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Cablegate: Ustr Kirk Visit to Mexico: Trade Irritants Balanced With

VZCZCXRO0147
RR RUEHRS
DE RUEHME #0648/01 0532024
ZNR UUUUU ZZH
R 222023Z FEB 10
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 0582
INFO ALL US CONSULATES IN MEXICO COLLECTIVE
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFIUU/CDR USNORTHCOM PETERSON AFB CO
RHMFIUU/CDR USSOUTHCOM MIAMI FL
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
RHMFIUU/DEPT OF JUSTICE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHC/USAID WASHDC 0011
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC

UNCLAS SECTION 01 OF 05 MEXICO 000648

SENSITIVE
SIPDIS
STATE FOR WHA/MEX/GOMEZ
STATE PASS TO USTR FOR MELLE/MCCOY/SHIGETOMI
STATE PASS TO JUSTICE FOR CCIPS/KOUAME AND OPDAT/TRUEBELL
STATE PASS TO COMMERCE FOR ITA/MAC/ONAFTA/WORD
STATE PASS TO ITA/MAC/IPR/WILSON
COMMERCE PASS TO USPTO FOR RODRIGUEZ/BERDUT/MORALES

E.O. 12958: N/A
TAGS: ECON KIPR MX ETRD PREL EINT ENRG BTIO
SUBJECT: USTR Kirk Visit to Mexico: Trade Irritants Balanced with
Positive Way Forward

1. (SBU) SUMMARY. In his February 8-9 visit to Mexico City, U.S.
Trade Representative Ambassador Ron Kirk emphasized the importance
of our economic partnership with Mexico, not just in terms of trade
but also in terms of mutually beneficial competitiveness. He met
with President Calderon, Economy Secretary Gerardo Ruiz Mateos,
academics and representatives of large, medium and small U.S.
companies in Mexico. The following are key points:

-- Citing President Obama's newly-unveiled National Export
Initiative (NEI), Ambassador Kirk stressed the importance of job
creation in both Mexico and the United States, saying that the two
countries are inextricably linked and that the gains of one partner
are the gains of the other. It is not the United States against
Canada or the United States against Mexico, he insisted, but North
America competing with China and other regional blocs in the world.

-- Among the various trade irritants between Mexico and the United
States, Ambassador Kirk agreed that the cross-border trucking
dispute is the most important and symbolic. He told top GOM
officials that there is now a window of political opportunity to
consult with the U.S. Congress and map out a new strategy. He
counseled patience and stressed the negative impact of additional
retaliatory measures on the process of moving forward on this
issue.

-- Ambassador Kirk stressed the importance of moving beyond the
trade-dispute-based issues that complicate our relationship and
starting to look at positive ways in which we can work together and
create a constructive economic agenda with Mexico that in turn will
improve the region's competitiveness. END SUMMARY.

2. (SBU) Accepting an invitation from Mexico's Secretary of the
Economy Ruiz Mateos to visit Mexico City in early 2010, Ambassador
Kirk was joined by Deputy USTR Ambassador Miriam Sapiro, Assistant
USTR Everett Eissenstat, and Deputy Assistant USTR John Melle for a
series of meetings with the Economy Secretary and his key Under
Secretaries, various senior executives of U.S. multinationals and
small and medium-sized enterprises (SMEs), and local academics and
experts. Ambassadors Kirk, Pascual and Sapiro also met separately
with President Calderon.

Meeting with Economia

-----------------------------

3. (SBU) Secretary Ruiz Mateos chaired the meeting; to underscore
the importance and extent of potential collaboration, all four
Economy Under Secretaries attended (Trade, Industry,
Competitiveness and SMEs), as well as Ambassador Julian Ventura,
the Under Secretary for North American Affairs at the Secretariat
of Foreign Relations, and Rafael Fernandez de Castro, President
Calderon's Chief Economic Advisor. Secretary Ruiz Mateos laid out
the common challenges facing Mexico and the United States - the
importance of economic recovery, job creation, and the broader
circulation of the benefits of trade. He remarked that North
America was losing its share of world exports. In the second half
of NAFTA's 15-year existence, annual trade growth rates were just
one-third of what they achieved during the first seven years of
NAFTA. In order for the U.S. to double its exports, Mexico is a

MEXICO 00000648 002 OF 005


key partner He stressed that we must, therefore, identify specific
priorities and responsible parties in moving forward on a regional
competitiveness agenda, including intellectual property rights
(IPR), customs cooperation, regulatory cooperation, climate change,
and labor rights. Secretary Ruiz Mateos said that he fully expects
pending ex-officio legislation, granting prosecutors the authority
to pursue cases involving IPR violations without a prior complaint
from the right-holders, to pass before the end of this year.
Ambassador Sapiro and Economia Undersecretary for Trade
Negotiations Beatriz Leycegui had met the prior day to review in
more detail the ministerial agenda. Summarizing their conversation
regarding regulatory cooperation, Under Secretary Leycegui
highlighted the Inter-American Telecommunication Commission Mutual
Recognition Agreement for Conformity Assessment of
Telecommunications Equipment (CITEL MRA) and meat inspections as
two potential areas of cooperation. Ambassador Sapiro noted the
USG support for work on regulatory cooperation, and the need to
develop an effective framework that provides the best approach for
addressing a wide range of such issues.

