Cablegate: Mexico Reviewing Antidumping Duties On China,

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DE RUEHME #5323/01 2772222
ZNR UUUUU ZZH
P 042222Z OCT 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 9123
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 0426
RUEHCN/AMCONSUL CHENGDU PRIORITY 0011
RUEHGZ/AMCONSUL GUANGZHOU PRIORITY 0048
RUEHHK/AMCONSUL HONG KONG PRIORITY 0325
RUEHGH/AMCONSUL SHANGHAI PRIORITY 0015
RUEHSH/AMCONSUL SHENYANG PRIORITY 0018
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RHEHNSC/NSC WASHDC PRIORITY

UNCLAS SECTION 01 OF 03 MEXICO 005323

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/MEX, WHA/EPSC, EAP/CM, DRL/AWR AND ILCSR
EEB/TPP/BTA/EWH/RECHT, AND EEB/TPP/BTA
STATE PASS USTR FOR
EISSENSTAT/STRATFORD/QUESENBERRY/MELLE/SHIGET OMI/MILLER
COMMERCE FOR ITA/OTEXA
TREASURY FOR IA (ALICE FAIBISHENKO, ANNA JEWEL)
NSC FOR RICHARD MILES, DAN FISK, DENNIS WILDER
STATE PASS TO FEDERAL RESERVE (CARLOS ARTETA)

E.O. 12958: N/A
TAGS: ETRD KTEX WTO ELAB MX CH
SUBJECT: MEXICO REVIEWING ANTIDUMPING DUTIES ON CHINA,
PREPARING FOR POSSIBLE WTO DISPUTE

REF: (A) MEXICO 616 (B) MEXICO 5240 (C) BEIJING 5700

MEXICO 00005323 001.2 OF 003

Summary
-------

1. (SBU) Mexican trade officials have begun to review many of
the anti-dumping (AD) duties currently in place versus
Chinese imports, with an eye to starting reviews of the rest
before the December 11 expiration of Mexico's immunity from
Chinese WTO litigation. Mexico believes it will be able to
eliminate many of the duties and put those that will remain
on stronger legal footing to withstand an expected WTO
complaint from China. The review process for the most
sensitive products (mostly textiles and apparel) will take
from 12 to 18 months. Mexico does not intend to link this
issue to its own pending WTO complaints versus Beijing on
export subsidies and intellectual property rights (IPR).
While there is predictable pressure from many Mexican
manufacturers and labor unions to maintain high tariff
barriers on PRC imports, there are some who seek cheaper
legal inputs. Government officials also recognize that
eliminating many of the outdated and WTO-inconsistent AD
duties on Chinese imports will reduce workload on import
administration and customs officials and remove much of the
incentive for corruption and contraband. End summary.

Mexican WTO Immunity Nears Its End
----------------------------------

2. (U) As reported in REF A, Mexico was the last country to
conclude a bilateral WTO accession agreement with China, and
before signing, Mexico extracted from China a pledge to
refrain from filing WTO suits against Mexican trade remedies
for six years from the date of its accession, i.e., until
December 11, 2007. (Note: REF A incorrectly reported the
date as January 1, 2008. End note.) Mexico had good reason
for negotiating this concession -- at one point it had
slapped prohibitively high anti-dumping (AD) duties on
several thousands of individual tariff lines of Chinese
imports. Over the past five years, Mexico has eliminated
many of these (almost certainly WTO-inconsistent) duties, but
it still has AD penalties in place on roughly 1,000 tariff
lines of Chinese imports, some stretching back as far as the
early 1990s. Around 800 of these tariff lines are for
man-made fibers, textile, or apparel products. These sectors
in Mexico surged between 1994 and 2000 with the
implementation of the North American Free Trade Agreement,
but have shrunk back considerably since the beginning of this
decade, due in large part to China's 2001 WTO accession and
its huge export boom, together with the end of the
Multi-Fiber Agreement and the rise of other Asian
manufacturing powers (REF B).

