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TITLE:  VENEZUELA ECONOMIC POLICY AND TRADE PRACTICES
DATE:  FEBRUARY 1994
AUTHOR:  U.S. DEPARTMENT OF STATE

                            VENEZUELA

                     Key Economic Indicators
        (Billions of bolivars (Bs) unless otherwise noted)

                                   1991     1992*     1993**
Income, Production,
 and Employment

GDP                               3,037.5   4,132.3   5,702.6
Real GDP Growth (pct.)              9.7       6.8       1.0
GDP by sector:
  Manufacturing                     503.4     677.6     940.0
  Agriculture                       151.1     197.5     265.0
Real Per Capita Income (Bs)       26,526    27,687    27,284
Labor Force (000's)                7,400     7,500     7,700
Unemployment Rate                   8.7       7.6       8.2


Money and Prices

M1 (Dec. 31) (Bs billion)           365.7     396.0     475.0
Commerc. Lending Rate (pct. avg.)  37.7      42.1      57.9
Savings Rate (Percent of GDP)      14.8      10.3       9.2
Investment Rate (Percent of GDP)   15.4      18.1      17.0
CPI (1984=100)                    717.7     943.3     1,294.2
WPI (1984=100)                    718.9     888.3     1,209.9
Market Exchange Rate
 (Bs/$ at Dec. 31)                61.7      79.6      107.0


Balance of Payments and Trade
 (millions of U.S. dollars)

Total exports (FOB)               14,968    13,955    14,100
  Total exports to U.S. (C.V.)     8,177     8,168     9,000
Total imports (FOB)               10,131    12,266    12,150
  Total imports from U.S. (FAS)    4,596     5,438     5,600
Aid from U.S.                         0         0          0
Aid from other countries            n/a       n/a        n/a
External public debt              26,517    27,105    28,500
Annual debt service payments       3,023     2,267     3,200
Gold and FOREX reserves           14,105    13,100    11,900
Balance of payments                3,183    -1,139    -1,500


*   Preliminary figures as of 10/27/93.
**  Embassy forecasts.



1.  General Policy Framework

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

    Venezuela encourages foreign investment in most sectors. 
The bulk of foreign investment is from the United States.  The
United States is Venezuela's chief trading partner, accounting
for 59 percent of Venezuelan exports and 44 percent of its
imports in 1992.

    Venezuela had rapid economic growth in 1991 and 1992 after
tough austerity measures were implemented in 1989 and 1990. 
Real GDP grew 6.8 percent in 1992, principally driven by a 8.6
percent increase in the non-petroleum sector, and is expected
to expand by one percent in 1993.  The government recorded a
fiscal deficit of about six percent of GDP for the consolidated
public sector in 1992 and is expected to remain about the same
in 1993.

    Monetary policy continues to reflect the fundamental
objectives fixed by the government at the beginning of 1989,
which are to reduce inflation, maintain positive interest
rates, and ensure a competitive exchange rate.  In 1993, the
Central Bank began an aggressive program to control liquidity. 
For the first six months of the year, M2 grew by 8.4 percent,
versus 18.4 percent in 1992.  Liquidity expansion was reduced
in 1993 due to a more aggressive Central Bank program which
increased sales of short-term bills (zero coupon bonds).  For
the first six months of the year, M2 grew by 8.4 percent.

    Prices increased 32 percent in 1992, only slightly higher
than the 31 percent recorded in 1991.  However, during 1993,
there has been a sharper upward trend; inflation is estimated
to reach 41 percent for the entire year.

    The Caracas Stock Exchange recorded substantial gains in
1990 and 1991; the broad market index climbed by 64 percent in
1991.  It fell by 32 percent during 1992.  In 1993, the index
has demonstrated volatility but has shown little recovery since
year end 1992.  Several private sector firms trade their shares
as American Depositary Shares in several markets.


2.  Exchange Rate Policies

    The Venezuelan Government unified the exchange rate on
March 13, 1989.  The Central Bank of Venezuela intervenes in 
the exchange market to correct abrupt fluctuations, but its
stated policy is that the exchange rate will remain competitive
and be set by market forces.  In 1992, the bolivar fell by 20.0
percent against the dollar to close the year at 79.6 bolivars
to the dollar.  During the January-September 1993 period, the
bolivar depreciated 23 percent and closed at Bs 98.0/$ 1.0. 
(Inflation was 29.3 percent over the same period.)

    The Central Bank's international reserves increased
substantially during the first three years of the economic
adjustment program.  They climbed from $7.5 billion at the end
of 1989 to $14.1 billion at the end of 1991.  However, for
1992, a decrease of $1.1 billion was registered, and the year
end total was about $11.9 billion.  With the advent of exchange
unification, prior exchange authorizations and preshipment
inspections have been eliminated.


