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OO RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #2073/01 1892241
ZNR UUUUU ZZH
O 072241Z JUL 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2470
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE IMMEDIATE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE

UNCLAS SECTION 01 OF 05 MEXICO 002073 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA HEATHER GOETHERT AND KIMBERLY BUTLER 
STATE FOR L/CID CAMERON HOLLAND 
STATE FOR WHA/MEX AND WHA/EPSC 
TREASURY FOR IA MEXICO DESK RACHEAL JARPE 
 
E.O. 12958: N/A 
TAGS: EINV ETRD KIDE CASC OPIC PGOV MX
SUBJECT: MEXICO 2008 REPORT ON INVESTMENT DISPUTES 
ANDEXPROPRIATION CLAIMS - PART 2 
 
REF: STATE 43784 
 
CONTINUED FROM SEPTEL 
 
11.a.  Claimants J 
 
b.  2002 
 
c.  Claimants are joint venturers in Mexican facilities for 
the production and distribution of high fructose corn syrup 
(HFCS) for use by Mexican soft drink bottlers and other food 
and drink processors.  They challenge the same soft drink tax 
as Claimant I above.  Since the tax took effect on January 1, 
2002, Claimants substantially ceased the manufacture and sale 
of HFCS and stopped importing and distributing HFCS for use 
by Mexican soft drink bottlers. 
 
This dispute became a NAFTA Chapter 11 arbitration claim when 
Claimants filed their request for institution of arbitration 
proceedings against the GOM on August 4, 2004.  Claimants 
allege 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. 
Claimants seek damages in excess of USD 100 million. 
 
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. 
 
Although the tax is no longer in effect, Claimants are still 
seeking before the Chapter 11 tribunal compensation for the 
damages they sustained as a result of the tax.  Claimants' 
NAFTA Chapter 11 claim is still pending.  A hearing on the 
merits has already taken place, and the parties are awaiting 
a decision. 
 
In keeping with NAFTA Chapter 11 procedures, the Embassy does 
not take an active role on behalf of Claimants while dispute 
resolution measures are proceeding. 
 
12.a.  Claimant K 
 
b.  2002 
 
c.  Claimant produces high fructose corn syrup (HFCS) in the 
U.S., some of which it sells and distributes through a 
business unit in Mexico for use by Mexican soft drink 
bottlers.  Claimant challenges the same soft drink tax as 
Claimants I and J above.  Since the tax took effect on 
January 1, 2002, Claimant's distribution facilities in Mexico 
have been largely idle and HFCS production capacity in the 
U.S. has been diverted to markets other than Mexico. 
 
This dispute became a NAFTA Chapter 11 arbitration claim when 
Claimant filed its request for institution of arbitration 
proceedings against the GOM on December 29, 2004.  Claimant 
alleges the GOM's tax on HFCS violated the national treatment 
obligation under NAFTA Article 1102, the obligation to 
provide fair and equitable treatment under NAFTA Article 
1105(1), 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 USD 
100 million. 
 
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 
 
MEXICO 00002073  002 OF 005 
 
 
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. 
 
Although the tax is no longer in effect, Claimant is still 
seeking before the Chapter 11 tribunal compensation for the 
damages it sustained as a result of the tax.  Claimant's 
NAFTA Chapter 11 claim is still pending.  The parties have 
recently completed briefing on the issues, and a hearing on 
the merits is scheduled for early October 2007. 
 
In keeping with NAFTA Chapter 11 procedures, the Embassy does 
not take an active role on behalf of Claimant while dispute 
resolution measures are proceeding. 
 
13.a.  Claimants L 
 
b.  1985 
 
c.  In 1985, Mexican citizens Alfonso Vizcaino and Edelberto 
Verduzco (brothers-in-law) unlawfully seized approximately 
125 acres of agricultural land owned by Claimants, who are 
brother and sister and U.S. citizens, in Tecoman, Colima. 
The land was and continues to be a commercially profitable 
source of coconut, lime, mango and papaya, some of which are 
exported to the U.S., together with cattle raising and shrimp 
farming.  Claimants inherited the land from their uncle, a 
U.S. citizen and long-time resident of Tecoman.  Vizcaino and 
Verduzco own land adjacent to the property and are powerful 
figures in the state of Colima, with close ties to previous 
governors. 
 
