WORLD TRADE WT/TPR/M/10
3June1996
ORGANIZATION(96-2073)
Trade Policy Review Body
12-13February 1996
TRADE POLICY REVIEW
VENEZUELA
MINUTES OFMEETING
Chairperson: Mrs. Anne Anderson (Ireland)
Page
I. INTRODUCTORY REMARKS BYTHE CHAIRPERSON 2
II. OPENING STATEMENT BYTHE REPRESENTATIVE OFVENEZUELA 3
III. STATEMENT BYTHE FIRST DISCUSSANT 7
IV. STATEMENT BYTHE SECOND DISCUSSANT 8
V. STATEMENTS BYMEMBERS OFTHE TRADE POLICY REVIEW BODY 9
VI. REPLIES BYTHE REPRESENTATIVE OFVENEZUELA AND
ADDITIONAL COMMENTS 14
VII. CONCLUDING REMARKS BYTHE CHAIRPERSON 21WT/TPR/M/10 Trade Policy Review
Page 2
I. INTRODUCTORY REMARKS BYTHE CHAIRPERSON
1. TheTrade Policy Review ofVenezuela washeldon12and13February 1996. TheChairperson
welcomed thedelegation ofVenezuela, headed byHisExcellency Mr.Werner Corrales (Minister of
Industry and Trade), and the discussants, Messrs. Wilhelm Meier (Switzerland) and
Carlos Antonio daRocha Paranhos (Brazil).
2. TheChairperson recalled thepurpose oftheTrade Policy Reviews andthemain elements of
theprocedures forthismeeting. Thereport bytheGovernment ofVenezuela wascontained in
document WT/TPR/G/10 andthatoftheWTO Secretariat indocument WT/TPR/S/10 andCorr.1;
themain issues toberaised bythediscussants werecontained indocument WT/TPR/W/15. Copies
ofwritten questions submitted bysixdelegations (New Zealand, theUnited States, Canada, Australia,
theEuropean Union andColombia) hadbeentransmitted tothedelegation ofVenezuela. Iffullreplies
could notbeprovided during themeeting, supplementary written replies should beprovided later.
3. RecallingthatintergovernmentalorganizationsattendedmeetingsoftheGeneralCouncilthrough
decisions taken onthebasis oftheadhocarrangements, theChairperson invited EFTA, FAO, IMF,
OECD, UNCTAD andtheWorld Bank asobservers tothenextmeeting oftheTrade Policy Review
Body.Venezuela WT/TPR/M/10
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II. OPENING STATEMENT BYTHE REPRESENTATIVE OFVENEZUELA
4. Therepresentative ofVenezuela saidthathiscountry came tothefirstreview ofitstradepolicy
atatimethatwascertainly difficult andcomplex. Early in1994 amostserious systemic crisis had
beenunleashed inthefinancial sector, necessitating thecontribution ofbillions ofbolivars frompublic
funds andculminating inthetransfer toState ownership ofasizeable proportion ofthecommercial
banks which wereexperiencing severe solvency problems, inorder toshore upthecountry 'sfinancial
andpayments system. Thiscrisis hadbeenpreceded byanevenmore serious political one,including
twoattempted coups d'étatin1992 andtheremoval ofthePresident oftheRepublic bytheCongress
in1993, oncetheSupreme Court ofJustice hadestablished grounds forprosecuting him. Inthatyear
alone Venezuela hadbeen runbythree successive legally constituted governments -twoofthem
transitional -from themoment thePresident oftheRepublic hadbeensuspended from hisfunctions
uptotheendofthetermforwhich hehadbeenelected. While thishadbeenalldoneincompliance
withtheConstitution, itnonetheless hadserious implications forthenational economy.
5. Even more important forthereview, however, wasthatVenezuela hadnever oncedeviated
from itspolicy ofopenness, norhaditfailed tofulfil itsinternational trade commitments.
6. TheReport bytheSecretariat -atextofgreat professionalism -wasilluminating. Inthefirst
paragraph oftheSummary Observations, itstated that"Despite serious economic problems inrecent
years, Venezuela haslargely avoided reversal oftheimportant trade reforms initiated in1989 ...".
Further on,initsanalysis oftrade policies andpractices, itpointed outthat"Since February 1989,
anintensive andradical transformation ofthetrade régime hasbeenundertaken. Security ofaccess
andimproved transparency resulted fromVenezuela 'saccession totheGATT in1990, andtherehave
beennomajor setbacks tothese reforms, forexample, through theincreased useofproduct-specific
trading instruments. Tariffs havebeenrationalized, andboththemaximum andaverage rateshave
beenlowered substantially. Thescope andimpact ofthetariff concessions hasdiminished. Import
prohibitions andlicensing havebeenreduced totheextent necessary forkeeping upwithsecurity or
health concerns orinternational commitments." (Report bytheSecretariat, Chapter IV(1)(ii)).
7. TheGovernment wasconstrained bytheeconomic andfinancial situation totakemeasures
toconfront theemergency. These measures ledtothemacroeconomic results recorded inthelatest
official statement oftheCentral Bank ofVenezuela, which were summarized for1994 and1995 as
follows: GDPgrowth, 2.9and2.2percent; inflation, 70.8and57percent; gross reserves, US$11,507
and9,538 million; andtheexchange rate,170and290bolivars perUS$.
8. Therepresentative ofVenezuela noted thatsome ofthose measures hadsparked theinterest
oftheSecretariat, which initsReport underscored theimpact theycould haveoninvestment andforeign
trade. Hementioned exchange controls, pricecontrols, stateparticipation intheeconomy andtherules
onforeign investments andtheireffects onprivatization, andtheprovisions oftheAndean Group on
agricultural imports.
9. Exchange controls wereatemporary, exceptional measure toarrest thecapital flight thathad
occurred intheaftermath ofthebanking crisis. TheGovernment ofVenezuela hadintroduced a
macroeconomic adjustment andstructural reform programme forwhose fiscal implementation ithad
submitted toCongress asetofTaxLaws. TheCentral Bank, anindependent authority, haddefined
anewmonetary policy consistent withthefiscal programme oftheExecutive, which hadinitiated a
process foreasing theexchange system withaviewtoabolishing italtogether. Venezuela washolding
talks withtheInternational Monetary Fund toobtain thesupport needed, inter alia,tostrengthen
international reserves sufficiently toliftexchange controls.WT/TPR/M/10 Trade Policy Review
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10. Theexchange controls inforce hadbeenimposed inaccordance withtheprovisions ofthe
pertinent international treaties andagreements, including those onintegration. Thishadbeenabasic
principle ofthesystem since itsinception in1994. Accordingly, should anyofitsprovisions conflict
withthose ofaninternational treaty, thelatter would prevail.
11. Thirdly, inthefunctioning oftheexchange control system, therights offoreign investors had
beenscrupulously respected, inpursuance oftheprovisions oftheAndean Group 'sCommon Régime
fortheTreatment ofForeign Capital, ashadthose enshrined inthebilateral investment protection
agreements inforce inVenezuela. Hence, therightofforeign investors toacquire foreign exchange
fordividend payments andforre-exporting capital hadbeenconstantly respected. Owners ofintellectual
property rights hadalsobeenabletoreceive payments corresponding tolicences androyalties.
12. Theexchange control system hadnotoriginally established priorities fortheacquisition of
foreign exchange forimports. Given thedifficulties involved inmeeting allimport foreign-exchange
requirements, andtheincreased demand forforeign exchange during thelastquarter of1995, the
Government haddecided toassign priorities formedicines, foodstuffs andindustrial inputs. Those
priorities wereexpressed exclusively interms oftheorder inwhich theauthorizations weregranted,
andnever byrefusing thequotas.
13. There wereimport options other thanthatofobtaining foreign-exchange authorizations, and
importers whofound thecommon mechanism tootedious orslowcould always resort tothose:
(a) Imports were permitted forindividual amounts under US$5,000 without prior authorization
from theexchange authorities.
(b) UnitedStatesdollar-denominatedVenezuelanpublicdebtbonds(BradyBonds)couldbeprocured
withlocalcurrency onthelocalstock exchange andcould besoldabroad forUnited States
dollars, which could thenbeusedtopayforimports.
(c) Goods andservices from, andoriginating in,themember countries oftheLatin American
Integration Association (LAIA) could beimported under theAssociation 'sReciprocal Payments
andCredit Agreement.
(d) Itwasalsopossible toimport goods payable inbolivars bytheimporter totheexporter.
14. Inthefaceofexceedingly difficult exchange problems, theGovernment ofVenezuela haddone
allinitspower tohinder trade flows andLatin American integration aslittleaspossible.
