Andean Group - August 2009 (ISSN 1741-4466)

President Hugo Chávez 's reaction to the new US-Colombia military bases deal (and to a perceived “pattern of aggression" against him by rightwing elements in Colombia, the US and elsewhere) was entirely predictable - on 28 July, only six months after ambassadorial relations between Caracas and Bogotá had been restored, he recalled his ambassador once again and announced the freezing of trade relations.   Chávez is clearly threatened by the prospect of sophisticated US military installations across the border, however his bellicose rhetoric (“the winds of war are blowing across the region") may belie a deeper fear: the gradual erosion of his sphere of influence in the region.

Arguably, Colombia's President Alvaro Uribe has played his cards rather better than Chávez in this latest row. Although the Colombians initially acted clumsily by springing news of the deal on the region - its failure to talk to Brazil was a particular miscalculation - Uribe's hastily arranged regional tour to explain the deal to the major powers that matter, Brazil and Chile, helped ensure that the 12-member Union of South American Nations (Unasur) did not issue an outright condemnation of the deal at a presidential summit in Quito, Ecuador on 10 August, much to Chávez 's chagrin. Uribe also agreed to attend a special Unasur summit in Argentina on 28 August to clarify the deal. With the tacit support of Brazil, Uribe will likely try to broaden the agenda at that meeting to discuss all regional military pacts, which would allow Brazil (and others) to use Unasur to find out exactly what Venezuela has agreed with allies in Russia, China and Iran.

Chávez 's reaction to Uribe's 15 August diplomatic overtures to Ecuador's Rafael Correa (which was also preceded by apparent US overtures to the Ecuadorean leader, with praise for his efforts against the Colombian guerrilla group, the Fuerzas Armadas Revolucionarias de Colombia) was also telling: on 16 August he accused Uribe of “cynicism without limits", and said it would be “impossible" for him to consider restoring relations with Colombia. On 18 August, in the wake of a Washington meeting between   Colombia's foreign minister, Jaime Bermúdez, and the US Secretary of State, Hillary Clinton, he vowed to lead the regional movement against the 'done-deal' on the bases.

Some analysts see in the Colombian/US overtures to Ecuador an effort to try and prise the leftist Correa, who has always kept a subtle distance from Chávez , away from his radicalising influence and, with the quiet endorsement of other regional powers like Brazil and Chile, to continue to 'contain' (if not isolate) Chávez , whose main ally in the Southern Cone region remains Bolivia's Evo Morales.

However, if this is the tactic, it's surely coming a little late; after a lengthy period on the fence, Ecuador finally signed up to Venezuela's regional trade and integration initiative, Alba, last year, and Correa has appeared to tack further to the radical left since his recent re-election under a new 'Bolivarian' constitution. Personally, Correa is also ambivalent towards the US.

Meanwhile, bilateral trade between Colombia and Venezuela, which has previously been resilient to the recurring diplomatic conflict between the two governments, appears to be in some jeopardy. On 18 August the president of Venezuela's leading private sector association, Fedecámeras, Noel Alvarez, called on the Chávez government to carefully consider the ramifications of the trade freeze, warning of imminent shortages. Alvarez was dismissive of a new US$1.1bn bilateral trade deal signed by Chávez and Argentina's Cristina Fernández on 11 August, aimed at substituting Colombian imports, suggesting it was unrealistic. He warned that the sudden imposition of stricter border controls and increased bureaucracy in the previous week, which he suggested was purely politically motivated, had already had a crippling impact on imports of essential raw materials and intermediary goods from Colombia.

The reality is that the loss of Colombian imports will likely cause more of a headache for Venezuela than Chávez admits to. Aside from industrial inputs, Venezuela sources most of its food and agricultural imports from Colombia - basic goods that it simply cannot do without. At the same time, Uribe would also quickly come under pressure from Colombian business sectors if export flows were to slow dramatically. Venezuela is Colombia's second biggest export market after the US, and the bilateral trade balance is heavily skewed in Colombia's favour (US$6.0bn of a total US$7.29bn in 2008).

• Trade breakdown

Colombian exports to Venezuela are dominated by industrial products (accounting for 78% of the total in 2008) including autos, machinery and equipment and basic inputs (metallurgy, chemicals and paper), as well as light industrial items like textiles and clothing, leathers, plastics, soap and cosmetics. Primary products, led by agri and livestock products, including foods, make up 22% of the export basket. Colombia sources some oil derivatives from Venezuela (5.9% of the 2008 total), but its import basket is dominated by basic industrial inputs (92.4% of the total), which are likely then re-exported back to Venezuela in finished goods.