After the uncle's death in 1985, Vizcaino and Verduzco 
fraudulently titled the property in their names and used 
their own workers to exploit the land, informally known as 
"El Buen Vecino" (Good Neighbor) ranch.  Claimants filed suit 
to have their rights to the property recognized.  In December 
2001, after more than 15 years of legal proceedings in the 
local, state and federal courts, the Mexican federal court of 
appeals in Guadalajara denied the last appeal and upheld 
Claimants' ownership rights.  On February 6, 2002, the land 
was turned over to their representatives. 
 
Less than one week later, on February 12, 2002, Carlos Montes 
Salazar, President of the local labor tribunal in Tecoman, 
led an invading mob of workers from Verduzco's other 
properties onto the ranch.  The workers claimed to be on 
strike against Verduzco for back pay and other benefits. 
However, the paperwork requesting approval for the strike was 
filed a year earlier with the labor tribunal, yet the workers 
did nothing until 2002.  Since the strike was against 
Verduzco, Claimants were not formal parties in the labor 
action and were placed in the predicament of relying on their 
long-time opponent Verduzco to fight to get his own workers 
thrown off the land he coveted.  None of the signs normally 
indicating a strike in Mexico (red and black flags, protests, 
etc. are evident on the ranch, and the "strikers" are working 
the land. 
 
The Ambassador, the Consul General and other representatives 
from the Consulate have met with numerous officials in 
Colima, including two governors, requesting that the final 
order of the Mexican court be implemented.  In a meeting with 
officials from the Consulate in September 2003, then-governor 
Fernando Moreno Pena agreed that the strike appeared to be a 
sham used as a delaying tactic to deny effective ownership 
rights to the family.  He also asserted that to his knowledge 
this was the only strike in the entire state of Colima. 
Although the governor indicated he would personally look into 
the matter and resolve it quickly, he took no action.  His 
successor, Gustavo Vazques Montes (apparently a cousin of 
labor magistrate Carlos Montes), likewise took no action to 
enforce the court's order before he died on February 24, 2005. 
 
On March 31, 2004, American Consul in Guadalajara met with 
 
MEXICO 00002073  003 OF 005 
 
 
Vizcaino, his attorney and his son to discuss the case.  He 
claimed the workers were striking against him in a dispute 
over benefits, and he saw no end in sight to the strike.  He 
also claimed that he purchased the property from one of the 
Claimants years ago, but that they reneged on the agreement. 
When asked why he had not accepted the final decision of the 
court, Vizcaino argued that Claimants had not won the 
litigation.  At that point, Vizcaino's attorney interjected 
and agreed that Claimants had won that case giving them full 
rights and possession to the property and that he was only 
representing Vizcaino in a separate breach of contract suit 
filed in 2001.  Vizcaino and his attorney then began arguing 
over the case.  Within an hour after the meeting, the 
attorney contacted the Consulate to confirm his earlier 
statements and to advise that he no longer represented 
Vizcaino.  The estimated value of the land is USD 400,000. 
The Claimants have since received an offer to purchase the 
property from Verduzco and Vizcaino, also assuming 
responsibility for the strikers if they remain on the 
property.  In March 2006, a payment was made to a court 
account, although closing of the transaction was delayed, 
according to the Claimant's attorney, in order to clarify 
certain tax issues with the local authorities. 
 
In April 2007 the U.S. Consulate in Guadalajara's American 
Citizen Services Section ascertained from the Claimants' 
attorney that the transaction still had not closed (although 
the governor of Colima has informed the Consulate that there 
are no outstanding state or federal taxes).  In April 2007, 
the Consulate separately contacted the Claimants, who 
reported that they have not received any money from the 
attorney or an update on the status of the case.   On June 
19, 2007 Claimants contacted the Consulate to reiterate that 
they had not heard from their attorney for two months. 
 
