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Cablegate: Scenesetter for Visit of Assistant Secretary Of

VZCZCXRO1353
OO RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #4598/01 2392006
ZNR UUUUU ZZH
O 272006Z AUG 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8621
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RHMFIUU/DEPT OF ENERGY WASHINGTON DC PRIORITY
RULSDMK/TRANSPORTATION DEPT WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

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

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