RESTRICTED
WORLD TRADE WT/TPR/G/26
12June1997
ORGANIZATION(97-2403)
Original: Spanish
TRADE POLICY REVIEW
PARAGUAY
Report bytheGovernment
Pursuant totheAgreement Establishing theTrade Policy Review Mechanism (Annex 3ofthe
MarrakeshAgreementEstablishingtheWorldTradeOrganization),theParaguayanGovernment'spolicy
statement isattached.
Note:Thisreport issubject torestricted circulation andpress embargo untiltheendofthemeeting
oftheTrade Policy Review Body onParaguay.Paraguay WT/TPR/G/26
Page iii
CONTENTS
Page
1. INTRODUCTION ....................................... 1
2. MAIN ECONOMIC REFORMS .............................. 1
3. ECONOMIC AND TRADE ENVIRONMENT ..................... 2
4. PRESENT OUTLOOK FOR THE ECONOMY ..................... 4
5. DEVELOPMENT OFTRADE NEGOTIATIONS ................... 4
6. INSTITUTIONAL AND REGULATORY FRAMEWORK .............. 6
7. DIRECTIONS OFFUTURE POLICY .......................... 7Paraguay WT/TPR/G/26
Page 1
1. Introduction
1. Paraguay hasmade substantial changes initseconomic andsocial policy since1989. Acomplete
overhaul oftheStatehasbeeninitiated sincethenandtheconditions arebeing created forthecountry 's
sustainable economic development. Paraguay hasunilaterally liberalized itstrade, notadopting an
import-substitution model.
2. Against thisbackground ofchange, Paraguay, together withArgentina, Brazil andUruguay,
ispushing resolutely ahead withthecreation oftheSouthern Common Market (MERCOSUR), thereby
gaining access tothose countries andgenerating theconditions necessary forproductive activity. Since
1989Paraguay hasfocused itsgrowth strategy onattracting domestic andforeign investment through
thedevelopment ofastable macroeconomic environment, thecreation ofasimplified taxsystem and
thepassing oflawstoencourage productive activity.
3. While helping tosetupandconsolidate MERCOSUR, Paraguay, together withitspartners,
iscontinuing topromote regional integration through thesigning offree-trade agreements withChile
andBolivia andisinitiating aseries ofnegotiations withother countries andtrading blocs.
2. Main economic reforms
4. Paraguay hasundergone anintensive process ofchange inboththepolitical andeconomic fields.
5. Theprocess started withexchange reform. Exchange controls were abolished andthere is
nowafreely floating exchange rate.
6. Taxreform isbeing carried outunder Law125/91, withthe70taxes thatexisted under the
fiscal system being cutto7.Thishasledtogreater State efficiency from thepoint ofview oftax
collection andsimplicity, withconsequent benefits toprivate activity aswell.
7. In1991 theTreaty ofAsunción wassigned. Thisinitiated theprocess ofcreating acommon
market between Paraguay, Argentina, Brazil andUruguay, which hasnowbeen converted intoa
flourishing Customs Union.
8. Paraguay hasalsomodified itscustoms tariffs, eliminating excessive dispersion ofratesand
reducing the1988average of14.8percentto11.1percentfollowing theintroduction oftheCommon
External Tariff.
9. Laws 60/90 and117/91 havebeenpassed, providing afavourable framework fortheprotection
andattraction ofdomestic andforeign investment. These lawsauthorize important taxexemptions
forimports ofcapital goods, aswellasonprofits forfiveortenyears, inaddition tobroad latitude
forsending remittances abroad.
10. TheNational Constitution wasamended in1992 through aConstituent National Assembly
composed inbalanced form ofrepresentatives ofallthecountry 'spolitical andsocial sectors. The
main pillar ofthisconstitution isthedefence ofhuman rights andfreedoms andtheestablishment of
sound, modern institutions designed tomeettheneeds oftheglobal economy.
11. Reforms havebeencarried outinthefinancial sector. AnewGeneral LawonBanks and
Financial Institutions hasbeenpassed andtheOrganic Charter oftheCentral Bank hasbeenmodifiedWT/TPR/G/26
Page 2Trade Policy Review
soastoincorporate preventive supervision aspects andprovide thesupervisory body withgreater
autonomy. Thecriteria oftheBasle Convention forthevaluation ofthenetassets offinancial bodies
havebeenadopted. Likewise, withaviewtogreater transparency, comprehensive legislation hasbeen
passed toprevent money laundering, inparticular Law1015/97 setting upanexecutive body, the
Secretariat forthePrevention ofMoney orGoods Laundering.
