Trade Compliance Center

BOLIVIA TRADE POLICY REVIEW SUMMARY - 1999

PRESS RELEASE

PRESS/TPRB/109

13 July 1999

Outward looking policies bring growth and

increased trade to Bolivia.

Bolivia's successful macroeconomic stabilization and its outward

looking trade and investment policies have resulted in steady GDP

growth, lower inflation, and increased trade and investment. The

Bolivian trade regime is inherently predictable and transparent,

says a new WTO report on the trade policies of Bolivia. The report

also notes, however, that administrative shortcomings, an uneven

application of laws and a large informal sector remain problems

which Bolivia is seeking to address through a second round of

reform to strengthen governance and bring informal activities into

the formal economy.

The new WTO report, along with a policy statement by the

Government of Bolivia, will serve as a basis for the trade policy

review of Bolivia in the WTO Trade Policy Review Body (TPRB) on

19 and 21 July 1999. Bolivia was last reviewed by the TPRB in

1993.

The report notes that between 1993 and 1998, GDP in Bolivia grew

at an average of 4.6%, while the annual cumulative inflation rate

was reduced to less than 5%. The share of reported merchandise

trade to GDP rose to 43%, from about 36% in 1993. Trade flows

have continued to diversify both in terms of products and markets.

The role of the state has been reduced through a comprehensive

privatization programme and a more liberal investment regime has

encouraged a considerable rise in foreign direct investment.

The report states that Bolivia applies a uniform tariff of 10%,

except for a 5% rate applied to capital goods and a 2% rate on

books. The present tariff regime is mainly the result of autonomous

initiatives. Bolivia bound its tariffs at a general ceiling rate of 40%,

thus leaving a wide gap between applied and bound rates. The

report notes that this, and complexities arising from preferential

trade agreements and the use of a selective specific consumption

tax could detract from the transparency and predictability of

Bolivia's tax structure.

Overall, Bolivia avoids the use of non-tariff barriers and it has

never taken anti-dumping or safeguard actions. Bolivia uses tax

refund schemes to support its exports, schemes which, however,

do little to overcome difficulties for producers and exporters

affected by structural problems in several economic sectors. The

report states that Bolivian exporters also face access difficulties in

certain foreign markets, especially in regard to technical

requirements.

Agriculture and related processing activities, which are largely free

of major government intervention, including subsidies, account for

a large portion of Bolivia's foreign exchange earnings, some 42% in

1997. Soya exports, in particular, have undergone remarkable

growth since 1993. The report notes that, driven by foreign

demand, the coca-cocaine industry maintains a visible albeit

declining role in the Bolivian economy.

Mineral extraction and processing, including hydrocarbons, are

traditional sectors that continue to interest foreign investors. In

recent years, foreign investment in those sectors has been spurred

on by the privatization of mining assets and by new sectoral laws

liberalizing investment. Mining activities accounted for 42% of

export earnings in 1997.

There has been little progress in stimulating a supply response in

manufacturing other than the processing of mineral, agricultural

and forestry products. This is due, in part, to problems related to

infrastructure, high transport costs, a limited skilled labour supply

and competition from informal activities. Consequently, these

activities still make up only a small contribution to Bolivia's

economy.

In contrast, the services sector has come to play a central role in

the Bolivian economy. Although in the past the state was an

important supplier of services, most have now been privatized.

Far-reaching steps have been taken to strengthen the institutional

framework, including the adoption of new legislation in financial,

transport and telecommunication services. Most service activities

are now open to foreign investment, which has played a key role in

their modernization. Bolivia's commitments under the General

Agreement on Trade in Services (GATS) are relatively modest,

although its autonomous liberalization efforts have established the

bases for expanding them.

The report notes that the enforcement of intellectual property

rights, technical requirements, and sanitary and phytosanitary rules

is weak, but ongoing regulatory and administrative improvements

should help address most concerns. Bolivia has not signed the

plurilateral Agreement on Government Procurement and favours

national suppliers in public tenders.

Although Bolivia's trade policy has been largely based on unilateral

liberalization, multilateral and regional initiatives have played

important supporting roles. Since 1993, Bolivia has concluded new

agreements with Chile, Cuba, MERCOSUR and Mexico. In view of

Bolivia's geographical position, most of these preferential initiatives

have the potential to increase trade and investment but, the

report notes, they could also undermine the transparency,

predictability and resource allocation advantages of Bolivia's

most-favoured-nation trade regime.

Notes to Editors

The WTO's Secretariat report, together with a policy statement

prepared by Bolivia, will be discussed by the WTO Trade Policy

Review Body (TPRB) on 19 and 21 July 1999. The WTO's TPRB

conducts a collective evaluation of the full range of trade policies

and practices of each WTO member at regular intervals and

monitors significant trends and developments which may have an

impact on the global trading system. The Secretariat report covers

the development of all aspects of each of Bolivia's trade policies,

including domestic laws and regulations, the institutional

framework, trade policies by measure and by sector. Since the

WTO came into force, the areas of services and trade-related

aspects of intellectual property rights are also covered.

To this press release are attached the summary observations from

the Secretariat report and a summary of the government report.

