RESTRICTED
WORLD TRADE WT/TPR/S/26
12June1997
ORGANIZATION(97-2402)
TRADE POLICY REVIEW
PARAGUAY
Report bytheSecretariat
Thisreport, prepared forthefirstTrade Policy Review ofParaguay, hasbeendrawn
upbytheWTO Secretariat onitsownresponsibility. TheSecretariat has,asrequired
bytheAgreement establishing theTrade Policy Review Mechanism (Annex 3ofthe
Marrakesh Agreement Establishing theWorld Trade Organization), sought
clarification from theGovernment ofParaguay onitstrade policies andpractices.
Document WT/TPR/G/26 contains thepolicy statement submitted bytheGovernment
ofParaguay.
Note: Thisreport issubject torestricted circulation andpress embargo untiltheendofthemeeting
oftheTrade Policy Review Body onParaguay.Paraguay WT/TPR/S/26
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS xi
(1) TheEconomic Environment xi
(2) Trade Policy Features andTrends xi
(i) International economic integration xi
(ii) Trade policy developments xi
(3) Sectoral Policy Developments xiii
(4) Trade Policies andForeign Trading Partners xiv
I. THE ECONOMIC ENVIRONMENT 1
(1) Introduction 1
(2) Recent Economic Developments 2
(i) Composition andgrowth ofGDP andemployment 2
(ii) Prices 5
(iii) Exchange ratedevelopments 6
(iv) Public finances 8
(v) Balance ofpayments 9
(vi) External debt 9
(3) Developments inMerchandise Trade 9
(i) Composition oftrade 10
(ii) Direction oftrade 10
(4) Trends andPatterns inForeign Investment 14
II. TRADE AND INVESTMENT POLICY REGIME: FRAMEWORK AND OBJECTIVES 17
(1) Introduction 17
(2) General Framework 17
(3) Structure ofTrade Policy Formulation 17
(i) Legislative andexecutive branches ofGovernment 17
(ii) Advisory bodies 18
(4) Trade Policy Objectives 19
(i) General trade policy objectives 19
(ii) Sectoral trade policy objectives 19
(iii) TheUruguay Round andtheWTO agenda 19
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Page
(5) Trade Laws andRegulations 20
(6) Trade Agreements andArrangements 21
(i) Multilateral agreements 21
(ii) Regional agreements 21
(a) LAIA 21
(b) MERCOSUR 22
(iii) Bilateral andother arrangements 26
(7) Trade Disputes andConsultations 26
(i) Dispute settlement under theWTO 26
(ii) Disputes outside WTO 27
(8) Investment Policy Framework 27
III. TRADE POLICIES AND PRACTICES BYMEASURE 30
(1) Overview 30
(2) Measures Directly Affecting Imports 31
(i) Registration anddocumentation requirements 31
(ii) Tariffs andother price-based measures 31
(a) General features 31
(b) Tariff levels 32
(c) Tariff escalation 34
(d) Tariff bindings 34
(e) Duty concessions, drawbacks andexemptions 36
(f) Customs valuation, preshipment inspection, andcustoms clearance 37
(g) Other levies andcharges 38
(h) Regional tariff preferences andrules oforigin 39
(iii) Import prohibitions andlicensing requirements 39
(iv) State trading 41
(v) Standards andother technical requirements 43
(a) Standards, testing andcertification 43
(b) Sanitary andphytosanitary regulations 44
(c) Marking, labelling andpackaging 45
(vi) Government procurement 45
(vii) Anti-dumping, countervailing dutyandsafeguard actions 47
(3) Measures Directly Affecting Exports 48
(i) Export taxes, charges andlevies 48
(ii) Export prohibitions, licensing andpermit requirements 48
(iii) Export subsidies 49
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(iv) Duty andtaxconcessions 49
(v) Export finance, insurance andguarantees 50
(vi) Export promotion andmarketing assistance 50
(vii) Free-trade zones andexport-processing zones 50
(4) Measures Affecting Production andTrade 51
(i) Forms ofdomestic support 51
(ii) Direct andindirect taxation 52
(iii) Competition policy 53
(iv) Enforcement ofintellectual property rights 55
(a) Industrial property 56
