VZCZCXRO2381
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #3703/01 1941659
ZNR UUUUU ZZH
P 131659Z JUL 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 7974
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEHC/DEPT OF LABOR WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHMFIUU/CDR USSOUTHCOM MIAMI FL PRIORITY
RHMFIUU/CDR USNORTHCOM PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

UNCLAS SECTION 01 OF 03 MEXICO 003703 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR A/S SHANNON 
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA 
STATE FOR EB/ESC MCMANUS AND IZZO 
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GWORD 
USDOC FOR ITS/TD/ENERGY DIVISION 
TREASURY FOR IA (ALICE FAIBISHENKO) 
DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH AND ALOCKWOOD 
STATE PASS TO USTR (EISSENSTAT/MELLE) 
STATE PASS TO FEDERAL RESERVE (CARLOS ARTETA) 
NSC FOR DAN FISK 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ELAB ENRG MX PGOV PTER
SUBJECT: MEXICO ECONOMIC NOTES, JUNE 22 - JULY 13 
 
 
Summary 
------- 
 
¶1.  (SBU) The Calderon Administration is working with the 
Mexican Legislature to promote a fiscal reform initiative, 
possibly a prelude to a series of other reforms (energy, 
labor, education, etc.).  Over the past two weeks, we have 
spoken with officials outside and inside the Congress to get 
a snapshot of the debate.  The opposition Party of the 
Democratic Revolution (PRD) and Institutional Revolutionary 
Party (PRI) have voiced varying levels of concern about the 
proposed reform.  Nevertheless, the PRI has indicated its 
willingness to work with the Calderon government to reach a 
compromise that would allow the fiscal reform to move 
forward. In a negative sign for prospects of reforms in 
education, the national teacher's union has effectively named 
their current leader, Elba Ester Gordillo, 
president-for-life. Under Gordillo's leadership, the National 
Education Workers Union, has consistently blocked attempts at 
reforming Mexico's corrupt and poorly reforming education 
system. The terrorist attack on gas pipelines in central 
Mexico forced several factories to halt production 
temporarily until alternate supplies could be arranged. 
Finally, Washington State Governor Christine Gregoire 
discussed apple tariffs and cross-border trucking with the 
Secretariat of the Economy. 
 
SIPDIS 
 
Labor Politician Opposes Fiscal Reform Initiative 
--------------------------------------------- ---- 
 
¶2.  (U) Although the PRI is willing to work with the Calderon 
administration to pass fiscal reform, the Coordinator of the 
"labor" faction within the party has reportedly expressed 
strong opposition to the initiative.  According to a senior 
staffer, the labor faction Coordinator, Patricio Flores 
Sandoval, indicated that he will do everything within his 
power to oppose the initiative.  In addition to being a 
Federal Deputy, Flores Sandoval is also a member of the 
(Council of Mexican Workers') CTM's National Committee.  The 
CTM is the largest labor federation in Mexico and is roughly 
equivalent to the AFL-CIO.  Flores Sandoval's stance in 
opposition to the fiscal reform initiative is more hard line 
than that taken publicly by either the PRI or the CTM. 
However, he is an influential figure among PRI Federal 
Deputies and his opposition to the reform could become a 
focal point for other members of the national legislature who 
are against it. 
 
Hacienda Official on Reform Calendar 
------------------------------------ 
 
¶3.  (SBU) The head of Hacienda's Economic Planning Unit, 
Miguel Messmacher, told the Embassy and two visiting Treasury 
officials that Finance Secretary Carstens' reform priorities 
include fiscal reform, measures to deepen the financial 
system, infrastructure, and energy.  Messmacher only spoke 
about fiscal reform in general terms and said that the 
government is talking about energy reform "in a basic way." 
He added that Hacienda wants to make Pemex more like a 
business, reform the company's fiscal regime, and improve 
corporate governance -- noting that the latter may come 
first.  When asked about prospects for educational reform, he 
said that there will be talk about it, but that it will 
require a significant amount of work because of "political 
sensitivities" associated with dealing with the unions.  He 
said that the window of opportunity for passing reforms that 
require significant political capital could be lost after 
April 2008 because the lower house of Congress would be 
gearing up for the 2009 elections.  He believes the PRI will 
back some measures after this timeframe, but that securing 
their support will be more difficult. 
 