The full Secretariat and government reports are available for

journalists from WTO Secretariat on request (call 41 22 739 5019).

They are also available for the press in the newsroom of the WTO

internet site (www.wto.org). The Secretariat report, together with

the government policy statement, a report of the TPRB's discussion

and the Chairman's summing up, will be published in hardback in

due course and will be available from the Secretariat, Centre

William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

Since December 1989, the following reports have been completed:

Argentina (1992 & 1999), Australia (1989, 1994 & 1998), Austria (1992),

Bangladesh (1992), Benin (1997), Bolivia (1993), Botswana (1998), Brazil

(1992 & 1996), Burkina Faso (1998), Cameroon (1995), Canada (1990, 1992,

1994, 1996 & 1998), Chile (1991 & 1997), Colombia (1990 & 1996), Costa Rica

(1995), C?te d'Ivoire (1995), Cyprus (1997), the Czech Republic (1996), the

Dominican Republic (1996), Egypt (1992 & 1999), El Salvador (1996), the

European Communities (1991, 1993, 1995 & 1997), Fiji (1997), Finland (1992),

Ghana (1992), Guinea (1999), Hong Kong (1990, 1994 & 1998), Hungary (1991

& 1998), Iceland (1994), India (1993 & 1998), Indonesia (1991,1994 & 1998),

Israel (1994), Jamaica (1998), Japan (1990, 1992, 1995 & 1998), Kenya

(1993), Korea, Rep. of (1992 & 1996), Lesotho (1998), Macau (1994), Malaysia

(1993 & 1997), Mali (1998), Mauritius (1995), Mexico (1993 & 1997), Morocco

(1989 & 1996), New Zealand (1990 & 1996), Namibia (1998), Nigeria (1991 &

1998), Norway (1991 & 1996), Pakistan (1995), Paraguay (1997), Peru (1994),

the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994),

Singapore (1992 & 1996), Slovak Republic (1995), the Solomon Islands (1998),

South Africa (1993 & 1998, Sri Lanka(1995), Swaziland (1998), Sweden (1990 &

1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Togo (1999),

Trinidad and Tobago (1998), Tunisia (1994), Turkey (1994 & 1998), the United

States (1989, 1992, 1994 & 1996), Uganda (1995), Uruguay (1992 & 1998),

Venezuela (1996), Zambia (1996) and Zimbabwe (1994).

TRADE POLICY REVIEW BODY: BOLIVIA

Report by the Secretariat Summary Observations

Introduction

Bolivia has continued with great success the macroeconomic

stabilization programme initiated in the mid 1980s. Since Bolivia's

previous Trade Policy Review in 1993, GDP growth has been

steady, inflation has fallen, trade has increased and, despite high

foreign debt, external balances have remained manageable. The

role of the State has been reduced through a comprehensive

privatization programme which, together with more liberal

investment rules, has encouraged a considerable rise in foreign

direct investment.

Bolivia has continued to consolidate its generally outward-looking

trade regime, applying a near uniform 10% tariff and shunning the

use of non-tariff trade barriers, including trade defence measures.

Bolivia's trade regime is inherently predictable and transparent and

promotes an efficient allocation of resources, although this is

undermined to some extent by persistent administrative

weaknesses and an uneven application of laws affecting, at times,

areas such as customs administration, the use of technical

requirements, and the enforcement of intellectual property rights.

Distortions also arise from a large informal sector.

In coming to grips with these weaknesses, Bolivia has engaged in a

second round of reform to strengthen governance and incorporate

informal activities into the formal economy. Recognizing that the

benefits of sound economic policies and structural reforms have

been slow to filter down to the population at large, and that per

capita income remains low, Bolivia has also taken steps to bring

about improvements in social areas such as education and health.

These reforms should help reduce constraints on rates of growth

by augmenting the supply of skilled labour, reducing transaction

and production costs and, thus, enhancing the international

competitiveness of Bolivian producers and exporters, as well as

Bolivia's attractiveness as an investment destination.

The Economic and Institutional Environment

Relying on broad structural reforms, fiscal discipline, a market

based exchange rate and the support of the international

community, in particular through debt relief programmes, the

benefits of the Bolivian stabilization programme, first initiated in

1985, have been substantial. Between 1993 and 1998, GDP grew at

an average rate of 4.6% and the annual cumulative inflation rate

was brought down under 5%. The share of reported merchandise

trade to GDP rose to 43% in 1997, from about 36% in 1993, and

trade flows have continued to diversify both in terms of products

and markets.

Foreign direct investment has increased sharply since the beginning

of the 1990s and has played a major role in the modernization of

Bolivia's economy. The elimination of foreign investment

restrictions, together with macroeconomic stability and structural

reform, particularly the privatization of public enterprises, have

been key factors in this trend. New competition policy provisions

are helping to ensure that the abuse of market power does not

impair economic efficiency.