15. Onprice control, therepresentative ofVenezuela stated thatfixing ofmaximum retail prices
ofgoods andservices hadtobepursued intandem withtheexchange control system inorder toavert
speculation induced bythe1994 financial crisis. Price controls werebeing gradually lifted andhad
already beenreduced to12categories ofmass-consumption products. ItwastheGovernment 'sintention
tocontinue toscale down thenumber ofgoods affected bythismeasure, leaving prices tobefreely
determined bythemarket. Thisprice fixing wasinnowaydiscriminatory, norhaditinfluenced
international trade inthegoods onwhich itwasimposed.
16. Concerning stateparticipation intheeconomy, theVenezuelan State hadbroadly redefined
itseconomic roleswithaviewtodevoting more ofitsattention topolicy formulation andharmonization
andwithdrawing fromdirect involvement asinvestor andproducer invirtually allactivities inwhich
ithadbecome theprincipal actor. Theprocess ofrelinquishing statecontrol oftheeconomy comprisedVenezuela WT/TPR/M/10
Page 5
fourbroad linesofaction onwhich undeniable progress hadbeenmade: privatization andtransfer
ofownership from statebanking, industrial, tourism andother enterprises; opening uptostrategic
associations withthelocalandforeign private sector inareas thathadbeentheexclusive preserve of
theState, oilbeing acaseinpoint; private management ofpublic utilities byinfrastructure concessions;
andlastly, reform oftheindustry andtrade system inorder totrimbureaucracy, reduce Statecontrol
andleave ittotheMinistry ofIndustry andTrade tocoordinate asystem ofhighly autonomous
institutions thatincluded non-governmental organizations involved inthefieldofpublic policies, as
wellasother bodies actively involved inprivate/public sector coordination.
17. Itwasinthatcontext thattherules onforeign investment andtheirimpact onprivatization
could beviewed. Itwasthebelief oftherepresentative ofVenezuela thatarigorous analysis of
Venezuela 'sforeign investment régime would show thattherules itimposed were open tosuch
investment, eveninsectors oftheeconomy fromwhich foreign investors hadbeenpreviously barred.
Foreign investment waspermitted insuchimportant sectors asbanking andinsurance. Even inthe
oilsector -reserved bylawfortheStateforreasons relating tothehistory ofrelations between Venezuela
andtheinternational oilcompanies aswellastosecurity andsovereignty -asizeable niche hadbeen
opened uptoforeign investment, stated intheReport oftheSecretariat. Hepresented thefollowing
datainsupport ofthiscase:
- Thefinalphase ofthebidding process forthe"opening oftheoilsector" wascompleted during
theweek of22to26January under theprogramme ofprogressive incorporation ofprivate
capital intooilproduction activities inVenezuela. Two integrated projects forbitumen
production andupgrading intheOrinoco zonehadalready beenapproved under thisprogramme
andprogress hadbeenmade onreactivating marginal oilfields through theaward of15areas
toprivate consortia. Theopening oftheoilsector meant searching fornewpartners ofthe
Venezuelan Petroleum Company (PDVSA) todevelop newareasinthecountry. These partners
would conduct explorations attheir ownriskanddevelop production inconjunction with
PDVSA, sharing theprofits among them.
- Thebidding process hadbeenentirely successful. Bidshadbeenreceived foreight ofthe
10areas putouttotender. Inall,29bidshadbeenreceived fromatotalof44firms grouped
into23consortia. Fourteen firms fromeightcountries hadbeeninvolved inthewinning bids.
Thesuccessful firms werefromtheUnited States (6),Argentina (2),France (1),Germany (1),
Japan (1),Canada (1),United Kingdom (1)andVenezuela (1).
- Those firms hadrealized thatVenezuela presented apromising business opening along with
adequate legalsecurity. TheydidnotseeVenezuela 'sforeign investment system asanobstacle
totheirinvestments. Onthecontrary, thissystem, recognizing asitdidtherights offoreign
investors inaninternational instrument, namely aDecision oftheAndean Group, offered them
substantial security andstability. TheVenezuelan authorities wereconvinced thatinvestors
would think thesame when theyanalyzed theinvestment potential intheother sectors that
were duetobeprivatized.
18. Lastly, therepresentative ofVenezuela referred toimports ofagricultural products. Inthat
area, Venezuela wasapplying theAndean Price Band System established under Decision No.371of
theBoard oftheCartagena Agreement, adecision thatwaslegally binding ontheAndean Group
countries.Venezuela,mindfulofitscommitmentstointegration,consideredthattobethelegalprovision
parexcellence asfarasagricultural products wereconcerned. Thepreamble tothatDecision declared
thatithaditsbasis intheunstable prices ofagricultural commodities ininternational markets andinWT/TPR/M/10 Trade Policy Review
Page 6
thedistortions caused inlarge measure bytheagricultural policies ofthemain foodimporting and
exporting countries.
19. TheGovernment ofVenezuela hadconsidered itappropriate topresent aseparate additional
report ontheAndean Price Band System. Thatreport stated thatimplementation ofthesystem inno
waydetracted fromthelevelofVenezuela 'sWTO bindings. Inanyevent, theGovernment ofVenezuela
wasdoing allinitspower tocorrect anydefect themechanism might contain through thereview process
provided forintheDecision oftheAndean Group. Moreover, thetariffsurcharges orsurtaxes imposed
onsome agricultural products hadbeenremoved inthelatest customs tariffapproved bytheVenezuelan
Government.
20. Therepresentative ofVenezuela saidthathisGovernment hadcome totheTPRtodisplay its
pastandcurrent efforts tobring intolinewithitsWTO commitments notonlythelegal provisions
underpinning itsforeign trade ingoods andservices aswellasintellectual property, butalsoits
administrative structure. Ontheadministrative side,theauthorities hadreplaced thebodytraditionally
responsible foradministration ofthetrade andindustry sector -historically divided intotwodiscrete
parts-withasingle efficient andflexible organ, created bylaw,theMinistry ofIndustry andTrade.
21. Venezuela hadmade headway inmany areasandthatthishadbeenacknowledged intheReport
bytheSecretariat. Other adjustments hadnotbeenasprompt andeffective astheGovernment would
haveliked. Tochange acountry 'sjuridical andadministrative structure wasnomean task,particularly
when thatcountry wasgoing through phases ofsevere financial and,more generally, economic crisis
thatconsumed itsenergies andcapabilities. Thisexplained, then, whyVenezuela hadnotyetfully
metitsnotification obligations totheWTO. Itwould, however, dososhortly.Venezuela WT/TPR/M/10
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III. STATEMENT BYTHE FIRST DISCUSSANT
22. Thefirstdiscussant (Mr.Wilhelm Meier) noted thattheTrade Policy Review ofVenezuela
wastaking place afewyears afteritsaccession totheGATT, intheinitial phase oftheimplementation
oftheWTO Agreements andinthecontext ofadifficult economic situation. Venezuela 'sforeign trade
régime hadbeenrationalized andhadgained intransparency; theforeign investment régime hadalso
beenliberalized.
23. Nevertheless, theobjectives ofthe1989 programme ofeconomic reforms, successfully
implemented until1992, hadnotbeenyetattained. Thebalance between theoilsector andother sectors
wasamajor, wellfounded concern forVenezuelan policy-makers; fluctuations inoilexport revenues
hadsignificant effects onthesectoral adjustment andeconomic stability. Hesought information on
themeasures tobeadopted tocorrect macroeconomic imbalances, andtheireffects ontrade, aswell
asinformation onrecent developments inthebalance between oilandnon-oil exports.
24. Hebelieved thatVenezuela 'sexpectations withrespect toforeign trade, considered in1990
asacentral element forstimulating efficiency andcompetitiveness ofdomestic industries, hadnotyet
beenfulfilled. Inaddition, industrial policy measures hadbeensuperseded bymore radical economic
intervention consisting offoreign exchange andprice controls. These could undermine confidence
inthenational economy andadversely affect imports. Hesought information ontheexistence ofa
parallel market forforeign exchange andintentions relating tothebolivar 'sdevaluation. Were there
anylinksbetween export performance andforeign exchange allocation? Herequested adetailed list
ofgoods andservices considered aspriority imports. Didconditions forforeign exchange allocation
distinguish among products, applicants orsuppliers? What facilities wereprovided tocertain trading
partners bymeans ofclearing systems? Heasked formore recent dataonthelevelofforeign exchange.
25. Referring toState involvement intheeconomy, herecalled thatnocomprehensive appraisal
could bemade asnodetailed datawasavailable onstate-owned firms andnonotification onthe
enterprises subject totheprovisions ofArticle XVII hadbeen submitted sofar. Heasked for
clarifications andurged theprompt submission ofthisnotification.
26. Regarding regional versus multilateral trade trends, hewasoftheview thatVenezuela had
clearlyfavouredpreferentialtradeagreementsandlessexposuretoworldcompetition.Hewasinterested
inknowing theimpact ofregional agreements oncompetition within thedomestic market, the
restructuring oftheeconomy aswellasonthesynergy between foreign trade andindustrial policy.
