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 SIPDIS HQ SOUTHCOM ALSO FOR POLAD TREASURY FOR MKACZMAREK NSC FOR RKING SECSTATE PASS AGRICULTURE ELECTRONICALLY USDOC FOR 4332 MAC/ITA/WH/JLAO 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. -------------- GBRV TO SHIFT AXIS OF TRADE -------------- ¶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. -------------- COLOMBIAN CARS FOR OBAMA -------------- ¶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." -------------- CUTTING THE TIES THAT BIND -------------- ¶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 CARACAS 00001062 002 OF 003 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. -------------- WHERE'S THE BEEF? -------------- ¶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. -------------- COMMENT -------------- ¶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 CARACAS 00001062 003 OF 003 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