INDEPENDENT NEWS

Cablegate: Mexico Committed to Successful Trade Relationship,

Published: Tue 12 Jun 2007 10:22 PM
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PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #3080/01 1632222
ZNR UUUUU ZZH
P 122222Z JUN 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 7462
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
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UNCLAS SECTION 01 OF 04 MEXICO 003080
SIPDIS
US MISSION GENEVA
SENSITIVE
SIPDIS
SECSTATE FOR A/S SHANNON AND DAS JACOBSEN
SECSTATE FOR WHA/MEX, WHA/ESP, EB/TPP
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GWORD
TREASURY FOR IA (ALICE FAIBISHENKO)
SECSTATE PASS TO USTR (EISSENSTAT/MELLE/SHIGETOMI/VETTER)
SECSTATE PASS TO FEDERAL RESERVE (CARLOS ARTETA)
USDA FOR FAS/ONA
NSC FOR DAN FISK
GENEVA FOR USTR/SHARK
E.O. 12958: N/A
TAGS: ERTD ECON MX
SUBJECT: MEXICO COMMITTED TO SUCCESSFUL TRADE RELATIONSHIP,
BUT WORRIED ABOUT DOMESTIC POLITICS
SUMMARY
-------
1. (SBU) The Calderon administration recognizes the vital
economic role played by a bilateral trade relationship that
is, on the whole, quite healthy. Nonetheless, Mexican
officials are worried about the political implications of a
growing perception in Mexico that NAFTA implementation is a
one-way street and used a recent USTR visit to call for
clear signals ton cross-border trucking, tuna, and
avocadoes that would counter this perception. USTR reps
stressed the need for full Mexican NAFTA implementation and
highlighted the importance of progress on specific U.S.
concerns such as access to the conformity assessment
sector, broadcasting, and intellectual property rights
(IPR). GOM officials also raised their concerns about
MexicoQs, and North AmericaQs, slipping global
competitiveness and discussed ways to improve regional
competitiveness. End summary.
SETTING
-------
2. (SBU) Assistant U.S. Trade Representative for the
Americas Everett Eissenstat and USTRQs Director for Mexico
and NAFTA Affairs Kent Shigetomi had meetings with Mexican
officials from the agriculture ministry (SAGARPA), the
economics ministry (ECONOMIA), and the Office of the
Presidency (PRESIDENCIA) during a June 4 visit to Mexico
City. They also met with leaders of the American Chamber
of Commerce. Embassy reps from the Econ, FCS, and FAS
sections also took part.
SAGARPA: Hogs, Rice, Dairy, Corn, Beans
---------------------------------------
4. (SBU) Graciela Aguilar, SAGARPAQs Chief of Support and
Services for Agricultural Trade, described the pressure she
is getting from MexicoQs small pork producers for
protection from U.S. competitors. She said trade remedies
were not the answer and that SAGARPA will instead hand out
emergency subsidy payments to help them deal with higher
feed prices and increased competition. Not so with rice.
Mexico is preparing to request WTO consultations with the
U.S. regarding our commodity supports for rice. She said
that if the pending U.S. Farm Bill is not improved in this
regard, Mexico will have a strong WTO case that it expects
to win. She said the goal would be to push the U.S. toward
a more WTO-consistent approach. She said Mexico would
pursue this case alone, adding that it had rejected an
offer of counsel from the law firm that represented Brazil
in its cotton case against the U.S., and which had
recommended bringing along the same coalition of member
plaintiffs.
5. (SBU) Aguilar then turned to the U.S. dairy market,
which she termed a Qconfusing mess.Q She said Mexico
wanted a working group on dairy issues because the pressing
issues are not related to either tariffs or sanitary
concerns. Three big Mexican dairy producers want to export
Grade A milk and milk products (including cheese) to
Mexican communities in the U.S., but differing U.S. state
rules and lack of clear guidance from the Food and Drug
Administration continue to stymie their efforts and
encourage smuggling across the border of low-quality (and
potentially unsafe) Mexican cheeses. She said Mexico is
not currently planning to file a WTO dairy case, but is
considering this as an eventual option if it cannot get
access through talks. While recognizing the peculiarities
of the U.S. dairy market, AUSTR Eissenstat warned that even
WTO victories do not always bring about the plaintiffQs
original desired result. He said he would inform relevant
USG authorities of MexicoQs concerns.
