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TABLE OF CONTENTS

CAPITAL INVESTMENT IN

VENEZUELA:

SOME LEGAL ASPECTS

CHAPTER I

FOREIGN INVESTMENT REGULATIONS

1. ROLE OF THE SUPERINTENDENCY OF FOREIGN INVESTMENTS (SIEX)

2. DIRECT FOREIGN INVESTMENT

3. RESTRICTIONS FOR FOREIGN INVESTORS

4. TREATMENT OF FOREIGN CAPITAL

5. SUB-REGIONAL INVESTMENT REGIME

6. TRANSFER OF TECHNOLOGY AND USE OF PATENTS AND TRADEMARKS

CHAPTER II

MATTERS REGARDING INTELLECTUAL PROPERTY (COPYRIGHTS, PATENTS AND TRADEMARK

PROTECTION)

1. COPYRIGHTS

2. PATENTS AND TRADEMARKS

CHAPTER III

ADEQUACY OF LEGAL AND ADMINISTRATIVE SYSTEMS

1. FAIR AND IMPARTIAL JUDICIARY SYSTEM

2. AVAILABILITY OF ARBITRATION

CHAPTER IV

REGULATIONS ON PERFORMANCE REQUIREMENTS

1. DECREE 1.182 ("COMPRE VENEZOLANO")

2. LAW ON PUBLIC BIDDINGS

3. INVESTMENT OPPORTUNITIES IN INFRASTRUCTURE AND IN THE CONSTRUCTION SECTOR

CHAPTER V

LABOR AND EMPLOYMENT IN VENEZUELA

1. BASIC ASPECTS OF VENEZUELAN LABOR LEGISLATION

3. ORGANIC LAW ON OCCUPATIONAL HEALTH AND SAFETY

CHAPTER VI

TAX ASPECTS

1. TAX CODE

2. INCOME TAX

3. TAX LAW ON LUXURY CONSUMPTION AND WHOLESALES

4. TAX ON BUSINESS ASSETS

5. MUNICIPAL TAXES

6. TAX TREATIES

CHAPTER VII

ENVIRONMENTAL PROTECTION

1. THE ORGANIC ENVIRONMENTAL LAW

2. THE ENVIRONMENTAL CRIMINAL LAW

CHAPTER VIII

TRADE AGREEMENTS WITH OTHER COUNTRIES

1. CARTAGENA AGREEMENT (ANDEAN PACT)

2. TRADE AGREEMENTS WITH OTHER COUNTRIES

3. GATT

4. MULTILATERAL INVESTMENT GUARANTY AGREEMENT (MIGA)

CAPITAL INVESTMENT IN

VENEZUELA:

SOME LEGAL ASPECTS

We wish to answer some of the most commonly asked questions by our clients when planning to make an investment or to do business in Venezuela. We do not pretend to address all matters or to exhaust the issues but to give a general overview.

CHAPTER I

FOREIGN INVESTMENT REGULATIONS

Foreign investments in Venezuela are regulated by Presidential Decree Nø. 2095 (hereinafter The Decree), published in the Official Journal of the Republic of Venezuela on March 26, 1992. This Decree abrogates Decree 727 dated January 1990, and provides the guidelines under which foreign investments are treated in Venezuela. It is inspired in the "Andean Pact Rules on the Treatment Of Foreign Capitals, Trademarks, Patents, Licenses and Royalties", contained in Decisions 291 and 292 of the Commission of the Cartagena Agreement (Andean Pact)(adopted on July 3,1991).

1. Role of the Superintendency of Foreign Investments (SIEX)

Current regulations on foreign investments have eliminated most restrictions that formerly applied to foreign investors in Venezuela; the bureaucratic procedures and the role of the Superintendency of Foreign Investments (the government agency in charge of this area, hereinafter SIEX) that consisted in the control and authorization, are now aimed at promoting and recording foreign investments.

2. Direct Foreign Investment

The Decree provides that, in addition to contributions of cash and assets, investments resulting from intangible technological contributions such as trademarks, patents, industrial models, technical assistance and technical know-how, whether in the form of tangible property, documents, instructions, blueprints, or any other written material, which technology may be transferred, are considered direct foreign investments, receiving therefore the same treatment as cash and assets.

3. Restrictions for Foreign Investors

The position of foreign investors is, in general terms, the same as that of national and regional investors, and their duties and privileges are almost alike.

All sectors of the national economy are now open to foreign investors except for the following cases:

• Areas specially reserved to government owned companies such as oil, gas and iron ore. It is important to note, however, that the oil and gas sectors are gradually becoming more and more accessible to private and foreign participation. PDVSA (the government company which controls oil and gas activities) Subsidiaries have entered into special types of associations with foreign and private participants aimed at exploring and exploiting certain fields, and a new program of production sharing agreements is being prepared to be offered as soon as at the beginning of 1995. This is a major reversal with respect to the stringent policies that were enforced when the oil, gas and iron ore sectors were nationalized in 1973-1975.

Areas that are exploitable through concessions: all mineral mines such as gold, coal, etc. Many concessions in these areas have been granted to foreign investors.

Areas specially reserved to national companies (national companies are those where national investors hold more than 80 % of the capital stock of the company, mixed companies are those where national investors hold more than 50% of the capital stock of the company; foreign companies are those where foreign investors hold more than 49% of the capital stock of the company; these stock holdings must be reflected in the management of the corporations:

i. TV and radio broadcasting; newspapers in the Spanish language.

ii. Professional services regulated by national statutes, such as lawyers and accountants.

iii. Investments in insurance companies (although in the next following weeks the opening of this sectors to foreign investors will be established in the legislation that has been approved by Venezuelan Congress).

Foreign investors in these areas are subject to specific regimes set by special statutes in each area.

A new Banking Law enacted on November 2, 1993, and which came into effect on January 1, 1994, allows foreign participation in the banking sector through the opening of branches, by incorporating subsidiaries of foreign banks in Venezuela, and through the acquisition of shares of a local bank by a foreign financial institution.

Restrictions no longer exist in the percentage of foreign investment capitals allowed in areas previously banned to foreign investors, such as public utilities (telephone, telecommunications, electricity, water and sanitary services); internal transportation of persons and goods; transportation of valuables and documents; internal commercialization of consumer goods; exportation services; advertising; consulting activities and garbage collection.

4. Treatment of Foreign Capital

4.1. Remittance of net profits: The Decree authorizes 100% of the net profits, dividends, shares or any other rights of foreign investors to be remitted abroad, after paying the corresponding taxes. Additionally, under the Income Tax Law dividends are not taxable in Venezuela even when paid to a foreign shareholder.

4.2. Repatriation of foreign investments: Foreign investors may at any time freely repatriate the amounts obtained from the sale of shares, interests or other rights in their investments in Venezuela. They are also entitled to re-export amounts obtained from capital reductions or liquidation of corporations domiciled or incorporated in Venezuela.

