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O 272006Z AUG 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8621
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
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UNCLAS SECTION 01 OF 07 MEXICO 004598 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
FOR EEB ASSISTANT SECRETARY SULLIVAN FROM AMBASSADOR GARZA 
EEB FOR ANGELIS 
EEB/ESC/IEC/EPC FOR GRIFFIN AND IZZO 
EEB/BTA/EWH FOR RECHT 
WHA/MEX FOR WOLFSON DARRACH 
WHA/EPSC FOR CORNEILLE 
WHA FOR SPROW 
USDOC FOR 4320/ITA/MAC/WF/ONAFTA/GWORD 
USDOC FOR ITS/TD/ENERGY DIVISION 
TREASURY FOR IA (ALICE FAIBISHENKO) 
DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH AND ALOCKWOOD 
STATE PASS TO USTR (MELLE) 
STATE PASS TO FEDERAL RESERVE (CARLOS ARTETA) 
NSC FOR RICHARD MILES 
 
E.O. 12958: N/A 
TAGS: ECON PGOV ENRG PREL MX OVIP DANIEL SULLIVAN
SUBJECT: SCENESETTER FOR VISIT OF ASSISTANT SECRETARY OF 
STATE FOR ECONOMIC, BUSINESS AND ENERGY AFFAIRS, DANIEL 
SULLIVAN, AUGUST 29-30 
 
 
Sensitive but unclassified, entire text. 
 
¶1. (SBU) My staff and I warmly welcome you to Mexico City. 
President Calderon recognizes the broad-ranging challenges 
his country faces and has the vision and political will to 
address them strategically.  Having completed his first 9 
months in office, he has demonstrated resolve in implementing 
his key policy objectives: improving security and the rule of 
law, attacking poverty, and creating jobs.  The U.S. and 
Mexico have developed a solid set of institutional 
relationships that allow us to work productively on most of 
our priorities, including fundamental issues of homeland 
security and North American prosperity.  Those links are set 
to expand.  Your visit is a sign of U.S. support for the 
Calderon government and dedication to this complex, 
interdependent relationship. 
 
¶2. (SBU) Mexico's democratic institutions weathered a 
contentious presidential election, and Calderon has been 
quick to emerge as an activist president with a strong and 
respected cabinet, particularly in the security and economic 
areas.  His security efforts are designed to reassure foreign 
investors and Mexicans worried about drug-related crime and 
lawlessness that organized criminals, including pirates and 
counterfeiters, will no longer act with impunity.  He knows 
that attracting investment, particularly from the U.S., is 
pivotal to curbing migration and narrowing the social and 
economic inequalities that undercut Mexican society and 
result in bitter political divisions.  Calderon also 
recognizes that his vision of Mexico becoming a more 
prosperous country and a regional leader depends first on 
security and the rule of law. 
 
Bilateral Relations 
------------------- 
 
¶3. (SBU) Calderon has demonstrated pragmatism in his posture 
toward the United States and is building on an already modern 
and mature U.S.-Mexico relationship.  The President's message 
is that Mexico will seek what it needs from us on the basis 
of equality, respect, and the close cooperation expected of 
neighbors that share wide-ranging interests and challenges. 
Our common border, responsible for extensive commercial, 
community, and family ties, is transforming our societies 
into two of the most deeply and broadly connected on earth. 
 
¶4. (SBU) Far more than his predecessor, President Calderon 
recognizes that immigration reform is a U.S. domestic matter 
that is dependent upon U.S. congressional action.  He will 
seek progress in a low-key effort that avoids making 
migration the dominant bilateral issue.  He places great 
emphasis on creating opportunities and jobs for Mexicans 
inside Mexico.  In a February 2007 speech before the American 
Chamber of Commerce, President Calderon said the solution to 
the immigration problem is the responsibility of the Mexican 
government, and must be done by bringing capital to the 
workers in Mexico, rather than having Mexican labor flow to 
capital in the U.S.  Nevertheless, the Mexican public draws 
little distinction between documented and undocumented 
migrants, seeing both as hard-working countrymen who have 
been driven to the U.S. by domestic economic adversity and 
U.S. economic demands.  As such, domestic political 
considerations require that Calderon and his cabinet raise 
the issue with USG officials and th 
at he publicly criticize measures that most Mexicans find 
offensive.  Should the issue arise in your meetings with your 
Mexican interlocutors, we encourage you to explain U.S. 
domestic political factors affecting the issue of migration 
and help your Mexican interlocutors maintain realistic 
expectations. 
 
