VZCZCXRO4281
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #0808/01 0781909
ZNR UUUUU ZZH
P 191909Z MAR 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 5681
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
RHMFIUU/DEPT OF JUSTICE WASHINGTON DC
RHMFIUU/HQ USNORTHCOM
RHMFISS/CDR USSOUTHCOM MIAMI FL
RHEHAAA/NSC WASHINGTON DC

UNCLAS SECTION 01 OF 02 MEXICO 000808 
 
SENSITIVE, SIPDIS 
 
STATE FOR EEB/TPP/BTA/GROUT 
STATE FOR WHA/MEX/WOLFSON 
STATE PASS TO USTR FOR MELLE/SHIGETOMI 
STATE PASS TO COMMERCE FOR ITA/MAC/ONAFTA/WORD/OLSEN 
STATE PASS TO DOT FOR TRAINI 
 
E.O. 12958: N/A 
TAGS: ECON ETRD MX
SUBJECT: RETALIATORY TARIFFS - MEXICO PULLS TRIGGER BUT AIMS 
WIDE 
 
1.(SBU) SUMMARY:  In response to the cancellation of the U.S.- 
Mexico Cross Border Trucking Demonstration Project, the 
Mexican Secretariat of Economy (SE) published in the March 
18 Mexican Federal Register an announcement modifying the 
import tariffs on 89 U.S. agricultural and industrial 
products, effective March 19.  In a March 18 meeting with 
ECONOFF and AGOFF, the SE Director General of International 
Trade Negotiations acknowledged that Mexico had indeed 
"pulled the trigger", but explained that the tariffs 
followed a calculated logic to effect a change in the U.S. 
position on the trucking program.  He stressed that the list 
of affected products could be modified or stay in place 
until a satisfactory outcome is achieved, and that the ball 
is now in our court.  END SUMMARY. 
 
2.(SBU) On March 18, Mexico imposed retaliatory tariffs on 89 
U.S. goods totaling about $2.4 billion in exports from 40 
states in response to the cancellation of the pilot trucking 
program.  Only about 1.5 percent of U.S. exports to Mexico 
are affected by these new tariffs.  Staple goods not covered 
by Mexican producers - including rice, corn, and wheat - 
were excluded from the tariff scheme, according to SE, to 
avoid inflationary repercussions.  Among the goods affected, 
53 are finished products, including shampoo, books, and 
jewelry; 36 are agricultural goods.  New tariffs range from 
10 percent on many goods Q including onions, pet food, and 
toilet paper Q to 45 percent on table grapes.  Local media 
reports that based on 2008 import amounts, if maintained in 
2009, duties could increase by approximately $420 million. 
 
3.(SBU) Following the announcement of the retaliatory tariffs, 
ECONOFF and AGOFF met with Juan Carlos Baker, SE's Director 
General of International Trade Negotiations to gain 
clarification of Mexico's latest step in this trade dispute. 
Baker was cordial as always, but equally frank in his 
assertion that Mexico had exhausted all options to induce 
the United States to honor its international obligations 
under NAFTA and implement the trucking provisions of this 
agreement.  He said that the elimination of preferential 
tariffs on certain products was a calculated effort designed 
to evoke a change in the U.S. position and prompt the 
reestablishment of a trucking program.  He assured us that 
no U.S. agricultural or industrial producer should consider 
itself "safe" if its product does not appear on the list. 
If the products in this announcement are not the right 
formula to elicit a satisfactory result, then the GOM will 
consider modifying or expanding the list of affected 
products. 
 
LIST COULD EXPAND; US COMPANIES COULD BE EXCLUDED FROM BIDS 
--------------------------------------------- ---------- 
 
4.(SBU) Baker said that although the announcement has been 
released, SE is still fighting domestic pressure from 
various sectors to include additional U.S. products.  For 
many, this is an opportunity to secure protection for 
domestic producers from competitive U.S. manufacturers. 
This is not what this modification of import tariffs was 
intended to do, he said, and it is contrary to President 
Calderon's repeated calls for countries to cease their 
protectionist ways.  However, the longer there is no 
progress, the harder it will be for SE to fend off this 
pressure.  Baker also suggested that the suspension of 
benefits of equivalent effect, as provided in NAFTA Article 
2019, is not limited to the elimination of preferential 
tariffs.  If necessary, Mexico could consider not allowing, 
for example, U.S. companies to bid on a key infrastructure 
project. 
 
MEXICO: INTEGRITY OF NAFTA IS ON THE LINE 
------------------------------------------ 
 
5.(SBU) When asked about the possible nature of a new trucking 
program, Baker replied it was unclear as to what sort of 
program would be satisfactory.  He said the recent 
announcement that President Obama had instructed USTR, DOT 
and State to work with Congress on a new trucking project is 
a gesture of goodwill that is appreciated, but insisted that 
 
MEXICO 00000808  002 OF 002 
 
 
the tariffs will stay in place until a mutually-satisfactory 
solution is found.  He did acknowledge that these tariffs 
could be removed quickly should conditions warrant such an 
action. 
 
6.(SBU) Taking a step back, Baker pointed out that the 
integrity of NAFTA is on the line, and that if U.S. 
noncompliance continues unabated, then there is nothing to 
stop the Mexican congress from passing legislation in 
violation of Mexico's international commitments under this 
or another agreement.  He insisted that Mexico is being very 
responsible in its retaliatory steps and is doing so in 
accordance with the rules laid out in NAFTA.  Baker 
dismissed media reports that a Mexican delegation was to 
travel to Washington to discuss this issue.  There is no 
need, he said.  It is now the responsibility of the United 
States to act. 
 
7.(SBU) COMMENT:  Baker concluded that we should note that 
Mexico has left its side of the trucking program open, 
signaling its support for North American economic 
integration and its optimism that this trade dispute will be 
resolved.  The list of affected products includes such 
seasonal products as Christmas trees, strawberries, and 
pears Q items that are not flowing south at this time Q and 
excludes such "substantial trade" items as beef, pork, and 
corn syrup.  Although Mexico has pulled the trigger, they 
view their retaliation as merely a grazing at this point. 
Officials here hope that a more robust and more permanent 
trucking project in the very near future will prevent a more 
deadly shot. END COMMENT. 
 
BASSETT