4.3. Re-investment of net Profits: There are no limitations in respect to the percentage of re-investment of net profits allowed to be made by foreign investors in their ventures in Venezuela.

4.4. Free Access to Securities Markets: Foreign investors may freely acquire shares or rights in any local corporation held by national or foreign investors without SlEX's prior authorization, provided that it is not an investment on a reserved area.

In the case of publicly traded corporations, these operations can be made in any Venezuelan Stock Exchange, subject to the regulations of the Capital Market Law ("Ley de Mercado de Capitales").

4.5. Branches and subsidiaries: Foreign corporations may establish branches in Venezuela. In such cases, the amount of foreign investment to be recognized by SIEX will be the amount of capital expressly assigned to that branch which actually entered the country. Rules regarding the establishment of branches are provided for in the Commercial Code.

Furthermore, foreign corporations may incorporate wholly-owned or partially-owned subsidiaries in Venezuela. The typical and most commonly used form of corporation in Venezuela is the "compañía anónima". The incorporation of a local subsidiary is regulated by the Commercial Code.

4.6. Foreign equity Participation in management: There are no restrictions as to the participation of foreign managers based on the holding of capital if the company qualifies as a foreign corporation. There are some restrictions based on Venezuelan labor legislation that will be discussed in section 2 of Chapter V.

4.7. Market Reserve Restrictions and Punitive import duties: There are no market reserve restrictions except for Decree 1182 of July 23, 1986, covered in Chapter IV. Restrictions regarding mergers and acquisitions and other trade activities may be imposed, based on the Venezuelan anti-trust legislation (Law to Promote and Protect the Exercise of Free Trade, published in the Official Gazette of No. 34880 of January 13, 1992, and Decision 285 of the Cartagena Agreement adopted on April 4, 1991). There are no punitive import duties except for those provided for in the Venezuelan anti-dumping legislation (Law Against Unfair Practices in International Trade published in the Official Gazette of No. 4441 Extraordinary of June 18, 1992, and Decision 283 of the Cartagena Agreement adopted on April 4, 1991).

5. Sub-regional Investment Regime

All companies incorporated in Venezuela, whether classified as national, mixed or foreign, will be entitled to a certificate of origin in order to have a right to the advantages provided for by the Liberation Program of the Cartagena Agreement. Thus, without distinction as to equity ownership, all Venezuelan companies including wholly-owned subsidiaries of foreign corporations will be entitled to the same benefits within the Andean Pact system.

6. Transfer of Technology and use of patents and trademarks

License agreements regarding the use and exploitation of trademarks, patents and technology transfer agreements are allowed to be executed without prior authorization from SIEX. However, they must comply with formal requirements and some restrictions contained in Decision 291 of the Andean Pact. In addition, for these agreements to be enforceable in Venezuela, they must be filed and registered with SIEX within sixty (60) days following their execution by the parties.

Once an agreement is filed, royalties and other compensations can be paid to the licensing company, provided that the same comply with the terms of the agreement and with all applicable taxes.

Certain clauses on technology transfer agreements are restricted:

a) Clauses pursuant to which licensee is required to purchase capital equipment, raw material and components or acquire technology or use personnel as required by licensor;

b) Clauses pursuant to which licensor is entitled to fix the sale price of licensee's products;

c) Clauses establishing restrictions on licensee's volumes and structure of production;

d) Clauses prohibiting the use of competitive technologies;

e) Clauses granting licensor an option to purchase any portion of licensee's production;

f) Clauses which obligate licensee to pay royalties on expired or non-utilized trademark or patents, and

g) Other clauses considered to be of similar effects.

CHAPTER II

MATTERS REGARDING INTELLECTUAL PROPERTY (COPYRIGHTS, PATENTS AND TRADEMARK PROTECTION)

1. Copyrights

Copyrights in Venezuela are regulated by a Copyright Law (published in the Official Gazette No. 4638 Extraordinary of October 1, 1993) which embraces almost all creative works and their supports according to inventions in technology and modern forms of communication. Additionally, Decision 351 of the Commission of Cartagena Agreement is applicable in Venezuela.

1.1. Copyright Law: The Copyright Law is the first law in Venezuela to include the "Droit de suite" (unrenounceable right of the author to receive a percentage from the resale of his/her creative works). It also contemplates a presumed assignment of patrimonial rights to the employer or to the person who contracted a creative work, when such work is done under a labor relation or by order. In spite of the foregoing, the Law includes the possibility for the person who created the work to prove the contrary.

The Copyright Law protects all copyrights of the author during the legal owner's life and for 60 years after his death (the protection begins on January 1st of the next year following the author's death). In cases of creative works done in collaboration with others, the protection begins on January 1st of the next year following the death of the last of the authors. In cases of audiovisual works, radiophonic works and computer programs, copyright protection lasts 60 years. This protection begins on the date of the first Publication or as of the date on which the creative work was finished. The same applies to anonymous creative works.

The most important regulation established by the recently approved Copyright Law is the protection given to Computer Programs and Data Base (Software) which include written information concerning programs such as Users Manuals, instructions and even Technical documentation supporting the same, according to the development of this area.

From the time the Copyright Law was enacted in Venezuela, the act of copying a creative work is considered a crime (appropriation and improper use of personal property). Furthermore, the reproduction, import, distribution, storage, sale and circulation of computer programs not legally authorized by the original copyright owner constitutes a crime.

The Copyright Law establishes two exceptions to the principle of illegal and unauthorized reproduction of computer material, in the case of: Backup copies of programs for protecting the original, and when programs are copied into the memory of the computer.

1.2. Decision 351 of the Cartagena Agreement:

Decision 351 of the Cartagena Agreement (Andean Pact)(adopted on December 17, 1993) includes most of the regulations contained in the Venezuelan Copyright Law. This Decision establishes uniform provisions for author's rights and also stipulates that each member country of the Andean Pact is to give the same protection to foreigners as to nationals.

2. Patents and Trademarks

In order to have uniform provisions for Patents and Trademarks among member countries, the Commission of the Andean Pact approved Decision 313. It was substituted by Decision 344 (adopted on October 21, 1993).

2.1. Intellectual Property Law: The Intellectual Property Law came into effect in Venezuela on September 2, 1955 and contains regulations on Patents and Trademarks. This law remains effective regarding those matters not regulated by Decision 344. In fact, Decision 344 is a supranational set of rules that has preference over national legislation.

2.2. Decision 344 of the Cartagena Agreement: Decision 344 of the Commission of the Cartagena Agreement, concerning Patents and Intellectual Property Rights, contains two kinds of protection:

a) Protection of technology (patents): Covering inventions, industrial models, designs and industrial secrets.

b) Protection of trademarks: Covering trademarks, tradenames, collective trademarks, and personal names

2.3. Patents (Mandatory licensing): Patents are available for products and procedures in all technological fields, excluding such areas which include discoveries or inventions related to biological procedures as well as essential pharmaceutical products listed by the World Health Organization. Patent protection lasts 20 years. Likewise, industrial protection for industrial models lasts 10 years. Industrial designs protection lasts 8 years. All these protections begin on the date on which the application is filed with the Registry of Industrial Property.

