VZCZCXRO1193
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #3752/01 3541948
ZNR UUUUU ZZH
P 191948Z DEC 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 4468
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUEHGV/USMISSION GENEVA PRIORITY 1054
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC PRIORITY
RHMFIUU/DEPT OF JUSTICE WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 02 MEXICO 003752 
 
SIPDIS 
 
STATE FOR EEB/TPP DEBORAH GROUT, BRIAN NAFZIGER 
STATE FOR WHA/EPSC SUSAN GARRO 
STATE PASS USTR FOR JOHN MELLE, CARA MORROW 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD ECON
SUBJECT: AGREEMENT ON TARIFF REDUCTION SCHEME 
 
¶1. (U) Summary:  After a protracted negotiation, the Calderon 
Administration has reached an agreement with Mexico's private sector 
to reduce or eliminate tariffs on imports from non-FTA partner 
countries.  The agreement also includes a promise to simplify and 
expedite Mexican customs procedures.  This is part of a Presidential 
initiative to improve the competitiveness of Mexico's producers as 
well as extend the benefits of trade to Mexico's SME's.  At the G20 
meeting on November 15, President Calderon joined President Bush and 
other leaders in a pledge to refrain from raising new barriers to 
trade.  Calderon is not only adhering to this commitment; he is 
reducing barriers to trade in the hopes of spurring economic growth 
and opportunities to offset a deeper economic downturn.  End 
Summary. 
 
¶2. (U) On October 8 President Calderon announced various measures 
aimed at offsetting the effects of the current global situation.  He 
called on the Economy and the Finance Secretariats to spur economic 
growth and development opportunities and investigate measures to 
simplify foreign trade and customs procedures, reduce or eliminate 
tariffs on a variety of manufactured goods, as well as provide 
financial support for Mexico's SME's - the backbone of the Mexican 
economy.  The Secretariats discussed these measures in an internal 
memo which was somehow leaked to the private sector. 
 
¶3. (U) The contemplated proposal was to reduce tariffs on imports of 
finished goods from 10 percent to 5 percent in 2009 and to 2 percent 
in 2012 in some of Mexico's most sensitive sectors - textiles and 
apparel, chemicals, furniture, and small appliances.  This raised 
concern among Mexico's leading trade organizations, such as CONCAMIN 
(the National Confederation of Industry Chambers) and CANACINTRA 
(the National Chamber of Industry Transformation), who argued that 
rather than help, it would put Mexico's industries and employment at 
risk. 
 
¶4. (U) The government acknowledged that approximately 30,000 jobs 
would be lost between 2008 and 2012.  However, it estimated almost 
230,000 jobs would be gained over the same time period in dynamic 
sectors such as services, construction and agriculture - sectors 
which generate 85 percent of the total jobs in Mexico.  Further, the 
government pointed out that 91 percent of Mexico's imports already 
entered duty-free.  CONCAMIN and CANACINTRA disputed the 
government's projections and argued the tariff reduction would 
invite further "unfair" competition from Asia and other Latin 
American countries. 
 
¶5. (U) The Economy and Finance Secretariats argued that Mexico has 
not made progress over the past years in streamlining its tariff 
schedules, especially for its non-FTA partners. Consequently, there 
is substantial distortion, and the transit of products through the 
U.S and Canada has been abused (triangulation) to circumvent the 
higher tariffs on imports from non-FTA partners.  A tariff reduction 
scheme would not only reduce the workload and simplify Mexico's 
customs procedures, it would also reduce the paperwork for 
businesses and increase their efficiency as well as facilitate 
imports for SME's. 
 
¶6. (U) The government was determined to implement these measures, 
and the industry was equally resolute in demanding a say in what it 
viewed to be a unilateral decision by the government.  At the 
forefront of the government's efforts was Economy's Under Secretary 
for Industry and Commerce Lorenza Martinez, newly arrived to the 
Secretariat in September and relatively untested, although she used 
to work for the Finance Secretariat as the Head of the Insurance and 
Securities Unit.  Following the announcement of the government's 
plans in the media by the trade organizations, Martinez pledged to 
work with the trade organizations in reaching an agreement that 
would both "address [the government's] concerns as well as affect 
the fewest [people] possible." 
 
¶7. (U) The negotiations involved several meetings over the past few 
weeks between Martinez and various chambers and other 
representatives of the private sector.  In early December, in an 
effort to gain additional leverage, the trade organizations put out 
in the press that they had successfully delayed the government 
initiative until sometime late in 2009.  EconOff learned from 
Economy and other parties involved in the negotiations that this was 
not true; in fact, the government was determined to implement the 
tariff reduction scheme before the end of the year, with or without 
the consent of the private sector. 
 
 
MEXICO 00003752  002 OF 002 
 
 
¶8. (U) On December 18, the trade organizations and the Economy and 
Finance Secretariats reached an agreement to reduce or eliminate 
gradually tariffs on 80 percent of the products imported from 
non-FTA partner countries over the next four years (2009-2013). 
Only 40 percent of the duties will be modified in 2009.  The 
sensitive automotive, shoes, and apparel sectors will undergo a less 
strenuous but gradual reduction in tariffs over the next four years. 
 The details of the agreement will be submitted today for 
publication in the national register, just in time to be implemented 
for the new year.  The agreement also includes measures to simplify 
and expedite Mexican customs procedures, thereby improving the 
competitiveness and productivity of Mexico's SME's. 
 
¶9. (SBU) Post Comment:  Post is uncertain as to what got both 
parties to reach an agreement, but the resolve of the government was 
definitely a factor.  One observer told EconOff that this was a real 
test for the Calderon Administration; if it had been unable to 
implement this initiative, it would have been the government's first 
big loss and would have revealed the limit of this Administration's 
power.  There is speculation that the private sector managed to 
extract a promise from the Economy and Finance Secretariats to 
reduce energy costs in exchange for their support for a tariff 
reduction scheme.  Nevertheless, at a time when other countries in 
Latin America and elsewhere are considering imposing measures to 
increase tariffs or other barriers to trade in order to offset the 
effects of the current financial crisis, the Government of Mexico is 
reducing barriers to trade in the hope that exposing Mexico's 
private sector to foreign competition will be the antidote to 
counter a deeper economic downturn.  End Comment. 
 
BASSETT