Following adjustments since 1993, particularly to restructure or

change the role of various public entities, responsibility for trade

policy formulation and implementation is shared by a number of

ministries, including the Ministries of Foreign Trade and Investment

and of External Relations and Worship. Although these adjustments

have sought to encourage greater effectiveness in public

administration, they have in some instances reduced its stability

and transparency; recent efforts to decentralize the public

administration might have a similar effect. Bolivia has subsequently

taken measures to reduce governance problems and eliminate

distortions resulting from relatively weak institutions, particularly

rent-seeking activities, such as contraband, propitiated by

loopholes in the application of the law.

Trade Policy Developments

Since 1993, Bolivia has continued to consolidate its generally

outward-looking trade regime, thus creating a largely neutral set of

formal trade instruments. Reaping the full benefits of this regime,

and of other economic reforms undertaken in recent years, requires

closing the substantial gap between policy objectives and their

implementation. Bolivia is taking steps in this direction, including

through the reform of customs administration and the expected

adoption of a new customs law.

Bolivia offers at least most-favoured-nation treatment to all its

trading partners. A virtually uniform, ad valorem tariff is applied on

imports: a 10% rate applies to all products except for 429 HS lines

(mostly capital goods), on which a rate of 5% applies and five

items (books) rated at 2%. Tariffs are bound at a ceiling rate of

40%; the few exceptions are bound at 30%. The present tariff

regime is mostly the result of autonomous initiatives; the Uruguay

Round had only a minor effect on Bolivia's applied tariffs or binding

commitments. The most significant domestic tax affecting imports

is a uniform value-added tax applied at a rate of just under 15% to

all products and services.

Detracting somewhat from the inherent resource allocation,

transparency and predictability advantages offered by Bolivia's tax

structure are the wide gap between applied and bound tariffs,

possible complexities arising from preferential trade agreements,

and the use of a selective specific consumption tax (ICE). The ICE

also taxes certain locally-produced alcoholic beverages at a lower

rate than imported beverages.

Bolivia has never taken anti-dumping or safeguard actions. The

enforcement of intellectual property rights, technical requirements,

and sanitary and phytosanitary rules appears weak, but ongoing

regulatory and administrative improvements should help to address

most concerns. Bolivia has not signed the plurilateral Agreement on

Government Procurement, and favours national suppliers in public

tenders.

Tax refund schemes support Bolivian exports; the budgetary

revenue forgone is modest but the schemes probably do little to

overcome the difficulties presented to producers and exporters by

structural problems affecting several economic sectors. Bolivian

exporters also face access difficulties in certain foreign markets,

including with respect to technical requirements on some products.

Bolivia has introduced export prohibitions on unprocessed forestry

products. Preshipment inspection for exports was eliminated in

1999.

Sectoral Policy Developments

Bolivia has persevered with efforts to establish a neutral incentive

structure that does not discriminate among sectors. This strategy

has produced some noteworthy successes, especially in agriculture

and mining; however, inadequate infrastructure, high transport

costs and a limited skilled labour supply continue to impose

constraints on certain sectors, particularly in manufacturing.

Moreover, resources for the development of the formal sector have

been diverted by competition from informal activities, including

illegal drug-related activities. In this latter respect, Bolivia has

made considerable progress through a number of measures,

including crop substitution programmes and the destruction of

illegal crops. However, driven by foreign demand, the coca-cocaine

industry maintains an important, albeit declining role in the

economy.

Agricultural and related processing activities, which are largely free

of major government intervention, including subsidies, make a major

contribution to Bolivia's foreign exchange earnings. Soya exports, in

particular, have undergone remarkable growth since 1993. Wood

production and exports have also increased substantially.

Mineral extraction and processing, including of hydrocarbons,

represent an important magnet for foreign investment, spurred

both by the privatization of mining assets and by new sectoral laws

to further liberalize private investment. Mining activities still

account for a large share of total export earnings, 42% in 1997,

but the mineral-export basket is diversified; it includes gold, natural

gas, tin and zinc.

There has been little progress in inducing a supply response in

manufacturing activities, other than the processing of mineral,

agricultural, and forestry products, in part because of the

infrastructural problems; consequently, these activities still make

only a small contribution to Bolivia's economy.

In contrast, the services sector plays a central role in the Bolivian

economy. Although in the past the State was an important supplier

of services, most of these activities have been privatized.

Far-reaching steps have also been taken to strengthen the

institutional and legal framework, including through the adoption of

new legislation in financial, transport and telecommunication

services, as well as the setting up of new supervisory agencies.

Most service activities are now open to foreign investment, which

has played a key role in their modernization. In transport services,

some concern remains on the potentially discriminatory nature of

certain rail-freight charges levied at higher rates on imports than

on domestic products or exports.

Trade Policies and Foreign Trading Partners

Although Bolivia's trade policy has been largely based on unilateral

liberalization, multilateral and regional initiatives have played

important supporting roles. Bolivia is committed to meeting its

Uruguay Round obligations, utilizing the permitted implementation

period for developing countries. Bolivia is undertaking legislative

reviews with a view to making the necessary adjustments to take

account of the requirements of certain WTO Agreements, such as

on trade defence and customs valuation. In this context Bolivia

agreed to bring its intellectual property legislation into line with the

TRIPS Agreement in 1999.

