Chapter 3: Selling U.S. Products and Services

Using an Agent or= Distributor &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

A commissioned sales agent, or manufacturer's representative, finds customers, passes the order to the foreign company and receives a commission on the sale.

The amount of commission will vary between 5 percent and 30 percent depending on the nature of the product and the amount of work or time required by the agent. Commissions are establ= ished by negotiation and not by legal stipulations.

Where there are multiple levels of customers, employing an agent may be the most practical and efficient means of covering the market. Wholesalers or stocki= ng distributors often have minimal outside sales forces, and rely instead on advertising and on walk-in customers or buyers. Having a distributor may be important where strong after-sale support is needed for the product. <= /o:p>

Venezuelan companies at any step in the distribution chain tend to place repeated small orders. Foreign company requirements as to minimum orders, or even minimum annual sales, may meet with resistance from prospective distributors or age= nts.

Venezuela has no particular laws or regulations to protect a local agent. There are no legally binding indemnification requirements. The written agreement in all principal-agent, supplier-distributor arrangements is binding. It is common practice to have medium-term trial agreements with clear performance object= ives when entering new business relationships.

Placing a Venezuelan citizen on a company's payroll can be costly in case of separation, since separated employees are entitled to benefits provided thr= ough the local labor laws. A minimum wage is set annually by government decree. Absent unusual circumstances, commissioned agents are not considered employees.

There are numerous ways to find a business partner. The various Commercial Service services (such as the International Partner Search, Gold Key Service, Video Gold Key Service, ~~Screened~~ Contact Lists, Trade Missions, Catalog Shows and USDOC-Certifi= ed trade shows) are commonly used. Check the Commercial Section’s websit= e (http://www.buyusa.gov/venezuel= a/en/) for details on ~~these s~~services designed to assist U.S. companies to assess the Venezuelan market and to identify a distributor, agent, an= d/or representative.

Establishing an Office = ; &n= bsp; = ; &n= bsp; = ; &n= bsp; Return to top

A business must first be registered= , although = no previous authorization is required, with the Venezuelan Munici= pal "Commercial Registry" to be legally established. Foreign-owned businesses must be registered within 60 d= ays of incorporation with the Superintendent of Foreign Investment (SIEX). Registration with the Social Security System = and the National Institute of National Cooperation is = also compulsory. The opening and operating of a coordinating or reporting office is not considered foreign investment or business as long as the office neither sells nor receives financing from the home office overse= as. Under the Commercial Code, business enterprises can be registered as corpor= ations, as limited liability companies, as partnerships, as sole proprietorships, o= r as cooperatives.

Regi= stration itself is relatively fast and inexpensive, and U.S. companies should have a local attorney draft the registration documents. After registration documen= ts are prepared, a municipal business license has to be obtained, and this requires the payment of a quarterly tax. The final step in registration is obtaining the income tax registration number (RIF) from the Ministry of Finance. The RIF must be shown on all fiscal documents and bills and serves generally as the identification for the business entity.

Office space is widely available f= or rental or purchase, although prices, especially in the capital city Caracas, can be expensive. Foreign companies are permitted without restriction to purchase real estate, except for a restriction on a foreign national’s purchase of real estate within 50 km of~~from~~ the national border or in other areas where there are security sensitivities. Stan= dard lease contracts do not cover utilities. ~~There can s= till be a long wait to establish telephone services depending on the area of town a= nd the exchange being used.~~ Some office buildings do lease office space with at least one phone line, and cellular telephone service is widely available from several competitive providers.

Although general information is provided under this heading, U.S. companies should refer to Chapter 6 for m= ore detail.

Franchising = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Franchising is allowed under the existing foreign investment laws.

Franchise payments, royalties, pat= ent or technical assistance agreements must be registered with the Superintende= nt of Foreign Investment (SIEX). Certain payments for the use of franchised ri= ghts may be subject to withholding taxes. Decree 2095 guarantees the ability to remit funds for franchising rights, but dollar remittances are subject to t= he exchange controls now in effect.

~~From a mark= eting standpoint, franchises are more likely to succeedwill most likely be successful~~ ~~if they of= fer technology, products, or services not gene= rally available in the country.~~ ~~Franchising continues to provide promising investment opportunities.~~<= /o:p>

Venezuela’s franchise market, the third largest in Latin America (after Mexico and Brazil), suffered signific= ant fallout from Venezuela's economic crisis in 2003. However, a strong economic recovery in 2004 through ~~and~~ 20056 has generated strong gross rev= enues for many types of franchises. Since the late 90's, the growth of the Venezu= elan franchise sector has created an estimated 80,000 direct, and 160,000 indire= ct, employees.

Although the traditional turnkey franchise operation boom has cooled, the Venezuelan Franchise Association - Profranquicias - sees good prospects worldwide for building on or expanding the 40+ Venezuelan franchi= ses already operating overseas. This growth creates opportunities for U.S. providers of kitchen and bottling equipment, operational and management training, and many other ancillary products and services. =

Direct Marketing &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; <= span lang=3DEN style=3D'font-weight:normal'>Return to top

Dire= ct marketing is a common feature of everyday life in Venezuela.

Mark= eting, through TV commercials, newspaper inserts, house visits, or street vendors = is widespread. Mail advertising has been slower to develop because of postal system issues.

Plac= ing orders by phone for delivery by messenger is becoming more popular, and companies that offer this type of delivery have turned to placing their catalogs in newspapers.

As t= he telephone system expands, direct marketing by phone is expected to become m= ore common. Almost all businesses now use fax machines in their day-to-day busi= ness and many utilize e-mail.

Joint Ventures/Licensing &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; <= span lang=3DEN style=3D'font-weight:normal'>Return to top

Although general information is provided under this heading, U.S. companies should refer to Chapter 6 for m= ore detail.

Recent government actions have increased the minimum stakes the state must hold in the hydrocarbons sector, and the state has also recently bought out private sector interests in certain telecommunications and utilities businesses= .

There are restrictions in professional services (attorneys, medical services, CPAs, architects, etc.), which fall under the Law of Professions. Typically, foreign professionals wishing to w= ork in Venezuela must revalidate their professional credentials at a public Venezuelan university. This requirement, however, does not necessarily preclude providing consulting services under contract for a specific project.

Sellin= g to the Government &nb= sp; = &nb= sp; = &nb= sp; Return to top

Technically, the government’s purchase of goods and services is ruled by a system of laws, decrees and regulations. These include the November 13, 2001 = Law of Procurement (Ley de Licitacion= es), Decree 1.555, which applies to government purchases at any level of government.

Although Venezuelan procurement law and regulations encourage delivery of the best product or service for the lowest possible price to the Venezuelan taxpayer through a transparent and competi= tive process, many observers express concern that Venezuelan public procurement = has become less transparent and/or openly competitive over the last few years. = See Chapter 6. <= /span>

Ven= ezuelan government officials are not permitted to conduct official business in any language except Spanish. Correspondence in English is unlikely to get a response.

There is no single Venezuelan agen= cy in overall charge of government procurement which can provide guidance to fore= ign bidders or sellers. The purchasing agency within the Venezuelan government = unit – and the Commercial Service in the U.S. Embassy – are sources = of information to U.S. companies with no direct representation in Venezuela.

Tenders may be opened in one of three ways:

a) only to domestic companies

b) to domestic and foreign companies, or

c) exclusively to foreign companies.

In the case of public tenders open= to foreign bidders, it is sometimes stipulated that the foreign company, if it wins a tender, must form a consortium= with a domestic firm or have a local representative.

Anyone wanting to sell to a Venezuelan governmental agency is~~are~~ required to register in the National Register of Contractors, maintained by the Central Office of Statistics and Informatics. This National Register has “sub-registers,” normally found in all ministries and governmen= tal agencies that regularly purchase goods or services. A Labor So= lvency certificate is also required to do business with the government or with a parastatal company.

If tenders are opened on an international level with only foreign companies expected to participate, th= ese bidders might be exempt from registration requirements initially, but might have to register once pre-selected (short-listed). Selling goo= ds or services to the state-owned oil company <= ins cite=3D"mailto:michael%20carroll" datetime=3D"2007-02-15T15:18">– Petroleos de Venezuela (PdVSA) – usually requires pre-registration w= ith PdVSA’s central supply office, Bariven.

Companies that expect to sell goods or services costing less than Bs. 100,000 have been exempted from registration requirements.

Although it is an acceptable practice to= pay commissions, these cannot be an additional item over the final sales price = to the government. Government officials sometimes check the quoted price again= st the published export price list to make sure that ~~this type of~~ commissions are not added in this way. The Venezuelan Controller General has maintained offices in the United States to assist in verifying pricing used in international bids.

U.S. exporters are advised to proc= eed with caution if requested to make changes in a contract after it has been signed. Such an agency request, and the change in contract language or term= s, must be in writing. Litigation against the government is difficult and enforceability of judgment precarious.&nbs= p;

The Government of Venezuela is promoting social production firms (EPS’s). Consequently, some wholly = or partially government-owned companies (national oil company PDVSA for exampl= e) are strongly encouraged to procure as much as possible from or through EPS’s.

Types of Tenders

Purchases of up to Bs. 100,000 are not subject to tenders. Depending on monetary value and types of goods services purchased, all other procurements are supposed = to fall into one three classifications: a) General Tender (Licit= ación General) b) Selective Tender (Licitaci&o= acute;n Selectiva), or c) Direct Purchase (Adjud= icación Directa).

The Bidding Process

Bid proposals usually must be separated into two parts:

1) legal documentation regarding the supplier, description of experience, list of prior clients, etc., and

2) information on the actual technical offer and price.

Traditionally, ~~the bids have usually been reviewed by a~~ a commission established by the buyer ~~and~~ ~~in the presence of a representative of the National Comptroller~~ has reviewed bids in the pre= sence of a representative of the National Comptroller. The technical re= view may require outside opinions, such as from the College of Engineers, the National Council of Science and Technology, or a Congressional Committee established for this purpose. In the past, the National Comptroller has had= the final word and could stop a bidding process at any time his office sensed t= hat the procedures were flawed.

Although th= ere are limits to the type of assistance we might render, Iif a U.S. company feels that the bidding process of a foreign tender in which = it is participating is flawed or unfair, it is strongly advised to contact the U.S. Commercial Service at:

caracas.office.box@mail.doc.gov.

Distribution and Sales Channels &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

There are no existing laws or regulations that limit distribution. Possible chann= els include: manufacturer's representative or commissioned agent, wholesale importing distributor, importing retailer, or direct sale to end-user. It is quite common to find Venezuelan companies that play several of these roles.=

No specific business license is required for a local company or individual to = be an importer. Many retailers handle their own imports, sometimes placing ord= ers through commissioned agents and sometimes purchasing directly from foreign suppliers.

Government agencies usually require that a supplier of specific types of equipment be = an authorized seller for the foreign manufacturer. Multiple bids by the same manufacturer may result in disqualification. Authorization to sell is especially important where after-sale support might be needed.

It should be noted that freight handling in ports and airports is somewhat rudimentary and that damage might occur unless the products are we= ll packed.

Containers are handled efficiently, but will not pass customs as such unless their contents fall under one single tariff classification number. I= f they contain consolidated mixed cargo, customs will separate their contents to c= heck each single item. In order to alleviate congestion at ports and airports, Customs will authorize this procedure to take place in a bonded warehouse or under special arrangements at extra cost at the recipient’s warehouse. Containers must be sealed during the transfer.

Courier services such as UPS, Federal Express and DHL should not be u= sed to transport merchandise if packages exceed two kilograms in weight. In tho= se cases, the shipments are treated as airfreight and could be subject to dela= ys in Customs. These facilities should be used primarily for the shipment of documents. =

Likewise, parcel post shipment using the mail should be avoided. Venezuelan mail is typically s= ubject to delays. ~~unreliable.~~ If such a = parcel arrives, customs will send a notification by mail to the recipient, who then has to reply by mail that he is willing to accept the package. The recipient then has to go, in person, to the central post office, where the package is to be opened in t= he presence of a customs official. ~~the package is opened.~~ This ent= ire procedure can take several weeks, or even months. In short, the speediest procedure is airfreight, or in the = case of very heavy shipments, sea freight.

Major distribution centers include the ports of La Guaira and Puerto Cabello and = the international airport of Maiquetia.

Selli= ng Factors/Techniques &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

Sales at the retail level are not = much different from those in the United States. Price haggling in established st= ores is not common. Special offers are frequent, but are seasonal in nature. The= re are numerous malls, but few department stores.

It is highly advisable that U.S. companies provide sales literature in Spanish. While many Venezuelan busine= ss people speak English, many of their staff and customers do not. Consequentl= y, failure to prepare materials in Spanish undermines a critical sales tool.

Return to top

By limiting annual dollar purchases over the Internet to $4,000 per person per year, provisions of the exchange control regime now in effect have had some negative impact on the initial burst of growth in E-commerce.=

However, Venezuela’s electronic commerce sector is forecast to keep = growing ~~steadily~~ due to increasing Inter= net penetration (4431% growth from third quarter 2004 – third quarter 2005), development of the <= del cite=3D"mailto:michael%20carroll" datetime=3D"2007-02-15T14:59">needed legal framework, improved capabilities of banks to provide sec= ure transactions, and ~~and~~ <= /span>more widespread presence of public Internet access centers. ~~increasing recognition by~~ ~~Venezuelan companies of E-commerce’s advantages.~~

Online users now totaled around 3.3 million and on-line spending reached USD $~~229~~300 million in 20056.79% ~~90%~~ of Venezuelan e-transactions are B2B, and ~~78%~~21% of ~~B2C~~of B2C transactions were with U.S. companies. <= /p>

Local e-commerce purchases are most often settled by non-electronic means (bank deposit, che= cks and cash). Barriers for e-commerce growth include relatively low credit card usage, exchange controls, and increasing, but still relatively, lolow Internet usage.

Trade Promotion and Advertising &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

While there are some specialized publications, daily newspapers are the most common forms of advertising. Th= is holds true even with regard to machinery or industrial equipment. TV and ra= dio commercials are heavily used to promote durable and non-durable consumer go= ods. Billboards are common, as are leaflets, newspaper inserts, and in-store promotions. There are numerous advertising agencies, some being subsidiarie= s of well-known U.S. companies.

Premiums are not widely used to target the public at-large, but are often provided to existing customers or business associates. Business gifts are common around Christmas for steady customers, and can be expensive.

Shocks to the Venezuelan economy in 2003= and 2004 took their toll on the trade show calendar. However, some events ̵= 1; such as the annual Segur Show – weathered the storm. The economy̵= 7;s bounce-back in 2004 through ~~and~~ 20056 has restored other events to t= he calendar, and heavy government spending in targeted sectors has added other= s. Check the following links for more details: http://www.export.gov/trade= events.html, http://www.buyusa.gov/venezuela/en/15.html.

Venezuelan trade shows typically a= re widely advertised and, even if specialized, widely visited by the public in general. These shows have proven to be an excellent vehicle to promote a new product, or to find an agent or distributor. Off-the-floor sales are not common, however, except for pre-Christmas gift shows and toy and furniture shows.

Some shows are organized by local = show organizers on behalf of trade or industrial associations. U.S. companies al= so have organized trade shows in Venezuela directly. The U.S. Commercial Service Embassy’s Commercial section has also staged several trade shows and trade promotions in the last two years – in Caracas and in other major cities, sector-specific and multi-sectoral, single company and multiple company. U.S. companies should check the Commercial Service’s website= (http://www.buyusa.gov/venezuel= a/en/) for details on the Single Company Promotion and other specific trade promot= ion services offered to help U.S. companies enter, or expand their presence = in, the Venezuelan market.

MAJOR DAILY NEWSPAPERS

El Universal =

Edificio El Universal, Esquina = de Animas, Avenida Urdaneta

Phone: 505-2111, 505-2290, Fax: 505-3710=

Email: diario@eluniversal.com

= http://www.eluniversal.com<= /a>

El Nacional

Edificio El Nacional, Puente Nu= evo a Puerto Escondido

Phone:&= nbsp; 408-3194, 408-3226

Fax: 481-0548

Email: comunicaciones@l-nacional.com=

= http://www.el-nacional.com

Reporte

Torre Britanica, Piso 12, Ofici= na B, Avenida Luis Roche, Altamira

Sur

Phone:&= nbsp; 264-0591, 265-5218

Fax: 264-6023

Email: reporte2000@hotmail.com

Tal Cual

Edificio Mene Grande, Piso 5, Oficina 51, Avenida Francisco de

Miranda, Los Palos Grandes=

Phone: 285 3264/6845

Fax: 286-7446=

http://www.talcualdigital.com/

El Globo

Avenida Principal de Maripérez, Transversal Colón c/c Avenida

Libertador

Phone:&= nbsp; 576-4111, 5774275

Fax: 574-4353

Email: elglobo@wtfe.com, elglobo@c-com.net.ve

El Mundo

Torre de la Prensa, Piso 4, Pla= za del Panteón

Phone:&= nbsp; 596-1911

Fax: 596-1478, 596-1492

Email: elmundo@la-cadena.com<= /span>

h= ttp://www.elmundo.com.ve/

Ultimas Noticias

Torre de la Prensa, piso 3, Pla= za del Panteón

Phone:&= nbsp; 596-1911, 596-1402

Fax: 596-1433

Email: ultimasnoticias@la-cadena.com=

http://www.ultimasnoticias.com.ve/

Diario 2001

Edificio Bloque De Armas, Aveni= da San Martín c/c Avenida La Paz

Phone:&= nbsp; 406-4111, 406 4177/4034

Fax: 443-4961

Email: 2001@dearmas.com

http= ://www.2001.com.ve/

The Daily Journal

Edificio The Daily Journal, Avenida Principal Boleíta

Norte

Phone:&= nbsp; 237-9644 , 237-8910 ; Fax: 232-6831

Email: thedailyjournal@dj.com.ve

http://www.thedaily= journalonline.com/Index.asp

Quinto Día

Av. Principal de Los Ruices con= Av. Rómulo Gallegos, Res. Los Almendros, nivel mezzanina, ofic. 05, Los Ruices

Phone: 237-9809

Fax: 239-2955=

Email: panelsuscriptor@quintod= ia.com

http://www.quintodia.com.ve=

Business Venezuela (Venamcham)<= o:p>

Torre Credival, P.L., Oficina A, Segundo Avenida de Campo Alegre.

