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SUBJECT:  BOLIVARIAN REPUBLIC OF VENEZUELA: 2008 INVESTMENT CLIMATE 
STATEMENT 
 
REF:  2007 STATE 158802 
 
¶1.  Per request in reftel, this cable transmits the 2008 Investment 
Climate Statement for the Bolivarian Republic of Venezuela. 
 
Begin text 
------------------------------ 
Openness to Foreign Investment 
------------------------------ 
Given economic and political uncertainties, a recent history of actual 
and threatened expropriations, and increasing state intervention in the 
economy, Venezuela's investment climate is considerably less welcoming 
than its relatively liberal legal framework suggests.  Foreign direct 
investment in Venezuela is much lower than in most other Latin American 
countries as a result of these factors.  On the other hand, many 
companies with existing investments in Venezuela are recording strong 
profits thanks to four consecutive years of high economic growth fueled 
by record oil prices and massive government spending. 
 
Important developments in 2007 included expropriation of key companies 
and assets in telecommunications, electricity, and petroleum sectors, 
which were previously considered the most promising areas for foreign 
investment in Venezuela.  Expropriations in each sector included 
significant assets owned by U.S. companies, some of which received 
compensation.  During 2007, President Chavez also threatened to 
expropriate companies in the banking, cement, health, education, steel, 
petrochemical, dairy, and food distribution sectors.  The government 
also revoked or refused to renew important concessions in the tourism 
industry previously held by private companies. 
 
As part of his push toward "21st Century Socialism," President Chavez 
proposed in August 2007 a series of constitutional reforms that would 
have, among other things, defined Venezuela as a socialist state and 
significantly weakened protections for private property.  While voters 
rejected these proposals by a slim margin in a December 2007 
referendum, President Chavez has stated his intention to continue to 
pursue them. 
 
Growing state intervention in the economy has created a series of 
distortions.  The Venezuelan government, abbreviated hereafter as the 
BRV (Bolivarian Republic of Venezuela), has maintained a fixed exchange 
rate and exchange controls since February 2003.  The official 
bolivar/dollar exchange rate is clearly overvalued thanks to 
accumulated inflation of over 50 percent since the rate was last 
adjusted in March 2005.  As a result, there is intense competition to 
gain access to hard currency at the official rate (including for 
repatriation of capital and/or profits), and rationing of official 
dollars has led to the development of a parallel foreign exchange 
market.  The BRV also maintains price controls on a wide variety of 
goods and services.  These controls have caused shortages and have 
created disincentives to investment, in some cases driving companies 
that produce price-controlled goods out of business. 
 
Venezuela's legal framework for foreign investment, on the other hand, 
is relatively liberal.  Outlined in further detail below, it generally 
provides equal treatment to foreign and local companies, with the 
exception of several sectors, including hydrocarbons and media, in 
which the state or Venezuelan nationals must be majority owners. 
Repatriation of capital and dividends is allowed, subject to the 
exchange control regime. 
 
-------------------------------------- 
Legal Framework for Foreign Investment 
-------------------------------------- 
The 1999 Constitution 
 
The Venezuelan Constitution of 1999 treats capital investment as a 
means of promoting the development of the national economy.  Article 
301 of the Constitution adopts international standards for the 
treatment of private capital, with equal treatment of local and foreign 
capital.  The Constitution reserves strategic sectors such as oil and 
hydropower for the State. 
 
Decree 2095 
 
Decree 2095 of 1992 establishes the legal framework for foreign 
 
investment in Venezuela.  This decree implemented Andean Community 
Decisions 291 and 292 and lifted most prior restrictions on foreign 
participation in the economy.  (Venezuela withdrew from the Andean 
Community in April 2006, but the BRV has continued to apply most Andean 
Community norms in the absence of any other regulations.)  Article 13 
of the decree explicitly guarantees foreign investors the same rights 
and imposes the same obligations as apply to national investors "except 
as provided for in special laws and limitations contained in this 
Decree."  Decree 2095 also guarantees foreign investors the right to 
repatriate 100 percent of profits and capital, including proceeds from 
the sale of shares or liquidation of a company, and allows for 
unrestricted reinvestment of profits. 
 
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.  Foreign companies 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 would 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. 
 
