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RR RUEHWEB

DE RUEHBO #2046/01 1762043
ZNR UUUUU ZZH
R 252043Z JUN 09
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 9543
INFO RUEHBR/AMEMBASSY BRASILIA 8997
RUEHCV/AMEMBASSY CARACAS 2368
RUEHLP/AMEMBASSY LA PAZ JUN LIMA 7666
RUEHQT/AMEMBASSY QUITO 8363
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS BOGOTA 002046 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN CO BR
SUBJECT: NEW FRONTIERS NEXT DOOR: GROWING ECONOMIC LINKS 
BETWEEN COLOMBIA AND BRAZIL 
 
¶1. SUMMARY:  The U.S. accounts for 70% of Colombia's export 
market, and the Andean region, especially Venezuela, accounts 
for almost all of the remaining 30%.  With a marked drop in 
U.S. consumer demand and increased difficulty in receiving 
payment for exports to Venezuela, Colombia is looking to 
diversify its economic links world-wide.  Brazil is at the 
center of its regional trade and investment ambitions. 
Despite Colombia's negative trade balance with Brazil and the 
fact that the two countries produce many of the same goods, 
Colombia is focused on increasing exports to Brazil in 
certain niche markets like auto parts and specialty clothing, 
and attracting Brazilian direct investment.  Because of its 
established trade links north-ward, Colombia hopes to attract 
Brazilian companies who see Colombia as a platform for 
distribution to the U.S. and world-wide.  Oft timid about 
reaching beyond markets where they are comfortable and 
established, Colombian business should not miss the 
opportunities presented by the huge market next door. END 
SUMMARY. 
 
Existing Agreements and Current Trade Imbalance 
--------------------------------------------- -- 
 
¶2. In 2008 Colombia's negative trade balance with Brazil 
stood at USD $1.6 billion, up from USD $369 million ten years 
earlier.  As part of the Latin American Integration 
Association (ALADI), until recently Colombia and Brazil had 
only half-heartedly promoted bilateral trade and investment, 
preferring to focus on U.S. and European markets.  The two 
countries signed a Complementation Agreement in 2004 
(CAN-Mercosur Number 59), which further smoothed their 
commercial ties.  In 2007 they penned a memorandum of 
understanding (MOU) to promote Colombian exports to Brazil. 
The result of these efforts, along with domestic policy 
changes to loosen protectionist policies, has been a surge in 
cross-border trade.  From 2006 to 2008, imports from Brazil 
increased by almost 25% (up from USD 1.8 billion in 2006 to 
USD 2.2 billion in 2008), and exports to Brazil were up 250% 
(from USD 185 million in 2006 to USD 641 million in 2008). 
Brazilian direct investment in Colombia increased 5-fold over 
the same two year period.  Petrochemicals and palm oil stand 
out as Colombia's largest exports to Brazil (totaling almost 
USD 270 million in 2008), while machinery, iron and steel 
(USD $515 million in 2008 and USD $211 million in 2008, 
respectively) are Colombia's largest imports from Brazil. 
Brazil now stands as Colombia's fourth largest trading 
partner, behind the U.S., Venezuela and China. 
 
 
Focus on Niche Markets, FDI and Exchange of Expertise 
--------------------------------------------- ----- 
 
¶3.  The fact that both countries produce many of the same 
goods for export has historically blunted Colombia's interest 
in the Brazilian market.  Since Colombia cannot compete in 
terms of quantity, the focus is on quality.  Carlos Rivera of 
ANALDEX (Export Association) highlighted niche markets in 
auto parts, specialty textiles, clothing, paper products, 
tobacco products and specialty food products as the most 
promising.  Francisco Solano, Director of the 
Colombo-Brazilian Chamber of Commerce told us that Colombian 
companies have also expressed interest in tapping the 
Brazilian market in sectors like dairy products and 
pharmaceuticals.  He cited several Colombian companies that 
have already begun operating in Brazil, including ISA 
(Interconexion Electrica S.A), which operates electrical 
distribution in Sao Paolo, Manuelita Sugar and Carvajal Paper 
Products. 
 
¶4. Attracting Brazilian FDI is a priority and growth area for 
Colombia.  Solano believes Colombia can learn from Brazil's 
experience in building its infrastructure and in developing 
industries like agriculture, energy and biofuels.  He cited 
investment by PetroBras, Vale do Rio Doce (coal), and Diaco 
(iron and steel) as examples of Brazilian companies importing 
technology and expertise though investment.  Bernardo Naranjo 
of the National Business Association (ANDI) referenced 
intra-company cooperation by multi-nationals, citing Michelin 
Colombia and Michelin Brazil's exchanges of goods and 
employees.  Although no formal investment treaty exists 
between the countries (the Ministry of Trade claimed the 
Brazilian government would not allow such a treaty), Yaylee 
Rangel, who handles Mercosur issues at the Ministry, told us 
Colombia is hopeful about Brazilian companies using its 
shores as a platform for exports to the U.S. and elsewhere, 
 
especially in the Colombia-U.S. FTA is approved. With a 
stronger link to the U.S. market, goods like shoes and other 
textiles could be produced by Brazilian companies in Colombia 
for export to the U.S. 
 
 
Buy Latin-American, Tentatively 
------------------------------- 
¶4.  With the great majority of its export eggs in the U.S. 
and Venezuelan baskets, Colombia has been scrambling to 
diversify trade links.  Brazil, a substantial market in 
Colombia's neighborhood, is a logical place to start.  Edith 
Andrade, Brazil desk officer at the Ministry of Foreign 
Affairs pointed to increased Brazilian imports from Colombia 
as part of President Lula's efforts to "buy Latin American." 
Issues such as relatively high transport costs (despite the 
physical proximity) and an obvious language barrier still 
hinder trade between the two countries, but improving 
transport links appears to be on Brazil's radar.  In June, 
2008, President Lula announced plans to invest USD 650 
million on a railroad to transport 10 million tons of coal a 
year from the coal mining region of Boyaca to the Caribbean 
coast.  While this project is not on Colombia's current list 
of critical infrastructure projects for the short term, it 
shows Brazil's long-term interest in trade and investment 
with Colombia. 
 
¶5.  Comment:  The Colombian business community has been 
regularly criticized for its conservative approach to 
expanding markets; Colombians tend to flock to where they 
traditionally have been successful, e.g. the U.S. and Andean 
neighbors, and are fearful of new territories (e.g. China, 
Russia, Brazil) where long-standing ties are lacking. But the 
economic crisis in the U.S. and changing political climate in 
Venezuela have revealed vulnerabilities in concentrating 
their export base, and the GOC has made concerted efforts to 
open new markets.  Brazil, so near physically but very far in 
other respects, is a logical target market, one which 
Colombia is just now beginning to explore effectively.  End 
Comment. 
 
 
 
 
 
 
Brownfield