(b) Other intellectual property 57
(v) Other measures 58
IV. TRADE POLICIES AND PRACTICES BYSECTOR 59
(1) Overview 59
(2) Primary Industries 62
(i) Agriculture andlivestock 62
(a) Cotton 66
(b) Soybeans 69
(c) Wheat andsugar cane 70
(d) Livestock 71
(ii) Forestry 71
(3) Energy 72
(4) Manufacturing 74
(5) Services 76
(i) Commitments under theGeneral Agreement onTrade inServices 77
(ii) Banking, finance andinsurance 78
(iii) Telecommunications 82
(iv) Transport 84
(v) Tourism 85
REFERENCES 86
APPENDIX TABLES 89
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CHARTS
Page
I. THE ECONOMIC ENVIRONMENT
I.1 Trade ingoods andnon-factor services, 1985-96 3
I.2 Developments inrealpercapita income andpopulation growth, 1989-1996 4
I.3 Exchange ratedevelopments, 1990-96 5
I.4 Merchandise trade bysector, 1989 and1995 11
I.5 Paraguay 'sforeign trade withLatin America, 1991-95 12
I.6 Merchandise trade bypartner, 1989 and1995 13
I.7 Netinflows andinward stock offoreign direct investment, 1992-94 15
I.8 Types ofnetinflows offoreign direct investment, 1992-94 16
III. TRADE POLICIES AND PRACTICES BYMEASURE
III.1 Distribution ofm.f.n. tariff rates, 1995, 1997 and2006 32
III.2 Tariff escalation by2-digit ISIC industry, 1997 and2006 35
III.3 Structure offiscal revenue, 1990-96 54
IV. TRADE POLICIES AND PRACTICES BYSECTOR
IV.1 Tariff average by2-digit ISIC industry, 1997 and2006 60
IV.2 Recorded merchandise exports, 1990-96 61
IV.3 Agriculture andlivestock production, 1992 and1995 62
IV.4 World prices andproduction developments forcotton andsoybeans, 1990-96 67
IV.5 Productivity inselected crops, 1991-96 68
IV.6 Value added inservices, 1992 and1995 77
IV.7 Interest ratespread, 1990-97 (February) 79
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TABLES
Page
I.1 Economic developments, 1989-96 1
I.2 Structure oftheeconomy, 1990-96 3
I.3 Balance-of-payments, 1989-96 7
III.1 State enterprises inParaguay, April 1997 42
III.2 Threshold values forselecting procurement procedures andexpenditure 46
III.3 Structure ofcharges onimports ofselected products, 1997 54
IV.1 Main features oftheParaguayan tariff schedule, 1997 and2006 60
IV.2 Manufacturing inParaguay, 1995 75
IV.3 Developments inlending rates, 1991-96 80
APPENDIX TABLES
AII.1 Notifications made byParaguay under theWTO legal framework, April 1997 91
AII.2 Pending notifications under theWTO legal framework, April 1997 93
AIII.1 Tariff escalation andtariff ranges, 1997 and2006 94
AIV.1 Tariff rates forParaguay, byISIC category, 1997 and2006 96
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GLOSSARY
Association ofProducers ofChemicals and
PharmaceuticalsAsociación deFabricantes deProductos Químicos
yFarmacéuticos ,ASOQUIMFA
Agreement relating toaCouncil onTrade and
InvestmentAcuerdo relativo aunConsejo sobre Comercio e
Inversión
Broadcasting Council Consejo deRadiodifusión
Central Bank ofParaguay Banco Central delParaguay
Certificate ofpre-shipment inspection certificado deverificación pre-embarque
Chamber ofDeputies Cámara deDiputados
Committee ofTrade Defence Comisión deDefensa Comercial
Committee ofRepresentatives Comité deRepresentantes
Common automotive régime Régimen Automotriz Común
Competition Protection Protocol Protocolo deDefensa delaCompetencia
Consultative Council ofInsurance Consejo Consultivo delSeguro
Consumer Protection Office Oficina deDefensa delConsumidor
Council ofMinisters Consejo deMinistros
Council ofMagistrates Consejo delaMagistratura
Customs value declaration declaración deValoren Aduanas
Departmental Councils junta departamental
Directorate ofVegetable Defence Dirección deDefensa Vegetal
Directorate General forExport andInvestment
PromotionDirección General dePromoción delas