3.  Structural Policies

    The Perez Administration eliminated price controls on most
goods and services early in 1989.  Price controls remain in
effect only on public transportation and basic pharmaceutical
products.  Government producer subsidies have also been
eliminated.

    A major income tax reform, designed to lower tax rates and
ultimately increase revenues by reducing widespread tax
evasion, entered into force on September 1, 1991.  The maximum
tax rate for individuals and corporations fell to 30 percent. 
After more than three years of discussion by Congress, a
value-added tax was finally approved, entering into force on
October 1, 1993, at the wholesale and import level and
extending through the retail level on January 1, 1994.  With
this step, Venezuela has embarked on a process to reform its
tax system.  Joint ventures with the state oil company, PDVSA,
for the development and refining of heavy and extra-heavy
crudes and the development and processing of unassociated
natural gas are excluded from the special tax of 67.7 percent
and, therefore, are subject to the 30 percent rate; however,
these two categories are still subject to the export reference
value which is currently set at 16 percent but will be
gradually reduced to zero by 1996.

    Foreign corporations operating in Venezuela receive tax
treatment as Venezuelan firms.  Venezuelan export-oriented
firms receive preferential tax credits and credit access; 
producers and purchasers of locally-produced capital goods
receive investment tax credits.  In order to stimulate the
formation of a "maquiladora" export industry, the government
has eliminated taxes and duties on imported goods used in the
production of exports.  Non-residents pay a ten percent tax on
hotel rooms and lodging.

    The Venezuelan tariff schedule has been substantially
liberalized, and quantitative restrictions have been almost
completely removed (prohibitions remain on used cars, used
clothing and used tires).  On January 1, 1992, tariff rates
were reduced to a maximum of 20 percent in order to be
harmonized with the Andean Pact Common External tariff. 
Sensitive agricultural products (milk, meat, rice, wheat, 
feedgrains, oilseeds, and sugar) are subject to a price band
system which imposes a variable surcharge in addition to the
duty when the futures market for these commodities drops below
trigger prices.  In addition, the Venezuelan tariff legislation
permits the duty to be increased by 60 percent (e.g., from 20
percent to 32 percent) should the Economic Cabinet determine
that import of these products pose a particular threat. 
Customs duty collections have increased as a result of tariff
exemptions and exonerations.  Venezuela acceded to the General
Agreement on Trade and Tariffs (GATT) on September 1, 1990.


4.  Debt Management Policies

    In December 1990, the government and the commercial banks
closed a deal which reduced the debt and debt service
obligations on $19.8 billion within the context of the Brady
Plan.  The deal reduced principal by $2 billion, cut interest
payments by approximately $470 million per year, raised $ 1.2
billion in new money, and obtained more favorable repayment
terms for the remaining debt.

    As of December 1992, Venezuela's public sector external
debt totaled $28.5 billion, or almost 55 percent of GDP.  In
1992, Venezuela's debt service payments totaled $2.3 billion or
16.2 percent of total exports.

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


5.  Significant Barriers to U.S. Exports

    Import License Requirements:  Overall, the entry of imports
has been freed considerably.  Import license requirements have
been removed pursuant to the government's reform program. 
Sanitary certificates from the Ministries of Health (Nota 3),
Agriculture (Nota 6), or country of origin (Nota 5) are
required to import certain agricultural products and
pharmaceuticals.  The Nota 6 requirement is used aggressively
by the Ministry of Agriculture, in effect banning U.S. poultry
and pork imports.

    Service Barriers:  Foreign equity investment in insurance,
television, radio, Spanish language newspapers, and all
professional services subject to licensing is limited to 20
percent.  A comprehensive package to reform the financial
sector was introduced into the Congress in July 1991.  New
banking legislation, which is expected to enter into force on
January 1, 1994, would allow foreign financial institutions to
open branches, establish fully owned banks, and acquire shares
of existing institutions.  Separate legislation which would
allow foreign participation in the insurance/reinsurance sector
remains pending before the Congress.

    Standards, Testing, Labeling and Certification:  The new
Consumer Protection Law, which went in to effect in May 1992,
contains provisions regulating labeling.  All goods placed on
sale must bear a label indicating price to the public and
expiration date (where appropriate).  In the event of future
price increases, goods in stock with previous price labels must
be sold at no more than the prior price.