12. Reforms inthelabour sector include thepassing ofanewLabour Code, which hasexpanded
welfare benefits inthelabour sector withaviewtoachieving abalance withthebusiness sector.
13. With regard toprivatization, theGovernment sawtothepassing ofLaw126/91 laying down
theprivatization arrangements forState enterprises. TheState Airline, theState Alcohol Company
andtheState Merchant Fleet have beenprivatized, while thesteelindustry isinthefinalstages.
Law642,which willmake itpossible toproceed withtheremoval ofthetelecommunications monopoly,
waspassed in1995. Thefirstprogrammes toexpand thetelephone services havebeensuccessfully
carried outonthebasis ofrisk-sharing between ANTELCO andtheprivate sector.
14. Intheforestry sector -animportant branch ofeconomic activity -Law536/95 onthe
Encouragement ofReforestation hasbeenpassed. Itsobjective isthesustainable exploitation ofnatural
resources, andtothisenditgrants important taxbenefits toreforestation activities.
15. Paraguay hasmade special efforts toprotect intellectual property. In1996 itputbillsbefore
Congress andsetinmotion anintensive national campaign fortheprotection ofintellectual property
rights. These actions areaccompanied bycontrols, seizures, enhancement ofcivicawareness anda
suitable legalframework.
16. Oneofthemostoutstanding reforms concerns thejudiciary, withspecial reference tothesetting
upoftheSupreme Court ofJustice. Theentry intoforce oftheLawontheMagistracy Council
represents asteptowards thefullrespect for,andobservance of,civicrights bythepromotion ofan
autonomous andindependent judiciary.
17. TheGovernment isworking onthefurther development ofitsdetailed structural reforms and
isseeking tocorrect andcontrol anumber ofmacroeconomic variables which could compromise the
long-term stability andgrowth oftheeconomy. Theobjectives ofcurrent economic policy areto:
- Encourage rapid growth oftheproductive sector;
- maintain thebalance oftherealexchange rateandavoid sudden fluctuations inthe
general exchange rate;
- control andrestructure public expenditure byrestricting current expenditure and
liberalizing infrastructure expenditure; holdthelevelofinflation steady.
3. Economic andtrade environment
18. Asafarming country bytradition, Paraguay hashistorically based itseconomic growth on
agricultural production. Although thiseconomic model isstillbeing followed, theGovernment has
madegreateffortsasregardsagriculturaldiversificationandisencouragingthecountry'sindustrialization.
TheGDPhasremained highly sensitive tofluctuations inagricultural production andin1996sufferedParaguay WT/TPR/G/26
Page 3
theimpact ofthe1995financial crisis. However, aconsiderable recovery ingrowth hasbeenachieved
in1997.
19. TheGovernment hassucceeded incontinuously reducing levels ofinflation from44.1percent
recorded inDecember 1990 to8.2percentinDecember 1996 (thelowest inflation rateofthelast
15years). TheGovernment hassetatarget of8percentfor1997.
20. Productive investment hasbeenincreasing since1989todate,mostofitbeing offoreign origin.
Between 1989and1996theaverage annual growth intotalinvestment wasaround 30percent,while
foreign investment inthatperiod -themostdynamic component -showed anannual average growth
of49percent.
21. Themarked increase inimports overthelastfiveyears isduemainly tothesharp riseintrade
andtourism generated inthefrontier cities ofParaguay withBrazil andArgentina, resulting inatrade
imbalance. Within MERCOSUR, Paraguay isbecoming animportant trade centre, withthissector
developing important marketing channels totheoutside. Asaresult oftheconvergence oftariffs within
MERCOSUR, considerable pressure inbeing brought tobearinfavour oftherelocation andlocal
production ofproducts, leading tomajor private initiatives liketheestablishment ofindustrial parks.
22. Thebalance ofexternal public debtfellbyabout 20percentintheperiod 1990/96, going from
nearly US$1,670 million in1990 toUS$1,336.3 million inDecember 1996. Onthelatter datethe
debtbalance accounted for14percentofGDP andrepresented apercapita debtofUS$270, which
isamong thelowest figures inLatin America. Thislevel ofdebtcompares withapercapita GDP
ofapproximately US$1,933 (current rates) inthesame year.
23. Thelevelofinternational reserves hasrisensignificantly inthisdecade, fromUS$675 million
attheendof1990toUS$1,062 million inDecember 1996andthusstaying ataprudent level(40percent
oftotalimports recorded inthatyear).
