7 February 1996
problems should not keep Venezuela from focusing on trade reform Back
Serious economic problems in recent years, including
a major banking crisis in 1994, have resulted in a loss of momentum in Venezuela's trade
and economic reform programme begun in 1989. According to a WTO Secretariat report on
Venezuela's trade policies and practices, Venezuela has largely avoided reversing the
reforms, but foreign exchange controls, introduced in 1994 to stem capital flight, may
have significant effects on the country's trade régime. The report will be the subject of
two days of discussion at the WTO on 12 and 13 February 1996.
Venezuela's efforts to liberalize its economy were
spurred by lower prices in the world oil market. The petroleum industry has a dominant
position in Venezuela's economy and oil, despite the significant impact of the production
quotas maintained by Venezuela within the framework of OPEC, accounts for the lion's share
of the country's exports. Petroleum also supplies inexpensive energy to domestic
industries and represents a large source of government revenues, used not only to finance
major advances in education and welfare, but also to support the extensive state
involvement in the economy.
According to the report, economic liberalization was
accompanied by a significant opening of the trade régime. This process was complemented
by the security of access and improved transparency resulting from Venezuela's accession
to the GATT in 1990 and by its subsequent membership in the WTO. The report states that
Venezuela, a founding member of the WTO, agreed to further reduce its overall bound rate
to 35 per cent by 2004, down by 15 per cent from the general ceiling level negotiated
during its accession to GATT. Since 1992, Venezuela's applied tariff schedule has been
based on the Common External Tariff of the Andean Group,(1) with most ad valorem rates
being 5, 10, 15 and 20 per cent. A new tariff, introduced in July 1995, reduced tariff
peaks affecting certain automotive items from 40 to 35 per cent.
The report notes that some agricultural items, i.e.
meat, dairy products, sugar, various cereals, fats and processed foods, are subject since
1995 to the Andean Price Band system, a price system where floor and ceiling prices are
linked to the moving average and spread over the previous five years of world prices. This
raises questions about the predictability of such a form of border protection which
exhibits many of the properties associated with variable levies. Venezuela maintains
special safeguard provisions for 76 agricultural products.
According to the report, considerable progress has
been made to liberalize Venezuela's services sector, which in 1993 represented 62 per cent
of GDP. In the past, shielding services from foreign competition resulted in high costs
and inefficiencies. The financial sector was further weakened by major shortcomings in the
supervisory and regulatory framework. The banking crisis of 1994, which spilled over to
the insurance industry, resulted in the government again having to acquire a large number
of companies. Steps taken since 1994 have largely liberalized the sector and resulted in
significant changes in its operations and structure.
State involvement in telecommunications services is
now limited. The largely privatized national telephone company has a monopoly of basic
services; however, competition is free in all non-basic services, with private operators
having expanded rapidly since the opening of the sector in 1991. The report states that
the introduction of a new telecommunications law and greater reliance on market mechanisms
are seen as important steps for further improvements in the sector.
Since the late 1980s, Venezuela has entered into
numerous bilateral and regional trading arrangements with its neighbours or with other
countries in Central and South America. Venezuela is also involved in longer term,
regional trade projects such as the free trade area for the Americas and the Latin
American Integration Association. The report emphasises the need for such agreements to
remain open and liberal.
While Venezuela's most pressing need is to overcome
its macro-economic problems, it also needs to advance its trade reform programme. The
report states that such changes are seen as a condition to allow Venezuela to respond to
the challenges and opportunities presented by the Uruguay Round results.
Notes to Editors:
The WTO Secretariat's report, together with a report
prepared by Venezuela will be discussed by the WTO Trade Policy Review Body (TPRB) on 12
and 13 February 1996. The WTO's TPRB conducts a collective evaluation of the full range of
trade policies and practices of each WTO member at regular periodic intervals and monitors
significant trends and developments which may have an impact on the global trading system.
Two reports, together with a report of the TPRB's
discussion and of the Chairman's summing up, will be published in due course as the
complete Trade Policy Review of Venezuela and will be available from the WTO Secretariat,
Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
The reports cover development of all aspects of
Venezuela's trade policies, including domestic laws and regulations, the institutional
framework, trade policies by measure and by sector. Since the WTO came into force, the
"new areas" of services trade and trade-related aspects of intellectual property
rights are also covered. Attached are the summary observations from the Secretariat and
government reports. Full reports will be available for journalists from the WTO
Secretariat on request.
Since December 1989, the following reports have been
completed: Argentina (1992), Australia (1989
& 1994), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992), Cameroon
(1995), Canada (1990, 1992 & 1994), Chile (1991), Colombia (1990), Costa Rica (1995),
Côte d'Ivoire (1995), Egypt (1992), the European Communities (1991, 1993 & 1995),
Finland (1992), Ghana (1992), Hong Kong (1990 & 1994), Hungary (1991), Iceland (1994),
India (1993), Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992 and 1995), Kenya
(1993), Korea, Rep. of (1992), Macau (1994), Malaysia (1993), Mauritius (1995), Mexico
(1993), Morocco (1989 & 1996), New Zealand (1990), Nigeria (1991), Norway (1991),
Pakistan (1995), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992),
Senegal (1994), Singapore (1992), Slovak Republic (1995), South Africa (1993), Sri Lanka
(1995), Sweden (1990 & 1994), Switzerland (1991), Thailand (1991 & 1995), Tunisia
(1994), Turkey (1994), the United States (1989, 1992 & 1994), Uganda (1995), Uruguay
(1992) and Zimbabwe (1994).