Phone:&= nbsp; 263-0833

Fax: 263-1829

Email: editor@bvonline.com.ve

= http://www.bvonline.com.ve/

Revista Dinero,

Edificio Aco, Entrada A, Piso 7, Avenida Principal Las Mercedes

Phone:&= nbsp; 993-5011

Fax: 991-3132

Email: mcastillo@gep.com.ve

http://www.dinero.com.ve

El Mundo de Seguridad,

Avenida Urdaneta, Esquinas de Veroes a Santa Capilla, Edificio Cipriano Morales, Piso 1, Oficina 13<= /o:p>

Phon= e: 864-7310, 864-4057, and 860-5706

Fax: 862-4448

= Email: seg= uridad@seguridadonline.com

http://www.seguridadonline.com/

Pricing &nb= sp; = &nb= sp; = &nb= sp; = &nb= sp; Return to top

Price controls and/or mark-up limit= s on certain products have existed in Venezuela for many years. Gasoline is price controlled. So are some pharmaceuticals and basic = food products.

Recently, the Chavez government has subjected an increasing number – hundreds -- of food products and consumer goods to price controls. In these cases, mark-ups for products alr= eady on shelves or storage were prohibited by heavy fines or even store closure. While most stores have been able to cope with these measures, many producers and packers have complained that the authorized retail prices were below production costs. As result products sometimes disappear, usually temporari= ly, from the market., and hoarding has become more com= mon.

Law prohibits price fixing among manufacturers. All promotions require registration and authorization by the consumer protection agency, INDECU.

Apart from the exceptions noted abo= ve, retail pricing has been largely left to the market, and mark-ups of 100% ha= ve been rather common.

U.S. companies should directly cont= act the Commercial Service office in Caracas (caracas.office.box@mail.doc= .gov) for more detailed pricing formula information.

Sales Service/Customer Suppo= rt &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

It is not normally possible to sell equipment, whether industrial or durable cons= umer goods, without offering sales support, spare parts or service. It is therefore extremely importan= t that prospective agents or distributors either provide this support or be able to contract for it. Maintaining = an adequate stock of spare parts is often considered essential.

Protecting Your Intellectual Property = ; &n= bsp; = ; <= /span>Return to top

Please see cChapter 6 for information on Intellectual Property Rights.

Due Diligence = &nb= sp; = &nb= sp; = &nb= sp; Return to top

U.S. exporters are well-advised to perform adequate due diligence before entering into new agreements with Venezuelan agents, distributors, or representative= s. Local law, accounting, or investigative firms are available to perform these services.

The International Company Profile (ICP) service offered by the U.S. Commercial Service Caracas is a tool frequently used by U.S. companies to address eith= er initial or repeat due diligence needs. For more complete information on the ICP, please refer to the Our Services section of the Commercial Service Caracas’s website at: http://www.buyusa.go= v/venezuela/en/.

Local Professio= nal Services = ; &n= bsp; = ; &n= bsp; = ; Return to top

The Venezuelan legal regime is complicated. Venezuela has an economy in which m= any activities are regulated, not only by laws but also by presidential decrees= or specific regulations. The bureaucracy and required paperwork add to the complexity.

Cons= equently, contacting a reputable local law firm is essential for any U.S. company wis= hing to establish a presence in Venezuela, form joint ventures, register an intellectual property, or enter into any type of extended, formal business relationship.

Local lawyers can provide essential information on labor laws, tax regulations, r= eal estate purchases, and the drafting of by-laws. A number of Venezuelan law f= irms have attorneys who have studied in the United States and are familiar with matching an American company's requirements to the local law.

U.S. companies can request a list of Venezuelan law firms which specialize in various aspects of commercial and investment law from the Commercial Service Caracas (caracas.office.box@mail.doc= .gov).

Web Resources = &nb= sp; = &nb= sp; = &nb= sp; Return to top

Venezuela’s Superintendent of Foreign Investment (SIEX): www.siex.gov.ve.

Venezuela’s Intellectual Property Rights Office (SAPI):= www.sapi.gov.ve.

Venezuela’s Consumer Education and Protection Agency: http:/= /www.indecu.gov.ve/

For more detailed information on many subjects covered in this chapter, as well as a listing = of business service providers, please refer to the Commercial Service Caracas’s website: http://www.buyusa.gov/venezuela/en/.

Return to table of contents<= /a>

Return to table of contents

Chapter 4: Leading Sectors for U.S. Export and Inves= tment

Agricultural Sector

&= nbsp;

Com= mercial Sectors

Oil and Gas Field Machinery
IT Equipment and Services
Telecommunications Equipment and Services
Auto Parts/Service Equipment
Electrical Power Generation Systems and Electrical Equipm= ent
Medical Equipment
Chemicals
Travel & Tourism

Agricultural Sector&nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; Return to top

Be= st Prospects for Agricultural Products

(n= ote: latest available data used)

V= enezuela is a significant importer of agricultural products, with imports estimated at $2.4 billion during 2005.<= span style=3D'mso-spacerun:yes'> Many agricultural product imports = are blocked due to sanitary and phytosanitary measures, arbitrary issuance of import licenses and restricted access to foreign exchange for some higher-v= alue products, such as apples, pears, grapes, nectarines and other fruits.=

<= span style=3D'mso-spacerun:yes'> =

U.S. agricultural and= food exports over the last six calendar years (2000-2005) have averaged $395 million, with 2001 being the highest year in the series at $426 million, wi= th 2005 gaining ground lost during the 2002 “strike” year. The main products imported current= ly from the United States by value are wheat, animal fats,= feeds and fodders and consumer oriented pro= ducts.=

~~Agricultural imports from all sources increased over 50 percent between 2003 and 2004, totaling $2.1 billion in the latter year, achieving a five-year historical = high~~The U.S. faces increasingly tough competition from suppliers like Colombia, Bra= zil and Argentina that have established preferential trade agreements with Venezuela. The U.S. remained the largest supplier of bulk commodities in 2= 005 ~~2= 004~~ with 41% ~~36%~~ market share, with wheat cap= turing the bulk of this (66% for wheat).

Several Key Issues Govern Food Production and Distribution in Venezue= la:

Both the public and private sectors serve Venezuela’s retail food sector. The Ministry of Food is responsible f= or developing a strategic food distribution system as well as preserving food security. To achieve this goa= l, the Government of Venezuela (GOV) has created state-owned food production facilities and a distribution system (network of retail food stores) while managing subsidized food procurements and setting controlled food prices. <= /ins>

<= ins cite=3D"mailto:FASHELP" datetime=3D"2006-12-15T10:12">

Private supermarkets, hypermar= kets and small outlets represent the private sector. Most of the major supermarket a= nd hypermarket chains in Venezuela belong to the National Supermarket Associat= ion (ANSA). The GOV has become a strong competitor to traditional supermarkets. Products offered through the government’s network of retail stores are sold at lower prices as compared to traditional supermarkets.<= span class=3DmsoIns> Venezuela’s food retail market is characterized by the following: <= o:p>

<= ins cite=3D"mailto:FASHELP" datetime=3D"2006-12-15T10:08">Food Price Controls:<= /ins>

<= ins cite=3D"mailto:FASHELP" datetime=3D"2006-12-15T10:08">With the objective of= keeping food products available at reasonable prices, the Venezuelan government implemented price controls February 11, 2003. This move was made in conjunc= tion with the imposition of exchange controls in late January 2003, and was an attempt by the government to help restrain inflation. Products under price = control are rice, oatmeal, corn flour, wheat flour, bread, pasta, sugar, coffee, sa= lt, beef, pork meat, poultry, eggs, sardines, tuna, corn oil, sunflower oil, vegetable blended oil, powdered milk, milk infant formula, white cheese, margarine, lentils, peas, black beans, mayonnaise, tomato sauce and mortade= lla. There is no indication that the government will lift price controls in the short term. Large stores, such as the hypermarkets, supermarket chains, and established butcher shops are required to sell products at the price established on the price control list. Producers have often been at odds wi= th the government over the correct price levels. At times, this has led to temporary shortages – mostly recently of sugar, milk, blended oil, and pork – as producers withhold product to convince the government to increase the controlled price.<= o:p>

<= o:p>

State-Owned Enterprises:

The Venezuelan Agricultural Corporation (CVA) is a state holding that plays an active role in food supp= ly and distribution. During 2005= , ~~R= ecently~~, CVA created the following processing industries: CVA Cereals and Oilseeds; = CVA Dairy; CVA Sugar and CVA Inputs. These industries not only will produce pre-cooked corn flour, pastas and mill rice, powdered milk, refined sugar a= nd various agricultural inputs, but also will import and export raw and proces= sed food. CVA Inputs has opened ten stores; dried bean and lenti= ls packaging facilities under CVA Cereals and Oilseeds = a= re under construction; CV= A Dairy h= as two milk processing facilities under construction and C= VA Sugar has two sugar mills under construction. CVAR= 17;s main objective is to supply the demand of the state-owned food distribution chain, Mercal.

The G= overnment Food Distribution Network:

<= o:p>

Food purchases and distribution are handled directly by government entities called CASA and Mercal. CASA, originally created in August 1989, is in charge of purchasing domestic and imported food and agricultural products. <= span lang=3DEN-US>During 2003 imported foods represented 70% of= all products offered at MERCAL stores, with the remaining 30% sourced locally.<= span style=3D'mso-spacerun:yes'> Currently, CASA has stated that it= only imports about 40% of its food products, with the remaining products purchas= ed locally.

<= o:p>

<= ins cite=3D"mailto:FASHELP" datetime=3D"2006-12-15T10:10">Created in April 2003= , MERCAL, = or Mercado de Alimentos C.A., markets food products at low prices, 32% low= er on average than the controlled-price products sold by supermarkets. The program is focused on a government- subsided basic basket of products to the poor clas= ses (D & E). Products include: dry milk, <= ins cite=3D"mailto:FASHELP" datetime=3D"2006-12-15T10:10">precooked corn flour,= black beans, rice, vegetable oil, sardines, pasta, sugar, mortadella (bologna), margarine, deviled ham, eggs, mayonnaise and sauces. = M= ERCAL’s food distribution web has expanded to approximately 15,725 points of sales -- mostly small st= ores, plus 37 supermarkets. MERCAL added the concept of “home-cooking-houses,= &= #8221; each of which are to provide lunches to 150 people and whose products will = be sourced out of MERCAL’s stores.

~~“Mercal”:=~~

The Mercado de Alimen= tos C.A., created in April 2003, markets food products at subsidized prices eve= n lower than the control prices imposed on supermarket products. The program = is focused on a basic basket of products which includes: dry milk, precooked c= orn flour, black beans, rice, vegetable oil, sardines, pasta, sugar, mortadella (bologna), margarine, deviled ham, eggs, mayonnaise and sauces. MERCAL̵= 7;s food distribution web has expanded to approximately ~~1= 4,000~~ = points of sales -- mostly small stores, plus 37 supermarkets. More recently, MERCAL added “home-cooking-houses”, each of which are to provide lunc= hes to 150 people and whose products will be sourced out of MERCAL’s stor= es.

<= ins cite=3D"mailto:FASHELP" datetime=3D"2006-12-15T10:39">

<= ins cite=3D"mailto:FASHELP" datetime=3D"2006-12-15T10:39">The Private Food Dist= ribution Network:

<= ins cite=3D"mailto:FASHELP" datetime=3D"2006-12-15T10:12">

There are 1= 00,= 3= 57 = retail stores in Venezuela selling food and beverages, a figure that includes supermarkets (chain and independents), It is estimated that there are 98,353 traditional “abastos” or “bodegas” (mom & pops), that are located on practically every block in Venezuela’s cities and towns, specially on middle and low-income neighborhoods.= The major retailers are developing increasingly sophisticated distribution systems. However in the case of frozen food= s and perishables, retail stores still depend heavily on local distributors. In general, Venezuelan infrastructure for handling frozen and refrigerated is improving.<= o:p>

~~Food Price Controls:~~ =

With the objective of keeping food products available at reasonable prices, the Venezuelan government implemented price controls February 11, 2003. This move was made in conjunction with the imposition of exchange controls in late January 2003, and was an attempt by= the government to help restrain inflation. Products under price control are ric= e, oatmeal, corn flour, wheat flour, bread, pasta, sugar, coffee, salt, beef, = pork meat, poultry, eggs, sardines, tuna, corn oil, sunflower oil, vegetable ble= nded oil, powdered milk, milk infant formula, white cheese, margarine, lentils, peas, black beans, mayonnaise, tomato sauce and mortadella. There is no indication that the government will lift price controls in the short term. Large stores, such as the hypermarkets, supermarket chains, and established butcher shops are required to sell products at the price established on the price control list. Producers have often been at odds with the government o= ver the correct price levels. At times, this has led to temporary shortages = 211; mostly recently of pork ~~and beef~~= ~~&= #8211; as producers withhold product to convince the government to increase the controlled price.~~

Government Spending:=

Demand for food is forecast to increase because of stronger consumer-purchasing power from a minimum wage increase (effective February 1, 2006). Also, the GOV’s rising expenditures on social food programs (through Mercal) will have an impact on food demand. In particular, demand for price- = controlled foods will likely increase and push for more bulk commodity imports. Given = the changing dynamic of the food import and distribution system in Venezuela, h= ard data on projected increases are difficult to estimate. Still, given the government’s commitment to provide c= heap, subsidized food for the poor, it is felt that demand will grow.= ~~,= at least nominally.~~

Non-Tariff Barriers= :

The potential growth for 2006 ~~2005~~ and beyond is cloudy at thi= s time as non-tariff trade barriers such as the restrictive use of licenses and phytosanitary permits have become a major impediment to trade for basic food products. However, this market of 26.5 million consumers remains an importa= nt destination for many food exporters. Contact AgCaracas@fas.usda.gov (fax: 58-212-907-8333) for more details.

The following is an illustrative list of the major U.S. agricultural exports to Venezuela:

Corn

Corn production in Venezuela is focused on white corn for human consumption and precooked corn flour is a staple component of the Venezuelan diet. Very little yellow corn is produced domestically. Yellow corn ~~i= s imported and~~ traditionally goes to the feed sector, which has been seve= rely battered by restrictions on imports in recent years. Poultry and pork producers are oft= en required to use excess white corn in the market for feed, sometimes at doub= le the world market price for yellow corn, before they are allowed to import.<= span style=3D'mso-spacerun:yes'> <= del cite=3D"mailto:FASHELP" datetime=3D"2006-12-05T10:52">

Since 2006 imports o= f= yellow corn have been d= eclining, = b= asically because of limited access to a= ccess t= o import licenses, although demand remains strong= .= = A= lso th= e local poultry industry continues to face competition from Brazil, wi= t= h the government of Venezuela, through its food purchasing = e= ntity, CASA, being the major importer of frozen poultry. The local poultry industry estimates that between 20 to 25 percent of poultry consumed in Venezuela is imported from Brazil.

Demand for yellow corn in Venezuela has been softening as hog and poultry producti= on has declined due to unfavorable economic and political conditions. The local poultry industry has been facing competition from Brazil, with the Venezuel= an government, through CASA, being the major importer. The industry estimates = that 20-25 percent of poultry currently consumed in Venezuela is from Brazil.

Imports of yellow corn are subject to the government import license regime for corn and sorghum. Proof of domestic sorghum and/or white corn purchases is required in order to obtain corn import permits. Due to the co= rn licensing restrictions and the battle to absorb domestic sorghum and corn crops, processors have had to resort to higher inclusions of industrial by-products such as DDGS (distiller dried grains with solubles).

The U.S. has dominated the market for imported corn in Venezuela and is expecte= d to continue to be the major supplier, but to a smaller market. Due to license restrictions, users have had to experiment with a variety of feed ingredien= ts, some successfully and some not so successfully. In this atmosphere of improvisation, continued trade servicing, technical support, and marketing assistance are important in order to maintain and improve client loyalty and satisfaction.

Wheat (PSD Code: 0410000)	2004 ~~200~~3*	2005 ~~2004~~*<= o:p>	2006 5*
1,000 Metric Tons
A. Total local market size	1,375	1,390	1,395
B. Total Local Production	0	0	0
C. Total Exports	10	10	10
D. Total Imports	1,385	1,400	1,405
E. Imports from the U.S.	810	825	825

Note: Data is presented in a marketing year basis (i.e. July 2= 005 ~~2= 004~~-June = 2006 ~~= 2005~~ for the 2006 ~~2005~~ yea= r)

Wheat

Venezuela produces almost no wheat, but consumes large quantities of bread, crackers, pastries and pasta. Venezuela is the second highest per ca= pita consumer of pasta in the world after Italy. Wheat for these products must be imported. Venezuela imports almost 100 percent of its wheat requirements, w= ith the traditional suppliers being the U.S. and Canada. The U.S. is a natural supplier due to its proximity and the year-around availability of several w= heat varieties. F= or the U.S. wheat industry, annual sales have been remarkable steady (totaling 540= ,000 to 600,000 tons per year), and Venezuela is an important buyer of higher quality wheat. U= .S. market share of wheat imports has been growing<= span class=3DmsoIns> = during the last three years, and it is expected to show further increase in 200<= /span>6= /= 07= .= T= he U.= S= .= = h= e= ld = 62 percent of market share during 2005, <= /span>a= s= compared to a market share of 56 percent = during 2004. ~~In 2004/2005, 53 percent of total wheat impor= ts came from the U.S. and the rest was imported from Canada.~~ ~~I= mports of U.S. durum have contributed to a major recovery of U.S. market share~~<= /span>.