Exportaciones eInversiones ,Pro-Paraguay
Directorate ofIntellectual Property Dirección dePropiedad Intelectual
Directorate General ofNorms andprocedures, Dirección General deNormas yProcedimientos
Inter-departmental Committee onWTO matters Comisión Interinstitucional
Livestock Secretariat Subsecretaría deEstado deGanadería
Ministry ofFinance Ministerio deHacienda
Ministry ofIntegration Ministerio deIntegración
Ministry ofExternal Relations Ministerio deRelaciones Exteriores
Ministry ofPublic Works andCommunications Ministerio deObras Públicas yComunicaciones
Ministry ofPublic Health andSocial Welfare Ministeri odeSalud Pública yBienestar Social
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Ministry ofAgriculture andLivestock Ministerio deAgricultura yGanadería ,MAG
Ministry ofHealth andSocial Welfare Ministerio deSalud yBienestar Social
Ministry ofIndustry andTrade Ministerio deIndustria yComercio ,MIC
Ministry ofEducation andWorship Ministerio deEducación yCulto
National Navigation andPorts Authority Administración Nacional deNavegación y
Puertos ,ANNP
National Council fortheProtection ofIntellectual
Property RightsConsejo Nacional para laProtección delos
Derechos dePropiedad Intelectual
National Electricity Company Administración Nacional deElectricidad ,ANDE
National Committee onIntegration Comisión Nacional deIntegración
National Forest Service Servicio Nacional Forestal
National Development Bank Banco Nacional deFomento ,BNF
National Animal Health Service Servicio Nacional deSalud Animal ,SENACSA
National Institute forTechnology and
StandardizationInstituto Nacional deTecnología yNormalización
National Telecommunications Committee Comisión Nacional deTelecomunicaciones ,
CONATEL
Paraguayan Industrial Union Unión Industrial Paraguaya
Paraná River waterway Hidrovía Paraguay Paraná
PlanforaSocial Human Resource Development
StrategyPlan Estratégico deDesarrollo Social
PlanfortheReactivation oftheEconomy Plan deReactivación Económica
Public Registry ofIntellectual Rights Registro Público deDerechos Intelectuales
Regional Committee onAnimal Health Comité Regional deSalud Animal, CORESA
Regional Committee onVegetable Sanitation Comité Regional deSanidad Vegetal ,COSAVE
Registry ofSuppliers andContractors oftheState Registro deProveedores yContratistas delEstado
South American Free-Trade Area Area deLibre Comercio Sudamericano ,ALCSA
Southern Common Market Mercado Común delSur,MERCOSUR
State social security organization Instituto dePrevisión Social ,IPS
Technical Secretariat forPlanning Secretaría Técnica dePlanificación
Tourism régime Régimen deTurismo
Universal/General Services Fund Fondo deServicios Universales
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SUMMARY OBSERVATIONS
(1) TheEconomic Environment
1. Since 1989, Paraguay hasundertaken
widespread political andeconomic reforms.
During theperiod, economic growth, while
positive, hasbeenvariable, barely keeping pace
onaverage withpopulation growth. However,
inflation hasbeenreduced, particularly since
1993, toaround 8percentin1996, thetargeted
levelalsofor1997.
2. Strong direct investment inflows have
beenstimulated, interalia,byliberalization of
theforeign exchange andinvestment régimes,
fiscal incentives, regional integration prospects
under MERCOSUR. High interest rates have
alsoattracted considerable short-term capital
flows.Thistrend,togetherwithgrowingforeign
exchange earnings fromtheexport ofelectricity
fromItaipú, theworld 'slargest hydro-electric
project, hasledtocontinuous realappreciation
ofthecurrency which hasraised concerns about
thecompetitiveness oftraditional Paraguayan
exports ofcotton andsoybeans, which alsovary
according toworld prices.
