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Venezuela: Background and Cases

[Venezuela Economic Engagement Condition Neg] [Venezuela Economic Engagement Condition Aff]
[Full Bibliography]

The United States enjoyed relatively normal trade and investment relations until 1999 when socialist Hugo Chavez assumed the presidency.  After that, relations went downhill fast.

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In 2002, Chavez accused the Bush administration of attempting a coup against him when he was briefly ousted from power. In 2005, President Bush certified that Venezuela “failed demonstrably during the previous 12 months to adhere to their obligations under international counternarcotics agreement,” though the President waived the economic sanctions that were to accompany that decision. Since May 2006, the Department of State that, pursuant to Section 40A of the Arms Export Control Act, has prohibited the sale of defense articles and services to Venezuela because of lack of cooperation on anti-terrorism efforts. In 2008, Venezuela cut-off diplomatic relations with the US after accusing a US ambassador of cooperating with anti-government groups in Bolivia.

Formal relations were re-established in 2009 after Obama was elected, but significant tensions remain in the relationship. There are a number of Venezuelan politicians who believe that the US essentially assassinated Chavez, exposing him to a dangerous form of cancer. Their belief is magnified by the fact that a number of other leading leftist politicians in Latin America are also suffering from cancer.  In March of this year, Venezuela expelled two U.S. diplomats from the U.S. and the U.S. then expelled two of Venezuela’s diplomats. Venezuela then cut-off contact with the U.S., claiming that the U.S. sought to interfere with the upcoming presidential election.

A number of actions by Venezuela, including only a limited willingness to cooperate in the war on terror and the war on drugs and its strong relations with Cuba and Iran, have alienated US policy-makers.  Some hope, however, the election of a new President in mid-April will open up opportunities for an improvement in relations.

Most recently, U.S. Secretary of State John Kerry met with Venezuelan officials to law the foundation for talks.  This suggests that there is the potential for improved relations.

Although relations are poor, the US does have a substantial trade relationship with Venezuela and continues to import oil from the country. The U.S. goods trade deficit with Venezuela was $30.9 billion in 2011, up $8.8 billion from 2010. U.S. goods exports in 2011 were $12.4 billion, up 16.0 percent from the previous year. U.S. exports of private commercial services (i.e., excluding military and government) to Venezuela were $5.0 billion in 2010 (latest data available), and U.S. imports were $729 million. Sales of services in Venezuela by majority U.S.-owned affiliates were $3.9 billion in 2009 (latest data available), while sales of services in the United States by majority Venezuela-owned firms were $806 million (US Trade Representative, 2011).

Since Venezuela is a major supplier of foreign oil to the United States, providing 9.7% of U.S. crude oil imports in 2011 (and 8.3% of total crude oil and petroleum products imports), a key U.S. interest has been ensuring the continued flow of oil exports. 9 Venezuela’s oil exports to the United States amounted to about $42 billion in 2011, accounting for 97% of Venezuela’s total exports to the United States (Sullivan, 2013b).

One difficulty with expanding trade and investment is Cuba’s nationalization of industry. The government continues to control key sectors of the economy, including oil, petrochemicals, and much of the mining and aluminum industries. Venezuela began an ambitious program of privatization under the Caldera administration (1994 to 1999), but under President Chavez (since 2000) privatization has been halted and the government has re-nationalized certain key sectors of the economy. In 2007, the government nationalized certain electricity and telecommunications providers. In 2009, the government nationalized a food production plant and 76 oil field services companies. In 2010, the government nationalized a number of companies involved in the agricultural sector, drilling rigs belonging to a U.S. company, and a number of housing projects.

The United States has imposed sanctions: on several Venezuelan government and military officials for helping the Revolutionary Armed Forces of Colombia (FARC) with drug and weapons trafficking; on three Venezuelan companies for providing support to Iran; and on several Venezuelan individuals for providing support to Hezbollah (Sullivan, 2013a). In October 2008, the Treasury Department froze the assets of an Iranian-owned bank based in Caracas linked to an Iranian export bank that allegedly provided or attempted to provide services to Iran’s ministry of defense (Sullivan, 2013b).

On May 24, 2011, the State Department also sanctioned the Venezuelan oil company, Petróleos de Venezuela (PdVSA), for providing two shipments of reformate, an additive used in gasoline, to Iran, between December 2010 and March 2011. The shipments were valued at around $50 million. Under the sanctions, PdVSA is prohibited from competing for U.S. government procurement contracts, securing financing from the Export-Import Bank, and obtaining U.S. export licenses.

As a result of increased social spending, the rate of poverty fell from about 49% in 2002 to about 29% in 2011.  On the other hand, President Chávez also left a large negative legacy, including the deterioration  of democratic institutions and practices, threats to freedom of expression, high rates of crime and  murder (the highest in South America), and an economic situation characterized by high inflation  (over 20% in 2012), crumbling infrastructure, and shortages of consumer goods. Ironically, while Chávez championed the poor, his government’s economic mismanagement wasted billions that potentially could have established a more sustainable social welfare system benefiting poor Venezuelans.

Given Venezuela’s substantial oil wealth and economic support for other countries, the U.S. has only provided a limited amount of foreign aid to Venezuela and this has focused on counternarcotis support and democracy assistance. There are some proposals to increase economic engagement with Venezuela, but unlike in the instances of Cuba and Mexico, there are very few of them.

*Allow the sale of defense articles and services

*Remove the sanctions that have been discussed above

* In the aftermath of the presidential election, there could be an opportunity for U.S.-Venezuelan relations to get back on track. An important aspect of this could be restoring ambassadors in order to augment engagement on critical bilateral issues, not only on anti-drug, terrorism, and democracy concerns, but on trade, investment issues, and other commercial matters (Sullivan, 2013).

*Reverse the designation of Venezuela as a country that has failed to live up to its anti-drug obligations.

*Condition economic engagement on Venezuelan democratization (Planet Debate File; Citations)

Bibliography [Additional citations]

AFP (2013). Venezuela looks beyond US to China as customer. http://www.rappler.com/world/23924-venezuela-united-states-china-oil

Bonfili, Christian. (2013). The United States and Venezuela: The Social Construction of Interdependent Rivalry. Security Dialogue, February.

Department of State. (2013). Background Briefing on the Situation in Venezuela. http://www.state.gov/r/pa/prs/ps/2013/03/205689.htm

Thomas A. Shannon, Assistant Secretary of State for Western Hemisphere Affairs, hearing on “Venezuela: Looking Ahead,” House Committee on Foreign Affairs, Subcommittee on the Western Hemisphere, July 17, 2008.

DeYoung, Karen. “U.S. Will Seek to Improve Ties with Venezuela,” Washington Post, March 7, 2013.
Sullivan, Mark. (2013a). Hugo Chavez’s Death: Implications for Venezuela and U.S. Relations. March 8, http://www.fas.org/sgp/crs/row/R42989.pdf

Sulivan, Mark. (2013b). Venezuela: Issues for Congress. http://www.fas.org/sgp/crs/row/R40938.pdf

USTR. (2011). Venezuela. http://www.ustr.gov/sites/default/files/Venezuela.pdf