4. (SBU) On trade irritants, Secretary Ruiz Mateos stressed that
no issue is as important or significant as the cross-border
trucking dispute. Mexico's Secretariat of the Economy had prepared
an extensive review of the impact of the trucking issue on Mexican
and U.S. interests. Mexican tariffs were inevitable after the
pilot trucking initiative was terminated. Mexico had studiously
structured its response to be NAFTA-compliant. The resultant
tariffs were hurting U.S. business in 49 states. The inability to
have truck transit freely across the border was hurting U.S. and
Mexican competitiveness. We are currently in a "lose-lose"
situation for both countries.

5. (SBU) Under Secretary Leycegui pointed out that tuna is a $660
million market to which Mexico has little to no access (only $9
million in 2009). Leycegui also highlighted the Buy American
issue, saying that the Mexican private sector's primary concern is
market access and not government procurement, and whether it will
be excluded due to the extent and application of Buy American
provisions. Finally, while technically not a trade irritant,
Leycegui noted that the shrimp/turtle issue, if Mexico is
decertified, will have a deleterious effect on $340 million in
Mexican shrimp exports (86 percent of total Mexican production).

6. (SBU) Ambassador Kirk thanked Secretary Ruiz Mateos and his
team for their honest and helpful assessment of our partnership.
He vowed to review two or three of the issues proposed by Mexico
and see if we could move forward. In particular, he promised to
reassess the meat inspection terms of reference document and see if
there is a way to bridge the gap between declaring it a technical
document or a trade document. Ambassador Kirk pressed his point on
IPR, saying that IPR is a key to increasing Mexico's
competitiveness. If ex-officio authority for prosecutors to take
up IPR cases becomes law, Kirk said, he would consider an
out-of-cycle review to determine whether to remove Mexico from the
Special 301 Watch List. On trucking, he told the GOM that there is
now a window of opportunity to consult with the U.S. Congress and
map out a new strategy. He counseled patience and stressed the
negative impact of additional retaliatory measures on the process
of moving forward on this issue. Both Ambassador Pascual and
Ambassador Kirk expressed concerns about regulations pending at the
Ministry of Communications and Transport that would severely
restrict the operation of U.S. express package firms, pointing out
that such an action would disrupt Mexican supply chains and reduce
rather than increase Mexican competitiveness. Secretary Ruiz
Mateos said he would check on the status and content of the pending

MEXICO 00000648 003 OF 005


regulations. Ambassador Kirk insisted that he continues to believe
there is a way to resolve the tuna dispute in a mutually
satisfactory, non-litigious manner. He promised to look again at
the various options, and asked the GOM to look again as well.
However, he offered that there are times when we need the WTO to
resolve disputes between two mature trading partners. On
shrimp/turtles, Ambassador Pascual asked the GOM to please send the
USG a copy of its action plan with all haste.

Meeting with President Calderon

----------------------------------------

7. (SBU) President Calderon, Chief Economic Advisor Fernandez de
Castro, and Secretary Ruiz Mateos met briefly with Ambassadors
Kirk, Pascual and Sapiro. President Calderon repeated the same
message that Ambassador Kirk had heard in his various meetings
throughout Mexico City - that Mexico is a partner and not a
competitor with the United States; and that the only way for Mexico
or the United States to compete in the global market is to increase
our mutually beneficial competitiveness. He said that Mexican
products are increasing their market shares vis-????-vis China and
India, which suggests that the U.S-Mexico border is functioning
better. President Calderon underscored the importance of the rule
of law - that respect for the rights of others is a fundamental
tenet as well as a solid basis for economic growth. Therefore, IPR
is a key component of his agenda. On trucking, he understood the
U.S. domestic politics involved. He did ask, however, about Buy
America and whether the United States is willing to negotiate an
agreement with Mexico similar to that with Canada. Finally,
President Calderon expressed an interest in the USTR-led Trade and
Climate Initiative.

8. (SBU) Ambassador Kirk responded that President Obama supports
an aggressive trade agenda, and referred to the President's State
of the Union Address in which he vowed to double U.S. exports in
five years. Mexican inputs are key to this growth, he said. On
the various trade irritants, Ambassador Kirk promised that the USG
will work on the trucking issue and that we will continue to seek a
non-litigious resolution to the tuna issue. He told President
Calderon that the United States is willing to have the same
conversation with Mexico as it has had with Canada on Buy America
under the Government Procurement Act. Finally, he promised to
follow up with Secretary Ruiz Mateos on the Trade and Climate
Initiative.

