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RESTRICTED
WORLD TRADE
WT/TPR/S/146
31 March 2005
ORGANIZATION
(05-1286)
Trade Policy Review Body
TRADE POLICY REVIEW
PARAGUAY
Report by the Secretariat
This report, prepared for the Trade Policy Review of Paraguay, has been drawn
up by the WTO Secretariat on its own responsibility. The Secretariat has, as
required by the Agreement Establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), sought clarification from the Government of Paraguay on its trade
policies and practices.
Any technical questions arising from this report may be addressed to Mr Diego
Iribarren (Tel: (022) 739 6392), Ms Ulla Kask (Tel: (022) 739 5627) or
Mr Raymundo Valdés (Tel: (022) 739 5346).
Document WT/TPR/G/146 contains the policy statement submitted by
Paraguay.
Note:
This report is subject to restricted circulation and press embargo until the end of the first
session of the meeting of the Trade Policy Review Body on Paraguay.
Paraguay
WT/TPR/S/146
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS
I.
II.
vii
(1)
INTRODUCTION
vii
(2)
ECONOMIC ENVIRONMENT
vii
(3)
TRADE AND INVESTMENT POLICY FRAMEWORK
vii
(4)
MARKET ACCESS IN GOODS
viii
(5)
OTHER MEASURES AFFECTING TRADE
ix
(6)
SECTORAL POLICIES
x
ECONOMIC ENVIRONMENT
1
(1)
OVERVIEW
1
(2)
RECENT ECONOMIC DEVELOPMENTS
(i) Structure of the economy
(ii) Output and employment
(iii) Fiscal Policy
(iv) Monetary and exchange rate policy
(v) Balance of payments
1
1
2
4
6
8
(3)
TRADE AND INVESTMENT FLOWS
(i)
Composition of trade
(ii)
Geographical distribution of trade
(iii) Foreign direct investment
11
11
11
12
(4)
OUTLOOK
13
TRADE AND INVESTMENT REGIME
14
(1)
OVERVIEW
14
(2)
TRADE POLICY FORMULATION AND IMPLEMENTATION
(i)
Legal and institutional framework
(ii)
Trade policy objectives and formulation
15
15
16
(3)
FOREIGN INVESTMENT REGIME
18
(4)
INTERNATIONAL RELATIONS
(i)
World Trade Organization
(ii)
Preferential trade agreements
21
21
24
(5)
TRADE-RELATED TECHNICAL ASSISTANCE
30
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Trade Policy Review
Page
III.
TRADE POLICIES BY MEASURE
32
(1)
OVERVIEW
32
(2)
MEASURES DIRECTLY AFFECTING IMPORTS
33
33
36
37
38
47
49
51
56
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(3)
Procedures and documentation
Export taxes, charges and levies
Export prohibitions, restrictions and licensing
Tax concessions, free zones and other fiscal benefits
Export promotion, finance, insurance and guarantees
61
61
62
63
64
68
OTHER MEASURES AFFECTING PRODUCTION AND TRADE
(i)
Legal framework for business activity, including registration
(ii)
Competition policy and price controls
(iii) Incentives and other government supports
(iv) State trading, public corporations and privatization
(v)
Government procurement
(vi) Intellectual property rights
69
69
72
73
75
76
80
MEASURES DIRECTLY AFFECTING EXPORTS
(i)
(ii)
(iii)
(iv)
(v)
(4)
IV.
Procedures, registration and documentation
Customs valuation
Rules of origin
Tariffs
Other charges affecting imports
Import prohibitions, restrictions and licensing
Contingency measures
Standards and other technical requirements (including SPS)
TRADE POLICIES BY SECTOR
89
(1)
OVERVIEW
89
(2)
AGRICULTURE, LIVESTOCK AND FORESTRY
90
90
93
95
97
(i)
(ii)
(iii)
(iv)
Features
Policy objectives in the sector
Trade measures and other policy instruments
Key subsectors
(3)
MANUFACTURING SECTOR
102
(4)
ENERGY SECTOR
105
106
108
(i)
(ii)
(5)
Hydrocarbons and other fuels
Electricity
SERVICES
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
APPENDIX TABLES
Overview
Telecommunications
Financial services
River transport
Air transport
Land transport
Tourism
110
110
112
117
123
126
128
129
137
Paraguay
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Page
CHARTS
III.