Consumption for 2006/07~~2005/ 2006~~ is forecast to increase remain at the same le= vels, if not increase, since pasta and bread are<= /span> ~~= is~~ ~~= a~~ = an = important ~~<= span style=3D'mso-spacerun:yes'>~~ staple commodity ~~w= ith the price controlled by the government~~. of the country’= s diet and price controls keep them within the reach of most citizens. = Imported pasta is con= sidered inferior. Total wheat consumption has regained strength in the last two years and it is expected to behave in the same way in 2007 ~~2= 006~~ due to the fact that some millers have increased their production and a= re ~~h= ave agreed to~~ distributing e and se= lli= ng pasta through Mercal.

Rice: (PSD Code: 1060)	2005 ~~2004~~	2006 ~~2005~~ <= /p>	2007 ~~2006~~
1,000 Metric Tons
A. Total Local Market Size	566	632	616
B. Total Local Production	567	647	576
C. Total Exports	5	20	20
D. Total Imports	4	5	60
E. Imports from the U.S.	4	1	40

Rice

Tra= ditionally Venezuela has been self-sufficient in rice production. Production in 2006 is e= stimated = to r= each = 391,000 tons of milled rice. <= /span>F= orecast for 2007 is for increased <= ins cite=3D"mailto:FASHELP" datetime=3D"2006-12-12T09:17">rice production, arou= nd 420,000 tons of milled rice.<= o:p>

Figures from the Venezuelan Millers Association point out that the government, through the Mercal, distributes 45 percent of the table rice in= the country, and that nine of the main mills supply rice to this government ent= ity. Traditionally, Venezuela has exported between 50,000 to 100,000 MT of rice = to Colombia, but since 2004 ~~last year~~ the government has controlled rice exports. The fact that rice is sold at the government stores at a controlled price of ~~Bs. 990/kg (USD $.46)=~~ leads to informal sales to Colombia.

Oilseeds

Despite the GOV’s plans to increase agricultural production, the oilseed sector shows neither significant growth nor major developments. Venezuela is a net oilseed importer due to its minimal oilseed production a= nd a relatively small crushing capacity. V= enezuela depends on oilseeds and oilseed products imports to meet its industrial and vegetable oil needs, as there is no sufficient domestic production. At this time, domestic production refers to palm, sesame (for confectionary purpose= s) sunflower seed and limited amounts of soybeans. T= he forecast for 2006 and 2007 is for a moderate increase in imports, no greater than 5% for imported oils and meals (mainly soybean oil and soybean meal) to satisfy the needs of the food industry and animal feed processor sectors. Further growth in soybean meal imports will be based on the demand of animal feed by the poultry sector and its ability to procure import licenses=

The food industry, animal feed processor sectors and soap and deterge= nt industries heavily depend on soybean oil and soybean meal imports. South American countries like Argentina, Brazil, Paraguay, Uruguay, and Bolivia a= re Venezuela’s major oilseed suppliers because of tariff preferences giv= en by Venezuela. In addition, imports of oilseeds from countries members of the ALADI agreement (Latin American Integration Association) are exempt from the foreign exchange control restrictions.

Soybean Meal (PSD Code: 0813100)=	2005* ~~2004~~*<= o:p>	2006* ~~2005~~*<= o:p>	2007* ~~2006~~*<= o:p>
1000 Metric Tons
A. Total Market Size	765	816	866
B. Total Local Production	9	16	26
C. Total Exports	0	0	0
D. Total Imports	756	800	840
E. Imports from the U.S.	151	170	180

Note: Data is presented in a marketing year basis (i.e. October 2= 004 ~~2= 003~~-September 2005 ~~2= 004~~ for the 2005 ~~2004~~ yea= r)

Soybean Meal

To meet the needs of the domestic animal feed indust= ry, Venezuela imports most of its protein meals. Soybean meal imports in 2005/06 are expected to increase between 6 and 7 percent because of strong demand f= rom the animal feed processing industries.&nbs= p; S= oybean meal continues to be the meal of choice in Venezuela. Bolivia is the major supplier of s= oybean meal, followed by the United States and Paraguay. Further growth in soybean meal imp= orts will be based on the demand of animal feed by the poultry sector and, its ability to obtain import licenses and/or the availability of soybean meal<= span class=3DmsoIns> = from Bolivia, for wh= i= ch no licenses are needed.

~~Overall meal imports could increase significantly if the government removes the restrictions on foreign exchange and licensing, as there is significant lat= ent demand in the domestic industry.~~

Soybean Oil (PSD Code: 1507100)<= /p>	2005* ~~2004~~*<= o:p>	2006* ~~2005~~*<= o:p>	2007* ~~2006~~*<= o:p>
1000 Metric Tons
A. Total Market Size	252	274	291
B. Total Local Production	2	4	6
C. Total Exports	0	0	0
D. Total Imports	250	270	285
E. Imports from the U.S.	16	20	20

Note: Data is presented in a marketing year basis (i.e. October 2= 004 ~~2= 003~~-September 2005 ~~2= 004~~ for the 2005 ~~2004~~ yea= r)

Soybean Oil

Venezuela is heavily dependent on imports of edible oils to supply domestic demand for cooking o= ils. Although cooking oils are sold as blends, Venezuelan consumers generally pr= efer domestically produced corn oil, as opposed to blended vegetable oils. The retail price of vegetable oil,= pure and blended, is currently under government control.

Since 2003, the GOV has imported processed oilseed products from South American countries. ~~This trend continued= during 2004 as the GOV has sponsored buying missions to Argentina and Brazil~~= . Consequently, the GOV continues to import processed oilseed products such as blended oil, soybean and sunflower seed oil and margarine. Imports are exec= uted through the GOV’s procurement entity, CASA. These imports are neither subject to foreign exchange control nor to the import license regime. GOV imports of processed oilseed products are estimated to be 30,000 to 35,000 metric tons.

Return to table of contents

Commercial Sector Best Prospects=

Oil and Gas Field Machinery=

&= nbsp;

Overview = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

The oil and gas machinery sector (OGM) is comprised of machinery and equipment tracked in the United States under the North American Industrial Classifica= tion System (NAICS) code 333132, or conversely, under numerous subheadings of chapters 73 and 84 of Schedule B. OGM machinery and equipment is commonly found in oil and gas fields, including, but not limited to: drills, derricks, well equipment, pumps, val= ves, compressors and parts suitable for this type of equipment.

Industry sources rank Venezuela’s hydrocarbons reserves at approximately 151 trillion cubic feet (TCF) of natural gas, 80 billion barrels of proven conventional oil reserves, and a sizeable 270 billion barrels of extra-heavy crude.

Venezuela is one of the world’s leading net oil exporters. During the first hal= f of 2006, Venezuela exported 1.45 million barrels per day (bbl/d) of crude oil = and petroleum products to the United States, the main destination of its oil exports. In recent years, Venezuela has supplied close to 10 percent of the= oil imported by the United States.

Oil and gas field machinery (OGM) is in constant demand both by the state oil operator, Petróleos de Venezuela, S.A. (PDVSA), and by private entit= ies that include local and international companies. Consequently, Venezuela usually ra= nks among the top ten export destinations for U.S.-made oil and gas field machi= nery. In Venezuela, American OGM enjoys a comfortable market share in excess of 50%, but faces strong competition by manufacturers based in Brazil, China, Germany and Italy.

U.S. exporters and investors with interest in Venezuela’s OGM market are advised to perform their risk-return calculations carefully, mindful of the= se uncertainties but aware of the significant commercial opportunities in this market.

&n= bsp;

Resources = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

For more detailed information on= Market Data, Best Prospects, Opportunities, and Contacts, U.S. companies are advis= ed to contact can contact Sr. Commercial = Specialist Mr. Javier Jativa at javier.jativa@mail.doc.gov or the U.S. Commercial Service directly at caracas.office.box@mail.doc.gov.

Oil and Gas Machinery=

Overview = ; &n= bsp; = ; &n= bsp; = ; &n= bsp; = ; &n= bsp; Return to top

IT Equipment and Services

&= nbsp;

Overview = &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

After decline in th= e sector in 2002-2003, 2004 showed very different results for the = IT sector in general. The first semester saw rapid growth, largely the result = of increased demand for voting- and telecommunications-related equipment. All = this added up to 43 percent growth of the IT sector in 2004.

There are n= o solid, official numbers for this sector. However, according to Global Trade Information (GTI) figures, Venezuelan imports of U.S. computers and compone= nts increased by over 60 % from 2004 to 2005 in a market of 20% growth. This figures have dramatically changed from 2005 to 2006: while IT Market grew 4= 2%, US imports reached levels of growth of 38%.

The major f= actors driving this growth are: 1) hardware replacement by the financial sector ma= inly banks, telecommunication companies and 2) steady investment from the Nation= al Electoral Council (CNE) and the National Oil Company (PDVSA).

It should b= e noted that the rate of IT software piracy in Venezuela was one of the highest in = the world in 2003, 72 percent according to an International Data Corporation (I= DC) report on World Software Piracy. This translates into $55 million in lost revenues.

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Resources = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

The Commerc= ial Service office in Caracas closely monitors developments and opportunities in Venezuela’s IT sector. For= more detailed information on this sector, including <= /span>Market Data, Best Prospects, Opportunities, and Contacts within the= sector, U.S. exporters can contact Commercial Specialist Ms. Dalia Dorta at dalia.dorta@mail.doc.gov or our office at caracas.off= ice.box@mail.doc.gov.

Telecommunications Equipment and Services

&= nbsp;

Overview = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Although U.= S. exporters face major hurdles from the aggressive market penetration strateg= ies from Chinese firms and the disinclination of the current government toward = U.S. suppliers, there have been positive trends for U.S. telecom equipment and service exporters to this market

Recent key developm= ents include:

Verizon’s (CANTV’s major stockholder’s) sale of its shares to the Venezuelan government, pending due diligence revi= ew. The completed sale would essentially represent the re-nationalization = of the major player in Venezuela’s telecom sector. <= /o:p>

· = private telecom companies’= rapid investment in developing new infrastructure as well as in updating existing infrastructure=

· = aggressive plans announced by CANTV to invest up to USD $2 billion between 2006 and 2010

· = Telefónica’s acquiring a GSM infrastructure in addition to its CDMA-based capabilitie= s

CVG Telecom’s expected <= /ins>merger with CANTV into Venezuela Telecom, with the new entity reporting to the new= Ministry of Telecommunications.

Resources = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

The Commerc= ial Service office in Caracas closely monitors developments and opportunities in Venezuela’s telecom sector. For more information on this sector, including Market Data, Best Prospects, Opportunities, and Cont= acts within the sector, U.S. exporters can contact Commercial Specialist Ms. Dal= ia Dorta at dalia.dorta@mail.doc.g= ov or our office at caracas.off= ice.box@mail.doc.gov.

IT Equipment and Services

Overview = ; &n= bsp; = ; &n= bsp; = ; &n= bsp; = ; &n= bsp; Return to top

Auto Parts/Service Equipment

Overview = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Venezuela is the fourth largest automobile assembler in Latin America behind Brazil, Mexico and Argentina. Local assemblers are General Motors, Ford Motors, Daimler-Chrysler, Hyundai, Mitsubishi, Toyota, Encava, Iveco, Mack and several bus builders using loca= lly made or imported chassis and engines.

Automobile as= sembly and sales are at present one of the most thriving activities in Venezuela. = New car sales have risen = sharply during the last two years on the back of higher economic growth. The present U.S. market position for auto parts is excellent, not only because = of the predominance of American car assemblers but also because of the belief = that U.S. automotive products are superior in quality. Gradually, however, this position of predominance is being eroded because of the influx of automobil= es from Europe and Asia, many of which are less expensive and smaller than U.S. models with resulting savings expenses. Local U.S. assemblers are only now attempting to counter this trend by assembling vehicles, which can compete, some sourced from Brazil.

There are = no significant non-tariff barriers. Import duties range from 5 percent to 15 percent on parts and accessories and all imports have to pay a 2 percent customs service charge. Duties and charges are calculated on the CIF cost. There is also a 14 percent sales tax (value added tax). This tax is non-discriminatory as far as countries of origin are concerned.<= /span>

Although currency controls ha= ve somewhat disrupted the importation of inputs, the Venezuelan market for automotive parts, components and service equipment will continue to represe= nt an excellent export market for U.S. manufacturers and exporters.

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Resources = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

The Commerc= ial Service office in Caracas closely monitors developments and opportunities in Venezuela’s Auto Parts sector. For= more detailed information on this sector, including <= /span>Market Data, Best Prospects, Opportunities, and Contacts within the= sector, U.S. exporters can contact Commercial Assistant Mr. Luis Mulet at luis.mulet@mail.doc.gov or our office at caracas.off= ice.box@mail.doc.gov.

Electrical = Power Generation Systems and Electrical Equipment

Overview = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Venezuela imported U.S. $ 270 millions of electrical power generation systems and equipment in 2005, which ranks this country 16^th among the leading markets for this type of U.S. equipment. Engines, turbines,= and power transmission equipment, comprise 90 percent of these exports, most of which have been spawned by projects to revamp Venezuela’s electricity grid. In spite of fierce international competition, the U.S. is likely to maintain a market share in excess of 50% based on the quality of its produc= ts and services.

A combination of factors, which include exces= sive reliance on hydrological sources for electricity generation, and a precario= us balance between electricity demand and supply are compelling the Venezuelan government, who controls the electricity sector both through regulation and utility ownership, to invest in gas turbines, combined cycles, etc.

U.S. exporters should expect strong competiti= on from other international suppliers, especially: Germany, Italy, Brazil and China.

&= nbsp;

Resources = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

The Commerc= ial Service office in Caracas closely monitors developments and opportunities in Venezuela’s Electric Power sector. For= more detailed information on this sector, including <= /span>Market Data information, Best Prospects, Opportunities, and Contacts within the sector, U.S. exporters can contac= t Sr. Commercial Specialist Mr. Javier Jativa at javier.jativa@mail.doc.gov or our offi= ce at caracas.office.box@mail.doc.gov.

Electrical Power Generation Systems and Elect= rical Equipment

Overview = ; &n= bsp; = ; &n= bsp; = ; &n= bsp; = ; &n= bsp; Return to top

Medical Equipment

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Overview = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

U.S. export= ers remain the leading suppliers of medical equipment for Venezuelan importers = and distributors because of a combination of geographical proximity, quality, competitive pricing, and technical support. U.S. imports have more than 50 percent of a Medical Equipment market in which there is virtually no local production.

Since 2006, Germany has been loosing market share to China, which by June 2006 ha= d replaced the former as Venezuela’s second foremost provider of medical equipment. Other countries exporting to Venezuela <= /span>include Japan, Italy, Brazil and Cuba. <= span class=3DmsoIns>Apart from disposable items such as syringes and surgical cloth, and hospital furniture there is little manufacturing of medical equipment in Venezuela.<= span style=3D'mso-spacerun:yes'>

The GOV has increased its purchases of medical equipment as part of its plan to improve health care coverage for the gener= al public through new social programs such as “Plan Barrio Adentro” and the “Clinicas Populares.”&= nbsp;

Although good estimates for spending totals i= n the “Plan(es) Barrio Adentro” are not available, it is believed that the bulk of medical equipment purchases remain in the private sector. Priva= te sector activity is supported by the medical insurance and social security coverage normally offered as part of labor benefits in most companies. Subsequently, the private clinics and hospitals continue to invest strongly= in new technology diagnostic and treatment equipment.<= /span>

All medical equipment must be registered with the Ministry of Health and Social Development (MSDS). Imports are assessed at a 1 percent customs handling charge, and import duties are calculated on the CIF value of the shipment. = In addition, there is a 14 percent value added tax. In all cases related to pr= oducts falling under COVENIN (see Chapter 5) standards, customs authorities requir= e a Venezuelan Certificate of Compliance. =

Resources &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; Return to top

The Commercial Service, Caracas, closely moni= tors developments in this sector. = For more complete information, including <= /ins>Market Data, Best Prospects, Opportunities, and Contacts within the= sector, U.S. exporters can contact Ms. Betty Castro of the U.S. Co= mmercial Service, Caracas at betty.castro@mail.doc.gov or at caracas.box.office@mail.doc.gov.

Chemicals

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Overview = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Venezuela has a large domestic indu= stry producing chemical products for household or personal use – formulati= ng, mixing and packaging, much under license or contract by foreign manufacture= rs. However, there is little domestic production of most of the necessary chemi= cal ingredient inputs so a large percentage of chemicals has to be imported.

What domestic producti= on there is is almost entirely based on petrochemicals. This petrochemical subsector is expanding and diversifying rapidly -- because of readily avail= able raw material, some excellent facilities, and supportive industrial policy. There is also larger scale domestic production of caustic soda, industrial salt, ammonia urea, methanol, silicates, and some water treatment chemicals= .

Resources = ; &n= bsp; = ; &n= bsp; = ; &n= bsp; = ; = Return to top

The Commercial Service office in Caracas closely monitors developments and opportunities in Venezuela’s Chemicals sector. For more information on this sector, including Market Data, Best Prospects, Opportunities, and Cont= acts within the sector, U.S. exporters can contact Senior Commercial Advisor Hans Mueller at hans.mueller@mail.doc.gov or<= span style=3D'mso-spacerun:yes'> caracas.box.office@mail.doc= .gov.