What wastherelevance oftariff escalation within theframework ofregional agreements?WT/TPR/M/10 Trade Policy Review
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IV. STATEMENT BYTHE SECOND DISCUSSANT
27. Thesecond discussant (Mr.Carlos Paranhos) stated thattheTPRexercise would helpin
appraising Venezuela 'seconomic difficulties. Theimplementation ofVenezuela 's1989 programme
ofreforms hadbeenmarked byinternal political difficulties andadverse external economic conditions,
inparticular lower prices foritsmajor exports. Inaccordance withtheobjectives oftheprogramme,
Venezuela hadincreased itsnon-traditional exports andtheAndean Group market hadbecome themain
destination ofitsnon-oil exports.
28. Heconsidered thatitwould beinteresting tohavetheauthorities 'assessment ofVenezuela 's
accession totheGATT andmembership oftheWTO, including thebenefits ordifficulties relating
tocompliance withitsAgreements. What changes hadbeenmade todomestic legislation toimplement
accession -andUruguay Round -related commitments? Healsosought information onVenezuela 's
situation andpriorities withrespect toWTO notification requirements, aswellasonthenewMinistry
ofIndustry andTrade.
29. Heasked foradditional information ontheexport incentives which wereavailable todifferent
sectors. Herequested adescription ofthemainfeatures ofthelegislation onforeign direct investment.
Hesought explanations ontheimpact andtheprogress oftheprivatization programme; thefunctioning
oftheAndean Price Band System; andtheobjectives andoperation oftheautomotive régime.
30. InviewofVenezuela 'sparticipation inseveral regional agreements, hesought explanations
onthestepstaken bytheauthorities toensure thatsucharrangements wereconsistent withGATT/WTO
provisions. What wereVenezuela 'smaininterests inparticipating inregional tradearrangements such
asthose ofNAFTA andMERCOSUR.Venezuela WT/TPR/M/10
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V. STATEMENTS BYMEMBERS OFTHE TRADE POLICY REVIEW BODY
31. MembersoftheTPRBthankedtheVenezuelanrepresentativeandthediscussantsfortheiropening
statements, andextended theirappreciation totheVenezuelan Government andtheSecretariat fortheir
respective reports. Members commended Venezuela foritsefforts inliberalizing trade anditsactive
participation inthenegotiations oftheUruguay Round despite thecrisis inrecent years. The1994
foreign exchange andprice controls were widely questioned, andtheirrepeal urged. Concern was
alsovoiced overtherecent introduction oftheAndean Price Bank System.
32. Members welcomed thedelegation ofVenezuela andexpressed theirappreciation toMinister
Corrales forhispresence atthemeeting. Members alsothanked theVenezuelan representative and
thediscussants fortheiropening statements, andVenezuela andtheSecretariat fortheirreports.
33. Therepresentative ofColombia saidthattrade between Venezuela andColombia wasof
fundamental importance forthetwoeconomies; Colombia hadbecome themain destination for
Venezuela 'snon-oil exports, while Venezuela wasthethirdlargest market forColombia 'sexports.
Trade hadbeen strengthened since theestablishment oftheAndean Group andthesubsequent
harmonization andcoordination oftrade policy, including theadoption ofacommon external tariff
andtheelimination ofnon-tariff barriers.
34. Venezuela 'sliberalization programme hadseentherationalization andreduction oftariffs, the
comprehensiveeliminationofimportprohibitionsandlicences,andtheadoptionofmoreflexiblecontrols
onagricultural imports. Measures hadbeenadopted toattract foreign investment andprivatization
wasreducing stateparticipation intheeconomy. Venezuela hadmade important contributions totrade
liberalization andintegration, bothatregional andmultilateral levels, through itsactive participation
inregional agreements andintheUruguay Round negotiations. Venezuela 'sparticipation intheGroup
ofThree, withColombia andMexico, haddrawn thatcountry intoanintegration initiative covering
goods, services andintellectual property.
35. Venezuela 'sverysignificant trade liberalization hadsuffered setbacks during thepastthree
years because ofeconomic difficulties. These hadworsened inearly1994withacrisis inthefinancial
system, falling international reserves andrising inflation. TheVenezuelan Government hadbeenforced
toadopt restrictive measures including strict foreign exchange controls, which affected trade flows;
aware ofthis,Venezuela hadmore recently adopted corrective measures tofacilitate payments and
reactivate trade. Expressing hishopethatVenezuela would solve itseconomic problems without further
trade effects, therepresentative ofColombia asked about theoperation oftheexchange restrictions,
aswellasplans toeliminate the1percentcustoms services charge.
36. Therepresentative oftheUnited States saidthathiscomments wereasupplement toearlier
questionsinwritingfromhisdelegation.HerecognizedtheseverityofVenezuela'seconomicdifficulties
since1994but,given theimportant tradelinksbetween thetwocountries, theUnited States wasgreatly
concerned bythecontrols placed onforeign exchange. Thesystem lacked transparency, wasrestrictive
andimpeded thetradeinterests oftheUnited States, which hadlostitsposition asVenezuela 'slargest
trading partner.
37. Exchange controls hadbeenintroduced inJune1994butwereonlynotified inNovember 1995.
Frequent changes totheruleshadmade difficult fortrading partners tounderstand andusethesystem,
which appeared tohave both balance ofpayments andTRIMs implications. Inparticular, the
export-related conditions forforeign exchange benefits possibly constituted aTRIMs violation. Noting
Venezuela 'scommitments under IMFArticle VIII, therepresentative oftheUnited States saidthatWT/TPR/M/10 Trade Policy Review
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Venezuela wasrestricting payments andtransfers forcurrent international transactions, maintained
multiple exchange ratesand,arguably, discriminatory currency arrangements favouring members of
theLatin American Integration Association (LAIA). Suggestions thatsucharégime wasrelated to
aweak balance ofpayments situation wereinconsistent withtheabsence ofnotification totheWTO
Balance-of-Payments Committee, Venezuela 'sapparent largetradesurplus andsignificant international
reserves.
38. Healsoexpressed greatconcern onthelackoftransparency inVenezuela 'sagricultural policies.
Agricultural exports toVenezuela faced barriers duetotheperiodic denial ofimport certificates, tariff
surcharges andtheAndean Price Band System. TheUnited States strongly believed thatthissystem
lacked transparency anddistorted trade, andstressed theimportance ofensuring thattariff bindings
were respected. Heexpressed disappointment about Venezuela 'ssupport oftheEuropean Union 's
banana import régime. Noting thattheUnited States hadnotyetcompleted itsUruguay Round
negotiations withVenezuela oncorn, heasked when Venezuela would confirm the20percentceiling
binding onyellow cornnegotiated during itsGATT accession. Acopy oftheregulations under
preparation toguarantee theobservance ofin-quota bound tariff levels wasalsorequested.
39. TheUnited States welcomed Venezuela 'sstepstoopenitsoil,banking andinsurance industries,
aswellasitsinitial participation intheGATS negotiations onbasic telecommunications. Hehoped
thatVenezuela would contribute tothesuccess ofthenegotiations bymaking binding commitments,
andthatfurther opening toforeign investment would takeplace inoilandother industries.
40. Henoted thatother comments oncustoms issues, tariffs andtaxes, investment, legislation and
domestic procedures, regional andpreferential agreements, tripsandnotifications wereincorporated
inthelistofquestions previously provided.
41. Therepresentative ofCanada, alsonoting thatherdelegation hadsubmitted questions inwriting,
commended Venezuela foritsliberalization efforts andencouraged ittoremove theforeign exchange
controls introduced in1994. Such controls offered limited benefits intheshort termandtended to
bedetrimental inthelongterm; theirelimination would signal theendofthecrisis and,withsound
macroeconomic policies, could beaneffective waytocurbcapital flight andattract investment. She
commendedVenezuelaforitsbindingsofagriculturalproducts,althoughtheagriculturalsectorcontinued
tobeprotected, forexample, through theAndean Price Band System.
42. Shewelcomed Venezuela 'sefforts tomodify therôleoftheStateintheeconomy andencouraged
further stepstoliberalize andcorrect fiscal imbalances. Shealsowelcomed theopening upoftheoil
industry, following theeasing in1993ofinvestment restrictions. Therecent devaluation would boost
exports andmake possible amore flexible exchange rateregime. Additional information wasrequested
onproducts stillsubject topricecontrols, onwhether thedomestic price ofpetroleum products would
bealigned withworld prices, onthefurther opening oftheoilindustry andontheeventual fiscal cost
ofdealing withthebanking crisis.