 
MEXICO 00004598  002 OF 007 
 
 
¶5.  (SBU) Similarly, the proposed border fence is an 
extremely sensitive issue, and in public settings, Mexican 
government officials frequently posture on it.  Likewise, 
minor incidents on the border, associated with infrastructure 
development, can quickly become public disputes.  The 
occasional cases in which Border Patrol agents (often acting 
in self-defense) injure or kill undocumented aliens 
inevitably provoke a sharp reaction here.  Your visit can 
reinforce our message that we are concerned by the violence 
that is an unfortunate bi-product of illegal migration and 
that we need to work together to ensure safe, orderly and 
legal border crossings, while stemming the flow of illegal 
migrants.  Should the issue arise, we believe it is useful to 
emphasize that given the rampant violence in the border 
region -- as well as the threat of international terrorism -- 
the USG has the responsibility to take all available measures 
to protect its citizens and enforce its laws. 
 
Security 
-------- 
 
¶6. (SBU) The Calderon administration has moved forcefully to 
improve public security, significantly increasing the 
security budget; launching surge operations against drug 
traffickers in six of the most conflictive states; working to 
overhaul Mexico's national police organization; advancing 
justice reform; and authorizing the extradition to the United 
States of 63 wanted criminals, including 4 drug king-pins. In 
fact, with its next extradition, Mexico would have extradited 
a record number of criminals to the United States this year. 
The president's actions reflect his commitment to intensify 
security-related cooperation with the U.S., and his 
willingness to incur political risk in doing so. 
 
¶7. (SBU) The president fully understands the depth of U.S. 
concerns about international terrorism and the 
transformational effect of the 9/11 attacks on USG policy, 
and he has signaled his strong commitment to work with us to 
preempt terrorist activity or entry through our shared 
border.  While a solid foundation for joint counter-terrorism 
cooperation has been established, and the Mexican 
government's efforts should be recognized, we also need to 
press for further progress on information sharing.  With 
respect to weapons of mass destruction, the Mexican 
government -- on its own initiative -- has requested our 
assistance in strengthening its detection capabilities. 
 
¶8. (SBU) Mexico is a central partner in USG efforts to combat 
drug trafficking and other trans-border threats.  While 
taking aggressive measures to tackle organized crime at home, 
Calderon has also publicly urged the U.S. to boost our own 
efforts to drive down demand for narcotics and improve 
controls on arms, cash, and precursor chemicals smuggled into 
Mexico.  He acknowledges that Mexico cannot effectively 
confront narco-trafficking without our cooperation and is 
eager for expanded assistance, including help with combating 
money laundering.  During his February 2007 trip to Mexico, 
Secretary Chertoff heard from Mexican Attorney General Medina 
 
SIPDIS 
Mora that Mexico's most critical law enforcement challenges 
are: improving the institutional strength of local, state, 
and federal police forces; dismantling the sophisticated 
business operations run by the drug cartels; and crafting a 
regional strategy encompassing the U.S., Mexico, and Central 
America.  In recent days, there has been media speculation 
regarding a possible expansion of USG counter-narcotics 
assistance to Mexico.  President Bush has made clear that he 
supports President Calderon in his fight against narcotics 
traffickers. He also understands that this is a shared 
problem for which there must be shared responsibility.  The 
USG is engaged with the Mexican government to determine how 
we can strengthen our cooperation in this area. 
 
MEXICO 00004598  003 OF 007 
 
 
 
The Southern Border 
------------------- 
 
¶9.  (SBU) Mexico's southern border remains extremely 
vulnerable to illegal immigration, trafficking in persons, 
and the smuggling of all manner of contraband, including 
drugs/precursors.  It is an issue of great concern to the 
Mexican government, which attributes its lack of success in 
dealing with the problem to the difficult local terrain; the 
lack of enforcement infrastructure; the historically informal 
nature of the border, particularly among local residents; and 
the inadequate border security efforts of its southern 
neighbors, Guatemala and Belize.  Mexican law enforcement 
agencies have begun factoring southern border security 
considerations into ongoing programs and are seeking to 
expand/improve operations in southern Mexico.  Nevertheless, 
progress in securing Mexico's southern border is of vital 
importance in achieving our own security objectives.  In your 
meetings, you may wish to inquire about current the status of 
Mexican efforts to develop a comprehensive strategy to secure 
the southern frontier. 
 