    Investment Barriers:  In February 1992, the Venezuelan
Government issued Executive Decree 2095 liberalizing foreign
investment rules.  The Decree grants national treatment to
foreign investment and allows total foreign ownership of
companies engaged in retail sales, telecommunications, and
water and sewage services (all formerly reserved to national
companies) and eliminates barriers to dividend and capital
repatriation.  The Decree strips the Superintendency for
Foreign Investment (SIEX) of discretionary authority in
registering foreign investment.  Foreign companies may
establish branches without prior approval from SIEX.  Prior
approval by SIEX for trademark and patent licenses,
distribution agreements, technical know-how, and technical
assistance agreements has also been eliminated.

    In the petroleum sector, the exploration, exploitation,
refining, transportation, storage, and foreign and domestic
sales of hydrocarbons are reserved to the Venezuelan Government
or to its entities.  When in the public interest, the
government may enter into agreements with private companies as
long as the agreements guarantee state control of the
operation, are of limited duration, and have the previous
authorization of the legislature meeting in joint session.

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

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

    Government Procurement Practices:  A new Government
Contract Law (Ley de Licitaciones) was passed by the Congress
on July 20, 1990.  The Government of Venezuela may procure
goods and services in three ways:  (1) for goods and services
estimated to cost over ten million bolivars and construction
works estimated to cost more than 30 million bolivars, general
tender is required (Article 29); (2) for goods and services
estimated to cost between one million and ten million bolivars,
for construction works estimated to cost between ten and 30
million bolivars, and where the national registry certifies
that there are no more than ten companies technically and
financially qualified to provide the goods or perform the
service or construction, then a selective tender process may be
used (Article 32); (3) for goods and services estimated to cost
less than one million bolivars, the contract may be awarded
directly (Article 33).
        
    Article 47 of the Law, which applies to both the general
and selective tender procedures, provides that "for the
selection between offers that are within a reasonable range,
those in which the following conditions prevail are preferred: 
(1) have the greatest participation by national engineering and
technology; (2) incorporate the greatest national human
resources at all levels, including management; (3) have the
greatest national value added or incorporation of national
parts or inputs; (4) have the greatest national participation
in the company's capital; (5) possess the "Norven" quality
control mark (issuance of the mark is governed by the quality
control and normalization law); (6) have the best conditions
for the transfer of technology; (7) strengthen small- and
medium-sized companies and cooperatives; and (8) in which the
bidder operates in an area or region where the bid was let or
in the place where the public work is to be constructed, the
service performed, or the supply rendered and which performs in
that region or area permanent economic activities."

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

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

    Customs Procedures:  Customs clearance procedures are time
consuming, and delays can occur if documents are not in order. 
The Government of Venezuela is in the process of reforming
customs procedures and privatizing the ports.  The government
has said it will join the GATT Customs Valuation Code.


6.  Export Subsidies Policies

    Venezuela has revised its export incentive regime.  The
export bonus was eliminated on June 15, 1991, for all exports
of manufactured goods.  A joint resolution of the Foreign and
Finance Ministries, published in Official Gazette 34,735 dated
June 13, 1991, lists those agricultural products for which the
credit is still available.  A credit against tax of one percent
is provided for certain agricultural items whose national value
added is from 30 to 98 percent.  For goods whose value added is
from 99 to 100 percent, a credit of ten percent of
free-on-board value is available.

    The government has established a duty drawback system as a
partial replacement for the export bond program.  (Note: The
partial drawback system will be eliminated with the reform of
the Regulation to Venezuela's Organic Customs Law.)  Article
363 of the Organic Customs Law defines the drawback as a
rebate, whether whole or partial, of the import taxes paid on
the exported merchandise or on the material used in the
production of the merchandise.  Exporters who want a full
rebate must submit documents showing the customs declaration
for importation of the inputs.  Those willing to accept a
partial rebate need show no proof of duties on inputs.  Decree
780, published in Official Gazette of May 20, 1990, sets the
partial rebate at two percent of those exports processed under
one of the special export regimes, such as the temporary
admissions (maquila), stock replenishment and customs
warehousing programs.  The partial rebate is set at five
percent for all other exported items.  The United States has
consulted with the Government of Venezuela concerning export
subsidies that may be inconsistent with GATT.


7.  Protection of U.S. Intellectual Property

    Venezuela is a member of the World Industrial Property
Organization (WIPO) and is a signatory to the Bern Convention
for the Protection of Literary and Artistic Works, the Geneva
Phonograms Convention, and the Universal Copyright Convention. 
Venezuela's Economic Cabinet has approved a measure for
Venezuela to join the Paris Convention on Intellectual Property
Rights protection as well as the Patent Cooperation Treaty
(PCT).

    Venezuela was placed on the U.S. Trade Representative's
"Watch List" as a result of an assessment required by Section
301 of the 1988 Omnibus Trade and Competitiveness Act.

