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FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7617
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UNCLAS SECTION 01 OF 05 MEXICO 003300 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA HEATHER GOETHERT AND JOHN FINN 
STATE FOR L/CID SAM MCDONALD 
STATE FOR WHA/MEX AND WHA/EPSC 
TREASURY FOR IA MEXICO DESK ALICE FAIBISHENKO 
 
E.O. 12958: N/A 
TAGS: EINV ETRD KIDE CASC OPIC PGOV MX
SUBJECT: MEXICO 2007 REPORT ON INVESTMENT DISPUTES AND 
EXPROPRIATION CLAIMS - PART 1 
 
REF: STATE 55422 
 
¶1. Summary.  The United States Government is aware of 
eighteen (18) claims of United States persons that may be 
outstanding against the Government of Mexico (GOM).  Eight 
(8) cases are NAFTA Chapter 11 cases.  In addition, one (1) 
case was resolved in 2006. End Summary. 
 
¶2.    a.    Claimants A 
 
      b.    1975 
 
      c.    The Claimants signed a profit-sharing contract 
with a sulfur company controlled by the GOM.  The investors 
were to have received payments for the life of the contract, 
but, in fact, received nothing.  In 1975, the sulfur company 
offered to settle the dispute.  Several investors did settle, 
but sixteen did not.  The remaining sixteen were told by the 
company in 1980 that a $5 million settlement offer would be 
available, but no money was offered to the investors.  The 
investors were in frequent contact with the Department of 
State concerning their claim until August 1997, and despite 
the Department's attempts to assist, the dispute was not 
resolved.  As of June 2005, the Embassy's attempts to obtain 
current contact information on the company and updates on 
this case have been unsuccessful. 
 
¶3.    a.    Claimant B 
 
      b.    2000 
 
      c.    Claimants are a group of US citizens who, in the 
1970s and 1980s, leased beachfront land along the Baja 
California coast of Mexico.  The land is part of a 
37,000-acre land grant the GOM awarded in 1973 to about 80 
Mexican families.  By the late 1980s, the Mexican families, 
working through a Mexican developer, had leased most of the 
land to the Claimants and other foreigners, who paid up to 
$90,000 for 30-year leases and built homes, a hotel, and 
swimming pools. 
 
     In 1987, a private Mexican company claiming to be the 
original owner of the land sued the GOM to reclaim the land. 
The company argued that the GOM had illegally seized it 
through a bureaucratic error.  In 1995, the Supreme Court of 
Mexico agreed, ruling that the land was mistakenly included 
in the land grant, that it belonged to the prior Mexican 
owners, and that the developer did not have legal title to 
lease the land.  The U.S. Embassy subsequently attempted to 
facilitate discussions between Claimants and the legal 
Mexican landowners. 
 
     On October 23, 2000, the Mexican Supreme Court ordered 
the Mexican Land Reform Secretariat to evict the Claimants 
and the other foreign owners of 23 houses on the property, 
and return the land to the legal owners within ten working 
days. On October 30, 2000, the GOM began evicting the foreign 
owners.  U.S. Embassy officers were on site to ensure that 
the Claimants' rights and property were respected during the 
evictions. 
 
     Both before and since the October ruling, the Embassy 
has raised this issue at all levels of the GOM.  In November 
2000, the U.S. Ambassador noted to senior GOM officials that 
Claimants made their investments in good faith, and urged the 
GOM to actively promote negotiations between Claimants and 
the legal owners. 
 
     A number of members of Claimant have negotiated new 
lease arrangements with the legal Mexican landowners.  The 
U.S. Government has encouraged the Claimants to consult with 
legal counsel regarding their legal rights and options under 
Mexican law. 
 
     Claimants also brought their claims before a NAFTA 
Tribunal, submitting a Notice of Intent on October 27, 2000, 
which claimed a breach of NAFTA Articles 1102 (National 
Treatment), 1105 (Minimum Standard of Treatment), and 1110 
(Expropriation and Compensation).  The Claimants seek 
compensation of at least $75 million for damages caused by 
the GOM, as well as the costs associated with the current 
proceedings and previous legal actions undertaken in Mexico 
and the U.S., including pre-award and post-award interest. 
Claimants filed a Notice of Arbitration on February 16, 2001. 
 
 
MEXICO 00003300  002 OF 005 
 
 
 
     Consulate officials spoke to the remaining residents in 
May 2006, who reported that several of them hope to buy their 
property back.  However, the land cannot be sold until the 
boundaries are authoritatively determined by the federal 
government, and the owners of the land are able to agree on a 
common development plan with the municipal government.  The 
attorney representing the Claimants informed the consulate 
that the group of approximately 30 American citizens he 
represents had decided not to pursue the case through the 
Mexican legal system due to the cost involved.; He also 
stated that he knew of at least one case where a Claimant had 
been able to buy their property back. The Consulate will 
continue monitoring the case. 
 
