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Cablegate: Bolivia National Trade Estimate Report 2009

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DE RUEHLP #2396/01 3122012
ZNR UUUUU ZZH
P 072012Z NOV 08
FM AMEMBASSY LA PAZ
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RUEATRS/DEPT OF TREASURY WASHINGTON DC
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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

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