    While Venezuela's intellectual property rights (IPR) regime
has traditionally tended to protect national industries and
firms, recent changes are taking place which may benefit U.S.
and other foreign firms by improving IPR protection.  On
October 1, 1993, a new copyright law entered into force which
strengthens copyright protection, including software protection
and enhanced sanctions.  The Andean Pact recently passed
decision 344 on patents and trademarks and 345 on plant
varieties.  The United States began negotiations with Venezuela
toward a bilateral IPR agreement in October 1992.

    Patents:  Under Venezuela's national law, a patent must be
worked within two years or it expires.  Working a patent
requires domestic production of the patented product and
importation does not satisfy the working requirement.  Few
patents have been enforced under the present law.

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

    Copyright:  Venezuela's new copyright law protects all
inventive works, including computer software.  Computer
software and videotape piracy are still common.

    The International Intellectual Property Alliance (IIPA)
estimated that total losses in 1992 due to inadequate copyright
protection in Venezuela was approximately $82 million.  This
figure includes losses in the areas of motion pictures,
videotapes, computer software and sound recordings.  It does
not include losses due to patent and trademark counterfeiting
and piracy.


8.  Worker Rights

    a.   The Right of Association

    Both Venezuela's Constitution and its labor law recognize
and encourage the right of unions to exist.  The comprehensive
labor law enacted in 1990 extends to all public sector and
private sector employees (except members of the armed forces)
the right to form and join unions of their choosing.  There are
no restrictions on this right in practice and no special rules
or laws governing labor relations in export processing zones. 
One major union confederation, the Venezuelan Confederation of
Workers (CTV), and three small ones, as well as a number of
independent unions, operate freely in Venezuela.  About 25
percent of the national labor force is unionized.

    b.   The Right to Organize and Bargain Collectively

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

    c.  Prohibition of Forced or Compulsory Labor

    There is no forced or compulsory labor in Venezuela.  The
1990 labor law stated that no one may "obligate others to work
against their will."

    d.   Minimum Age for Employment of Children

    The 1990 labor law allows children between the ages of 12
and 14 to work if given special permission by the National
Institute for Minors or the Labor Ministry.  Children between
the ages of 14 and 16 can work if given permission by their
legal guardians.  Minors may not work in mines, smelters, or in
occupations "that risk life or health," in occupations that
could damage intellectual or moral development, or in "public
spectacles."  For those under 16, the work day may not exceed
six hours or the work week, 30 hours.  Minors under 18 can work
only during the hours between 6 a.m. and 7 p.m.

    e.   Acceptable Conditions of Work

    Venezuela has a national urban minimum wage rate ($90
monthly) and a national rural minimum wage rate ($60 monthly). 
(To this should be added mandatory fringe benefits that vary
with the workers' individual circumstances but, in general,
would increase wages by about one-third.)  Only domestic
workers and concierges are legally excluded from coverage under
the minimum wage decrees.  The 1990 labor law reduced the
standard work week to a maximum of 44 hours.  Overtime may not
exceed two hours daily, ten hours weekly, or 100 hours annually
and may not be paid at a rate less than time-and-a-half. 
Sundays are declared to be holidays, and those who must work on
Sundays are entitled to a full day of rest during the following
week.  The 1990 labor law stated that employers are obligated
to pay specified amounts (up to a maximum of 25 times the
minimum monthly salary) to workers for accidents or
occupational sicknesses regardless of who is responsible for
negligence.  It also declared work places must maintain
"sufficient protection for health and life against sicknesses
and accidents," and it imposed fines from one-quarter to two
times the minimum salary for first infractions.

    f.  Rights in sectors with U.S. investment

    Labor rights and conditions of work in sectors in which
there is U.S. investment are provided the same protection as
other workers.  In many cases, the wages and working conditions
for those in U.S.-affiliated industries appear to be better
than average.



         Extent of U.S. Investment in Selected Industries

              U.S. Direct Investment Position Abroad
                on an Historical Cost Basis - 1992
                    (millions of U.S. dollars)

Category                                    Amount

Petroleum                                               179
Total Manufacturing                                   1,069
    Food & Kindred Products                   163
    Chemicals and Allied Products             252
    Metals, Primary & Fabricated               45
    Machinery, except Electrical                D
    Electric & Electronic Equipment            38
    Transportation Equipment                  288
    Other Manufacturing                         D
Wholesale Trade                                         175
Banking                                                   D
Finance and Insurance                                   111
Services                                                 30
Other Industries                                          D

TOTAL ALL INDUSTRIES                                  1,725



(D)-Suppressed to avoid disclosing data of individual companies

Source:  U.S. Department of Commerce, Bureau of Economic
Analysis.

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