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Cablegate: Will Colombia-Venezuela Trade Survive the Rhetoric?

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P 211313Z AUG 09
FM AMEMBASSY BOGOTA
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INFO RUEHBR/AMEMBASSY BRASILIA PRIORITY 9081
RUEHCV/AMEMBASSY CARACAS PRIORITY 2659
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RUEHSG/AMEMBASSY SANTIAGO PRIORITY 2507
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RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS BOGOTA 002627

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E.O. 12958: N/A
TAGS: ECON ETRD PREL PGOV CO
SUBJECT: WILL COLOMBIA-VENEZUELA TRADE SURVIVE THE RHETORIC?

REF: A. CARACAS 1062
B. BOGOTA 1431

1. (SBU) SUMMARY. Venezuela's July 28 decision to freeze
diplomatic relations with Colombia has put the Colombian
business community on edge and complicated bilateral trade
discussions. While Colombian exports to Venezuela for the
first half of 2009 had remained resilient in the face of an
overall export decline, Chavez' decision to restrict imports
from Colombia will cause short-term pain. The longer-term
trade implications of the latest diplomatic spat are less
clear, as Colombian-Venezuelan trade has weathered, and even
thrived under, previous adverse situations. Venezuela has
the ability to restrict imports from Colombia, but the high
degree of interdependence along the border, coupled with the
costs of substituting away from Colombia, lead many
Colombians to see the latest spat as just another bump on the
trade relationship's rocky road. The situation further
reinforces the GOC's commitment to diversifying its export
markets through the pursuit of free trade agreements. END
SUMMARY.

EXPORTS TO VENEZUELA RESILIENT IN FIRST HALF OF 2009
--------------------------------------------- -------

2. (U) Colombia's exports to Venezuela through June, 2009
declined by only three percent compared to the same period in
2008. This contrasts with an 18 percent decline in global
Colombian exports and defies (at least for the first six
months) predictions of a sharp decrease in bilateral trade
for 2009 (Ref B). Carlos Fabian Cepeda, Director of Economic
Studies at the Colombian-Venezuelan Chamber of Commerce,
noted that the overall composition of Colombian exports to
Venezuela is beginning to shift from manufactured items to
primary goods, as a result of Venezuela's endogenous
growth/import substitution model.

DIPLOMATIC ROW MEANS SHORT-TERM PAIN, LONG-TERM UNCERTAINTY
--------------------------------------------- --------------

3. (SBU) President Chavez' decision to "freeze" diplomatic
relations with Colombia and exact trade-related punishment
will certainly cause Colombia problems in the short term.
While GOC officials hesitate to estimate the impact on trade
of the latest dust-up, Trade Ministry's Director for Economic
Integration Alfredo Ramos noted that the bureaucratic steps
for Colombian exporters to Venezuela have increased
exponentially and that frequent, random border closings and
arbitrary rejection of Colombian goods have become the norm.

4. (SBU) Ramos said that the Venezuelan website to apply for
preferential exchange rate dollars (Cadivi) no longer offers
Colombia on its drop-down menu of import-origin countries.
(Note: Venezuelan importers still owe US$275 million to
Colombian exporters, funds that are tied up in the Cadivi
bureaucracy. End note.) Venezuela's suspension of cheap
gasoline exports to Colombia will certainly affect the border
department of Norte de Santander and lead to increased
smuggling. The Venezuelan decision to revoke import licenses
for 10,000 Colombian vehicles, on the other hand, will have
little effect since Colombian carmakers had not tooled up for
those orders out of fear of not getting paid.

5. (SBU) What these measures mean for the medium and long
term is less clear and depends on how willing Chavez is to
inflict economic pain on Venezuelans for the sake of making
his point to Colombia. According to Cepeda, the border
region has a high degree of interdependence and substituting
Argentine or Brazilian goods for Colombian ones will
introduce higher prices into an already tenuous Venezuelan
inflation environment. GOC officials privately hope that,
like previous upsets with Venezuela, this one will blow over
and some normality can be restored to the trade relationship.
Business community leaders acknowledge that their current
malaise is not new; it is merely an extension of the
fragility of the bilateral relationship over the last several
years.

BILATERAL TRADE TALKS STILL GOING NOWHERE, EVEN SLOWER
--------------------------------------------- ---------

6. (SBU) According to Ramos, GOC trade officials' principal
underlying fear over this latest round of bad blood is how
much it will delay bilateral talks on an agreement to replace
Venezuela's Andean Community (CAN) commitments, which expire
in April, 2011. Talks were never moving fast to begin with
(Ref B) and are now non-existent. Trade Minister Plata was
in Caracas Wednesday, August 19, for an Andean Development
Corporation (CAF) event and spent a total of 30 seconds
talking with his Venezuelan counterpart, Eduardo Saman.

LATEST SPAT UNDERSCORES NEED TO DIVERSIFY EXPORT MARKETS
--------------------------------------------- -----------

7. (SBU) Colombia's push to have nine FTAs in place with 45
countries by 2010 is part of its efforts to diversify its
export markets. Chavez' latest show of bluster reinforces the
need to diversify away from its second largest, (and most
erratic) export market. Some in the business community
opined that this most recent incident may in fact have a
silver lining in that uncertainty over Venezuela will force
traditionally cautious and complacent Colombian
businesspeople to explore non-traditional export markets more
than any free trade agreement could.
Brownfield

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