TRADE POLICIES BY MEASURE
III.1
III.2
Frequency distribution of MFN tariff rates, 2004
Tariff escalation by ISIC 2-digit industry, 2004
41
42
TABLES
I.
ECONOMIC ENVIRONMENT
I.1
I.2
I.3
I.4
I.5
I.6
Structure of GDP and employment, 1997-2004
Leading economic indicators, 1997-2004
Financial accounts of the Central Government, 1997-2004
Leading monetary indicators, 1997-2004
Balance of payments, 1997-2003
Foreign direct investment stock, 1998-2003
II.
TRADE AND INVESTMENT REGIME
II.1
Approved projects (Law No. 60/90)
III.
TRADE POLICIES BY MEASURE
III.1
III.2
III.3
III.4
III.5
III.6
III.7
III.8
III.9
Registration requirements for importers and imported products
Summary analysis of Paraguay's MFN tariff, 2004
Paraguay's MFN tariff structure, 1997 and 2004
Import licensing
Import prohibitions
Sanitary and phytosanitary requirements for imports
BNF export financing, 2001-2004
International conventions ratified by Paraguay
Overview of the protection of intellectual property rights in Paraguay, 2005
IV.
TRADE POLICIES BY SECTOR
IV.1
IV.2
IV.3
IV.4
IV.5
Trends in land use by subsector, 1988/99 to 2002/03
Production of commodities, 1993-2003
Value added in manufactures, 1991-2002
Summary of specific commitments under the GATS
Selected telecommunication indicators, 1997-2003
2
3
5
7
9
12
20
34
39
40
50
50
59
69
80
81
91
92
102
111
113
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Trade Policy Review
Page
APPENDIX TABLES
I.
ECONOMIC ENVIRONMENT
AI.1
AI.2
AI.3
AI.4
Merchandise exports by product group, 1998-2003
Merchandise imports by product group, 1998-2003
Merchandise exports by trading partner, 1998-2003
Merchandise imports by trading partner, 1998-2003
II.
TRADE AND INVESTMENT REGIME
AII.1
Summary of Paraguay's notifications to the WTO, October 2004
IV.
TRADE POLICIES BY SECTOR
AIV.1
AIV.2
AIV.3
AIV.4
AIV.5
AIV.6
AIV.7
AIV.8
AIV.9
AIV.10
AIV.11
AIV.12
AIV.13
AIV.14
AIV.15
Agricultural exports by product, 1993-2003
Agricultural exports by destination, 1993-2003
Main agricultural imports, 1993-2003
MFN tariffs on agricultural products
Tariffs on agricultural products from Paraguay: USA (2002)
Cotton production and exports
Soya production and exports, 1993-2003
Sugar production and exports, 1993-2003
Maize (corn) production and exports, 1993-2003
Production and exports of other crops, 1993-2003
Production and exports of animal products
Exports of wood products, 1993-2003
Manufacturing sector exports, 1991-2002
Manufacturing sector imports, 1991-2002
Manufacturing sector tariffs
139
141
143
145
147
150
151
152
153
154
155
156
157
158
159
160
161
162
163
164
Paraguay
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SUMMARY OBSERVATIONS
(2)
(1)
4.
Between 1997 and 2002, Paraguay's
real Gross Domestic Product (GDP)
decreased. Although this trend was reversed
in 2003, driven essentially by exports of
agricultural products, between 1997 and 2004
real GDP per capita still declined. The fiscal
situation has improved markedly since 2003 as
a result of several reforms, notably to the
pension system and to the administration of
public funds.
Gross foreign debt as a
proportion of GDP increased during 1997-03,
reaching 47.8 per cent in 2003.
INTRODUCTION
1.
Reflecting in part the importance of
trade to its economy, Paraguay has made
significant efforts to streamline and modernize
its trade regime since its first Review in 1997.
Applied MFN tariffs have been reduced to an
average of 8.9 per cent. Although in a couple
of instances export restrictions and local
content requirements have been used, other
trade measures appear to create no significant
distortions
to
trade
or
investment.
