VZCZCXRO7991
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1810/01 1642006
ZNR UUUUU ZZH
P 122006Z JUN 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 2213
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 0440
RUEHCN/AMCONSUL CHENGDU PRIORITY 0014
RUEHGZ/AMCONSUL GUANGZHOU PRIORITY 0051
RUEHHK/AMCONSUL HONG KONG PRIORITY 0331
RUEHGH/AMCONSUL SHANGHAI PRIORITY 0020
RUEHSH/AMCONSUL SHENYANG PRIORITY 0021
RUEHGV/USMISSION GENEVA PRIORITY 1034
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEAHLA/DEPT OF HOMELAND SECURITY PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RHEHNSC/NSC WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 03 MEXICO 001810 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/MEX/WOLFSON, WHA/EPSC/SALAZAR, EEB/TPP/BTA, 
EAP/CM, EAP/EP 
STATE PASS USTR FOR EISSENSTAT/STRATFORD 
DOC FOR 4320/ITA/MAC/ONAFTA/WORD 
TREASURY FOR IA 
NSC FOR DAN FISK AND KURT TONG 
STATE PASS FEDERAL RESERVE FOR CARLOS ARTETA 
 
E.O. 12958: N/A 
TAGS: ETRD EINV KTEX PINS MX CH
SUBJECT: MEXICO AND CHINA AGREE ON PHASED LOWERING OF 
MEXICAN TRADE BARRIERS 
 
REF: (A) 07 MEXICO 616 (B) 07 MEXICO 2858 (C) 07 
     MEXICO 5323 (D) 07 BEIJING 5700 
 
MEXICO 00001810  001.2 OF 003 
 
 
Summary 
------- 
 
¶1. (U) Mexico and China avoided a serious trade impasse by 
reaching an agreement on a transitioned approach to 
eliminating and/or reducing Mexican anti-dumping (AD) duties 
on a wide range of Chinese manufactured imports.  Assuming 
the deal is approved by the Mexican Senate (as expected), 
Mexico will eliminate duties on products covered under 749 
tariff lines while maintaining, but lowering, duties on 204 
others considered 'sensitive' by Mexican industry.  Duties on 
those 204 tariff lines will gradually be reduced to zero by 
December 2011.  Mexico will not seek any further protection 
of those products before then, and China will refrain from 
pursuing a WTO challenge.  Separately, Mexico and China have 
agreed to: coordinate on sanitary and phyto-sanitary 
requirements; cooperate in combating illegal trade; and 
expedite the conclusion of negotiations on a bilateral 
investment treaty. 
 
Background 
---------- 
 
¶2. (SBU) Mexico currently levies extremely high AD duties on 
a wide range of industrial products covered by 953 tariff 
lines.  These duties were imposed before China joined the 
WTO, and clearly do not comply with WTO rules.  China finally 
gained the right to challenge Mexico's AD duties via the WTO 
at the end of last year, when the grace period established in 
China's WTO accession agreement with Mexico finally expired 
(REFS A and B).  China's interpretation of the "grace period" 
provision was that Mexico would eliminate all of its 
WTO-inconsistent AD duties on Chinese products by December 
12, 2007, while Mexico's interpretation was that it merely 
had to begin to review them by that date (REF C).  This 
situation was a major contributor to the bilateral trade 
friction reported in REF D, and China had indicated it was 
prepared to file a WTO complaint if Mexico did not change its 
position.  According to Rocio Ruiz, Mexico's Under Secretary 
of Economy for Industry and Commerce, Mexico would surely 
have lost the WTO case, and an appeal would only have staved 
off the inevitable conclusion, giving domestic industry 
perhaps a total of 18 months before Mexico would have been 
compelled to eliminate its AD duties on all 953 of tariff 
lines in question.  In addition, Mexico was keen to prevent 
further deterioration in economic ties with its 
second-largest trading partner and a huge, growing economy 
that presents both export and investment opportunities. 
These considerations led the GOM to choose negotiation over 
confrontation. 
 
