1. General Policy Framework

Venezuela, a multi-party electoral democracy with a bicameral legislature, is a major oil producer/exporter and a founding member of OPEC. After nearly three decades of relative economic and political stability, the country has a moderately well-established economic infrastructure, and an impressive potential for economic growth. Major economic resources include petroleum, natural gas, hydro-electric power, iron ore, coal, bauxite and gold. Venezuela is in the process of modifying its macro-economic model and economic policies to diversify from dependence on petroleum exports (although the petroleum sector still dominates the economy) and to develop non-traditional basic export industries such as petro-chemicals, aluminum, steel, cement, forestry, and manufactured consumer products and mining (gold, iron ore, bauxite, and coal).

Venezuela encourages foreign investment in most sectors, but foreigners are still largely excluded from the petroleum sector. The bulk of foreign investment is from the United States. The United States is Venezuela's chief trading partner, accounting for 55 percent of Venezuelan exports and 48 percent of its imports in 1990.

The Venezuelan economy has recovered from the 1989 recession. According to preliminary figures, real GDP grew 5.3 percent in 1990, principally driven by a 13.6 percent increase in the oil sector, and is expected to expand by over nine percent in 1991. The Government recorded a small fiscal surplus of about one percent for the consolidated public sector in 1990. That performance was due to the Iraq war oil revenue windfall and not fiscal restraint. The Government hopes to achieve a surplus equal to 1.3 percent of GDP in 1991.

Monetary policy continues to reflect the fundamental objectives fixed by the Government at the beginning of 1989, which are to reduce inflation rates, maintain positive interest rates, and ensure a competitive exchange rate. Monetary liquidity (M2), however, grew 61 percent in nominal terms in 1990 as a result of sharply increased public spending and a rise in international reserves, mainly during the last four months of 1990. The component of the money supply which increased the most was quasimoney because prevailing high interest rates encouraged the public to put its liquidity into savings and time deposits. The expansion of liquidity continued into 1991. For the first six months of the year, M2 grew by 21 percent. At mid-year, however, the Central Bank undertook a more aggressive program to control liquidity. The Central Bank increased its sale of short term bills (zero coupon bonds) and announced a gradual increase in the bank reserve requirements, and consequently, M2 grew by only 2 percent in the third quarter.

The Government has made much progress in reducing inflation. Prices increased 41 percent in 1990--a sharp decline from the 85 percent jump recorded in 1989. The downward trend is continuing and 1991 inflation is estimated at 31 percent.

The Caracas Stock Exchange has continued its recent gains. As the economy recovered, the stock market index soared by 546 percent in 1990 compared to 1989. The market index recorded a gain of about 70 percent in the first ten and a half months of 1991.

2. Exchange Rate Policies

The Venezuelan Government unified the exchange rate on March 13, 1989. The Central Bank of Venezuela intervenes in the exchange market to correct abrupt fluctuations, but its stated policy is that the exchange rate will remain competitive and be set by market forces. In 1990, the bolivar fell by 17.4 percent against the dollar to close the year at 50.6 bolivars to the dollar. During the January-October 1991 period, the bolivar depreciated 18.9 percent and closed at Bs60.15/US$1.0. (Inflation was 25 percent over the same period.)

The Central Bank's foreign exchange reserves have grown substantially in the past few years. They climbed from $7.4 billion at the end of 1989 to $11.6 billion at the end of 1990 and totalled about $12.5 billion at the end of October 1991. With the advent of exchange unification, prior exchange authorizations and pre-shipment inspections have been eliminated.

3. Structural Policies

The Perez Administration eliminated price controls on most goods and services early in 1989. Price controls remain in effect on a "basic basket" of goods and services considered of primary necessity. Government producer subsidies have also been reduced.

A major income tax reform designed to lower tax rates and ultimately increase revenues by reducing widespread tax evasion entered into force on September 1, 1991. The maximum tax rate for individuals and corporations fell to 30 percent. Joint ventures with the state oil company, PDVSA, for the development and refining of heavy and extra-heavy crudes and the development and processing of unassociated natural gas are excluded from the special tax of 67.7 percent and, therefore, are subject to the 30 percent rate; however, these two categories are still subject to the export reference value of 20 percent. Foreign corporations operating in Venezuela receive the same tax treatment as Venezuelan firms. In order to stimulate the formation of a "maquiladora" export industry, the government has eliminated taxes and duties on imported goods used in the production of exports. Non-residents pay a 10 percent tax on hotel rooms and lodging. The government intends (with Congressional approval) to introduce a value-added tax.