Secretariats report: summary Back to top
TRADE POLICY REVIEW BODY: VENEZUELA
Report by the Secretariat Summary Observations
Despite serious economic problems in recent years,
Venezuela has largely avoided reversal of the important trade reforms initiated in 1989
together with a major macro-economic reform programme. However, foreign exchange controls,
introduced in 1994 to stem capital flight, may have significant trade effects.
The 1989 reform programme, undertaken in response to
a deteriorating trade balance and major foreign exchange problems, entailed fiscal
adjustments, tightening of monetary policy and a lifting of controls on prices and
interest rates. A unified, flexible exchange rate was adopted. The economic reforms
brought some visible signs of success in 1990-92, helped by the recovery of oil prices in
1990; GDP growth accelerated and inflation fell rapidly. In 1991, both Government finances
and the trade account turned to surplus, while the external debt was completely
restructured. However, the stringency of the fiscal measures contributed to a serious
political crisis, and the pace of adjustment has slackened since 1992. The economy also
suffered a series of setbacks, including a major banking crisis; real GDP fell in 1993 and
1994; inflation reached some 6 per cent in 1995.
The authorities have tried to counteract
inflationary pressures through new controls on prices of basic goods and services. Because
of concerns about social consequences, the Government has been reluctant to take new
severe measures to reduce the fiscal deficit, which was exacerbated by the need to provide
support for the failing banks. In June 1994, seeking to stem the fall in international
reserves, the authorities imposed exchange controls on all transactions and fixed the
nominal exchange rate (against the U.S. dollar), leading to a real appreciation and loss
of competitiveness for many Venezuelan exports. The bolivar was devalued by some 70 per
cent against the U.S. dollar in December 1995.
The liberalization of the trade régime, initiated
in 1989, was complemented by the security of access and improved transparency resulting
from Venezuela's accession to the GATT in 1990. The process involved a rationalization and
binding of tariffs, as well as the lowering of both the maximum and average applied rates.
However, escalation of applied tariffs, intended to promote local processing of domestic
raw materials, remains a feature of the tariff structure, and some reductions on the rates
on imported inputs for automobile assembly are conditional on compliance with local
content requirements. Import prohibitions and licensing have generally been reduced to the
extent necessary for security or health reasons or in keeping with international
commitments; current exceptions include certain important consumer goods. Agriculture
remains relatively protected. There have been advances in intellectual property protection
and in competition policy.
Liberalization measures have also included steps to
attract private investment and provide a more secure, level playing field for domestic and
foreign capital. This process has resulted in the extension of the public debt conversion
programme to foreign investors as well as a comprehensive opening of the banking and
insurance industries and certain public works and services. Nevertheless, constitutional
constraints continue to limit foreign participation in a number of key industries and
services; access of foreign investors to activities such as the mass media, maritime
transport and certain professional services is either prohibited or restricted, while
mining (including hydrocarbons) is reserved to the State.
The State is thus still a key player in mining,
manufacturing and services, including the supply of fuels and electricity, banking,
insurance, transport and tourist facilities. However, steps are being taken to allow the
participation of private capital, for example, through joint ventures and operational
agreements in petroleum and the privatization of all state-owned hotels and tourist
developments. This may go some way to open up Venezuela's market structure, in which
vertically integrated groups, many state-controlled, are still prevalent. In 1993,
manufacturing other than oil refining generated about 15 per cent of Venezuela's GDP,
agriculture about 5 per cent and the services sector 62 per cent; the share of the
petroleum sector in GDP was close to 18 per cent. This figure understates the rôle of
petroleum as the cornerstone of the Venezuelan economy and the key to understanding major
economic developments in the last 20 years. Oil accounts for the lion's share of
Venezuelan exports, in spite of the significant impact of the production quotas maintained
by Venezuela within the framework of the Organization of Petroleum Exporting Countries
(OPEC). The sector also provides an abundant source of inexpensive energy for domestic
industries and accounts for 60 per cent of government revenues, used to finance major
advances in education and welfare as well as extensive State involvement in the economy.
The appropriate balance between oil and other sectors is part of a broader debate on
policies to manage highly variable oil revenues while fostering a more diverse economic
structure that also reflects the long-term comparative advantage of non-oil activities.
Venezuela in world trade
Fuels and other mining products made up 76 per cent
of exports of goods and services in 1993, down from 94 per cent in 1980; manufactures
accounted for about 12 per cent. Key exports other than fuels are aluminium, motor
vehicles (mainly to the Andean1 Group), iron and
steel products, coal and coke, and canned and simply preserved fish.
The shares of manufactures and minerals in imports
of goods and services, at about 59 and 3 per cent respectively, changed little between
1980 and 1993. Agricultural and tourism imports fell slightly to some 10 and 13 per cent,
while transport services increased to 12 per cent. The main manufactures imported are
automotive products and non-electrical machinery, each representing some 13 per cent of
total merchandise imports in 1993.
The United States is Venezuela's most important
trade partner; between 1980 and 1993 its share of imports decreased slightly to 46 per
cent, while that of exports increased to about 56 per cent. The European Union is the
second largest partner, imports having grown to reach 32 per cent in 1993 and exports
remaining relatively stable at about 22 per cent. Imports from other Latin American
countries have also grown, reaching some 18 per cent in 1993; exports, however, fell to
around 32 per cent. Merchandise trade with MERCOSUR and Colombia, in particular, showed
especially large increases.
