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R 212206Z JAN 10
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC 0311
INFO RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFISS/HQ USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHCV/AMEMBASSY CARACAS

UNCLAS CARACAS 000063 
 
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HQ SOUTHCOM ALSO FOR POLAD 
TREASURY FOR MKACZMAREK 
NSC FOR DRESTREPO 
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E.O. 12958: N/A 
TAGS: ECON PGOV EINV EFIN ETRD ELAB USTR OPIC KTDB VE
SUBJECT: 2010 INVESTMENT CLIMATE STATEMENT 
 
REF: 09 STATE 124006 
 
¶1. (U) In response to reftel, please find following the submission 
of the 2010 Investment Climate Statement for Venezuela. 
 
 
 
¶2. (U) Openness to Foreign Investment 
 
 
 
Economic and political uncertainties, a recent history of actual 
and threatened nationalizations, and increasing state intervention 
in the economy, make Venezuela's investment climate considerably 
less welcoming than its relatively liberal legal framework would 
otherwise suggest.  As a result of these risks, foreign direct 
investment in Venezuela has been lower in recent years than in most 
other Latin American countries.  In 2008, despite these challenges, 
many companies with investments in Venezuela recorded strong 
profits thanks to five consecutive years of high economic growth 
fueled by record oil prices and massive government spending.  In 
2009, the investment climate was less favorable given increasing 
political and economic uncertainty and the decline in oil prices, 
although many companies decided to maintain their investment 
position in Venezuela in the expectation that the economic 
environment will eventually improve.  Strict labor laws and the 
devaluation of dividends and payments to suppliers have also 
increased the costs of withdrawing from the Venezuelan market.  In 
2010, Venezuela's economic outlook is continued recession or anemic 
growth. 
 
 
 
Important developments in 2009 and early 2010 included the 
devaluation of the official exchange rate, a series of banking 
interventions, an electricity crisis that caused rolling outages 
throughout the country, and the nationalization of assets in the 
petroleum, steel, tourism, agribusiness, and banking industries. 
The Government of the Bolivarian Republic of Venezuela (GBRV) has 
also revoked or refused to renew important concessions held by 
private companies. 
 
 
 
In August 2007, as part of his push toward "21st Century 
Socialism," President Chavez proposed a series of constitutional 
reforms that would have, among other things, defined Venezuela as a 
socialist state and significantly weakened protections for private 
property.  Voters rejected these proposals by a slim margin in a 
December 2007 referendum, but President Chavez decreed 26 new laws 
on July 31, 2008, that implemented some of the rejected 
constitutional reforms and weakened property rights.  Notably, the 
Law of Agro-Food Security and Sovereignty increased state power 
over food distribution, while an amendment to Venezuela's consumer 
protection law eliminated the need for a previous declaration of 
public utility by the National Assembly before the executive can 
start expropriation procedures.  Both laws permit the GBRV to seize 
goods or property in the interest of the larger community.  In 
2009, in a new threat to property rights, the GBRV published an 
Urban Lands Law that empowered the state to seize "underutilized 
urban land" and designated over 1000 properties in Caracas "of 
cultural interest," placing restrictions on their transfer and 
modification. 
 
 
 
Growing state intervention in the economy has created a series of 
distortions.  The GBRV has maintained a fixed exchange rate and 
exchange controls since February 2003.  In January 2010, President 
Chavez announced a devaluation of the bolivar, but the official 
bolivar/dollar exchange rate remains overvalued.  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 GBRV 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. 
 
 
In 2009, Venezuela ranked 174th in the Heritage Foundation's Index 
of Economic Freedom, reflecting substantial declines in eight of 
ten economic freedoms since last year.  According to the Heritage 
Foundation report, Venezuela had the second lowest score in Latin 
America due to an increasingly interventionist government, 
inefficient and rigid regulation, opaque and burdensome investment 
laws, corruption in civil society and the judiciary, and the 
weakening of property rights.  The World Bank's 2010 "Doing 
Business Report" ranked Venezuela 177th in terms of the ease of 
doing business, with an average of 141 days and 16 procedures 
necessary to start a business.  Transparency International's 2009 
Corruption Perceptions Index ranked Venezuela as the second most 
corrupt country in Latin America. 
 
