COLOMBIAN EXPORTS TO VENEZUELA FALL OFF A CLIFF

C O N F I D E N T I A L BOGOTA 000177 SIPDIS E.O. 12958: DECL: 2020/02/08 TAGS: ETRD ECIN ECON PREL CO SUBJECT: COLOMBIAN EXPORTS TO VENEZUELA FALL OFF A CLIFF REF: 09 BOGOTA 3313; 09 BOGOTA 2627; 09 BOGOTA 1431 CLASSIFIED BY: Timothy Stater, Economic Counselor; REASON: 1.4(B), (D) ¶1. (C) SUMMARY. The last six months of 2009 saw a dramatic decrease in Colombia's exports to Venezuela. Any exports that require administrative permits or preferential exchange rate dollars have virtually dried up. The GOC speculates that smuggling has spiked and holds out little hope for a bilateral agreement before Venezuela's trade obligations under the Andean Community expire in April 2011. The GOC is moving toward filing a WTO case against Venezuela. END SUMMARY. EXPORTS TO VENEZUELA IN FREEFALL -------------- ¶2. (SBU) During the first half of 2009, Colombian exports to Venezuela remained virtually unchanged, compared to 2008, despite the global recession's negative impact on overall Colombian exports. However, following Venezuelan President Chavez' July 28 announcement of a freeze in bilateral diplomatic relations and mid-October instructions to issue no more sanitary or phytosanitary certificates to Colombian products, Colombian exports to Venezuela took a dramatic tumble. Exports of products that require any sort of administrative forms or preferential exchange rate dollars have fallen to virtually zero, according to GOC officials. Overall monthly declines were: July -29%; August -46%; September -49%; October -70%; November -71%; and December -76%. ¶3. (SBU) The net result for 2009 was just over $4 billion in Colombian exports to Venezuela, a 33% drop, compared to a 14% overall decrease in exports. While the fall is dramatic, two important factors offer some context. First, exports to Venezuela jumped significantly in 2007 (from $2.6 billion to $5.1 billion). They set another record in 2008 ($6 billion). So even if the decline continues at its current pace, which is likely, 2010 exports to Venezuela will finish at roughly 2006 levels. Second, GOC officials tell us they believe that contraband exports to Venezuela have increased, based on the fact that border regions -- those hardest hit by trade restrictions -- have not complained nearly as vociferously as one would expect, given the sharp fall in trade. NO AGREEMENT IN SIGHT -------------- ¶4. (SBU) Venezuela is supposedly bound by its Andean Community commitments for five years from its April 2006 withdrawal from the organization. The Colombian government had made it a priority for the last several years to reach some sort of bilateral trade agreement that could be in place by April 2011 (Ref C). GOC officials even crafted a cut-and-paste of ALBA agreements that they thought might gain more traction with their Venezuelan counterparts, but to no avail. Colombian Trade Ministry officials continue to take a pragmatic approach to Venezuela, but note there is little meaningful they can do as exports to their second largest market trend toward zero. ¶5. (C) In October 2009, Colombia notified the WTO Committee on Sanitary and Phytosanitary Measures of the Venezuelan measures to restrict agricultural exports from Colombia. According to Colombian Trade Ministry Director of Economic Integration, Alfredo Ramos, Colombia will likely file a formal case against Venezuela in the coming weeks. Ramos said that the case is less about recovering the Venezuelan market and more about bringing international attention to Chavez' bellicose actions. BROWNFIELD