Venezuela has no basic trade law; trade measures are
based mainly on a series of laws, implemented through decrees and regulations. A number of
modifications made in recent years to trade-related laws have resulted from commitments in
regional fora, especially the Andean Group, and in the GATT and WTO. Such changes have
affected laws on anti-dumping, standards and competition matters; new legislation is under
preparation in areas such as customs valuation, export credit insurance, the free-zones
régime and the protection of industrial property rights.
The Foreign Trade Institute (ICE), currently part of
the Ministry of External Relations, is responsible for trade policy formulation and
implementation, including sectoral coordination. It also provides representation in
multilateral fora such as the WTO and regional or bilateral negotiations. The Ministry of
Finance is responsible for tariff policy. Foreign exchange and monetary policies are
formulated by the Central Bank of Venezuela. Policies affecting services are the
responsibility of several public sector institutions, with the ICE coordinating
international negotiations. Under legislation awaiting approval, ICE and the Ministry of
Development are to be replaced by a Ministry of Industry and Commerce.
Venezuela became a formal participant in the Uruguay
Round four years after the launching of the negotiations. It ratified the Marrakesh
Agreement on 29 December 1994 to become a founder member of the WTO. For the time being,
Venezuela does not plan to sign any Plurilateral Agreement. The authorities considered the
results of the Uruguay Round particularly beneficial in areas such as textiles and
clothing, anti-dumping, countervailing measures and professional and financial services,
while issues concerning environmental and workers' rights protection are being approached
Since the late 1980s, the strengthening and
expansion of regional and bilateral agreements have been important elements in Venezuela's
trade policy. At present, Venezuela participates in free trade area commitments in the
Andean Group, where it applies the Common External Tariff (CET), and the Group of Three
(with Colombia and Mexico). Bilateral arrangements exist with individual Central American
Common Market (CACM) members, LAIA partners, MERCOSUR countries and Cuba, while Venezuela
provides unilateral preferential treatment to certain imports from CACM and Caribbean
Common Market (CARICOM) countries. Venezuela is also involved in longer term projects such
as the negotiations for a Free Trade Area for the Americas and the Latin American
Integration Association (LAIA).
Trade policy features and trends
Evolution of trade policies and instruments
Venezuela's trade policies changed direction in
1989, when an import-substitution policy began to be replaced by a more open régime,
whose objective was to reduce anti-export bias and integrate the Venezuelan economy more
closely into world markets. Under this policy, tariffs, import restrictions and export
incentives have all been reduced.
On accession to the GATT, Venezuela bound its tariff
at a general ceiling level of 50 per cent. These commitments were strengthened in the
Uruguay Round by agreeing to reduce the overall bound rate to 35 per cent by 2004.
Since 1992, Venezuela's applied tariff schedule has
been based on the Common External Tariff of the Andean Group, with ad valorem rates of 5,
10, 15 and 20 per cent (with certain exceptions). Tariff escalation is intended to promote
industrial development, encouraging the further processing of regional raw materials in
Andean countries. A new tariff, introduced in July 1995, reduced tariff peaks affecting
certain automotive items from 40 to 35 per cent. Most rates are ad valorem, but specific
and compound duties are levied on certain items.
Tariff concessions have been rationalized;
concessional entry is limited to imports covered by preferential agreements or entering
free zones, temporary admission, admission for improvement and stock replacement. Reduced
or zero tariffs apply to inputs, raw materials and capital goods not produced or available
in the Andean sub-region. Reduced rates also apply to completely-knocked-down (CKD) motor
vehicle kits for assembly, subject to compliance by assemblers with local content
requirements. Effective protection for the assembly industry is thus substantially higher
than is evident from nominal rates.
In 1995, Venezuela adopted the Andean Price Band
system to replace a similar national scheme in place since 1991. The Andean system applies
to imports of certain agricultural items (including meat, dairy products, sugar, and
various cereals, fats and processed foods) originating outside the region. Its stated
objective is to stabilize the domestic price of those products in a manner consistent with
the implementation of the Common External Tariff by all Andean Group countries. The system
operates by adding an ad valorem levy to the CET rate whenever a reference price falls
under a floor, or subtracting from such rate if the reference price exceeds a ceiling;
floor and ceiling prices are linked both to the moving average and the spread of prices
prevailing in world markets during the previous five years. As under this system applied
rates could increase, in principle, beyond bound levels, questions arise about the
predictability of such a form of border protection which exhibits many of the properties
associated with variable levies.
In May 1995 customs clearance fees were abolished.
Since April 1992, tariff surcharges have been applied to imports of 15 ten-digit NANDINA
agricultural products, including certain types of cheese, maize and mineral waters.
According to the authorities, these surcharges were to be eliminated by January 1996.
Since September 1994, a VAT-type wholesale and
(luxury) consumption tax has been applied at rates ranging from 12.5 to 32.5 per cent on
all goods, except some basic foods; on services; and on royalties from the exploitation of
all types of intellectual property rights. Additional internal taxes on alcoholic
beverages exclusively affect imported items; details of applied rates were not available
to the Secretariat at the time of completion of its report.
Import prohibitions are limited to used or old model
road vehicles, used clothing, used tyres and gambling games. Restrictive import licensing
seems generally to have been eliminated, while import permit requirements are maintained
on several items for environmental, health and security reasons. Exclusive import rights
are maintained for a few items requiring prior import authorization. In recent years
efforts have been made to modernize legislation and institutional arrangements in
standards; in June 1993, new compulsory regulations were introduced affecting, inter alia,
automotive parts, chemicals, foodstuffs, health products and toys.
