In 1995, the U.S. trade deficit with Venezuela was $5.1 billion, $733 million
greater than that in 1994. U.S. merchandise exports to Venezuela were $4.6
billion, up $599 million or 14.8 percent from 1994. Venezuela was the United
States' twenty-fourth largest export market in 1995. U.S. imports from Venezuela
totaled $9.7 billion in 1995, or about 16 percent more than in 1994.
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.
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