Decree 2095 reserves three areas of economic activity to "national 
companies": (1) broadcast media, (2) newspapers, and (3) professional 
services that are regulated by national laws.  These services include 
law, architecture, engineering, medicine, veterinary medicine, 
dentistry, economics, public accounting, psychology, pharmacy, and 
management.  A "national company" (as defined in Article 1 of Andean 
Community Decision 291) is a company in which Venezuelan nationals hold 
more than 80 percent of the equity.  Foreign capital is therefore 
restricted to a maximum of 19.9 percent in the areas noted above.  The 
Investment Promotion and Protection Law of October 1999, whose 
regulations were published in July 2002, maintained the same reserved 
sectors. 
 
Foreign professionals are free to work in Venezuela without restriction 
but must first revalidate their certification at a Venezuelan 
university.  Consulting services under contract for a specific project 
are not subject to this requirement. 
 
The Hydrocarbons Sector 
 
A number of sectors are regulated by "special laws" that supplement the 
Constitution and affect the business environment.  These sectors 
include hydrocarbons, mining, telecommunications, banking, and 
insurance.  Of these, it is the hydrocarbons sector in which there are 
significant restrictions on foreign investment. 
 
The 2001 Hydrocarbons Law reserves to the state the exploration, 
production, "gathering," and initial transportation and storage of 
petroleum and associated natural gas.  Under this regime, primary 
activities must be carried out directly by the state, by a 100 percent 
state-owned company 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 law left refining ventures open to private investment 
as well as commercialization activities, under a license and permit 
regime.  It also stipulated that any arbitration proceedings would 
henceforth be in domestic not international venues. 
 
Over the last several years the BRV has made a number of changes in 
royalty, tax policies, and contracts that have substantially increased 
uncertainty for foreign companies operating in Venezuela.  The 
Hydrocarbons Law did not specifically grandfather contracts executed 
under earlier legislation, specifically the 33 operating service 
contracts awarded for "marginal" or inactive oilfields in three rounds 
in the 1990s; exploration and production profit-sharing agreements 
awarded in 1996; and four so-called "Strategic Associations," legal 
entities with majority private and minority PDVSA ownership formed in 
the 1990s to extract and upgrade Venezuela's extra heavy oil in the 
Faja region.  The BRV argued in 2001 that no grandfather provision was 
necessary because retroactive application of legislative provisions is 
forbidden by constitutional mandate. 
 
In October 2004, however, the BRV unilaterally eliminated a nine-year 
royalty holiday ceded to the Strategic Associations, arguing that this 
was allowable under earlier hydrocarbons legislation.  The BRV then 
 
informed companies with operating contracts in early 2005 that they 
must migrate the contracts to joint ventures that conform to the 2001 
Hydrocarbons Law.  It threatened to seize fields operating under the 
services contracts on December 31, 2005 if oil companies did not sign 
transition agreements to migrate their contracts.  Sixteen oil 
companies signed memorandum of understanding converting their contracts 
to joint ventures on March 31, 2005.  Two companies, ENI and Total, did 
not sign a MOU, and PDVSA took control of their fields. 
 
President Chavez issued a decree in late February 2007 requiring the 
four strategic associations to convert to joint ventures in which PDVSA 
would hold a 60 percent stake.  The decree established an April 30, 
2007 deadline for completing the conversion.   ConocoPhillips and 
ExxonMobil refused to migrate their investment stakes in three of the 
four associations.  As a result, the BRV took control of their 
investments.  Both companies are treating the government's actions as 
expropriations.  They have filed arbitration claims against the BRV and 
are continuing to negotiate compensation. 
 
In contrast to the legal framework for petroleum, the 1999 Gaseous 
Hydrocarbons Law offers more liberal terms to investors in the 
unassociated natural gas sector.  This law opened the entire natural 
gas sector to private investment, both domestic and foreign, and 
created a licensing system for exploration and production regulated by 
the Ministry of People's Power for Energy and Mines.  The state retains 
ownership of all natural gas "in situ", but PDVSA involvement is not 
required for gas development projects.  Complete vertical integration 
of the gas business from wellhead to consumer is prohibited.  President 
Chavez has publicly stated, however, that he would like to modify the 
terms of the 1999 law, i.e. to require that the state have a 
controlling interest in primary unassociated natural gas activities. 
 
