COLOMBIAN CARMAKERS SMARTING FROM NEW VENEZUELA

UNCLAS BOGOTA 000169 SIPDIS SIPDIS E.O. 12958: N/A TAGS: EIND ETRD PREL ECON CO SUBJECT: COLOMBIAN CARMAKERS SMARTING FROM NEW VENEZUELA IMPORT QUOTAS ¶1. SUMMARY: Venezuela's recently imposed vehicle import quota will hit Colombian assemblers particularly hard. Colombia's big three, who have been gearing up for increases in the Venezuelan market, will have their exports cut to less than one third of what they were in 2007. Citibank estimates the quota will cost Colombia USD 500 million annually, although the GOC predicts a lesser impact. Neither the GOC nor private sector suspect the BRV of imposing the quotas as a retaliatory measure against Colombia, but Trade Minister Plata used this incident to highlight the need for Colombia to expand its export markets. END SUMMARY Venezuelan Quota Hits Colombia Car Manufacturers -------------- --- ¶2. Colombia faces the brunt of Venezuela's recent decision to restrict new car imports to 220,000 vehicles (80,000 less than were imported in 2007). Colombia's 65,000 vehicles exported to Venezuela in 2007 will be shrunk by over 60 percent: to 20,000 vehicles in 2008. The quota reduces exports from all other countries by only some 20 percent: from 240,000 vehicles in 2007 to 200,000 in 2008. ¶3. Colombia's big three auto assemblers, Sofasa (Renault and Toyota),General Motors Colmotores (Chevrolet),and the Colombian Automobile Company (CCA) (Mazda, Mitsubishi and Ford),exported one third of their total production to Venezuela in 2007. In anticipation of continued Venezuelan demand, Sofasa and CCA initiated significant plant expansions and labor force increases in 2007, and will have to substantially scale back their plans. GM had planned to introduce a new line of light trucks for export to Venezuela and domestic sales. GM official Santiago de Francisco Caballero told EconCouns that with the Venezuelan market reduced they will no longer assemble the new line; they have yet to determine whether this will impact employment. GOC Considers Measures to Ameliorate Pain -------------- ¶4. Citibank estimates the quota will cost Colombia about USD 500 million a year, a reduction in its GDP of 0.3 percent. GOC officials are not so alarmist. Trade Minister Plata told EconCouns that they estimate a one percent GDP drop for a complete cutoff in Venezuelan trade. Nonetheless the Ministry is discussing measures to ameliorate the damage, including increasing the tariffs on vehicles imported into Colombia, reducing taxes on sales of locally produced cars, and creating a campaign to encourage consumers to buy Colombian cars. Caballero noted that the three assemblers are not in agreement on which measures would be most appropriate, with GM favoring a reduction in trade distorting policies over increased tariffs. He recognized, however, that GM is taking the lesser hit compared to Sofasa and CCA: "They're in panic mode, while we're just at the fear stage." No Retaliation Suspected -------------- ¶5. Both Plata and Caballero told EconCouns that they do not suspect the BRV of instituting or distributing these quotas as part of a concerted effort to punish Colombia. These measures have been in the works for several months, Plata continued, and Colombia took a bigger hit compared to other exporters only because it enjoys a bigger market share and the restrictions were not imposed on a pro rata basis. Plata sees a more important lesson for Colombia: reliance of the Venezuelan market -- Colombia's second largest destination with 70 percent growth in 2007 -- is risky and not in Colombia's long-term interest. He underscored the need for Colombia to continue to expand its export base, noting the importance of ratification of the FTA with the U.S. and completing accords with Canada and the EU. Brownfield