Macroeconomic situation
Indicators 1993 1994 1995 1996*
Annual inflation (%) 20.4 18.3 10.5 8.2
Variation inexchange rate(%) 13.8 5.3 3.1 6.7
Balance ofinternational reserves
(millions ofUS$)697.7 1,044.1 1,106.5 1,062.0
External public debt(millions ofUS$) 1,218.0 1,240.0 1,328.0 1,303.0
Central Government (millions ofG/) -84,029.0 143,635.0 -50,227.0 -140,713.0
*The 1996 figures areprovisional.
Source: Central Bank ofParaguay andMinistry ofFinance.WT/TPR/G/26
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4. Present outlook fortheeconomy
24. Although thestructural changes intheParaguayan economy haveinmany respects beengradual
andnon-traumatic, theynowmake forascenario differing fromthatprevailing inearly1989. Industrial
infrastructure isgrowing strongly, agricultural diversification isinfullswing andthe1995 financial
crisis hasbeenovercome withafullrecovery intrade operations.
25. TheGovernment willsticktoaprudent debtpolicy withadequate international reserves. The
necessary efforts willbemade tomaintain thepresent macroeconomic stability andtostrengthen growth
intheeconomy.
26. Thegreatenergy potential available provides theStatewithsubstantial revenue fromtheexport
ofelectricity, amounting in1996 toaround 43percentofrecorded exports ofproducts.
27. Inthelightofagrowth incentral government expenditure ofalmost zeroduring thefirstquarter
of1997 innominal terms -which amounts toanegative realvariation -thegreater levelofactivity
hasledtoabudget surplus, withanaccumulated surplus ofG/114,879 million being recorded during
thequarter. Thisresult hasenabled theexternal debttobeamortized uptoanamount almost double
theoutgoings andeven togenerate anincrease incurrent-account deposits amounting to
G/106,053 million.
28. Theincrease inmoney supply bothbefore andduring thefirstquarter of1997appears toindicate
theexistence ofagreater level ofeconomic activity, since withamoney supply greater thaninthe
previous yearprices havereacted slightly more quickly. Theretail price index shows anincrease of
5.3percentforthequarter, exceeding thefigure of4.9percentforthesame period in1996, whereas
producer prices aredown owing tothetrend ofagricultural prices andoil,interalia.
29. Inaddition tobeing reflected inagreater riseinprices, thehigher aggregate demand hasled
toanincrease inthetrade-balance deficit which, according toCentral Bank projections forthefirst
quarter of1997, hasnotresulted inabigger balance-of-payments current-account deficit thanks to
apositive trend intheperformance ofunrecorded exports andimports. Asregards thefinancing of
thecurrent-account deficit, thegreater partrelates tovariations ininternational reserves. Although
therehasbeenanetcapital inflow itislessthanintheprevious yearbefore, buthasamore favourable
composition, withagreater share oflong-term capital andfromanincrease indirect foreign investment.
5. Development oftrade negotiations
30. Given itssmall internal market, theGovernment hasencouraged thedevelopment ofan
outward-looking growth model through theopening upofexternal markets andproduction switching.
31. Aspartofitsnewforeign-policy strategy, Paraguay hastaken anactive partinregional
integration processes suchasMERCOSUR, while atmultilateral levelitjoined GATT in1993.
32. Paraguay hasbeenanactive partner intheprocess ofsetting uptheMERCOSUR customs
union andinthelatter'snegotiations withthirdcountries andtrading blocs.
33. After MERCOSUR wassetup,aseries ofrenegotiations wasinitiated covering thebilateral
agreements ofmembers ofMERCOSUR withtheother members oftheLatin American Integration
Association (LAIA), fortheimprovement anddevelopment oftheirpartial-scope agreements.Paraguay WT/TPR/G/26
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5.1 Uruguay Round -World Trade Organization
34. Paraguay joined GATT in1993, fulfilling itsaccession commitments. TheParaguayan National
Congress ratified theGATT Accession Protocol bymeans ofLaw260of1993.
35. Paraguay tookpartinthesetting upoftheWorld Trade Organization which emerged from
theUruguay Round. Inthisconnection, itcarried outthenecessary internal reforms regarding standards
andprocedures relating tocustoms valuation, intellectual property, elimination ofprohibitions, and
mechanisms tocounter unfair competition, especially anti-dumping andcountervailing measures.
Paraguay hasreduced itslevels oftariff andnon-tariff protection.
36. Paraguayanpolicyregardingservicesisveryopen.IthasenteredintobroadGATScommitments
regarding transport, communications, tourism andfinance.
37. Paraguay hastaken greatinterest inenvironmental matters. Atdomestic level, ithasextensively
modified allitsprocedures regarding anti-dumping mechanisms, agriculture, health standards, plant
andanimal health standards andtechnical standards. Nevertheless, theGovernment iscontinuing to
prepare regulations covering theinclusion initslegislation ofother procedures provided forinthe
WTO framework, forexample safeguards.