 
 
 
Measure 
 
Year 
 
Index/Ranking 
 
 
TI Corruption Index 
 
2009 
 
162 
 
 
Heritage Economic Freedom 
 
2009 
 
174 
 
 
World Bank Doing Business 
 
2010 
 
177 
 
 
 
Legal Framework for Foreign Investment 
 
 
 
In theory, Venezuela's legal framework for foreign investment is 
relatively liberal: the law requires equal treatment for both 
foreign and local companies, with the notable exception of a few 
sectors in which the state or Venezuelan nationals must be majority 
owners, including hydrocarbons and the media.  Repatriation of 
capital and dividends is allowed, subject to the exchange control 
regime.  In practice, the Venezuelan judicial system is highly 
politicized. 
 
 
 
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 adopted 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 established 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 GBRV has continued to apply some 
of the Andean Community norms in the absence of any other 
regulations.)  Article 13 of the decree explicitly guaranteed 
foreign investors the same rights and imposed the same obligations 
as applied to national investors "except as provided for in special 
laws and limitations contained in this Decree."  Decree 2095 also 
guaranteed 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 allowed for unrestricted reinvestment 
of profits. 
 
 
 
Under Decree 2095, foreign investors need only to 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 reserved three areas of economic activity to "national 
companies": (1) broadcast media, (2) Spanish-language 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-provided that they possess a government-issued identity 
card or government-approved work permit-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, the hydrocarbons sector has the most 
significant restrictions on foreign investment. 
 
 
 
Over the last several years the GBRV has made a number of changes 
in royalty, tax policies, and contracts that have substantially 
increased uncertainty for foreign companies operating in Venezuela. 
For example, the 2001 Hydrocarbons Law did not expressly 
grandfather contracts executed under earlier legislation. 
Specifically, it did not include 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 GBRV argued in 2001 that no grandfather 
 
provision was necessary because retroactive application of 
legislative provisions is forbidden by constitutional mandate. 
 
 
 
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 Energy and Mines (now the 
Ministry of Energy and Petroleum).  The state retained ownership of 
all natural gas "in situ", but PDVSA involvement was not required 
for gas development projects.  Complete vertical integration of the 
gas business from wellhead to consumer was 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. 
 
 
 
The 2001 Hydrocarbons Law reserved the rights of exploration, 
production, "gathering," and initial transportation and storage of 
petroleum and associated natural gas for the state.  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. 
 
 
 
In October 2004, the GBRV unilaterally eliminated a nine-year 
royalty holiday ceded to the Strategic Associations, arguing that 
this was allowable under earlier hydrocarbons legislation.  The 
GBRV then informed companies with operating service 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 memorandums of 
understanding converting their contracts to joint ventures on March 
31, 2005.  In January 2008, ENI and Total, two companies that did 
not sign MOUs in 2005, reached an agreement with PDVSA. 
 
 
 
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 GBRV 
took control of their investments.  Both companies have treated the 
government's actions as expropriations and filed international 
arbitration claims against the GBRV. 
 
 
 
In April 2008, a new windfall profit law was promulgated, mandating 
a special contribution by parties that export or transport natural 
or upgraded liquid hydrocarbons abroad.  The contribution is 
calculated at a variable rate, which is determined using a formula 
involving the current price of oil and total exports from 
Venezuela. 
 
 
 
On September 18, 2008, an Organic Law on the Restructuring of the 
Internal Liquid Fuels Market came into effect.  The law mandated 
government control of domestic transportation and wholesale of 
liquid fuels and set a 60 day period for negotiations with the 
affected companies.  The law does not define the term "liquid 
fuels" which created uncertainty as to whether it will apply to 
products other than gasoline and diesel fuel, such as motor oils or 
 
lubricants.  This law affected several foreign companies which had 
investments in the downstream sector. 
 
 
 
On May 7, 2009 Venezuela enacted the Organic Law that Reserves to 
the State the Assets and Services related to Hydrocarbon Primary 
Activities.  The bill specifically affected petroleum service 
companies involved in the injection of water, steam, or gas as 
secondary recovery methods, as well as services rendered for the 
performance of primary activities on Lake Maracaibo.  It provided 
for the "extinction" of contracts executed in the past between 
PDVSA and private companies.  It stipulated that all contracts and 
activities governed by the law would be subject to Venezuelan law 
and subject to the exclusive jurisdiction of Venezuelan Courts. 
Under the provisions of this law, over 75 companies, including 
three U.S. firms, were expropriated by the GBRV. 
 