In June 1989, the government initiated a multi-year trade liberalization program. Maximum tariff rates were reduced in 1989 from 130 to 80 percent, to 50 percent in 1990, and to 40 percent in 1991. Maximum tariffs are scheduled to be reduced to 30 percent in 1992, and 20 percent in 1993. Customs duty collections are expected to increase because of virtual elimination of tariff exemptions and exonerations. Venezuela acceded to the General Agreement on Trade and Tariffs (GATT) on September 1, 1990.

The government's regime for managing imports through licenses changed dramatically in 1989 and 1990. Overall the entry of imports has been freed considerably; virtually all manufactured products can enter Venezuela without quantitative restrictions. Import licenses are still required on some agricultural items, and a few import prohibitions still exist. Preshipment inspection is no longer required for imported items.

4. Debt Management Policies

In December 1990, the Government and the commercial banks closed a deal which reduced the debt and debt service obligations on $19.8 billion within the context of the Brady Plan. The most popular option (32 percent) was a 30-year par bond with a fixed interest rate of 6.75 percent whose principal is backed by U.S. Treasury "zero-coupon" bonds. The second most popular option (31 percent) was a 17-year, new-money bond. The deal enabled the Government to reduce principal by $2 billion, reduce interest payments by approximately $470 million per year, raise $1.2 billion in new money and obtain more favorable repayment terms on the remaining debt.

As of December 1990, Venezuela's public sector external debt totaled $27.1 billion. Medium-term registered private sector debt totaled an additional $3.8 billion. External debt represents almost 70 percent of GDP. Roughly 90 percent of the external debt is owed to commercial banks. In 1990, Venezuela's debt service payments totaled $4.1 billion, or 23.5 percent of total exports.

The government has entered the third year of a three-year Extended Fund Facility with the International Monetary Fund. The World Bank and Inter-American Development Bank are providing multi-year sectoral loans to assist the economic restructuring process.

5. Significant Barriers to U.S. Exports

Import License Requirements: Import license requirements have been reduced pursuant to the government's reform program. Only poultry, pork, feed grains, soybean meal, sugar and milk are currently subject to import license requirements. Poultry, pork and feed grains are scheduled for liberalization in January 1992. Import prohibitions have been removed from some agricultural products.

Sanitary certificates from the Ministries of Health and Agriculture and from the country of origin are required to import certain agricultural products and pharmaceuticals. In August 1990, the government imposed a requirement for sanitary certificates from the country of origin on 203 agricultural items for which certificates had not previously been required, and for which the U.S. government issues no sanitary certificates. However, the Venezuelan customs authorities have been accepting state or federal certification that the United States does not issue sanitary certificates for these items.

Service Barriers: Foreign equity investment in banking, insurance, guard and security services, television, radio, Spanish language newspapers, and all professional services subject to licensing, is limited to 20 percent. A comprehensive package to reform the financial sector was introduced in the Congress in July 1991. The proposed legislation would allow foreign firms to enter the banking and insurance/reinsurance sectors. Foreign financial institutions would be permitted to open fully-owned branches and to acquire an equity position in existing domestic institutions. Full national treatment would be phased in gradually.

A U.S.-Venezuela maritime agreement in October 1991 eased terms of certain cargo preference requirements in the bilateral trades and will encourage more competitive service.

Investment Barriers: In January 1990, the Venezuelan Government issued Executive Decree 727, liberalizing foreign investment rules. The decree allows total foreign ownership of companies engaged in retail sales, telecommunications and water and sewage services (all formerly reserved to national companies) and eliminates barriers to dividend and capital repatriation. The decree strips the Superintendency for Foreign Investment (SIEX) of discretionary authority in registering foreign investment. Foreign companies may establish branches without prior approval from SIEX. Prior approval by SIEX for trademark and patent licenses, distribution agreements, technical know-how and technical assistance agreements has also been eliminated. Only royalties in excess of 5 percent which are paid by a foreign company to its foreign parent require prior approval by SIEX.

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. When in the public interest, 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 previous authorization of the legislature meeting in joint session.

Labor Law: The Venezuelan Congress passed a new Organic Labor Law, effective May 1, 1991, which provides in Article 27 that in companies with 10 or more employees, 90 percent of such employees must be Venezuelan. Remuneration for foreign workers must not exceed 20 percent of total wages paid.

