VENEZUELAN FM PLEDGES IMMEDIATE TARIFF CUTS FOR

C O N F I D E N T I A L MONTEVIDEO 000470

SIPDIS

E.O. 12958: DECL: 08/19/2018
TAGS: PGOV PREL ECON ETRD VZ UY
SUBJECT: VENEZUELAN FM PLEDGES IMMEDIATE TARIFF CUTS FOR
URUGUAYAN GOODS

REF: MVD 0275 AND PREVIOUS

Classified By: CDA ROBIN MATTHEWMAN, FOR REASONS 1.4 (B) & (D)

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Summary
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1. (U) During a brief visit to Uruguay, Venezuelan FM Maduro
announced August 18 that 214 Uruguayan products --
representing around 60 percent of Uruguayan exports to
Venezuela -- would be granted duty-free entry into Venezuela
effective immediately. Uruguay's trade with Venezuela has
increased significantly over the past three years, and this
step could spur that trend. Implementation is uncertain,
however, as it appears to conflict with WTO rules. The
Venezuelan FM's visit may provide a temporary boost to
Uruguay-Venezuela relations, but GOU officials downplayed its
significance. End Summary.

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Immediate Dividends
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2. (U) Venezuelan Foreign Minister Nicolas Maduro visited
Montevideo August 17 and announced that President Chavez had
agreed to the duty-free entry into Venezuela of 214 Uruguayan
products, effective immediately. Most local media played up
the announcement and its anticipated benefits to Uruguay,
quoting Venezuelan Minister of Industry William Contreras as
estimating an increase in trade of around USD 300 million.
Uruguayan FM Gonzalo Fernandez and Maduro also announced both
sides' intention to cooperate on projects such as the joint
utilization of a Venezuelan satellite scheduled for launch
November 1, development of water purification plants,
biotechnology centers, and an insulin factory.

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Venezuela's Offer Nothing New
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3. (U) Maduro characterized as "historic" Chavez's decision
to offer zero tariffs on the list of Uruguayan products, but
the GOV's offer wasn't new. On July 4, 2006, when applying
for full membership in Mercosur, the GOV committed to
eliminate tariffs and enforce effective market access on a
list of products from Mercosur's smallest partners, Uruguay
and Paraguay (Uruguay's list at the time contained 214
products). However, the original offer was to take effect
once Venezuela's accession to Mercosur entered into force.
Venezuela has now decoupled its full accession from the
tariff cuts, allowing them to take place immediately.


4. (U) Pharmaceuticals account for around half of the
affected products. The list also includes 27 types of beef
products, 19 related to fish, 20 involving leather bags and
suitcases, 11 dairy products, and six apparel items. The
items comprise over 60 percent of Uruguay's exports to
Venezuela.


5. (C) There is sand in the works, however. According to MFA
Director of Trade Policy Alvaro Ons, GOU and GOV officials
have received political instructions to implement the tariff
cut immediately, but trade experts on both sides are
concerned about WTO challenges. WTO rules specify that a
country cannot cut tariffs unilaterally for another country,
except under a comprehensive trade agreement like a FTA.

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A Burgeoning, but Difficult Bilateral Trade Relationship
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6. (U) Uruguay's trade with Venezuela has grown rapidly since
the Vazquez administration took office in 2005, and Venezuela
has become Uruguay's eighth-largest export market. In 2005
Uruguay exported USD 9 million to Venezuela and imported only
USD 500,000 from that country. In 2007, those numbers were
USD 43 million and USD 202 million, respectively.


7. (C) Moving those numbers has been a struggle, however.
The MFA's Ons told the Embassy August 18 that it is very
difficult to do business with Venezuela, saying: "In order to
sell to Venezuela you need an import license or a certificate
of need, plus a permit to buy dollars. It requires almost a
miracle to make the sale. And it requires a full miracle to
get paid." The only sales that are moving smoothly are those
of products that Venezuela urgently needs, such as powdered
milk, according to Ons.


8. (U) Uruguay's trade with Venezuela is also becoming a
political minefield. President Vazquez's son Javier, an
information systems entrepreneur, and several prominent
current and ex-GOU functionaries were named in a suit filed
by opposition Deputy Washington Abdala (Colorado Party) as
having illegally profited from a Venezuelan fund established
using earnings from oil sales to Uruguay.

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GOU Pushes GOV on Promises; Downplays Visit
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9. (C) Comment: The GOU is not attributing special
significance to the Maduro visit. FM Fernandez told
Ambassador Baxter August 8 that President Vazquez had been
giving Chavez the cold shoulder as a result of Venezuela's
delay in making good on economic commitments. Fernandez
noted then that Maduro's visit could be considered a success
of the strategy of keeping Venezuela at arm's length. Still,
it is only a partial success, as other important promises,
such as Venezuela's commitment to fund the refurbishment of
Uruguay's only oil refinery, remain unfulfilled. Maduro's
visit generated considerable attention in the local press,
but MFA Deputy Director of Political Affairs Ambassador
Nestor Moreira told Emboff August 19 that the visit resulted
in nothing new or important, saying that Uruguay tries to
have such meetings with every country once a year. Moreira
then emphasized: "We are having a similar meeting with
Guatemala this month." End Comment.

Matthewman