After several attempts, on June 17, 2008, ACS staff in 
Guadalajara was able to contact Claimants' attorney who 
confirmed that he had talked to his clients earlier the same 
day.  He confirmed that one of his associates, deemed as a 
trustee, was in possession of the funds from the sale of the 
property.  Further, he reassured us that the legal recourse 
to reduce the state tax issue, still outstanding, could take 
up to two months to be resolve.  A successful outcome, 
according to him, would allow the claimants to receive a 
greater sum from the proceeds.  The Consulate continues to 
monitor the case. 
 
14.a.  Claimant M 
 
b.  2002 
 
c.  Claimant leased planes to a Mexican aviation company, 
Allegro, that later went bankrupt.  Claimant began a legal 
battle to get its planes returned.  U.S. and Mexican courts 
eventually ruled in their favor, and Claimant took possession 
of its planes.  However, since that time, Claimant has been 
unable to get the Mexican Civil Aviation Board (DGAC) to 
deregister their aircraft, a necessary step before the 
company can bring the planes back to the US.  Claimant's 
losses come from two sources: first, several planes were not 
stored properly after they were seized and are now deemed 
un-flyable; second, Claimant is paying high maintenance and 
storage fees for the remaining planes that are flyable. 
Claimant alleges it has had difficulties dealing with the GOM 
on almost every step of its struggle to repossess and return 
the planes to the U.S. 
 
DGAC's current refusal to deregister the aircraft is based on 
a ruling by the Mexican Labor Board, apparently following an 
injunction filed by Allegro's former employees' union. 
Claimant argues that the Labor Board's decision does not 
apply to deregistration of the aircraft, and that it is based 
on a statute deemed unconstitutional by higher courts. 
Claimant has informed U.S. Embassy and DGAC that it is 
formally filing suit against the DGAC under a new law that 
allows private industry to sue GOM entities if they are not 
properly applying the law.  In late May 2005 the DGAC 
informed Embassy that it asked the Labor Board for 
clarification, but to date it has not received a response. 
 
15.a.  Claimant N 
 
b.  2000 
 
c.  Claimant is an investment company involved in commercial 
 
MEXICO 00002073  004 OF 005 
 
 
development, which owned a property of approximately 97,000 
square meters (24 acres) in one of the most expensive areas 
of Mexico.  On November 10, 2000, the federal government 
allegedly expropriated 13.79 percent of the area of the 
property in question.  According to Claimant, the GOM 
deprived it of its land and also interfered with its plans 
for commercial development of the area. 
 
Claimant submitted a Notice of Intent under NAFTA Chapter 11 
on August 28, 2001 claiming a breach of NAFTA Articles 1102, 
1103, 1105, and 1110 (Expropriation).  The Claimant seeks 
relief in the form of either the restoration of the property 
in its original state, as well as the payment of USD 30 
million in damages, plus corresponding interest; or the 
payment of USD 210 million. 
 
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. 
 
16.a.  Claimants O 
 
b.  2004 
 
c.  Claimants are a group of Texas farmers who allege their 
investments in water have been harmed through Mexican 
measures amounting to expropriation under NAFTA Article 1110. 
 
 
Claimants submit that from 1992 to 2002, Mexico expropriated 
water in the Rio Grande in Mexico.  Claimants allege that 
they had a right to that water under the 1944 Treaty between 
the United States and Mexico Respecting Utilization of Waters 
of the Colorado and Tijuana Rivers and of the Rio Grande, 
Feb. 3, 1944, U.S.-Mexico, T.S. No. 944.  They allege that 
Mexico diverted and seized approximately 1,013,056 acre-feet 
of irrigation water in violation of the Treaty.  The specific 
conduct Claimants complain of includes Mexico's building of 
certain dams and reservoirs, which had the effect of 
manipulating the flow of water in Mexico's favor. 
 
Claimants filed a Notice of Intent to Submit a Claim to 
Arbitration under NAFTA Chapter 11 on August 27, 2004 and a 
Notice of Arbitration on January 19, 2005.  They estimate 
their damages to be between USD 320,124,350 and USD 
667,687,930. On June 19, 2007, the claims were dismissed for 
lack of jurisdiction. 
 
17.a.  Claimant P 
 
b.  2005 
 
c.  Claimant is a U.S. company that invested USD 8 million in 
a conveyor belt for transporting aggregate materials between 
the U.S. and Mexico.  The conveyor belt crosses the border at 
the cities of Mexicali and Calexico. 
 