6. (SBU) In contrast to the corn shortage and price hikes
MEXICO 00003080 002 OF 004
that Mexico experienced earlier this year, Aguilar
predicted that there will be a glut of white corn at the
end of 2007 and a likely drop in prices. As a result,
SAGARPA is planning to subsidize the export of 250,000
metric tons of corn, mostly to other Latin countries (these
shipments will receive traditional export subsidies) but
also including 60,000 metric tons to Canada and the U.S.
(these shipments will receive transportation subsidies).
Aguilar foresees a future in which Mexican corn producers
become increasingly oriented toward export markets,
predicting a pattern of bilateral corn trade keyed to our
two countriesQ different harvest schedules and varieties
(i.e., white corn for human consumption versus yellow corn
for feed). Aguilar noted how MexicoQs poor transportation
infrastructure balkanizes the countryQs corn market,
leading to outcomes that are irrational from a national
perspective. This is exacerbated, she said, by the
proliferation of small, informal tortilla makers, who are
inefficient and usually do not even pay taxes. The
stagnant demand for tortillas (consumption is very price
inelastic) also is a factor. She said Mexico wants to move
toward less trade-distorting supports for corn farmers,
i.e., from price supports to payments based on the area
cultivated. SAGARPAQs Coordinator for International
Affairs, Victor Villalobos, noted that SAGARPA will work
with USDA in a technical assistance project for corn
farmers in the state of Mexico, and another one aimed at
converting bean farmers to other crops in the state of
Zacatecas. Aguilar said these sorts of projects would help
deflect criticism from Mexican farmers who complain about
the lack of an explicit development component in the NAFTA
and smooth the transition to free trade in these products
next year.
ECONOMIA
--------
7. (SBU) The USTR delegation and emboffs subsequently met
with Beatriz Leycegui, the Sub-Secretary for Trade
Negotiations at ECONOMIA, Jorge Amigo, the Director General
of MexicoQs Industrial Property Institute (rough equivalent
of U.S. Patent and Trademark Office), Ken Smith Ramos,
ECONOMIAQs Director General for Negotiations, staff from
ECONOMIAQs regulatory affairs directorate, and other trade
officials. Leycegui gave an overview of MexicoQs recently
unveiled trade policy, which has three main pillars: 1)
successful conclusion of the Doha Development Agenda trade
talks; 2) full and final implementation of all NAFTA
obligations; and 3) increased integration with the rest of
the Hemisphere to better face rising competition from
Europe and Asia.
ECONOMIA: WHO LOVES NAFTA MORE?
-------------------------------
8. (SBU) With regard to NAFTA, Leycegui highlighted the
negative impact on trade ties of the recent U.S. federal
court decision against Mexican tuna, the ongoing attempts
by the state of California to restrict imports of Mexican
avocadoes, and continuing delays in the implementation of
cross-border trucking. Trucking delays in particular have
the potential to complicate MexicoQs implementation of free
trade in the sensitive agricultural sectors of corn, beans,
milk, and sugar at the start of next year. She said the
new Mexican Congress has a strong agricultural lobby, and
she is scared of a trade backlash based on a growing
Mexican perception that the U.S., while insisting that
Mexico comply with its NAFTA obligations, is not committed
to doing the same. Leycegui said that a failure to resolve
these issues could lead Mexico to file more WTO cases.
9. (SBU) AUSTR Eissenstat affirmed the AdministrationQs
commitment to honoring its NAFTA commitments, noting that
the roadblocks were being erected either by the Congress or
MEXICO 00003080 003 OF 004
courts. He said that we have likely seen the full extent
of legislative action on the trucking pilot program, and
said he was reasonably optimistic it would begin soon. He
described the AdministrationQs disappointment with the 9th
Circuit CourtQs ruling on dolphin-safe certification for
Mexican tuna and said the USG is considering next steps.
He also raised areas in which Mexico was impeding market
access to U.S. firms in violation of NAFTA obligations,
highlighting Mexican attempts to impose extraterritorial
standards on U.S. tequila products, the two-year struggle
of Underwriters Laboratory (UL) and Intertek to gain
permission to operate in MexicoQs conformity assessment
sector, and the legal harassment faced by GE/NBC in trying
to enter the television content market. Eissenstat pointed
out that the executive branch of the Mexican government had
the full authority necessary to resolve these issues. The
Mexican side responded that the GOM had worked very hard to
resolve the problems faced by UL and Intertek, but those
two companies were simply not willing to compromise.