Travel and Tourism

&= nbsp;

Overview = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

The U.S. continues to be the most popular vacation destination= for Venezuelans and is the 14th largest overseas source of international visito= rs to the U.S. Venezuela remains= the second largest source in all Latin America of visitors to the U.S.

Imposition of exchange controls initially hit Venezuelan forei= gn travel and tourism hard, but foreign currency allowances limits were increa= sed over time. CADIVI (the currency exchange control commission) initially authorized a USD $2,000 exchange limit for foreign travel in 2003, increased the limit to USD $3,000 in June 2004, and then to USD $4,000 in 2005.<= /o:p>

High oil prices have also supported the rebound in outward-bou= nd tourism. Venezuela’s economy is oil-based economy, and the country’s economic health fluctuates considerably with oil prices. Oil prices have been high, the government has had a stimulative fiscal policy, = and Venezuelans have traveled more in 2005.

Because of geographic proximity and= the close commercial and cultural ties, Venezuela has numerous flights to/from = the U.S. Aeropostal, American, Continental, Delta, LAN, and Santa Barbara Airlines serve Atlanta, Dallas, = Fort Lauderdale, Houston, Miami and New York with more than 20 non-stop daily flights.

Of the Venezuelan visitors to the U= .S. in 2004, 55% included leisure activities during their trip; 29%, business; = 4% attended conventions, and 51% visited friends and relatives. Daily average spending for Venezuelan tourists and travelers during 2004 was USD $81 and = the average length of stay was 23 nights.

Best Products/S= ervices &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; Return to top

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The Commercial Service in Caracas partners in its U.S. Travel and Tourism promo= tion with OCTUSA. OCTUSA is a dynamic new organization very familiar with, and an active promoter of, U.S. Travel and Tourism (TRA) opportunities. U.S. TRA promoters can contact OCTUSA through Commercial Assistant Elena Torres in t= he Commercial Service, or directly at:

Ste= fano Tome, President, OCTUSA

Ave= nida Francisco de Miranda, Centro Plaza, Torre A. PH-2, Nivel Terraza, Caracas

Tel= : 58 212 286 7913

Fax= : 58 212 286 6275

stefanotome@cantv.net

stefanotome@octusave.com

For= more information on specific Travel and Tourism (TRA) trade promotion opportunit= ies, U.S. firms and Convention and Visitor Bureaus (CVB’s) are encouraged = to contact the U.S. Commercial Service, Caracas at caracas.box.office@mail.doc= .gov.

Resources = ; &n= bsp; = ; &n= bsp; = ; &n= bsp; = ; = Return to top

For= more information on this sector, including sector contacts, sector opportunities, and more detailed market research, U.S. firms and CVB’s are encourage= d to contact the U.S. Commercial Service at caracas.box.office@mail.doc= .gov.

Return to table of= contents

= Return to table of contents

Chapter 5: Trade Regulations and Standards

Import Tariffs

Trade Barriers

Import Requirements and Documentat= ion

U.S. Export Controls

Temporary Entry

Labeling and Marking Requirements<= /a>

Processed Food Products Health Reg= istration

Prohibited and Restricted Import= s

Customs Regulations and Contact I= nformation

Standards

Trade Agreements<= /li>
Web Resources

Import Tariffs = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Non-Agricultural Goods and Services

Import duties are calculated on the = CIF value of the shipment. Venezuela has adopted the harmonized tariff schedule= .

= Venezuela officially withdrew from the Andean Community (CAN) in April 2006. President Chavez stated publicly t= hat the reason for the withdrawal was the entry of other member countries into = free trade agreements with the United States, which, according to the Government of Venezuela~~Bolivarian Republic of Venezuela (BRV)~~<= /span>, changes the essence of the pact and poses potential risks to local producti= on through subsidized imports from the U.S.&n= bsp; Article 135 of the agreement stipulates that, with the exception of preferences related to the liberalization program of the union (which have a phase out period of 5 years from the date of the denunciation of the treaty= ), all rights and obligations cease to exist after the formal withdrawal from = the organization by any member country.

= In August 2006, CAN and Venezuela formed reached an agreement establishing a transitional mechanism for the application of rights and obligations for the phase-out period, on issues relating to safeguards, rules of origin, dispute settlement, sanitary and phytosanitary measures, and technical barriers to trade. However, no agreement = was reached on Venezuela’s request to reduce the phase-out period to two years. Andean Community membe= rs conduct intra-zone trade at zero percent while extra-zone trade is governed= by a common external tariff (CET) that currently covers approximately 62 perce= nt of all traded goods. CAN̵= 7;s average external tariff currently stands at approximately 13 percent.<= /o:p>

= Over the years, CAN norms, which cover a wide range of disciplines, have become local law. It remains unclear whether these will continue to apply following the withdrawal from the pact, and the BRV has not pronounced on the matter. In November 2006, Venezuela’s Supreme Court accepted a petition requesting interpretation of the current validity of CAN norms and is to rule on the subject.

In July 2006, Venezuela became a fu= ll member of the Southern Cone Common Market (Mercosur). Under the terms of accession, Venezuela has four years to adopt the Mercosur Common External Tariff (CET), and to provide tariff-free treatment to its four Mercosur partners by Janua= ry 2012 on all goods, with sensitive products allowed an extension to January 2014. Exceptions to the= CET exist on a product-specific or sector-specific basis, mainly for goods= not produced within the union or those which potentially affect the production capacity of the members. Mercosur’s average external tariff is approximately 14 percent, except for capital goods which were recently reduced to zero.

= While CAN offers higher protection levels to fisheries, textiles, and agriculture, Mercosur applies higher protection levels to vehicles, parts, leather, textiles, and shoes. Under the Andean Community’s Common Automotive Policy (CAP), assembled passenger vehicles constitute an exception to the 20 percent maximum tariff and are subject to 35 percent import duties. The CAP will remain effective until 2009 when a new agreement is sou= ght.

= Venezuela continues to apply the Common External Tariff (CET) of the Andean Community= for certain agricultural products, including feed grains, oilseeds, oilseed products, sugar, rice, wheat, milk, pork, and poultry imports from third-pa= rty countries. While most agricultural products f= all between the 5 to 20 percent tariff levels, Venezuela’s average tariff= for the sector currently stands at approximately 17 percent. Ad valorem rates= for these products are adjusted according to the relationship between commodity market reference prices and established floor and ceiling prices. However, the adjustable levy appli= ed under the Andean Price Band System can increase the actual duty significant= ly. The Andean Price Band system is de= signed to raise tariffs when world prices are low, and to lower them when international prices are high. However, in the case of Venezuela, tariffs are rarely the constraini= ng factor on trade, as access to the appropriate signed import documentation is the main barrier.

All imports are assessed a one percent customs handling charge.

Customs calculates duties on the landed (CIF) cost of the product and= on the gross weight of the import, thus including the weight or value of the packaging. Venezuela has recently established procedures for imposing speci= al duties to avoid dumping and counteract subsidies.

Typically = customs authorities accept the value of the shipment as indicated on the documents,= but recent regulations allow them to reference a base price on some products su= ch as textiles in order to determine minimum price for purposes of customs val= ue. Government officials have indicated that this base price system is WTO-compliant. Under invoicin= g in any event can result in heavy fines to the importer as well as forfeiture of the goods in question. Compla= ints by importers of inconsistency in customs treatment in various ports of entry have led to an effort by the National Tax Authority (SENIAT) to build a com= mon data base of information and otherwise coordinate and ensure uniform valuat= ion principles by customs offices throughout the country.

Agricul= tural Imports

Venezuela has been using the tariffs established under the Andean Community’s p= rice band system since 1995 for certain agricultural products, including feed gr= ains, oilseeds, oilseed products, sugar, rice, wheat, milk, pork and poultry. Yellow corn was added to the price= band system in 1996, and processed poultry was added in 2001. Ad valorem rates for these products are adjusted according to t= he relationship between commodity market reference prices and established floor and ceiling prices. When the reference price for a particular commodity falls below the established floor price, the compensatory tariff for that commodity and related products is adjusted upward. Conversely, when the reference price exceeds the establish= ed ceiling, the compensatory tariff is eliminated. Floor and ceiling prices are set once a year based on average prices during the past five years. Venezue= la publishes these prices each April.

Trade Barriers = &nb= sp; = &nb= sp; = &nb= sp; Return to top

Non-Agr= icultural Goods and Services

Venezuela = has traditionally been a relatively open market to U.S. exporters. <= /span>

In the las= t two to -tthree years, however, public procurements have increasingly been handled by priva= te negotiation rather than by public tender. This, combined with a marked preference of the current Venezuelan government for non-U.S. suppliers, has negatively affected U.S. exporters’ access to some parts of the Venezuelan market.

Some types= of exports to Venezuela—such as medical devices, cosmetics, or drugs = 211; require approval in advance by the Venezuelan Ministry of Health (MINSALUD). The approval process, though it can be somewhat lengthy (approximately 3-6 months), is relatively transparent and routine. = The approval and/or registration process is managed by the Venezuelan importer = or distributor, so it is absolutely essential that U.S. companies verify their importer’s or local agent’s experience with and knowledge of the product approval and/or registration process. Only the importer or local representative can request product approval and/or registration from ~~the Ministry of Health~~= MINSALUD, meaning that the non-Venezuelan company cannot do the process from overseas= .

Under the = Andean Community Common Automotive Policy, Venezuela, Colombia and Ecuador impose local content requirements as a condition for reduced duties on imports. The local content requirement for passenger vehicles was 32 percent in 1997.= It was raised to 33 percent for 1998, and was then lowered to 24 per= cent for 2000. Under the WTO Agree= ment on Trade-Related Investment Measures (TRIMS Agreement), the three countries were obligated to eliminate local content requirements by the year 2000. However, in December 1999, the And= ean Automotive Policy Council determined that it would not eliminate the local content requirement as it had initially indicated, but instead decided to increase it gradually to 34 percent by the year 2009. This automotive policy may be inco= nsistent with Venezuela’s WTO obligations under the TRIMS Agreement.

Although t= hey appear to be neither used nor intended as trade barriers to U.S. exporters,= the CADIVI currency exchange requirements can place U.S. exporters at a disadvantage, sometimes considerable, to their competitors who benefit from Andean Pact and ALADI preferences. CADIVI has been accused of being lengthy and bureaucratic. The absen= ce of a regulation by the exchange commission for the audiovisual sector is an important barrier for the sector.

Agricultural

Venezuela has used its authority to issue sanitary and phytosanitary import permits to prohibit the importation of certain agricultural products (most notably fruit, poultry and pork), which compete with domestic product= s.

Almost all agricultural imports must have sanitary or phytosanitary import certificates and a country of origin certificate, issued by the exporting country authorities, in order to be allowed entry. Process= ed food products require registration with MINSALUD~~the Ministry of Health and Social Development~~. In the case of impo= rted alcoholic beverages, the tax “band” must be affixed across the bottle closure before the shipment can leave the customs premises. ~~Imported cigarettes are also subject to this type of measure and~~ aAdhesive labels are not allowed. Imported tobacco products must indicate on e= ach package that the tobacco paste has been paid.

Agricultur= al Import Licenses

Under its World Trade Organization (WTO) commitments, Venezuela is entitled to administer tariff rate quotas for up = to 62 HS code headings. The tari= ff rate quotas are administered through an import license regime. Management of tariff-rate quota (TRQ) commitments by the Government of Venezuela has been arbitrary and nontransparent and has negatively affected trade in basic agricultural commodities as well as processed products. Most significantly,= the import licensing system often informally calls for purchasing of domestical= ly produced commodities before granting licenses to importers.

The Ministr= y of Food ( MINAL) is responsible for issuing import licenses, but approval is subject to the concurrence of the “Interministerial Commission.” The interministerial commission consists of the following ministries: MINFINANZAS, Ministry of Commerce and Light Industries (MILCO,) Ministry of Agriculture and Lands (MAT,) MINAL, and Ministry of Health (MINSALUD.) The latest guidelines and requirem= ents for applying for an import license were published in the official gazette N= o. 38,452 dated 06/06/2006. Basically, the guidelines are:

=

-Import lic= enses are valid for four months, and can only be renewed if, on expiry, they have= not been used for reasons outside the importer’s control.

-When apply= ing for a license, local importers are required to submit a monthly list of imports actually realized, indicating volume and value, together with the invoice of the most recent import, also indicating the volume and value of the merchan= dise in question.

-The import= er must indicate the amount of the allocated quota that remains unused. =

-Local impo= rters are required to obtain the “certificate of non-domestically produced = food product” and the “certificate of not-sufficient domestically produced food product” from the Ministry of Commerce and Light Indust= ries or MILCO, in order to have access to import licenses.

=

U.S. exporters must consider the unexpectedly long time frames between the proce= ss of obtaining an import license by a local importer, and the final shipment = of the product. It is worth noti= ng that the process of obtaining an import license is cumbersome and takes a considerable amount of time and resources from the local importer.

Import Requirements and Documen= tation        &= nbsp;           &nbs= p;            &= nbsp; Return to top

All shipments must be made on a direct consignment basis. Customs regulations stipulate that the consignee is the owner of the shipment and is responsible for all customs payments. Thus, a consignee may make the requir= ed payments and remove the merchandise from customs.

It is important to have a reliable and known consignee as the ownersh= ip status allows the consignee to have complete control over the imported prod= uct. Similarly, some U.S. companies have had difficulties with sight draft transactions. When Venezuelan companies either delay or refuse to claim merchandise arriving in Venezuelan ports Customs will impound goods not claimed, and, if steep fines and storage fees are not promptly paid, sell t= he goods at auction.

Since Venezuelan customs procedures are cumbersome and involve many steps, most importers use the services of a customs agent. The Commercial Service in Caracas can provide a list of agents. Venezuelan customs brokers typically charge one percent of the CIF value, or less on regular orders. T= here are additional charges for document preparation and incidentals. The import= er normally pays these expenses.

Import Licenses

Import licenses are rarely required for non-agricultural, commercial goods, but there are products= that still require permits. These include arms and explosives, which require an import permit from the Ministry of Defense. Import certificates might be required for certain products subject to special supervision.

Import / Export Documentation

Venezuelan Customs requires that all documents be in Spanish. The inv= oice must be typewritten, and a photocopy will not be accepted in lieu of an original. The manifest of importation and declaration of value must be in quadruplicate.

The following documents may be required: commercial invoice; bill of lading or airway bill; packing list; certificate of origin (if required); special certificates or permits when required (such as phytosanitary or quality standards certificates or Minist= ry of Defense permit for firearms).

Exporters should consult with the Venezuelan importer regarding what documentation is required in addition to the invoice.

Exporters should quote CIF and FOB prices for Venezuela. Insurance and freight must be listed separately on the invoice.

The invoice must be in duplicate and list both the value per unit and= the total value of the shipment. Shipping and insurance costs are to be listed separately. The description for the merchandis= e must include the appropriate tariff number, which the importer can supply.<= /o:p>

To simplify the import process for a large amount of cargo for one project, there should be a single declaration for all items, and each item = then listed separately with its respective tariff number.

More details on special requirements and documentation are available = in publications such as the following:

Export Reference= Guide

Bureau of Nation= al Affairs

1231 25th Street= N.W.

Washington, D.C.= 20037

Phone: (202)452-4200

Fax: (202)452-46= 10

Email: = customercare@bna,com

http://www:bna.com

Expo= rt Guide

The D&B Corporation

103 = JFK Parkway, Short Hills, NJ 07078 U.S.A.

Phon= e: 800.234.3867

Fax:= 800.234.3867

= Email: = custserv@dnb.com <= /span>

http://www.dnb.com

~~Importers Registry~~

The Importers Registry, established in October 1999, was eliminated the last quarter of 2000. Importers of agricultural commodities and by-products are = no longer required to be registered at the Ministry of Production and Commerce (MPC), and do not need to demonstrate their importing history (volume, valu= e, country of origin, final sales and final destinations, among other items). = This prerequisite was eliminated at the end of 2000.

~~For more information on food and agriculture import regulations and Standards, please see GAIN report No. VE5015 at the US Foreign Agricultural Service web page: http://www.fas.usda.gov/~~

Free Trade Zones / Warehouses

The Free-Trade Zone Law (Gazette= No. 34,772 of 1991) provides for free trade zones/free ports. The three existing free trade zones are located in the Paraguana Peninsula on Venezuela's northwest coast, Atuja in Zulia State and Merida. (Merida is a free trade z= one only for cultural, scientific, and technological goods.) These zones provide exemptions from most import and export duties and offer foreign-owned firms= the same investment opportunities as host country firms, while Paraguana and At= uja provide additional exemption of local services such as water, and electrici= ty.

Venezuela also has two free ports that also enjoy exemptions from most tariff duties: Margarita Island (Nueva Esparta) and Santa Elena de Uairen in the state of Bolivar.

Duty-free bonded warehouses are available at ports, airports and in most major towns. Industrial establishments can also be declared in-bond if these are = used for assembly, completion or improvement of products for re-export.

U.S. Export Controls        &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;             = Return to top

Notice was given on August 17, 2006 that the = United States will no longer authorize the export of defense articles and defense services to Venezuela. (See Federal Register/Vol. 71, No.159/ August 17, 20= 06)=

All dual u= se U.S. technology is potentially subject to export licensing by the U.S. governmen= t, and exporters should look into this issue at a very early stage of negotiat= ion.

For information on U.S. Export Controls, U.S. exporters should visit the websit= e of the U.S. Department of Commerce’s Bureau of Industry Security at: http://www.bis.doc.gov.

