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Cablegate: Agreement On Tariff Reduction Scheme

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

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