Nonetheless,
Paraguay's
economic
performance has remained modest, reflecting
both the impact of exogenous shocks and
internal problems. Further steps thus appear
to be required to accelerate and ensure the
sustainability of growth.
2.
Paraguay
considers
regional
integration agreements as complementary to
multilateral and its own liberalization
initiatives. Paraguay's membership in the
Southern Common Market (MERCOSUR) has
had a significant impact on its economy,
opening markets for Paraguayan goods but
placing domestic producers under increased
competitive pressure.
In this context,
agriculture has consolidated its position as a
leading sector, while manufacturing has
experienced mixed results despite the support
provided by industrial policy measures.
3.
The State still plays an important role
in some activities, and the cost of key services,
such
as
transportation
and
telecommunications, is relatively high.
Privatization was attempted as a means to
address this and other problems but efforts
were halted in 2002. Nevertheless, attracting
new investment to improve efficiency remains
crucial. This would be aided by enhancing the
stability of the trade and investment regime
which, in turn, could be achieved by
expanding
Paraguay's
multilateral
commitments, particularly under the GATS.
ECONOMIC ENVIRONMENT
5.
Monetary policy has sought to
maintain a stable domestic price level,
including through interventions in the foreign
exchange market. The appreciation of the
currency has contributed to slow the general
growth of domestic prices. However, real
interest rates remained high and represent an
obstacle to growth
6.
International trade is important for
Paraguay, the value of imports and exports
being approximately equal to GDP.
Paraguay's main exports are primary
products, especially agricultural and food
products, whilst most of its imports are
manufactured goods. The trade balance was
negative throughout the period under review
whilst the current account became positive in
2002 due in part to a reduction in the trade
deficit. MERCOSUR plays a vital role in
Paraguay's trade, both as a source of imports
and as an export market. Unregistered trade
to evade taxes is significant.
(3)
TRADE
AND
INVESTMENT
POLICY FRAMEWORK
7.
During the review period, there have
been no major changes to Paraguay's
fundamental legal framework although
various new specific statutes have been
adopted. However, various events impinge on
the functioning of the Executive and the
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Page viii
Judiciary, which highlights the importance of
ongoing efforts to improve governance in
order to ensure the stability of the trade and
investment environment.
8.
Paraguay's trade policy aims to
consolidate and increase its participation in
international trade, and thus enhance
economic and social development. Paraguay
became a GATT contracting party in 1994,
and is an original member of the WTO. It
participates actively in the WTO, and has
made numerous proposals in the context of the
Doha Development Agenda. Its main areas of
concern include trade in agricultural
products, and special and differential
treatment for landlocked developing countries
with small and vulnerable economies.
Paraguay has submitted a relatively large
number of notifications to the WTO, although
some are still pending. It has also made
relatively active use of the WTO dispute
settlement mechanism, as a third party, mostly
in cases concerning agricultural products.
9.
Paraguay is a founding member of
MERCOSUR, which it views as an instrument
to overcome structural deficiencies. Within
MERCOSUR, Paraguay has sought the
adoption of measures to lessen asymmetries in
the region. The MERCOSUR integration
process has had a considerable impact on
Paraguayan trade, and the final form the
customs union takes should have a significant
bearing on Paraguay's economic development.
Paraguay also grants preferences to the
MERCOSUR associate members.
10.
Paraguay participates in the LatinAmerican Integration Association (LAIA), and
has signed partial-scope agreements with all
its members. In addition, Paraguay has
concluded
economic
complementarity
agreements with Colombia, Ecuador, Mexico,
Peru and Venezuela. As part of MERCOSUR,
Paraguay
is
negotiating
preferential
arrangements with a number of other trading
partners. Paraguayan exports receive GSP
preferences in various markets.
Trade Policy Review
11.
Paraguay's foreign investment regime
is essentially open. There are no restrictions
on private investment, foreign or national,
other than in certain activities reserved for the
State.
Paraguay seeks to enhance its
investment environment through international
arrangements, and has concluded numerous
bilateral agreements on investment promotion
and protection, and on double taxation.
Nevertheless, Paraguay has made limited use
of commitments under the GATS agreements
to consolidate and improve the predictability
of its investment regime.
