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P 022016Z DEC 08
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TO RUEHC/SECSTATE WASHDC PRIORITY 2210
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
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C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 001638
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TREASURY FOR MMALLOY
COMMERCE FOR 4431/MAC/WH/JLAO
SECSTATE PASS AGRICULTURE ELECTRONICALLY
E.O. 12958: DECL: 12/03/2018
TAGS: ECON PGOV PREL ETRD EAGR VE
SUBJECT: VENEZUELAN GOVERNMENT VERSUS THE COMBO MEAL
REF: A. CARACAS 1090
B. CARACAS 1444
C. CARACAS 1570
Classified By: Economic Counselor Darnall Steuart for reasons 1.4
(b) and (d).
1. (C) SUMMARY: The Venezuelan consumer protection law,
passed July 2008, requires the government to approve all
sales promotions with an eye to curtailing "excessive
consumption" and punishing "capitalist impresarios" while
also seeking to eliminate hoarding and speculation,
particularly with food stuffs, medicines and cars. The law,
which lacks any implementing legislation, is wide open to
interpretation and has led to odd rulings resulting in
frequent restaurant closures and bans on such promotions as
fast food combo meals and "two for one Tuesdays". While some
franchises have reached a temporary compromise with the
consumer protection agency on how they can reinstate their
popular promotions without violating the vague provisions of
the law, the Venezuelan Franchise Chamber reports confusion
regarding the new law still reigns in the industry and
opportunities for official corruption are rife. END SUMMARY.
2. (C) On November 25, Emboffs met with XXXXXXXXXXXX Franquicias XXXXXXXXXXXX(protect) to discuss the new consumer
protection law.
XXXXXXXXXXXX called the new law, which was one of the 26 laws the
Venezuelan government passed in July 2008 (ref A), "very
dangerous" with ample opportunities for corruption. Because
the government has failed to establish any implementing
regulations, Institute for the Defense of Persons in their
Access to Goods and Services (Indepabis) inspectors are free
to interpret the law as they see fit. As a result, Indepabis
inspectors have fined and assisted in the closure of
franchises (ref B), with the latter resulting in considerable
tax revenue losses for the government, and ruled numerous
sales promotions illegal. Indepabis explained that in the
case of Domino's, "two for one Tuesdays" discriminated
against persons (Indepabis does not like the word consumer as
it is too capitalist) who would like to eat pizza on the
other days of the week. XXXXXXXXXXXX added the government is trying
to punish high profile "capitalist impresarios" in its quest
to advance its socialist, anti-consumerism agenda.
3. (C) McDonald's Latin American Global Communications
Manager told the Commercial section on December 1 that, of
its 134 restaurants in Venezuela, more than half of them
receive daily Indepabis inspections. XXXXXXXXXXXX indicated that
franchises such as McDonald's and Domino's have their lawyers
working around the clock to figure out ways to save
promotions such as the ever popular combo meal and two for
one promotions. Some appear to have reached tentative
agreements with Indepabis. Nevertheless, XXXXXXXXXXXX reported the
industry still does not know what the law means for
franchises, and restaurants fear the government could shut
them down at any time for any reason. The businesses have no
recourse for wrongful closure and fines as the Franchise
Chamber feels no court would seriously entertain their
appeals. Pharmacies have also been affected with Indepabis
banning economy sizes of over the counter medicines.
Indepabis reasoned that larger sizes encourage the "excessive
consumption" of medicine. Indepabis is also involved in the
possible prosecution of Ford dealers for "excessive profits"
(ref C).
4. (C) XXXXXXXXXXXX added that he sends weekly meeting requests to
Indepabis in the hopes that the agency will sit down with a
coalition of chambers from various industries to discuss the
law. In spite of the bottle neck caused by companies waiting
for approval for each of their proposed sales promotions, 25
percent of which Indepabis disapproves, the franchise
business is still booming. Prior to the elections, XXXXXXXXXXXX
said, the government was so busy campaigning it was not
taking care of the daily business of running the country.
Following the elections, XXXXXXXXXXXX is hopeful that the industry
will be able to develop a reasonable relationship with
Indepabis in spite of his sense that Indepabis feels there is
simply "too much advertising." In his opinion, restaurant
closures and promotion bans were wildly unpopular with the
public and Indepabis might now be more inclined to sit down
with industry to discuss transparent implementing
regulations. He complained, however, that the minute the
Chamber starts to make inroads with one minister and his
staff, they are replaced and the Chamber has to begin again.
5. (C) COMMENT: The sometimes comical Indepabis rulings
serve as yet more examples of the Venezuelan government's
visceral distaste for big business. As the government faces
falling oil prices and the subsequent shortage of dollars,
more attacks on foreign companies that promote "excessive
consumption" are likely. Nevertheless, as XXXXXXXXXXXX opined,
while the government can change the rules of the game as
often as it likes, it cannot stop the game from being played.
For the sake of US franchises, car sales etc., one can only
hope he is correct. END COMMENT.
CAULFIELD