Absence of comprehensive data on the extent of
state-owned enterprises does not permit a full appraisal of the degree of state
involvement in production and trade. Government procurement legislation permits, but does
not require, preferential treatment for domestic suppliers; no data on procurement
operations other than that of the State oil company, PDVSA, was available from the
As promised on its accession to the GATT, Venezuela
has introduced an injury test, applicable on a reciprocal basis, in its anti-dumping and
countervailing legislation. Between 1992 and 1995 anti-dumping duties have been imposed on
three occasions on manufactured goods while countervailing duties have been used against
Export licensing applies to a few items including
fertilizers, certain metals and radioactive substances. A surcharge, to be phased out in
1996, affects petroleum exports. The scope of export assistance for agricultural products,
at a rate of 10 per cent of the f.o.b. value, has been reduced over recent years. In the
Uruguay Round, Venezuela committed itself to cutting budgetary outlays for export
subsidies by 24 per cent and eligible quantities by 15 per cent. Manufactured goods
benefit from a duty drawback system on imports of inputs [and capital goods]. Export
finance in domestic currency is provided on preferential terms, while foreign currency
loans for this purpose are made on commercial terms.
The free zone régime, in existence for over twenty
years, is the only regional development instrument; its incidence on the domestic economy
Venezuela has met its WTO notification requirements
in the areas of TRIMs, SPS (national enquiry points), rules of origin, anti-dumping,
subsidies and countervailing measures, safeguards and textiles and clothing. Notifications
have yet to be made on import restrictions, import prohibitions, licensing requirements
and State trading, as well as on the fiscal credit and export finance programmes. Also not
yet notified is the Andean Price Band system introduced in 1995.
Assistance to domestic production is provided
through the supply of refined petroleum products at below world prices and through various
other subsidies. For example, agriculture benefits from certain tax incentives, input
subsidies on irrigation, electricity, and fixed producer prices on certain items. While
the monitoring and fixing of maximum retail prices of certain food and services may
disadvantage certain local firms, imported tobacco and cigarettes cannot be sold at a
price lower than that of domestic brands. Competition policy introduced in 1992 has
allowed for the examination of practices such as cartelization, mergers, boycotts and
abuse of dominant position and could lead in the long run to stronger competition in the
Under the minimum access opportunities of the WTO
Agreement on Agriculture, the quantity of most agricultural imports subject to tariff
quota commitments is to increase progressively by around 67 per cent by 2004; however,
there will be no increases for a number of items including milk, grains and sugar. The
mechanism for the administration of tariff quotas was to enter into force in 1996.
Venezuela maintains Special Safeguards Provisions on 76 agricultural items. Under its
obligations relating to the Aggregate Measurement of Support (AMS), Venezuela is expected
to reduce support to domestic producers through price fixing and input subsidies, by 13.3
Protection of intellectual property rights is based
on domestic legislation introduced in 1993 and complementary Andean Group measures of
1994. The new legislation covers a broad range of works but problems allegedly exist with
its enforcement. Venezuela is a signatory to almost all major international conventions on
intellectual property, trademarks, copyrights and patent protection, and is a member of
the World Intellectual Property Organization. The authorities consider that the
implementation of the Agreement on TRIPS should require no significant changes, except for
some border measures where modifications are under way.
Under the reforms initiated in 1989, serious efforts
were made to reduce the anti-export bias of earlier policies, including through
privatization and deregulation of the economy. However, such a bias persists through the
continued application of sectoral policies favouring "activity leader" groups.
The misallocation of domestic resources implied by such measures may not be offset by
positive externalities generated by the sectors concerned.
Mining and petroleum, which receive little import
protection, are most likely negatively affected by the present régime. While assistance
to agriculture appears moderate compared with some major world agricultural producers,
protection and domestic supports have fostered a high-cost agricultural sector isolated
from international markets. The sector was greatly affected by the initial implementation
of the liberalization programme; more recently, new supports have been introduced, mainly
through the measures described earlier (the Andean Price Band system, preferential credit,
etc.). Currently under study are a draft law on agricultural development and food security
as well as a trade defence system and production incentives to counteract perceived
distortions in world agricultural markets.
The current thrust of industrial policies is the
promotion of selected industrial groups and domestic value added, mainly through tariff
escalation. Some sub-sectors, such as petroleum refineries, iron and steel and aluminium,
are major exporters. Apart from these, the manufacturing sector (particularly, food
processing and the vehicle industry) has been inward-oriented and not particularly
competitive in world markets beyond the Andean region . Low efficiency has been
compensated in part by State subsidies through inexpensive inputs, especially under-priced
fuels and other refined petroleum products. Assistance has more recently been provided
through government-supported debt rescheduling and recapitalizations.
Liberalization has gone relatively far in the
services sector, with further advances expected. In the past, high costs and
inefficiencies resulted from the shielding of services from foreign competition; many
services, particularly banking, were subject to powerful distortionary forces. Competition
in the financial sector was hampered by severe restrictions on the entry of foreign banks
and major weaknesses in the supervisory and regulatory framework. A major banking crisis
erupted in 1994, when the authorities were compelled to nationalize or close a significant
percentage of the banks in operation. The crisis spilled over to the insurance industry,
with the Government again having to acquire a large number of companies. Steps taken since
1994 have resulted in a series of consolidations and the introduction of new or revised
laws which are expected to change significantly the operation and structure of the
Inefficient labour practices in ports also
represented a serious handicap to non-mineral exporters; to address these problems the
authorities initiated a restructuring process in 1991 which has seen port services
privatized or transferred to state governments. Reforms undertaken to increase competition
in shipping appear to have resulted in a significant fall in the number of shipyards and
vessels under Venezuelan flag.
