BOLIVIA NATIONAL TRADE ESTIMATE REPORT 2009

UNCLAS LA PAZ 002396 SIPDIS PLEASE PASS TO USTR/GBLUE; EB/TPP/BTA E.O. 12958: N/A TAGS: ASEC ECON EINV PGOV SUBJECT: BOLIVIA NATIONAL TRADE ESTIMATE REPORT 2009 REF: SECSTATE 88447 TRADE SUMMARY The U.S. goods trade deficit with Bolivia was $85 million in 2007, a decrease of $62 million from $147 million in 2006. As of September 2008, U.S. goods exports were $309.2 million and imports were $376.9 million, resulting in a trade deficit for Bolivia, equivalent to $67.7 million. Bolivia is currently the 106th largest export market for U.S. goods. According to the Bolivian Central Bank, total Foreign Direct Investment (FDI) was $286.1 million as of June 2008. The stock of U.S. foreign direct investment (FDI) in Bolivia was $172 million in 2006 down from $218 million in 2005. (Note: Bolivia has not publicly released statistics relating to the country breakdown of FDI since 2006.) IMPORT POLICIES Tariffs Bolivia has a three-tier tariff structure. Capital goods designated for industrial development may enter duty-free; non-essential capital goods are subject to a 5 percent tariff; and most other goods are subject to a 10 percent tariff. However, the administration of President Evo Morales enacted a Supreme Decree that reduces rice and corn tariffs to zero. Non-Tariff Measures Supreme Decree 27340, dated January 31, 2004, banned the importation of: certain types of used clothing (including old, destroyed, or useless articles of apparel); used bedding and intimate apparel; used shoes; and certain destroyed or useless textile articles (rags, cords, string, and rope). U.S. industry reports that imports of other types of used clothing, while not banned from import into Bolivia, may be subject to other non-tariff trade barriers. According to industry officials, Bolivian customs often does not agree with official invoices that are presented. In those instances, importers are typically expected to pay whatever valuation the local customs authority deems to be fair value, for the shipment. U.S. officials are continuing to monitor the situation to determine what, if any, barriers exist. STANDARDS, TESTING, LABELING and CERTIFICATION Bolivia's National Animal and Plant Health and Food Safety Service (Servicio Nacional de Sanidad Agropecuaria e Inocuidad) or SENASAG appears to apply some standards differently to third countries than to fellow Andean Community members. Bolivia continues to ban U.S. beef and beef products through BSE-related restrictions. This is true despite the fact that in May 2007, the World Organization for Animal Health (OIE) classified the United States as a controlled risk country for BSE, thereby clarifying that U.S. beef and beef products are safe to trade, provided that the appropriate specified risk materials are removed. SENASAG is underfunded and is having difficulty carrying out their mission. There has been government pressure to involve SENASAG in political affairs and to distance themselves from U.S. technical assistance. GOVERNMENT PROCUREMENT Government expenditures account for a significant portion of Bolivia,s GDP. The central government, sub-central governments (state and municipal levels),and other public entities remain important buyers of machinery, equipment, materials, and other goods and services. In an effort to encourage local production, the Bolivian government changed its procurement and contracting of service rules in July 2007 (Supreme Decree 29190, dated July 11, 2007). Government procurements under $1 million in value must be awarded to Bolivian producers, except for material and services that are not produced in Bolivia. Importers of foreign goods can participate in these procurements only when locally manufactured products and service providers are unavailable or when the Bolivian government fails to award a contract to a domestic supplier. The government can call for international bids. Bolivia is not a signatory to the WTO Agreement on Government Procurement. INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION In 1999, the Bolivian government established the National Intellectual Property Rights Service (SENAPI) to oversee IPR issues. The organization initiated a USAID-supported restructuring process in early 2003, but that process was not completed. Currently the office is focused on the registration of traditional knowledge. The 1992 Copyright Law recognizes copyright infringement as a public offense and the 2001 Bolivian Criminal Procedures Code provides for the criminal prosecution of IPR violations. However, IPR protection remains insufficient and ineffective. Despite the prosecution of a criminal case in 2003, enforcement efforts are sporadic and largely ineffective. As a result, Bolivia remains on the U.S. Trade Representative,s Special 301 Watch List. Video, music, and software piracy rates are among the highest in Latin America. Patents and Trademarks Supreme Decree number 29004, issued in January 2007, establishes a "Prior Announcement" requirement for pharmaceutical patents to allow the government, with the input of various interest groups, to determine whether a pharmaceutical patent would "interfere with the right to health and access to medicines." This additional step in the patent process increases delays, raises questions of confidentiality of proprietary information, and adds an unclear "social good" element to the patent process. Enforcement The 1992 Copyright Law recognizes copyright infringement as a public offense, and the 2001 Bolivian Criminal Procedures Code provides for the criminal prosecution of IPR violations. Despite these legal protections, IPR enforcement remains insufficient. There is a continued need for more deterrent penalties to be applied in civil and criminal cases. Border enforcement also remains weak. Video, music and software piracy rates are among the highest in Latin America, with the International Intellectual Property Alliance estimating that piracy levels in 2006 reached 100 percent for motion pictures, 90 percent for recorded music and 82 for software piracy (numbers are not yet available for 2007.) INVESTMENT BARRIERS The 1990 Investment Law opened Bolivia,s