Temporary Entry            =             &nb= sp;            =             &nb= sp;            =             &nb= sp;   Return to top

Venezuelan customs laws and regulations allow the import of merchandi= se on a temporary basis for exhibitions, cultural purposes, demonstrations, sc= ientific purposes or specific contracts.

The importer must request permission for temporary entry, providing an exact description of the merchandise, its number or volume, its value and i= ts expected date of re-export. Temporary entry forms may be requested from the Gerente de Aduanas del SENIAT at phone (58 212) 274-4101/4508 and fax number (58 212) 274-4128. A bond covering the full value of the duty payable in ca= se the products stay in the country must be obtained, but will be returned once the products have left the country.

Normally, temporary entry permits are granted for a maximum stay of u= p to six months and have to be approved by Venezuela’s tax agency, SENIAT.= A one percent customs handling charge must be paid and is not reimbursable. In some cases, reimbursable collateral is requested for temporary imports.

Temporary entry of samples is allowed, but the determination of what = is a sample is left to the customs agent at the port or airport of entry. Samples arriving unaccompanied as freight are never considered as such, unless decl= ared as having no commercial value and prepared in such a form that they cannot = be sold commercially.

Labeling= and Marking Requirements    = ;            &n= bsp;            = ;            &n= bsp;   Return to top

For information on food and agriculture import regulations and standards, please see GAIN report No. VE6009 ~~VE5015~~ at the US Foreign Agricultural Service web page: http://www.fas.usda.gov/.

Spanish is the official language of Venezuela, and the official measuring system is metric. .MINSALUD oversees processed food labeling. Labeling is mandatory for domestically produced and imported food products.= The General Regulation for Foods, the Sanitary Defense Law and the COVENIN standards provide labeling requirements. MINSALUD’s authorities may require the elimination or modification of any paragraph or phrase concerni= ng a particular product, as well as recommending the addition of any paragraph or phrase they deem necessary. A= ll labels must be presented in Spanish. A Spanish translation of the original/foreign label must be authorized by MINSALUD. The approved label may be affixed (stickers are acceptable) to the foreign language label. The approved label must be applied to the product prior to export because it has to enter the country in its final presentation.

Processed Food Products Health Registration     &= nbsp;           &nbs= p;          Return to top

All domesti= cally produced and imported processed food products must be registered with MINSA= LUD, through its Food Hygiene Division, before it can be sold to Venezuelan consumers. Although Venezuelan law does not prohibit a foreign exporter to register food products, a local consultant or agent may prove the best reso= urce in order to complete the food registration process. The general guidelines for registe= ring processed food products are:

=

- All consumer-ready food products under the following Venezuelan Harmonized Sche= dule headings (HS codes) are subject to registration: 03,04,05,16,19,20,21 and 2= 2.

- Prior to importing consumer-ready food products, importers should obtain a registrat= ion number from MINSALUD.

- Processed= foods not registered in the country of origin cannot be registered in Venezuela.<= span style=3D'mso-spacerun:yes'>

- All new-t= o-market local or foreign processed food product must be submitted for registration before being imported.

- The forei= gn exporter/seller is the owner of the product registration, although authoriz= ed importers can proceed with the registration process.

- The proce= ssed food product health registration is valid for five years. Renewals are permitted.

- In specia= l cases, MINSALUD would consider exceptions to the registration process for GOV food imports, like the imports carried by CASA.
- If an imp= orted product does not meet the minimum quality standards or does not have a heal= th registration number, it could be confiscated and/or destroyed by MINSALUD authorities.

- Inspectio= n at the point of sale is done by MINSALUD and INDECU authorities on a regular basis= to determine if imported products are fit for human consumption, have sufficie= nt shelf life, or alternatively are thought to have been adulterated.

Labels mus= t list all ingredients, the contents of the package in the metric system or in uni= ts, and the registration number of the MINSALUDi~~nistry of Health o~~r or the Ministry of Light Industries and Commerce in the case of animal feed or veterinary medicines. Almost all agricultural imports must have a certifica= te of origin from the country of origin, issued by the exporting country authorities. Stickers are allowed in the case of imported products. These stickers must also identify = the importer. Operating instructions or owners manuals must be in Spanish.

In Septemb= er 2002, the government decreed new requirements for the labeling of footwear and textiles. Footwear and textile labels subseque= ntly had to meeting the following criteria:

·         Text must be in Spanish, in a font not smaller than 2 millimeters in height, and must include:

·         Name of manufacturer

·         Country of origin

·         Legal name of importer

·         Taxpayer number of the Venezuelan importer

·         Brand name

·         Size of the garment

·         Care instructions (in international symbols)

·         Fiber composition of the garment according to chapters 61 and 62 of the Internati= onal Harmonized Tariff Code, with percentages of content spelled out using the generic name of the fibers.

In addition, the footwear and textile importer must have registered with SENCAMER (Servicio Autó= ;nomo de Normalización, Calidad, Metrología y Reglamentos Técnicos). Failure to comply could impede importation of the merchan= dise to Venezuelan territory.

Prohibited and Restricted Imp= orts        &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;   Return to top

At this ti= me, imports of used autos, buses and trucks, used clothing and used tires are prohibited. Pork from most countries is unofficially banned. Live animals of the bovine, sheep, goat and buffalo families – as well as beef from countries where BSE exists – are banned. Raw poultry from countries w= here Avian Influenza exists is banned. Products such as apples, pears, grapes, nectarines and other fruits are not included among the high priority produc= ts to receive dollars under the currency controls. Potato seeds coming from the U.S. are banned until the pest risk assessment, currently under review by t= he Servicio Autonomo de Sanidad Agropecuaria (SASA), is completed.

Some produ= cts - such as cigarette paper, bank notes, weapons and certain explosives - can be imported only by government agencies. The government can delegate authority= to import on its behalf, and can place orders for such products with the local sales agents of the foreign manufacturers.=

Weapons for private use - such as shotguns, sporting rifles, air rifles, non-military pistols and commercial explosives - can be imported only with authorization= of the Ministry of Defense or a company owned by the Ministry of Defense, CAVIM.

Customs Regulations and Contact Information     &n= bsp;            = ;         Return to top

Gerente de Aduanas del SENIAT <= o:p>

Ph: (58 212) 274-4101/4508

Fax: (58 212) 274-4128

Commercial Service, Caracas

Senior Commercial Advisor Hans Mueller

hans.mue= ller@mail.doc.gov.

Standards            =             &nb= sp;            =             &nb= sp;            =             &nb= sp;            =    Return to top

Overview

Standards Organizatio= ns

Conformity Ass= essment

Product Certif= ication

Accreditation

Pub= lication of Technical Regulations

Labeling and Mar= king

Contacts

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            Overview        &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;         Return to top

    =

Venezuela’s standards regime has undergone several organizational and legal changes over the last few years. It now consists of two organizations. One is a private non-profit foundation, FONDONORMA, and the other, SENCAMER, is part of the Ministry of Commerce and Industry. While there is some overlap between the = two organizations, in practice, the system appears to work well and to the gene= ral satisfaction of the private sector. Certifications, conformity certificates, testing, adherence to international practices and norms are now common. The= use of foreign standards is now possible and accepted for some imported product= s.

For specific information on food and agriculture import regulations and standar= ds, please see GAIN report No. VE6009 ~~VE5015~~ at the US Foreign Agricultural Service web page: http://www.fas.usda.gov/

            Standards Organizations     =             &nb= sp;            =             &nb= sp;         Return to top

The Venezuelan Commission for Industrial Standards, known for many years as COVENIN, no longer exists. COVENIN has been replaced by the “Fondo para= la Normalizacion y Certificacion de Calidad” (FONDONORMA). However, Venezuelan standards developed by FONDONORMA still are called COVENIN norms.

FONDONORMA, a non-profit foundation, is owned by the private sector through trade and industry associations, large private companies, and individuals. It also ha= s a few government organizations, mainly ministries, among its council members. FONDONORMA is a member of the International Organization of Standardization (ISO) and awards ISO certificates to local companies. It is also a member of the Pan-American Standards Commission (COPANT) and of the International Certification Network (I Q Net).

FONDONORMA does not receive budgetary support from the government, and derives its inc= ome from issuing quality certificates and testing certificates. Other sources of income include guidance and support to the private sector in adopting and applying standards, issuing certificates for customs indicating that a fore= ign standard is an acceptable replacement for a COVENIN standard, performing accreditation of testing laboratories, offering seminars and conducting oth= er standards-related activities.

FONDONORMA, through individual industry committees, develops new standards as the need = is perceived. Its primary objective is quality assurance of both locally made = and imported products. In addition to the ISO certification and the development= of COVENIN standards, FONDONORMA also issues a NORVEN seal of quality to local manufacturers for specific products and for services. FONDONORMA does not h= ave an annual plan for developing and issuing new standards and appears instead= to respond to specific needs or pressures from government agencies or ministri= es.

A law passed in 2002 created the “Venezuelan System for Quality” = and a new agency, the National Autonomous Service for Standardization, Quality, Metrology and Technical Regulations” (SENCAMER). SENCAMER, a part of = the Ministry of Production and Industry, was established to issue, publish, and oversee compliance with technical standards.

SENCAMER accredits testing laboratories, accredits training institutions, supervises fire prevention and fire fighting bodies, supervises elevator maintenance a= nd inspections, develops technical regulations, supervises vehicle technical a= nd safety standards, and intervenes in some environmental protection issues. <= o:p>

SENCAMER also owns and operates Venezuela’s metrology laboratory in charge of certifying equipment and activities used for the measuring of masses, weigh= ts, dimensions, temperatures, pressure, torsion forces, electricity and physical-chemical apparatus.

NIST Notify U.S. Servic= e

Member countries of the World Trade Organization (WTO= ) are required under the Agreement on Technical Barriers to Trade (TBT Agreement)= to report to the WTO all proposed technical regulations that could affect trade with other Member countries. Notify U.S. is a free, web-based e-mail subscription service that offers an opportunity to review and comment on proposed foreign technical regulations that can affect your access to international markets. Register online at Internet URL: http://www.nist.gov/notifyus/=

&= nbsp;

        &= nbsp;   Conformity Assessment     &nb= sp;            =             &nb= sp;            =            Return to top

It is FONDONORMA which issues conformity assessments for quality assurance and adherence to existing standards from ISO and SENCAMER. FONDONORMA also issu= es conformity assessments, if required, for local products being exported to verify adherence to foreign standards or the IQNet 9004. FONDONORMA is also the channel for obtaining conformity-testing certificates.

In other instances, SENCAMER issues the conformity statement, often after testing in its own metrology lab or in ot= her private and government testing laboratories, such as the National Hygiene Institute for pharmaceuticals, the laboratories operated by the Engineering Foundation (Fundacion Institute de Ingenieria), or any other accredited pri= vate testing organization.

&= nbsp;

        &= nbsp;   Product Certification     =             &nb= sp;            =             &nb= sp;            =      Return to top

     =        Apart from the product registrations that might be required for certain types of products, there a= re no overall requirements for product certification in Venezuela. Certain products, however -- medical devices, pharmaceuticals, and cosmetics among = them – are subject to a certification and/or registration process. In those cases, the applicant might be required to submit samples for laboratory tes= ting and certification of their safety. ISO, NORVEN or IQNet certification is frequently helpful in gaining approval that a product or service adheres to existing norms or standards. The Commercial Service Caracas is unaware of mutual recognition agreements with any U.S. organizations.

            Accreditation        &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p; Return to top

    =

     =        All testing laboratories = to be used for official product testing must be accredited by FONDONORMA or SENCA= MER.

        &= nbsp;   Publication of Technical Regulations   &= nbsp;           &nbs= p;            &= nbsp;   Return to top

The one place for publishing Venezuela’s new laws, resolutions, decrees, government appointments, and other official data is the “Gaceta Oficial,” (Gazette) published by the government printing office daily except weekends and holidays.

The Gazette, however, does not publish anything similar to notices of proposed rulemaking, so there is no standard official mechanism for inviting comment= on proposed changes to technical standards.&n= bsp;

Nor does the Gazette publish new technical regulations. The full contents of a = new technical regulation must be obtained directly from the government agency t= hat created it. It can be said that new regulations are created with a “t= ake it or leave it” philosophy, and changes are made only in the event of widespread public concern. The same holds true for new standards themselves, available only by request from either FONDONORMA or SENCAMER.

        &= nbsp;   Labeling and Marking     &n= bsp;            = ;            &n= bsp;            = ;            &n= bsp; Return to top

Labeling or markings of products are ordered by resolutions issued by the responsible ministry and not by the standard making body. Labeling regulations vary by product, but the basic rule is that all labels must be in the Spanish langu= age and all measurements must be in the metric system.

For products that require registration and authorization for sale to the public, the labeling requirements typ= ically include a list of contents; the name of the manufacturer, importer or distributor; the name of a sponsoring and responsible pharmacist in the cas= e of drugs; and any warnings or other data required as part of the product’= ;s registration requirements.

Foreign language labels are allowed in some instances, as long as a separate glued-= on or self-adhesive label affixes the Spanish text.

Operating instructions and owners manuals must be in Spanish.

Labels must list all ingredients, the contents of the package in the metric system= or in units, and the registration number of the Ministry of Health or the Mini= stry of Light Industries and Commerce in the case of animal feed or veterinary medicines. =

Almost all agricultural imports must have a certificate of origin from the country= of origin, issued by the exporting country authorities. Stickers are allowed in the case of imported products. These stickers must also identify the importer. Operating instructio= ns or owners manuals must be in Spanish.

For more information on food and agriculture import regulations and standards, please see GAIN report No. VE5015 at the US Foreign Agricultural Service web page: http://www.fas.usda.gov/

In September 2002,the government decreed new requirements for the labeling of footwear and textiles. Foot and textile labels subsequently had to meet~~ing~~ the following criteria:

·         &nb= sp;           Text must be in Spanish, in a font not smaller than 2 millimeters in height, and must include:

·         &nb= sp;           Name of manufacturer

·         &nb= sp;           Country of origin

·         &nb= sp;           Legal name of importer

·         &nb= sp;           Taxpayer number of the Venezuelan importer

·         &nb= sp;           Brand name

·         &nb= sp;           Size of the garment

·         &nb= sp;           Care instructions (in international symbols)

·         &nb= sp;           Fiber composition of the garment according to chapters 61 and 62 of the Internati= onal Harmonized Tariff Code, with percentages of content spelled out using the generic name of the fibers.

In addition, the footwear and textile importer must have registered with SENCAMER (Servicio Autónomo de Normalización, Calidad, Metrología y Reglamentos Técnicos). Failure to comply could impede importation of the merchan= dise to Venezuelan territory.

&= nbsp;

Contacts        &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;         Return to top

The Commercial Service in Caracas carefully monitors technical standards developments that might have an impact on U.S. commercial interests. For mo= re information on the Venezuelan technical standards regime and technical standards issues, you can contact the Commercial = Attache, Michael Carroll, at michael.carroll@mail.doc.gov; the Senior Advisor to the Commercial Counselor, Hans Mueller, = at hans.mueller@mail.doc.gov,; or the Commercial Service office at caracas.box.office@mail.doc= .gov.

Trade Agreements        &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;     Return to top

Venezuela is no longer a member of the Andean Pact (CAN) with Colombi= a, Ecuador, Bolivia and Peru. However, Venezuela will continue to benefit from= all trade preferences of the CAN’s free trade zone during the ~~5 year~~5-year phase-out period. The CAN negotiated a common external tariff (CET) which covers approximately 62 per= cent of traded goods.

Bilateral commerce with Colombia has increased substantially as a res= ult of Venezuela’s free trade arrangement with its neighbor. A recent cha= nge in the trade policy with Colombia, which went into effect in July of 1999, resulted in the requirement that all goods in transit to Venezuela be transferred to local transportation companies.

In July 2006, Venezuela became a full member of the Southern Cone Common Market (Mercosur).   Under the t= erms of accession, Venezuela has four years to adopt the Mercosur Common External Tariff (CET), and to provide tariff-free treatment to its four Mercosur partners by January 2012 on all goods, with sensitive products allowed an extension to January 2014.

In 2006, Venezuela also withdrew from Group of Three Free Trade Agreement, which was made up by Venezuela, Mexico and Colombia. Venezuela h= as partial free trade agreements with Chile, some countries in Central America= and CARICOM.

In 2005 the= GOV signed agreements with Argentina, Bulgaria, Brazil, China and Israel, which will offer agricultural technical assistance and investment to install food-processing facilities. The GOV is also negotiating trade agreements wi= th India, Qatar, Syria, Thailand and Kuwait. In early 2006 the GOV announced agreements with Bolivia and Iran. The GOV has stated that these agreements = will benefit Venezuela’s agricultural sector through the purchase of agricultural machinery and food products. None of these agreements have been published and the little information provided about them has been given thr= ough GOV press statements.