GE HQ Visit

--------------

9. (SBU) As part of his outreach to large U.S. businesses
operating in Mexico, Ambassadors Kirk, Pascual and Sapiro met with
senior executives of GE Mexico. The discussion focused on GE's
activities in Mexico, with an emphasis on GE's clean energy
business. GE Mexico highlighted its 14 aeroderivative turbines
operating around Mexico City. These 45MW power generators run on
clean natural gas, roughly half the emissions of coal-burning
facilities, and help to provide system stability and grid support
to enable the addition of more renewables while reducing
electricity losses through "distributed" generation. The core
engines in these machines are manufactured in Cincinnati and the

MEXICO 00000648 004 OF 005


packaging is completed in Houston. Ambassador Kirk was pleased to
learn of the extent of production that occurs in the United States,
and wanted to make sure that GE Mexico had the support of the USG
in continuing its efforts to employ U.S. technologies and
innovation to reduce the environmental footprint of Mexican energy
as well as Mexico's dependency on its shrinking petroleum
resources. GE also provided an update on its participation in a
bid to supply wind power in Manzanillo with gas turbines from
Greenville, SC. (Note: On February 11, the GOM notified GE that
it had won the contract, which will be the largest repowered
combined cycle facility in Latin America. End note.)

Roundtable Discussion with SMEs

-----------------------------------------

10. (SBU) FCS Mexico City hosted a roundtable discussion with
Ambassadors Kirk, Pascual and Sapiro, and a dozen U.S.-Mexican
company representatives, to discuss some of the binational trade
challenges experienced by SMEs. Topics included cross-border
shipping and logistics, IPR and trademark violations, clean energy
project financing, and double-taxation issues. Agricultural
concerns were also raised, including Mexican regulations regarding
heat-treated pallets, labeling laws, and railway theft. The
cross-border trucking dispute was also discussed, with participants
noting that it had caused U.S. producers to lose Mexican market
share to competitors (primarily from Chile). Small companies also
raised concerns about the difficulty in participating in government
procurements, and that they do not receive the same level of
support and promotion from the USG as their foreign competitors
(e.g. Europe, India, China). Ambassador Kirk remarked on President
Obama's plan to increase U.S. exports, and the USTR's intent to
better integrate SMEs into the international trade arena.
Ambassador Kirk also encouraged the companies to explore export
financing options available through the Small Business
Administration and the Export Import Bank, which under the new
National Export Initiative will now be required to provide at least
20 percent of their financing to qualified SMEs.

Dinner IHO Ambassador Kirk

-----------------------------------

11. (SBU) At a dinner hosted by Ambassador Pascual at his
residence in Ambassador Kirk's honor, Ambassador Kirk remarked on
the current difficulties in explaining the benefits of trade and
North American integration to domestic constituencies. However, he
and others in the USG are making this case domestically throughout
the United States. He told the dinner guests that energy and
climate change are two potential areas for cooperation, and
stressed the importance of intellectual property rights as key to
increasing Mexico's competitive edge. Several senior executives of
U.S. multinationals operating in Mexico were joined by local
academics and experts in emphasizing the interdependence of the
U.S. and Mexican economies and the importance of making North
America competitive in order to better compete against China and
others. Increasing trade with Mexico, one consultant opined, is
the best way for the United States to diversify its China risk.
All were in agreement that NAFTA has succeeded beyond expectations,
but as one person put it, the question now is whether or not North
American integration will continue in an orderly manner. A local
academic commented that NAFTA did not address the political
narrative of North America, and that now we must "democratize"

MEXICO 00000648 005 OF 005


NAFTA and ensure that the benefits of this trade agreement are
spread further. Participants also raised the cross-border trucking
dispute as perhaps the most significant obstacle to moving forward
on a positive economic agenda.

Comment

-------------

12. (SBU) COMMENT: Ambassador Kirk's visit was enormously helpful
in advancing our trade dialogue with Mexico, in part due to his
willingness and authority to discuss bilateral irritants in a
forthright and pragmatic manner. The GOM was very pleased with the
visit, which struck the right tone and set the stage for potential
ways forward on these long-standing trade irritants. As
importantly, Kirk's strong encouragement to all interlocutors that
they work towards a positive economic agenda to enhance the two
countries' competitiveness reinforced usefully the Embassy's
messaging on this issue over the past several months. Post looks
forward to working with USTR on developing a work plan that would
advance our strategic trade partnership with Mexico, as well as
establish our top priorities to improve Mexico's, and our,
competitiveness. END COMMENT.
FEELEY

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