Bolivia's commitments under the General Agreement on Trade in

Services (GATS) are relatively modest, although its autonomous

liberalization efforts have established the bases for expanding

them. In some cases, existing legislation offers more liberal

treatment to foreign providers than Bolivia's bindings under the

GATS. Bolivia undertook sector-specific commitments mainly in

telecommunications; hospital services; hotels and restaurants;

travel agencies and tour operators; and recreational, cultural, and

sporting services. Bolivia made commitments on financial services

under the Fifth Protocol to the GATS; their entry into force awaits

the completion of the domestic ratification process.

In recent years, trade relations have become increasingly focused

on the negotiation of preferential agreements; new agreements

have been concluded with Chile, Cuba, MERCOSUR and Mexico

since 1993. Bolivia has also continued to participate in the Andean

Community integration process. In view of Bolivia's geographical

position, most of these preferential initiatives have the potential to

increase trade and investment; however, they could also

undermine the transparency, predictability and resource allocation

advantages of Bolivia's MFN trade regime.

TRADE POLICY REVIEW BODY: BOLIVIA

Report by the Government - Parts I and III

I. Introduction

1. In accordance with the provisions in Annex 3 of the Marrakesh

Agreement, this report describes the trade policies and practices

which Bolivia applied during the 1993-1998 period. In doing so, it

addresses the background against which these policies and

practices have developed, with emphasis on structural reforms of a

political and institutional nature designed to improve the market

economy model and to implement the legislation and mechanisms

stemming from Bolivia's international commitments, in particular

those assumed in the framework of the WTO.

2. For the last 14 years, Bolivia has maintained in being a model of

an open market economy. During this period, it has overcome the

high levels of economic and political instability that had

characterized the first half of the 1980s and has continued an

ongoing process of structural reforms which have substantially

modified the economic and institutional foundations of the country.

3. Economically speaking, Bolivia has instituted reforms within the

framework of a structural adjustment programme. From the second

half of the 1980s onwards, it has consolidated economic stability

through the application of a policy of fiscal and monetary discipline.

Markets for goods and services and interest rates were liberalized,

labour laws were reformed and an exchange policy was applied

based on a single and flexible rate of exchange, in keeping with the

real supply of and demand for foreign currencies.

4. Since 1990, reforms designed to modify the role of the State in

the economy have been introduced. Small government enterprises

were privatized and the large ones capitalized, generating

significant increases in foreign direct investment (FDI) in strategic

sectors of the economy. Since 1993, the year in which Bolivia

submitted its initial report, the country has continued to develop

its policies of opening up to international trade and foreign

investment.

5. Among the reforms pursued during the period covered by this

report, the most outstanding are mass participation and

administrative decentralization and, more recently, reform of the

judicial system, reform of the State and educational reform, not to

mention the improvement and consolidation of the economic and

social model adopted in 1985.

6. As a result of the reforms and programmes undertaken,

significant improvements have been achieved in the economic and

political environment. Prominent among these are economic

stability, the fall in the public deficit, reduced inflation, sustained

economic growth of about 4.5 per cent (2.2 per cent per capita) in

recent years, the increase in exports at annual rates of more than

10 per cent and the structural change towards non-traditional

exports with a higher value added. In the financial sector, the

increase in bank deposits to levels of about 40 per cent of GDP is

noteworthy, as is the reduction of foreign debt to about 50 per

cent of GDP, although debt servicing still accounts for 25 per cent

of the country's exports by value.

7. The reduction of foreign debt to sustainable levels has been

achieved thanks to the HIPC initiative, which will make it possible

to devote these resources to the social sector.

8. In 1997, a General Economic and Social Development Plan was

adopted with four action pillars: Opportunity, Dignity,

Institutionality and Equity; its main goals, up to the year 2002, are

to achieve greater economic growth, consolidate macroeconomic

stability, generate more employment and greater income, reduce

urban and rural poverty, improve education, health and access to

housing and basic services and remove the country from the

drug-trafficking cycle.

II. EXTERNAL AND trade environment

(i) The external sector

9. In the last five years, the international environment has been

characterized by severe financial disruptions such as the Mexican

crisis of 1994 and the Asian crisis that began in 1997. Although at

this point in time there are some signs that the crisis has eased,

the economies of the region are still feeling its effects.

10. The Bolivian economy is vulnerable to international crises

because of its degree of dependence on commodity exports (80

per cent of total exports), its high import requirements for capital

goods and raw materials, and its need for external financing.

Despite this vulnerability, the country was affected neither by the

Mexican crisis nor by the international rise in interest rates in 1994.

Capital flows did not contract but, on the contrary, continued to

grow in the case of FDI, and international reserves maintained their

rising trend. However, from the Asian crisis onwards, the

international environment became more unfavourable and the

Bolivian economy felt the effects of the international crisis mainly

through the fall in the prices of primary export commodities, whose

index declined between December 1996 and December 1998 by 12

per cent. The economic impact was reflected in a reduction in

exports in 1998 of about 5.4 per cent in f.o.b. value terms, a

situation that resulted in an increase in the trade deficit forecast

for that year. However, the effect on the growth of the economy

was not significant, since economic activities achieved a growth of

4.75 per cent in 1998, a rate in keeping with the forecasts for the

year.

