materials and supplies. However, PDVSA is permitted to make foreign purchases if domestic firms cannot meet quantity, quality, or delivery requirements. In addition, imported materials supplied by local representatives of foreign manufacturers are classified as "domestic purchases." Firms that supply PDVSA must register with PDVSA's "Unified Suppliers Register" or with the "Unified Contractors Registry." The United States has consulted Venezuela concerning the implementation of its Law of Tenders. Venezuela is not a signatory to the WTO Agreement on Government Procurement.

EXPORT SUBSIDIES

Venezuela has reduced the number of export subsidies it provides, but retains a duty drawback system established in June 1994. Exporters of selected agricultural products receive an export bonus in the form of a credit against the exporters' tax liability.

LACK OF INTELLECTUAL PROPERTY PROTECTION

Venezuela has made improvements in its protection of intellectual property rights, but does not yet appear to provide adequate and effective protection. As a result of its laws and practices, Venezuela was placed on the "watch list" under the Special 301 provision of the 1988 Trade Act. Venezuela, which is a WTO member, has ratified its Uruguay Round implementing legislation, but has not fully implemented the provisions of the WTO Agreement on Trade-Related Aspects of Intellectual Property (TRIPs).

Patents and Trademarks

In late 1993, the Andean Pact passed Decisions 344 and 345 on the protection of patents and trademarks and of plant varieties. These Decisions took effect in Venezuela as of January 1, 1994 and October 29, 1993, respectively. The Decisions are comprehensive and offer a significant improvement over previous standards of protection for intellectual property in the Andean Pact countries. For example, they provide a twenty-year term of protection for patents, reversal of the burden of proof in cases of alleged patent infringement, and allow each member of the Andean Pact to improve its own respective patent law. The portions of the Decisions covering protection of trade secrets and new plant varieties are generally consistent with world class standards for protecting intellectual rights. However, these decisions remain deficient with respect to patents and trademarks. The deficiencies include compulsory licensing provisions, working requirements, restrictions on biotechnology inventions, denial of pharmaceutical patent protection for patented products listed on the World Health Organization's Model List of Essential Drugs, lack of transitional ("pipeline") protection, and lack of protection from parallel imports. The Decisions also fail to address procedures for enforcing intellectual property rights. Venezuela is a member of the Paris Convention for the Protection of Industrial Property.

Copyrights

In 1993, Venezuela passed a copyright law that substantially improves its protection of copyright products and enhances penalties for copyright infringement. In addition, the Andean Pact countries passed in late 1993 a Decision on copyright protection which established a generally-effective and Berne-consistent system. The Decision complements Venezuela's domestic copyright law.

In October 1995, the National Copyright Office was established for the purposes of registering copyrighted materials and providing arbitration services in copyright disputes. Despite some improvements in the enforcement of intellectual property rights, Government initiative remains modest. The Government does not appear to have taken steps on its own to protect intellectual property rights; nor has it dedicated financial or other resources for the necessary public institutions. Under the new Copyright Law and its implementing regulations, a National Directorate of Authors' Rights was created to control, oversee, and ensure compliance with the rights of authors and other rights holders. The Directorate can issue opinions, serve as an arbitrator, and impose fines for copyright infringements. However, the Directorate cannot seize goods, arrest people or close establishments for violations of the law. In addition, under an amended Copyright Law, the Venezuelan Institute for Representation of Film Producers (INVERECI) is able to use criminal courts exclusively to fight video piracy. However, of twelve public criminal complaints filed since 1994, only one indictment has been issued. Nonetheless, U.S. copyright industries continue to see widespread infringement of their intellectual property rights, especially in the areas of computer programs and motion pictures. Enforcement continues to be problematic. Due in part to fears that court proceedings will not yield fair results, settlements are often sought to avoid lengthy and costly proceedings whose outcome is uncertain.

Venezuela is within the footprint of U.S. satellite television transmissions and unauthorized reception and distribution of U.S. signals is widespread since protection of encrypted satellite signals remains inadequate.

