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FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 1676
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
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UNCLAS SECTION 01 OF 03 MEXICO 003321 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PREL ECON ETRD MX
SUBJECT: ENGAGING THE NEW MEXICAN ADMINISTRATION ON TRADE 
AND COMPETITIVENESS ISSUES 
 
REF: MEXICO 3305 AND PREVIOUS 
 
¶1. (SBU) Summary:  This is the fourth in a series of six 
cables on transition issues in Mexico.  Modern 
infrastructure, including energy, transport, and 
telecommunications; respect for the rule of law; and 
vigorous and open trade under NAFTA will provide the 
foundation to build a competitive Mexican society.  As a 
partner, we must find ways to bring our own expertise to 
Mexican leaders and educate Mexican citizens as to the 
reforms Mexico needs while being sensitive to our shared 
history and many Mexicans' mistrust of our motives and our 
message.  End summary. 
 
Energy 
------ 
 
¶2. (U) Mexico's oil production will decline beginning this 
year.  Pemex has several opportunities to make up lost 
production but these are medium- and long-term projects 
that hinge on its ability to partner with foreign firms to 
bring expertise and investment capital.  Mexico's greatest 
potential lies in the deep water of the Gulf of Mexico, but 
constitutional restrictions prevent Mexico from sharing 
ownership of the reserves with a foreign partner, an almost 
necessary condition for attracting outside participation. 
The only reforms now under discussion are modest changes to 
Pemex's corporate structure that would allow the company to 
retain and invest a greater share of its earnings. 
Mexico's new leadership will have to confront real changes 
immediately upon taking office to permit the new 
developments needed to offset a significant medium-term 
fall in production. 
 
¶3. (SBU) Engagement:  Any of the three candidates will 
bring with them a desire to address the situation along 
with experts well schooled in the industry.  It is just as 
likely; however, that the incoming legislature will be 
divided and without the basic energy background to make 
informed decisions on the topic.  Though energy in Mexico 
has traditionally been a "third rail" issue for U.S. 
engagement, incoming Mexican legislators would benefit from 
a non-politicized discussion on the basics of oil 
exploration, production, transportation, refining, and 
marketing; the situation in Mexico; and how Mexico's energy 
industry relates to the global market. 
 
¶4. (U) Activity:  Organize through local NGOs or 
universities, a seminar for Members of Congress and their 
key staff on energy and oil, to be taught by a leading 
Mexican or Latin American Institution through a study-trip 
to Brazil or Norway -- successful examples of countries 
like Mexico, with substantial petroleum reserves as well as 
a state-run oil company. 
 
Telecommunications and Information and Communications 
Technology (ICT) 
--------------------------------------------- -------------- 
---- 
 
¶5. (U) New investors have been unable to offer competitive 
services in the broadcast and telecommunications sector, 
leaving consumers and businesses unable to afford the high 
price of expansion.  The International Telecommunications 
Union's "Digital Access Index" ranks Mexico 64th, well 
behind nearly all other OECD members.  Meanwhile, Telmex 
continues to control 95 percent of the fixed line market 
and charges high prices for network access. 
 
¶6. (U) Engagement:  The incoming administration and 
legislature will face the same roadblocks in the regulation 
and promotion of ICT.  Mexico has moved slowly in the past 
to develop enabling policies in the sector, and technical 
developments will come even more rapidly over the next six 
years.  We should use our position to better inform opinion 
leaders, as well as the general public, as to the changes 
that will be necessary to ensure that Mexico can develop 
the IT and telecommunications infrastructure necessary to 
compete. 
 
¶7. (U) Activities: 
 
-- Encourage regulator-to-regulator contact between Cofetel 
and the FCC and DOC.  Sponsor speaking tours and Mexican 
appearances of IT and telecommunications professionals from 
other nations' private sectors. 
 
 
MEXICO 00003321  002 OF 003 
 
 
-- Develop a one-day conference targeting incoming 
executive branch officials and legislators to help raise 
the visibility of ICT as a key component in Mexico's global 
competitiveness.  Speakers for the conference will be drawn 
from our respective governments, multilateral 
organizations, academia, industry and third countries (such 
as Chile).  We would enlist the support of the Institute of 
the Americas to stage the event, which will be held in 
early October. 
 
