US embassy cable - 05CARACAS165

C O N F I D E N T I A L  CARACAS 000165 
 
SIPDIS 
 
 
STATE FOR WHA/AND 
NSC FOR CBARTON 
TREASURY FOR OASIA-GIANLUCA SIGNORELLI 
HQ USSOUTHCOM FOR POLAD 
 
E.O. 12958: DECL: 09/30/2014 
TAGS: ECON, ETRD, PGOV, VE 
SUBJECT: GRANDA AFFAIR CAUSES TRADE JITTERS 
 
Classified By: ECONOMIC COUNSELOR RICHARD M. SANDERS FOR REASON 1.4 D 
 
1. (C) SUMMARY: On January 14, in a speech to the Venezuelan 
National Assembly, President Chavez announced that he was 
suspending trade ties with Colombia as a result of the 
alleged kidnapping of FARC "Foreign Minister" Rodrigo Granda. 
 In the aftermath of this announcement, banks and companies 
with interests in trade with Colombian- the second biggest 
trading partner after the United States- have been scrambling 
to put together contingency plans in case of a border 
closure.  As of January 19, the border has not been closed, 
and trade has slowed down only marginally as Venezuelan 
authorities put a bit more rigor into what are usually 
cursory inspections of documents and cargo.  Gasoline 
smuggling appears to be the one area in which the GOV seems 
to be really taking action. END SUMMARY 
 
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Repercussions of the Granda Grab 
-------------------------------- 
 
2. (C) Asserting an unsatisfactory Colombian response to the 
alleged violation of Venezuelan sovereignty in the capture of 
Rodrigo Granda, the "Foreign Minister" of the Colombian FARC 
rebel group, President Chavez announced on January 13 that he 
was recalling the Venezuelan Ambassador from Bogota, and on 
January 14, that he was freezing "all business, all 
agreements" with Colombia.  Chavez specifically mentioned the 
$200 million gas pipeline project agreed to between the two 
countries in July and which would facilitate the 
transportation of natural gas to Venezuela for re-injection 
into PDVSA's oil fields in western Venezuela.  In addition, 
although not mentioned in his speech, we understand that the 
next in a series of high-profile bilateral business missions 
with senior government participation which was to take place 
in Cartagena, has been put on hold. 
 
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Business is Concerned 
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3. (C) Colombia is Venezuela's second largest trading partner 
after the United States.  Cross-border trade amounted to 
nearly US$2.5 billion in 2004.  Venezuela exports to Colombia 
are made up primarily of steel and petrochemicals, while 
Colombian exports include textiles, cars and car parts, food, 
pharmaceuticals, and plastics.  Following the Chavez's 
vaguely phrased announcement, companies in Venezuela 
scrambled to activate what contingency plans they had if the 
border were in fact to be closed.  Particularly concerned 
were multinational automobile companies who rely on foreign 
parts for their Venezuelan assembly plants.  In conversation 
with a Valencia-based NAS customs advisor on January 18, 
executives from General Motors said they rely in large 
measure on parts imported from Colombia.  Ford, too, relies 
heavily on parts from Columbia, but reported that it can 
shift its supply chain to alternate suppliers in Brazil, 
Argentina and Mexico. 
 
4. (C) Gustavo Marturet, President of Banco Mercantil, one of 
the largest locally owned banks in Venezuela, told Econcouns 
on January 18 that he was deeply concerned by Chavez's 
remarks of January 14 since his bank has major financial 
exposure to cross-border trade.  He said that he and his 
counterparts at Banco de Colombia had been investigating 
possible impacts on bank exposure and were relieved to hear 
that trade has been largely unaffected.  He remains cautious 
regarding possible future actions by the GOV. 
 
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Facts on the Ground 
------------------- 
 
5. (C) On January 18, Carmen Leonor Martinez, Executive 
Director of CAVECOL, the Venezuelan-Colombian Chamber of 
Commerce, told Econoff that goods continue to flow across the 
border in both directions, though traffic into Venezuela was 
much slower than normal. Martinez also reported a marked 
increase in the number of Venezuelan National Guard troops 
along the border, and that document requirements-- normally 
loosely enforced if enforced at all-- were being strictly 
enforced.  She also reported that Colombian exporters were 
 
hesitant to send additional shipments to Venezuela for fear 
that their trucks would be confiscated or that the GOV would 
not authorize hard currency payments through the foreign 
exchange authority CADIVI.  She said that agricultural 
concerns in Colombia were particularly concerned since they 
export large quantities of milk and corn flour to Venezuela 
for sales through the GOV's Mercal chain of stores aimed at 
low income consumers. 
 
6. (C) Members of the Venezuelan National Guard in the state 
of Tachira, stationed near the border with Colombia, told 
Emboff the border was never actually closed and they had not 
received any orders to do so.  There was however a two-day 
operation to crack down on gasoline smuggling across the 
border.  They suggested that this crackdown was provoked by 
the increase in political tension between the two countries. 
DAO sources reported that the pro-Chavez commander who 
controls the border in the state of Zulia attempted to close 
the border there, but relented when the indigenous Guajiro 
population, many of whom hold both Venezuelan and Colombian 
citizenship, began protesting. 
 
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Gasoline Smuggling 
------------------ 
 
7. (C) Gasoline smuggling is a fixture in the border area, 
where Colombians make regular cross-border visits to 
Venezuelan gas stations to buy gasoline at the officially 
mandated price of 97 Bolivars per liter (US$.05 at the 
official rate).  The gasoline is then sold in Colombia at a 
hefty premium, but still less than the Colombian market price 
of around US$.50 per liter.  According to media reports, 
PDVSA, the Venezuelan state oil company, has now resumed 
supplying gasoline to stations along the border, which had 
been halted on January 17, including the special border 
stations that allow Colombians to make purchases.  However, 
these stations will be open for fewer hours than they had 
been before.  As a result of gas shortages on the Venezuelan 
side of the border, the price of black-market gasoline in 
Colombian border towns has reportedly doubled since last week. 
 
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Comment 
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8. (C) The GOV's crackdown on gas smuggling in the border 
region appears to be a way to remind Colombia that Venezuela 
does have some leverage; however, the relationship is 
symbiotic, and a full-scale border closure would entail the 
GOV subjecting its economy to another shock at a time when it 
appears to be gaining traction.  Nonetheless, in a government 
where politics tends to trump economics it cannot be ruled 
out.  For now, trade appears to be moving fairly normally. 
With the dispute between the two governments still 
unresolved, businessmen have every reason to remain nervous. 
McFarland 
 
 
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      2005CARACA00165 - CONFIDENTIAL