 
 
On July 10, 2009, Venezuela's Organic Law for the Development of 
Petrochemical Activities entered into force.  The new 
Petrochemicals Law has a limited scope of application and does not 
apply to activities regulated by the 2001 Hydrocarbons Law or the 
1999 Gaseous Hydrocarbons Law.  The Petrochemicals Law reserves 
basic and intermediate petrochemical activities for the State, as 
well as the assets and facilities required for their handling.  It 
allows the State, through MENPET, to create mixed companies in 
which the GBRV will control at least 50 percent of the shareholder 
equity and exercise effective control over company decisions.  The 
legislation mandates that certain investment incentives for the 
GBRV (e.g. technology transfer, incentives for industrial 
development, infrastructure supply, facility maintenance, social 
resources, import substitution, price advantages, and estimated 
profits) will be required for authorization of a mixed company. 
The Petrochemicals Law gives priority to the supply of the domestic 
market and the development of state and socialist companies.  Upon 
expiration of the term of a mixed company, its works, ancillary 
facilities, and equipment shall be delivered to the State, free of 
encumbrance and without any indemnity whatsoever. 
 
 
 
¶3. (U) 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.  In 
early 2008, the GBRV prohibited the publication in Venezuela of the 
parallel exchange rate.  In January 2010, President Chavez 
announced that the Central Bank of Venezuela (BCV) and the 
executive branch would intervene in the parallel foreign exchange 
market to "eliminate the speculative increase in hard currency." 
 
 
 
In March 2005, the official exchange rate was fixed at 2,150 
bolivars (Bs) per USD.  (On January 1, 2008, the government 
introduced a redenominated bolivar known as the "bolivar fuerte" 
and adjusted the official rate to 2.15 bolivars per USD.)  On 
 
 
January 11, 2010, the GBRV devalued the bolivar and established two 
exchange rates, an official rate at 2.6 Bs/USD (which applies to 
certain priority imports) and a "petroleum dollar" rate at 4.3 
Bs/USD (which applies to non-priority imports and most other 
categories of foreign exchange requests). 
 
 
 
According to President Chavez's announcement on January 8, 2010, 
the official exchange rate will apply to imports of food, health 
products, machines and equipment, and science and technology; to 
imports made by the public sector; to remittances to family 
members; to hard currency for students studying abroad; to 
embassies and consulates in Venezuela, to retired pensioners; and 
in other special cases.  The petroleum dollar rate will apply to 
"everything else," including the repatriation of dividends. 
Despite the devaluation, the official exchange rate remains 
overvalued, and companies that manufacture tradable goods in 
Venezuela find it very difficult to compete against goods imported 
at the official rate.  The parallel market is relatively shallow 
and volatile: it closed around 6 Bs/USD at the end of 2009. 
 
 
 
Foreign companies wishing to repatriate capital, dividends, or 
profits at the petroleum dollar rate have to secure authorization 
from CADIVI.  CADIVI authorized approximately USD 579 million in 
repatriations in the first three quarters of 2009, down from 1.17 
billion in 2008.  However, many companies did not receive the full 
authorization they requested from CADIVI or received it after 
significant delays.  Most companies have not had repatriations 
approved at the official rate for dividends after the 2006 fiscal 
year.  Some companies have therefore turned to the parallel market 
for repatriation. 
 
 
 
¶4. (U) Expropriation and Compensation 
 
 
 
The government has nationalized significant assets in recent years. 
Given President Chavez's public threats to various sectors, this 
trend is expected to continue.  In January 2007, President Chavez 
announced his intent to nationalize strategic sectors.  Shortly 
thereafter, the GBRV took over an electric company and cable 
company owned by US companies and investors.  In 2008, the GBRV 
announced nationalizations of multi-national cement companies, a 
steel maker (SIDOR) and the Banco de Venezuela.  In 2009, the GBRV 
nationalized assets in the petroleum, tourism, agribusiness, and 
banking industries.  As noted above, ConocoPhillips and ExxonMobil 
have not come to agreement with the GBRV for the expropriation of 
their respective investments in the Strategic Associations and have 
filed for international arbitration.  The Swiss cement supply 
company Holcim has also opened international arbitration 
proceedings following the nationalization of its assets in 
Venezuela.  Oil service companies with expropriated assets are also 
considering filing for international arbitration. 
 