Mandatory licensing of a patent can only be granted after non-use by its owner, without a just cause, for one year or more. The applicant must also prove technical and financial capacity to use the patent. Mandatory patents are normally issued to supply domestic markets and may be revoked if circumstances change (Public interest reasons such as emergencies or national safety).

2.4. Industrial Secrets: Industrial secrets with real or potential value are protected as long as reasonable measures are taken to maintain their secrecy. Industrial secrets are those related to products, production, or distribution and marketing. Information in the public domain or which must be disclosed by law is not considered secret.

2.5. Trademarks: Registration of a trademark grants exclusive right of use. The first application submitted before a member country of the Andean Pact or in other countries which providing reciprocal treatment, grants a six month priority right in order to submit the same trademark's application of registry in other member countries of the Andean Pact.

The legal owner of a trademark can exercise all legal actions against any person who uses such trademark without the former's consent. Furthermore, Decision 344 establishes that each country shall set up a notification and information system so as to protect notorious trademarks. Notoriety is defined as the extent of the trademark's recognition by consumers as a distinctive sign of products or services, intensity of use; range of penetration, advertising and promotion; age and consistency of use; and production and marketing methods.

Decision 344 establishes that persons with legitimate interest (defined as holders of identical or similar trademarks that could be affected by consumer error or the first applicant for the trademark in any member country) could contest registration of a trademark.

Use of identical or similar trademarks granted to different holders in the Andean Region is not necessarily restricted to one member country. For use in another country, holders must reach a marketing agreement and clearly identify the origin of goods and services to avoid consumer confusion. Agreements must be registered and comply with rules on trade practices and competition. Products or services may be imported when the trademark is not used in the importer's country, unless non use is justifiable.

Tradenames are automatically protected by member countries and need not be deposited or registered. But if a national registration system exists (as in the case of Venezuela), the rules on trademarks will be applicable, and registration is therefore necessary.

The mark of origin is reserved for goods produced in a particular locality.

Trademark protection is granted for 10 years after registration, renewable for like periods. Cancellation of trademark protection may be approved after three consecutive years of non-use and the holder must prove the contrary. Acceptable evidences are invoices, audited inventories of the merchandise, etc. Registration cannot be canceled when non-use is due to force majeure, import restrictions or other official requirements.

Trademarks may be invalidated by an official decision or by request of the interested party subject to a hearing in the event that registration violates the provisions established in the Decision. This action may be filed at any time. Registration will be forfeited due to non-renewal (every 10 years) or by non-payment of fees (registration fees and renewal fees).

CHAPTER III

ADEQUACY OF LEGAL AND ADMINISTRATIVE SYSTEMS

1. Fair and impartial judiciary system with adequate resources

We are not satisfied with our judicial system owing to the fact that many jurisdictions have corrupt or incompetent judges. Up to a recent date, political influence worked as an effective means to obtain a favorable decision; undoubtedly, labor courts tend to favor workers rather than employers. In many jurisdictions, offices and other court facilities are in terrible conditions.

Although it is not possible to assert that these deficiencies have changed dramatically, it is beyond question that the nation as a whole has become aware of these deficiencies and is prepared and willing to make reforms.

One important example is that judges are now elected based upon their qualifications rather than their political connections. Certain well known incompetent judges have been dismissed. These changes may be seen in the Courts, particularly those in the upper levels.

It would be unfair to say that all jurisdictions are the same. Administrative and tax courts could be considered above average. The Supreme Court of Justice in its three chambers (Civil, Administrative and Criminal) may be qualified as a respectable Court. The quality of the majority of Criminal Courts of lower levels is unfortunately poor.

In balance many changes and improvements are needed.

2. Availability of Arbitration

Arbitration for litigation on local matters is accepted under the rules contained in Articles 608 to 629 of the Venezuelan Code of Civil Procedure.

With regard to international arbitration on commercial matters, Venezuela has ratified the Inter-American Convention on Commercial Arbitration and the New York Convention on International Commercial Arbitration of 1958. Venezuela has also ratified the Inter-American Convention on the Anzola Boveda Raffalliy Rodriguez

Enforcement of Decisions rendered by Foreign Courts.

We cannot consider Venezuela, however, as a jurisdiction that is efficient and "friendly" as to international arbitration. There are no rules in the Venezuelan Code of Civil Procedure for carrying on international arbitration procedures in Venezuela. For those matters not provided for by the conventions, the rules contained in the Code of Civil Procedure for internal arbitration shall apply. This creates some hindrances regarding procedures of international arbitration held in Venezuela.

In agreements to which foreign investors are parties, it becomes common practice to include clauses that provide arbitration in a foreign jurisdiction, under a foreign legal system and under a foreign language. This is valid when applying the Inter-American Conventions, particularly in the case of US investors.

Venezuela is presently negotiating a convention with the United States aimed at protecting American investments in the country . Venezuela has negotiated other conventions of this nature with several countries.

CHAPTER IV

REGULATIONS ON PERFORMANCE REQUIREMENTS

1. Decree 1.182 ("compre venezolano")

Decree 1.182 (published in the Official Gazette Nø. 33,518 of July 23, 1986), provides preferences for local supplies when contracting with the government.

This Decree establishes a special treatment for national proposals or offers. Said Decree requires administrative authorities to locally purchase materials and supplies, and will allow foreign purchases only if domestic suppliers cannot meet quality, quantity and delivery requirements.

When Venezuela entered GATT, it undertook to make reductions in the preferences granted to national producers and service companies by Decree 1182. To this date, this commitment has not been complied with.

2. Law on Public Biddings

Law on Public Biddings ("Ley de Licitaciones", published in the Official Gazette Nø 34,528 of August 10, 1990), reinforces the special treatment of Decree 1.182. When selecting offers having the same quality, preference should be given to those with more national technology, more incorporation of national human resources, more national added value or more national participation in capital stock.

According to the Law on Public Biddings, all procedures regarding the selection of contractors for the performance of works, for purchasing goods, and for rendering commercial services to governmental entities and government owned companies must comply with the provisions of the Law on Public Biddings and its Regulations.

With few exceptions, the law requires the inscription of applicants in the National Registry of Contractors.

The registry requirement may only be waived in the case of direct adjudication for a total amount of less than 100.000,oo Bolivars, or in the case of international bidding processes.

