1. THE CASE OF VENEZUELA´S OIL SECTOR
SPACES FOR SUSTAINABLE DEVELOPMENT POLICY IN
INTERNATIONAL RULES FOR INVESTMENT
THE CASE OF VENEZUELA´S OIL SECTOR
Werner Corrales-Leal , ICTSD
CANCUN TRADE AND DEVELOPMENT SYMPOSIUM:
INVESTMENT AS IF SUSTAINABLE DEVELOPMENT REALLY MATTERED.
Cancun, September 12, 2003.

2. LIST OF CONTENTS
An approach for making trade integration supportive of sustainable development.
Market friendly policies for development: An illustrative case in the Venezuelan Oil Sector .
Lessons for future rules on FDI

3. PART ONE
An approach for making trade integration supportive of sustainable development.

4. Factors explaining real growth in revenues and competitiveness
An approach for making trade integration supportive of sustainable development
COMPETITIVENESS AND SURPLUS APPROPRIATION RATIONALE IN THE GLOBAL MARKET PLACE
Factors explaining real growth in revenues and competitiveness
Static:
Export growth based in market access
Rents related to productivity, based on “Best Global Practices”
Productive linkages and networking enhancing domestic multipliers
Dynamic ( Rents related to innovation ):
Knowledge-enhanced productivity; Innovation in processes and attributes …
Strategic marketing; differentiation; short life cycles of products..
Constraints for “adding value” or appropriating trade surplus
Traditional barriers and access to GVCs limit exports of “Value Added” goods
Extreme competition in commodities and declining terms of trade
“Unleveled playing field” in access to knowledge
Weak enterprise networks and institutions for learning and multiplying effects

5. Reduce dependency on current trade in commodities
An approach for making trade integration supportive of sustainable development
THE NEED FOR ACTIVE POLICIES FOR DEVELOPMENT: LIBERALISATION IS NOT ENOUGH
Reduce dependency on current trade in commodities
Basis and intensity of competition erodes capabilities for reinvestment
Commodity production has very limited networking or spill-over effects
Promote technology upgrade and increase internal multipliers
“Global Chain Optimisation”: Promote Clusters and insertion to Chains
Motivate and promote domestic R&D and Technological Capacity Building
A “Levelled playing field ” to negotiate alliances and complementarities
Modify dynamics of investment in extreme resource-based cases
Extreme productivities, appreciated exchange rates and competitiveness
National and Foreign Investment go to non-tradable and commodities

6. Objectives in the three spheres of Sustainable Development
An approach for making trade integration supportive of sustainable development
GUIDELINES FOR A TRADE-SUPPORTED STRATEGY TOWARDS SUSTAINABLE DEVELOPMENT
Objectives in the three spheres of Sustainable Development
Expansion of real incomes and freedoms of the citizens
Sustainable use of natural resources and environment
Integration in global system securing long term, stable economic growth
Aims and strategic guidelines for trade-supported policies
Increase value added, knowledge intensity and differentiation to exports
Enhance efficiency in production through technology and innovation
Improve internal multipliers: clustering, linkages and SMEs networking
Gain market access; improve marketing and trade defense capabilities
Improve social effectiveness of economic policy (e.g. Informal sectors)
Mainstream environmental concerns in competitiveness policies

7. INTERNATIONAL TRADE RULES
An approach for making trade integration supportive of sustainable development
KEY COMPONENTS OF A COMPETITIVENESS STRATEGY SUPPORTED ON TRADE AND INVESTMENT
SOCIALLY AND ENVIRONMENTALLY - FOCUSED POLICIES FOR COMPETITIVENESS
ENTERPRISE DEVELOPMENT, PRODUCTIVITY & TECHNOLOGY POLICIES
SUPPLY SIDE
POLICIES
RULES IN THE SPACE FOR DEVELOPMENT POLICIES
MARKET ACCESS AND FAIR TRADE RULES
DEMAND SIDE
POLICIES
NATIONAL POLICIES
FOR INTERNATIONAL TRADE AND INTEGRATION
INTERNATIONAL TRADE RULES

8. Market consistent investment-related policy instruments
An approach for making trade integration supportive of sustainable development
COMPETITIVENESS RELATED “SPACES” IMPLIED IN CURRENT AND PROPOSED NEGOTIATIONS
Market consistent investment-related policy instruments
Conditioned access to FDI, as “benefit” in sectors reserved for national investment
Focalized promotion; incentives to ToT, R&D, Clustering and SME development
Government and POE procurement promoting technological capacity building
Coordinated implementation of IPR , Competition rules and R&D programmes
Multilateral disciplines and issues involved
TRIMs; TRIPs, GATS, Subsidies, Government Procurement
Special and Differential Treatment; “Spaces for Development Policies” in general
Eventual negotiations on investment in WTO

