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UNCLAS SECTION 01 OF 04 MEXICO 004291 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
SECSTATE FOR A/S SHANNON 
SECSTATE FOR WHA/MEX, WHA/ESP, EB/IBF/OMA 
SECSTATE 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 ALOCKWOD 
SECSTATE PASS TO USTR (EISSENSTAT/MELLE) 
SECSTATE PASS TO FEDERAL RESERVE (CARLOS ARTETA) 
NSC FOR DAN FISK 
 
 
E.O. 12958: N/A 
TAGS: ECON ECPS EFIN ELAB PGOV PREL SPP KIPR EAIR ECPS MX
SUBJECT:  POSSIBLE TELECOM PROPOSAL FOR NORTH AMERICA LEADERS' 
MEETING, AND OTHER MEXICO ECONOMIC NOTES JULY 28-AUGUST 10, 2007 
 
 
¶1. (SBU) Summary:  Mexico's Communications and Transport Ministry 
(SCT) has asked the Calderon Administration to present a dramatic 
telecom proposal at the North America Leader's Meeting in 
Montebello, Canada on August 20-21.  Under the proposal, the 
Security and Prosperity Partnership (SPP) would work to create one 
low-cost calling rate for the U.S., Mexico and Canada.  The first 
U.S.-Mexico telecom negotiations under the Calderon Administration 
showed an unprecedented level of engagement between the two 
governments.  Not all the SCT news is encouraging, however. 
Communications and Transport Secretary Tellez publicly rejected the 
idea of an open skies agreement between the U.S. and Mexico. The 
Mexican Supreme Court issued its long-awaited final ruling on the 
unconstitutionality of parts of the 2006 telecom and broadcast law. 
The Mexican Congress is considering how to remedy the defects. The 
Mexican Central Bank has held interest rates unchanged, and expects 
inflation to slow later this year toward its 3% target.  The Central 
Bank expects the economy to grow 3.3% this year. U.S.-based 
Remittances to Mexico are down.  The Mexican version of the 
Parents-Teachers Association (PTA) is attempting to set itself up as 
a counterweight to Mexico's powerful teachers' union.  Union Pacific 
Railroad has proposed expanding the Brownsville-Matamoros Bridge. 
Post continues to support efforts to implement the steps required 
for successful implementation of the NAFTA Trucking Demonstration 
Project. U.S. Transportation Secretary Peters and Secretary Tellez 
plan to visit San Diego and Tijuana in August to view the inspection 
of a Mexican trucking company.  Following a video conference with 
U.S. officials, Mexico will consider joining the new 
Anti-Counterfeiting Trade Agreement designed to protect IPR.  U.S. 
Embassy and Mexican officials are working to combat the import of 
contraband audio-visual discs from Asia into Mexico that enter via 
Long Beach and are re-labeled as being of U.S. origin. End Summary 
 
 
 
Dramatic Telecom Proposal for North 
------------------------------------ 
Americans Leader's Meeting? 
--------------------------- 
 
¶2. (SBU) The welcome surprise of the August 3 Mexico City meeting of 
the Principals of the High Level Consultative Committee on 
Communications (HLCC) was the endorsement of Communications and 
Transport Secretary Luis Tellez of an exciting proposal by 
Undersecretary for Communications Rafael del Villar.  The 
Secretariat of Communications and Transport (SCT) will try to 
 
SIPDIS 
propose that at the Security and Prosperity (SPP) summit in 
Montebello, Canada on August 20-21 (officially called the North 
Americans Leaders' Meeting), the U.S. and Mexican Presidents and 
Canada's Prime Minister announce a goal of making policy and 
regulatory changes to allow telecom carriers to have low cost 
"local" calling rates regardless of whether the call is within a 
country or across the U.S.-Mexico border.  Such a move would 
pressure Mexico's powerful monopoly Telmex to dramatically lower its 
international interconnection rates.  Although time before the 
Leaders' meeting is short, SCT has been discussing the idea with 
President Calderon. (See septel) 
 
 
U.S.-Mexico Telecom Negotiations 
--------------------------------- 
 
¶3. (U) The HLCC, the first U.S.-Mexico telecom negotiations under 
the Calderon Administration, resulted in the signing of a Permanent 
Protocol concerning the allotment and use of the 138-144 MHz band 
for terrestrial non-broadcasting radio communication services along 
the U.S.-Mexico border, as well as a Directory of Bilateral Issues 
for 2007-2009. Regarding spectrum negotiations overall, U.S. 
officials report unprecedented levels of engagement with their 
Mexican counterparts. (See septel) 
 