Web Resources            =             &nb= sp;            =             &nb= sp;            =             &nb= sp;      Return to top

The Venezuelan-American Chamber of Commerce (Venamcha= m)

Torre Credeval, Piso 10, Ofc = A, 2nda Avenida de Campo Alegre, Caracas

Mr. Carlos Tejera, General Ma= nager

Tel: 58 212 264 4366

Fax: 58 212 263 1829

www.venamcham.org

Fondo Para la ~~Normalazaci= on~~Normalización y Certificacion de Calidad (FONDONORMA)

www.fondonorma.org.ve

Servicio ~~Autonomo~~Autónomo Nacional de Normalizacion, Calidad, Metrologia y Reglamentos ~~Tecnicos~~Técnicos (SENCAMER)

www.sencamer.= gov.ve

The Commercial Service in Caracas carefully monitors technical standards developments that might have an impact on U.S. commercial interests. For mo= re information on technical standards, U.S. exporters can contact the Commerci= al Service, Caracas at cara= cas.box.office@mail.doc.gov

Return to table of contents<= /a>

Return to table of contents

Chapter 6: Investment Climate

Openness to Foreign Investment

Conversion and Transfer Policies

Expropriation and Compensation

Openness to Foreign Investmen= t &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

A. Openness to Foreign Investment

A.1 The New Constitution

A.2 Legal Framework: Decree 2095=

A.3 Limitations under Decree 209= 5

A.4 Areas Covered by Special Laws

A.5 Hydrocarbons

A.6 Natural gas

A.7 Electric Power

A.8 Domestic Retail Fuels Market<= /o:p>

A.9 Mining

A.10 Telecommunications

A.11 Banking

A.12 Insurance

A.13 Privatization

A.14 Capital Outflow Policy

<= /p>

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A. Openness to Foreign Investment

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Venezuela off= icially encourages foreign investment and provides equal treatment to local and for= eign companies, though the actual environment is in fact considerably less welcoming. On January 10 of 2= 007, President Chavez announced that the government would nationalize companies = in the electricity, telecommunications and petroleum sectors as well as re-wri= te the country's commercial code. As of this writing, it seems likely that firms and shareholders will be compensated to some degree for their expropriated assets. Capital repatriation is allowed (s= ubject to exchange control restrictions described below) and there are few formal restrictions on investments except for several sectors that are reserved to= the State or Venezuelan nationals such as oil production, and power generation (with some exceptions). =

<= /p>

The Venezuelan economy gr= ew by 9.4 percent in 2005 and 10.3 percent in 2006, driven largely by a huge incr= ease in government expenditures as a result of the continued oil bonanza. The official inflation rate reache= d 17 percent during 2006 due to higher consumer demand and excess money supply a= nd many in the private sector argue that actual inflation is higher, still.

Statements by President Hugo Chavez and other Venezuelan officials about the need to adop= t a new non-capitalist economic model (what President Chavez calls "Socialism of the 21^st Century&qu= ot;), an aggressive adoption of urban and rural "land reform" at the st= ate and national levels, the takeover of "idle" industrial plants, the passage of legislation which has expanded the Supreme Court, with the subsequent appointment of judges on what observers consider a political bas= is rather than merit, and sudden unilateral increase by the Government of Venezuela in petroleum royalty rates for strategic associations have been negative developments. <= /o:p>

On January 10= , 2007, President Chavez announced that Venezuela would "nationalize" previously privatized companies and take control of as yet undefined "strategic sectors," including telecommunications and electricity. In general, the = Venezuelan government has sought to promote an increasing state presence in areas of t= he economy previously left to private enterprise. The most prominent is its "Mercal" chain of food stores aimed at low income Venezuelans, wh= ich is supplied by state purchases of commodities. Estimates are that approximately 47 percent of the sale and distribution of basic food products were sold throu= gh the Mercal program, benefiting over 15 million Venezuelans in 2006. Other areas that the Venezue= lan state is reentering include civil aviation, telecommunications, cement production, paper manufacturing, and sugar refining.

In early 2003, President Chavez create= d an Exchange Administration Board (CADIVI) to regulate the purchase and sale of foreign currency and limit capital flight.= The Central Bank liquidates CADIVI-approved requests for exchange. Initially, CADIVI was unable to pr= ocess foreign currency requests efficiently and the Venezuelan Central Bank was o= nly supplying currency to about 15-20 percent of approved authorizations. Over time, the system has improved= , and in 2006 CADIVI authorized a total of USD $27.4 billion. Of this amount, 61.4 percent was f= or imports, followed by repatriation of capital (6.1 percent), private debt service (4.9 percent), and travel services through credit cards (4.5 percent). CADIVI also authori= zed to make payments through the Latin American Association for the Integration (ALADI) for USD 5.3 billion. = CADIVI is currently also accepting currency requests in Euros. While CADIVI appears to more effic= iently process requests for capital and consumer imports, it is less efficient processing requests for repatriation of profits, royalty payments, and paym= ents for services. A number of goo= ds were removed from the list of imports eligible for foreign exchange in 2006= in an effort to reduce imports and promote import substitution. A recent decree allows for the imp= ort of capital equipment, parts, and accessories free of duties and value added ta= x.

A Foreign Exchange Crime Law, publishe= d in the Venezuelan Official Gazette No. 38,272 on September 14, 2005, establish= ed criminal penalties and fines for transactions made outside the official for= eign exchange process, reinforcing the foreign exchange control regime.

Foreign Direct Investment (FDI) has declined precipitously in Venezuela from USD 3 billion= in 2005 to only USD 75 million as of the third quarter of 2006. There are a number of projects und= er development or in pre-engineering stages, mainly in oil and gas or large infrastructure projects, though the proposed "nationalization" of energy sectors may stifle further development. The type of contractual relationsh= ip an oil company has with the state oil corporation PDVSA varies widely, dependi= ng on the nature of the underlying project.&n= bsp; As regards to the latter, the preferred venture scheme has become so= vereign deals or contracts between state corporations. Power, several road and railroad projects and the expansion of some production facilities for basic industry seem to be the main areas where there are projects in the pipeline. However, most of these projects ha= ve very little if any private participation at all.

As a member o= f the Andean Community, Venezuela accepted the application of the Andean Decision= s, although examples can be found of non-compliance. In May 2006, President Chavez anno= unced that Venezuela would leave the Andean Community and join MERCOSUR. The terms of accession to MERCOSUR= have yet to be fully negotiated. M= ost Andean Community norms and obligations have remained in place, pending their replacement by new local laws.

-------------= -------------------

A.1 The 1999 Constitution

-------------= -------------------

The Venezuelan Constitution of 1999 treats private capital investment as a means of promot= ing the development of the national economy.&n= bsp; Chavez has announced that the Constitution will be revised in 2007 a= nd may include sweeping changes to current laws governing private enterprise.<= span style=3D'mso-spacerun:yes'> Article No. 299 of the curre= nt Constitution recognizes private enterprise as a factor for creating sources= of employment and local added value, as well as raising the standard of living= of the population, within a framework of free competition. The Constitution reserves certain strategic sectors for the State, such as oil activity and hydropower genera= tion.

Article 301 o= f the Constitution adopts international standards for the treatment of private capital, with equal treatment of local and foreign capital.

----------------------------------------= ---

A.2 Legal Fra= mework: Decree 2095

-------------= ------------------------------

Decree 2095 (= 1992) establishes the legal framework for foreign investment in Venezuela. This Decree implemented Andean Pact Decisions 291 and 292 and significantly expanded foreign investment opportunities in Venezuela by lifting most restrictions on foreign particip= ation in the economy. Most sectors = of Venezuela's economy, except those specifically noted, are open to foreign participation. Article 13 of = the Decree explicitly guarantees that foreign investors will have the same righ= ts and obligations as national investors "except as provided for in speci= al laws and limitations contained in this Decree."

Under Decree = 2095, foreign investors need only register with the Superintendent of Foreign Investment (SIEX) within 60 days of the date a new investment is made. (The exception to this general rul= e is the Security and Defense Law, which provides that foreigners cannot own property in certain border regions or near military installations and basic industries without written authorization of the President through the Minis= try of Defense.) Foreign companie= s may generally open offices in Venezuela without prior authorization from SIEX as long as they do not engage in certain sales or business activities that wou= ld require registration. No prior authorization is required for technical assistance, transfer of technology,= or trademark-use agreements, provided they are not contrary to existing legal provisions. Shares of foreign companies may be sold publicly.

Decree 2095 a= lso guarantees foreign investors the right to repatriate 100 percent of profits= and capital, including proceeds from the sale of shares or liquidation of the company, and allows for unrestricted reinvestment of profits. Foreign exchange is, however, still subject to government exchange controls.&n= bsp;

Joint ventures and wholly owned subsidiaries of foreign compan= ies are treated in the same way as Venezuelan firms. Only registration of the venture w= ith SIEX is required. Decree 2095 imposes no limits on the amount of dividends, reinvestment, or repatriation. (The foreign ex= change regime, however, has significantly affected such transfers.)

------------------------------------------

A.3 Limitations under Decree 2095

------------------------------------------

Decree 2095 reserves three areas of economic activity to "national companies": television, newspapers, and professional services that are regulated by national laws. A "national company" (as defined in Article 1 of Andean Pact Decision 291) is a company in which Venezuelan nationals hold more than 80 percent of the equity. Foreign capital is therefore restr= icted to a maximum of 19.9 percent in enterprises engaged in radio, television, Spanish-language newspapers, and professional services subject to licensing= legislation (e.g., law, architecture, engineering, medicine, veterinary medicine, dentistry, economics, public accounting, psychology, pharmacy, and management). Foreign professi= onals are free to work in Venezuela without restriction, but must first revalidate their title at a Venezuelan university.&nb= sp; This is not required for consulting services under contract for a specific project. The Investm= ent Promotion and Protection Law of October 1999 maintained these exceptions and reserved sectors.

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A.4 Areas Cov= ered by Special Laws

-------------= ------------------------------

Sectors that = are regulated by "special laws" that supplement the Constitution incl= ude hydrocarbons, natural gas, power, iron ore, mining, telecommunications, broadcasting, banking, mortgages, and insurance.

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A.5 Hydrocarb= ons

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Venezuela’s vast res= erves make oil and gas its leading sector for attracting foreign investment. However, foreign investment is restric= ted in the petroleum sector and may be restricted in the gas sector, depending on = the outcome of proposed changes to the Constitution. The 2001 Hydrocarbons Law reserves exploration and production, as well as the "gathering" and initia= l transportation and storage of hydrocarbons to the state. Under this regime, primary activiti= es must be carried out directly by the state, by a 100 percent state-owned com= pany such as Petroleos de Venezuela (PDVSA), or by a joint venture company with = more than 50 percent of the shares held by the state. The 2001 law does, however, leave = new refining ventures open to private investment as well as commercialization activities, under a license and permit regime.

The Hydrocarbons Law mandated an incre= ase in royalty payments from 16.67 percent to 30 percent, with the possibility of a reduction to 20 percent for heavy crude projects. It also stipulated that any arbitr= ation proceedings would henceforth be in domestic not international venues.

Over the last two years the national government has made a number of changes in royalty, tax policies and contra= cts (aimed at increasing Government of Venezuela revenues and control of the sector) that have substantially increased uncertainty for companies operati= ng in Venezuela. The Hydrocarbon= s Law did not specifically grandfather contracts executed under earlier legislation: i.e., the 33 ope= rating service contracts awarded for "marginal&qu= ot; or inactive oilfields in three rounds in the 1990’s; the exploration and production profit-sharing agreements awarded in 1996; and the four so-called "Strategic Associations," joint ventures formed in the 1990’= ;s to extract and upgrade Venezuela’s extra heavy oil. The Venezuelan Government arg= ued in 2001 that no such provision was necessary because retroactive application of legislative provisions is forbidden by constitutional mandate. In October 2004, the Government unilaterally eliminated a nine-year royalty holiday ceded to the Strategic Associations, arguing that this was allowable under earlier hydrocarbons legislation. The government h= as announced that it wishes to convert the Strategic Associations to joint ventures under PDVSA control. It is currently in negotiations with the member companies to that end.=

The government informed companies with operating contracts in early 2005 that they must migrate the contracts to j= oint ventures that conform to the 2001 Hydrocarbons Law. The government threatened to seize fields operating under the services contracts on December 31, 2005 if oil c= ompanies did not sign transition agreements to migrate their contracts. Sixteen oil companies signed memor= andaum of understanding (MOU’s) converting their contracts to joint ventures on March 31. Two companies, ENI and Total, did = not sign a MOU and PDVSA took control of their fields.

The oil sector suffered two years of negative growth in 2002 and 2003 with a 14= .2 percent reduction in real oil GDP in 2002 and 1.9 percent reduction in real= oil GDP in 2003. The sharp decrea= se was due to a two-month national strike from December 2002-February 2003 that br= ought production to a complete halt. In response, the Chavez Government dismissed over 18,000 striking employees, m= any in management positions, of which only a small percentage have been rehired= . Real oil GDP increased by 11.6 per= cent in 2004 and by 2.6 percent in 2005.

The Chavez administration has played a price hawk role to maintain high prices = in OPEC. It has also begun promo= ting the regional development and integration of state energy companies under the name of "Petroamerica." Petroamerica has three components: Petrosur comprising the Southern Cone, Petrocaribe comprising the Caribbean nations, and Petroandina compris= ing the Andean nations. The stated purpose of the strategy is to diversify Venezuela’s export market.

PDVSA’s 2006-2012 Strategic Plan calls for the assessment and certification of the extra heavy crude oil reserves in the Orinoco oil tar belt (Faja). Memoranda of Understanding have be= en signed with various state-owned oil companies to certify 27 blocks with the participation of state oil companies from signatory countries. Investment under the strategic pla= n is supposed to reach USD $56 billion between 2005-2012, of which 70 percent wi= ll come from PDVSA and the rest from the private sector.

The GOV is repositioning itself as the main oil operator in country, cornering private investors, both domestic and foreign, and testing their willingness= and capability to adapt to new conditions.&nbs= p; The PDVSA business plan 2006-2012 seems to leave very little room for additional private investment in the oil sector, while favoring entrance of state-owned oil companies. Th= e GOV is attempting to diversify its portfolio of oil clients and investors, and = to be less dependent on the U.S.

-------------------

A.6 Natural G= as

-------------= ------

Venezuela has= vast untapped natural gas reserves, estimated as the eighth largest in the world, and is promoting greater use of natural gas domestically as a clean and more cost-efficient energy source. Venezuela would like to take advantage of its reserves and geographic location to export natural gas to regional markets, including the United States. The 1999 Gaseous Hydrocarbons Law offe= rs more liberal terms than are available to petroleum investors, and Venezuela’s government has sought foreign investment to develop offsh= ore natural gas deposits near the Orinoco delta.

The 1999 Gase= ous Hydrocarbons Law opened the entire natural gas sector to private investment, both domestic and foreign. Th= e law created a licensing system for exploration and production of Venezuela's non-associated natural gas reserves regulated by the Ministry of Energy and Mines. Natural gas that is pr= oduced in association with crude oil production remains subject to the Hydrocarbons Law. The state retains owners= hip of all natural gas "in situ", but PDVSA involvement is not required = for gas development projects. Com= plete vertical integration of the gas business from wellhead to consumer is prohibited.

In 2001, Vene= zuela held its first commercial auction of concessions for natural gas not associ= ated with petroleum production and successfully awarded six of eleven onshore ar= eas it offered to bidders. = In 2002 and 2004, the government licensed three exploration and development bl= ocks in the "Deltana Platform," located in waters contiguous to Venezuela’s boundary with Trinidad and Tobago. In 2005, Venezuela auctioned blocks within Rafael Urdaneta and Deltana Platform. Talks continue over the development of the Mariscal Sucre offshore natural gas project, which would involve the development of an LNG facility in Guiria in the Paria Peninsula. Venezuela also rec= ently signed an agreement with Colombia that envisions the construction of a natu= ral gas pipeline, which initially would bring Colombian gas to Venezuela but wh= ich could later be expanded to send Venezuelan gas to Central America. In November 2005, Venezuela = signed an agreement with Argentina to study the feasibility of building a 6,000 km= gas line. Finally, more private investor interest is anticipated for future gas rounds as Venezuela focuses= on export oriented natural gas projects and promising off-shore exploration areas.

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A.7 Electric = Power

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Electric power production requires intensive investments in all stages - generation, transmission, and distribution. In Venezuela, the area that is most in need of investment is generation, since approximately 70 percent of country’s generation capacity is concentr= ated in hydro stations located in a single river basin. The 2000 to 2002 drought raised se= rious concerns and highlighted the need to increase and balance generation to mitigate the consequences of droughts and grid deficiencies. Investments in hydropower generati= on continue however, with the incorporation of Caruachi, a 2,280 MW dam, and p= lans to build Tocoma, which will supply an additional 2,160 MW to the system.

Although approximately 98 percent of the national territory receives electric servic= e, transmission is an area that also requires intensive capital investments. <= span style=3D'mso-spacerun:yes'> Venezuela’s transmission asse= ts were developed between the 1960’s and 80’s. While maintenance has generally be= en adequate, population growth has outpaced upgrades creating transmission bottlenecks particularly in the central region of the country.

A legal frame= work has also been crafted to regulate the sector.&= nbsp; Its implementation, however, has been stalled mainly over concerns a= bout the ability of CADAFE (the national power utility) to un-bundle activities = and honor contracts. CADAFE is in= volved in generation, transmission, and distribution of electricity and is often accused of having serious management issues and very high non-technical (commercial) losses.

The Governmen= t has an aggressive plan to supplement hydroelectricity generation with thermal gene= ration units, many of U.S. origin. A= s a result, turbines now rank fifth among the leading U.S. exports to Venezuela this year. The Venezuelan Government has also announced its intention to revamp the national electric= ity grid with new high-voltage transmission lines.

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A.8 Mining

----= ----------

The = mining law of 1999 consolidates the provisions of the 1945 mining law with subsequ= ent mining decrees and encourages greater private sector participation in mining activities. The mining law cr= eated the National Institute for Geology and Mining (INGEOMIN), which serves as a national information center to gather and disseminate technical and scienti= fic data for the mining industry. The law established an inter-ministerial commission to coordinate the mining sector’s development between the Ministries of Energy and Mines (now = the Ministry of Heavy Industry and Mining), Environment, Defense, Finance, and Planning. It also call= ed for "one-stop shopping" to be created within that commission to exped= ite concession authorization procedures.

The = 1999 law maintained the basic concession terms of the 1945 law. Venezuela’s concessions rema= in mineral-specific, and have a maximum 20-year authorization, which can be extended for an additional 20 years. The law lengthened slightly the exploration period from 3 years to 4 years, and the development period from= 4 to 7 years.