State involvement in the operation of
telecommunications services is now limited. The largely privatized national telephone
company has a monopoly of basic services; however, competition is free in all non-basic
services, with private operators having expanded rapidly since the opening of the sector
in 1991. The introduction of a new telecommunications law and greater reliance on market
mechanisms are seen as important steps for further improvements in the sector.
In 1995, legislation was under preparation to
introduce a new customs valuation scheme, adjust the free zones legislation to the WTO
Agreement on Subsidies, create a Bank of Foreign Trade, and amend the regulations on
consumer protection and industrial property rights; the introduction of regulations on
import cartel practices was under study.
Trade policies and trading partners
Venezuela was recently included in the group of
Andean Group countries which will receive extended benefits under the European Union's GSP
scheme until 1998. The authorities consider this measure as an important incentive for
non-traditional exports to the EU market. A tariff quota affects banana exports to the EU.
Venezuelan exports of certain manufactured items have been subject to anti-dumping or
countervailing duties in the EU and the United States, while a similar case has recently
been under examination in Mexico.
Venezuela, together with other contracting parties,
has been a complainant in two GATT dispute settlement cases concerning EU and member State
import measures affecting bananas. A case has been initiated under WTO dispute settlement
procedures on standards applied by the United States on imports of conventional or
While Venezuela's most pressing need is to overcome
its macro-economic problems, it also needs to carry forward the reform of its trade and
related polices. This is a condition for achieving greater adaptability in the domestic
economy to respond to the challenges and opportunities presented by the implementation of
the results of the Uruguay Round. Thus, there is a need to extend the process of
liberalization initiated in 1989 and to ensure that the application of foreign exchange
controls does not adversely affect the interests of Venezuela's trading partners.
While integration within the Andean Group, in
particular, and other regional agreements may present opportunities for economies of scale
in an enlarged regional market, it is important that such agreement retain an open,
liberal character as part of the multilateral system. The escalating structure of the
Andean Group's common external tariff and other arrangements within the group suggest that
certain sectors will retain significantly higher levels of protection and that others,
including export industries, will continue to be implicitly taxed by the trade régime.
Further liberalization, and a sustained attack on
anti-export bias, would imply moving away from the current policy of promoting selected
industrial groups and eliminating inter-sectoral distortions to a more neutral trade
régime. Such an approach would also be assisted by eliminating distortions provided
through inexpensive inputs, especially under-priced fuels and other refined petroleum
products. Greater reliance on market prices and reductions in the State's rôle in the
economy, accompanied by changes to the investment régime, would go a long way to
generating a more resilient economy and solid export base.
report Back to top
TRADE POLICY REVIEW BODY: VENEZUELA
Report by the Government - Summary Extracts
Venezuela is a country endowed with great natural
wealth; its vast petroleum, mineral, hydroelectric and other resources have made it a
power in the energy sector in the Americas.
The present world economic situation, characterized
by globalization and internationalization of economies, has obliged Venezuela to reorient
production activity and redefine its trade policy.
Since early 1989, it has been extremely active in
the area of trade policy, including in particular full participation in the multilateral
trading system through its accession to GATT in 1990 and subsequent membership of the
World Trade Organization (WTO) in January 1995.
It has intensified trade integration with its close
neighbours, consolidating the Customs Union of the Andean Group (Cartagena Agreement), and
concluding free trade agreements with Colombia, Mexico (Group of Three) and the Central
American countries (Trade and Investment Agreement). It has also concluded a
"lopsided" free trade agreement with the Caribbean Community, as well as a
number of bilateral trade agreements with Caribbean countries.
In addition, the Latin American integration process
has been speeded up (agreements with Chile, Brazil and Argentina), and there has been
concrete progress in setting up the Free Trade Area for the Americas.
During the next few years, Venezuela will pursue its
policy of negotiation and opening up of trade so as to establish a broader economic area
that will enhance the competitiveness of its economy internationally.
Economic and trade environment
The period beginning in 1989 was one of structural
reform and adjustment for Venezuela. It marked the launching of the Government's
adjustment and stabilization programme, aimed at attenuating the financial, monetary,
exchange and balance-of-payments imbalances that affected the country's economic growth
and its ability to penetrate foreign markets.
The new focus of economic policy was mainly on
opening up the economy to the outside, promoting greater diversification of exports and
private investment in order to stimulate increased production, and redefining the State's
As a result of the economic policy measures adopted,
economic activity shrank by 8.6 per cent that year. On the supply side, this was mainly
due to increased costs resulting from a lower exchange rate, and, on the demand side, to
stagnation in domestic markets as a result of the surge in inflation, which increased by
81 per cent following the liberalization of prices and unification of the exchange rate.
The decline in domestic activity in turn had a negative impact on employment levels and
resulted in an unemployment rate of 9.7 per cent.
Between 1990 and 1992, despite political
difficulties that led to an unstable social climate and the global economic crisis that
was mainly reflected in lower prices for Venezuela's major exports (petroleum, aluminium,
steel, coal and chemicals), the structural adjustment programme and the economic reforms
implemented since 1989 were intensified in order to move ahead with economic development.
Action was therefore taken to speed up the opening of the economy, promote political and
administrative decentralization, meet social commitments, and enhance democracy,
privatization and the balanced management of public finances.