Local Content Requirements: Pursuant to Executive Decree 1095, published September 4, 1990, auto assemblers and parts manufacturers must meet a percentage foreign exchange contribution, intended to offset foreign exchange spent on imports, by fulfilling a combination of local content and export requirements. Companies which fail to meet established norms are fined. The new policy removes the requirements that specified parts be incorporated in the vehicle, and that motors be assembled in the country.

Government Procurement Practices: A new Government Contract Law (Ley de Licitaciones) was passed by the Congress on July 20, 1990. The government of Venezuela may procure goods and services in three ways: 1) for goods and services estimated to cost over 10 million bolivars, and construction works estimated to cost more than 30 million bolivars, general tender is required (Article 29); 2) for goods and services estimated to cost between 1 million and 10 million bolivars, and for construction works estimated to cost between 10 and 30 million bolivars, and where the national registry certifies that there are no more than 10 companies technically and financially qualified to provide the goods or perform the service or construction, then a selective tender process may be used (Article 32); 3) for goods and services estimated to cost less than 1 million bolivars, the contract may be awarded directly (Article 33).

Article 47 of the Law, which applies to both the general and selective tender procedures, provides that "for the selection between offers that are within a reasonable range, those in which the following conditions prevail are preferred: 1) have the greatest participation by national engineering and technology; 2) incorporate the greatest national human resources at all levels, including management; 3) have the greatest national value added, or incorporation of national parts or inputs; 4) have the greatest national participation in the company's capital; 5) possess the "Norven" quality control mark (issuance of the mark is governed by the quality control and normalization law); 6) have the best conditions for the transfer of technology; 7) strengthen small and medium-sized companies and cooperatives; and 8) in which the bidder operates in an area or region where the bid was let, or in the place where the public work is to be constructed, the service performed or the supply rendered, and which performs in that region or area permanent economic activities."

However, if the highest authority within the government entity "adequately justifies the decision", the selective tender process may be used in the following circumstances: 1) when, in the execution of the work, or supplying of the goods or services, one necessarily must contract with a specialized international company that does not operate within the country; 2) when acquiring goods to be used in experiments or investigations; and 3) for reasons relating to the security of the state (Article 31). Moreover, in cases where general tender, selective tender or direct adjudications are promoted outside the country, it is not necessary for contractors to be enrolled in the national registry of contractors (Articles 16).

Furthermore, the direct adjudication process (sole sourcing) may be used when contracts have as their object the fabrication of equipment, the acquisition of goods or the contracting for services outside the country, and in which it is not possible to apply the tender procedures given the modalities under which the producers and providers arrange to produce or provide the goods, equipment or services (Article 34(5)).

Customs Clearance Procedures: Customs clearances procedures are time consuming, and delays can occur if documents are not in order. The government has said it will join the GATT Customs Valuation Code.

6. Export Subsidies Policies

Recent U.S. countervailing duty investigations have determined that in the case of certain specific products, some Venezuelan government programs, which included preferential input pricing, short-term financing by FINEXPO (the Central Bank Export Financing Agency), interest-free loans, and an export bonus, effectively conferred subsidies on these products. The Venezuelan Government has replaced the export bonus for manufactured products with a so-called duty drawback scheme. The organic customs law provides for full or partial rebate of import taxes paid on an exported product. On May 20, 1991, the Venezuelan government published Executive Decree 780 implementing the partial duty drawback. It provides for rebates equivalent to two percent of the FOB value of exports through the special suspended duty regimes, such as the temporary admissions program (maquila), stock replenishment program or customs warehousing program. It also provides for a rebate of 5 percent of the FOB value of all other exports. Agricultural products continue to be covered under the export bond program. The government has said that it intends to phase out the partial rebate. Decree 1597 dated June 13, 1991 provides for a bond of 10 percent (formerly 6 percent) for exports of agricultural products.

Finexpo, the Central Bank's export financing arm, increased the interest rates on its loans in December 1990. The rate of interest is 90 percent of the average national rate of interest measured by the operations of Venezuela's principal commercial banks. Dollar loans are issued at London Interbank Offer Rate (LIBOR) plus 1 percent. Interest on financing for foreign importers of Venezuelan goods is the rate charged by the Inter-American Development Bank (IDB) plus a one percent handling fee. Venezuela has not yet signed the GATT subsidies code which would require broad elimination of export subsidies.

7. Protection of U.S. Intellectual Property

Venezuela is a member of the World Industrial Property Organization, and is a signatory to the Berne Convention for the Protection of Literary and Artistic Works, the Geneva Phonograms Convention and the Universal Copyright Convention.