The mining law al= so changed the mining sector’s tax structure. The 1945 mining law required a sma= ll one-time exploration tax: a surface tax of 40 centavos per hectare for allu= vial deposits and one Bolivar per hectare on veins and strata deposits and a lay= ered royalty rate. The surface tax= could not be adjusted for inflation because a fixed amount was written into the 1= 945 law and over time has become negligible.

The legalization of small and medium size mining operations has been viewed as a positive step toward the modernization of the sector and as a way to enforce environmental standards often violated by illegal small miners. The law, nevertheless, has been criticized for its high and variable royalties. A critical issue is a provision of= Title VII that allows an exploitation tax of anywhere between 1 percent and 3 percent.

Individual mi= ning firms have faced significant problems, and government officials have made comments that a generalized review of existing mining contracts may take pl= ace.

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A.9 Telecommunications

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President Cha= vez signed the Organic Telecommunications Law in 2000, replacing the antiquated 1940s-era law and setting the stage for significant levels of new investmen= t in the sector. The new law, coup= led with a national telecommunications plan developed by the National Telecommunications Commission (CONATEL) and the November 2000 expiration of= the monopoly held by CANTV on basic telephone services, created a favorable cli= mate for telecommunications investors. However, in January 2007, President Chavez announced that Venezuela would "nationalize" CANTV, which has cooled the climate for investment in Venezuela.

Venezuela rec= eived USD $771 million in investments in the telecommunications sector in 2005 and investment continued at a similar pace in 2006.

Venezuela has= one of the leading wireless telephony markets in the region. Three major companies share the ma= rket: Movilnet (41.6 percent), Movistar (44.7 percent), and Digitel (12.1 percent). Movilnet is owned b= y CANTV, Movistar is owned by the Spanish Group, Telefónica, and Digitel is o= wned by TIM, an Italian company.

EDELCA, a nat= ional utility involved in power generation and transmission and subsidiary of state-owned industrial giant, Corporacion Venezolana de Guayana (CVG), has formed a telecommunications company, CVG Telecom, using its existing fiber-= optic capabilities and rights of access. According to the government, EDELCA’s fiber optic capacity cov= ers approximately 70 percent of its grid and is interconnected to grids in Colo= mbia and Brazil. CONATEL, the Vene= zuelan regulatory authority, has given approval to CVG Telecom to provide telecommunication services directly to customers and CVG Telecom is already doing so in the Southern region of the country.

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A.10 Banking<= o:p>

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A 1994 Bankin= g Law (Gazette No. 4641 of 1993) opened Venezuela’s banking and financial services sectors to 100 percent foreign ownership. Foreign banks may enter the Venezu= elan market in one of three ways: acquisition of shares of existing commercial b= anks or other financial institutions; creation of a new bank or other financial institution wholly-owned by foreign banks or investors; establishment of a branch of a foreign bank or financial institution. In 2001, President Chavez passed a= new Banking Law as part of the package of enabling laws. This law regulates all banks with = the exception of four state-owned banks.

Another impor= tant development for the banking industry is the Venezuelan government’s n= ew Treasury Bank created to centralize public sector resources, largely held in private financial institutions. The Treasury Bank was created by the Venezuelan government as a universal bank = (one that is not limited in the types of services and products that it can offer= ) to act as the financial agent for the government, to pay the debt service (dom= estic and external debt), conduct foreign trade operations, receive income taxes,= and serve as the government’s cashier.

Applications = for entry into the banking sector are submitted to the Bank Superintendency, wh= ich must seek an opinion from the Central Bank before granting authorization. The government can take into accou= nt "economic and financial conditions, general and local" (Article 1= 1 of the Banking Law) and insist on reciprocity (Article 106 of the Banking Law) when deciding on an application for entry, but it has generally not used th= ose powers.

Total bank assets increased from USD $40.1 billion at the end of 2005 to USD $63.5 billion in October 2006. Since late 1996, twenty banks have received authorization to become universal banks.&n= bsp; Citibank and Stanford Bank are the only U.S. banks with operating branches in Venezuela. Citiba= nk is the fifteenth largest bank with around USD $1,123 million in assets and Stanford Bank is the thirty-first largest with USD 214 million in assets.

In 2001 a Mer= ger Law was passed, aimed at strengthening the financial sector by allowing stronger banks to acquire weaker institutions. Since the law was passed, 14 mergers have occurred reducing the numb= er of small banks by twenty. By November 2006, the Venezuelan financial system consisted of 22 universal ba= nks; 14 commercial banks; 3 development banks, 4 investment banks; 2 mortgage ba= nks; 1 leasing company; 3 savings and loan associations; 2 money market funds; 4 special law-regulated banks. = Of the 55 financial institutions, 45 are private and 10 are owned by the state.

The banking s= ystem is increasingly required to direct credit to borrowers in accordance with government requirements such as the imposition of a minimum amount of lendi= ng to be made to housing (10 percent), agriculture (16 percent), micro-busines= s (3 percent), and tourism (2.5 percent). The Venezuelan Central Bank started to apply interest rate regulatio= ns at the end of April 2005, by which a maximum and a minimum levels were set = for the banking system lending and deposit interest rates.

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A.11 Insuranc= e

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Venezuela's i= nsurance and reinsurance sector was opened to 100 percent foreign ownership in 1994. A subsequent decree pas= sed on November 2001 (Official Gazette No. 5.553) establishes rules for contracts = as the basis for insurance activity, detailing rights and obligations to guara= ntee equilibrium and protect customers. Foreign investors may acquire shares of an existing insurance or reinsurance company or create an entirely new company. Applications for entry into the se= ctor are submitted to the Insurance Superintendency for authorization. Foreign insurance companies are prohibited from offering insurance contracts fulfilled outside of Venezuela, unless the premiums become part of the net worth of an insurance company operating within Venezuela.

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A.12 Privatiz= ation

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The GOV has a Privatization Law (Gazette No. 5199 of 1997), which allows for the privatization of public assets. A number of assets were bundled and earmarked for privatization in the early = and mid 90s. From 1990-1998 FIV, = the Investment Fund of Venezuela, the entity in charge of selling the assets and later renamed the Economic and Social Development Bank (BANDES), privatized over 40 entities and generated cash receipts of nearly USD $4.8 billion. Foreign investors purchased stakes= in the telecommunications, electricity, steel, sugar refining, tourism, dairy, cement, and aviation sectors. However, President Chavez announced in early January of 2007 that he plans to undo a number of the privatizations, singling out the electricity sector and the national telecommunications company (CANTV).

The Chavez Administration has shifted its policy away from sel= ling a large portfolio of assets toward forming strategic alliances, particularl= y in the form of contracts with state-owned enterprises of other countries. Participation in strategic associa= tions regarding state owned entities is coordinated and administered by BANDES. The Government of Venezuela has cr= eated new state enterprises in aviation and telecommunication—areas from wh= ich the state had previously exited.

&nbs= p;

Conversion and Transfer Policie= s &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

Foreign inves= tors in capital markets and foreign direct investment projects are guaranteed the r= ight to repatriate dividends and capital under the Constitution. However, the Law Governing the For= eign Exchange System (Gazette No. 4897 of 1995) permits the executive branch to intervene in the foreign exchange market "when national interests so dictate." After a steep decline in the valu= e of the national currency (the Bolivar) following a two-month general strike that brought oil production to a near standstill, the Central Bank of Venezuela halted trade in Bolivars on January 22, 2003. President Chavez announced the cre= ation of an Exchange Administration Board (CADIVI) on February 5, 2003 to regulate the purchase and sale of foreign currency.= During much of 2003, CADIVI was unable to process requests for authorization of foreign exchange in an efficient and timely manner and only supplied USD $3.6 billion or approximately two months’ worth of transactions. There has been significant improvement over time. In 2006 CADIVI authorized a total of USD $27.4 billion in foreign exchange requests and the Venezuelan Central Bank liquidated USD $26.1 billion. CADIVI is currently = also accepting currency requests in Euros.

<= /p>

Decree 2095 guarantees foreign investors the right to repatriate 100 percent of profits= and capital, including proceeds from the sale of shares or liquidation of the company, and allows for unrestricted reinvestment of profits. Problems with coordinating the timing = of access to dollars, approval of import permits and licenses, and contracting= the shipments have led to numerous delays and cancelled shipments.

A new Foreign Exchange Crime Law was published in the Venezuelan Official Gazette= No. 38,272 on September 14, 2005, which establishes criminal penalties and fines for transactions made outside the office foreign exchange process, reinforc= ing the foreign exchange control regime. Exchange control authorities have repeatedly said that the exchange control system will be eased but will remain in place permanently. The 2007 national budget recently = passed by the National Assembly does not anticipate any currency devaluations from= the current parity of 2,150 Bolivars per USD $1. Nonetheless, some local economists expect devaluation in 2007 due to the increasing disparity between official= and parallel market rates. As of January 2007, the official rate was 95 percent overvalued as compared to the parallel rate.

Expropriation and Compensatio= n &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

There have be= en several cases, which raise significant issues of expropriation and/or serio= us impairment of the value of foreign investments in the Venezuelan state. One case relates to INTESA, a joint venture formed between Science Applications International Corporation (SAIC= ), a U.S. company, and Venezuela’s national oil corporation PDVSA, to prov= ide information technology services to PDVSA.&= nbsp; PDVSA provided INTESA with a five-year service contract that it deci= ded not to renew in 2002. INTESA continued to provide services under a provisional agreement while the parti= es discussed termination of the joint venture. The national strike then intervene= d in December 2002. The nati= onal government took over INTESA, claiming the firm had not allowed non-striking PDVSA personnel to restart operations by denying access to key control systems. SAIC ’s intere= st had been insured by the Overseas Private Investment Corporation (OPIC) which determined in July 2004 that an expropriation had occurred. It paid compensation to SAIC and h= as in turn sought repayment from PDVSA. &nb= sp;

President Cha= vez, the National Land Institute, and state governments have ordered land seized wit= hout regard for due process. In Ap= ril of 2005, the Venezuelan National Assembly revised Venezuela's 2001 land law. The revision reinstated an article= in the 2001 law that allowed the takeover of land without court approval, a provision the Supreme Court had declared unconstitutional in 2002. The revised law calls for the redi= stribution of "unproductive" land, although it fails to establish productivi= ty standards. The Venezuelan Government calls many of its seizures "rescues" of federal proper= ty rather than "expropriations," thereby justifying its non-payment = of compensation. The government = has installed state-sponsored cooperatives on properties under dispute and even= on properties whose owners have won court decisions.

A 1998 land c= ensus found that 60 percent of all Venezuelan farmland was owned by less than 1 percent of the population. The census also noted that over 80 percent of the farmland redistributed during= a 1960 land reform had returned to large landowners.

The Venezuelan government stepped up its campaign to expropria= te land during 2006 in both urban and rural areas. In addition to the highly-publiciz= ed attempt to expropriate the Valle Arriba and Country Club golf courses in Caracas (currently being challenged in the courts), hundreds of "idle" ho= mes and buildings in Venezuela are in various stages of expropriation. In addition, hundreds more are bei= ng occupied by illegal squatters with little government interference. Many rural land owners report inva= sions by government sanctioned groups and government resolution of these disputes= is spotty, at best. State govern= ments have also been known to expropriate idle manufacturing and processing plant= s to setup worker cooperatives, though in most cases companies have been able to settle with the government and obtain some compensation.

Dispute Settlement &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

Venezuela's l= egal system is accessible to foreign entities seeking to resolve investment disputes. While the legal sys= tem is often slow, inefficient, and has been accused of corruption openly politici= zed, foreign entities have not generally been discriminated against in legal proceedings. While not common, Venezuelan law allows the filing of criminal charges in some commercial disputes.

Decree 2095 a= llows for the arbitration of disputes as "provided by domestic law." The Commercial Arbitration Law (Gazette No. 36,430 of 1998) eliminated the prev= ious requirement for judicial approval of arbitration. Arbitration agreements involving national or international firms can be automatically binding.

The Commercial Arbitration Law also allows state enterprises to subject themselves to arbitration in contracts with private commercial entities, but requires that they first obtain the approval of the "competent statutory body,"= as well as the "written authorization" of the responsible minister.<= span style=3D'mso-spacerun:yes'> In the case of PDVSA, for example,= the Ministry of Energy and Mines issued a blanket written authorization in 1998, which allows the company to enter into such arbitration agreements, as it d= eems convenient or necessary. Howe= ver, the 2001 Hydrocarbons Law prohibits PDVSA from entering into agreements providing for international arbitration.

= Performance Requirements and Incentives &nbs= p; &= nbsp; &nbs= p; Return to top

In any enterp= rise with more than 10 workers, foreign employees are restricted to 10 percent of the work force, and Venezuelan law limits foreign employee salaries to 20 percent of the payroll. The s= tate oil company, PDVSA, seeks to maximize local content and hiring in its negotiations with foreign hydrocarbon investors.

Right to Private Ownership and Establishment = &nb= sp; Return to top

There are no = legal limits on foreign ownership, except as noted in Decree 2095 and in "special laws" (see above).

Protection of Property Rights &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

-- G.1 Real P= roperty Rights

Foreign inves= tors may pursue property claims through Venezuela's legal system. While the legal system's procedure= s are lengthy, judgments are uneven, allegations of corruption common, and the sy= stem itself is overtly politicized, there is little evidence that the legal syst= em discriminates against foreign investors.

-- G.2 Intell= ectual Property Rights

Venezuela is a member of the World Intellectual Property Organization (WIPO).= It is also a signatory to the Berne Convention for the Protection of Literary and Artistic Works, the Geneva Phonograms Convention, the Universal Copyright Convention, and the Paris Convention for the Protection of Indust= rial Property. Venezuela implement= s its obligations under the WTO Agreement on Trade-Related Aspects of Intellectua= l Property Rights (TRIPS) through Andean Community Decision 486. Despite Venezuela’s withdraw= al from the Community of Andean Nations (CAN) in 2006, pact norms are report= ed to continue to be in place.

The Venezuelan Industrial Property Off= ice (SAPI) leaves much room for improvement, and its actions and occasional publicly stated antagonism towards IPR often draw criticism from IPR advoca= tes and rights holders. IPR prote= ction is also hindered by the lack of adequate resources for the Venezuelan copyr= ight and trademark enforcement police (COMANPI) and for the special IPR prosecut= or's office. Venezuela’s tax agency SENIAT is promoting several measures to fight piracy in an effort to reduce tax evasion, including an anti-piracy law and the introduction of a = tax on street vendors. According = to industry representatives, SENIAT seems to be a promising enforcement entity= due to its better technical and financial capabilities.

Unfortunately, pirated so= ftware, music and movies remain readily available throughout the country. In the 2006 Annual Review, Venezue= la remained on USTR's Special 301 "Priority Watch List." The Anti-contraband Law (December = 2, 2005, Official Gazette 38,327) creates a framework for contraband in Venezu= elan customs which did not previously exist in Venezuela and a new Intellectual Property Rights regulation looks to enforce IPR violations in Venezuelan customs.

-- G.3 Patent= s and Trademarks

Venezuela provides the legal framework= for patent and trademark protection through Andean Community Decision 486 and t= he 1955 National Industrial Property Law.&nbs= p; Andean Community Decision 486 takes major steps towards bringing Venezuela into WTO TRIPS compliance. However, without corresponding local laws, Venezuela is not complete= ly TRIPS compliant. Andean Commu= nity Decision 345 covers patent protection for plant varieties.

U.S. companies will contin= ue to monitor the impact of the Andean Tribunal’s 2002 interpretation of Articles 14 and 21 of Decision 486, which do not allow for the patenting of "second-use" products (e.g. new uses of previously known or paten= ted products). Under pressure fro= m the Andean Community and in line with some changes in leadership at SAPI, Venez= uela has revoked previously issued patents.&nbs= p; Very few patents for new pharmaceuticals were awarded in 2004 and no= ne were issued in 2005 or 2006. = Since 2002, Venezuela’s food and drug regulatory agency (INH) began approvi= ng the commercialization of new drugs, which were the bioequivalent of innovat= ive drugs that previously received INH marketing approval, thereby denying the innovative drug companies protection against unfair competition of their te= st data as required by TRIPS. In effect, the government now allows unfair reliance on the test data, which required lengthy and expensive development, to be used by others seeking marketing approval for the same products.

-- G.4 Copyri= ghts

Andean Pact Decision 351 and Venezuela’s 1993 Copyright Law provide the legal framework for the protection of copyrights. The= 1993 Copyright Law is modern and comprehensive and extends copyright protection = to all creative works, including computer software. A National Copyright Office was established in October 1995 and given responsibility for registering copyri= ghts, as well as for controlling, overseeing and ensuring compliance with the rig= hts of authors and other copyright holders.&nb= sp; Industry experts are concerned about a proposed new copyright law proposal, which would require the mandatory registry of works, reduce protection terms, hamper distribution agreements and increase royalties.

The Venezuelan copyright and trademark enforcement branch of the police (COMANPI) continues to provide copyright enforcement support with a small staff of permanent investigators. A lack of personnel, coupled with = a very limited budget and inadequate storage facilities for seized goods, has forc= ed COMANPI to work with the National Guard and private industry to improve enforcement of copyrighted material. COMANPI can only act based on a complaint by a copyright holder; it = cannot carry out an arrest or seizure on its own initiative, which leads to weaker enforcement.