The State of Baja California issued an environmental permit 
in 2001, but refused to renew the permit in 2003.  A revision 
of the scope of work allowed the firm to proceed with a 
municipal permit from Mexicali and a diplomatic note issued 
by the Federal Government.  The firm received final U.S. and 
Mexico building permits in March 2005, but in October 2005 
police officers from the State of Baja California entered the 
plant and placed closure seals on the equipment.  In November 
2005 the firm obtained a court injunction voiding the state's 
closure action, but later the same day the City of Mexicali 
revoked its municipal environmental permit.  In March 2006, 
officials from the Department of Ecology for the State of 
Baja California, accompanied by three truckloads of armed 
police officers, entered the facility and placed closure 
seals on plant equipment for a second time. 
 
The U.S. owner of the firm reported that in an April 2006 
meeting, the Cabinet Secretary for the state Department of 
Ecology claimed that the company had not complied with his 
department's regulatory requirements and that it has various 
omissions in its (2001 and 2003) permit applications to his 
department - but he refused to specify the nature of the 
alleged omissions and compliance failures.  (He also alleged 
that the company was in violation of local zoning ordinances, 
but this issue lies outside the jurisdiction of his agency, 
according to the firm's legal counsel.)  The Embassy has 
raised the issue with the Secretariat of Foreign Relations 
and the Mexican Customs Agency. 
 
MEXICO 00002073  005 OF 005 
 
 
 
Mexican authorities at various levels have largely rebuffed 
or ignored Consular efforts to use our good offices.  U.S. 
EPA Administrator Steve Johnson will tour the conveyor belt 
facility and meet with Baja California Gov. Elorduy on June 
28, 2007.  On October 26, 2007, the state government issued 
permits to begin allow the company to begin operations.  The 
company has been in full operation since January 2008 and the 
matter is considered resolved by both the company and Embassy 
officials. 
 
 
18.a.  Claimant Q 
 
b.  2000 
 
c.  Claimant purchased undeveloped beachfront property in 
Puerto Escondido in May of 1999 through the Fideicomiso 
system.  In 2000, claimant begin plans for developing the 
property and hired a builder, an investment partner and a 
contractor.  A temporary dwelling was erected and the 
contractor moved onto the property to begin work.  Shortly 
thereafter, the Attorney General of Chiapas sent several 
Chiapas State Judicial Police to the property.  They arrested 
the contractor and turned him over to the local authorities 
where he spent about the next year in jail until it was 
determined that he had not committed any crime.  The State 
Judicial Police moved onto the property with officers 
inhabiting the temporary dwelling.  While Claimant is 
technically still the owner of the property, the police 
effectively prohibit development by barring access to the 
property.   During a visit to the property around 2000. the 
Consul General from Mexico City was threatened by a security 
guard posted at the property. 
 
The Claimant and her attorney believe that Oaxaca state 
government officials are behind this attempt to obtain her 
property.  The Embassy has approached the Governor expressing 
the concern and interest of the U.S. Government in this case 
 
20.a.  Claimant R 
 
b.  2007 
 
c.  Claimant is a U.S. company who won a concession from the 
municipality of Tlanepantla to install and operate a parking 
meter system in the city.   The newly elected mayor decided 
to withdraw the concession based on a technicality, though 
the Embassy believes that political pressure from an 
opposition party contributed to the decision to remove the 
meters.   The city claimed that a transfer of concession was 
improperly completed and that the Claimant owed back fines 
and revenue.   Claimant invested approximately $5 million USD 
in the project and requested that their property (the parking 
meters) be returned. 
 
In August 2007, the mayor and municipality officials accepted 
an offer presented by the Embassy to meet with company 
representatives (previously the municipality had refused to 
meet with the company).  The case subsequently escalated and 
is now being heard in the Mexican court system.  The Embassy 
has not received updates from the company but will continue 
to monitor the case. 
 
Visit Mexico City's Classified Web Site 
athttp://www.state.sgov.gov/p/wha/mexicocity and the North 
AmericanPartnership Blog at 
http://www.intelink.gov/communities/state/nap / 
 
GARZA