MEXICO 00004291  002 OF 004 
 
 
 
 
Mexico Says "No" To Open Skies 
------------------------------ 
 
¶4. (U) Secretary Tellez is not willing to take on all Mexico's 
special interests in order to improve competition, however.  This 
week he publicly said that Mexico rejected the "U.S. proposal" to 
implement an open skies policy between the two countries.  Tellez 
said there would be no open skies aviation agreement during 
President Calderon's Presidency.  (Comment:  Given President 
Calderon's stated commitment to improving Mexico's competitiveness 
and boosting tourism, it is disappointing that pressure from 
Mexico's remaining state airline and its employees is overcoming the 
larger interest in improving cargo and passenger transport between 
the United States and Mexico.) 
 
 
Supreme Court Publishes 
------------------------ 
"Televisa Law" Decision 
----------------------- 
 
 
¶5. (U) On August 9, the Mexican Supreme Court released the final 
version of its decision on the unconstitutionality of several 
provisions of the 2006 Telecom and Broadcasting Law (known as the 
"Televisa Law" because it favored the duopolies and monopolies that 
dominate telecommunications in Mexico.)  The industry has been 
anxiously waiting for document and will be closely analyzing its 
content in the coming days and weeks to determine its implications. 
There are currently four proposals circulating around the Mexican 
Congress in response to the Supreme Court's draft decision in July. 
The Congress hopes to move forward on revising Mexico's telecom 
legislation now that the final decision has been published. The 
900-page decision is available in Spanish on the web. 
 
 
Central Bank Expects Inflation to Decline 
----------------------------------------- 
 
¶6. (U) On July 27, the Bank of Mexico (BOM) kept its overnight 
lending rate unchanged at 7.25%.  The BOM expressed confidence that 
inflation will decline during the second half of 2007 toward its 3% 
target, despite inflationary risks posed by high food prices, higher 
medium-term inflation expectations and possible contamination from 
other prices.  In June, annual inflation was 3.98%, but in July the 
headline inflation rose to 4.14% due to high food prices.  Core 
inflation rose 0.07% from the previous month to 3.77%.  The BOM will 
announce its monetary policy at the end of August. 
 
 
Economy Expected to Grow 3.3 
----------------------------- 
Percent in 2007 
--------------- 
 
¶7. (U) The Finance Ministry reported that the economy grew 2.8% 
during the second quarter thanks to dynamic domestic demand, 
recovery of the U.S. manufacturing sector and the automobile sector. 
 The Ministry forecast 3.3% economic growth for 2007.  The Ministry 
also reported a surplus in the government's public finances thanks 
to improved tax collection, despite the 6.2% drop in oil revenues 
compared to the same period in 2006. In May, employment in the 
manufacturing sector rose 0.9%, while wages grew 2.2%. 
 
 
Remittances Down 
---------------- 
 
 
MEXICO 00004291  003 OF 004 
 
 
¶8. (U) The inflow of remittances from the U.S. to Mexico is slowing. 
 In the first half of 2007, remittances only grew 0.64%.  In June, 
remittances totaled USD 2.02 billion, 6.2% lower than in May. 
Banamex-Citigroup explains that the slowdown is due to a correction 
in statistics and an improvement in how remittances are measured by 
the Central Bank.  According to the Inter-American Development Bank 
(IDB), which polled Mexicans living in the U.S., the deceleration is 
due to anti-immigrant sentiment in the United States.  Other 
analysts attribute the slower growth to the slowdown in the U.S. 
construction sector.  A study performed by the Mexican Central Bank 
reveals that the average monthly payment sent by an immigrant to his 
family in Mexico decreases with the number of years that the person 
has been living in the U.S.; most likely because it is presumed that 
the immigrant has been able to bring his/her family to the United 
States. 
 
 
Mexican "PTA" Criticizes Teachers 
--------------------------------- 
 
¶9. (U) The President of the National Federation of Heads of Families 
(FENA-PAF), roughly the equivalent of the PTA in the U.S., says that 
his organization has developed into a counter-weight for the 
powerful National Teachers' Union (SNTE).  The SNTE is the largest 
single union in Mexico, and reportedly in Latin American.  According 
to the FENA-PAF President, the ordinary teachers who make up the 
rank and file of the SNTE are fully aware of how important 
educational reform is if Mexico wants to prepare its citizens to 
compete in the global economy. Unfortunately, he said, the SNTE 
leadership is more interested in further enriching themselves and in 
wielding political power than they are in improving Mexico's 
educational system.  Nevertheless, the FENA-PAF President asserted, 
his organization is winning increasing support from parents across 
Mexico and this in turn is increasing its standing with governments 
at the municipal, state and federal levels. Ultimately, FENA-PAF 
wants to persuade SNTE to devote more time to education and less 
time to politics. 
 