(4)
MARKET ACCESS IN GOODS
12.
Since its previous Review, Paraguay
has taken steps to facilitate trade, including
the adoption of the WTO definition of
transaction value, the abolition of preshipment
inspection, and the establishment of a single
export registry. In 2005, a new Customs Code
entered into force. Steps have also been taken
to address control problems at customs.
However, product-specific registries are still
used for imports and, although steps are being
taken to address this, export procedures
appear cumbersome and time-consuming.
13.
Tariffs are the main instrument of
border protection and an important source of
fiscal revenue (around 20 per cent of annual
tax collection). All tariffs are ad valorem.
The simple average applied MFN tariff had
decreased to 8.9 per cent in 2004 from 9.6 per
cent in 1997; however, the average was
higher in 1999 and 2000, when applied tariffs
were temporarily increased. The average
applied MFN tariff is 9.9 per cent for
agricultural products (WTO definition) and
8.8 per cent for non-agricultural products.
Paraguay applies MERCOSUR's Common
External Tariff (CET) with exceptions
concerning 24 per cent of its tariff lines. In
line with Paraguay's stated preference for
generally low import duties, as long as such
exceptions are in force Paraguay's average
applied tariff should remain below the CET
mean.
Paraguay
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14.
Paraguay has bound its whole tariff
schedule, thus increasing the predictability of
its trade regime. However, the gap between
applied and bound tariffs remains relatively
wide as the average bound tariff is 32.6 per
cent.
A number of tariffs agreed in
MERCOSUR are above Paraguay's bound
rates but the authorities noted that in these
cases the bound rates are applied.
can also be imposed for economic
development,
balance-of-payments
or
safeguard purposes, as well as to protect
domestic production from imports.
15.
In addition to tariffs, certain other
duties and charges are applied exclusively on
imports. All imports are subject to a "valuation
fee" of 0.5 per cent on the c.i.f. value of
imports. In addition, a tax of 7 per cent is levied
on the consular fees to finance the National
Indigenous Institute (INDI). Consular fees are
collected for document registration. A fee of 1
per cent (or above) is paid to the Directorate
of Civil Aeronautics, and of between 0.75 per
cent and 3 per cent to the National Shipping
and Ports Administration on imports handled
by these two agencies
20.
Since its previous Review, Paraguay
has notified the WTO one SPS measure but no
technical regulations.
16.
Between November 1998 and the end
of 1999, Paraguay imposed minimum specific
import duties (DIEM) on certain products to
"counteract trade distortions affecting the
domestic economy". Between July 2001 and
end 2003, Paraguay maintained, with
modifications, a temporary import measure
(METI) in the form of a 10 per cent duty on the
c.i.f. value of certain imports to "counteract
distorting effects on the domestic economy and
maintain the competitiveness of domestic
products".
17.
For the most part imports and
domestically produced goods receive the same
treatment as regards domestic taxes. However,
during the period under review, Paraguay
increased by up to 50 per cent the taxable
value of certain imported products subject to
excise taxes (beer, cigarettes and lead-free
petrol). On the other hand, some products sold
mainly to tourists are subject to a reduced tax
base.
18.
Prior authorization and prohibitions
are used for health, environmental or security
reasons. Import restrictions and prohibitions
19.
Paraguay has notified to the WTO two
anti-dumping measures, but no safeguard or
countervailing measures during the period
under review.
(5)
OTHER MEASURES AFFECTING
TRADE
21.
Fiscal incentives to exports are
granted under different regimes, such as
temporary admission, free trade zones, and inbond processing (maquila). Neither the free
zone regime nor the maquila regime have been
notified to the WTO as providing export
subsidies.
22.
Export taxes levied on bovine leather
and soya beans to encourage local processing
were phased out on 1 March 2005. Exports of
bovine leather are subject to prior
authorization to guarantee supplies for the
domestic industry;
in 2003, the same
requirement was introduced for exports of
certain metals. The export of unprocessed and
semi-processed wood is prohibited.
23.
Paraguay
offers
incentives
to
investment and production, most of them
fiscal, which in some instances complement
fiscal credit targeted to specific sectors. Some
of these incentives are subject to the use of
nationally produced capital goods or the use
of Paraguayan consultants. The motor vehicle
industry has its own special regime; amongst
other things, it requires increasing use of
domestic components. Paraguay has informed
the WTO that it does not provide subsidies
within the scope of the SCM Agreement, and it
has made no TRIMs notification.