-------------------------------- 
Conversion and Transfer Policies 
-------------------------------- 
 
Foreign investors in capital markets and foreign direct investment 
projects are guaranteed the right to repatriate dividends and capital 
under the Constitution and Decree 2095.  In practice, however, 
repatriation poses problems for many companies. 
 
The Law Governing the Foreign Exchange System (Gazette No. 4897 of 
1995) permits the executive branch to intervene in the foreign exchange 
market "when national interests so dictate."  President Chavez used 
this law to create the Commission for the Administration of Foreign 
Exchange (CADIVI) on February 5, 2003 to regulate the purchase and sale 
of foreign currency.  A Foreign Exchange Crime Law (Gazette No. 38,272 
of 2005; revised by the National Assembly in December 2007) established 
criminal penalties and fines for transactions made outside the official 
foreign exchange process.  The exemption for bond operations in this 
law has led to the creation of a parallel foreign exchange market, 
known as the "permuta" (swap) market, which is essentially a currency 
exchange market that operates through bond swaps. 
 
The official exchange rate was adjusted to 2150 bolivars (Bs) to the 
dollar in March 2005.  With accumulated inflation of over 50 percent 
since this adjustment, the official exchange rate is clearly 
overvalued, and companies that manufacture tradable goods in Venezuela 
find it very difficult to compete against goods imported at the 
official rate.  Although government officials have emphatically stated 
there will be no devaluation in 2008, many economists predict either a 
devaluation or the introduction of a dual exchange rate system.  The 
parallel market is relatively shallow and volatile; it closed 2007 at 
5700 Bs/USD.  As of January 1, 2008, the government began to introduce 
a redenominated bolivar known, during the transition period, as the 
"bolivar fuerte."  1000 old bolivars are worth 1 new bolivar (or 
"bolivar fuerte"); the official exchange rate became 2.15 bolivars 
(fuerte) to the dollar.  Both old and new bolivars will circulate 
during the transition period, which will last a minimum of six months. 
 
Foreign companies wishing to repatriate capital, dividends, or profits 
at the official rate have to get authorization from CADIVI.  In 2007, 
CADIVI authorized over USD 3.3 billion in repatriations.  However many 
companies did not receive the full authorization they requested from 
CADIVI or received it after delays of six months or more.  Some 
companies have therefore turned to the parallel market for 
 
repatriation. 
 
------------------------------ 
Expropriation and Compensation 
------------------------------ 
 
The government has expropriated significant assets in recent years. 
Given President Chavez' threats to various sectors, this trend is 
expected to continue.  The largest expropriations in 2007 were the 
nationalizations of CANTV and Electricidad de Caracas (EDC), the 
seizure of the assets of Radio Caracas Television (RCTV), and the 
conversion of the Faja heavy oil strategic associations to joint 
ventures.  In the cases of CANTV and EDC, the government paid 
compensation to shareholders including U.S. companies Verizon (which 
owned 28 percent of CANTV) and AES Corporation (which owned 82 percent 
of EDC).  In the case of RCTV, a privately held Venezuelan company, the 
government has not paid compensation for the assets seized.  As noted 
above, ConocoPhillips and ExxonMobil have not come to agreement with 
the BRV for the expropriation of their respective investments in the 
strategic associations.  They have filed for arbitration and are 
continuing to negotiate with the BRV. 
 
Venezuela's 2001 land law as modified in 2005 calls for the 
redistribution of "unproductive" land.  The BRV claims to have seized 
4.7 million acres of land since 1998; some of this land was 
expropriated without compensation.  These actions have discouraged 
investment in several key agricultural subsectors and reduced their 
output potential. 
 
On February 21, 2007, the BRV published the "Decree Law of Popular 
Defense against hoarding, speculation, boycott, and any other conduct 
that affects consumption of food or products under price controls." 
The law defines all stages of the production cycle for regulated foods 
as within the ambit of "public utility and the social interest."  It 
also empowers the government to expropriate any business that fits this 
sweeping definition in order to protect "food security and 
sovereignty."  The BRV invoked this decree to direct the military to 
seize two slaughterhouses in 2007. 
 
------------------ 
Dispute Settlement 
------------------ 
 
Venezuela's legal system is available to foreign entities seeking to 
resolve investment disputes, and legal proceedings have generally not 
discriminated against foreign entities.  However, the legal system is 
often slow and inefficient, and it has been accused of being both 
corrupt and lacking independence from the executive branch. 
 