¶4.    a.    Claimant C 
 
      b.    2001 
 
      c.    Claimant buys and sells the rights to external 
advertising.  The company has steel outdoor structures and 
buildings in Mexico City where billboards are placed. 
According to the Claimant, beginning in July 2001, Mexico 
City government authorities began cutting down some of its 
billboards without any notice.  The company claims that the 
city's removal and destruction of its steel structures 
constitutes an expropriation under NAFTA Article 1110.  On 
December 12, 2001, Claimant filed a notice of intent to 
submit a claim to arbitration under the NAFTA, but did not 
pursue the claim further. 
 
     Claimant has submitted two cease and desist writs to 
obtain the protection of federal authorities and has briefed 
U.S. Embassy officials on the status of its case.  An Embassy 
officer met with city officials in May 2002 to discuss the 
case.  The city contends that the Claimant received clear and 
frequent notice of the city's intention to remove illegal (in 
the city's opinion) billboards, that the investor's business 
practices were in flagrant violation of applicable law, and 
that removed billboard structures would be returned to their 
owners upon proof of ownership and payment of any fines owed 
to the city.  Claimant alleges that its signs were thrown 
away and it did not have access to the scrap materials. 
 
     Claimant informed the Embassy in June of 2006 that it, 
along with 30 other outdoor media companies, signed an 
"Agreement for the Re-ordering of the Billboards and Public 
Media In Order To Take Back the Urban Image" with the GOM. 
This Agreement went into effect in June 2005 and is valid for 
five years.    It provides for the control of billboard 
placement on certain important streets in Mexico City in 
exchange for faster licensing for new public billboard 
locations.  Claimant and the various companies are working 
out their issues with the GOM through Mexican legal channels. 
 
 
¶5.    a.    Claimant D 
 
      b.    1995 
 
      c.    Claimant's sailboat was confiscated by Mexican 
Customs officials in 1995 on the grounds that it had been 
imported improperly.  The Claimant subsequently lost a court 
case, although the sailboat was returned to him.  The 
Secretariat of Finance and Public Credit (Hacienda) seized 
 
SIPDIS 
the boat again in 1997 and in January 2003 his second appeal 
was lost.  In April 2004, Embassy officials sent a letter to 
Hacienda on behalf of the Claimant requesting that Claimant 
be given an opportunity to purchase the boat. 
 
     On November 3, 2004, Ambassador Garza sent a follow-up 
letter to Francisco Gil Diaz, Secretary of Hacienda, 
informing him that the Claimant wanted to meet with the 
proper officials to discuss the disposition of the boat and 
its possible sale.  On July 14, 2005, the Central 
Administrator for Mexican Customs replied to the Ambassador's 
letter indicating that the boat was under the custody of SAE 
(administrative office for seized goods).    On July 25, 
2005, the Embassy sent a letter to SAE informing them that 
the boat administrator wanted to meet with SAE officials to 
make an offer to buy the boat.   The boat has been in the 
custody of the Mexican Navy in Zihuatanejo since 2001 and has 
not had any maintenance.  The boat is sinking and is 
apparently in very bad condition but Claimant still wants to 
buy the boat.  On September 1, 2005, SAE replied to the 
 
MEXICO 00003300  003 OF 005 
 
 
Embassy's letter indicating that even though the boat is in 
SAE custody it is not for sale.  Once the Mexican courts rule 
on the Claimant's right to the 
boat, it is possible that the boat will be put up for sale. 
 
     On June 18, 2007, SAE officials reported that the 
Mexican government has not authorized the sale of the boat. 
In addition, the Embassy does not know if the Claimant is 
still interested in the boat, since there has been no 
communication from him since January 2006.; The Embassy will 
contact the Claimant to determine whether to continue with 
the case or close it. 
 
¶6.    a.    Claimant E 
 
      b.    2003 
 
      c.    In August 1995, Claimant began operations in a 
joint venture as a stowage firm, operating the Specialized 
Container Terminal in the Port of Manzanillo. Over the last 
ten years, the firm has invested $350 million in several 
Mexican ports, which provide employment to 1,000 workers. 
The firm has also invested a significant amount in training 
and integrating the personnel. 
 