Terms of the Agreement 
---------------------- 
 
¶3. (U) The two governments held four rounds of negotiations 
between November 2007 and April 2008.  These negotiations led 
to the signing of a Transitional Trade Agreement on 
Anti-Dumping Duties on June 2, 2008 by Mexican Economy 
Minister Eduardo Sojo and Chinese Commerce Minister Chen 
Deming (the two were attending an APEC trade ministerial in 
Arrequipa, Peru).  Under the terms of the agreement, Mexico 
will eliminate its AD duties on 749 tariff lines this year, 
assuming that the Senate approves the agreement when it 
returns to session in September.  Meanwhile, AD duties on 
another 204 tariff lines will be gradually reduced until they 
drop to zero on December 12, 2011, leaving just the MFN 
tariff rate for each product (35 percent for apparel, 10 
percent for textiles, etcetera).  The 204 tariff lines that 
 
MEXICO 00001810  002.2 OF 003 
 
 
will continue to receive varying degrees of AD protection 
cover products in the following sectors: textiles; clothing; 
footwear; toys; bicycles; baby carriages; tools; domestic 
appliances; machinery & electric devices; chemical products; 
lighters; pencils; valves; certain light bulb materials; 
locks; and candles.  According to Mexico's Economy Ministry, 
these industries account for 9.5 percent of the manufacturing 
sector's GDP and almost a million jobs.  Under the agreement, 
the varying levels of AD duties on these tariff lines will be 
lowered each year, reaching zero on December 12, 2011.  For 
example, in the case of textiles, anti-dumping duties of 501 
perecent are currently in force.  Many tariff lines will drop 
to zero as soon as the Mexican Senate approves the deal.  For 
those considered sensitive, the 501 perecent AD duty will 
fall to 110 percent upon entry into force this year.  In 
2009, it will fall to 100 percent, in 2010 to 90 percent, in 
2011 to 80 percent, and on December 12, 2011, to zero. 
Mexico will not seek further trade remedies against imports 
of these items from China, and China will refrain from any 
WTO challenge to the agreed-upon AD duty levels until 
December 12, 2011.  Both countries do retain the right to 
initiate WTO complaints related to other products. 
 
Business and Congressional Reactions 
------------------------------------ 
 
¶4. (SBU) The agreement mandates its own entry into force by 
October 15, 2008 at the latest, meaning the Mexican Senate 
will have to act on it soon after it re-convenes in regular 
sessions this September.  Mexican producers would have 
preferred keeping in place the protection provided by the 
very high barriers currently in effect, but our private 
sector contacts report that the GOM did a good job of 
liaising with them, both to warn of the very real risks of 
losing a WTO case and to help identify the specific tariff 
lines for which it made sense to seek extended AD protection. 
 As a result, the manufacturing sector largely supports the 
agreement, and this support will likely translate into smooth 
Senate approval. 
 
Sub-Committee on Economic and Trade Affairs 
------------------------------------------- 
 
¶5. (U) At the end of May, Beatriz Leycegui, Under Secretary 
of Economy for International Trade Negotiations, visited 
Beijing for a meeting of the econ/trade sub-committee under 
the Permanent Bilateral Commission the two countries have 
established.  According to the Economy Ministry, the meeting 
focused on enhanced coordination on sanitary and 
phytosanitary requirements and initiating bilateral 
cooperation to combat illegal commercial practices such as 
contraband and triangulation (the practice of re-labeling 
Chinese goods that arrive in U.S. ports such as Long Beach as 
"made in the USA" before shipping them duty-free to Mexico 
under NAFTA, thus avoiding Mexican MFN tariffs on Chinese 
goods).  The two sides also committed to wrapping up 
negotiations of a bilateral investment treaty as soon as 
possible. 
 
Comment 
------- 
 
¶6. (SBU) It was clear that Mexico's prohibitively high 
anti-dumping duties on a wide range of Chinese products (up 
to 1,000 percent) would not have stood up to WTO scrutiny. 
This, plus the Calderon Admnistration's free trade instincts, 
led the GOM to the negotiating table, where it managed to 
take much of the potential political sting out of the deal by 
maintaining AD protection for the most sensitive industries 
for another four years (after which MFN tariffs will continue 
to apply), giving them yet more time to prepare for competing 
 
MEXICO 00001810  003.2 OF 003 
 
 
in the global marketplace.  The GOM also believes that 
normalizing tariff levels on Chinese imports will 
significantly reduce instances of contraband, triangulation, 
and corruption at ports of entry.  The Chinese, on the other 
hand, gained immediate relief for a big swath of affected 
exports and a four-year time-line for achieving the same for 
the rest, thus avoiding the delay and ill-will that a WTO 
dispute would have entailed.  End comment. 
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