43. Therepresentative oftheEuropean Union recalled thewritten questions submitted bytheEU.
HesaidthatVenezuela 'snatural wealth hadalsocreated problems, particularly ahigh, ifdiminishing,
dependencyonpetroleumforforeignexchangeearnings.WelcomingtheimprovementinGNPpercapita
during 1995, afterprevious decreases, henoted thatGNP fluctuated closely withpetroleum exports.
Details wererequested onsteps tobring domestic fuelprices intolinewithinternational levels and,
referring tothedebate inVenezuela concerning howtomanage fluctuations inoilexport earnings,
onplans todiversify theeconomy.Venezuela WT/TPR/M/10
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44. Trade deficits andforeign debtproblems hadledinthelate1980s toaneconomic austerity
programme, amove away fromimport substitution andgreater integration intotheregional andworld
economies. Venezuela hadacceded totheGATT in1990, where ithadplayed anactive role.
Understanding wasexpressed forthesubsequent slowing down inthepaceofadjustment, especially
aftertheproblems of1992, thebanking crisis andthelevelling offofpetroleum exports. However,
theobservation thatVenezuela hadlargely avoided reversing itstrade reforms already contained an
important qualification.
45. Healsowelcomed theprivatization programme, although thestatesector remained large.
Referring toapparent delays intheprivatization process, details were requested ontheprogramme
andontheremaining degree ofstateparticipation intheeconomy, particularly concerning enterprises
enjoying exclusive orspecial privileges. Venezuela wasalsoasked whether itplanned tojointhe
plurilateralWTOAgreementonGovernmentProcurement,ormakepublicprocurementlessprotectionist
andmore transparent.
46. Heexpressed concern onthesystem offoreign exchange controls. These appeared tolack
transparency, particularly inregard topriorities forallocating exchange. Information wasrequested
onhowsuchcontrols were implemented andplans fortheirremoval.
47. Therepresentative ofArgentina expressed hissupport forVenezuela 'sreform programme.
Theongoing privatization programme wasprogressively opening sectors traditionally reserved tothe
state, notably mining andpetroleum. Thesuccessful participation ofArgentinean enterprises inthe
latter areaindicated thattheprogramme washeading intherightdirection andmustbefurther pursued.
48. Reference wasmade toobservations intheSecretariat report concerning thefiscal deficit, the
needforbetter management ofoilrevenues, andtheneedtoadjust domestic gasoline prices. Heasked
whether suchadjustment waspartoftheprogramme under negotiation withtheIMF, mentioned in
theGovernment report, which included agradual reduction ofthefiscal deficit.
49. Argentina welcomed Venezuela 'stariffreform anditsincreased binding commitments, aswell
aswiththebinding within LAIA ofthepreferences granted under Complementarity Agreement 20
between Venezuela andArgentina. Noting thattariff escalation remained themain tooltopromote
industrial development, withsignificant escalation forfood, textiles andleather, heasked whyasimilar
pattern wasnotmaintained inother industrial sectors.
50. Heexpressed concern ontheuseofvariable levies, under theAndean Price Band System on
imports ofagricultural products from outside theregion. Further information wasrequested onthe
apparent recent elimination oftariff surcharges onagricultural products. Argentinean exporters had
faced difficulties inobtaining sanitary certificates forblack beans, onions andpeanuts; however, he
wasconfident thatasolution would befound inthecontext ofbilateral meetings onthose issues.
Clarification wasrequested onreservations made byVenezuela concerning movement ofnatural persons
incertain service areas mentioned intheSecretariat report.
51. Therepresentative ofJapan appreciated theliberalization oftheforeign investment régime,
particularly intheoilsector where Japanese firms wereinvolved. Henoted therestrictive effects on
imports oftheforeign exchange controls andthelargenumber ofexceptions. Japanese firms established
inVenezuela haddifficulties inpursuing their trading activities duetolengthy, complicated and
non-transparentproceduresrelatingtoforeignexchangeauthorization,particularlyforimportsofelectric
appliances andmotor vehicles. Hehoped thatefforts toimprove transparency would bemade.WT/TPR/M/10 Trade Policy Review
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52. Therepresentative ofSwitzerland expressed concern about theVenezuelan economy. Foreign
exchange andprice controls combined withthecontinuous devaluation ofthebolivar hadledtoprice
decreases inrealterms; thuscertain firms hadtocease production. Delays ininvestment-related
remittances could discourage foreign investors. Sheasked theauthorities toclarify theproduct coverage
oftheimport licensing régime. While encouraging Venezuela 'sinvolvement inregional andbilateral
agreements, sheexpressed thehopethatthisprocess would observe thespirit ofArticle XXIV and
would favour multilateral trade rather thantheerection ofbarriers between regional blocs.
53. Therepresentative ofUruguay commended Venezuela foravoiding anyreversals inthetrade
liberalization process despite recent difficulties. However, hesaidthattheAndean Price BandSystem,
which affected thetransparency andpredictability ofborder protection, would notimprove agricultural
resource allocation. Heexpressed concern overitsconsistency withthetariffbinding and"tariffication"
commitments under theWTO Agreement onAgriculture.
54. Tocope withinstability inworld prices originating insubsidization bycertain exporters,
safeguard orcountervailing measures weremore transparent. Thistypeofmeasure wasnotprohibited
under theAgreement onAgriculture anddidnotdelink thedomestic from theworld market. His
authorities wereveryinterested inhaving thedocument explaining thefunctioning oftheAndean Price
Band System (referred tointheinitial statement oftherepresentative ofVenezuela). Hehope that
Venezuela 'snegotiations withtheMERCOSUR would beconcluded rapidly.
55. TherepresentativeofMexicowantedtoknowtherateofandtherationalefortheimplementation
ofinternal taxes onimported alcoholic beverages. Healsorequested information onnewlawson
financial services andtelecommunications. Hewondered whether thelatter would form partof
Venezuela 'soffer inthenegotiations.
56. Therepresentative ofHungary saidthattherecent slowdown inthepaceofreforms raised
concerns overtheirreversibility oftheentire process. TherôleoftheState intheeconomy seemed
excessive. Certainly, protection todomestic producers haddecreased andthepredictability and
transparency oftheregulatory framework hadimproved. However, theliberalization process hadnot
affected theagricultural sector which wasprotected inanunpredictable andintransparent manner by
theAndean Price Band System. Thissystem could result intariffprotection exceeding binding levels.
Hewanted toknow when thisborder measure wastobenotified totheWTO. Furthermore, heasked
theauthorities toconfirm thatthetariff surcharges which affected afewagricultural items hadbeen
suppressed atthedateforeseen (January 1996).
57. Therepresentative ofIndiarecognized themerits andcontinuity oftheautonomous liberalization
andreform measures undertaken byVenezuela. Nevertheless, theinitial benefits from thisprocess
hadbeensubsequently eroded inthefaceofsocial andpolitical problems. Headvised stringent monetary
andfiscal discipline aswell asfurther liberalization oftheforeign investment régime. An
outward-looking policy beyond regional andbilateral arrangements would help. Regarding Uruguay
Round commitments, hecommended theimprovements made inbinding levels aswellasthechanges
undertaken intheregulatory framework inlinewithWTO Agreements, including those inthesector
offinancial services.
58. Therepresentative ofPakistan commended Venezuela foritsoutward-looking policies and
expressed thehopethatforeign exchange restrictions would toberepealed.
59. Therepresentative ofChile praised Venezuela 'sefforts fortheadjustment ofitslegislation
totheWTO commitments. Shesought information ontheprogress ontheadoption ofnewlegislationVenezuela WT/TPR/M/10
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onanumber ofissues including customs valuation, export credit insurance, freezonerégime andthe
protection ofintellectual property rights.
60. Therepresentative ofBrazil noted thereinforcement ofVenezuela 'sparticipation inregional
cooperationmechanisms,particularlywithColombiaandMexico.Hewasinterestedinknowingwhether
itsobjective wastonegotiate anassociation agreement withorbecome afullmember ofMERCOSUR.WT/TPR/M/10 Trade Policy Review
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VI. REPLIESBYTHEREPRESENTATIVEOFVENEZUELAANDADDITIONALCOMMENTS
61. Onthesuggestion oftheChairperson, theresponses bytherepresentative ofVenezuela were
grouped intwomainblocks: (i)economic reforms, fiscal equilibrium andmacroeconomic adjustment;
therôleoftheStateintheeconomy; exchange controls; and(ii)Venezuela inregional agreements;
sectoral themes (agriculture); Venezuela intheWTO.