The privatization policy is a key instrument of
economic policy and focuses mainly on the promotion of investment so as to revitalize the
production of goods and services in a number of State-owned companies. Since 1989,
Venezuela has transferred 29 enterprises and other assets, bringing in US$2.4 billion as
the proceeds of transparent operations. In addition to the income yielded, these
operations represent the transfer of 44,000 jobs to the private sector and a saving on
operating costs and investment that would have had to be met by the State if it had
With regard to the performance of macroeconomic
variables over this period, it can be noted that between 1990 and 1992 the gross domestic
product (GDP) increased at an annual rate of 6.5 per cent, 10.4 per cent and 6.8 per cent,
respectively. The main reason for the slowing down in 1992 was the 1.9 per cent drop in
GDP in the oil sector as a result of slacker demand; consumer needs were satisfied through
higher utilization of stocks by industrialized countries and there was excess supply of
crude on the international markets, thus affecting price levels, which fell to an average
After four years of the adjustment programme,
political and social instability delayed the implementation of some of the planned
reforms, especially those related to the financial system and to the fiscal sector and the
Government's search for increased revenue in order to finance the high fiscal deficit and
continue to combat inflation.
The transitional Government of Ramón J. Velásquez,
using the special powers granted by the Congress of the Republic, therefore introduced a
Value Added Tax at the end of 1993, as an important measure for obtaining fiscal resources
and financing the deficit.
The tax was subsequently abolished by Rafael
Caldera, when he became President of the Republic, and replaced by a tax on wholesale
sales and luxury goods, so as not to tax consumers directly.
The difficulties encountered in implementing these
reforms inter alia contributed to the most serious crisis ever experienced by the
financial system, which reached a peak in early 1994. The monetary assistance provided by
the Government to counter the inability of financial entities to meet their liabilities
with the public drove up Venezuela's budgetary and external deficits, putting increasing
pressure on its international reserves. This led the National Executive to take emergency
measures to curb the pressure on price levels and exchange rates, and in mid-1994 it
adopted exchange controls and price controls for basic goods.
At the same time, an emergency fiscal plan, known as
the Sosa Plan, was implemented to reduce the high fiscal deficit that was aggravated by
the Government's debt with the Central Bank of Venezuela. The Plan included a number of
tax reforms and as well as a tax on business assets and bank debits for a period of only
As a result, in 1994 economic activity shrank by 3.3
per cent and inflation reached 70.8 per cent (nevertheless lower than in 1989) while the
fiscal deficit remained at the same level, as the reforms had not yet started to take
It is expected that gross domestic product will
increase by less than 1 per cent in 1995, mainly as a result of activity in the oil
sector, which should offset the decline in domestic production. Cumulative inflation up to
October 1995 was around 40 per cent, lower than in 1994, as a result of higher (non-oil)
domestic tax revenues, and pegging the exchange rate at Bs 170/US$, the level prevailing
when exchange controls were introduced. The open unemployment rate was 11 per cent during
the first half of 1995, which is a reasonable figure taking into account the scale of the
financial crisis in Venezuela in 1994 and its adverse impact on domestic production.
The maintenance of a fixed exchange rate has led to
significant real appreciation of the bolivar and continuing pressure on the level of
operational reserves, which in November amounted to US$4.5 billion, a figure which the
Central Bank of Venezuela has fixed as the minimum. Nevertheless, restrictions on free
convertibility have not hindered trade flows; on the contrary there was a 25 per cent
increase in Venezuela's imports from the rest of the world between 1994 and 1995.
The improvement in the Government's tax revenue
under the Integrated Tax Administration Scheme (SENIAT), together with programmes to
reduce Government spending, have brought down the fiscal deficit, which it is hoped will
provide a clear signal of the Government's intention to restore public financial balance.
Nevertheless, during all these years of recession,
recovery and subsequent recession, foreign trade results have been positive. Oil exports
peaked in 1991 and then fell between 1992 and 1994, only to recover again in 1995.
The salient feature in this area is the trend in
non-traditional exports, i.e. other than oil and iron ore, which grew at an annual average
rate of 6.2 per cent between 1989 and 1994, from US$2,994 million in 1989 to US$4,580
million in 1995. This trend shows the important diversification both of products exported
by Venezuela and also of its markets, with Colombia taking over the first place previously
occupied by the United States.
It should be emphasized that 66 per cent of these
exports are generated by the private sector, thus diminishing dependence on exports of raw
materials by State enterprises.
This performance is the result of the orientation of
the trade policy pursued, which focuses on promoting non-traditional exports and
intensifying participation in integration schemes and international negotiations.
The macroeconomic imbalances mentioned above mean
that an adjustment programme has to be adopted to restore the macroeconomic balances and
thus allow a sustained process of growth to begin from 1996 onwards, primarily based on
private initiative and outward-looking growth. The Government is therefore negotiating a
comprehensive adjustment programme with the International Monetary Fund that includes the
following priorities: gradual reduction of the fiscal deficit; more flexible exchange
controls; strengthening of the financial sector; structural reform of the social security
system; expanded social programmes; reactivation of production; extension of the
competitive price system; new interest rate policies; job training; reform of public
administration; and privatization.
Trade policy developments 1990-1995
During the period 1990-1995 Venezuela's trade policy
was implemented along the lines laid down in Decree No. 239 of 30 May 1989, which fixes
the rules for trade policy.
