COLOMBIA LOOKS TO NEIGHBORS TO PICK UP SLACK IN

UNCLAS BOGOTA 000741 SIPDIS SIPDIS PASS TO USTR; WHA/EPSC FOR JSALAZAR; EEB/TPP/BTA FOR WMUNTEAN E.O. 12958: N/A TAGS: ETRD ECON CO SUBJECT: COLOMBIA LOOKS TO NEIGHBORS TO PICK UP SLACK IN FALLING VENEZUELA TRADE REF: A. (A) BOGOTA 421 ¶B. (B) BOGOTA 169 ¶1. (U) SUMMARY: Colombian exports to Venezuela jumped 87% in 2007; however, increased diplomatic and economic tensions and Venezuelan efforts to reduce Colombian trade have caused Colombian exporters to look for alternative markets. Local experts tell us Colombia's automobile and textile/apparel industries are particularly vulnerable. While it remains unclear exactly how much Colombia-Venezuela trade will fall in 2008, local exporters hope to continue the trend of increasing exports to Ecuador and Chile as well as explore new export opportunities with Mexico, Central America, and the Caribbean. Passage of the U.S.-Colombia Trade Promotion Agreement (CTPA) would significantly help stabilize Colombia's trade outlook. END SUMMARY Rising Exposure Coming Back to Haunt -------------- ¶2. (U) Venezuela has grown into one of Colombia's most important markets for non-traditional goods, including manufactured products and agricultural items, during the past several years. As a result, the exposure of Colombia's economy to a downturn in Venezuela or a POLITICAL crisis has increased. While sales to Venezuela -- estimated at $5 billion in 2007 -- still remain only 17 percent of Colombia's total exports, a number of sectors have more acute exposure. Santiago Pardo, the international business coordinator of the Colombian national trade council (Consejo Gremial Nacional), told EconOff that he was particularly concerned about BRV moves to restrict Colombian automobile (ref B) and textile/apparel sales. The Colombia/Venezuela Chamber of Commerce forecasts automobile exports to the BRV will fall 59% in 2008. ¶3. (U) Guillermo Perry, associate director of economic think-tank Fedesarollo and former chief economist for Latin America and the Caribbean at the World Bank, told Econoff he doubted Colombia would be able to sufficiently increase exports to other countries in the region to offset falling trade with Venezuela in the short term. He projects that exporters of food and clothing will suffer the most. Norman Correa, President of the Association of Micro, Small and Medium Size Businesses (ACOPI),insisted that although the BRV has focused more on inflammatory rhetoric than curbing bilateral trade thus far, they were nonetheless bracing for a significant fall. Luis Carlos Villegas, President of the National Industrialist Association (ANDI),estimates that Colombian exports will drop by 50% to $2.5 billion. However, all interlocutors reiterate that Colombia's trade with the United States remains far more important to the Colombian economy and agree that approval of the CTPA is crucial to stabilizing the country's long term trade expansion. Alternatives to Venezuela? -------------- ¶4. (U) After the U.S. and Venezuela, Ecuador is Colombia's third largest trading partner. In 2007 Colombian exports increased 5 percent to $1.1 billion, representing 4.3 percent of Colombia's total. While relatively small in overall terms, Colombian exporters see significant growth opportunities in that Ecuador's total imports reached $12.5 billion in 2007, or almost one-third of GDP. Colombian trade with Ecuador in 2007 remained modest due to Ecuador's uncertain POLITICAL situation and rumors of increased market interventions by the Correa administration. As Colombia's trade RELATIONS with Venezuela have turned more complicated, Colombian exporters have renewed their interest in Ecuador and come to perceive the Correa government as more business friendly. A cooling of diplomatic tensions, which flared in 2007 over alleged coca spraying on the Colombia-Ecuador border, has also paved the way for increased trade. In addition, Colombia and Ecuador are working to normalize phytosanitary standards to assist exporters of agricultural products. Colombia exported just over $1 billion worth of agricultural products and processed foods to Venezuela in 2007; some of these exports could be shifted to Ecuador. ¶5. (U) Meanwhile, Colombia and Chile are working to finalize a free trade agreement to bolster recent gains in their trading relationship. In 2007, trade between the two countries exceeded $1 billion, a 45% increase from 2006. According to the Colombian Department of National Statistics (DANE),exports to Chile rose 44% to $341 million between January and November of 2007. Colombia plans to build on recent gains in exporting services, agricultural products and light manufacturing (textiles, footwear, clothing, leather products, etc.) to Chile as well as tap into the booming Chilean automobile market which consumed 250,000 vehicles last year. Chile was also an important source of foreign direct investment in Colombia last year, with several Chilean firms entering the retail and commercial sectors. ¶6. (U) Looking beyond Colombia's immediate South American neighbors, Correa noted that Colombia is strengthening economic ties with Mexico, and said he foresees exports to Mexico ($454 million in 2007) eventually exceeding exports to Ecuador. He also predicts increased trade with Honduras, El Salvador, and Guatemala following the July 2007 conclusion of Colombia's trade agreement with the northern triangle of Central America, as well as strong prospects for more sales to Caribbean nations. Finally, he believes that Colombia's growing economic and POLITICAL ties to the European Union (EU) bode well for trade diversification outside of the region. Exports to the EU were $3.8 billion in 2007, a 14 percent increase from 2006. Brownfield