2.1 Methods for the selection of contractors:

All procedures for selecting contractors have to be performed either by way of bidding (general or selective) or by direct adjudication indicated in the statute.

a) General bidding process: all applicants registered in the National Registry of Contractors who comply with the required particular conditions, may participate.

b) Selective bidding process: The public entity calls the applicants to participate in the bid. They are also selected from the National Registry of Contractors.

c) Direct adjudication: This will occur when special circumstances are present. These are, among others:

I) Contracts for the manufacture of equipment acquisition of goods or the rendering of commercial services outside Venezuela, when due to the course of business of the manufacturers or providers, it is not possible to have a bidding procedure.

ii) When technical conditions for certain goods, services or works, exclude the possibility of competition.

iii) When according to a certificate issued by the Registry of Contractors, no more than four of the listed companies are truly capable of undertaking the respective commitment.

iv) When in a previous general or selective bid, the highest authority of the entity declares the same to be void.

The bidding commission of the entity in charge could declare a bid to be void when: less than three offers are presented, the offers are found to be inadmissible, all the offers are inconvenient or, when if the bidding process continues, injury would be caused to the entity.

v) In case of acquisition of goods or the rendering of services, when the contract to be awarded is for an estimated price of up to one million Bolivars (Bs.1,000,000.oo).

vi) In case of construction contracts, when the contract to be awarded is for a maximum estimated price of ten million Bolivars (Bs. 10,000,000.oo).

2.2. Exemptions from the Law: According to regulations, all contracts that involve the following are exempted from application in bidding proceedings: The rendering of services by virtue of special skills such as scientific, professional, technical, artistic intellectual, creative, or educational activities.

The execution of contracts other than labor contracts, contracts for the acquisition of goods and contracts for the rendering of commercial services by regulations are also exempted from the provisions of the statute.

3. Investment Opportunities in Infrastructure and in the Construction Sector

The Decree on National Public Works and National Public Services Concessions (enacted on April 26, 1994, with the rank of Organic Law, published in the Official Gazette No. 4719 Extraordinary of April 26, 1994) defines the legal framework for the construction, operation, exploitation and maintenance of national public works or national public services by private investors.

This Decree empowers the Executive Branch to grant administrative concessions to private entities in order to build, operate, maintain and manage public works and public services and to collect charges for the use thereof during the term of the concession. The concessions will be granted for a term not to exceed fifty (50) years.

The Decree provides that the private entity must use the income from the charges on the service facility to cover the costs pertaining to the operation and maintenance of said facility, to recover its capital investment and expenses incurred in the development, financing and construction of the facility, to repay or amortize any indebtedness incurred in the construction and operation of the works or services granted, and to obtain a reasonable return on its capital investment.

The Decree contains the procedures for granting such concession, the basic requirements of the concession agreements and the corporate organization of the private entity to which the concession shall be awarded.

CHAPTER V

LABOR AND EMPLOYMENT IN VENEZUELA

1. Basic aspects of Venezuelan Labor Legislation

Venezuelan labor legislation is a matter of National Public Policy (published in the Official Gazette No. 4240 Extraordinary of December 20, 1990). Therefore, provisions are deemed to apply to all persons who render employment services in Venezuela. All personal services are considered as rendered under an employment relationship, and for these purposes, the employee's nationality and legal presence in Venezuela are irrelevant.

1.1 Formality of the contract: Contracts dealing with employment must be in writing only when the labor relation covered by the contract is for a pre-fixed period of time. Verbal as well as written labor contracts are valid in Venezuela; it is most common to have only verbal contracts with the employee, however, it is always advisable to execute a labor contract in writing since verbal contracts are much more difficult to uphold should a dispute arise. Agreements between unions and management (collective contracts) must be executed in writing.

1.2. Duration of the Contract: Labor contracts in Venezuela are understood as having indefinite duration unless otherwise specified and agreed upon and, in exceptional cases, permitted by law. Generally speaking, labor contracts can be executed for a specific time period only when they concern a specific job which will be completed at the end of the contract.

1.3. Duration of a working day and a working week: Venezuelan law provides for an 8 hour working day and a 44 hour working week. Any worker exceeding eight hours per day and/or 44 hours per week must be paid overtime .

Sundays are considered holidays and, as such, work is permitted on Sundays only in exceptional circumstances. Special wages must be paid for work on both Sundays and holidays.

1.4. Vacations: Workers in Venezuela are entitled to annual paid vacations equivalent to fifteen working days, besides an additional day for each year of uninterrupted service, with a maximum of 15 additional days. Vacation is paid at the same rate as the worker's normal basic salary. Furthermore, the employer must pay the worker a vacation bonus equivalent to seven days salary plus one additional vacation day per year of uninterrupted service up to a maximum of 21 days.

1.5. Profit Sharing: Workers are entitled to a year-end bonus for each year of uninterrupted service. This bonus is based on a formula based on the amount of profits and the worker's salary. Regardless of the amount of profit to be shared, the law provides that a company does not have to pay its workers a bonus which exceeds the equivalent to four months salary, but not less than a 15 day salary.

1.6. Special benefits at termination of labor contract:

a) Length of Service Compensation: This is an mandatory payment to workers upon termination of the labor relationship. Such compensation equals 30 days of the last complete monthly salary for each full year of employment with the company. Full salary consists of the basic monthly wage plus bonuses such as transportation bonus. food bonus, commissions, overtime, etc. Length of Service Compensation must be paid regardless of whether the worker was fired or left the company voluntarily. This compensation can be paid on an annual basis.

However, since the final amount for compensation is based on the worker's last full salary, proper adjustments must be made so that the worker receives the difference between the compensation annually paid to him/her based on a salary lower than his/her last full salary before termination of the relationship .

b) Termination notice: Venezuelan labor legislation requires that the party terminating the labor relationship (either employer or worker) must give due prior notice of such termination to the other party. Prior notice is based on length of time of employment with the company and ranges from seven days to three months. The notice can be substituted by payment, that is, if the company terminates the relationship, rather than giving the worker due prior notice of termination, it can simply give the worker his/her basic salary for the days corresponding to the notice of termination. On the other hand, should the employee terminate the relationship, he/she can choose to reimburse the company for the amount of his/her salary corresponding to the notice of termination.

c) Double Indemnity: It is worth mentioning that the Law requires that the previously mentioned two kinds of compensation be doubled should the employer decide to terminate the labor relationship without a just cause. (Just causes of dismissal are specified in the Labor Law). That is, the company would have to pay double the Length of Service Compensation, and twice the amount of the normal pay for Termination Notice.

For the calculation of such benefits, not only the period of time during which he performed his/her services within the country should be taken into account, but also all the time he/she performed services for the company, or a related one, outside Venezuela. Therefore if an employee has worked for; a period of one year in Venezuela, and fifteen elsewhere, for the same or a related employer, then sixteen years should be taken into account when calculating the termination payment according to the terms of Venezuelan Labor Law.