3. Paraguay 'smerchandise trade deficit
hasgrown rapidly; however, official datamay
notaccurately reflect thesituation because of
themagnitude ofunrecorded trade, especially
re-exports. Suchre-exports, largely related to
"shopping tourism" stimulated bylower indirect
taxation inParaguay than inneighbouring
countries, remain ofconsiderable importance
tothedomestic economy (including fiscal
revenue from value-added taxonsuch
purchases). Faster growth inrecorded imports
under theliberalization programme, plus
improved statistical recording, arefactors
underlying theincreased ratiooftrade toGDP.(2) Trade Policy Features andTrends
(i) International economic integration
4. Reforms, begun in1989, rationalized
Paraguay'straderégimebysimplifyingthetariff
structure andreducing dutyrates. However,
thistrend will,tosome extent, bereversed by
progressive convergence withMERCOSUR 's
CommonExternalTariff(CET),whichwillbring
about amodest increase intheunweighted
averageappliedm.f.n.ratefrom9.6percentin
1995 to11.1percentby2006. Incompliance
with MERCOSUR and WTO commitments,
remaining non-tariff measures, affecting afew
agricultural products, werereplaced bytariffs
inJanuary 1995. Todate,Paraguay hasnever
applied safeguard oranti-dumping actions.
5. Integration with MERCOSUR has
advanced significantly with theprogressive
phase-out oftariffs andthesuppression of
non-tariff barriers onintra-regional trade, as
wellastheadoption oftheCET. Paraguay is
pursuing further expansion ofitsregional and
preferential trading links viaMERCOSUR,
through thenegotiations ontheestablishment
ofaFreeTrade AreafortheAmericas aswell
aswithother groups andindividual countries.
Trade within theregion, predominantly with
Brazil, hasexpanded greatly; competition in
thedomestic market isexpected tointensify
gradually asremaining tariff protection on
imports ofsensitive items originating in
MERCOSUR countries isphased outby2000.
Decisions remain tobetaken within
MERCOSUR onduty for sugar and
establishment ofacommon automotive régime.
(ii) Trade policy developments
6. Paraguayhasundertakenawide-ranging
reform ofitslegislative framework, driven by
theadoption ofanewConstitution, accession
totheGATT andsubsequent WTO membership,
andthedeepening oftrade commitments at
regionalandmultilaterallevels.Newlegislation
hasbeen adopted inareas such ascustoms
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valuation,preshipmentinspection,anti-dumping,
safeguards, free-trade zones, hydrocarbons,
mining,banking,insuranceand
telecommunications.Furtherlegislativereforms
arebeing considered byCongress, including a
lawonpatents andimplementing legislation on
MERCOSUR commitments. Paraguay invoked
theextended implementation period available
fordeveloping countries under theWTO
Agreement onCustoms Valuation, butnofinal
decision hasbeenmade onwhether itwillseek
similar delays onpatents under theTRIPS
Agreement. Compliance with GATT/WTO
notificationrequirementshasimprovedbutthere
arestillsome significant gaps, forexample, on
Statetrading enterprises. Domestically, anew
Ministry ofIntegration hasbeenestablished and
anumber ofpolicy co-ordination or
implementation committees havebeensetup.
7. Paraguay'sborderprotectionnowrelies
exclusively ontariffs; itapplies thedisperse
eleven-tier Common External Tariff (CET) of
MERCOSUR, with asimple average of
9.6percentandratesof0,2,4,6,8,10,12,
14,16,18and20percentadvalorem. This
protection pattern largely reflects other
MERCOSUR members 'interests rather than
those ofParaguay, whose manufacturing sector
isrelatively undeveloped. Apeakof30percent
applies tosugar imports. Within theCET, tariff
escalation provides higher effective protection
forprocessing industries thanisevident from
nominal rates; tariffescalation will,incertain
cases, become evenmorepronounced when full
convergence tocommon ratesisaccomplished.
Theentire tariffisbound, generally ataceiling
of35percent, except for451items bound at
lower levels; WTO bindings oncertain items
aretoberenegotiated, taking intoaccount the
level oftheCET. Provisions fortariff
exemptions orconcessions, forexample on
imported inputs orimports bycertain State
entities, havebeenmaintained.
8. Consular charges of7½percentc.i.f.
andafixed documentation feesubstantially
increase theeffective rateoftaxation onmostimports. Handling charges imposed ona
specific-rate basisbytheNational Shipping and
Ports Administration (ANNP) differentiate
betweenimportsandexports,asdostoragefees,
charged onanadvalorem basis.
