GBRV SHIFTS AXIS OF TRADE, TELLS OBAMA TO BUY

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 001062

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SECSTATE PASS AGRICULTURE ELECTRONICALLY
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E.O. 12958: DECL: 08/13/2019
TAGS: EAGR ECON EFIN EIND EINV ELAB EMIN ENRG EPET
ETRD, VE
SUBJECT: GBRV SHIFTS AXIS OF TRADE, TELLS OBAMA TO BUY
COLOMBIAN

REF: CARACAS 994

Classified By: Economic Counselor Darnall Steuart for reasons 1.4 (b)
and (d).


1. (C) SUMMARY: Recent decisions by the Government of the
Bolivarian Republic of Venezuela (GBRV) to halt imports of
Colombian beef and suspend sales of reduced-price gasoline to
Colombia suggest that the GBRV is determined to reduce
bilateral trade. On August 11, President Chavez and
Argentine President Cristina Fernandez de Kirchner signed 22
agreements worth a reported USD 1.1 billion which are
designed to expand Venezuelan trade with Argentina and
specifically intended to displace existing trade
relationships with Colombia. End summary.

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GBRV TO SHIFT AXIS OF TRADE
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2. (C) In a published interview on August 9, Chavez said "We
are going to reinforce the Caracas-Buenos Aires axis, which
is the central axis. Like the Caracas-Quito axis, the
Caracas-Buenos Aires axis is fundamental for integration."
In his opening remarks before a round of August 10 meetings
between Agriculture and Lands Minister Elias Jaua and
Argentine Minister of Production Debora Giorgi, Chavez added
that Argentina "can occupy the place of Colombia in
commercial matters." During the August 10 meeting, Jaua
reportedly discussed trade agreements with representatives
from 70 to 80 Argentine companies. In his comments to the
press after the meetings, Jaua highlighted the strategic
alliance between Venezuela and Argentina and said that it was
important for Argentinean businesses to accept technology
transfer conditions and invest in Venezuela. The ministers
were scheduled to present their findings at a meeting between
President Chavez and Argentine President Cristina Fernandez
de Kirchner on August 11. (Note: A Venezuelan businessman
who attended the August 10 meeting characterized it as a
"political show." End Note)


3. (C) Chavez and Fernandez de Kirchner subsequently signed
22 commercial and economic agreements worth a reported USD
1.1 billion on August 11. In interviews with the press,
Commerce Minister Eduardo Saman said that "Argentina has the
capacity to substitute everything that comes from Colombia."
He said that under the new trade agreements with Argentina
the GBRV will import Argentinean primary materials and
finished products through Venezuela Industrial Supply
(SUVINCA) and sell these products to local industries in
Bolivares. (Note: Founded in 2006, SUVINCA is a state-owned
company under the Commerce Ministry that provides procurement
services for industrial projects. End Note) According to
Saman, the trade agreements with Argentina will not increase
prices because it is cheaper to contract boats from Argentina
than to pay for land transportation from Colombia. He
estimated that light industry imports, textiles,
confectionery goods, leather, cosmetics, paper and foodstuffs
will begin to arrive in September.

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COLOMBIAN CARS FOR OBAMA
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4. (C) Also on August 10, the GBRV announced that it would
import 10,000 vehicles from Argentina after a similar
agreement to buy 10,000 vehicles from Colombia was canceled.
According to press reports, the GBRV has issued import
licenses to Argentine suppliers that were originally reserved
for Colombian manufacturers. Saman announced that "We are
going to buy from the Argentinean automotive industry that is
very high quality. Obama can buy the 10,000 cars that we
were going to buy from Colombia."

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CUTTING THE TIES THAT BIND
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5. (C) Trade between Venezuela and Colombia has been in
decline for at least the last eight months (ref A).
President Chavez's July 28 announcement to "freeze" relations

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is likely to accelerate this decline. In press reports on
August 10, the President of the Venezuelan Federation of
Chambers of Commerce (FEDECAMARAS) in Tachira, Jose Rozo,
estimated that Venezuela's non-traditional exports to
Colombia will fall 50 percent by the end of 2009. Rozo said
that Chavez's decision to reestablish relations with Colombia
following last year's diplomatic dispute "never happened in
practice." In 2008, Venezuelan sales to Colombia declined
16.5 percent, according to the Venezuelan Colombian Economic
Integration Board (CAVECOL). Rozo said that Venezuelan
businesses cannot export because foreign exchange is scarce
and they cannot purchase primary materials. He criticized
the GBRV for closing off trade with a natural economic
partner in favor of closer ties to China, Iran, Russia, and
Argentina.


7. (C) In a further sign of the strained relationship,
Chavez suspended sales of reduced-price gasoline to Colombia
in his "Alo, President" TV and radio broadcast on August 9.
In 2008, the GBRV signed an agreement to sell Colombia 4.5
million gallons of discounted gasoline per month in an effort
to reduce illegal gasoline smuggling. Rozo said that the
GBRV decision hurts the 27 Venezuelan transportation
companies that deliver the gas. He added that groups engaged
in gasoline smuggling should be happy with the decision
because "they obtain juicy profits from this contraband
activity that serves to finance other crimes." The Colombian
Minister of Mines and Energy Hernan Martinez said that there
are no plans to stop supplying electric energy or natural gas
to western Venezuela, and expressed hope that President
Chavez would reconsider his decision given that it is a
"matter of mutual convenience." Venezuelan Energy Minister
Rafael Ramirez has, however, told the press that Venezuela
can live without these energy supplies from Colombia.

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WHERE'S THE BEEF?
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8. (C) An advisor to Ganaderia Los Andes, Dr. Franz Rivas
(protect),told AgOff recently that the trade situation with
Colombia was "hopeless." Dr. Rivas said that imports of
Colombian beef carcasses have stopped. Live animals and
processed beef were among Colombia's leading exports to
Venezuela and have also been halted. In 2008, Colombia
exported 145,000 metric tons of beef, or 20 percent of
Venezuelan consumption, and figures from January 2009 to May
show that exports had already reached 75,000 metric tons.
Los Andes now operates on a part-time basis with a small
supply of domestic carcasses available on the local market.
Venezuela is heavily dependent on beef imports because fixed
price polices and the expropriation of larger cattle
producers have reduced the domestic herd. In a recent
development, the GBRV has threatened to expropriate beef
processors. Beatrice de Diaz (protect),the director of a
local cattle breed association, told AgOff that cattle
numbers will continue to decline for at least three to five
more years and will only recover if current policies are
reversed.

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COMMENT
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9. (C) For the past month, Commerce Minister Saman has made
numerous public statements regarding the GBRV's desire to
increase trade with its ALBA allies and other favored trading
partners such as Argentina. The diplomatic dispute with
Colombia appears to have given new impetus to these efforts,
but it is interesting to note that these favored trading
partners appear to be subject to the same demands for
technology transfer and will be subject (in theory) to the
same investment requirements that the GBRV is reportedly
seeking to impose on other new investors. Commerce Minister
Saman's public claim that it is cheaper to ship from
Argentina than from Colombia seems dubious on its face, but
indicative of GBRV efforts to downplay the costs of the
rupture with its natural trading partner, Colombia. Based on
our conversations with the Foreign Agricultural Section in
Embassy Buenos Aires, it is also unlikely that Argentina can
export enough beef to Venezuela to replace Colombian imports

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completely. In the short-term, this shift in trade
preferences is likely to new cause supply shortages and
stimulate activity in the parallel market. In the
medium-term, it could create additional economic
inefficiencies and increase costs for the Venezuelan consumer.
DUDDY