Decree No. 239 establishes the following measures inter
alia: tariff reform; the abolition of para-tariff restrictions; more flexible
administrative procedures for exports; the establishment of mechanisms to deal with unfair
competition; the outline of an integrated export promotion policy; adaptation of the
commitments undertaken within the Andean Group; and Venezuela's accession to GATT.
During the first two years of implementation of the
aforementioned Decree, important results were achieved in the area of trade policy.
Firstly, the customs tariff was thoroughly overhauled, bringing down the tariff ceilings
from 40 per cent to 20 per cent by 1992 and fixing four tariff levels, based on the degree
of processing of the goods concerned, of 5 per cent, 10 per cent, 15 per cent and 20 per
cent, with a few exceptions at 35 per cent for automobiles. Non-tariff restrictions on
imports were also reduced to a minimum, leaving only those allowed under the General
Agreement on Tariffs and Trade for the protection of human, animal and plant health,
public morals, the environment, security or national defence.
One fundamental aspect of Venezuela's trade policy
has been the emphasis on multilateral and bilateral negotiations and trade integration,
with the objective of broadening access to international markets, especially Latin
American markets, for Venezuelan products. Actions taken in this regard include
Venezuela's participation in the Uruguay Round negotiations and its accession to the World
Trade Organization as an original member, the consolidation of the Cartagena Agreement,
the signing of the Group of Three Agreement, participation in initiatives for the Summit
of the Americas and other action within the Latin American integration scheme, for
example, the signing of a Free Trade Agreement with Chile and Economic Complementarity
Agreements with Brazil, Argentina, Central American countries and the Caribbean Community.
For Venezuela, the successful conclusion of the
Uruguay Round was of extreme importance because if this complex round of negotiations had
failed the future of the multilateral trading system would have been shrouded in
uncertainty, and it would have been more difficult to halt the protectionist trends and
unilateralism in world trade practised by some countries or groups of countries, which
have a negative effect on developing countries in particular.
Venezuela is confident that implementation of the
results of the Uruguay Round, which it believes are globally positive, will lead to more
stable, reliable and predictable trade conditions based on the opening of markets and the
strengthening of multilateral trade rules and disciplines. Of particular importance to
Venezuela are the improvements made to the GATT dispute settlement mechanism, which
Venezuela has invoked on several occasions. The systems's effectiveness has been
reinforced by the automatic adoption of panel reports and the possibility of having
recourse to the Appellate Body, whose conclusions and recommendations will be binding.
These aspects are all of particular importance to
Venezuela, especially since its trade relations have greatly expanded in recent years. As
part of the process of adjusting to the new circumstances of the global economy,
Venezuela's participation first of all in GATT and then in the WTO is deemed to be an
element of the utmost importance in a development strategy that includes the promotion of
production sectors, growth of non-oil exports and modernization of Venezuela's legal
framework for foreign trade. In December 1994, the Congress of the Republic ratified the
Agreement Establishing the WTO, thus underlining the importance Venezuela attaches to this
During this period, considerable headway was made in
consolidating the Andean integration scheme. In 1992, despite the temporary withdrawal of
Peru from all commitments relating to the free-trade area and the customs union, the
liberalization programme for automatic tariff and para-tariff reduction was fully
implemented. Ecuador's full membership of the free-trade area gave a boost to the
consolidation of the Andean Group. A bilateral agreement was concluded with Peru on free
trade in a large number of products on both sides, covering almost 80 per cent of
In addition, the following specific measures were
adopted with a view to strengthening the integration process: adoption of a Common
Industrial Property Regime; regulation of Andean Policy on the Elimination of Cargo
Reservations; regulation of the Andean Open Skies Policy; adoption of the Andean Rules on
Customs Valuation; establishment of the Andean Rules on Customs Transit; adoption of
Andean Regulations on Livestock Health; and elimination of export subsidies for trade
within the subregion.
Subsequently, in 1994, the Andean Group's Common
External Tariff (AEC) entered into effect, marking an important step forward to a more
advanced stage of integration, as well as enhancing the transparency in trading and
providing further opportunities to increase trade and investment. In addition, the AEC
gives Andean countries a stronger negotiating position vis-à-vis third countries.
It was also agreed to abolish, as of 1 January 1996,
the use of special customs regimes in trade within the subregion, so as to prevent
distortions in the customs union.
In the agricultural sector, the Andean System of
Agricultural Price Bands was established with the aim of stabilizing the import costs of a
specific group of agricultural products characterized by highly unstable prices.
The progress made in the Andean integration process
has meant that relations with Andean countries in the areas of trade and investment are
highly satisfactory. Venezuelan non-oil exports to member countries of the Andean Group in
1994 accounted for 31 per cent of its total exports, making them the biggest customer for
Group of Three
In 1990, Venezuela, Colombia and Mexico initiated
negotiations on an Economic Complementarity Agreement that would lead to the establishment
of a free-trade area. On 1 January 1995, the Free Trade Agreement of the Group of Three
entered into force, marking an important step forward in economic relations among the
signatories and for the future of the Latin American integration processes.
The Agreement is not confined to trade in goods but
is much broader and more ambitious. It covers other important areas of the economy, such
as the so-called new subjects in international trade, orienting and regulating relations
among the Group of Three in the areas of trade in services, investment and intellectual
property. When the current negotiations on services and investment have been concluded,
the entire Agreement will be notified to the WTO.