(i) Economic reforms, fiscal equilibrium andmacroeconomic adjustment; exchange controls
62. Therepresentative ofVenezuela saidthatdespite aslowdown between 1992 and1993, the
1989tradeliberalizationprogrammehadbeenstrengthenedandexpandedbothatmultilateralandregional
levelinrecent years. Fiscal andinstitutional reforms, blocked ontheeveofthe1992political crisis,
hadbeenapproved onlyinFebruary 1994. Nevertheless, there hadbeenconsiderable diversification
oftheeconomy andby1995thecontribution oftheoilsector fiscal revenue was46percent,compared
with75percentin1990.
63. Theprivatization programme, which hadmetwithsome prior to1991, hadbeenre-activated
inOctober1994throughtheStabilizationandEconomicRecoveryProgramme(PERE),aplancomprising
theelimination ofstateinvolvement intheeconomy. Bynow, progress inthisareacomprised: the
implementation ofaprogramme fortheopening oftheoilsector; theongoing privatization ofall
state-ownedaluminumandsteelindustries(ALCASA,VENALUM,BAUSILUM,SIDOR);thecreation
ofaMinistry ofIndustry andTrade; thegranting ofamajor public works contract bymeans of
international tender; andthepreparation ofreforms fortheliberalization ofthelegalframework.
64. Regarding theprogramme ofstructural reforms andadjustment, theshort-term objective was
toattain fiscal equilibrium. Theratioofthepublic deficit toGDP wasexpected tobereduced to
2.5percentin1996 andnilin1997, while inflation wasexpected tobebelow 50percentin1995.
Inthepasttwoyears, thelargest partofthepublic deficit hadbeengenerated bythemassive assistance
provided tothebanking sector. Heexplained that,during thefirsthalf1994, thisassistance had
translated intoa200percentincrease inthevolume ofmoney. Intheabsence ofcontrols anda
restrictive monetary policy, thiswould havedriven inflation ratestoover300percent. International
reserves haddropped by33percentintwomonths. Acostly rescue policy hadbeenpursued.
65. Themacroeconomic equilibrium depended, interalia,onthefullremoval ofcontrol régimes,
inparticular thatonforeign exchange. HisGovernment wascommitted totaking action inthisrespect,
striking anagreement withtheIMFandcarrying outnecessary adjustments. Thepricecontrols, now
affecting 12groups ofmass-consumption products, hadnoeffect oncompetition. These controls had
never frozen prices against theriseininflation ratesorcurrency devaluation; prices were adjusted
every three months.
66. Inresponse tocriticism ontheimplicit domestic subsidies operated through fuelprices kept
below theworld market level, hestated thattheGovernment wasconvinced thatadjustments should
bemade inthisarea. Herecalled that,ascited intheIXthNational Plan, these were toform part
oftheprogramme fortheimprovement public transport inurban areas; theobjective wastochannel
thesubsidy tothisactivity. Nevertheless, inviewofthepolitical andsocial impact, nodecision had
beenmade yetonthetiming orontheinstruments tobeused.
67. Theforthcoming liberalization inthedistribution offuels, stillrequiring newlegislation for
therepeal ofstatemonopoly inthesector, wasexpected tobring more competition inthedomestic
market andwould thusbenefit consumers. Certain progress hadbeenmade allowing themanufacturingVenezuela WT/TPR/M/10
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andmarketing ofnon-regulated oilproducts (e.g., lubricants). Aprivate group from Venezuela had
already started marketing lubricants intheAndean Group market andother countries intheregion.
68. Servicing thebilateral debtwasafiscal priority. TheGovernment, withthetechnical assistance
oftheWorldBankandtheInter-AmericanDevelopmentBank,wasworkingoutanadministrativereform
tobeimplemented under ajointsectoral loan. Supervision ofthebanking sector hadbeenreinforced
through anewregulatory framework. Pressure wasbeing exerted onprivate banks tomeettheBasle
terms withaviewtoeliminating theirliquidity problem. FOGADE wasentrusted withtheprivatization
ofpublicly-owned banks.
69. Hedescribed thecritical circumstances which hadpreceded theestablishment ofexchange
controls; particular emphasis hadbeengiven toindicators suchasthegrowth ofthemonetary mass
andthesignificant dropinthelevelofinternational reserves. Heunderlined thefactthattheexchange
controls hadnotbeen established forbalance-of-payments purposes. These controls hadnothad
restrictive effects onthelevelandthedirection oftrade flows. Between 1994 and1995 imports had
grown by28percentinU.S.dollar terms. TheUnited States remained Venezuela 'smain supplier
andexport destination (including oil).
70. Pending theirelimination, theexchange controls werebeing progressively liberalized inline
with theavailability ofinternational reserves. Action tostreamline certain documentation and
authorization requirements, hadbeentaken toeasecertain imports suchasthose valued atlessthan
US$5,000 andthose paidthrough either theLAIA Reciprocal Payments andCredits Agreement or
inbolivars. Changes relating totheauthorization toexporters tomaintain bankaccounts inforeign
currency abroad, hadfocused onadding flexibility totheadministration offoreign currencies; itwas
intended thatexport earnings could beusedtopayforimports. Bureaucratic procedures forthegranting
ofexchange hadalsobeenreduced.
71. Thedropinoperational reserves oftheCentral Bank inthelastquarter of1995, hadledto
theestablishment ofalistofpriority imports fortheallocation offoreign exchange. Thislist,initially
comprisingfoodstuffs,medicines,andindustrialinputs,hadbeenextendedtoincludetelecommunication
items, textiles, footwear andprinting (newspaper) paper. Priorities hadbeenexpressed inchronological
order andnotinterms ofrejecting applications orexcluding certain import items.
72. Heconcluded byconfirming thatthemacroeconomic programme contained afiscal adjustment
component which wastobecoordinated withrestrictive action inthemonetary areaandtheliberalization
oftheexchange market. Tocarry outthisprogramme, reforms wereunder way.However, consensus
hadtobereached inCongress fortheapproval ofnewfiscal legislation andtheagreement withthe
IMFhadyettobeconcluded.
73. Thefirstdiscussant appreciated theinformation provided onfiscal matters, aswellasonthe
extent oftherecently introduced measures forprice control. Heasked about thesocial acceptability
oftherecent reform measures. Recalling discussions oncoherence andcooperation among theIMF,
theWorld Bank andtheWTO, heasked whether there were anytrade measures involved inthe
forthcoming agreement withtheFund. WasthenewMinistry ofIndustry andTrade planning toredesign
anindustrial policy based ontrade measures?
74. Heurged thephase-out oftheexchange control régime bypointing outthatprocedural delays
andtheoperation ofprice controls could easily affect imports ofgoods suchaspharmaceuticals.
Regarding thefigures onrising imports indicated inthecontext oftheexchange controls, heasked
inwhich currency these were expressed (US$ orbolivars). Hecalled foranurgent normalizationWT/TPR/M/10 Trade Policy Review
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ofthesituation, since inthecontext ofarapidly changing economic environment, slowadjustment
could inflict lasting damage toforeign exporters.
75. Thesecond discussant noted theextent ofthecrisis revealed bytheMinister. Hewanted to
know thepermissible share andconditions forforeign ownership under theprivatization plan. He
alsoasked foroperational details onthepriority principle usedforforeign exchange allocation purposes.
76. Therepresentative ofColombia wasinterested inknowing theshare ofbanks which hadpassed
tothepublic sector inthecontext ofthefinancial rescue operation. Hesought information onany
plans forre-privatizing these banks aswellasonthepossibilities forforeign investors inthisspecific
area.
77. Therepresentative ofNewZealand appreciated theGovernment 'sdetermination toeliminate
price andexchange controls. However, inthelightofhiscountry 'sexperience withsuchmeasures,
therewerestillmajor difficulties tobeovercome (e.g., blockages inimporting, de-bonding, wholesale
andretail stock shortages). Theforeign exchange allocation system determined thetiming, volume
andvalue oftradeflows. Herecalled thatcertain industries, suchasfoodprocessing, wereparticularly
vulnerable tosupply variations.
78. Therepresentative ofJapan asked whether adatehadbeensetforeliminating theexchange
controls.
79. Therepresentative oftheEUpointed outthatforeign exchange controls created problems for
EUexports, suchasexports wine, toVenezuela andasked forthetiming oftheirphase-out.
80. Therepresentative ofArgentina stated thatadjustment measures hadalways beenpainful for
thepopulation. Referring toGovernment plans forthereduction ofinflationary pressures bymeans
ofarrangements between employers andemployees, hesought information onthestateofprogress
andcontent ofsucharrangements.
81. Therepresentative ofPeruasked about restrictions onforeign exchange remittances abroad,
included those covered bydifferent investment protection treaties. Hesought details ondebtservicing
other thanthatofbilateral debt.
82. Inresponse therepresentative ofVenezuela recognized thattomanage thecurrent crisis
appropriate mechanisms, observing international obligations, were required.