Strong Leader in a Conflictive Environment 
------------------------------------------ 
 
¶10.  (SBU) President Felipe Calderon is off to a strong 
start, demonstrating leadership at home and abroad in a 
manner much appreciated by Mexicans: although he won election 
with a bare 36% plurality in a three-way race, a recent 
opinion poll showed that 64% of Mexicans approve of his 
performance to date.  Nevertheless, the political climate 
overall remains conflictive, with a congress closely divided 
between the president's right-of-center National Action Party 
(PAN), the leftist Democratic Revolutionary Party (PRD), and 
the left-of-center Institutional Revolutionary Party (PRI). 
Calderon faces significant domestic challenges in pursuing 
his security, economic and social reform agendas.  At the 
same time, he must chip away at the historic Mexican 
ambivalence toward the U.S. that has slowed progress on many 
common fronts, including security. 
 
Stable but Vulnerable Economy 
----------------------------- 
 
¶11. (SBU) U.S. strategic interests in Mexico are tied to 
three key economic factors:  (1) a population of 110 million 
bordering the United States with a poverty rate of 52 
percent, (2) the second largest supplier of oil to the U.S., 
(3) over one billion dollars a day in trade, with a highly 
integrated production cycle between factories in the U.S., 
Mexico and Canada. 
 
Poverty and Economic Performance 
-------------------------------- 
 
¶12.  (SBU) Mexico has the highest income inequality of any 
nation in the OECD. The World Bank reports the poverty rate 
is 52 percent, with 18 percent of the population unable to 
meet the nutritional demands of their families.  Widespread 
poverty encourages illegal immigration, narcotics smuggling 
to the United States, and other forms of illicit commerce. 
Growing income inequality fuels the tensions that almost 
resulted in the election of a populist President, Andres 
Manuel Lopez Obrador, who openly embraced President Chavez of 
Venezuela. 
 
¶13. (SBU) President Calderon inherited a stable, growing 
economy tightly linked to U.S. economic cycles.  Mexico 
chalked up an estimated 4.7 percent growth rate in 2006, 
rebounding from near zero growth in the first years of the 
 
MEXICO 00004598  004 OF 007 
 
 
decade.  Real GDP growth is expected to slow to around 3.3 
percent this year.  Inflation has risen in recent months to 
around 4 percent, but is under control.  Economists say 
Mexico would need growth rates of at least six percent to 
alleviate widespread poverty.  Most jobs currently being 
created in Mexico are in the informal economy, which the 
World Bank estimates employs 27 percent to 45 percent of the 
working age population.  Many here are growing concerned 
about Mexico's ability to compete in an increasingly 
globalized world, as it loses market share to China and other 
emerging economies. We agree with Finance Minister Carstens 
that in order to compete internationally and develop the 
poorest parts of Mexico, Mexico needs broad reform to improve 
tax collection, reduce reliance on oil income, confront 
growing pension liabilities and payments on government 
borrowing outside the federal budget, and provide needed 
spending on poverty alleviation, education, health and 
infrastructure.  Mexico also needs to improve competition in 
an economy long dominated by business monopolies and 
oligopolies, and to take on powerful labor unions in order to 
correct labor laws that discourage job creation in the formal 
economy.  The Mexican government has begun the process with a 
National Infrastructure Plan, pension reform and a fiscal 
reform proposal currently before Congress. 
 