24.
Paraguay has no competition law per
se although several pieces of legislation
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Page x
provide general guidelines. A draft law has
been under consideration in Congress since
2003. State-owned companies are mostly
involved in the provision of services, with
some operating under monopoly conditions.
The fragile financial position of some
companies led the Government to draw up
privatization plans but the process was
indefinitely halted by Congress in 2002 in
response to lack of public trust.
25.
Paraguay is not a signatory to the
Plurilateral Agreement on Government
Procurement. Paraguay introduced a new
procurement law in 2003 with the aim of
enhancing transparency and predictability.
International bidding is used where there is
deemed to be no national supplier, where
international treaties so demand, or for "price
convenience". Also, participation by foreign
companies may be subject to their home
countries providing reciprocal treatment to
Paraguayan companies.
26.
Paraguay has adopted several new
laws and regulations to enhance the protection
of intellectual property rights. Paraguay's
intellectual property legislation was reviewed
by
the
TRIPS
Council
in
2000.
Notwithstanding the efforts made to improve
enforcement, this issue remains a source of
concern to both Paraguay and its trading
partners.
(6)
SECTORAL POLICIES
27.
During the period under review,
agriculture consolidated its position as a
leading sector in the Paraguayan economy.
Agricultural exports have increased and
averaged around 84 per cent of total
merchandise exports between 1997 and 2003;
such exports are concentrated in a small
number of products, particularly soya bean
and soy products. The Government seeks to
support the sector through public finance
programmes, which appear modest in scope,
and has imposed export taxes on a few
products.
Trade Policy Review
28.
The manufacturing sector is relatively
small, the main industries being food
processing, textiles and clothing, tobacco and
beverages. Overall, value added in manufacturing has tended to fall, in part because
the sector seems to have exploited the
opportunities arising from the formation of
MERCOSUR only to a limited extent.
Paraguay maintains various programmes that
provide public assistance to manufacturing,
including a scheme specifically for the
automotive industry.
29.
A State oil company has a de facto
monopoly on the importation of crude
petroleum. In part to support the domestic
sugar industry, petrol of up to 95 octane must
contain ethanol; importers of petrol must mix
this product with ethanol in Paraguay.
30.
Paraguay has abundant potential to
generate hydroelectric power; the world's
largest hydroelectric plant is located at the
border between Paraguay and Brazil, and has
enabled Paraguay to become one of the world's
largest exporters of electricity. Electricity
costs in Paraguay appear to be relatively low
by regional standards though not by world
standards. The domestic electricity market is
dominated by a State company.
The
restructuring of the electricity sector has been
under consideration since 1995.
31.
Paraguay's GATS commitments are
modest, confined to certain activities in
financial services and tourism. Paraguay did
not participate in the post-Uruguay Round
negotiations on telecommunications or on
financial services.
32.
The banking sector appears to be
highly concentrated, and restrictions in the
availability of credit and high interest rates
appear to be hindering growth in other
sectors. During the period under review, the
banking sector experienced a crisis from which
it seems to have recovered. At the beginning
of 2005, Congress was considering a draft law
to regulate the operation of public banks.
Paraguay
33.
The development of fixed telephony has
lagged and mobile telephony has met much of
the demand for services. The State-owned
operator has a de facto monopoly on fixed
telephony; in 2000, the Government began
privatization of this operator but the process
was stopped partly owing to lack of public trust
and concerns about the constitutionality of the
bidding process. The authorities are reviewing
their policy objectives for the sector.
34.
Paraguay's international trade faces
transportation costs that are amongst the
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Page xi
highest in the Western Hemisphere, partly
because Paraguay is landlocked. Maritime
and river cargo transport is reserved for
Paraguayan-registered vessels, although this
restriction may be eased for transport to and
from LAIA members and has been eliminated
for river transport in the case of countries
that are signatories to the Hydrovia treaty.
The private sector may construct and operate
river ports in order to provide commercial
services, but airports that provide similar
services must be administered by a State
entity.