Venezuela was placed on the U.S. Trade Representative's "Watch List" as a result of an assessment required by Section 301 of the 1988 Omnibus Trade and Competitiveness Act. Bilateral consultations took place in August 1989 and March 1991 in Caracas, and in Washington on September 30, 1991 during the Bilateral Trade and Investment Council meeting.

In 1988, Venezuela's Chamber of Deputies approved a bill to strengthen copyright protection. In November 1991, the Senate passed a revised bill which includes software protection and enhanced sanctions. The lower house must consider the bill with the Senate changes. The Development Ministry's Registrar of Industrial Property has drafted proposed legislation to reform Venezuela's outmoded patent and trademark regime.

Venezuela worked within the Andean Pact to revise Decision 85, which governs patent and trademark law. Decision 311, which replaces Decision 85, was adopted by the presidents of the Pact countries at the December 1991 summit. Venezuela will seek membership in the Paris Convention for the Protection of Industrial Property.

Patents: Current Venezuelan patent law does not protect processed foods, pharmaceuticals, chemical preparations, plants or microorganisms. The current patent term is 5 to 10 years. A patent must be worked within two years or it expires. Working a patent requires domestic production of the patented product and importation does not satisfy the working requirement. Few patents have been enforced under the present law.

Trademarks: Trademark protection is based upon registration and use; the first person to register a mark obtains the rights to it. Current Venezuelan law specifically limits protection to the classes in which the trademark is registered. No protection against unfair competition exists and trademark piracy is common in the clothing, toy and sporting goods areas. Trademarks must be used within two years after registration.

Copyright: Venezuela's current copyright law protects all inventive works. Although software is not explicitly mentioned in the statute, it can be protected. In practice, however, software and video piracy are widespread.

There is no basis for determining the dollar value of losses or potential losses due to counterfeiting and piracy.

8. Worker Rights

a. The Right of Association

Both the Constitution and labor law recognize and encourage the right of unions to exist. The comprehensive Labor Code enacted in 1990 extends to all public sector and private sector employees (except members of the armed forces) the right to form and join unions of their choosing. There are no restrictions on this right in practice. One major union confederation, the Venezuelan Confederation of Workers (CTV), and three small ones, as well as a number of independent unions, operate freely in Venezuela. About 25 percent of the national labor force is unionized. Both private and public sector employees, except members of the armed forces, have the right to strike. However, the President may order any strikers back to work if the strike endangers lives or security. During 1991 most strikes occurred among government employees.

b. The Right to Organize and Bargain Collectively

Collective bargaining is protected and encouraged by the 1990 Labor Code and is freely practiced thoughout Venezuela. According to the Code, employers "must negotiate" a collective contract with the union that represents the majority of their workers. It contains a provision stating that wages may be raised by administrative decree provided that Congress approves it. The law prohibits employers from interfering with the formation of unions or with their activities and from stipulating as a condition of employment that new workers must abstain from union activity or must join a specified union.

c. Prohibition of Forced or Compulsory Labor

There is no forced or compulsory labor in Venezuela. The Labor Code states that no one may "obligate others to work against their will".

d. Minimum Age for Employment of Children

The Labor Code allows children between the ages of 12 and 14 to work if given special permission by the National Institute for Minors or the Labor Ministry. Children between the ages of 14 and 16 can work if given permission by their legal guardians. For those under 16 the work day may not exceed six hours or the work week, 30 hours. Minors under 18 can work only during the hours between 6 a.m. and 7 p.m.

e. Acceptable Conditions of Work

Venezuela has a national urban minimum wage rate and a national rural minimum wage rate. To this should be added mandatory fringe benefits that vary with the workers' individual circumstances but in general would increase wages by about one-third. Only domestic workers and concierges are legally excluded from coverage under the minimum wage decrees.

The 1990 Labor Code reduced the standard work week to a maximum of 44 hours. Overtime may not exceed two hours daily, 10 hours weekly, or 100 hours annually, and may not be paid at a rate less than time-and-a-half.

The Labor Code states that employers are obligated to pay specified amounts (up to a maximum of 25 times the minimum salary) to workers for accidents or occupational sicknesses regardless of who is responsible for negligence. It also declares that work places must maintain "sufficient protection for health and life against sicknesses and accidents", and it imposes fines of from one-quarter to two times the minimum salary for first infractions.

f. Rights in Sectors with U.S. Investment

Labor rights and conditions of work in sectors in which U.S. capital is invested do not differ from those in the economy in general.

Source: National Trade Data Bank, Agency: U.S. Department of State