83. While thesocial acceptability ofadjustment measures wasforsometime nowarequirement
forundertaking reforms (including the1994 taxreforms), herecalled thatthe1989 market-opening
programme hadbeenlaunched without obtaining consensus among alleconomic agents/operators.
Theopinion oftheless-favoured sections ofthepopulation, which weretobethemain beneficiaries
ofthereforms, hadbeenmanipulated against changes.
84. Venezuela 'sindustrial policy wasnotbeing implemented withprotectionist trade measures
andwasaimed inincreasing competitiveness inaneutral manner. Certain documents ontheprinciples
ofVenezuela 'sindustrial policy would besupplied totheWTO Secretariat forcirculation. Hethen
discussed theefficiency oftariffescalation oruniform tariffs inraising production andexports ofhigh
value-added items. Export diversification indeveloping countries withabundant natural andenergy
resources suchashiscountry, tended todevelop onacross-sectoral basis which didnotnecessarily
attain optimum ormaximum levels ofvalue-added. Theobjective wastoavoid significant discrepanciesVenezuela WT/TPR/M/10
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inproductivity among different sectors andthusobtain better resource allocation. Trade wasanefficient
instrument andpartofthefinalobjective ofeconomic development policies. Todesign development
andequitable industrial policies, thefulllatitude available ininternational agreements hadtobeutilized.
85. Regarding therepeal offoreign exchange andpricecontrols, hereiterated thatnospecific date
hadbeenagreed yet;thisdepended ontheforthcoming IMFagreement andthesituation ofthecountry 's
international reserves. Heclarified thatthesecontrols didnotdistinguish between foreign anddomestic
suppliers.
86. Hesaidthattheforeignexchangepriorityallocationsystemwasmuchsimplerthanitwasthought
tobe.Priorities werestrictly defined byproduct group. Foreign exchange wasautomatically granted
toitems contained inthepriority list. Thesystem hadintroduced order toimports. There would
notbeanynegative response tosuchapplications unless foreign reserves were notavailable.
87. Theimport growth andvalues quoted inthereply ontheeffect ofexchange controls were
expressed inUSdollars. Duetodelayed adjustments totheexchange rateinorder toreflect inflation
developments, thenational currency hadbeenovervalued, thusconstituting animport incentive.
88. Imports from NewZealand, consisting mainly ofmilkinpowder which formed partofthe
priority list(foreign exchange allocation), werebenefiting fromforeign exchange authorizations granted
toimporting firms. These authorizations affected 8,000 tonnes andhadnotbeenfullyutilized yet.
89. There were norestrictions onforeign currency andcapital transfers abroad, anapplication
wassimply required totheExchange Management Board (Junta deAdministración Cambiaria ).
90. Price controls were alsotobedismantled. Herecognized thatthese controls affected the
pharmaceuticals sub-sector andimports oftheseitems suffered alltheeffects ofdevaluation. Themost
recent price adjustment formedicines wasabout tobepublished inVenezuela.
91. Regarding thecrisis inthefinancial sector, hesaidthatthiswasanormal outcome ofthe
introduction ofliberal economic reforms intheabsence ofadequate supervision. With respect tothe
share ofprivate banks which hadpassed tothepublic domain, hesaidthatfigures were tobemade
available indueterm. Hegavedetails onthecrisis anddevelopments onthere-privatization ofthe
banking sector; there were nolimitations onforeign participation.
92. Detailsonconditionsaffectingforeigninvestorsinthecontextoftheoverallprivatizationprocess
were tobesupplied induetermtotheWTO Secretariat. Henevertheless indicated that10percent
oftheshares wasreserved fortheemployees ofstatefirms.
93. TherelationsbetweentheStateandlabour-relatedassociations(employers,unions)hadimproved
since 1995. ASpecial Committee hadbeenestablished topropose reforms tothesocial allowances
andpension funds scheme. InJanuary 1996 anagreement hadbeenreached between associations in
thisarea. Anewlawwasalsounder discussion inCongress.
94. Allpayments relating totherestructured debtoftheperiod 1990-91 hadbeenmade.WT/TPR/M/10 Trade Policy Review
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(ii) Venezuela inregional agreements; sectoral issues (agriculture); Venezuela intheWTO
95. Therepresentative ofVenezuela saidthat,under theconcept of"open regionalism", membership
ofregional agreements andstrengthening regional tradedidnotexclude participation inthemultilateral
framework. Andean policies aimed toconsolidate thefreetradeareaandtoestablish acustoms union;
aprocess ofharmonization hadbeeninitiated withtheadoption oftheCET in1995. Thefour-tier
structure oftheCET(5,10,15and20percent) hadbeencarefully negotiated withreference tothe
degree ofprocessing andsought toencourage thedevelopment ofAndean industries andregional
value-added.
96. Therelation withMERCOSUR waspartofthegeneral integration strategy andofparamount
importance forVenezuela, which wasactively promoting theintegration oftheMERCOSUR andthe
Andean group. Thetwogroups expected toconclude during 1996 therenegotiation and
multilateralization oftheir"historical heritage", i.e.earlier preferences granted aspartofbilateral
agreements under theLAIA. Theintegration ofthetwogroups would bring about amore balanced
relationship when theFreeTrade AreafortheAmericas wasestablished, aprocess which Venezuela
welcomed andtowhich itwascommitted. Tothatend,Venezuela supported thegradual expansion
andconsolidation ofexisting sub-regional pacts, acomplex process which should ensure theconvergence
andcompatibility ofthecontinent 'sintegration agreements. ThenextCartagena Ministerial Meeting
would strengthen thenegotiating basis fortheFTAA. Venezuela hadalsofollowed withinterest
development ofNAFTA, which together withtheUruguay Round Agreements hadserved asareference
fortheGroup ofThree.
97. AllofVenezuela 'sregional andpreferential agreements hadtaken place within theframework
oftheLAIA Referring totheobservation intheSecretariat report thatthree years hadelapsed since
LAIA 'slastreport totheCommittee onTrade andDevelopment, theGovernment ofVenezuela
committed itself totrytoarrange fortheLAIA Secretariat toprovide anupdate onrecent agreements
subscribed byVenezuela.
98. Thedelegate ofVenezuela stated thatagricultural policy aimed torestore andmodernize internal
production systems andtoincrease productivity andcompetitiveness. Official support wasonlyaminor
element ofthatstrategy; protectionism andover-regulation wereoverinVenezuela. Trade policies
would beusedtosupport thedrive formodernization inlinewithVenezuela 'scommitments.
99. Thecentral elements ofagricultural policy included environmental conservation andregional
specializationinparticularproducts,aidedbyruralcensusesandregularizationoflandtenure.Investment
wasalsobeing made ininfrastructure andresearch andtechnology programmes withtheparticipation
ofmultilateral bodies suchastheIDBandtheWorld Bank. Privatization hadembraced marketing
systems andinfrastructure, including irrigation. Credit wasbeing made available bytheGovernment
aswellasbyprivate andstatebanks. Thenewtypeofrelationship between theStateandprivate entities
included policy coordination through Consultative Councils intospecific production areas.
100. Thepolicy ofliberalization, begun in1989 andconsolidated through Venezuela 'saccession
toGATT, hadbeenmaintained withonlyminor interventions inthesetting ofdomestic prices forhighly
sensitive products. Tariffs hadbeenadjusted andrationalized, mostmaximum andminimum prices
hadbeeneliminated, ashadalsobeenimport licensing, tariffexemptions, fertilizer subsidies, andthe
statetrading monopolies forcoffee andcacao. Aprice stabilization mechanism hadbeenadopted
forsensitive products, suchasmilk, sugar, porkandchicken. Import surcharges of60percenthad
beenapplied from 1992 onitems suchascereals, dairy products andalcoholic beverages, buttheVenezuela WT/TPR/M/10
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surcharges oncereals hadbeeneliminated inAugust 1994. Remaining surcharges would beeliminated
withthepublication ofanewtariff schedule intheOfficial Gazette.
101. Theharmonization ofagricultural policies within theAndean group hadledtoareduction in
thelistofproducts entitled toexport subsidies, thefreeing oftrade inseeds andtheadoption ofthe
Andean Price BandSystem. Thismechanism wasdetailed inareport already circulated, which showed
thesystem ashaving nosignificant effects onimports. Anofficial report fromtheCartagena Agreement
Board fullydescribing thesystem anditsexpected effects would alsobeprovided. Noting thetechnical
anddetailed nature ofhisprepared textonthissubject, thedelegate ofVenezuela asked theChair whether
itwould beappropriate toholdtechnical discussions overthefollowing daysforVenezuelan experts
torespond tospecific questions ontheAndean Price Band System. TheChairperson indicated her
preference forgiving timetointeractive discussion rather thanreading outoftexts; theSecretariat
would make available aroom forinformal discussion onthesystem, ifrequired.