5.2 MERCOSUR
38. Paraguay isafounder member oftheSouthern Common Market (MERCOSUR), inwhich
ithasbeenparticipating since itsigned theTreaty inAsunción in1991.
39. Since itsigned theAsunción Treaty, Paraguay hasencouraged theimplementation ofaCommon
External Tariff withlevels matching itsextensive commercial openness andinacontinuing spirit of
consensus andanalysis.
40. TheMERCOSUR Common External Tariff (CET) hasanaverage levelof11.1percent.
41. Theneed toadapt tothenewtariff structure hasnecessitated thecreation oftransitional
instruments which allow eachsignatory Statetomaintain anational listofexceptions totheCET, which
inthecaseofParaguay comes to399tariff items. Thenational exceptions aredefined individually
andalinear convergence timetable hasbeen setforeachofthem. On1January 2006 theitems
mentioned willreach thetariff levels laiddown fortheCET.
42. Inaddition, MERCOSUR hasacommon listofcapital goods andofinformatic and
telecommunications goods towhich atimetable forconvergence withtheCET alsoapplies. Under
thispre-established timetable, capital goods willhaveamodal tariff of14percentforBrazil and
Argentina in2001, andforParaguay andUruguay in2006, while intheinformatics and
telecommunications sectors theCET willbeattained in2006.
43. Alistofproducts haslikewise beendrawn upforeachMERCOSUR member country involving
intra-zonal tariffs, withautomatic linear tariff cutsending intheyear2000, atwhich datealltariffs
willbeatzeropercentforproducts originating inanyMERCOSUR member.
44. Involved asitisinthisintensive integration process, Paraguay isworking veryhard, in
accordance withitsWTO commitments, andtogether withitstrading partners, onmatters suchasWT/TPR/G/26
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competition-protection policy, technical standards, consumer protection andintellectual property among
others, inorder toconsolidate andstrengthen theCustoms Union.
45. Asaresult ofthisintegration process, Paraguay hasbeenabletocarry outimportant trading
operations with itspartners andthustobring about acontinual increase initsexports within
MERCOSUR.
46. Aspartofitsoutward-looking development strategy, Paraguay haspromoted within
MERCOSUR, inconjunction withitstrading partners, anexternal policy aimed attheconclusion of
trade agreements withthirdcountries.
47. Inthiscontext, MERCOSUR istaking thefirststepstowards thesigning ofatradeagreement
withtheEuropean Union, theinitial results ofwhich areexpected toappear towards theendof1997.
Guidelines arealsobeing drawn upconcerning thepreparation ofother tradeagreements withMexico
andtheAndean Group. Inaddition, MERCOSUR isalsoplaying anactive partintheAmerican Free
Trade Area process.
48. MERCOSUR hassigned trade agreements withChile andBolivia fortheestablishment of
free-trade areas. Theagreements include rules oforigin, safeguard mechanisms, andaschedule for
thetotalliberalization ofsensitive products overatotalof18years inbothcases.
5.3 Latin American Integration Association (LAIA)
49. Asaninstrument forencouraging theintegration process, theLAIA hasforyears confronted
major challenges.
50. Asarelatively lesseconomically developed member oftheLAIA, Paraguay hasbeenplaced
bytheother members ontheirmarket-opening list(NAM), which gives itpreferential access tothem.
51. Within theLAIA framework, Paraguay isasignatory toEconomic Complementarity Agreement
(ECA) No.18withArgentina, Brazil andUruguay, through which thefirststage ofMERCOSUR
comes intoforce. Asaresult oftheOuro Preto protocol, MERCOSUR hasacquired legalpersonality
under international law.
52. MERCOSUR asablociscurrently renegotiating itsbilateral andmultilateral tradeagreements
intheLAIA framework withtheother members.
6. Institutional andregulatory framework
6.1 Trade protection
53. Inaccordance withParaguay 'sWTO commitments, theinstitutions connected withtheir
implementation havebeenupdated andoverhauled. Thus, asregards theapplication oftrade-protection
measures,Decree15286/96setuptheTradeProtectionCommission,aninterministerialbodyresponsible
forapplying theprocedures concerning dumping andsubsidies, withthesupport ofanoffice dealing
specifically withtrade distortion.Paraguay WT/TPR/G/26
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6.2 Intellectual property
54. Inthefield oftheprotection ofintellectual property rights, theGovernment hasissued
Decree 14870/96 setting upaNational Council fortheProtection ofIntellectual Property Rights,
composed ofrepresentatives from fiveMinistries andthethree chief municipalities. TheCouncil is
launchinganintensiveandeffectivenationalcampaigntocombatthecounterfeitingofproductsingeneral
andtoraisecivicawareness.