Decree 2095 allows for the arbitration of disputes as "provided by 
domestic law." The Commercial Arbitration Law (Gazette No. 36,430 of 
1998) eliminated the previous requirement for judicial approval of 
arbitration; arbitration agreements involving national or international 
firms can therefore be automatically binding.  The 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.  As noted above, however, 
the 2001 Hydrocarbons Law prohibits PDVSA from entering into agreements 
providing for international arbitration.  The BRV has in the past 
accepted the results of international arbitration in disputes involving 
foreign investors and government entities.  Recent BRV statements and 
actions, however, call into question whether this trend will continue. 
For example, in a February 2006 decision involving Haagen-Dazs, BRV 
courts invalidated an American Arbitration Association award entered in 
Miami.  In April 2006, a BRV court set aside an International Court of 
Arbitration award entered in favor of an Italian electronics company 
against VTV, the state owned television channel, in connection with a 
concession agreement. 
 
--------------------------------------- 
Performance Requirements and Incentives 
--------------------------------------- 
 
Foreign companies receive the same tax treatment as domestic companies 
with the exception of the non-associated natural gas sector, where 
 
foreign investors receive preferential tax treatment.  Performance 
requirements related to workforce composition are discussed in the 
labor section below.  There are allegations that CADIVI is requiring 
companies to make investments in specific geographic areas as a 
condition to receive hard currency allocations.  The state oil company, 
PDVSA, seeks to maximize local content and hiring in its negotiations 
with foreign companies. 
 
-------------------------------------------- 
Right to Private Ownership and Establishment 
-------------------------------------------- 
 
There are no legal limits on foreign ownership, except as noted in the 
Constitution, Decree 2095, and "special laws" (see above). 
 
----------------------------- 
Protection of Property Rights 
----------------------------- 
 
Real Property Rights 
 
Foreign investors may pursue property claims through Venezuela's legal 
system.  See also the Expropriation and Compensation section for 
discussion of expropriation of real property rights and the Dispute 
Settlement section for a discussion of the legal system. 
 
Intellectual Property Rights 
 
Article 98 of the 1999 constitution guarantees state protection for 
intellectual property rights "in accordance with the conditions and 
exception established by law and the international treaties executed 
and ratified by the Republic in this field."  Venezuela is 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 Industrial 
Property.  Although Venezuela is a member of the World Intellectual 
Property Organization (WIPO), no official BRV delegation has attended a 
WIPO meeting in the last four years.  Venezuela implements its 
obligations under the WTO Agreement on Trade-Related Aspects of 
Intellectual Property Rights (TRIPS) through Andean Community Decision 
¶486.  (As noted above, Venezuela has withdrawn from the Andean 
Community but the BRV continues to apply most Andean Community norms in 
the absence of any other regulations.) 
 
The Venezuelan Industrial Property Office (SAPI), through its actions 
and occasional public antagonism towards IPR, often draws criticism 
from IPR advocates and rights holders.  IPR protection is also hindered 
by the lack of adequate resources for the Venezuelan copyright and 
trademark enforcement police (COMANPI) and for the special IPR 
prosecutor's office.  SAPI has publicly advocated for anti-IPR 
legislation and has not issued a pharmaceutical patent since 2004. 
Pirated software, music, and movies are readily available throughout 
the country.  In the 2007 Special 301 Annual Review, Venezuela remained 
on the "Priority Watch List." 
 
Patents and Trademarks 
 
Venezuela provides the legal framework for patent and trademark 
protection through Andean Community Decision 486 (and Decision 345 for 
plant varieties).  The Andean Tribunal's 2002 interpretation of 
Articles 14 and 21 of Decision 486 does not allow for the patenting of 
"second-use" products (e.g. new uses of previously known or patented 
products).  Under pressure from the Andean Community and in line with 
some changes in leadership at SAPI, Venezuela has revoked previously 
issued patents. 
 
Very few patents for new pharmaceuticals were awarded in 2004 and none 
were issued in 2005, 2006, or 2007.  Since 2002 Venezuela's food and 
drug regulatory agency has approved the commercialization of generic 
drugs without requiring unique test data.  These drugs are the 
bioequivalent of innovative drugs that already received market 
approval.  This practice thereby denies the innovative drug companies 
protection against unfair use of their test data as required by TRIPS. 
 