102. Sanitary andphytosanitary permits were granted onthebasis ofriskanalyses related tothe
origin oftheproduct andsanitary andphytosanitary conditions, toensure there wasnodanger of
introducing exotic diseases inVenezuela. Permits hadbeendenied forproducts fromcountries where
avian influenza, respiratory andreproductive porksyndrome, andAfrican portpestwere present.
Venezuela hadnotreceived from countries affected requests forrecognition ofdisease-free areas as
allowed under theSPSAgreement. Normally, permits would begranted forproducts from other
countries. Inrelation topork, Venezuela hadapplied therecommendations oftheInternational Pork
Veterinary Association andwasstillconsulting theInternational Epizootic Organization (IEO) with
aviewtothepossible removal ofrestrictions.
103. Abanwasinplace forcattle fromcountries where footandmouth disease existed, thisbeing
anexotic disease inVenezuela. Imports from countries where theeradication ofthisvirus hadbeen
certified bytheIEOwereunder consideration bytheVenezuelan authorities. There werenorestrictions
onthegranting ofphytosanitary permits foronions, black beans orpeanuts, andimports hadincreased
considerably in1995.
104. Inrelation tothepossible breach ofbinding commitments through theapplication oftheAndean
Price Band System, Decision 371oftheCartagena Agreement concerning thatsystem established the
obligation tomeettheUruguay Round commitments. Following theconclusion oftheUruguay Round,
theUnited States hadproposed renegotiations concerning corn, butsinceVenezuela 'scounter-proposal
hadbeenrejected, thebinding onthattariff lineremained unchanged at20percent. Theappropriate
administrative procedures fortariffquotas wereunder study bytheGovernment andwould benotified
induecourse. Theauthorities hadnoevidence ofdenials ofsanitary permits forprotectionist reasons.
105. Thefirstdiscussant wasencouraged tolearnthatanupdate ofVenezuela 'sregional agreements
would beprovided. Assuchagreements continued togrow innumber andcomplexity, complying
withexisting WTO notification requirements wasparticularly important.
106. Thesecond discussant asked forfurther information onVenezuela 'splans vis-à-vis NAFTA
andMERCOSUR.Healsorequestedclarificationsonwhethersurchargescontinuedtoappliedtocertain
agricultural products and,ifso,when thenewtariff schedule eliminating them would bepublished.
107. TherepresentativeofVenezuelasaidthathiscountryattachedgreatimportancetotherelationship
withMERCOSUR. Within theAndean Group, Venezuela hadtaken aleading rôleinbringing the
twoblocks closer, ashadBrazil within MERCOSUR. Suchefforts wereimportant tocreate amore
balancedrelationshipthatwouldhelpadvancetheFTAAinitiative.VenezuelaconsideredtherelationshipWT/TPR/M/10 Trade Policy Review
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withNAFTA tobeanimportant point ofreference, asweretheUruguay Round Agreements andthe
Group ofThree agreement.
108. Thenewtariff schedule modifying thesurcharges oncertain agricultural products hadbeen
published intheOfficial Gazette on9February 1996. Although reduced innumber, surcharges still
applied tosome products suchasnon-alcoholic beverages andcheeses. Venezuela hadmade anumber
ofnotifications;otherswouldbebroughtuptodate.Inthefuture,notificationsandinformalinformation
would beprovided totheWTO andmajor trading partners onatimely basis.
109. Thedelegate restated thatanswers inwriting would beprovided toallquestions. Itwas
important, however, toaddress atthemeeting theissue ofthecustoms services charge. Suchcharge
wascollected as1percentofthevalue ofshipments, having beenreduced from5percentinaccordance
withVenezuela 'scommitments when joining GATT. Thisrateattempted toreflect thecostofthe
service provided bythecustoms authorities andhadthevirtue ofeliminating discretionary elements
from thecalculation. Venezuela continued toexamine alternatives thatpreserved thesimplicity and
transparency ofthecurrent system, butwhich would better reflect thetruecostoftheservice. However,
these efforts were made difficult bylimitation ontheavailability ofcostdata.
110. Thedelegate ofColombia requested areview ofthetextinparagraph 47,page62,intheSpanish
version oftheSecretariat report toreflect theinformation provided byVenezuela onthecustoms services
charge.Venezuela WT/TPR/M/10
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VII. CONCLUDING REMARKS BYTHE CHAIRPERSON
111. Atitsmeeting on12-13 February 1996, theTrade Policy Review Body helditsfirstreview
ofthetrade policies andpractices ofVenezuela. These remarks, made onmyownresponsibility,
summarize thesalient points ofthediscussion andarenotintended tosubstitute theforcollective
evaluation andappreciation ofVenezuela 'strade policies andpractices, which willbereflected inthe
Minutes.
112. Weappreciate verymuch thatVenezuela hasmade atextoftheirreplies, which includes details
ontheoperation oftheAndean Price Band system, available toallinterested delegations andproposed
additional written information inthedaystocome.
113. Thediscussion developed under sixmainthemes: (i)thegeneral economic situation andreform
programme; (ii)exchange controls; (iii)therôleoftheState intheeconomy; (iv)Venezuela in
regional agreements; (v)sectoral questions; and(vi)Venezuela intheWTO.
(i) General economic situation andreform programme
114. Venezuela waswidely commended bymembers fortherapid progress ofeconomic andtrade
reform between 1989and1992. Since then,despite difficult economic andsocial problems, theprocess
hadnot,inthemain, beeneroded. Venezuela wasencouraged tocarry forward itsreforms andbring
greater transparency toitspolicies. Further liberalization would alsobring tofruition theimprovements
incompetitiveness initially expected fromVenezuela 'stradeliberalization andaccession totheGATT.
Aquestion wasposed regarding theacceptance ofthereforms bythepopulation.
115. Note wastaken ofVenezuela 'songoing negotiations withtheIMFanddetails were sought
onwhether suchnegotiations included closing thegapbetween domestic andworld prices forfuels.
Venezuela wasencouraged topursue appropriate monetary andfiscal policies toaddress itsdomestic
andexternal imbalances intheleasttrade distorting manner.
116. Theparamount rôleofpetroleum inVenezuela 'seconomy wasnoted. Members stressed the
importance, while recognizing thedifficulties involved, ofreaching anappropriate balance between
theoilsector andtherestoftheeconomy. Given thevulnerability oftheeconomy tohighly variable
oilrevenues, questions wereasked onefforts being made todiversify theeconomy, particularly exports.
117. Inresponse, therepresentative ofVenezuela saidthatthereforms initiated in1989 hadbeen
consolidated anddeepened since 1994, following aweakening ofefforts in1992-93. Thisincluded
liberalization inaregional context aswellastheentry intoforce oftheWTO agreements. Taxreforms
hadbeenapproved in1994andfurther reforms werenowbefore Congress. Heemphasized theneed
forsocial acceptability ofanyreform programme; andunderlined thatthepresent reforms werebeing
undertaken afterfullconsultations. Hegavedetails ofVenezuela 'sindustrial policies andtheirrelation
totrade commitments.
118. TheGovernment wasconcentrating onreducing thefiscal deficit, aiming atbalance in1997,
andwashoping toreduce inflation to50percentin1996. Success inachieving macro-economic stability
depended onanumber ofmeasures, including theeventual ending ofexchange controls andfinancial
support, oneofthereasons theGovernment wasseeking anagreement withtheIMF.
119. Therepresentative alsoexplained thatgeneral price controls hadalready been reduced to
12categoriesofmass-consumptionproductsunderpricemanagement,withadjustmentsevery2-3months.WT/TPR/M/10 Trade Policy Review
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TheGovernment alsorecognised theneedforadjustments indomestic prices ofpetroleum. Thiswas
tobeundertaken inthecontext ofchanges topublic transport services. Anumber ofchanges were
already being made intheinternal market fornon-regulated petroleum products.
120. Details were alsoprovided ontheregularization oftheservicing ofbilateral debtaswellas
aprogramme toresolve theproblems ofthefinancial sector. Heemphasised thatnewsupervisory
mechanisms hadbeenestablished andanewframework lawpassed byCongress.
(ii) Exchange controls
121. Widely shared concerns were expressed overtheeffects oftheforeign exchange controls
introduced inJune1994 against abackground ofserious reserve losses. Details ontheoperation of
thesecontrolswererequested,particularlyconcerningthetypeofpriorityimportsandnon-discriminatory
treatment among suppliers orapplicants. Venezuela wasencouraged toremove suchcontrols asearly
aspossible. Some participants believed thatVenezuela 'sexchange controls lacked transparency and
haddetrimental effects onforeign investment, capital inflows andtrade. Therégime hadnotbeen
notified totheWTO untilNovember 1995; according tooneMember, itseemed tohavebothbalance-of-
payments andTRIMs implications. Some members raised specific concerns regarding access for
particular products accorded lowpriority under thesystem. Additional questions wereasked onthe
consistency oftheforeign exchange restrictions withVenezuela 'sIMFcommitments andapossible
deadline fortheirremoval.
