GRANDA AFFAIR CAUSES TRADE JITTERS

C O N F I D E N T I A L CARACAS 000165

SIPDIS


STATE FOR WHA/AND
NSC FOR CBARTON
TREASURY FOR OASIA-GIANLUCA SIGNORELLI
HQ USSOUTHCOM FOR POLAD

E.O. 12958: DECL: 09/30/2014
TAGS: ECON ETRD PGOV VE
SUBJECT: GRANDA AFFAIR CAUSES TRADE JITTERS

Classified By: ECONOMIC COUNSELOR RICHARD M. SANDERS FOR REASON 1.4 D


1. (C) SUMMARY: On January 14, in a speech to the Venezuelan
National Assembly, President Chavez announced that he was
suspending trade ties with Colombia as a result of the
alleged kidnapping of FARC "Foreign Minister" Rodrigo Granda.
In the aftermath of this announcement, banks and companies
with interests in trade with Colombian- the second biggest
trading partner after the United States- have been scrambling
to put together contingency plans in case of a border
closure. As of January 19, the border has not been closed,
and trade has slowed down only marginally as Venezuelan
authorities put a bit more rigor into what are usually
cursory inspections of documents and cargo. Gasoline
smuggling appears to be the one area in which the GOV seems
to be really taking action. END SUMMARY

--------------
Repercussions of the Granda Grab
--------------


2. (C) Asserting an unsatisfactory Colombian response to the
alleged violation of Venezuelan sovereignty in the capture of
Rodrigo Granda, the "Foreign Minister" of the Colombian FARC
rebel group, President Chavez announced on January 13 that he
was recalling the Venezuelan Ambassador from Bogota, and on
January 14, that he was freezing "all business, all
agreements" with Colombia. Chavez specifically mentioned the
$200 million gas pipeline project agreed to between the two
countries in July and which would facilitate the
transportation of natural gas to Venezuela for re-injection
into PDVSA's oil fields in western Venezuela. In addition,
although not mentioned in his speech, we understand that the
next in a series of high-profile bilateral business missions
with senior government participation which was to take place
in Cartagena, has been put on hold.

--------------
Business is Concerned
--------------


3. (C) Colombia is Venezuela's second largest trading partner
after the United States. Cross-border trade amounted to
nearly US$2.5 billion in 2004. Venezuela exports to Colombia
are made up primarily of steel and petrochemicals, while
Colombian exports include textiles, cars and car parts, food,
pharmaceuticals, and plastics. Following the Chavez's
vaguely phrased announcement, companies in Venezuela
scrambled to activate what contingency plans they had if the
border were in fact to be closed. Particularly concerned
were multinational automobile companies who rely on foreign
parts for their Venezuelan assembly plants. In conversation
with a Valencia-based NAS customs advisor on January 18,
executives from General Motors said they rely in large
measure on parts imported from Colombia. Ford, too, relies
heavily on parts from Columbia, but reported that it can
shift its supply chain to alternate suppliers in Brazil,
Argentina and Mexico.


4. (C) Gustavo Marturet, President of Banco Mercantil, one of
the largest locally owned banks in Venezuela, told Econcouns
on January 18 that he was deeply concerned by Chavez's
remarks of January 14 since his bank has major financial
exposure to cross-border trade. He said that he and his
counterparts at Banco de Colombia had been investigating
possible impacts on bank exposure and were relieved to hear
that trade has been largely unaffected. He remains cautious
regarding possible future actions by the GOV.

--------------
Facts on the Ground
--------------


5. (C) On January 18, Carmen Leonor Martinez, Executive
Director of CAVECOL, the Venezuelan-Colombian Chamber of
Commerce, told Econoff that goods continue to flow across the
border in both directions, though traffic into Venezuela was
much slower than normal. Martinez also reported a marked
increase in the number of Venezuelan National Guard troops
along the border, and that document requirements-- normally
loosely enforced if enforced at all-- were being strictly
enforced. She also reported that Colombian exporters were

hesitant to send additional shipments to Venezuela for fear
that their trucks would be confiscated or that the GOV would
not authorize hard currency payments through the foreign
exchange authority CADIVI. She said that agricultural
concerns in Colombia were particularly concerned since they
export large quantities of milk and corn flour to Venezuela
for sales through the GOV's Mercal chain of stores aimed at
low income consumers.


6. (C) Members of the Venezuelan National Guard in the state
of Tachira, stationed near the border with Colombia, told
Emboff the border was never actually closed and they had not
received any orders to do so. There was however a two-day
operation to crack down on gasoline smuggling across the
border. They suggested that this crackdown was provoked by
the increase in political tension between the two countries.
DAO sources reported that the pro-Chavez commander who
controls the border in the state of Zulia attempted to close
the border there, but relented when the indigenous Guajiro
population, many of whom hold both Venezuelan and Colombian
citizenship, began protesting.

--------------
Gasoline Smuggling
--------------


7. (C) Gasoline smuggling is a fixture in the border area,
where Colombians make regular cross-border visits to
Venezuelan gas stations to buy gasoline at the officially
mandated price of 97 Bolivars per liter (US$.05 at the
official rate). The gasoline is then sold in Colombia at a
hefty premium, but still less than the Colombian market price
of around US$.50 per liter. According to media reports,
PDVSA, the Venezuelan state oil company, has now resumed
supplying gasoline to stations along the border, which had
been halted on January 17, including the special border
stations that allow Colombians to make purchases. However,
these stations will be open for fewer hours than they had
been before. As a result of gas shortages on the Venezuelan
side of the border, the price of black-market gasoline in
Colombian border towns has reportedly doubled since last week.

--------------
Comment
--------------


8. (C) The GOV's crackdown on gas smuggling in the border
region appears to be a way to remind Colombia that Venezuela
does have some leverage; however, the relationship is
symbiotic, and a full-scale border closure would entail the
GOV subjecting its economy to another shock at a time when it
appears to be gaining traction. Nonetheless, in a government
where politics tends to trump economics it cannot be ruled
out. For now, trade appears to be moving fairly normally.
With the dispute between the two governments still
unresolved, businessmen have every reason to remain nervous.
McFarland


NNNN
2005CARACA00165 - CONFIDENTIAL