     Port authorities in Manzanillo and the Secretariat of 
Communication and Transportation (SCT) have not delivered to 
the Claimant the expansion areas within the port that are 
specified in their 1995 contract due to environmental 
problems with the area.  In June 2002, President Fox issued 
an order to dedicate other adjacent areas to the expansion. 
By not delivering the expansion areas, the port authorities 
are not complying with the commitments made under the 
privatization bid and are preventing the Claimant from 
investing in additional infrastructure development. 
 
     The Claimant claims to have exhausted possible 
alternatives to resolve these issues with port authorities 
and SCT in Manzanillo.  In April 2004 Claimant filed a formal 
arbitration complaint.  In early 2005, Claimant obtained a 
court order that obligates port authorities to provide the 
land for expansion, but Manzanillo's port administration and 
the Federal Port Authority refused to obey the order and are 
continuing with litigation. 
 
     By recommendation of the SCT Secretary Tellez, the 
Claimant has had several meetings with Under Secretary of 
Transportation Manuel Rodriguez, to discuss their case.   The 
Claimant had hoped that discussions with Mr. Rodriguez would 
be better than previous discussions with the Port's 
Coordinator, Cesar Patricio Reyes Roel.  However, they have 
noticed that Mr. Rodriguez is also unwilling to obey the 
court orders.  Additionally, Mr. Rodriguez has accused them 
of causing problems for projects in Punta Colonet and other 
ports. 
 
     In mid-June 2007, the Claimant obtained a new Court 
Decision ordering the SCT to provide the land for expansion 
at the Port of Manzanillo. This decision was sent to the SCT 
on June 20, 2007. No response or reaction has been received 
yet.  The Embassy is working with Mexican Government offices 
to help resolve this dispute. 
 
¶7.    a.    Claimant F 
 
      b.    2000 
 
      c.    Claimant is a United States corporation that 
sells personal and business insurance, including accident and 
fire insurance.  According to Claimant, Mexico facilitated 
the repurchase of a series of debentures denominated in 
Mexican pesos and owned by Mexican investors, but did not 
facilitate the repurchase of a series of debentures 
denominated in US dollars, which were owned by Claimant. 
Both series of debentures were issued at the same time and by 
the same Mexican financial corporation, and each series was 
issued for a total amount of $50 million. 
 
     In October 2001, this dispute became a NAFTA Chapter 11 
arbitration claim when Claimant officially filed a claim 
against the GOM.  On the basis of the allegations highlighted 
above, Claimant asserts that Mexico violated various 
substantive obligations embodied in Section A of Chapter 11 
of NAFTA, including NAFTA Article 1110, which addresses 
measures that directly or indirectly expropriate an 
 
MEXICO 00003300  004 OF 005 
 
 
investor's investment.  Claimant seeks $50 million in damages 
plus applicable interest, attorneys' fees and costs for the 
arbitration. 
 
     On February 6 and 7, 2003, the NAFTA Tribunal held a 
hearing on Mexico's jurisdictional objections to Claimant's 
claims.  On July 17, in a preliminary decision, the NAFTA 
Tribunal dismissed all of Claimant's claims except for the 
expropriation claim.  In 2005, briefing was completed on the 
merits of the expropriation claim.  The hearing in the case 
was held in late September 2005, and the tribunal issued its 
ruling in July 2006, in which it rejected the Claimant's 
expropriation claim as outside the jurisdiction of NAFTA 
Chapter 11 but, in doing so, characterized the Government of 
Mexico's actions as discriminatory. 
 
     Claimant has expressed a desire for the USG to explore 
pursuing a Chapter 20 State-to-State case versus the GOM, and 
continues its efforts to negotiate a settlement with the GOM. 
 
¶8.    a.    Claimant G 
 
      b.    2002 
 
      c.    Claimant is a Delaware Corporation that alleges 
its property, a share of a joint venture agreement, was 
expropriated by Mexico in violation of NAFTA Article 1110 
through a series of Mexican court actions and decisions.  In 
1988, Claimant entered into a joint venture contract with two 
parties (one of which was Mexican landowner) to develop a 
time-share complex on the Mexican landowner's property in 
Cabo San Lucas, Baja California Sur, Mexico.  In 1990, 
Claimant learned that the Mexican landowner had transferred 
the entire property to the third party to the joint venture 
contract.  Claimant therefore employed a Mexican law firm to 
effect cancellation of the contract and recoup its share of 
money already invested.  A Mexican court awarded Claimant 
relief on August 10, 1994. 
 
     According to Claimant, unbeknownst to it or its legal 
representative, a former employee of the Mexican law firm 
purported to represent Claimant and collected Claimant's 
award, including the fees payable to the law firm.  Claimant 
and its attorney filed suit against the former employee in 
Mexican courts, alleging a number of civil and criminal 
claims, including conversion.  The Mexican court dismissed 
the suit finding, among other things, that the relevant 
limitations period, which ran from the time of actual 
knowledge of the conversion, had lapsed.  Claimant had argued 
that actual knowledge of the conversion did not occur until 
two years after the date of the court's determination. 
 