9. Remaining sector- orproduct-specific
measures affecting imports comprise import
authorizations, licensing and prohibitions
maintainedforhealth,environmentalorsecurity
reasons. Legislative provisions allowing theuse
ofimport prohibitions foreconomic reasons
remain inforce, butarenotcurrently applied.
State involvement inproduction andtrading
persists insteel, cement, hydrocarbons,
electricity, telecommunications, transportation,
banking, port, airport andsanitation services;
greater private sector participation inactivities
reservedtoStatemonopolies(i.e.,
de-monopolization)isfavouredasanalternative
tocomplete privatization. Government
procurement conditions give 15percent
preference tolocalproducts and5percentfor
domesticallyassembledgoods;theestablishment
ofanewregister ofsuppliers isintended to
improve transparency ofprocedures.
10. Since1994exportprohibitionshavebeen
extended toallun-andsemi-processed wood.
These restrictions areintended toaddress the
acute problem ofdeforestation, butmayalso
encourage production bylocalsawmills. Other
exportrestraints,suchasoncertainagricultural
items, areeither based ondomestic supply
considerations oraddress compliance with
international orbilateral arrangements, such
asthatgoverning beefexports totheEU.
11. Legislationestablishingafree-trade-zone
régime,includingwide-rangingtaxconcessions,
waspassed in1995 buthadnotbeennotified
totheWTO atthetimeofcompletion ofthis
report. Paraguay hasuntil2003 tobring this
legislation intolinewithobligations. Afirst
project toestablish azonewasauthorized in
1997. Drawback ofVATisallowed andexport
promotion facilities areavailable; noother
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financial orinsurance facilities forexports are
available.
12. Support todomestic production mainly
consistsofconcessionalfinancefor
modernization, training, technology transfer,
development and environmental projects.
Adhocassistance toagricultural activities has
beenprovided invarious forms. Most public
utilities seem tobeavailable atprices thatdo
notcover marginal costs; forexample,
concessional electricity rates wereestablished
in1994.
13. Efforts have been made recently to
reinforce thelegalandinstitutional framework
fortheprotection ofintellectual property
rights (IPRs); Paraguay hasjoined themajor
international treaties andabillisinpreparation
intended tobring domestic legislation into
conformity withtheprovisions oftheTRIPS
Agreement. Enforcement ofIPRsinParaguay
remainssubjecttoseveralconstraints;however,
anewNational Council fortheProtection of
Intellectual Property Rights istoimplement a
campaign against IPRviolations. AConsumer
Protection Office wasestablished in1995, and
legislation ontheimplementation ofthe1996
MERCOSUR Competition Protection Protocol
of1996 isunder preparation. Paraguay has
increased itsemphasis onenvironmentally
sustainable development byadhering toseveral
international treaties inthisarea.
(3) Sectoral Policy Developments
Agriculture
14. Nominaltariffprotectionforagriculture
is7.6percentin1997, below theoverall
average level; fullimplementation ofthe
MERCOSUR CETwillleadtoaslight reduction
intariffprotection forthesector. Paraguay has
anuncomplicated WTO Schedule, withnotariff
quotas, special safeguards, domestic support or
export subsidy reduction undertakings. Despite
thefundamentalimportanceofagriculturetothe
economy, government intervention ismodest,mainly intended toassist small producers in
coping withemergency situations suchasharsh
weather andcredit shortages; ithasbeen
limitedtotemporaryorseasonaltariffprotection
forafewcrops, theprovision oflow-cost short-
termcredit forcashorsensitive crops, VAT
exemption forunprocessed crops andcertain
sporadicsupportmeasures,includingwriting-off
baddebtorfreedistribution ofseeds, mainly
forcotton. Noprogress hasbeenachieved so
farinagrarian reforms foreseen under the
Constitution, andefforts forcropandexport
diversification have been limited, focusing
mainly oncredit-related measures; sectoral
reactivation andmodernization projects were
underpreparationin1995and1996.Particular
emphasis hasbeengiven tostrengthening the
regulatory framework governing forest
exploitation andre-afforestation activities as
wellastocontrolling illegal exports ofwood;
however, there hasbeen little response, and
financial assistance isnowusedtostrengthen
theprogramme.