economy to foreign investment. The Investment law provides for equal treatment of foreign firms and guarantees the unimpeded repatriation of profits, the free convertibility of currency, and the right to international arbitration in all sectors. In-kind transfers are not allowed. Companies must follow the Bolivian commercial code to close down operations and repatriate their capital. The Bolivian government is still discussing a bankruptcy law and modification to its commercial code. In the mid-1990s, the Bolivian government implemented its "capitalization" (privatization) program. The program differed from traditional privatizations in that the funds committed by foreign investors: (a) could only be used to acquire a 50 percent maximum equity share in former state-owned companies; and (b) were directed to the company,s investments. Bolivia has signed bilateral investment treaties with several countries, including the United States. The United States-Bolivia Bilateral Investment Treaty (BIT) entered into force in June 2001. The treaty guarantees recourse to international arbitration, which may permit U.S. companies to obtain damages in disputes that cannot be adequately addressed in the Bolivian legal system, where judicial processes can be prolonged, non-transparent, and occasionally corrupt. In 2006, however, the new Bolivian administration announced its intention to renegotiate its bilateral investment treaties. In October 2007, Bolivia became the first country ever to withdraw from the International Center for the Settlement of Investment Disputes (ICSID),a World Bank body that referees contract disagreements between foreign investors and host countries. President Morales has nationalized several industries (telecommunications, gas transport) and publically announced further industries, including electricity, water and the transportation sector could be nationalized as well. Bolivia is currently in international arbitration with Telecom Italia, who previously owned the now-national telecommunications entity, Entel. Article 139 of the Bolivian Constitution stipulates that all hydrocarbon deposits, whatever their state or form, belong to the government of Bolivia. No concessions or contracts may transfer ownership of hydrocarbon deposits to private or other interests. The Bolivian government exercises its right to explore and exploit hydrocarbon reserves and trade related products through the state-owned firm Yacimientos Petrolferos Fiscales Bolivianos (YPFB). The law allows YPFB to enter into joint venture contracts for limited periods of time with national or foreign individuals or companies wishing to exploit or trade hydrocarbons or their derivatives. In May 2005, the GOB passed Hydrocarbons Law 3058, which required producers to sign new contracts within 180 days and imposed a 32 percent direct hydrocarbons tax on production. The law required operators to turn over all of their production to the state and re-founded YPFB, assigning the state responsibility for controlling the entire hydrocarbons production chain. The private companies began to pay the 32 percent tax under protest, but new contracts were not signed, YPFB was not revamped, and companies did not turn over their production to the state. In May 2006, the GOB issued Supreme Decree 28701. The Decree generally reinforced the provisions of the 2005 Law - claiming state ownership of production, requiring companies to sign new contracts within 180 days, and mandating YPFB to take control of the hydrocarbons chain. YPFB signed new contracts with production companies in October 2006 and took control over the distribution of gasoline, diesel, and LPG to gas stations. The state also had a legal mandate to gain a 51% stake in all of the companies operating in the sector that were part of the privatizations (called "capitalization") that took place in the 1990s. Leading up to May 2008, this process was still incomplete, and private companies owned a majority of shares in Chaco (Pan American Energy),Andina (Repsol),and Transredes, the principle pipeline operator, partially owned by Ashmore Energy International (AEI),headquartered in Houston, TX, and Shell). In May 2008, President Morales announced that the government would obtain the 50 plus one percent control over these three capitalized companies, as well as outright ownership of the German/Peruvian controlled Bolivian Logistical Hydrocarbon Company (CLHB),which had been fully privatized in the 1990s. Except for CLHB, which considers the government,s move expropriation, the other three companies all appear willing to sell the necessary shares to the government; the real sticking point is who will have operational control. By October 2008, the government had acquired back a majority of the shares in the capitalized companies and had also fully nationalized the pipeline operator Transredes. The "nationalization" of the hydrocarbon industry remains a work in progress and YPFB is clearly struggling with its broad mandate. By all accounts YPFB is in disarray and suffering from a lack of technical know-how. These strains are becoming even more publically apparent. Regional strikes have broken out and complaints of indiscriminate contracting, lack of a coordinated policy, and logistical incompetence have all been aired publically. Moreover, from late 2007 through 2008, diesel shortages have been commonplace (especially in Santa Cruz) and shortages of liquefied natural gas (LNG) canisters are becoming more frequent throughout the country. Outside the hydrocarbons sector, foreign investors face few legal restrictions, although a possible change to the mining code could require all companies to enter into joint ventures with the state mining company, COMIBOL. The government's draft constitution, which will go to a national referendum in January 2009, also would include requirements for state involvement in natural resource companies. The current text of the draft constitution could also limit foreign companies' access to international mediation in the case of conflicts with the government. At the same time it mandates that all Bilateral Investment Treaties (BITS) must adjust to the new provisions. URS