We know that some companies verbally agree with their expatriate employees in that said employees will not make any claims to the company as to all such benefits required under Venezuelan Law, however, since we are in the presence of mandatory rules which ù may not be waived by the parties, any agreement between the parties that modifies or suppresses these benefits will not be enforceable in a Venezuelan Court.

1.7. Women workers' regime: The law grants women workers certain rights for the protection of maternity. In particular, pregnant women benefit from immovability and may not be discharged from their posts as of the date in which pregnancy starts until one year after giving birth.

Women are entitled to a "rest period" of 6 weeks before giving birth and 12 weeks after giving birth. These periods may not be relinquished by the employee, and she may accumulate both periods and benefit from them after giving birth.

The employer is not obligated to pay her salary during this "rest period". The employee is covered by Social Security payments.

Additionally, there are special rules in the Law and its regulations with respect to day care centers to be furnished by employers having more than 20 workers in their payroll.

1.8. Fringe Benefits: Besides the legal benefits (paid vacation, profit sharing, etc.), companies normally offer additional benefits to their employees.

Local companies usually offer medical insurance (referred to as HCM which stands for Hospitalization, Surgery and Maternity), that covers most medical bills, hospital bills, and maternity up to a certain coverage. Such insurance does not cover dental expenses, which are not insurable in Venezuela. The cost of such an insurance amounts to a maximum coverage of approximately US$ 500. Large companies also have private pension plans for their employees and some have savings funds.

Foreign companies, with foreign employees in Venezuela (expatriates), usually offer additional benefits as compared to local companies, such as:

Transportation and moving expenses to Venezuela of the employee and his/her family.

• Housing expenses.

• At least one annual trip for the employee an his/her family to their country of origin.

• A car for the employee and its expenses.

• Membership in a local club, if he/she is a high level employee.

• Legal and other expenses associated with employee's stay in Venezuela (visa, permits, etc.)

• Dental expenses and medical bills not covered by insurance.

The number and extent of such benefits varies between the companies in accordance to their policies, but will bear some relation to seniority and the post held by the employee.

1.9. Payment of salary: According to the Labor Law it is not mandatory for salaries only to be paid in Venezuela. Therefore it is customary that foreign employees of foreign companies only be paid a portion of their salaries in Venezuela, and the remainder to be Paid in another jurisdiction.

However, it is always advisable that the portion of the salary paid in Venezuela be reasonable and for the same to bear some relation with the employee's necessities and living standards in Venezuela, in the event of a tax audit. Usually a 50/50 basis is quite reasonable.

From time to time, the Government is authorized by law to fix the minimum salary of urban and non-urban workers. Presently the minimum salary is Bs.15,000 per month.

2. Limitations on employment of Foreign Individuals:

a) Spanish Language: all orders and instructions must be given in the Spanish language.

b) Positions Reserved to Venezuelans: Industrial Relations Managers, Personnel Managers, ship and aircraft Captains, foremen and analogous positions.

c) Maximum Number of Foreign Workers and Compensation: In companies employing ten or more persons in Venezuela, at least 90% of the employees and laborers are required to be Venezuelan. Compensation payable to foreign employees and laborers in such cases will be limited to no more than 20% of the total compensation payable to all employees and laborers, respectively. Exceptions to these limits may be authorized by the Ministry of Labor in the following cases:

(i) when the activity requires special technical knowledge and properly trained Venezuelan personnel is not available;

(ii) when the Ministry verifies that Venezuelan personnel is insufficient in order to meet the demand for a particular kind of work;

(iii) when foreign workers are immigrants under the control of or contracted by the National Government.

(iv) when foreign workers are refugees; and

(v) when the employer is a small or medium size company.

3. Organic Law on Occupational Health and Safety

The Organic Law on Occupational Health and Safety (published in the Official Gazette Nø 3,850 Extraordinary of July 18, 1986), protects workers' physical and mental health and regulates the prevention of work-related accidents and illnesses. The Law is essentially an employer's liability act, the characteristics of which are to impose considerable additional red tape upon the private sector and, more critically, to establish severe criminal and civil penalties, including imprisonment for employers and company directors, officers and administrators deemed by Law to be responsible for the work-related death or injury of workers.

CHAPTER VI

TAX ASPECTS

Venezuela's principal tax laws are the Organic Tax Code, the Income Tax Law, Tax on Luxury Consumption and wholesales, tax on business assets.

1. Tax Code

The Organic Tax Code is a special and organic law with a special rank over other regulations. An amendment to the Tax Code was included in the tax amendment of June 1994 (published in the Official Gazette Extraordinary No.4727 of May 27,1994).

The Code contains a general regulation of tax matters applicable in general to all national taxes. It is also applicable to state and municipal taxes as a source of interpretation on a supletory basis.

The Code rules on the birth and extinction of tax obligations, exemptions and exonerations, penalties, tax administration, and on procedures and actions that may be exercised by both the tax authorities and taxpayers.

The last reform created the tax unit, currently valued at Bs. 2,700.oo with the intention to unify tax rates, penalties and values. Income tax brackets are automatically adjusted to realistic levels in line with inflation. The value thereof is fixed on a yearly basis by the tax administration subject to approval by the Congressional Finance Committee.

Default interest must now be charged by the tax authorities running from the date the tax was due reversing court decisions that have held that interest was to be charged only after a Court decision was made final. The rates to be charged are three percentage points above the banking rate for loans.

2. Income Tax

Venezuela's income tax (the last version of the statute was published in the Official Gazette Extraordinary No. 5023 of December 18, 1995) is ruled by the territorial principle. Taxable income proceeds from economic activities carried out or from property located in the country, if the cause of income occurs within the National Territory.

According to article 4 of the Income Tax Law, income proceeds from economic activities carried out in Venezuela or from goods located in the country, when any of the causes which originate the profit occurs within national territory, whether said causes are due to the exploitation of the soil or subsoil, or from the creation, transfer, change, or assignment of the use, or the enjoyment of real or personal property, tangible or intangible, or from services rendered by persons domiciled, resident or transient in Venezuela and those obtained from technical assistance or technological services used in the country.

Dividends, either in cash or in kind, are not considered a taxable income, even when dividends are paid to shareholders who are not domiciled or who do not have their residence in Venezuela.

Tax shall be calculated on the net profit, also known as "net taxable profit" or "net taxable income" defined as the increase in the net worth resulting after the costs and deductions permitted by the Law are deducted from the gross income (Article 2 of the Income Tax Law). This means that our income tax system also levies capital gains (which in some countries are subject to a separate system of taxation).