3. (SBU) Mexico's game plan for making the transition to a
WTO-consistent approach to AD duties on Chinese products
starts with initiating reviews of all the cases currently in
force before December 11. These are divided into seventeen
groups of goods, and the Secretariat of the Economy (SE) had
already started reviews on nine of these groups as of the
third week of September. According to an official in SE's
trade remedies unit, it should take two months to reach
preliminary determinations, but as long as 12-18 months for
final resolution of the most sensitive product categories.
Mexico will almost certainly end up eliminating AD duties on
a large number of Chinese products, and for those products
that will remain subject to AD duties, SE is considering
starting over its AD procedures from scratch on a
product-by-product basis rather than simply renewing the
existing cases, almost all of which are on very shaky legal
standing. By making a good faith effort to review and

MEXICO 00005323 002.2 OF 003

differentiate its treatment of various Chinese imports based
on international rules, Mexico feels that it will be in a
strong position to defend itself should Beijing decide to
initiate a WTO dispute post-December 11, which Mexico
considers probable.

To Link or Not to Link
----------------------

4. (SBU) A Chinese embassy official told econoff that Beijing
would naturally prefer that Mexico simply eliminate its
duties on PRC imports before December 11, rather than merely
beginning reviews by that date. However, the official
refused to be drawn out on China's likely course of action
if, as seems will be the case, Mexico is still a year and a
half away from final resolutions on a number of sensitive
products come December 11. REF C reported on the frosty
reception experienced by a visiting Mexican trade official
due to Mexico's decision to participate in the U.S.-initiated
WTO complaint against poor Chinese protection of intellectual
property rights -- the Mexican press has reported on
Beijing's official negative reaction to Mexican participation
in both the IPR case and another U.S.-initiated complaint
against Beijing related to export subsidies, saying Mexico's
decisions were founded on ignorance of the facts and domestic
political factors. Regarding a potential connection between
the export subsidy and IPR cases on the one hand and a
possible PRC case versus Mexican AD duties on the other, our
SE contact was adamant that SE would not/not allow these
cases to be linked. Mexico felt it had strong arguments on
both export subsidies (for which it has asked to form a WTO
panel) and IPR (on which it will participate as a
third-party) and was ready to let the chips fall where the
may on any complaint the Chinese may lodge against Mexican AD
duties.

Industry, Union and SE Views on AD Duties
-----------------------------------------

5. (SBU) A number of Mexican industrialists in the textile,
apparel, and footwear sectors are lobbying the Mexican
Congress and SE to maintain protective tariffs on PRC goods,
which they routinely accuse of benefiting from unfair Chinese
competition. Likewise, Mexican labor unions in these
industries unanimously favor maintaining the high AD duties.
They are concerned, probably with just cause, that the
500,000 jobs in these industries will be at even greater risk
if the tariffs are removed. A number of Mexican legislators
have adopted this rhetoric in public, saying Mexico should
not have to compete against those who do not follow the
rules. SE claims that is has gained tacit acceptance from
interested legislators to proceed with its current plan,
noting that producers with evidence of foul play should
present it to SE and cooperate in building a WTO-consistent
case for compensatory measures.

6. (SBU) On the other side, there are many Mexican
manufacturers who would welcome cheaper legal inputs from
China (thus helping keep down their own costs) and are thus
pushing for elimination of AD duties. In many cases, there
are no remaining Mexican producers of the goods in question,
making it easy for SE to cease punitive treatment of those
tariff lines. In fact, SE has lost a number of domestic
legal suits filed against it by Mexican producers complaining
that many of these AD duties are illegal under Mexican law
and detrimental to Mexican competitiveness. Apart from
strictly commercial considerations, SE believes that cleaning
up the large number of questionable trade remedy cases
against China will not only put Mexico right with WTO rules,
but will reduce workload for SE and Customs officials and,

MEXICO 00005323 003.2 OF 003

perhaps most importantly, eliminate what is currently a huge
incentive for contraband trade and official corruption at
ports of entry. Our SE contact noted that the illegality
generated by such prohibitively high tariffs spreads even
further -- many legitimate Mexican apparel makers produce
super cheap lines of clothing that they do not report in
their official books (or pay taxes on) in order to compete
against the equally cheap Chinese contraband apparel that can
be found in Mexico's ubiquitous informal markets.

Comment
-------

7. (SBU) We suspect that the pro-free trade Calderon
administration is happy to finally embark on the path of
ending a particularly egregious and long-standing case of
Mexican protectionism, and that it will make a sincere effort
to construct WTO-consistent arguments to sustain those AD
cases against China that survive the review process. Whether
China will give Mexico until mid-2009 to resolve all the
outstanding cases before resorting to WTO dispute resolution
remains to be seen, but such a move would be based more on
political considerations than commercial ones, since it is
hard to imagine that Beijing would achieve a satisfactory
judgment via the WTO much sooner than mid-2009 in any case.
End comment.

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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