COLOMBIAN TRADE OFFICIALS FRUSTRATED OVER

C O N F I D E N T I A L BOGOTA 003786

SENSITIVE
SIPDIS

WHA/AND RMERRIN
WHA/EPSC MROONEY

E.O. 12958: DECL: 10/16/2018
TAGS: ETRD ECON ECIN PREL CO VE
SUBJECT: COLOMBIAN TRADE OFFICIALS FRUSTRATED OVER
CONTINUED VENEZUELAN FOOT-DRAGGING

REF: CARACAS 1428

Classified By: Econ Counselor Lawrence J. Gumbiner for reasons 1.4(b)(d
)


1. (C) SUMMARY. The October 17 ministerial that the GOC had
hoped would smooth over testy Colombian/Venezuelan ties -- a
follow-up to the July 11 Uribe-Chavez summit -- has devolved
into a vague working lunch between foreign ministers at the
BRV's insistence. On trade Colombia had sought to come out
of the encounter with the outline of a post-CAN trade
agreement and the guarantee of a larger import quota for
Colombian automobiles. They are unlikely to , advance either
goal. Amid growing Colombian business community fears that
declining oil prices will affect Venezuela's ability to
purchase Colombian exports, GOC officials have expressed
private frustration at what they perceive as a lack of
Venezuelan seriousness in moving forward on trade issues.
The format of the upcoming meeting only serves to reinforce
such frustration. END SUMMARY.

A DIMINISHED MEETING LONG IN THE WORKS
--------------


2. (C) Almost 100 days after a July 11 commitment by
Presidents Uribe and Chavez to have their respective cabinets
meet within two months, only the foreign ministers (and other
sub-Cabinet level officials) will meet in Caracas on Friday,
October 17, to define next steps in the bilateral
relationship. The trade relationship, which the GOC had
wanted to put at the forefront of the discussion, has been
met by Venezuelan indifference according to our Bogota
contacts. The different vision was apparent from the outset
of the planning for the meeting. Venezuela's Commercial
Counselor, Eduardo Delgado, told us that Venezuela was never
intent on seeking major results--viewing the meeting more as
a chance for political posturing than concrete achievements.
While Colombia pushed to include a broad agenda involving
various ministers over two or three days, Delgado explained,
the Venezuelans offered up "a half-day and lunch." The
Venezuelans appear to have won the day both on length and
constitution of the delegations. As a source of continued GOC
frustration, Minister of Trade Luis Guillermo Plata will be
stymied again in efforts to sit down with his Venezuelan
counterpart, who has still not agreed to a meeting despite
repeated Colombian requests.

GOC SEEKING CLEAR RULES OF THE GAME
--------------


3. (U) Venezuela is Colombia's second largest export market
(after the U.S.) and its largest market for non-traditional
and manufactured exports. The GOC had hoped to use the
October 17 meeting to advance talks over the post-Andean
Community of Nations (CAN) bilateral trade regime in the wake
of the BRV's 2006 withdrawal. Venezuela is bound by its CAN
commitments for five years from the date of withdrawal, and
GOC officials are nervous over delayed discussions over what
a post-CAN regime would look like.


4. (SBU) Vice Minister of Trade Eduardo Munoz said that both
countries have thus far been successful in preventing
diplomatic and political differences from affecting bilateral
trade, but that "we need rules of the game for the future."
Munoz believes that the closer they get to the end of the
five-year period, the less willing Venezuela will be to
negotiate, making progress on an agreement of immediate
importance to the GOC. Some have suggested basing the accord
on each country's commitments under the Latin American
Integration Association (ALADI),and going further to include
services and investment. Other items on Colombia's agenda
are a double-taxation treaty and an agreement on customs
regulations that would allow one country's goods destined for
the domestic market to transit the other country.

"WHAT CHAVEZ WANTS"
--------------


5. (C) Following the Venezuelan decision to impose quotas on
automobile imports from the entire world as part of an
endogenous growth strategy, Colombian auto exports to

Venezuela for the first semester of 2008 dropped 63 percent
compared to the same period in 2007. An estimated 1,300 jobs
have been lost in Colombia as a result. Alfredo Ramos,
Director of Economic Integration at the Ministry of Trade,
said that the GOC had hoped to use the October 17 meeting to
request an increase in its automobile quota (currently less
than 16,000),but acknowledged Colombia's weak negotiating
position. "It all comes down to what Chavez wants, which at
this point, we really don't know," said Ramos. Delgado
dismissed the notion that the BRV would move on the quota
issue.

VENEZUELAN RISKS CONCERN COLOMBIAN BUSINESS COMMUNITY
-------------- --------------


6. (U) At an October 15 conference entitled "New Scenarios
and Risks in the Colombian-Venezuelan Market,"
Colombian-Venezuelan Chamber of Commerce President Maria
Luisa Chiappe offered the packed conference hall an outline
of the bilateral trade relationship. Colombian exports to
Venezuela grew by 95 percent in 2007 over the previous year.
Chiappe said 2007 was an outlier and estimated 3.4 percent
growth for this year. For some time, a major irritant in the
bilateral trade arena has been the delays in payments to
Colombian exporters due to the arduous, bureaucratic process
to secure foreign exchange in Venezuela. According to
Chiappe, these delays have diminished in recent weeks.


7. (U) Chiappe also pointed out four specific risks Colombian
exporters to Venezuela face. First, the risk of greater
direct trade restrictions, either in the form of import
quotas or a stricter import licensing regime. Second, in
what Chiappe called "discretional competition" Venezuela
could authorize imports from ideologically friendly countries
to take advantage of the official exchange rate (2.15
bolivars per dollar) while forcing a greater portion of
imports from Colombia to use the unofficial rate (currently
about 5 bolivar per dollar). Third, a devaluation, either
explicitly through the official exchange rate or implicitly
by shifting a greater portion of foreign exchange to the
parallel market to the prejudice of Colombian exports.
Finally, Chiappe voiced concern over the impact a decline in
oil prices would have on Venezuela's ability to buy Colombian
goods, particularly as decreased income forces the BRV to
choose between domestic spending and imports (reftel).

COMMENT: YOU CAN'T CHANGE YOUR NEIGHBORS
--------------


8. (C) GOC trade officials bristle at the impact Chavez's
whims can have on the Colombian economy. As global economic
storm clouds mount, the GOC had hoped to engage the BRV in a
detailed and serious discussion of how to stabilize the
economic relationship and calm its nervous business
community. That their seriousness has not been reciprocated
represents, for the GOC, further confirmation of the urgency
of diversifying export markets. Unfortunately there is no
short-term solution, and for the time being, the GOC is
forced to accept the reality of being joined economically at
the hip of its mercurial neighbor.
BROWNFIELD