In a very summarized manner, the net profit for income tax purposes ("Net Taxable Income") is calculated as follows:

GROSS INCOME minus

COSTS minus

EXPENSES

= NET TAXABLE INCOME

2.1 Corporate Tax rates: Tax rates for corporations that have entered into effect for fiscal years beginning after July 1, 1994 are the following:

For the fraction of net income up to Bs .2 ,000 ,000 ...........15%

For the fraction of net income exceeding Bs.2,000,000 to 3,000,000.......22%

For the fraction of net income exceeding Bs. 3,000,000........34%

2.2 Tax Reductions:

The Income Tax Law establishes a five year tax reduction of 20% on the amount invested in new fixed assets (different from land) by juridical persons (corporations included) that obtain income from industrial, tourism or agricultural activities. These new fixed assets must not have been previously used in Venezuela by other enterprises.

This reduction will be granted in the fiscal year during which the acquired, built or installed fixed assets were directly and effectively incorporated to the production of income.

In order to determine the amount of such investments, the withdrawal, amortization and depreciation in the fiscal year with respect to new fixed assets shall be subtracted from the cost of such assets incorporated to the production of income. The withdrawal of fixed assets made by the taxpayer for causes other than force majeure during the four years following the fiscal year in which the assets were incorporated, generates the payment of taxes (voluntary or mandatory) for the year of their withdrawal, calculated on the basis of net costs of the withdrawn assets for the fiscal year in which the same were incorporated to the production of income. To conclude, the reduction can be carried forward to the next three fiscal years. This means that if 20% of the investment should turn out to be higher than the amount of taxes payable on the same fiscal year, the difference can be subsequently used as a reduction up to the next three fiscal years.

2.3 Technical assistance by foreign corporations: The Income Tax Law defines technical assistance as the supply of "instructions, writings, tapes, films, and other similar instruments of technical character the object of which is the elaboration of a work or product for the sale or rendering of a specific service for the same purposes of sale". Such assistance may involve the transfer of technical know-how, engineering services, research and development of projects, advice and consultation and the supply of procedures or production formulas, facts, information and technical specifications, diagrams, drawings and technical instructions, and the provision of basic and detailed engineering elements. For this purpose, the Income Tax Law includes the following description of activities which are also considered as technical assistance:

• Engineering Services: The performance and supervision concerning the erection, set up and start up of the machinery, equipment and production plants; the gauging, inspection, repair and maintenance of the machinery and equipment, and the carrying out of the tests and trials, including quality control.

• Research and development projects: The manufacture and execution of pilot programs, laboratory research and experiments, exploitation services and the planning or technical programming of productive units.

• Advising and Consulting: The processing of purchases abroad, the representation, advisory services and the instructions given by technicians, and the providing of technical services for the administration and management of companies in any of the activities or operations of the latter.

The Income Tax Law defines technological services as "the concession for the use and exploitation of patents of invention, models, drawings and industrial design improvements, formulations, ratification or instructions and all such technical elements subject to patents".

The Income Tax Law pre-determines that net profits for taxpayers who provide technical assistance or technological services from foreign countries are constituted by 30% of the gross income in the case of technical assistance, and 50% of the gross income in the case of technological services. The tax rates specified above will be applied to the net profit calculated according to those percentages .

Profits arising from royalties and other similar participation are also considered territorial profits. The Income Tax Law considers the following as royalties and other similar participation: "the amount paid for the use or exploitation of patents, trademarks, copyrights, proceedings or rights of exploration or exploitation of natural resources fixed in relation to a unity of production, of sale, exploration or exploitation"; 90% of the amount obtained therefrom constitutes net profit.

If the agreement does not include a break down of the portion of income corresponding to each concept (technical assistance and technological services), it shall be presumed that 25% of the entire income corresponds to technical assistance and 75% to technological services.

If there is a total amount (an amount not subject to break down) of income corresponding to remuneration or fees for technical assistance and technological services, in part from abroad and in part from activities carried out in Venezuela, it shall be considered that 60% of the income corresponds to services from abroad and 40% to services carried out in Venezuela. The only income assignable to Venezuela shall admit the costs and deductions allowed by the Income Tax Law.

Income from the concession of the use and exploitation of trade marks, commercial marks, services, commercial names, emblems, letterheads, symbols, slogans and other distinctive features used to identify products, economic services or activities or those intended to stress properties or characteristics of same, may be allowed the cost and the deductions permitted by the Law except if paid by way of royalties to beneficiaries not domiciled in Venezuela.

All income from the sources described above are subject to withholding at the source of payment.

2:4 Capital Gains Tax: A proportional tax rate of 1 % on the gross income resulting from the sale of shares at the Stock Exchange has been approved in the most recent amendment to our Income Tax Law. These gains are not included in the taxpayer's determination of gross income, for the purposes of the ordinary income tax.

2.5 Net Operating Losses: Taxpayers can carry forward net operating losses for 3 years.

2.6 Adjustment for inflation: The tax reform of 1991 included for the first time a system of inflationary adjustment to be applied in 1992 and 1993. There is an initial adjustment and a periodic adjustment:

a) Initial adjustment for inflation: The Law establishes a mandatory one-time reappraisal of non-monetary assets and liabilities as of Dec. 31, 1992, based upon the consumer price index between the date on which the asset was acquired or the foreign currency liability was incurred and Dec. 31, 1992. Subsequent depreciation of fixed assets will be based upon the reappraised value thereof. Fixed assets subject to depreciation will pay a one-time tax of 3% on the increase in value.

b) Periodic readjustment for inflation: Beginning on Jan. 1, 1993, a system of annual inflationary adjustment for non-monetary assets and liabilities will be applied. The adjusted value obtained by reappraising the net worth and the non-monetary assets and liabilities of taxpayers will be used to determine the net taxable income.

3. Tax Law on Luxury consumption and wholesales

The Luxury and Wholesale Tax (originally published in the Official Gazette Nø. 4727 dated May 27, 1994), became effective on August 1, 1994. (The law was amended on July 1996, the current text being published in the Official Gazette Nø. 36,095 dated November 27, 1996).

It substitutes the previous value added tax and taxes the consumption of goods sold in the regular course of business. Such tax is fixed at importation, production, manufacture on wholesale levels, as well as on the rendering of independent services in Venezuela .Taxpayers are classified as ordinary and occasional taxpayers. Ordinary taxpayers are regular importers of goods and services, producers, manufacturers, industrialists, packers, assemblers and traders; traders whose sales in the preceding year were of 12 million Bolivars or more, or who expect to obtain such income in the year following start up of activities. Occasional taxpayers are the importers of goods or services not included in any of these categories.

• Assessable activities:

-Corporate sales.

-Final imports of personal property .

-Imports of certain services

-Independent income-bearing services in Venezuela

• The sale of food products and certain services (air fares, medical services, etc.) are exempted.

The law contains a definition of the obligation to pay taxes which broadens the scope of traditional concepts in other branches of the law. A sale is considered to be any sale for value in which the greatest value of the operation consists of the obligation to deliver goods. A service is defined as any independent activity where performance is of the essence, in addition to assignments for the use of intangible property such as trademarks, patents, copyright, artistic and intellectual works among others.