9. PART TWO
Market friendly policies for development: An illustrative case in the Venezuelan Oil Sector

10. Strategic need to reduce Technological Dependence on TNCs
The use of Market-Friendly Active Policies, a case of the Oil Sector in Venezuela
1980 : MAIN CHALLENGES IN THE SECTOR RELATED TO TECHNOLOGICAL CAPABILITIES
Strategic need to reduce Technological Dependence on TNCs
Pre-existing contracts for the provision of technology and engineering
Only 15% of the engineering & capital goods procurement was national
Objective shortages in Technological Capabilities in the Country
Almost inexistent R&D Capabilities in the sector (PDVSA or elsewhere)
Only 5 construction management firms capable of major assignments
About 20 engineering companies for projects of medium complexity
Doubts and confidence after only 5 years of the nationalization
Public doubts about the success of the Capacity Building Program
Decision to face the program on a “Market Friendly” basis
Firm commitment of PDVSA and the Venezuelan private sector

11. Creation of a High Quality Research & Development Organization
The use of Market-Friendly Active Policies, a case of the Oil Sector in Venezuela
THE STRATEGY FOR CAPACITY BUILDING IN R&D, ENGINEERING AND CONSTRUCTION SERVICES
Creation of a High Quality Research & Development Organization
Creation and development of INTEVEP
Establishment policy for Transfer of Technology on Commercial Basis
Massive program for training human resources in research fields
Promotion of Capital Goods Manufacturing and Service SMEs
Implementation of Quality Assurance and Competitiveness Programs
Export Promotion Program
Incentives for Chains of Suppliers Development Programs
Promotion of Engineering and Construction Management firms
Non Mandatory Performance Requirements for Joint Ventures
Reform of Contracting Practices introducing Project Disaggregation
Continuous Improvement and Quality Control Practices in all Contracts

12. Highly skilled jobs,sources of Added Value and backward links created
The use of Market-Friendly Active Policies, a case of the Oil Sector in Venezuela
LONG TERM EVOLUTION OF THE ENGINEERING AND CONSTRUCTION SERVICES
Very high improvement in Technological Capabilities
Highly skilled jobs,sources of Added Value and backward links created
Further evolution of Engineering & Construction to Integrated Services
Investment US$ ,500 MM/yr 10 20 30 40 50 60 70 80 90
100 82 84 86 88 92 94 96 98
2000 %
evolution
trend

13. PART THREE
Lessons for future rules on FDI

14. + - - - - + - - + + Lessons for future rules on FDI Admission and
IMPACTS OF THE TERMS OF AGREEMENT ON POLICY SPACES AND INVESTOR’S DECISIONS 1/2
DECISION FACTORS OF THE INVESTOR
TERMS OF AGREEMENT
DEVT POLICY
SPACES
PROPERTY
RIGHTS
FREEDOM IN
MANAGEMENT
INMUNITY
PRESCRIPTION
Admission and
establishment
Sectors reserved to
national investment + -
Post-diversification to
Other sectors
Promotion for National and
Regional players
Equitable treatment
Technological Capacity Building
Clustering, SME Networking -
Pre-
establishment
Risks
NT pre-establishment +
MFN considering regional
agreements - - + - + -
Positive Impact
Negative Impact

15. - + - + + - - - + - - + + + + + + + Lessons for future rules on FDI
IMPACTS OF THE TERMS OF AGREEMENT ON POLICY SPACES AND INVESTOR’S DECISIONS 2/2
DECISION FACTORS OF THE INVESTOR
TERMS OF AGREEMENT
DEVT POLICY
SPACES
PROPERTY
RIGHTS
FREEDOM IN
MANAGEMENT
INMUNITY
PRESCRIPTION
Performance Requirements
PR related to trade - + + +
PR related to R&D and TT +
Hands
Off -
PR related to K association + + + -
Promotion for National and
Regional players
Technological Capacity Building
Clustering, SME Networking
Rules on Investor practices
Effective sanctions to
uncompetitive practices + -
Limitations to unfriendly
Take Overs of local firms + - + - + -
Positive Impact
Negative Impact