VENEZUELA'S REFERENCE PRICES FOR TEXTILES IMPORTS:

UNCLAS CARACAS 001851

SIPDIS


SECSTATE EB/TPP/ABT/BTT
USDOC FOR 6500/ITA/IA/OTEXA/NFREEMAN
USDOC FOR 4110/ITA/MAC/OAC/TCC/ABARNETT-DAHL
USDOC FOR 3134/OIO/WH/DDEVITO

E.O. 12958: N/A
TAGS: ECON ETRD KTEX VE
SUBJECT: VENEZUELA'S REFERENCE PRICES FOR TEXTILES IMPORTS:
POSSIBLE TRADE BARRIER?

REF: USDOC 079690


1. We will attempt to answer the questions posed by reftel
providing the reasons for the measures and background
information which might be useful in the evaluation of the
measures.


2. Upon receipt of the Official Gazette announcement that
textile reference prices will be applied to calculate import
duties, we made inquiries with customs and with importers
including several customs agents used by importers. We found
no indication that these prices would result in import
barriers but they might result in some paperwork for the
importers and possibly problems in obtaining the documents to
prove details on previous imports, which will be explained
below. All of our contacts agreed that these measures are
intended to further curb corruption in or by customs. It must
be admitted that Venezuela over the last few years has made
great strides in curbing the rampant and scandalous level of
corruption from both sides - customs and importers - and
complaints are rare now.


3. The increasing use of data banks covering previous
imports by tariff number, by importer and by foreign exporter
has resulted in customs being more aware of average or
customary price levels which are being used to confront an
importer whose customs declaration appears to be
unrealistically low or high. High prices of course would
result in more duties to be paid. If the importer provides
proof of higher than normal price, customs can check comparing
this with previous imports for the same goods, and it can
request proof that the exchange control board has authorized
the import at that level. Such overpriced bills have been used
and are being used as a means of capital flight with
cooperation by the foreign exporter, of course. Under-
invoicing on the other hand, is being used by the importer,
also usually in cooperation with the foreign exporter, to pay
less customs duties. Containers are often used for this
purpose. Since customs is allowed to process containers
holding the same type of product with the same tariff number,
it can process it as such without opening it. Sporadic checks
have revealed, however, that far too frequently the containers
hold far greater numbers of the products than declared. This
also has been used in the case of tires. The import of used
tires is prohibited and it was found that containers declared
to hold new tires did have several rows of new tires visible
upon opening the container but the majority in the back of the
container were used tires. This is reported only for the
purpose of illustrating the schemes being used of which there
were and still are many. The government by the reference price
scheme is attempting to cover such and other attempts to
bypass established fees and rules and, in addition to curbing
corruption by customs, attempts now to put more attention on
the importers. The data banks used by customs are rather
complete and were compiled using the details of imports and
average price levels over the last six years.


4. Customs is not responsible for dumping matters. A dumping
investigation can only be triggered by the importers or their
association and will be handled only by the Dumping and
Subsidies Commission of the Ministry of Production and
Commerce. This commission might request from customs, however,
data banks revealing import levels and lists of importers and
of foreign manufacturers and exporters for specific goods from
specific countries. Customs cannot and will not trigger an
"alarm" of suspected dumping but can be asked to provide
supporting information during an antidumping investigation.


5. Article 3 of Resolution No.377 of the Ministry of Finance
clearly states that under no condition may customs use the
reference prices as obligatory basis for calculating duties or
as official prices nor as substitute for a declared
transaction value except under the condition under Article 10
of the resolution when no method of valid evaluation is
possible in which case customs may apply the average reference
price.


6. Proof of the value of a transaction as required in some
instances by customs can be furnished by any of the following
documents (not all of them). This list is contained in Article
52 of the Regulations to Decision 571 of the Andean Community
Commission:

a) proof of foreign exchange transfer effected
b) export price lists or similar quotations
c) offers or published quotations for export by the same or
other exporter for the same products
d) specialized publications with export price lists
applicable for the Venezuelan market


e) insurance policy covering the insured and payable value
f) correspondence had with the supplier discussing the
agreed upon purchase and export
g) any other correspondence supporting the veracity of the
claimed price paid or to be paid.


7. Customs will not reject an import if all of the required
documents are not furnished. The importer in the ultimate case
of refusal by customs to accept proof of veracity of price
levels claimed, has the choice of re-exporting the shipment
but customs will not confiscate the import. Customs also might
be agreeable to have the shipment kept in a bonded warehouse
until the needed documents are obtained or re-export is
arranged. This storage would be at the cost of the importer.
We would assume that such a measure would be extremely rare
because the importer would most likely accept the ruling of
the customs officials although he always has the recourse of
an administrative complaint through customs headquarters or
even the recourse of legal action.


8. There are no definite measures or methods in case of
price levels which exceed the established maximum price
levels. Again, the suspicion of capital flight might arise
unless the importer can provide documents which confirm the
price in comparison with previous shipments of the same class
of products, which also can be verified by customs through its
data banks. However, this would have been the responsibility
of the exchange control board which upon receiving from the
importer the request for foreign exchange would have requested
such confirmation and customs most likely would not be
concerned.


9. Customs officials have told us that there have been some
problems with excessively low prices of some textile products,
mainly clothing items, in which case customs suspects an
attempt to pay extremely low duties. These cases have always
been on behalf of importers of "seconds" (products with small
defects) or out of fashion items. The importers of such
products, mostly from Colombia or Central America, are low-
priced stores in low- income neighborhoods. Customs in such
cases, we are told, is not concerned with dumping but with
attempted imports of used clothing which is prohibited. In
those cases, customs apparently accepts the information of its
own data banks, the final invoice of the exporter and the
decision of the exchange control board which authorized the
dollar transfer. Since the reference prices cannot be used for
customs valuation according to Article 3, customs will accept
the claimed price levels for calculating the duty.


10. Customs agents at the principal airport of Caracas we
have talked to informed us that they have not received any
guidance in addition to the text of the resolution. They admit
that this, nor any other possible regulation, can cover any
eventuality given the huge variety of imports and they appear
to use their own judgment in cases of doubts or they discuss
the case with their supervisor who, however, can always
inquire with customs headquarters to obtain a decision. The
customs agents report that there have been some discussions
with individual importers but so far no actual complaints. As
they put it: "nobody likes to pay duties" and everybody tries
to find a way to pay less.


11. In general, we find that there is no burden to speak of
for the exporter in complying with these new regulations nor
do we see any evidence that they might result in trade
barriers. The possible protectionist aspects of the
regulations mentioned in our original message would seem to
exist only in tightening the honesty of importers and thus
making it difficult to import textile products at prices which
appear to be not based on industry realities. Nowhere in the
resolution is it mentioned that customs has the right to
reject an import or to confiscate merchandise once supporting
evidence on prices is supplied if requested nor do there
appear to be unrealistic time delays in processing imports.
U.S. exporters, however, should reject any attempts by their
Venezuelan clients to be partner in preparing shipping
documents or invoices which contain false information, thus
becoming partners to a customs fraud. While the resolution
does not contain any information on fines or other measures
against foreign exporters, customs fraud will certainly cause
severe harm to the local companies. Customs agents at the
airport we interviewed stated that exports arriving from the
United States very seldom need verification and that their
attention is focused mainly on imports from Asia and Central
America.

While we have made every effort to verify the information
provided in this report, we cannot guarantee its veracity and
have not tried to have the contents of this message evaluated


by legal experts. The report should be considered informative
only and should not be used to make legal or commercial
decisions.
BROWNFIELD


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2005CARACA01851 - UNCLASSIFIED