In the case of sale of tangible personal property, the taxation obligation arises either upon the issuing of the invoice, the payment of the price, or the actual delivery of the goods, whichever occurs first.

In the case of final importation of goods, the obligation arises when the customs declaration is submitted, and for services once the invoice is issued, the service is supplied, or payment is made, whichever is first.

For electricity and telecommunication services, the obligation to invoice the tax arises when the invoice is issued.

3.1. Tax base:

• For sales: the tax base is the total price of the goods, irrespective of whether the operation is credit or cash and as long as the price is not lower than the current market price. The tax administration may fix the market price when the declared price does not conform to reality.

• For imports of goods: the assessment base is the customs value plus all import expenses, such as charges countervailing duties, interest, storage costs, etc.

• For services: the base is the invoiced price as consideration plus expenses incurred in the supply of the service, except when paid by buyer of the service. Normal trade price reductions, rebates and discounts must be deducted from the tax base. The invoice must evidence this type of deduction.

3.2. Tax rate: The current tax rate is 16.5% of the tax base, with an additional rate of 10% and 20% for certain goods considered to be Luxury items. This rate is adjusted on an annual basis.

The goods subject to the additional rate of 10% include alcoholic drinks, cigarettes four-wheel drive vehicles with capacity for nine people and vehicles valued between US$ 22,000 and US$ 44,000, gold and silver as well as fine pearl articles. Cable television, vehicles valued over US$ 44,000 motorcycles of 500 cc or more, fine pearls and satellite dishes are subject to an additional rate of 20%.

Exporters have an effective tax rate of zero per cent. This means that they are entitled to a tax refund paid for purchase of inputs required for their activity. Such refunds are made by the issuance of special certificates or on application for a refund by the exporter.

4. Tax on Business Assets

The tax on business assets was decreed on December 1993 (published in the Official Gazette No. 4654 Extraordinary of December 1, 1993). The Business Assets Tax is payable by all legal entities or individuals liable to income tax and engaged in commercial activities. The tax is levied on those tangible and intangible assets located in Venezuela owned by the taxpayer, used during the fiscal year to generate income from commercial, industrial, mining or hydrocarbon activities. Leases and rentals of personal or real property are added to the commercial and industrial activities already established in the tax legislation, whereas residences are excluded. Said tax also applies to assets held under finance leases with banks or finance companies.

Tangible assets are defined as those which may be perceived through the senses, such as merchandise, money, furniture, vehicles, machines, land, buildings and any physical assets subject to wear through use, disuse, destruction or by the action of time and elements. Intangible assets are those acquired, paid for or by way of loan, such as trademarks, patents, formulas, processes, trade names, rights, credit balances surpluses, etc.

Some entities are generally exempted from said tax: public entities, Banco Central de Venezuela (BCV), Fondo de Inversiones de Venezuela (FIV) and other official agencies; charitable and social welfare institutions; assets invested in primary production; nonprofit religious, artistic, scientific technological, cultural, sports institutions, universities, professional associations, and recognized educational institutions; companies during preoperative and startup stages and during the first two years of operation (except for property development companies and companies with a duration of less than three years which pay tax on assets in their first year of sales). Certain types of investments are exempted: assets invested in officially regulated services; shares in other companies; assets invested entirely in producing tax-exempt income; assets invested in providing public transportation for three years from- the effective date of the law.

The assessment basis for the tax is the average annual net value of the assets calculated as follows: the simple average of the values at the beginning and at the end of the year; the restored values at the beginning and at the end of the fiscal year less depreciation and write-offs etc. are added to the cost of the assets adjusted for inflation.

Taxpayers' assets that have been exported are treated as located in Venezuela and are taxable unless they have been replaced by other assets located or consumed by the company in Venezuela. Similarly, foreign assets of international transport companies incorporated and domiciled in Venezuela are treated as located in Venezuela.

The tax only applies to the monetary assets of financial institutions and insurance companies as evidenced in the balance sheet in excess of the amount of deposits or premiums received during the year: that is only the surplus is taxable. Also exempted are new investments in machinery, equipment and production plants during the design, construction, assembly and installation stages. To stimulate exports exporters may claim a tax rebate equal to the ratio between exports and total sales.

The tax rate on business assets is of 1% per year. An important point is that income tax may be offset against the amount of taxes paid on business assets. Taxpayers must file a tax return showing the value of all taxable assets based on company accounts within three months of the fiscal year-end. Taxpayers who file estimated income tax returns may be allowed to do so for the assets tax; or the estimated return may be required to be substituted by a monthly prepayment based on the previous year's return. Failure to comply with the law is penalized under the provisions of the Organic Tax Code.

5. Municipal Taxes

Industrial and commercial activities are subject to Municipal taxes. Taxable activities may vary from one municipality to another, and could include activities other than those mentioned. An economic activity is considered conducted within a municipality when any of the operations are carried out within its jurisdiction.

Such tax is levied on the taxpayer's gross revenues, regardless of whether he had losses or profits in a fiscal year. Rates vary from one Municipality to the another, and depend on the type of activity performed by the taxpayer. The highest rate is usually 10% but rates range from 1 % to 4% of gross revenues

6. Tax treaties with other countries.

Venezuelan congress has ratified treaties to avoid double taxation with Italy, France and the United Kingdom. These treaties are based on the draft convention to avoid double taxation prepared by the OECD.

CHAPTER VII

ENVIRONMENTAL PROTECTION

Environmental protection in Venezuela is regulated by the following legal instruments:

• The Organic Environmental Law, enacted on June 15, 1976 and published in the Official Gazette Nø 31.004 of June 16, 1976;

• The Environmental Criminal Law, enacted on December 5, 1991 and published in the Official Gazette Nø 4.358 Extraordinary, of January 3, 1992;

• The Complementary Regulations to the Environmental Penal Law, enacted by different Presidential Decrees, on April 23, 1992 and published in the Official Gazette Nø 4 418 Extraordinary, of April 27. 1992.

1. The Organic Environmental Law

The Organic Environmental Law proscribes any action capable of degrading the environment and prescribes penalties to those that do not comply with the provisions tending to conserve, defend and improve the environment. The proscribed activities are:

a) Activities that either directly or indirectly contaminate or deteriorate the air, water, seabed, soil or sub-soil, or have a non-favorable impact over the animal species or flora;

b) The hazardous alteration of the landscape;

c) The hazardous alteration of the natural course of waters;

d) The sedimentation of the courses and deposits of waters;

e) The hazardous changes to bodies of water in the sub-soil.

f) The introduction and utilization of non-biodegradable products or substances;

g) Activities that produce hazardous or harmful noises:

h) Activities that deteriorate the landscape;

i) Activities that modify the climate;

j) Activities that produce radioactive ionization;

k) Activities that produce the accumulation of garbage, waste and residues;

l) Activities that ease the putrefaction of lakes and lagoons;

m) Any other activity capable of altering the natural ecosystems and negatively affect the health and well being of men.