     Claimant alleges that Mexican court delays and errors of 
law resulted in procedural and substantive injustice and 
amounted to expropriation of its investment in Mexico, in 
violation of NAFTA Article 1110.  In January 2002 Claimant 
filed a Notice of Intent under NAFTA Chapter 11, claiming 
damages in the amount of $400,000.  As of August 2006 
Claimant had not submitted a Notice of Arbitration or taken 
any further action.  There have been no changes reported to 
the Mission over the past year. 
 
¶9.    a.    Claimant H 
 
      b. 1999 
 
      c.    Claimant is an individual who resides in 
California and purchased a piece of oceanfront property near 
Baja California in 1989.  Claimant claims that he spent more 
than $100,000 on improvements to the property between 1989 
and 1992.  According to Claimant, his property was seized by 
GOM officials in 1999.  Claimant alleges that immediately 
after the seizure, substantial construction was conducted on 
the property that destroyed many of the improvements he had 
made. 
 
     This dispute became a NAFTA Chapter 11 arbitration claim 
when Claimant filed against the GOM on July 31, 2002. 
Claimant alleges breaches of NAFTA Article 1102 for violation 
of national treatment, Article 1105 for violation of 
treatment in accordance with international law, and Article 
1110 for expropriation.  Claimant seeks $1.5 million in 
damages. 
 
     In keeping with NAFTA Chapter 11 procedures, however, 
 
MEXICO 00003300  005 OF 005 
 
 
the Embassy does not take an active role on behalf of 
Claimant while dispute resolution measures are proceeding. 
 
¶10.   a.    Claimant I 
 
      b.    2002 
 
      c.    Claimant invested $165 million in a plant in 
Mexico for the production of high fructose corn syrup (HFCS), 
intending to sell the product to Mexican soft drink bottlers. 
 On January 1, 2002, the GOM imposed a tax of 20 percent on 
soft drinks containing HFCS.  The tax did not apply to soft 
drinks containing sugar (principally produced by the domestic 
sugar industry).  Since the tax took effect, Claimant 
allegedly lost sales of $75 million, had been forced to shut 
down its HFCS production line, and has incurred penalties for 
canceled equipment orders. 
 
     This dispute became a NAFTA Chapter 11 arbitration claim 
when Claimant filed a notice of arbitration against the GOM 
on October 21, 2003.  Claimant alleges the GOM's tax on HFCS 
violated the national treatment obligation under NAFTA 
Article 1102, the prohibition on performance requirements in 
NAFTA Article 1106 and the prohibition on indirect 
expropriation in NAFTA Article 1110.  Claimant seeks damages 
in excess of $325 million. 
 
     Given that Claimant I challenges the same measures as 
Claimant J and K, these claims were consolidated and a new 
NAFTA Tribunal was established in February 2005. 
 
     On March 6, 2006, the World Trade Organization (WTO) 
informed the Mexican government that it had rejected Mexico's 
appeal of the WTO's initial ruling that Mexico's 20 percent 
tax on beverages using sweeteners other than sugar, 
principally HFCS, was illegal. ;In response in May 2006, 
then President Fox sent an initiative to the Lower House of 
the Congress to eliminate the tax in order to comply with WTO 
rulings. ;However, it was not until the new Congress was in 
place in September 2006, that this issue began to be 
discussed as part of the bill outlining the 2007 Mexican 
budget. ;The initial 2007 budget proposal sent to Congress 
in December 2006 by the Calderon administration called for 
the removal of the 20 percent tax on drinks made with HFCS, 
complying with WTO rulings, and instead proposed a 5 percent 
tax on all soft drinks, regardless of the type of sweetener. 
;The Senate rejected this proposal and all taxes on soda, 
including the 20 percent tax on HFCS, were eliminated in the 
final budget bill. ; 
 
 
     It is Post's understanding that the cases are still 
pending, because the Claimants are seeking damages that 
occurred during the period indicated due to the "illegal" 
imposition of the 20 percent tax. Therefore, although the 
Claimants no longer face the tax they can still seek 
compensation for the damages done. 
 
     In keeping with NAFTA Chapter 11 procedures, however, 
the Embassy does not take an active role on behalf of 
Claimant while dispute resolution measures are proceeding. 
 
END OF PART I - MEXICO INVESTMENT DISPUTES AND EXPROPRIATION 
CLAIMS 2007 
 
 
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