Eissenstat said he would check back with them. On
broadcasting, Leycegui pointed out ECONOMIA per se is not
responsible for deciding these sorts of issues, which are
handled by the independent Federal Telecommunications
Commission (COFETEL). Eissenstat also raised MexicoQs
rampant piracy and counterfeiting, and encouraged stronger
cooperation via the Security and Prosperity Partnership
(SPP) working group on this issue. Jorge Amigo said he
would like to see MexicoQs National Agreement on the
Protection of IPR linked to the SPP process. After raising
U.S. concerns about a precipitous drop in U.S. exports of
pistachios to Mexico (which ECONOMIA said it would
investigate), Eissenstat underscored NAFTAQs huge net
benefits for both Mexico and the U.S. and said the two
sides needed to focus on the positive. He and Leycegui
discussed possible deliverables for the August NAFTA
ministerial, including a consumer electronics initiative,
an exchange of letters for implementing a third set of
changes to the NAFTA rules of origin, and others.
ECONOMIA: TRADE AND HEMISPHERIC COMPETITIVENESS
--------------------------------------------- --
10. (SBU) Leycegui said the Mexican private sector is not
enthusiastic about new free trade agreements (FTA),
preferring to focus on taking full advantage of the many
Mexico has already entered into, but that President
Calderon and President Garcia recently committed to
finalizing the Peru-Mexico deal that has been under
negotiation for some time. In view of MexicoQs (and North
AmericaQs) falling share of international trade, she said
everyone needed to do a better job of demonstrating the
concrete benefits of trade to their private sectors. She
also said greater hemispheric economic integration is
essential to improving the regionQs competitiveness, and
for that reason Mexico is concerned about the flat-line
pulse of the Free Trade Area of the Americas initiative.
Eissenstat summarized the state of U.S. regional trade
policy, emphasizing the current focus on winning
congressional approval for our bilateral FTAs with Peru,
Panama, and Colombia. He said it would be impossible to
make progress on a regional integration strategy if
Congress does not renew broad Trade Promotion Authority,
which expires at the end of this month. Until then, quiet
discussions of ideas for further integration were the best
approach.
PRESIDENCIA Q COMPETITIVENESS AGENDA
------------------------------------
11. (SBU) The USTR teamQs final meeting was with Felipe
Duarte, a top official in PRESIDENCIAQs Economic Cabinet.
Duarte said that MexicoQs macro-economic stability has been
satisfactory in recent years, but its growth rate has not.
Trade alone is not the panacea, and Mexico is under the gun
to show that responsible economic policies can deliver
MEXICO 00003080 004 OF 004
clear progress in reducing poverty to counter the negative
regional trend toward statist approaches. Duarte described
President CalderonQs Competitiveness Agenda, which aims at
the long-term goals of a stronger education system,
increased capacity to absorb technology, and more
innovation. In the short-term, the Agenda focuses on more
efficient customs procedures, smoother logistics, and
greater market access for Mexican goods. He noted that our
two countries must cooperate bilaterally and under the SPP
to improve security and facilitate trade across our common
border, and said that cross-border trucking should be
viewed in this context, as an important ingredient to more
efficient movement of goods within North America. He
asserted that superior logistics capacity was one of the
key advantages enjoyed by AsiaQs more dynamic economies.
12. (SBU) Staying on the trucking theme, he also echoed
Sub-Secretary LeyceguiQs request for visible signs of U.S.
commitment to implementing its more difficult NAFTA
obligations, noting the growing perception here that Mexico
is the only one doing the heavy lifting. Duarte also
recognized the growing anti-trade sentiment in the U.S. due
to our huge current account deficit and asked if that could
pose problems for the bilateral relationship. Eissenstat
replied that most economists attribute our deficit to
macro-economic factors, not trade, but in the world of
politics the reverse belief has a large following.
Fortunately for Mexico, China is taking most of the
political flak on trade from protectionists in the Congress
and elsewhere. He asserted that the Administration remains
committed to free trade, recognizing as it does that
economic growth among our partners is key to ensuring our
own long-term prosperity. Eissenstat said that the overall
U.S.-Mexico trade relationship is in excellent shape, and
we have a good track record of dealing pragmatically with
the problems that crop up.
13. (SBU) Again echoing Leycegui, Duarte said we now need
to look at how North America and the Western Hemisphere fit
into todayQs globalized world, and that Mexico would
appreciate any U.S. ideas regarding economic integration in
the Americas. Eissenstat expressed willingness to work
together on regional competitiveness, but advised taking
the process one step at a time. He also said the U.S.
stands ready to lend its assistance to Mexico as it works
to implement its domestic Competitiveness Agenda, whether
on telecoms issues, intellectual property rights,
competition policy, biotech, or alternative energy.
GARZA
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