Energy 
------- 
 
¶14. (SBU) After Canada, Mexico is the largest source of U.S. 
oil imports.  We therefore have a strong strategic interest 
in continued stable supplies of Mexican oil. Within Mexico, 
energy is an extremely sensitive topic tied to national 
sovereignty, but the energy sector requires difficult reforms 
urgently.  Mexico's oil production and reserves continue to 
decline due to a lack of investment in oil exploration and 
production.  Sufficient investment funds are not available 
because of the constitutional prohibition on private 
investment and the fact that most of Pemex's revenue goes to 
pay for as much as 38% of the government's budget.  Pemex's 
liabilities have grown so large that it can no longer fund 
investment in exploration through borrowing in international 
markets.  President Calderon understands that declining oil 
production can only be addressed through fiscal reform to 
reduce the amount of Pemex revenue sucked into the government 
budget, and through energy reform to improve the efficiency 
of Pemex oper 
ations and allow for private and foreign investment in the 
petroleum sector.  It is unclear, however, when and whether 
he will gain the necessary legislative and popular support to 
enact necessary reforms.  While Mexican congressional 
committees continue to discuss packages that would make 
limited structural changes and increase the earnings Pemex 
could reinvest, the Administration has yet to introduce a 
reform preferring instead to work "behind the scenes" with 
opposition party members.  Unions and opposition parties 
reflect the views of about 80% of Mexicans that are skeptical 
of reform efforts and any U.S. involvement.  Even seemingly 
benign, factual statements by U.S. officials about Mexico's 
petroleum sector, such as those made by President Bush in 
March 2007 or Former Fed Chairman Greenspan several months 
later set off a tempest of responses, including from 
officials largely supportive of opening the sector. 
 
Climate Change 
-------------- 
 
¶15.   On May 25 President Calderon announced Mexico's 
National Climate Change Strategy, followed week later he 
announced Mexico's National Development Plan.  The 
centerpiece of the Climate Change Strategy is the ambitious 
and well-funded PROARBOL program which aims to plant 250 
 
MEXICO 00004598  005 OF 007 
 
 
million trees in Mexico in 2007 to stop the decades-long 
deterioration of Mexican forests.  He added that developing 
countries should not use the fact that the brunt of the 
responsibility for climate change lies on the developed 
countries as an excuse to avoid their commitments to the 
environment.  He emphasized the importance of building an 
international regime to address climate change.  Criticizing 
the joint implementation and the clean development mechanism 
of the Kyoto Protocol, Calderon said the international 
community cannot limit itself to implementing mitigation 
actions where they are less expensive.  High-emitting 
countries must do more than buy developing country emission 
credits but must actively reduce their own emissions. 
 
 
¶16.   The National Development Plan highlights environmental 
sustainability as one of its five focus areas and notes 
Mexico's potential as an effective intermediary between 
developing and developed countries in dialogue and 
cooperation on sustainable development.  The first of two 
goals listed under "climate change" is to reduce emissions of 
green house gases (GHG) through energy efficiency measures 
(including innovative housing designs) and the use of clean 
technologies.  Other GHG reducing measures include the 
adoption of international standards on vehicle emissions and 
energy generation from waste.  The second goal deals with 
promoting climate change adaptation measures.  Among others, 
the Plan proposes to assess vulnerabilities, develop 
different climate change scenarios, including adaptation in 
future planning, protecting coastal buffer areas, evaluating 
economic and environmental impacts of climate change, and 
educating the public.  No numerical targets are listed under 
the climate change section. 
 
Facilitating Legitimate Trade 
------------------------------ 
 
¶17.  (SBU) Under NAFTA, the industrial production cycle in 
the U.S., Canada and Mexico has become tightly integrated 
with factories in each country dependent of parts suppliers 
in the others.  Bilaterally and under the auspices of both 
the NAFTA and the trilateral Security and Prosperity 
Partnership of North America (SPP), we are working on ways to 
improve North American economic competitiveness.  Numerous 
studies and trade groups, including the North American 
Competitiveness Council, the private sector component of the 
SPP, have stressed that border facilities and procedures must 
be improved significantly to accommodate current trade flows 
and expected future growth.  (In 2006, U.S.-Mexico trade in 
goods and services was over USD 367 billion.) We can make the 
needed improvements while protecting U.S. security by, inter 
alia:  extending and/or synchronizing operating hours at U.S. 
and Mexican facilities at the same border crossing; sharing 
best practices among ports of entry; cutting back on 
redundant inspect 
ions; employing new technologies to track and speed the 
secure movement of cargo; identifying critical infrastructure 
investments needed on both sides of the border; and involving 
the private sector to make the North American supply chain 
more secure and efficient. At the March 2007 summit between 
Presidents Bush and Calderon, both governments agreed to 
increase efforts to facilitate legitimate trade across the 
border. In response, the U.S. and Mexican governments formed 
a senior-level working group that plans in the near future to 
announce progress made toward trade facilitation, and a 
series of short-term measures for further improvements. 
 