122. Inreply, therepresentative ofVenezuela saidthattheexchange controls wereintended toarrest
serious capital flight inthelightofthelackofconfidence thathaddeveloped afterthepolitical crisis
of1992. Heemphasised thatthecrisis didnotresult from a"balance ofpayments problem" inthe
sense oftrade ingoods andservices. Thecontrols were temporary andexceptional and,consistent
withthisapproach, theyhadbeenprogressively liberalized. Venezuela wascommitted toreaching
understanding withtheIMFintheshort term, andtodismantling bothexchange andprice controls
aspartoftheGovernment 'smacroeconomic programme. Details ofvarious stepsintheliberalization
were provided. TheVenezuelan Government hadfocused onmaintaining reserves, notonlimiting
trade flows orpayments related toforeign investments; imports hadnotfallen, buthadcontinued to
grow. Certain changes inthedirection oftrade could notberelated toexchange controls, butrather
todevelopments inregional integration. Asreserves hadalsofallen sharply inlate1995, the
Government hadbeenobliged tointroduce certain product priorities; however, noapplications had
beenrefused andthepriority listhadsince beenexpanded toinclude newsectors. There wasno
discrimination between domestic andforeign applicants.
(iii) RôleoftheState intheeconomy
123. Participants noted thecrucial rôleoftheStateinkeysectors ofVenezuela 'seconomy. Members
stressed theimportance ofcompleting Venezuela 'snotification ofenterprises subject toArticle XVII
oftheGATT andsought acomplete listofproducts covered bystatetrading enterprises.
124. Informationwasrequestedondevelopmentsintheprivatizationprogramme.Thepartialopening
toforeign investment oftheoilandfinancial sectors waswelcomed andVenezuela wasencouraged
tocontinue theprocess; questions wereposed onconditions forprivatization ofaluminium andsteel,
including thescope forforeign participation. Further details ofthelegislation onforeign direct
investment werealsorequested. Anumber ofMembers sought information onVenezuela 'spolicies
andpractices ongovernment procurement.Venezuela WT/TPR/M/10
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125. Inresponse,therepresentativeofVenezuelasaidtheprivatizationprogrammehadbeenweakened
in1992/93, following initial successes in1991, butattheendof1994, initsnewStabilization and
Recovery Programme, thepresent Government hadannounced itsnewconcept forthereduced rôle
ofthestateandre-launched theliberalization programme, including petroleum andthefinancial sector.
Details wereprovided onthespecific privatization programmes forpetroleum, aluminium andsteel.
Proposals forfurther reforms would bepresented tothenexttwosessions oftheCongress. Thecreation
oftheMinistry ofIndustry andTrade inNovember 1995wasintended toplayamajor partinthenew
concept ofpublic-private sector relations.
(iv) Venezuela inregional agreements
126. Members recognized theimportance attached byVenezuela toparticipation inregional
agreements. TheAndean Group hadbecome themajor destination ofVenezuela 'snon-oil exports.
Members emphasised theneedtoensure thatallsuchtradeagreements remained outward looking and
theimportance offullnotification totheWTO. Information wassought onVenezuela 'sinterests in
NAFTA andMERCOSUR aswellastheinitiative toestablish aFreeTrade Area oftheAmericas.
127. TherepresentativeofVenezuelarespondedthathiscountry'sparticipationinregionalagreements
wasintheformofopenregionalism andwasnotattheexpense ofthemultilateral system. TheAndean
Group wasconsolidating freetradeandmoving towards afullcustoms union, inwhich theestablishment
ofacommon external tariff in1995 wasthefirststep. Thefour-tier structure oftheCET, decided
afterextensive negotiations, wasintended tofoster increased value-added. Theeventual integration
oftheAndean Group andMERCOSUR wasalsobeing promoted actively, andmember states were
actively renegotiating theirexisting bilateral preferences. Suchstrengthened tieswould leadtogreater
balance inrelations inthenegotiation ofaFreeTrade AreafortheAmericas, inwhich Venezuela was
participating actively. Negotiation ofanFTAA would beverycomplex andneeded totakeaccount
ofdifferent stages ofdevelopment. Sub-regional agreements could beconsolidated andprogressively
converge towards anFTAA.
128. Therepresentative alsosaidthatVenezuela 'sregional agreements allfellwithin thecontext
oftheLAIA, andanupdated report onVenezuela framework ofregional agreements would beprovided
totheWTO.
(v) Sectoral questions
129. Theuseoftariff escalation asVenezuela 'smain instrument ofindustrial policy wasnoted.
Information wassought onpatterns ofescalation inspecific industries aswellastheireffects inan
environment ofregional duty-free trade. Details wereinparticular sought onobjectives andeffects
oftheautomotive régime inforce.
130. Members pointed outthatliberalization ofagriculture hadbeenrelatively limited. Concerns
werewidely expressed about thepotential trade-distorting effects oftheAndean Price Band System,
anditscompatibility withWTO commitments; inthisconnections, details wererequested onstepstaken
byVenezuela toensure thatitsapplication didnotviolate tariff bindings.
131. Members welcomed theopening ofVenezuela 'sbanking andinsurance sectors andexpressed
thehopethatVenezuela would alsomake binding commitments within theGATS negotiations onbasic
telecommunications.WT/TPR/M/10 Trade Policy Review
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132. Inresponse, therepresentative ofVenezuela outlined thebroad framework ofagricultural policy
objectives andhowthese hadevolved. Theintention wastomodernize thesector, increasing
specialization, productivity andcompetitiveness while preserving theenvironment. Inthisregard,
theProgramme forAgricultural Investment wasbeing negotiated withtheIDBandtheWorld Bank.
Theoverall programme ofmodernization hadmany elements, ofwhich tariffprotection wasonlyone
minor element. There hadbeenmajor trade liberalization inthesector since 1990, including tariff
reductions andrationalization, elimination ofminimum andmaximum prices, elimination ofimport
licences, elimination offertilizer subsidies, elimination ofstatemonopolies incoffee andcocoa, the
implementation ofprice stabilization plans foranumber ofproducts, harmonization withAndean
policies,including reduction ofexport subsidies, liberalization oftradeinseeds, andfinally theadoption
oftheAndean Price Band System, onwhich operational details were tabled. Import surcharges on
cereals hadbeeneliminated in1994 andothers would beabolished ontheforthcoming publication
ofthenewcustoms tariff. Information wasalsoprovided ontheoperation ofsanitary andphytosanitary
controls.
(vi) Venezuela intheWTO
133. Members commended Venezuela fortheincreased transparency initstrade régime following
itsaccession totheGATT. Tariffs hadbeenreduced andrationalized andthescope oftariff bindings
hadimproved intheUruguay Round. Prohibitions andimport licenses hadbeenlargely eliminated.
134. Anoverall assessment wasrequested onthebenefits ordifficulties arising fromVenezuela 's
membership intheWTO, aswellasprogress inmeeting WTO obligations, including notification
requirements inanumber ofareas suchasStatetrading andimport licensing. Members wereinterested
inthelegislative changes required forimplementation oftheWTO Agreements. Venezuela wasasked
whether itwasconsidering adherence tothePlurilateral Agreement onGovernment Procurement.
Information wasrequested withrespect totheelimination oftheonepercentcustoms service charge,
thecoverage oftheimport licensing régime, theelimination ofimport surcharges, theimplementation
ofinternal taxes onimported alcoholic beverages andtheoperation ofthestandards andSPSrégimes.
135. Therepresentative ofVenezuela recognized thatcertain notification obligations hadnotbeen
fullymetbutaction wastobetaken toremedy thesituation promptly. Healsorecalled thedifficulties
inreforming thelegalandadministrative framework attimes offinancial andeconomic crisis. Anew
Customs Tariff would shortly bepublished. Theonepercentcustoms change wasintended to
approximate thecostofservices provided; however, Venezuela wasactively looking atalternatives.
136. Inconclusion, theTPRB appreciates Venezuela 'sefforts tomaintain aliberal trade policy,
under verydifficult circumstances anditsactive participation intheGATT/WTO system since its
accession in1990. Wetooknoteoftheefforts tore-establish ofmacro-economic stability asabasis
forfuture growth. WearesurethattheVenezuelan authorities willgiveserious consideration toall
theconcerns raised during thereview, andlookforward toreceiving thenotifications andwritten replies
promised byVenezuela inthecourse ofthemeeting. Wealsolookforward totheconsolidation of
theeconomic reforms andtofurther advances intheprocess ofeconomic liberalization andintegration
intheworld trading system.