Energy
15. State involvement affects allelectricity
generationanddistributionactivitiesandalarge
part ofthehydrocarbons trade, although
monopoly rights onthelatter wereeliminated
in1992. The de-monopolization and
restructuring oftheelectricity sector hasbeen
under consideration inrecent years. Exports
ofsurplus power fromthemajor hydro-electric
power plants generate large foreign exchange
earnings, andlowelectricity ratesmayprovide
the basis for future development of
energy-intensive industries. Theconstruction
andoperation ofthese hydro-electric power
plantshaveraisedsomeenvironmentalconcerns.
Manufacturing
16. Paraguay hasnever sought toachieve
sectoraldevelopmentthroughimportsubstitution
policies; manufacturing isthusdominated by
small,inward-orientedfirmsprocessingdomestic
agricultural orforestry products, which
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increasingly face import competition from
MERCOSURpartners.However,manufacturing
enjoys thehighest average tariff protection of
anysector; thisisexpected toriseby
16percentto11.4percentby2006 when
MERCOSUR CETrates willapply fully. At
present, thefood, beverages, tobacco, textiles,
leather, wood andfurniture industries havethe
highest average levels ofprotection. Dutyfree
access toMERCOSUR partners, behind the
CET, mayencourage purchase ofregionally
produced capital goods andother inputs, thus
creating some trade diversion away frommore
competitive suppliers andpotentially increasing
start-up costs forParaguayan manufacturing.
Noevidence exists thatState involvement in
manufacturingandtradeofsteelandcementhas
beenamajor barrier totrade inrecent years.
Thelevelofinterest rates, shortage ofcredit,
liquidity problems andtherealappreciation of
theexchange rate,aswellascompetition from
imports have been themain factors affecting
modernization andgrowth ofmanufacturing.
Services
17. Commerce, particularly related to
shopping tourism fostered bysizeable indirect
taxdifferentials withneighbouring countries,
andfinancial services dominate theservices
sector. Following the1995 financial crisis,
which ledtoconsiderable public expenditure on
bankrescue operations, steps havebeentaken
toreform thefinancial system, including the
enlargement ofdomestic investment options.
State involvement inkeyservices suchasport,
airport, telecommunications andelectricity
distribution seems tohave constrained the
development oftrade andinvestment. Despite
recentderegulationefforts,anumberofbarriers
orspecific requirements onprivate orforeign
investors remain inforce, forexample inthe
supply oftelecommunications, broadcasting,
insuranceandtransportservices.Subsidiesmay
beprovided forthedevelopment ofthe
telecommunications sector wereinaddition to
legislative andinstitutional changes, ajoint
venture agreement hasbeensigned toimprovethesupply oftelephone lines. Cargo reserve
requirements wererelaxed inrecent years; in
practice, these were never effective dueto
domestic capacity restraint.
18. Paraguay 'scommitments under the
General Agreement onTrade inServices cover
financial andtourism sectors. Noexemptions
tom.f.n. treatment under GATS Article IIare
specified. Therefore, unless GATS Article Vis
invoked byParaguay, asisapparently intended,
Paraguay mustgrant service suppliers fromall
WTO members identical treatment tothat
extended toitsLatin American partners (e.g.,
oncargo andpassenger transport). Inthelight
ofMERCOSUR priorities, Paraguay has
expressed nointerest inparticipating in
negotiations onmaritime transport andbasic
telecommunications services orinsigning the
Information Technology Agreement, which, is
seen asrunning counter toMERCOSUR 's
sectoral objectives inthisarea.
(4) Trade Policies andForeign Trading
Partners
19. Since theearly 1990s, Paraguay 's
political andeconomic reforms have been
strengthened bytheincreased security ofaccess
resulting fromitsaccession totheGATT and
theexpansionofitscommitmentsintheUruguay
Round. Theprocess should beconsolidated by
improved macroeconomic stability, better
infrastructure andongoing public sector and
financial reforms, which needtobedeepened
topaveforhigher growth. MERCOSUR has
helped toreinforce systemic reforms andis
expectedtocreatenewinvestmentopportunities;
however, itwillleadtosome applied tariff
increases andgreater preference forregional
partners. Theexpansion ofregional trade
should continue asnewagreements areforged,
although Paraguay isalsolooking fortrade
opportunities beyond theregion. Full
implementationofUruguayRoundcommitments
andassured access toforeign markets should
further strengthen Paraguay 'sintegration inthe
world economy.
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