Venezuela does 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 so because the 
agent can then claim that he/she is the registered owner of the 
trademark in question. 
 
Copyrights 
 
Andean Community 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 copyrights, as well as for controlling, 
overseeing and ensuring compliance with the rights of authors and other 
copyright holders. 
 
COMANPI, the Venezuelan copyright and trademark enforcement branch of 
the police, fails to provide adequate copyright enforcement.  Due to 
its lack of personnel, limited budget, and inadequate storage 
facilities for seized goods, COMANPI has had to work with the National 
Guard and private industry to enforce copyright laws.  COMANPI can only 
act based on a complaint by a copyright holder; it cannot carry out an 
arrest or seizure on its own initiative.  The BRV's tax authority 
(SENIAT) has been more successful enforcing IPR laws. It has taken 
action against some businesses importing or selling pirated goods on 
the basis of presumed tax evasion. 
 
Since 2004, the National Assembly has also been considering a 
Copyrights bill.  The bill, which was proposed by 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 increase in royalty rates, and a provision to 
expropriate works if in the national interest.  Had ChavezQ December 
2007 constitutional reform package passed, it was rumored that the bill 
would have been issued via presidential decree. 
 
--------------------------------- 
Transparency of Regulatory System 
--------------------------------- 
 
The Government of Venezuela adopted three laws in the early 1990's to 
promote free market competition and prevent unfair trade practices: a 
Law to Promote and Protect Free Competition (Gazette No. 34,880 of 
1992), an Antidumping Decree (Gazette No. 4441 of 1992), and a Consumer 
Protection Law (Gazette No. 4898 of 1995).  In 1997 the government 
created a new agency, Pro Competencia, to implement the 1992 law.  A 
government procurement law of 2001 supposedly increased transparency in 
the competitive bidding process for contracts offered by the central 
government, national universities, and autonomous state and municipal 
institutions. 
 
Despite this legal and institutional framework, there is little 
transparency in Venezuela's regulatory system.  The vast majority of 
contracts are awarded without open competition.  There is often little 
coordination between the government and private sector, and even among 
different government agencies, in the process of promulgating new laws. 
 
As a result of this lack of coordination and the state's increasing 
intervention in the economy, many companies are struggling to cope with 
the growing array of regulations in areas as diverse as the tax code, 
labor, and the environment. 
 
--------------------------------------------- ----- 
Efficient Capital Markets and Portfolio Investment 
--------------------------------------------- ----- 
 
Capital Markets 
 
Access to the Venezuelan secondary capital market is relatively easy, 
and foreign firms essentially enjoy treatment equal to that of domestic 
firms.  Foreign companies may issue common and preferred stocks, bonds, 
and other securities in Venezuelan capital markets.  Foreign investors 
may also buy shares directly in Venezuelan companies or on the Caracas 
Stock Exchange. 
 
A Capital Markets Law (Gazette No. 36,565 of 1998) gave autonomy to the 
National Securities Commission and provides regulations for 
intermediaries, establishes new conditions for public offerings, 
enhances the transparency of brokerage operations, and makes 
regulations more flexible for small firms that wish to issue stocks. 
The Collective Investment Entities Law (Gazette No. 36,027 of 1996) 
allows for creation of collective investment companies such as mutual 
funds, collective investment venture capital companies, and collective 
real estate investment companies. 
 
Credit Markets 
 
Financing is available from a variety of sources, and there is no 
discrimination against foreign investors seeking access to credit.  The 
credit market is highly regulated, however.  The maximum nominal 
interest rate banks can charge is 28 percent.  Banks are required to 
set aside 34 percent of their portfolio for loans to the housing, 
agriculture, small business, and tourism sectors, in some cases at 
preferential rates. 
 
Thanks to several years of sustained economic growth and to the high 
liquidity generated by exchange controls, the banking sector's 
financial soundness indicators were generally strong as of December 
¶2007.  However the banking sector is highly exposed to the public 
sector through government deposits and bond holdings, some banks have a 
large percentage of their portfolio in consumption loans, and some 
banks are pushing the limits of capital adequacy requirements.  The 
majority of banking sector assets are concentrated in the country's six 
largest banks. 
 