 
Union Pacific Proposes New 
--------------------------- 
Matamoros/Brownsville Bridge 
---------------------------- 
 
¶10. (U) The Presidents of the Brownsville-Matamoros Bridge Company 
and Union Pacific de Mexico met with the Embassy on August 8 to 
discuss the bridge's concession with the Mexican government which is 
up for renewal in 2009. The Brownsville-Matamoros Bridge, in 
operation since 1910, is operated by the Brownsville-Matamoros 
Bridge Company and jointly owned by the Federal Government of Mexico 
and the Union Pacific Railroad Company.  The concession is up for 
renewal every 15 years, and thus far the company foresees no issues 
with the current renewal.   The company president also discussed 
future plans for the bridge, which include the building a new rail 
bridge and the redesignation of the current rail bridge for private 
vehicle traffic. 
 
 
NAFTA Trucking Demonstration Project 
------------------------------------ 
 
¶11. (U) Post and the Departments of State, Transportation and 
Homeland Security continue to work closely with their Mexican 
counterparts on the steps necessary to ensure the successful 
implementation of the NAFTA cross-border Trucking Demonstration 
Project.  As of August 9, 2007, 36 Mexican trucking companies had 
passed through Department of Transportation (DOT) inspections and 
are ready to receive operating authority.  At the same time, SCT 
inspectors are on their way to Ohio to conduct the first inspection 
of a U.S. trucking company interested in participating in the 
 
MEXICO 00004291  004 OF 004 
 
 
Project.  DOT Secretary Mary Peters and SCT Secretary Tellez are 
planning a trip to the San Diego/Tijuana area in August to observe 
the DOT inspection process of a Mexican trucking company. 
 
 
Mexico Considers Joining 
------------------------- 
Multilateral IPR Negotiations 
----------------------------- 
 
 
¶12. (SBU) Mexican IPR officials expressed strong interest in having 
Mexico participate in multilateral negotiations aimed at 
establishing a new international agreement to strengthen protection 
of intellectual property rights beyond levels called for in the WTO 
Agreement on Trade-related Aspects of Intellectual Property Rights 
(TRIPS).  The United States, Canada, Japan, the European Union, and 
Switzerland have agreed on a concept paper outlining the basic 
elements of this Anti-Counterfeiting Trade Agreement (ACTA).  In a 
digital video conference held August 9, U.S. officials explained 
these elements to Gilda Gonzalez, Director of IPR Protection, and 
Irma Herrera, Coordinator of International Affairs, both from the 
Mexican Institute of Industrial Property (rough equivalent of the 
U.S. Patent and Trademark Office).  Gonzalez said other Mexican 
agencies would have to be consulted, but that the Mexican government 
would be able to provide a firm answer on Mexican participation by 
mid-September, when the U.S. and other sponsoring countries are 
hoping to announce the start of negotiations.  Mexican inclusion in 
the ACTA from the start would help attract other developing 
countries to join the pact later on, and having the three North 
American countries as founding members of the ACTA would represent a 
significant progress for ongoing trilateral IPR cooperation under 
the auspices of the Security and Prosperity Partnership. 
 
 
Embassy/PGR Working to Combat 
------------------------------ 
Contraband Imports 
------------------ 
 
¶13. (SBU) Embassy ECON and DHS officials have held a number of 
meetings with Mexican officials from the Attorney General's Office 
(PGR, the rough equivalent of the U.S. Department of Justice) and 
Customs on how to combat the influx of huge quantities of contraband 
audio-visual discs into Mexico that are subsequently used for 
pirating movies, music, and software.  Apparently these discs are 
made in Asia, shipped to Long Beach, California in-bond for transit 
to Mexico, but then re-labeled as "made in the U.S." before passing 
through Mexican Customs, where they avoid being charged the 15 
percent Mexican tariff by claiming NAFTA (versus Chinese or 
Malaysian) origin.  The U.S. and Mexican sides have agreed to 
coordinate efforts to investigate this fraudulent activity and take 
appropriate administrative or criminal measures against those 
engaged in it. 
 
 
BASSETT