 
MEXICO 00003703  002 OF 003 
 
 
Energy Reform Debate Drifting 
----------------------------- 
 
¶4.  (SBU) Francisco Diaz Palafox (protect), lead PRI staffer 
on the Mexican Senate Energy committee was non-committal 
about whether the Senate would be able to propose and pass 
any kind of energy reform.  He noted that early in the 
closed-door talks over limited energy reforms that would give 
Pemex some additional budget autonomy and freedom from 
restrictive government procurement rules, representatives 
from all three parties had agreed not to raise larger scale 
constitutional reform.  Palafox added that within the past 
month, at least two National Action Party (PAN) Senators 
rejected the earlier no-constitutional amendment rule, and 
have poisoned the discussion. 
 
New Tax Reform Law May Affect Maquilas 
-------------------------------------- 
 
¶5.  (U) Although Hacienda had previously said that the 
proposed fiscal reform package would not have a negative 
impact on maquilas, officials now acknowledge that it will. 
Representatives from the National Maquiladora Council (CNIME) 
met with Hacienda to discuss the effects of the reform. 
Maquila owners complain that they would be subject to double 
taxation, paying taxes in Mexico and in the U.S. where the 
parent company headquarters is located because the cost of 
inputs from the U.S would not be fully deductible under the 
new regime. 
 
Gordillo Now "President for Life" 
--------------------------------- 
 
¶6.  (SBU) During an "extraordinary" meeting of the National 
Education Workers Union's (SNTE) Political Council, a select 
group of union representatives voted to confirm Elba Ester 
Gordillo in her position as union leader indefinitely, 
effectively making her SNTE president-for-life.  During 
Mexico's 2006 presidential election Gordillo formed her own 
political party and tacitly supported the candidacy of 
National Action Party (PAN) candidate Felipe Calderon, a 
critical factor in Calderon's ultimate electoral victory. 
Labor and political observers we have spoken with claim that 
the GOM's acquiescence on Gordillo's lifetime position is 
part of the PAN's payoff for Gordillo's political support in 
last year's presidential election.   (Comment: Gordillo, who 
is often referred nationally as "the Teacher" is generally 
considered to be much more interested in increasing her 
personal wealth and political influence than she is in 
improving the quality of Mexico's corrupt and poorly 
performing public education system) 
 
Gas Infrastructure "Recovering" After Attack 
-------------------------------------------- 
 
¶7.  (SBU) Our sources remain confident that despite the 
damage to the Pemex Gas pipeline system by the July 5 and 10 
EPR bombings of valve sites which affected several 
manufacturing sites in the states of Guanajuato and 
Queretaro, economic disruption will be minor.  Bypass 
operations are currently underway and gas flows should 
restart by July 13.  Less certain is the long term effect the 
attacks will have on investment (see septel). 
 
Washington Governor Talks Apples, Trucking with Economia 
--------------------------------------------- ----------- 
 
¶8.  (SBU) Washington State Governor Christine Gregoire raised 
the twelve-year litigation over tariffs on Washington State 
Red and Golden Delicious apples with Economy Secretariat 
Undersecretary of International Trade Negotiations Beatriz 
Leycegui.  Leycegui offered to "look into the merits of the 
 
MEXICO 00003703  003 OF 003 
 
 
case" and asked what Washington State might be willing to 
"offer" to settle the dispute.  Leycegui also asked Gregoire 
to encourage Washington State legislators to support the 
Cross Border Trucking Demonstration Project.  She added that 
as a result of congressional delays on trucking, some groups 
in Mexico are questioning the need for Mexico to fulfill its 
own NAFTA commitments and are pressuring the GOM to take the 
next legal step with the U.S., i.e., a suspension of NAFTA 
benefits enjoyed by the U.S.  Leycegui said she wanted to see 
better integration of Mexican and American markets and reduce 
the number of U.S.-Mexico bilateral trade disputes. 
 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity and the North American 
Partnership Blog at http://www.intelink.gov/communities/state/nap / 
PARNELL