Transportation 
-------------- 
 
¶8. (U) Logistics costs in Mexico are some of the highest in 
the world, reaching over 15 percent of GDP due to both a 
lack of infrastructure and operating inefficiency.  While 
the GOM began rail reforms in 1996, a disproportionately 
large quantity of goods are transported by road at higher 
cost and lower efficiency. 
 
¶9. (U) Engagement: In April 2006, the U.S. Trade and 
Development Agency (USTDA) gave the Secretariat of 
Transportation and Communications (SCT) $1.3 million to 
develop a master plan for developing multi-modal corridors 
in Mexico to improve transport and logistics.  We must go 
further. 
 
¶10. (U) Activities: 
 
--Engage the GOM in transition for follow-through on the 
completion and implementation of the USTDA Master Plan as a 
guide for logistics development to improve domestic and 
international trade. 
 
-- Bring logistics experts from around the world to 
seminars and speaking engagements to raise public 
understanding that high transport costs sap Mexican 
competitiveness. 
 
Commercial Law Reform 
--------------------- 
 
¶11. (U) Mexico needs to attract more private  investment- 
both domestic and foreign, and by large  corporations as 
well as small and medium size enterprises -  to create more 
jobs and improve Mexico's supply system.  Mexico's 
antiquated and inefficient justice system and the  ongoing 
criminalization of commercial disputes are major 
constraints for commerce and investment.  Mexican leaders 
from all three major political parties are pushing for 
criminal law reform; experts are also advocating for 
comparable reform of the commercial law system. 
 
¶12. (U) Engagement:  Commercial law reform would increase 
investor confidence in Mexico and would contribute directly 
to improved competitiveness and future economic growth. 
Building on the success we have had promoting criminal 
justice reform, we propose to address the commercial side 
early-on with the next administration. 
 
¶13. (U) Activity:  Offer the presidential transition team a 
highly-structured seminar featuring presentations and Q&A 
by Mexican commercial law reform advocates and 
international experts on the legal reform process.  USAID 
will complement this initial high-level approach with a new 
project involving government and business associations to 
promote Mexican commercial law reform. 
 
Trade and NAFTA 
--------------- 
 
¶14. (U) Depending on the Presidential victor, the sectoral 
openings already achieved under NAFTA -- and the remaining 
few scheduled for 2008 -- could come under threat.  To 
protect NAFTA we must make certain that the Mexican people 
understand and accept all the benefits it has brought them. 
 
¶15. (U) Engagement:  Full NAFTA liberalization is scheduled 
for January 1, 2008, with final phase-out of controls on 
trade in some of the most sensitive products-corn, beans, 
milk powder and poultry.  We should engage the new 
administration early on to ensure these openings are not 
reduced or delayed. 
 
¶16. (U) Activities: 
 
-- Coordinate a Public Diplomacy campaign with Canada and 
 
MEXICO 00003321  003 OF 003 
 
 
Mexico that explains to Mexicans the benefits they have 
earned over twelve years of NAFTA implementation.  Work 
with the Secretariat of the Economy to provide content and 
technical support as they work through the summer to update 
the original 1994 NAFTA promotional video.  Ensure senior 
U.S. officials appear in the film.  Arrange to show the 
film in public venues throughout Mexico, including, for 
starters, airports and our own visa waiting areas. 
 
-- Encourage USTR to meet with the transition team and the 
new Secretaries of Economy and Agriculture as soon as 
possible to ensure that USG views on the final NAFTA 
openings are clearly understood.  USTR must emphasize the 
importance of working together to facilitate global free 
trade. 
 
 -- USDA and Mexico's Secretariat of Agriculture (SAGARPA) 
have begun a joint analysis on integrating U.S. and Mexican 
markets for white corn and beans. Once we complete this 
study, we plan to convene a seminar in late fall for 
leading agricultural officials from both countries to 
present key findings and possible problem areas.  The 
transition team should participate in this process. 
 
-- Schedule a Consultative Committee on Agriculture (CCA) 
in the fall that will include incoming and outgoing 
officials to promote continuing this tool to resolve 
agricultural trade problems. 
 
BASSETT