The penalties provided for in the laws, vary from fines, security proceedings or suppression of freedom. Furthermore, the following corrective penalties may be put in place:

a) To temporarily occupy, totally or partially, the origin of the contaminants, for a period not exceeding six months;

b) To temporarily or definitively close the manufacturing premises or the establishment causing the environment to be altered;

c) To temporarily or permanently prohibit the activity causing the contamination;

d) To modify or demolish the constructions violating legal provisions about the protection, conservation or defense of the environment:

e) Any other decision tending to correct or repair the damages caused and avoid the continuation of actions prejudicial to the environment.

2. The Environmental Criminal Law

This Law identifies as criminal offenses those activities that violate the provisions related to the conservation, defense and improvement of the environment, and at the same time it establishes the corresponding criminal punishments.

The Environmental Criminal Law provides for the application of penalties not only to individuals, but also to legal entities, provided that (i) the criminal offense was committed by a decision of a corporate body, (ii) in the core of the corporation activities (iii) with corporate resources, and, (iv) carried out in the corporate exclusive or preferred interest .

Also, a legal entity may be found guilty of one of the illegal conducts prohibited by the Law (or one of its complementary Regulations) when (i) the illegal activity is done by one of its managers, administrators or directors (ii) acting on behalf of the corporation. On these cases, the individual would respond according to his degree of guilt and the penalties will be imposed upon the corporation (principals' responsibility).

The basic penalty applicable to a corporation is a fine. Nonetheless, Article 6 of the Law indicates that besides the fine, depending on the significance of the damage caused, it is possible to prohibit the activity that caused the contamination, for a three (3) month to three (3) year period.

In addition, Article 6 of the Law grants the following powers to the Court deciding the criminal offense:

a) To order the publication of the court decision in a newspaper with national circulation;

b) To order the destruction, neutralization or treatment of the substances, materials, instruments or objects manufactured, imported or offered for sale, that are likely to harm the environment or the health of the people;

c) To suspend the license or authorization for a period up to two (2) years; and

d) To prohibit the corporation to contract with the Public Administration for a period of three (3) years.

It is also important to point out that these criminal actions may be initiated by any person or by the public administration itself.

In addition to criminal penalties the infractor may be liable to indemnify damages, except those proven to be caused by force majeure or by a third party.

CHAPTER VIII

TRADE AGREEMENTS WITH OTHER COUNTRIES

1. Cartagena Agreement (Andean Pact)

Venezuela is member of The Cartagena Agreement, "Andean Pact", a Trade Union Agreement between Colombia, Ecuador, Peru Bolivia and Venezuela.

The Andean Pact is in the process of establishing a Common External Tariff, and has encouraged a substantial reduction of trade barriers between member countries.

As at this date there are no trade import duties between Venezuela and Colombia, with very few exceptions. Both countries have reached a common external tariff of about 95% of all items, based on criteria of added value or manufacturing levels (5, 10, 15, 20 %).

The Andean Pact has issued supranational rules on many matters such as regional anti-dumping and anti--trust, sanitary regulations, industrial and intellectual property, air and road transport among other matters.

The Andean Pact has a legislative body: The Commission; an executive body: the "Junta"; and a judicial body: the Andean Court of Justice.

2. Trade agreements with other countries

Venezuela has signed trade agreements with countries from Central America and the Caribbean (Caricom) and an agreement was also signed with Chile, all tending to a considerable decrease of tariffs as well as to the creation of free trade zones.

In 1994, President Caldera signed an agreement with Colombia and Mexico (The Group of Three) aiming at a free trade zone within a term of 10 years.

Venezuela is also a part of ALADI, the Latin American integration association, which promotes the framework for integration among the countries of this subregion.

Venezuela is a possible candidate to negotiate adhesion to NAFTA in the future as well as Chile, Argentina and Colombia. A framework agreement to discuss trade liberalization issues was signed between the United States and Venezuela in 1992.

A Convention on Promotion and Reciprocal Protection of Investments between Venezuela and The Netherlands, and the Protocol for the Promotion and Reciprocal Protection of Investments have been executed and ratified by both countries (in the case of Venezuela, by Law published in the Official Gazette Nø. 35269 of August 6, 1993). The two states agree to a fair and equitable treatment, and physical security and protection for each other's investments. The treaty also applies to the Netherland Antilles and Aruba. More recently similar agreements have been approved between Venezuela and Switzerland and between Venezuela and Ecuador.

In the areas regarding tax and customs duties, each state will generally treat investments by the other state's nationals no less favorably than those of its own or third party nationals, whichever is more favorable. Neither country may take measures to expropriate or nationalize investments owned by the other country's citizens except under certain specified conditions.

Disputes between a state and a national of another state will be submitted to international arbitration or conciliation following the rules of the International Center for Settlement of Investments Disputes. For the time being and until Venezuela ratifies these latter rules, differences will be settled by the Secretary of the Center under the Additional Facility for Administration Procedures .

Venezuela has ratified a Treaty to avoid double income tax taxation with France. This Treaty came into effect on October 15,1993.

3. GATT

Venezuela entered GATT in August 1990. Venezuela has also participated and signed the protocols of the Uruguay Round.

4. Multilateral Investment Guaranty Agreement (MIGA)

Venezuela signed the Multilateral Investment Guaranty Agreement (MIGA) in Washington on August 26, 1992. The law to ratify the MIGA Convention was published in the Extraordinary Official Gazette Nø 4634 of September 22, 1993.

MIGA provides foreign investments with insurance against non-commercial risks normally excluded by private insurers. Non-commercial risks are losses resulting from non-convertibility of local currency; government expropriation that deprives the beneficiary of ownership or control of its investment or significant income from it; war and civil disturbances including revolutions, insurrections, coups, sabotage and terrorism, breaches of guarantees by the government receiving the investment, when no appeal is allowed, or when courts or tribunals do not reach a decision within a reasonable time, or if it is impossible to comply with the decision.

The investing country and the country receiving the investment may jointly apply to the MIGA board to extend coverage to additional non-commercial risks, although devaluation and depreciation are never covered. In exceptional cases, investments which do not meet the normal requirements may be insured. Individuals who are beneficiaries cannot be nationals of the country receiving the investment. Private or public commercial entities must be incorporated and have their main office in a member state; alternatively over 50% of their capital must be held in one or more member states (other than the country receiving the investment). The convention also offers technical assistance and advice to developing members on improving conditions for attracting foreign investments.

Investments in Venezuela may be granted the protection of OPIC, the US agency that insures American investors abroad.

This document was prepared by J. Eloy Anzola E., Mery Boveda, Juan Raffalli A, Gonzalo Rodriguez Matos, Rafael De Lemos M., Ana Irene Vidal and Irene Boccardo; with the cooperation of Margarita Diamantes