VENEZUELA: LABOR UNREST CONTINUES AT COCA-COLA

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 001443 SIPDIS E.O. 12958: DECL: 10/10/2018 TAGS: ECON EFIN PREL EINV PGOV VE SUBJECT: VENEZUELA: LABOR UNREST CONTINUES AT COCA-COLA CARACAS 00001443 001.2 OF 002 Classified By: Economic Counselor Darnall Steuart for reasons 1.4 (b) and (d). ¶1. (C) Summary. Coca-Cola has taken control of most of its installations this week following the 4th labor blockade of ¶2008. Despite a Supreme Court ruling in favor of the company, earlier this year, radical National Assembly members have continued to push the claims of ex-company contractors. In addition to the labor disputes, the company continues to face other business challenges in Venezuela, because of scarcity of needed inputs and hostility towards the private sector. -------------- EX-CONTRACTORS PROTEST -------------- ¶2. (U) A representative of the Coca-Cola Service Company confirmed on October 8 that Coca-Cola has regained access to all but one of its installations, which were seized by former company "concessionaires" or contractors on October 1. This was the fourth such labor action taken against Coca-Cola this year; the most recent in June shut down company operations for three weeks. In a statement to the local press, Coca-Cola notes that, in the past two years, the former contractors have seized its four bottling plants and 32 distribution centers five times for an estimated $60 million loss. ¶3. (C) As the threat of yet another labor action loomed in September, Econoffs met with Roberto Mercade (strictly protect throughout),the General Manager of the Coca-Cola Services Company. Mercade reminded Econoffs that the umbrella company in Venezuela is the Mexican owned Coca-Cola FEMSA, which acquired its stake in the Venezuelan market in May 2003. Mercade explained that the current dispute centers on so-called "concessionaires" or former contractors, who distributed Coca-Cola products using their own trucks or trucks loaned from the company. According to Mercade, FEMSA does not consider the approximately 11,000 contractors as ex-employees. ¶4. (C) The ongoing dispute stems from the contractors' claim that the company owes them retirement benefits - although many of them ceased to have relations with the company prior to its acquisition by FEMSA in 2003. Although 8,000 have no proof of a past relationship with Coca-Cola and the claims of the remaining 3,000 have been dismissed by the Venezuelan Supreme Court, the contractors continue to call 
for $500 million in damages from the company - an amount that far exceeds the value of the Coca-Cola enterprise in Venezuela, according to Mercade. Mercade added that despite the Supreme Court ruling, the contractors continue to push their claims with the support of radical National Assembly members Iris Varela, Marcela Maspero and Rafael Garcia. Despite the illegality of the blockades, local officials have also failed to break them up due to political considerations. ¶5. (C) In the June flare-up, the blockades ended when Coca-Cola FEMSA, at the urging of the BRV, invited the contractors to the bargaining table. Coca-Cola subsequently agreed to the creation of a $5.8 million social fund to aid the ex-contractors to establish micro enterprises. This offer was rejected in September. Mercade noted that he believed Coca-Cola FEMSA would not agree to further negotiation. In fact, Coca-Cola FEMSA met with National Assembly President Celia Flores on October 3 and also appealed to the Supreme Court and the Ministry of Labor. These actions served to bring about an early resolution. Coca-Cola FEMSA's legal division has made it clear in the press, however, that the company will only negotiate the distribution of the social fund and will not return to the bargaining table to come to a new agreement. -------------- -------------- EVERYDAY PROBLEMS OF COCA-COLA OPERATIONS IN VENEZUELA -------------- -------------- ¶6. (C) Mercade informed Econoffs that Coca-Cola FEMSA has approximately 8,000 union member employees in Venezuela, a number of whom turned out in the past week to protest that the actions of the former contractors denied them their right to work. He added that there are some 26 unions that represent the company's current employees and also represent a wide political spectrum. These unions disrupt production and/or distribution somewhere in Coca-Cola's national network every month, he said. ¶7. (C) As with most importers, Coca-Cola FEMSA sporadically CARACAS 00001443 002.2 OF 002 encounters problems with CADIVI. When Coca-Cola FEMSA is prohibited from importing concentrate, it utilizes brokers as middlemen, which adds an additional expense. Mercade added that many of its local suppliers do not have the infrastructure to manage the complexity of the CADIVI process. Therefore, Coca-Cola FEMSA imports needed inputs for their suppliers to keep them afloat. He offered the example of a local bottle supplier which cannot import the resin required to produce plastic bottles. Coca-Cola FEMSA has begun to import resin so that it can buy bottles. The company has, in fact, established a purchasing unit in its Colombian operations to supply Venezuela's needs. -------------- COMMENT -------------- ¶8. (C) In addition to the on-going labor and doing-business issues that Coca-Cola faces in Venezuela, it works in a sector that was declared to be of "public utility" in the radical legislative package announced on July 31. When asked about this risk, Mercade cracked a joke about the possibility of a "Bolivar Cola" in Venezuela. In all seriousness, he added that Coca-Cola FEMSA will not move ahead with needed investment in Venezuela until the issue of the contractor legal claims is resolved once and for all. The Coca-Cola saga demonstrates yet again that radical politics can easily trump the law. CAULFIELD