¶18. (SBU) The three North American leaders announced at their 
August 2007 meeting in Canada a Regulatory Cooperation 
Framework and an Intellectual Property Action Strategy to 
improve trilateral work in those areas.  The USG already has 
 
MEXICO 00004598  006 OF 007 
 
 
a robust program of bilateral engagement with Mexico on 
improving its protection of intellectual property rights. 
The three leaders also reiterated their support for a 
comprehensive and ambitious conclusion to the Doha round of 
WTO negotiations. 
 
U.S. Assistance 
---------------- 
 
¶19. (U) Our official U.S. assistance budget for FY07 is USD 
58.6 million, a 12.4 percent cut from FY06, and funds much of 
our efforts to help the Calderon government fight crime, 
secure borders, reform the justice system, increase economic 
opportunity, and protect the environment.  Just as the 
President has demonstrated commitment to work collaboratively 
with the U.S. on a broad agenda, an increasing number of 
Mexican state governors are working constructively with both 
U.S. federal agencies and border states to achieve common 
goals.  Of our total USD 50.6 million in official assistance, 
USAID manages USD 27 million in projects that support overall 
U.S. efforts to address two key causes of migration pressure: 
lack of economic opportunity and weak public safety.  USAID 
projects work directly with Mexican institutions (including 
NGOs) at the federal, state, and local levels to: introduce 
market-based financing for state and local infrastructure; 
increase access to financial services; increase economic 
opportuni 
ties at home; strengthen security; raise Mexican 
competitiveness via policy and regulatory reform; improve the 
judicial system; expand access to credit; and link 
marginalized producers in poorer areas to national and 
international markets.  Education and health programs also 
build the capacity of Mexico's work force. 
 
Consular Issues 
--------------- 
 
¶20. (SBU) One of the clearest indicators of the deep links 
between our two societies is our consular workload in Mexico. 
 About one third of all USG employees stationed in Mexico are 
dedicated to providing consular services.  An estimated one 
million American citizens reside in Mexico and about 12 
million visit every year.  Most Americans rarely encounter 
problems here, but each year hundreds are arrested, 
assaulted, die, fall ill, or become destitute, and seek 
assistance from consular employees.  More abductions of U.S. 
citizen children take place (in both directions) between the 
U.S. and Mexico than anywhere else in the world.  The 
migration of U.S. citizen retirees to Mexico has provided 
impetus to improve property rights protections in Mexico, 
including the introduction of title insurance offered by U.S. 
insurance companies.  The air phase of the Western Hemisphere 
Travel Initiative went into effect January 23 with few 
problems and 99 percent of U.S. citizen passengers bound for 
the U.S. carried passports.  The land and sea phase, which 
will go into effect before June 2009, will present a greater 
challenge due to the fact that there may be as many as 
700,000 U.S. citizens residing in Mexico without 
documentation who will need passports. 
 
¶21. (SBU) U.S. Consular Sections in Mexico processed about 
1.3 million nonimmigrant visa applications in fiscal year 
2006, including 114,000 temporary worker (H2) visas (71 
percent of the world total), of which almost 35,000 were 
temporary agricultural workers (92 percent of the world 
total).  There are no numerical limits on temporary 
agricultural worker visas and Mission Mexico stands ready to 
process much greater numbers of these visas if U.S. 
agribusiness chooses to make greater use of this program. 
All immigrant visas in Mexico are issued in Ciudad Juarez, 
where we processed about 86,000 immigrant visa applications 
 
MEXICO 00004598  007 OF 007 
 
 
in 2006, of which 54,000 were issued.  This is the greatest 
number of immigrant visas issued to any one nationality in 
the world.  This fluid legal movement of Mexicans northward, 
along with long-standing documented and undocumented 
communities in the U.S., makes the USD 23 billion in 
remittances that Mexicans send home Mexico's second largest 
source of foreign exchange revenues, behind petro 
leum and now ahead of tourism. 
 
 
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 / 
GARZA