Participation in the Latin American Integration
Venezuela's participation in the Latin American
integration scheme took a number of forms:
(a) Economic Complementarity Agreement with Chile:
On 2 April 1993 an Economic Complementarity Agreement was signed with Chile; it entered
into force in July 1993, with the objective of establishing an extended economic area
within a period not exceeding six years.
The Agreement provides for the gradual and
differentiated liberalization of tariffs according to the sensitivity of the production
sectors in both countries. It contains a list of products subject to an accelerated
tariff-cutting process that will end in 1996, a list of products subject to a slower
tariff-cutting process to end in 1999, and a list of exemptions for products considered to
be especially sensitive.
Special mention should also be made of the
agreements on investment and maritime transport, under which national treatment will be
applied to investment by the other country and access to cargo will be free.
(b) Trade and investment agreements with the
Central American countries and the Caribbean Community: The objective of these
agreements is to strengthen Venezuela's cooperation with these countries. Under the
agreement with the Caribbean Community, which was signed in October 1992 and entered into
force on 1 January 1993, Venezuela grants non-reciprocal trade preferences.
Concerning the Central American countries, the first
stage was completed in 1992 and consisted of special treatment for exports from these
countries. Subsequently, in early 1993, a Framework Agreement on Trade and Investment was
signed providing for negotiations on a free-trade area among Venezuela, Colombia and the
five member countries of the Central American Common Market, but they have not yet been
(c) Economic Complementarity Agreements with
Brazil and Argentina: In 1992, the various trade agreements with Argentina within the
framework of LAIA were combined in a single legal instrument, Economic Complementarity
Agreement No. 20. Subsequently, in 1993, the existing preferences were improved and the
number of products covered by the Agreement and thus subject to preferential treatment in
trade between the two countries was increased.
Economic Complementarity Agreement No. 27 with
Brazil was renegotiated in 1994 so as to improve the existing preferences and increase the
number of goods benefiting from preferential treatment.
Summit of the Americas
Venezuela's trade relations with North America have
been important historically. For many years, the United States has been the main market
for Venezuela's exports and, as in the case of Mexico and Canada, is potentially the major
recipient of Venezuelan products in the Americas. This relationship, together with
Venezuela's rapprochement and trade links with the Caribbean, Central America and Latin
America, is an essential part of our foreign trade policy.
The initiatives taken to establish a Free Trade Area
of the Americas (FTAA) by the year 2005 are consistent with Venezuela's integration
objectives. In December 1994 the principles for the creation of the FTAA were laid down at
the Summit of the Americas and since then the governmental bodies in Venezuela responsible
for foreign trade relations have given priority to work in this area so as to ensure that,
in accordance with the timetable fixed, the bases can be laid for negotiating an area free
of trade barriers in the Americas, so that we will be able to increase our production
capacity and strengthen trade relations with other countries of the continent.
Outlook for foreign trade
Venezuela's trade strategy focuses on the following
three main spheres of action: (i) multilateral action in the broadest sense, for example,
participation in the World Trade Organization; (ii) regional action in Latin America and
the Caribbean; (iii) bilateral action with its main trade partners: the United States, the
European Union and Japan.
Participation in the recently established WTO
implies a serious commitment on the part of all its members as well as practical
involvement in the activities of this important Organization by all government authorities
and economic actors concerned with the various issues dealt with in the Organization. This
is why one of the priorities of Venezuela's trade strategy is to foster awareness at all
levels within the country both of the commitments undertaken by Venezuela in each of the
agreements, so as to prevent any possible non-compliance, as well as of the rights under
the agreements so as to benefit from them.
In addition, Venezuela's strategy will focus on
adequate preparation for the programme of future negotiations, in regard both to the
review and monitoring of the practical implementation of the agreements, and to the new
issues that emerged at the end of the Uruguay Round negotiations and will be on the WTO'S
Integration in the Americas
Since the Summit of the Americas held in Miami in
December 1994, Venezuela has played an active role in the whole initial negotiating
process with the aim of supporting action that it is hoped will lead to the establishment
of the Free Trade Area for the Americas by the year 2005.
Latin America and the Caribbean
The establishment of trade links and agreements with
countries and groups of countries in Latin America is also a priority for Venezuela. It
intends to intensify intra-regional cooperation not only in trade but also in other areas
according to its geographical, economic and cultural affinities. It also supports the
definition of geopolitical and geoeconomic areas based on common identity features.
With the Andean Group, it will promote further
integration in the subregion with the aim of harmonizing the macroeconomic policies of the
member countries and deciding upon joint action in international negotiations. With
MERCOSUR, it is taking part in talks to initiate negotiations on a free trade agreement in
coordination with other Andean Group countries. It will also take further steps to improve
the free-trade area with Chile.
Venezuela also intends to pursue its cooperation
with countries in the Caribbean Basin and will strengthen links with them. In early 1996,
the Trade and Investment Agreement between Venezuela and the Caribbean Community will be
reviewed to monitor its functioning and strengthen it.
Venezuela will continue its cooperation activities
within the recently established Association of Caribbean States (ACS), which includes all
Caribbean Basin States, bringing together countries of Central America, South America and
the Caribbean islands.
It is hoped that negotiations on the Free Trade
Agreement with the Central American countries will be finalized in 1996, thus
consolidating trade relations with this region.
Bilateral trade relations with other partners
Action will be taken at the bilateral level to
strengthen existing links with Venezuela's trade partners and thus derive greater
advantages from the possibilities offered by these countries in the areas of trade
cooperation and investment. Back to top
(1)Members of the Andean Group
include Bolivia, Colombia, Ecuador, Peru and Venezuela.