11. During the 1990s, the Bolivian economy has tended towards

positive figures in the global balance of payments. In 1998, the

global figures almost balanced, with a slight loss of reserves of

US$2.6 million.

12. In 1998, there was a current account deficit, mainly due to

imbalances in the trade account. This deficit was financed by

long-term capital inflows, mainly FDI.

13. Between 1993 and 1998, the accumulated FDI flows amounted

to US$2,570 million, with an annual average of US$430 million.

Throughout the period, FDI showed a sustained growth trend,

reaching the record level of US$872 million in 1998, equivalent to

10.2 per cent of GDP.

14. The main stimulus to FDI occurred from 1995 onwards, as a

result of the processes of privatization and capitalization of

state-owned enterprises and the new investment in various

sectors of the economy, particularly the construction of the

pipeline to Brazil. Thus, FDI was directed mainly to the hydrocarbon

sector, more than 60 per cent of the total, and to the trade and

services sector, recent investments in banking and in the

electricity sector being noteworthy.

15. The country's foreign debt indicators have improved

considerably. In 1990, the ratio of debt to GDP was 78 per cent

whereas in 1998 it was 51 per cent. The ratio of foreign debt to

exports of goods and services fell, in its turn, from 380 per cent in

1990 to 323 per cent in 1998. The relationship of external debt

servicing to exports has remained, despite renegotiations, at about

25 per cent, but it is hoped that this will be reduced in the next

few years as and when the impact of the relief given by the HIPC

initiative becomes more evident.

16. Although the foreign debt balance is still increasing, it has been

doing at a slower rate, dropping to an average of 3 per cent per

annum. From an average between 1990 and 1993 of about

US$3,700 million, it increased to US$4,387.7 million in 1998. The

negotiations in the Paris Club, the multilateral debt relief in the

context of the HIPC initiative and the decision by the Government

of Japan to offer some extra assistance will make it possible to

improve foreign debt relief.

17. In 1998, the composition of the foreign-held public debt

revealed a share of multilateral sources - 63 per cent of the total -

with a governmental share of 36 per cent and a negligible presence

of private sources. As a result of the processes of privatization and

capitalization, the share in the total of the foreign debt of

state-owned enterprises has fallen from 12 per cent in 1990 to 4

per cent in 1998. The debt for which the Central Government is

responsible has remained at about 75 per cent of the total but, as

a result of the process of administrative decentralization, there has

been a noticeable increase in the share of the local governments.

18. Official financing connected with foreign-held public debt has

also been decreasing in importance. In 1990, medium- and

long-term capital connected with foreign-held public debt

represented 65 per cent of the net balance of the capital account,

whereas in 1998 it had fallen to 13 per cent of the net capital

inflow.

19. The net international reserves of the Central Bank of Bolivia

almost tripled between 1993 and 1998 from a level of US$371

million to one of US$1,064 million. Short-term obligations, including

IMF obligations, averaged US$120 million.

20. Exchange rate value is established through the auction system

(Bols?n) of the Central Bank, an original market-oriented currency

mechanism. While the framework of an administered floating system

has continued, foreign exchange management has become more

flexible since July 1994, and has been directed towards the basic

aim of maintaining the stability of the real effective exchange rate.

The official rate is determined taking into account the exchange

variations of a basket of currencies of the main trading partners so

as to introduce the possibility of the boliviano appreciating and

depreciating vis-?-vis the United States dollar.

21. In 1998, exchange policy was more dynamic than in 1997. The

nominal devaluation in December 1998 of 5.21 per cent was greater

than the 1997 devaluation (3.47 per cent). Nevertheless, the

control of domestic inflation and the appreciation of the European

currencies and of the Japanese Yen in relation to the United States

dollar made it possible for the real effective exchange rate index to

depreciate, a situation that had not occurred in the last three

years. The depreciation of the REER (real effective exchange rate)

index in December 1998 was 1.36 per cent as compared with 1997.

In this way, an increase had been produced in the competitiveness

of exports and of the domestic products competing with imports in

the local market.

22. The evolution of the REER for 1998 is to be explained by more

active exchange policy and low domestic inflation; however, the

improvements in exchange competitiveness occurred in a difficult

context: large neighbouring trading partners such as Brazil, Chile

and Peru devalued their currencies more rapidly. Despite the

factors that had a negative effect on the performance of the REER

index, the gains in competitiveness in respect of most of Bolivia's

trading partners compensated for the unfavourable scenario

vis-?-vis with the neighbouring countries and contributed to the

result achieved.

(ii) Trends in foreign trade

23. During the period 1993-1998, exports increased constantly,

except in 1998 owing to the effects of the international crisis.

Their percentage of GDP was 11.8 per cent in 1993, 14.6 per cent

in 1997 and 13 per cent in 1998, when they recorded an f.o.b

value of US$1,104 million as a result of the increase in exports of

agro-industrial and manufactured goods, which changed the export

structure.