According to U.S. industry, video piracy has increased dramatically due to the unsteady economic environment. Piracy also is encouraged and the competitiveness of legitimate products is diminished by the application of a 20 percent luxury tax on video cassettes. U.S. industry estimates annual losses due to video piracy in Venezuela at $4.1 million. Video piracy continues to be a serious problem, despite recent seizures of illegal tapes. INVERECI estimates that video piracy in Venezuela now constitutes 65% of the market. Parallel imports of copyrighted works -- which is not prohibited in Venezuela -- has contributed to the rise in piracy. U.S. industry estimates that 50% of the illegal home video products seized in Venezuela is copied from illegally-imported, pre-released video screener cassettes. Unauthorized public exhibition of audiovisual products appears to be on the increase in Venezuela. Satellite theft and cable piracy also appear to be on the rise. The Regional Cable Operators Association (TEPAL) estimates that half of the pay TV subscribers in Venezuela receive unauthorized transmissions of U.S. domestic satellite signals. It is estimated that $30 million was lost to all forms of piracy in 1995. In 1993, a new Film Law was instituted which eliminated many damaging provisions of Venezuelan law, including taxes on the sale of imported TV products, taxes on transactions involving video cassettes, and a box office charge for the creation and funding of a cinema center. Regulations implementing the new law were published in 1994. The law grants preferential distribution and exhibition treatment to Venezuelan films and states that the newly-created National Autonomous Film Center (CNAC) will establish minimum "holdover" figures for continuance of films in exhibition.

SERVICES BARRIERS

Venezuela maintains barriers in a number of service sectors. For example, all professions subject to national licensing legislation (e.g., engineers, architects, economists, business consultants, accountants, lawyers, doctors, veterinarians, and journalists) are reserved for those who meet Venezuelan certification requirements. Imports receiving government-approved tariff reductions, government financing or those which are government-owned must be insured by local insurers.

INVESTMENT BARRIERS

The state continues to control key sectors of the economy, including oil, gas, iron ore, and much of the coal and petrochemical industries; parastatals dominate others, like steel and aluminum. Foreign investment continues to be restricted in the petroleum sector. The exploration, exploitation, refining, transportation, storage and foreign and domestic sales of hydrocarbons are reserved to the Venezuelan Government or to its entities under Article V of the Hydrocarbons Law. However, the Government may enter into agreements with private companies as long as the agreements guarantee state control of the operation, are of limited duration, and have the prior authorization of the legislature meeting in joint session.

The Venezuelan Government announced a major opening of the petroleum sector to private investment in July 1995. The opening enables national and foreign investors to participate in the exploration and production of light and medium crude in association with PDVSA for the first time since the nationalization of the oil industry in 1976. Other equity associations between PDVSA and private companies involving natural gas and heavy crudes had been previously approved by the Congress and other such ventures may be approved in the future.

Venezuela also limits foreign equity participation to 19.9 percent in enterprises engaged in television, radio, Spanish language press, and professional services subject to national licensing legislation. The level of foreign investment is unrestricted in other sectors of the economy. However, GOV retains wide discretionary power to declare a sector as "basic," and to impose a 49 percent ceiling on foreign investment in such designated sectors. Foreign investors in the mining sector are subject to Venezuela's 1944 Mining Law and a complex set of executive decrees which require them to secure a concession from the Government. Finally, in any enterprise with more than ten workers, foreign employees are restricted to 10 percent of the work force and Venezuelan law limits foreign employee salaries to 20 percent of the payroll.

Venezuela also maintains several other investment-distorting measures. Preferential tax credits and credit access are accorded to export-oriented firms; other investment tax credits are directed to producers and purchasers of locally-produced capital goods. Fiscal credits available for exporters are calibrated to the percentage of local value-added, the amounts ranging from one to ten percent. Under the Andean Pact Common Automotive Policy, Venezuela, Ecuador and Colombia impose strict regional content requirements in the automotive assembly industry. Currently, there are no foreign exchange requirements.

Foreign exchange controls require government approval to repatriate capital, dividends, royalties, and proceeds from local currency sales in excess of local needs. The approval process is lengthy, with no guarantee of success. Only a few U.S. companies were authorized dividend repatriation in 1995. Because inflation is high and devaluations infrequent, delay in the approval of foreign currency requests often results in substantial exchange losses. In 1995, U.S. industry lost millions due to the GOV's failure to authorize timely earnings repatriation.

In addition, many U.S. export sales were lost when Venezuelan importers switched from U.S. sources to ALADI member country sources in order to avoid foreign exchange controls. Imports from ALADI members are exempt from Venezuelan foreign exchange restrictions. Trade diversion resulting from the ALADI exception is estimated to be in excess of $25 million.