------------------ 
Political Violence 
------------------ 
 
Venezuela's political climate is polarized between supporters and 
opponents of President Chavez and his policies.  This polarization 
resulted in several periods of political protests and mild civil unrest 
in Venezuela during 2007, one immediately following the May 28 closure 
of RCTV and one in the run-up to the December 2 constitutional 
referendum.  There were no major incidents of political violence 
targeted against foreign-owned companies or installations. 
 
---------- 
Corruption 
---------- 
 
Corruption is a very serious 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.  Venezuela has 
laws on the books to prevent and prosecute corruption, and accepting a 
bribe is a criminal act.  However, the judicial system has been 
ineffective historically and is accused of being overtly politicized. 
Government contracts are vulnerable to corruption because the tender 
process frequently lacks transparency.  The current regime of price and 
foreign exchange controls has also provided opportunity for corruption. 
 
------------------------------- 
Bilateral Investment Agreements 
------------------------------- 
 
Venezuela currently has bilateral investment agreements in force for 
the promotion and protection of investment with the following 
countries: Argentina, Barbados, Belgium-Luxemburg, Brazil, Canada, 
Chile, Costa Rica, Cuba, the Czech Republic, Denmark, Ecuador, France, 
Germany, Iran, Lithuania, Netherlands, Paraguay, Peru, Portugal, Spain, 
Sweden, Switzerland, the United Kingdom and Uruguay.  No agreement 
exists with the United States. 
 
-------------------------------------------- 
OPIC and Other Investment Insurance Programs 
-------------------------------------------- 
 
OPIC programs in Venezuela were suspended in 2005 as a result of 
Venezuela's decertification for failure to cooperate in suppressing 
international narcotics trafficking.  The certification process is an 
 
annual event, and the most recent determination (September 2007) also 
decertified Venezuela.  The Export-Import Bank has not provided new 
financing for projects in Venezuela since formally placing Venezuela 
"off cover" for new lending in April 2003.  Both OPIC and the Ex-Im 
Bank currently have significant exposure in Venezuela contracted prior 
to suspending operations. 
 
----- 
Labor 
----- 
 
Venezuela's National Institute of Statistics (INE) estimated 
unemployment at 6.3 percent as of November 2007.  While this rate would 
suggest some availability of labor, several factors make human 
resources a challenge for domestic and foreign investors alike.  Even 
as rapid economic growth has increased the demand for labor, a 
significant number of skilled and professional Venezuelans have sought 
employment opportunities abroad due to domestic political and economic 
uncertainty.  At the same time, government programs that support poorer 
Venezuelans have also made it more difficult for companies to attract 
unskilled labor.  The BRV has extended a freeze on layoffs through 
December 2008 with the possibility of further extension, one of several 
measures that have decreased labor market flexibility.  The power of 
trade unions has generally diminished during President Chavez's tenure, 
although they are still active in certain sectors. 
 
The Organic Labor Law (Gazette No. 5152 of 1997) places quantitative 
and total wage cost restrictions on the employment decisions made by 
foreign investors.  Article 27 requires that the number of foreigners 
hired by an investor not exceed 10 percent of a company's employees, 
while salaries paid to foreigners may not exceed 20 percent of the 
total company payroll.  Article 28 allows for 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. 
 
------------------------------ 
Foreign-Trade Zones/Free Ports 
------------------------------ 
 
The Free-Trade Zone Law (Gazette No. 34,772 of 1991) provides for free 
trade zones/free ports.  The three existing free trade zones, created 
in subsequent Gazette decrees, 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 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.  The Paraguana and Atuja zones provide 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 
------------------------------------ 
 
The stock of U.S. foreign direct investment (FDI) in Venezuela in 2006 
was USD 11.5 billion on a historical-cost basis according to U.S. 
Department of Commerce statistics.  U.S. FDI in Venezuela is 
concentrated largely in the petroleum, manufacturing, and finance 
sectors.  Note that these figures, the most recent available, do not 
include changes to the stock of U.S. FDI in Venezuela as a result of 
the 2007 expropriations. 
 
According to the Central Bank of Venezuela, the net flow of FDI into 
Venezuela was USD 317 million in the first nine months of 2007, and the 
net flow of FDI from Venezuela to other countries was USD 3 billion 
over the same period.  The FDI inflow to Venezuela represents roughly 
0.2 percent of Venezuela's GDP, compared with the Latin American 
average of roughly 2.5 percent of GDP. 
 
End text 
DUDDY