24. Imports grew much faster, particularly imports of capital goods

(43.2 per cent of total imports) and of intermediate goods (35 per

cent). The increase in the imports of capital goods was due to the

construction of the Bolivia-Brazil pipeline, which had a negative

impact on the balance of trade. This shortfall will diminish in the

future, as a result of an increase in gas sales to Brazil and the

elimination of the imports of capital goods associated with the

building of the pipeline.

25. The trade deficit represented 7.1 per cent of GDP in 1993, but

it diminished in later years (3 per cent in 1994, 5 per cent in 1995

and 1996). It reached its lowest level in the period with a figure of

US$161.9 million in 1994. When, in 1995 and the following years,

trading conditions seemed to indicate a reversion of the trade

deficit, the reforms to the Bolivian economy stimulated economic

activity and provoked an increase in imports, with the result that,

as a percentage of GDP, the trade deficit ultimately rose to 10.3

per cent in 1998.

26. In the period under review, the evolution of the terms of trade

tended to be unfavourable. Between 1997 and 1998, there was a

fall in the terms of trade index of 7 per cent.

- Imports

27. The structure of Bolivian imports reveals a greater presence of

capital and intermediate goods; industrial sector imports (capital

and intermediate goods for industry) represented 50 per cent of

total imports during the period under analysis. The growth in

imports was directed mainly towards satisfying the demand of the

productive sector. Another important sector for goods' imports was

transport, where imports grew at a rate similar to that of industrial

sector imports with a share of 19.2 per cent. Consumer goods

represented about 20 per cent of total imports, the distribution and

rate of growth being similar for both consumer durables and

non-durables.

- Exports

28. The changes which occurred in the export structure during the

period 1993-1998 were significant and originated mainly from the

growth in the supply of agricultural and agro-industrial products.

While the exports of the mining and quarrying industries grew at an

average rate of 2 per cent per annum, exports of agricultural

produce did so at an average rate of 18.7 per cent. Exports of

manufactured goods grew at an annual rate of 5.3 per cent. This

marked difference in sectoral dynamism has resulted in the export

structure becoming more balanced in recent years. In 1993,

exports of the mining and quarrying industries represented 61.5 per

cent of the total while, in 1998, their share was reduced to 47.5

per cent. Exports of agricultural produce grew from 23.7 per cent

in 1993 to almost 40 per cent in 1998. On the other hand, despite

the increase in the value of the exports of manufactured goods,

their share in the total was relatively unchanged (14.7 per cent in

1993 as against 13.4 per cent in 1998).

29. The growth in exports of agricultural produce of US$440.2

million in 1998 was due mainly to the behaviour of foodstuff exports

which, with an annual growth rate of 24.8 per cent, represented

84 per cent of the sector's exports. Exports of soya beans and

their derivatives were the most dynamic component. Brazil nuts

constituted another important heading in the food sector, with a

growth rate of 15.2 per cent per annum, they accounted for

US$30.9 million in 1998. Coffee exports recovered from 1993

onwards, after a falling for several years, with increases of 114 per

cent per annum to reach a figure of US$26.0 million in 1997;

however, exports were reduced to US$15 million in 1998 as a result

the fall in prices. Sugar exports increased from US$15.7 million in

1993 to US$ 24.6 million in 1998.

30. In recent years, various new export products have emerged,

chiefly foodstuffs (agro-industrial products) such as tinned hearts

of palm, quinua (a Bolivian cereal with a high nutritive value), meat

and beverages (wines and beers). Exports of agricultural raw

materials (16 per cent of the sector in 1998) mainly consisted of

sawn wood and cotton.

31. In 1993, the value of exports of products of the mining and

quarrying industries represented, with a figure of US$483.4 million,

61.5 per cent of total exports, whereas their share fell to 47.5 per

cent in 1998, with a value of US$533 million. The main products of

this sector are zinc, gold, tin and silver in the ores and metals

group and natural gas and oil in the fuels group.

32. Prominent among the exports of manufactured goods is the

gold jewellery industry with a value of US$58.2 million in 1998,

being the main heading in the group "Other Consumer Goods" which

accounted for 50 per cent of the exports of manufactured goods.

The export of wooden furniture also stands out for its high level of

dynamism. Exports of wooden doors and windows, other wood

derivatives and glass bottles constitute the main products in the

"Other Semi-Manufactures" group which accounts for 22 per cent

of the exports of manufactured goods. In the "Articles of Apparel"

group, with 16 per cent of the exports of manufactured goods,

exports of textile clothing, particularly cotton, are important.

Chemicals (with 8 per cent) and textiles (with 3 per cent)

increased their proportion of the exports of manufactured goods.

- Export markets

33. In 1998, the chief markets for Bolivian exports were the

European Union (27 per cent), the North American Free Trade

Agreement (NAFTA) (20 per cent), the Andean Community (21 per

cent) and MERCOSUR (18 per cent).

34. The European Union is the main market for Brazil nuts and

coffee (agricultural products), zinc, silver and gold ore (mining

industry) and wood derivatives, leather and clothing. The United

States, the chief market in NAFTA for Bolivian exports, bought

mainly oil products and tin in metallic form in addition to coffee and

Brazil nuts; gold jewellery was the most representative product

among the manufactured goods exported to that market, together

with wood derivatives and textile clothing, much sought after for

its excellent quality.