55. Paraguay hassigned theAgreement onTrade-Related Intellectual Property Rights andwithin
thisframework hasprepared areform ofitslegislation ontrademarks, inventions, copyright andrelated
rights, which hasbeensubmitted bytheGovernment toCongress forstudy.
6.3 Competition protection andconsumer protection
56. Following thePresidential Summit inDecember 1996inFortaleza, theprocess ofstrengthening
MERCOSUR hasledtotheadoption, together withtheother partners, ofaJoint Protocol onthe
Protection ofCompetition andofanumber ofresolutions onconsumer protection. TheGovernment
isworking ontheintroduction ofacompetition policy andofadhocmeasures forconsumer protection,
andlegislation tothiseffect isbeing prepared forsubmission toCongress.
6.4 Customs modernization
57. TheWTO Agreement onImplementation ofArticle VIIwasincorporated inParaguayan
legislation under Law 444/94, "ratifying theFinal ActoftheGATT Uruguay Round", while
Decree7403/95setsouttheadditionalrulesneededforitsfullenforcementatinternallevel.Thecustoms
authorities havealsointroduced anup-to-date computer system named "Sofia" which ismaking customs
administration more flexible andeffective.
7. Directions offuture policy
58. In1997 aneffort willbemade tostrengthen achievements sofarinboosting theproductive
sector, withaview toreaching levels ofsustained growth overthelongtermagainst abackground
ofprice stability. Thegoals arearealGDP growth ofnotlessthan3percent, 8percentinflation
andmaintenance ofinternational reserves ataround US$1 billion.
59. Asregards regulating thesizeoftheStateadministration, theGovernment isworking onlabour
reforms appropriate tothisend.
60. Regarding geological andenergy resources, Paraguay possesses oneofthegreatest energy
potentials intheregion andhasinoperation orunder construction anumber ofhydro-electric dams
including thatoperated byITAIPU, thegreatest undertaking ofthistypeintheworld. Paraguay is
carrying outsubstantial reforms aimed atencouraging theprivate exploration andexploitation ofnatural
resources suchasoil,natural gasandvarious metals. Themining sector inParaguay hasbeenregarded
asrelatively newandnotveryactive inthepastowing toobstacles intherelevant Paraguayan legislation,
butthissituation hasnowbeenchanged following thesubmission toCongress ofaseries ofcontract
laws onmining concessions aswellasontheexploitation ofelectricity andnatural gas. The
hydrocarbons sector hasbeenreformed byLaw779/95 onHydrocarbons.WT/TPR/G/26
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61. Inthefinancial sector, theGovernment hasconcentrated itsactivities ondrawing uprules
involving significant modifications inthemoney andcapital markets, withtheaimofboosting their
development andcreating favourable conditions foranexpansion indomestic savings andforchannelling
these savings tothevarious sectors ofproduction. Inthiscontext, billswillbeintroduced proposing
thesetting-up ofaFinancial System Consolidation Fund, thepurpose ofwhich willbetofurnish financial
assistance tointermediary institutions experiencing difficulties andprovide appropriate measures to
minimize theimpact ofleaving themarket forinstitutions withimbalances andwithsuitable coverage
forliabilities.BillshavealsobeenputbeforeCongressonrulesgoverningsecuritization,onamendments
totheCapital Market Lawandonreform ofthesocial insurance market.
62. With thebacking oftheprivate sector, theGovernment hassupported theMaquila (in-bond
processing) lawwhich complements thelegalarrangements forshifting production towards export.
63. Intheagricultural, livestock andforestry sector, theGovernment hasintroduced changes in
itsinstitutions andactivities aimed at:
- Thepermanent updating andmodernization ofscientific research andthetransfer of
approaches andnewmethods through autonomous institutes;
- thoroughreformoftheRuralWelfareInstitute,thebodydealingwithland-reformpolicy
andland-tenure problems, withaviewtotackling social problems inthecountryside;
- overallreformoftheMinistryofAgricultureandLivestockbycreatingfiveautonomous
institutes fromformer offices oftheMinistry. These institutes willcover requirements
regarding breeding andtechnology transfer, plant andanimal health control andthe
outsourcing oftechnical assistance, with theMinistry retaining only theroleof
regulatory body andmaker ofagricultural policy.
Against thebackground ofitsforeign policy, Paraguay seestheAmerican FreeTrade Area
asafar-reachinginitiativewhichwillbringaboutgreatlyimprovedmarketaccessandenhancedeconomic
conditions fortheregion.