 
 
Venezuela's 2001 land law, as modified in 2005, calls for the 
redistribution of "unproductive" land.  The GBRV claims to have 
seized over 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.  The GBRV has also conducted 
inspections of plants to determine if they are in violation of 
Venezuelan law.  These inspections have also led to occupation or 
nationalization.  In March 2009, the GBRV expropriated a rice plant 
after claiming that the company was in violation of Venezuelan law 
for producing parboiled rice instead of government-regulated white 
rice. 
 
 
 
On February 21, 2007, the GBRV 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 GBRV invoked this decree to 
direct the military to seize two slaughterhouses in 2007. 
 
 
 
¶5. (U) 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. 
 
 
 
In a few cases, the GBRV has accepted the results of international 
arbitration in disputes involving foreign investors and government 
entities.  Recent GBRV statements and actions, however, call into 
question whether this trend will continue.  For example, in a 
February 2006 decision involving Haagen-Dazs, GBRV courts 
invalidated an American Arbitration Association award entered in 
Miami.  In April 2006, a GBRV 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. 
 
 
 
In October 2008, the Venezuelan Supreme Court, while acknowledging 
the existence of a fundamental right to arbitration, resolved that 
the GBRV must expressly consent to it.  The ruling challenged the 
legal analysis cited by a number of former investors who believe 
that Article 22 of the 1999 Law on Promotion and Protection of 
Investors provides them with access to arbitration with the World 
Bank International Centre for Investment Disputes (ICSID).  The 
Court reasoned that Article 22 does not provide a clear and open 
offer of consent to ICSID arbitration.  The impact of this decision 
remains to be seen. 
 
 
 
¶6. (U) 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.  The state oil company, 
PDVSA, seeks to maximize local content and hiring in its 
negotiations with foreign companies.  It also requires companies to 
make social contributions. 
 
 
 
¶7. (U) 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). 
 
 
 
¶8. (U) 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." Under the 
1999 constitution, intellectual property rights are classified as 
cultural and educational rights rather than economic rights, as 
they were in the past.  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 GBRV delegation has attended a 
WIPO meeting in the last five years. In the past, Venezuela has 
implemented its obligations under the WTO Agreement on 
Trade-Related Aspects of Intellectual Property Rights (TRIPS) 
through Andean Community Decision 486. 
 
 
 
The Venezuelan Industrial Property Office or 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.  Both President Chavez and Commerce Minister Eduardo 
Saman have publicly called for the elimination of patents.  In 
2009, the GBRV nullified two patents for an antibiotic produced by 
a pharmaceutical company after the company protested the local 
production of two generic copies of the drug.  Pirated software, 
music, and movies are readily available throughout the country. In 
the 2009 Special 301 Annual Review, Venezuela remained on the 
"Priority Watch List." 
 
 
 
Patents and Trademarks 
 
 
 
Venezuela has provided the legal framework for patent and trademark 
protection through Andean Community Decision 486 (and Decision 345 
for plant varieties). In September 2008, however, SAPI issued a 
press release resurrecting the Industrial Property Law of 1955, 
which expressly prohibited patent protection for pharmaceuticals 
and other products. The return to the 1955 law codifies the GBRV's 
de facto policy of refusal to issue patents, particularly in the 
area of medicines. The GBRV has not awarded a patent for new 
pharmaceuticals since 2004.  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 have already received market 
approval. This practice thereby denies the innovative drug 
companies protection against unfair use of their test data as 
required by TRIPS.  From a trademark standpoint, the 1955 Law 
changes the registration procedure and adds the cumbersome and 
expensive requirement of publishing trademark applications in a 
local newspaper before they can be published in the Industrial 
Property Bulletin.  The Law also contains numerous provisions which 
conflict with 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.  Following the 
nationalization of a well-known domestic coffee company in 2009, 
the GBRV expropriated the trademark and brand.  Venezuelan 
authorities have indicated that a new industrial property law is a 
priority and, in fact, there is at least one draft which began 
circulating during the last quarter of 2009.  SAPI's web page also 
mentions a new law and invites input; however, the page does not 
contain the text of any draft law which could be used as the basis 
for comments. 
 
 
 
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.  In 
the past, the GBRV'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; however, such actions on the part of SENIAT 
have decreased considerably over the past two years. 
 
 
 
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. 
 
 
 
¶9. (U) 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. 
 