Venezuela doe= s not automatically recognize foreign patents, trademarks or logotypes, so foreign investors must be sure to register patents and trademarks appropriately and= in as many categories as are applicable. It is advisable not to have agents or distributors do this in their = name because the agent can then claim that he/she is the registered owner of the trademark in question. <= /o:p>

The National Assembly has also been considering a Copyrights b= ill for some time. The bill, whic= h was proposed by Venezuela's IPR regulator SAPI, has been very controversial and raised serious concerns in the private sector. Among other things, the bill calls= for the local registration of all works, certification by a government-appointed commission to approve the copyright, a significant raise of royalty rates, = and a provision to expropriate works if in "national interest". The new Film Law before the Nation= al Assembly is equally worrisome to the private sector, as it mandates obligat= ory screening of national films, higher taxation on the sector, and it requires domestic production of film equipment and copies.

Transparency of Regulatory Syste= m &= nbsp; &nbs= p; &= nbsp; Return to top

Legal Environ= ment

The Governmen= t of Venezuela adopted three laws in the early 1990’s nominally <= /ins>to promote free market competition and prevent unfair trade practices: an Anti-Trust Law (Gazette No. 34,880 of 1992), an Antidumping Decree (Gazette= No. 4,441 of 1992), and a Consumer Protection Law (Gazette No. 4898 of 1995).

Venezuela als= o passed a government procurement law that came into effect in 2001. The law supposedly increases transparency in the competitive bidding process for contracts offered by the central government, national universities, and autonomous state and municip= al institutions. Despite this le= gal framework, there is little transparency in Venezuela and many contracts, if= not the vast majority, are awarded without open competition.<= /p>

Tax Treatment= of Foreign-Owned Firms

All companies= and individuals are required to register with the national tax authority (SENIAT). Income received fro= m any economic activity carried out in Venezuela is subject to taxation.

Foreign compa= nies receive equal treatment as national companies and are subject to the corpor= ate tax regime. Except for the petroleum sector, the current Venezuelan income = tax law does not differentiate between foreign-owned and Venezuelan-owned firms= . The income tax rate is progressive= based on income, ranging from 6 percent to 34 percent. Companies involved in hydrocarbon = and related activities pay 50 percent, except associations formed under the Hydrocarbons Law, which receive a different treatment. Companies involved in mining pay 60 percent. The Business Assets = Law imposes a one percent tax on business assets (Gazette No. 4654 of 1993). The assets tax is assessed on the = gross value of assets (with no deduction for liabilities) after adjustments for depreciation and inflation

Venezuela has international double taxation agreements in the areas of air and sea transp= ort with several countries, including the Unites States. A US/Venezuelan treaty to avoid do= uble taxation went into effect on January of 2001.

SENIAT is und= ertaking a very aggressive tax collection program called "The Zero Evasion Plan" which has significantly boosted fiscal revenues. Highly publicized raids have taken= place and businesses, including multinational firms, have been temporarily closed administratively. Firms subje= ct to these measures complain that these closures have been imposed for minor paperwork violations as opposed to actual tax evasion.

In 1999, the government replaced the wholesale tax (ICVSM) wit= h a value-added tax (IVA). The value-added tax rate is currently 14 percent.

Efficient Capital Markets and Po= rtfolio Investment &nb= sp; = Return to top

Capital Marke= ts

Access to the Venezuelan secondary capital market is relatively easy, and U.S. firms essentially enjoy treatment equal to that of domestic firms. Foreign companies may = issue common and preferred stocks, bonds, and other securities in Venezuelan capi= tal markets. Foreign investors ma= y also buy shares directly in Venezuelan companies or on the stock exchange.<= /o:p>

The Caracas S= tock Exchange (CSE) is a privately owned corporation in operation since 1947. Trading on Venezuelan stock exchan= ges is thin and highly concentrated. The Venezuelan Futures and Options Clearinghouse (CACOFV), the first market of = its kind in the country, started operations in Caracas in September 1997. Membership in local capital market= s is open to both individuals and legal entities.

A Capital Mar= kets Law came into effect in September 1998 (Gazette No. 36,565 of 1998). It gives autonomy to the National = Securities Commission (CNV) and provides regulations for intermediaries, establishes n= ew conditions for public offerings, enhances the transparency of brokerage operations, and makes regulations more flexible for small firms that wish to issue stocks.

The Congress = passed the Collective Investment Companies Law (Gazette No. 36,027 of 1996) to fos= ter the development of Venezuela's capital market through the creation of collective investment companies. The law, which is designed to make capital market investments more attractive for small and medium investors, opened the door to the establish= ment of mutual funds, collective investment venture capital companies, and collective real estate investment companies. CNV issued capital requirements for collective investment companies in 1998 (Gazette No. 36,027 of 1998). The Caracas Stock Exchange (CSE) i= ndex closed above 50,000 in 2006, increasing over 155 percent from the end of the previous year. GDP growth, co= upled with negative real interest rates for deposits and CDs and a lack of alternative investment opportunities largely fueled to this increase.<= /o:p>

Credit Market= s

The Venezuelan financial system recovered strongly from a crisis in the mid 90’s that caused the failure of a number of institutions. Banks tend to register higher prof= its than those in other countries in the region. Much of this is attributable to ex= change controls which limit the ability of the owners of capital to transfer it outside of the country. The purchase in recent years of several troubled banks by large foreign banks a= lso injected much needed capital, technology, and competition into the sector.<= span style=3D'mso-spacerun:yes'> Foreign banks have also taken a mi= nority interest in several other local banks.&nbs= p; Consequently, foreign banks now control approximately 32 percent of = all banking sector assets. Venezu= elan banks have become increasingly dependent on the public sector as a borrower. It is currently est= imated that approximately 32 percent of banks’ total assets is made up of government debt.

Financing is = available from a variety of sources and does not discriminate against foreign investo= rs seeking access to credit. Ban= ks cannot lend more than 10 percent of their assets to any one borrower.<= /o:p>

A major concern for the financial system is the recent legal requirement that forces banks to lend a percentage of their portfolio to specific economic sectors at preferential rates fixed by the local authorities. Thirty-one perce= nt of commercial bank lending is directed by law to housing, agriculture, micro-business, and tourism. = These loans are of concern because the mandated rates are well below market rates= and below the fairly high Venezuelan inflation rate (17 percent in 2006).

Political Violence &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

No major incidents were confirmed against foreign-owned or operated companies, projects, or installations in Venezuela in 2006.

Corruption = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Corruption is a very serio= us problem in Venezuela and appears to be worsening. According to Transparency International's Corruption Perceptions Index, Venezuela is the second most corrupt country in Latin America and one of the most corrupt in the world.<= span style=3D'mso-spacerun:yes'> Venezuela has a regulatory system = to prevent and prosecute corruption and accepting a bribe is a criminal act. Penalties include fines and/or pri= son sentences. Historically, the country has lacked an effective judicial system to provide judicial security for either foreign or national residents.&= nbsp; The problem persists today, and is exacerbated by the overt politicization of the judicial system.&nbs= p; The 1999 constitution also gives the central government enhanced pow= ers to investigate cases of corruption and oversee the use of government funds.=

Government te= nders are the most vulnerable to corruption because the tender process frequently lacks transparency. Critics h= ave also targeted the current regime of government price and exchange controls = as a source of corruption.

Bilateral Investment Agreements= &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

Venezuela cur= rently has bilateral investment agreements in force for the promotion and protecti= on of investment with the followi= ng countries: Argentina, Barbados, Canada, Chile, Costa Rica, Cuba,= the Czech Republic, Denmark, Ecuador, = Germany, Lithuania, Netherlands, Paraguay, Peru, Portugal, Spain, Sweden, Switzerland, the United Kingdom and Uruguay. France and Belgium have signed agreements that are still awaiting legisla= tive approval. No agreement exists= with the United States.

OPIC and Other Investment Insura= nce Programs = ; &n= bsp; Return to top

OPIC currently has significant exposure in Venezuela, as does = the Export-Import Bank. However, = OPIC is statutorily obligated to suspend operations in Venezuela due to Venezuela’s failure to achieve certification under the anti-narcotics trafficking laws. Also, the expropriations claim by SAIC to OPIC remains outstanding. Please refer to the section on Expropriations and Compensation for information on OPIC. In April 2003 Ex-Im Bank formally = placed Venezuela “off cover” for new lending where it currently remain= s.

Labor &n= bsp; = ; &n= bsp; = ; &n= bsp; = ; &n= bsp; Return to top

Venezuela's total labor force (all persons 15 yea= rs of age and older who are working or looking for work) was 12.5 million at t= he end of October 2006. Accordin= g to the National Institute of Statistics (INE), 1.1 million, or 8.9 percent, we= re unemployed. Persons are consi= dered as employed if they work at least 1 hour per week and INE does not count as unemployed the hundreds of thousands of Venezuelans enrolled in government social programs. Of the 11.3 million employed workers, approximately 45 percent work in the informal sec= tor (as street vendors, domestics, small entrepreneurs, etc.). The government employs about 1.8 m= illion of those working in the formal sector.

The major labor organizati= ons in Venezuela are the independent Confederation of Venezuelan Workers (CTV) and= the National Workers Union (UNT). The CTV was founded in 1936 and dominated the trade union movement in Venezuela prior to the election of President Chavez.= The UNT enjoys support from the Venezuelan government and has been growing since its inception in 2003.

President Caldera signed landmark legislation in June 1997 (Gazette No. 5152 of 1997) to reform the outdated and unworkable severance pay system in the Organic Labor Law. The legislation was based on a fra= mework agreement negotiated among representatives from the government, private business, and organized labor. Under the previous severance pay system, departing employees received one month's salary (two months if they left involuntarily) for each year worked based on their current pay. The 1997 system did away with "retroactivity" (i.e. basing the entire benefit on current salary) and requires employers to calculate their severance pay obligations annually and to make monthly deposits into a pension fund, an employer account, or an outside trust account. A refo= rm in 2005 limited these payments to the equivalent of 60 percent of their annual salary.

The 1997 Organic Labor Law= also provides that the minimum wage will be reviewed at least once a year and ma= y be adjusted based on considerations such as the "food basket." A minimum wage of Bs. 512,325 (USD= $238) per month took effect in September 2006.

The Organic Law Pertaining= to the Integral Social Security System (Gazette No. 5199 of 1997) provides the general framework for the social security structure. Congress passed a social security = reform in 1998, but the system remained under review by the Chavez government, unt= il 2002, when the National Assembly passed the Social Security System Organic = Law (Gazette No. 37600). However,= the full application of this law that covers everybody that contributes or not = with the expenses, will depend on the fiscal reforms.

The Organic Labor Law plac= es quantitative and total wage cost restrictions on the employment decisions m= ade by foreign investors. Article= 27 of the Labor Law requires that the number of foreigners hired by an investor n= ot exceed 10 percent of a company's employees, while salaries paid to foreigne= rs may not exceed 20 percent of the total company payroll. Article 28 allows f= or temporary exceptions to Article 27 and outlines the requirements for hiring technical expertise when equivalent Venezuelan personnel are not available. Article 20 of the = law requires that industrial relations managers, personnel managers, captains of ships and airplanes, and foremen be Venezuelan. Article 19 requires that all order= s and instructions to workers be given in Spanish.

The Venezuelan government = has imposed a freeze—renewed every six months—on layoffs. Thus, reductions-in-force require = the negotiation of severance packages in exchange for voluntary resignation.

Foreign-Trade Zones/Free Ports= &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

The Free-Trade Zone Law (Gazette No= . 34,772 of 1991) provides for free trade zones/free ports. The three existing free trade zone= s are located in the Paraguana Peninsula on Venezuela's northwest coast, Atuja in= the State of Zulia and Merida (but only for cultural, scientific, and technolog= ical goods). These zones provide exemptions from most import and export duties and offer foreign-owned firms= the same investment opportunities as host country firms. The Paraguana and Atuja zones prov= ide additional exemption of local services such as water and electricity. Venezuela has two free ports that = also enjoy exemptions from most tariff duties: Margarita Island (Nueva Esparta) = and Santa Elena de Uairen in the state of Bolivar.

Foreign Direct Investment Statistics<= span style=3D'mso-tab-count:4'> &= nbsp; &nbs= p; &= nbsp; Return to top

The stock of U.S. foreign direct inves= tment (FDI) in Venezuela in 2005 was USD $9.6 billion according to U.S. Departmen= t of Commerce statistics. U.S. FDI= in Venezuela is concentrated largely in the petroleum, telecommunications, manufacturing and finance sectors.

The estimated U.S. trade deficit with Venezuela for 2006 is projected at USD $30.3 billion, an increase of= USD $2.7 billion from the trade deficit of USD $27.6 billion in 2005. In 2006, U.S. goods exports to Ven= ezuela were approximately USD $8.5 billion, up USD $2.1 billion from 2005. U.S. imports from Venezuela are estimated at about USD $39 billion in 2006, an increase of USD $5 billion f= rom the level of imports in 2005. The large increase in imports is related primarily to the increase in the price of petroleum, which represents the v= ast majority of U.S. imports from Venezuela.

Web Resources = &nb= sp; = &nb= sp; = &nb= sp; Return to top

Andrew Bowen, Economic Counselor

U.S. Embassy, Car= acas

Unit 4956

APO= AA 34037

Tel= : 58 212 907 8412

Fax= : 58 212 907 8033

Email: BowenAN@state.gov<= o:p>

Darnall Steuart

Deputy Director Venezuela Desk

Office of Andean Affairs

U.S. Department of State

Tel: 202 647 4216=

Fax: 202 647 2628=

Email: steurartdarnallc@state.gov

Venezuela’s Superintendent of Foreign Investment (SIEX): www.sie= x.gov.ve.

Venezuela’s Intellectual Property Rights Office (SA= PI): www.sapi.= gov.ve

Return to table of contents<= /a>

Doing Business in Venezuela: A Country Commercial Guide for U.S. Companies

INTERNATIONAL COPYRIGHT, U.S. & FOREI= GN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2005. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES.

Chapter 1: Doing Busines= s In Venezuela

Market Overview &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

Market Challenges &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

Market Opportunities &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; Return to top

Market Entry Strategy= &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; Return to top

Chapter 2: Political and Economic Environment

Chapter 3: Selling U.S. Products and Services

Using an Agent or= Distributor &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

Establishing an Office = ; &n= bsp; = ; &n= bsp; = ; &n= bsp; Return to top

Franchising = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Direct Marketing &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; <= span lang=3DEN style=3D'font-weight:normal'>Return to top

Joint Ventures/Licensing &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; <= span lang=3DEN style=3D'font-weight:normal'>Return to top

Sellin= g to the Government &nb= sp; = &nb= sp; = &nb= sp; Return to top

Types of Tenders

The Bidding Process

Distribution and Sales Channels &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

Selli= ng Factors/Techniques &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

Trade Promotion and Advertising &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

Pricing &nb= sp; = &nb= sp; = &nb= sp; = &nb= sp; Return to top

Sales Service/Customer Suppo= rt &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

Protecting Your Intellectual Property = ; &n= bsp; = ; <= /span>Return to top

Due Diligence = &nb= sp; = &nb= sp; = &nb= sp; Return to top

Local Professio= nal Services = ; &n= bsp; = ; &n= bsp; = ; Return to top

Web Resources = &nb= sp; = &nb= sp; = &nb= sp; Return to top

Chapter 4: Leading Sectors for U.S. Export and Inves= tment

Agricultural Sector&nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; Return to top

Oil and Gas Field Machinery=

Overview = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Resources = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Oil and Gas Machinery=

Overview = ; &n= bsp; = ; &n= bsp; = ; &n= bsp; = ; &n= bsp; Return to top

IT Equipment and Services

Overview = &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

Resources = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Telecommunications Equipment and Services

Overview = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Resources = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

IT Equipment and Services

Overview = ; &n= bsp; = ; &n= bsp; = ; &n= bsp; = ; &n= bsp; Return to top

Auto Parts/Service Equipment

Overview = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Resources = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Electrical = Power Generation Systems and Electrical Equipment

Overview = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Resources = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Electrical Power Generation Systems and Elect= rical Equipment

Overview = ; &n= bsp; = ; &n= bsp; = ; &n= bsp; = ; &n= bsp; Return to top

Medical Equipment

Overview = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Resources &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; Return to top

Chemicals

Overview = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Resources = ; &n= bsp; = ; &n= bsp; = ; &n= bsp; = ; = Return to top

Travel and Tourism

Overview = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Best Products/S= ervices &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; Return to top

Resources = ; &n= bsp; = ; &n= bsp; = ; &n= bsp; = ; = Return to top

Import Tariffs = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Trade Barriers = &nb= sp; = &nb= sp; = &nb= sp; Return to top

Import Requirements and Documen= tation &= nbsp; &nbs= p; &= nbsp; Return to top

U.S. Export Controls &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; = Return to top

Temporary Entry = &nb= sp; = &nb= sp; = &nb= sp; Return to top

Labeling= and Marking Requirements = ; &n= bsp; = ; &n= bsp; Return to top

Processed Food Products Health Registration &= nbsp; &nbs= p; Return to top

Prohibited and Restricted Imp= orts &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

Customs Regulations and Contact Information &n= bsp; = ; Return to top

Standards = &nb= sp; = &nb= sp; = &nb= sp; = Return to top

Overview &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

Standards Organizations = &nb= sp; = &nb= sp; Return to top

NIST Notify U.S. Servic= e

&= nbsp; Conformity Assessment &nb= sp; = &nb= sp; = Return to top

&= nbsp; Product Certification = &nb= sp; = &nb= sp; = Return to top

Accreditation &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

&= nbsp; Publication of Technical Regulations &= nbsp; &nbs= p; &= nbsp; Return to top

&= nbsp; Labeling and Marking &n= bsp; = ; &n= bsp; = ; &n= bsp; Return to top

Contacts &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

Trade Agreements &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; Return to top

Web Resources = &nb= sp; = &nb= sp; = &nb= sp; Return to top