35. Exports to the Andean Community are characterized by the

diversity of products, the chief of these being soya beans, cotton,

animal feed derived from soya bean and sunflowers, edible oils

derived from these products also, and meat and other food

products. Exports to MERCOSUR (mainly Brazil and Argentina) are

focused on natural gas, wood and its derivatives, tinned hearts of

palms, textile clothing and agricultural products.

1. Development of the trade policy

36. Since the presentation of the First Trade Policy Review in

March 1993, Bolivia has maintained the central character of its

trade policy consisting of free trade in goods and services. It does

not require prior permits or licences except in cases where there is

danger to human, animal and plant health or to the security of the

State or the nation's artistic and cultural heritage. In general,

trade policy does make use of subsidies of any kind to favour any

sector of the economy. In other words, there is no discretionary

power whatsoever.

37. In accordance with the principle of tax neutrality, attempts

have been made to eliminate any anti-export bias so as to place

the domestic exporter in a position similar to that of his

competitors. To avoid excessive fiscal expenditure and subsidies,

policies of refunding indirect taxes and duties to exporters are

used.

- Export regime

38. International trade plays an important part in Bolivia's growth

strategy, the expansion and diversification of exports and the input

of FDI being particularly important for the sustainability of the

balance of payments.

39. The general export regime is regulated by Law 1489 of 1993

which establishes, among other principles, tax neutrality for

exports through the refund of domestic taxes under the system of

tax credit-debit in the case of VAT and the refund of import duties

paid on purchases of inputs used for the production of exportable

goods. Law 1963 of March 1999 amended two articles of Law 1489

in order to improve tax neutrality for exports.

40. Supreme Decree No. 23944 establishes a simple and automatic

mechanism for the refund of duties, with fractions of 2 per cent

and 4 per cent of the f.o.b. export value for products valued at

less than US$3 million. The method employed to determine the

refund of duties for products with values above US$3 million

involves the use of technical coefficients calculated on the basis of

the cost structure of each enterprise.

41. In addition to the general regime, there are two special

regimes: the Temporary Import Regime for Export Promotion

(RITEX) and the Free Zones Regime. Through the RITEX,

established in early 1997 by Supreme Decree No. 24480,

enterprises can bring in raw materials and intermediate goods

without paying customs duty or domestic taxes for a maximum

period of 120 days, during which time they must produce and

export the final goods; otherwise, they must pay the suspended

taxes.

42. The Free Zones Regime, based on the principle of customs and

fiscal segregation, was adopted to promote industrial and trade

development, taking advantage of the competitiveness arising from

the low costs of some inputs, and to generate employment and

favourable conditions for local and foreign investment. The free

zones are administered by private companies which are given a

concession for 40 years. Although this is a mechanism that has

been quite successful in promoting exports in other countries, it

has not had the expected results in Bolivia. At the moment, only a

single industrial free zone is operating.

43. In 1992, the Single Export Window System (SIVEX) was

established to centralize and simplify export formalities. There are

still some formalities however (sanitary and health certificates,

etc.) which are the responsibility of other departments. Attempts

are being made to find ways of incorporating these into SIVEX so

as to facilitate export formalities.

44. Supreme Decree No. 24756 of 31 July 1997 abolished the

compulsory surrender of the foreign exchange earned by exports.

- Import regime

45. The import regime is regulated by Supreme Decree No. 24440

of December 1996, which establishes free importation without any

prior licensing, import quotas or other non-tariff measures affecting

the import of marketable goods.

46. Tariff policy establishes the application of a uniform general ad

valorem tariff of 10 per cent on the c.i.f. value for the tariff

universe. However, there is a tariff level of 5 per cent for a list of

capital goods and books and publications are subjected to a rate of

only 2 per cent for services rendered. This is a simple and practical

system which allows for greater transparency in import and tax

recovery activities.

- Institutional framework of foreign trade policy

47. Since 1993, there have been some important changes in the

institutional structure of Bolivia, mainly through the restructuring of

the executive branch by Laws Nos. 1493 of 17 September 1993

and 1788 of September 1997. The latter established the present

organic and functional structure of the executive branch.

48. With respect to specific policy in the institutional field of

foreign trade, the reform established the Ministry of Foreign Trade

and Investment, which formulates and executes export and

investment policies and the National Export Council (CONEX),

whose duty it is to suggest to the executive branch the adoption

of export policies, programmes and strategies. This Council is made

up of institutions competent in foreign trade from the public and

private sectors.

49. The new organization of the executive branch made it

necessary to abolish the Ministry Without Portfolio responsible for

capitalization, of which the Public Enterprises Reorganization Unit

had been a part. This Unit became a dependency of the Ministry of

Foreign Trade and Investment - Vice-Ministry of Investment and

Privatization.

50. The National Export Promotion Institute (INPEX) was replaced

by the Promotion Centre of Bolivia (CEPROBOL), which has the task

of promoting productive development and competitiveness,

increasing and diversifying exports and encouraging private and

foreign investment.