 
 
As noted above, an amendment to Venezuela's consumer protection law 
was included as part of the 26 decree laws passed on July 31, 2008. 
This law renamed the consumer protection institute-now 
INDEPABIS-and gave it broader powers.  Since then, INDEPABIS has 
operated in the absence of implementing regulations which has given 
its inspectors an extraordinary degree of discretion, resulting in 
uneven standards and enforcement.  INDEPABIS conducted over 15,000 
inspections in 2009, and several franchise operations, both 
domestic and foreign, have been shut down for several days or have 
faced serious fines due to what some observers see as over-zealous 
enforcement.  Reports indicate that INDEPABIS and industry have 
agreed to work out more predictable standards and operating 
procedures. 
 
 
 
¶10. (U) 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 33 percent.  Banks are 
required to set aside 44 percent of their portfolio for loans to 
the housing, agriculture, small business, manufacturing and tourism 
sectors, in some cases at preferential rates. 
 
 
The majority of banking sector assets are concentrated in the 
country's six largest banks, which are generally solid.  However, 
the banking sector as a whole 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.  In November 2009, the GBRV took over or shut down 
eight banks, ostensibly for violating a number of regulation 
requirements, but also raising concerns about the levels of 
government corruption within the banking system.  The GRBV now 
controls approximately 30 percent of the banking sector by assets. 
 
 
 
¶11. (U) Competition from State Owned Enterprises 
 
 
 
Private enterprises are often at a disadvantage when competing with 
public enterprises, specifically in terms of accessing foreign 
exchange at the official rate.  For example, non-petroleum public 
sector imports are eligible for an exchange rate of 2.6 Bs/USD, 
whereas the majority of private sector imports are eligible only 
for the 4.3 Bs/USD rate.  Public sector companies, in some cases, 
do not need to go through the GBRV's exchange control board, 
CADIVI, to request hard currency at the official exchange rate, but 
CADIVI often delays or refuses the applications of private 
companies, limiting or denying their access to foreign exchange at 
one of the two official exchange rates. 
 
 
 
State Owned Enterprises (SOEs) are active in almost every sector of 
the Venezuelan economy, including hydrocarbons, mining, media, 
telecommunications, tourism, and agribusiness.  In the largest and 
most important SOEs, the CEO is often a minister in the GBRV.  The 
CEO of PDVSA is also the Minister of Energy and Petroleum; the rest 
of PDVSA's board members are also appointed by the President.  The 
pattern is similar in other important SOEs, such as the Venezuelan 
Corporation of Guayana (CVG), a state holding company that includes 
companies in basic heavy industry, such as electricity generation, 
steel production, iron ore mining, and aluminum production. 
 
 
 
¶12. (U) Corporate Social Responsibility 
 
 
 
Many companies in Venezuela have attempted to integrate corporate 
social responsibility (CSR) into their business models, although it 
is difficult to measure the general awareness of CSR among 
consumers.  By law, companies bidding on state contracts must 
earmark five percent of their budget for CSR-related activities. 
This requirement has raised concerns about corruption, particularly 
when companies are not vigilant about the organizations receiving 
the funds and how they administer them.  While some foreign and 
local enterprises have adopted generally accepted corporate social 
responsibility practices such as the OECD Guidelines for 
Multinational Enterprises, these principles are not broadly 
applied. 
 
 
 
¶13. (U) Political Violence 
 
 
 
Venezuela's political climate is polarized between supporters and 
opponents of President Chavez and his policies.  However, there 
were no major incidents of political violence that specifically 
targeted foreign-owned companies or installations in 2009. 
 
 
 
¶14. (U) Corruption 
 
 
Corruption is a very serious problem in Venezuela and appears to be 
worsening.  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 accused of being politicized 
and ineffective in applying these laws.  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 opportunities for corruption. 
 
 
 
¶15. (U) Bilateral Investment Agreements 
 
 
 
Venezuela has concluded the following bilateral investment 
agreements as of June 1st, 2009: 
 
 
 
 
Partner 
 
Date of Signature 
 
Date of entry into force 
 
 
Argentina 
 
16-Nov-93 
 
1-Jul-95 
 
 
Barbados 
 
15-Jul-94 
 
31-Oct-95 
 
 
Belarus 
 
6-Dec-07 
 
13-Aug-08 
 
 
Belgium and Luxembourg 
 
17-Mar-98 
 
29-Apr-04 
 
 
Brazil 
 
4-Jul-95 
 
--- 
 
 
Canada 
 
1-Jul-96 
 
28-Jan-98 
 
 
Chile 
 
2-Apr-93 
 
25-May-95 
 
 
Costa Rica 
 
17-Mar-97 
 
2-May-01 
 
 
Cuba 
 
11-Dec-96 
 
15-Apr-04 
 
 
Czech Republic 
 
27-Apr-95 
 
23-Jul-96 
 
 
Denmark 
 
28-Nov-94 
 
19-Sep-96 
 
 
Ecuador 
 
18-Nov-93 
 
1-Feb-95 
 
 
France 
 
2-Jul-01 
 
30-Apr-04 
 
 
Germany 
 
14-May-96 
 
16-Oct-98 
 
 
Indonesia 
 
18-Dec-00 
 
23-Mar-03 
 
 
Iran, Islamic Republic 
 
11-Mar-05 
 
7-Jun-06 
 
 
Italy 
 
14-Feb-01 
 
--- 
 
 
Lithuania 
 
24-Apr-95 
 
1-Aug-96 
 
 
Netherlands* 
 
22-Oct-91 
 
1-Nov-93 
 
 
Paraguay 
 
5-Sep-96 
 
14-Nov-97 
 
 
Peru 
 
12-Jan-96 
 
18-Sep-97 
 
 
Portugal 
 
17-Jun-94 
 
7-Oct-95 
 
 
Russian Federation 
 
7-Nov-08 
 
--- 
 
 
Spain 
 
2-Nov-95 
 
10-Sep-97 
 
 
Sweden 
 
25-Nov-96 
 
5-Jan-98 
 
 
Switzerland 
 
18-Nov-93 
 
30-Nov-94 
 
 
United Kingdom 
 
15-Mar-95 
 
1-Aug-96 
 
 
Uruguay 
 
20-May-97 
 
18-Jan-02 
 
 
 
*Effective November 1, 2008, Venezuela revoked its Bilateral 
Investment Treaty with the Netherlands.  Revocation did not have 
any immediate consequences for investments made prior to the date 
of revocation.  The BIT remains in force for these investments for 
a period of 15 years. 
 
 
 
¶16. (U) 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 in September 2009 the President again 
determined that Venezuela "failed demonstrably" in living up to its 
obligations under international counternarcotics agreements and 
conventions. 
 
 
 
However, the President issued a national interest waiver so that 
the United States could continue to support specific civil society 
programs and small community development programs in 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. 
 
 
 
¶17. (U) Labor 
 
 
 
Venezuela's National Institute of Statistics (INE) estimated 6.6 
percent unemployment as of December 2009, but this estimate does 
not include individuals who work in the informal sector or those 
who are self-employed-both groups collectively constitute more than 
half of the nation's workforce.  Several factors make human 
resources a challenge for domestic and foreign investors alike: a 
significant number of skilled and professional Venezuelans have 
sought employment opportunities abroad due to domestic political 
and economic uncertainty; government programs that support poorer 
Venezuelans have also made it more difficult for companies to 
attract unskilled labor; and the power of traditional trade unions 
has diminished as the government has supported the establishment of 
thousands of "parallel" unions that are closely aligned to 
government interests.  Only 12 to 13 percent of the total workforce 
is unionized. 
 
 
 
In 2009, Venezuela saw a continuing increase in protests and work 
stoppages by unions in both the public and private sectors.  Union 
protests-in some cases resulting in deaths-disrupted operations at 
many companies in 2009, including auto assembly plants owned by 
General Motors, Toyota, and Mitsubishi, and forced the temporary 
shut-down of various oil drilling operations and oil service 
companies.  Meanwhile, the GBRV has repeatedly delayed negotiations 
over collective bargaining agreements for workers in the public 
sector, leaving more than two million public employees without 
collective contracts, including employees in the oil and gas 
industry, teachers, and electrical workers. 
 
 
 
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. 
 
 
 
¶18. (U) 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. 
 
 
 
¶19. (U) Foreign Direct Investment Statistics 
 
 
 
U.S. FDI in Venezuela is concentrated largely in the petroleum, 
manufacturing, and finance sectors.  In 2006,  according to U.S. 
Department of Commerce statistics, the stock of U.S. foreign direct 
investment (FDI) was USD 10.9 billion.  More recent FDI statistics 
are unreliable: the US Department of Commerce reports an increase 
in FDI since 2006, but information from the local market suggests 
that there has been very little new FDI in Venezuela in recent 
years.  In 2007, the net inflow of FDI to Venezuela represented 
roughly 0.4 percent of Venezuela's GDP. 
CAULFIELD