51. In addition, the Ministries of External Relations and Worship;

Finance; Justice and Human Rights; Economic Development;

Sustainable Development and Planning; and Agriculture, Livestock

and Rural Development carry out specific duties within their areas

of competence in connection with Bolivia's foreign trade.

(iv) Economic integration

52. Bolivia, through its geographical location in South America, has

a triple projection: towards the Pacific Ocean to the west; the

River Plate Basin to the south-east; and the Amazon Basin in the

north-east of its territory. As a result, it participates in all of the

integration processes taking place in the region.

53. At the regional level, Bolivia is a founder member of the Latin

American Integration Association (LAIA) established by the Treaty

of Montevideo in 1980, within the framework of which it has signed

a series of regional- and partial-scope agreements. Participation in

this regional integration scheme has made it possible to create,

together with the other member countries, a broad legal and

institutional structure which is becoming an important reference

point for various bilateral, regional and hemispheric negotiations. In

this context, Bolivia has, since 1993, concluded various

agreements, particularly the following:

- Economic Complementarity Agreement (ACE) No. 22

with Chile, which has been in force since 6 April 1993,

provides for the liberalization of trade in lists of

products of interest to both countries. Negotiations are

currently being held in order to extend its scope with a

view to reaching a free-trade agreement. Bolivia is

participating in these negotiations primarily in order to

improve access conditions for its products to the

Chilean market and thus redress its bilateral trade

balance, which has been highly unfavourable until now.

- The Free-Trade Treaty with Mexico, Economic

Complementarity Agreement (ACE) No. 31, entered into

force on 1 January 1995. This instrument provides for

the setting up of a free-trade area within a period of

ten years, and includes commitments in all the

disciplines of international trade in goods and services.

- Economic Complementarity Agreement (ACE) No. 36

between Bolivia and the MERCOSUR member States has

been in force since 28 February 1997 and has the

objective of forming a free-trade area between the

two parties, to be established for ninety per cent of

trade in 2006 and, for the rest, in gradual instalments

up to its completion in 2014. ACE 36, which gives

Bolivia the status of Associated Member of MERCOSUR,

has brought about a rapprochement with this

integration bloc above and beyond purely trade

concerns and is gradually leading to commitments in

the political, social and cultural areas.

- Partial Scope Agreement (AAP) No. 34 between

Bolivia and Cuba has been in force since 25 April 1997.

The objective of the Agreement is to accelerate the

generation and growth of trade flows and to adopt

measures and actions to achieve closer economic

relations.

54. Bolivia has been a member of the Andean integration process

since it was launched in 1969, and in that framework has

participated fully in the free-trade area which entered into force in

1992 and in an Andean customs union which is in the process of

being completed. In 1996, the creation of the Andean Community

and the establishment of the Andean Integration System

comprising the political organs, deliberative and judicial, and the

social conventions, consolidated this process and made it possible

to begin addressing more advanced stages of integration.

55. On the basis of these results, the Andean Presidential Council

of Guayaquil, in 1998, decided to complete the process of

subregional integration with the formation of a common market.

One year later, the Andean Presidential Council, meeting in

Cartagena to celebrate the thirtieth anniversary of the Agreement,

ratified this commitment and entrusted the political organs of the

Andean Integration System with specific tasks aimed at creating a

fully-operational common market by 2005 at the latest.

56. In the Latin American integration process, Bolivia, owing to its

geographical location and its links to the two subregional

integration schemes in force in South America, the Andean

Community of Nations and MERCOSUR, has played an articulating

role which takes on greater significance if we bear in mind that

Bolivia's objective is to promote the establishment of a common

market in Latin America.

57. Apart from the eminently economic and trading dimension, this

articulating role is also of significance in the introduction of the

so-called export corridors through the physical interconnection of

the Atlantic and Pacific oceans across Bolivian territory. Bolivia is

also gradually assuming the role of centre for energy distribution in

the region.

58. Likewise, Bolivia participates actively in the negotiations on the

Free Trade Area of the Americas (FTAA). It coordinates its

positions with those of the member countries of the Andean

Community in order to be able to participate fairly in the process in

spite of its status as a country with a small economy.

59. The physical integration process introduced by the countries of

the River Plate Basin Group with the signing of the Treaty of

Brasilia in 1969 is a highly important project for Bolivia owing to the

prospects it offers for the development of its physical

infrastructure, essentially in connection with foreign trade. In this

context, the development of the Paraguay-Paran? Waterway, of

which Bolivia is the chief promoter, will enable it to direct a

significant and growing volume of its trade overseas, across the

Atlantic Ocean.

60. A cooperation scheme of the utmost importance in which

Bolivia is a participant is the Amazon Cooperation Treaty signed in

1978. This treaty is designed to promote physical integration,

preservation of the environment and sustainable development. Its

membership comprises the countries of the Andean Community,

Brazil, Guyana and Surinam.

61. Bolivia receives temporary unilateral tariff preferences from the

United States under the Andean Trade Preference Act (ATPA), and

from the European Union under the Generalized System of Andean

Preferences. Both of these mechanisms were introduced to help

the country combat drug trafficking. At the same time, Bolivia

benefits from generalized systems of preferences applied by

Canada, Japan and other developed countries.