POSSIBLE TELECOM PROPOSAL FOR NORTH AMERICA LEADERS'

UNCLAS SECTION 01 OF 04 MEXICO 004286

SIPDIS

SENSITIVE
SIPDIS

SECSTATE FOR A/S SHANNON
SECSTATE FOR WHA/MEX, WHA/ESP, EB/IBF/OMA
SECSTATE FOR EB/ESC MCMANUS AND IZZO
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GWORD
USDOC FOR ITS/TD/ENERGY DIVISION
TREASURY FOR IA (ALICE FAIBISHENKO)
DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH AND ALOCKWOD
SECSTATE PASS TO USTR (EISSENSTAT/MELLE)
SECSTATE PASS TO FEDERAL RESERVE (CARLOS ARTETA)
NSC FOR DAN FISK


E.O. 12958: N/A
TAGS: ECON ECPS EFIN ELAB PGOV PREL SPP KIPR EAIR ECPS MX
SUBJECT: POSSIBLE TELECOM PROPOSAL FOR NORTH AMERICA LEADERS'
MEETING, AND OTHER MEXICO ECONOMIC NOTES JULY 28-AUGUST 10, 2007



1. (SBU) Summary: Mexico's Communications and Transport Ministry
(SCT) has asked the Calderon Administration to present a dramatic
telecom proposal at the North America Leader's Meeting in
Montebello, Canada on August 20-21. Under the proposal, the
Security and Prosperity Partnership (SPP) would work to create one
low-cost calling rate for the U.S., Mexico and Canada. The first
U.S.-Mexico telecom negotiations under the Calderon Administration
showed an unprecedented level of engagement between the two
governments. Not all the SCT news is encouraging, however.
Communications and Transport Secretary Tellez publicly rejected the
idea of an open skies agreement between the U.S. and Mexico. The
Mexican Supreme Court issued its long-awaited final ruling on the
unconstitutionality of parts of the 2006 telecom and broadcast law.
The Mexican Congress is considering how to remedy the defects. The
Mexican Central Bank has held interest rates unchanged, and expects
inflation to slow later this year toward its 3% target. The Central
Bank expects the economy to grow 3.3% this year. U.S.-based
Remittances to Mexico are down. The Mexican version of the
Parents-Teachers Association (PTA) is attempting to set itself up as
a counterweight to Mexico's powerful teachers' union. Union Pacific
Railroad has proposed expanding the Brownsville-Matamoros Bridge.
Post continues to support efforts to implement the steps required
for successful implementation of the NAFTA Trucking Demonstration
Project. U.S. Transportation Secretary Peters and Secretary Tellez
plan to visit San Diego and Tijuana in August to view the inspection
of a Mexican trucking company. Following a video conference with
U.S. officials, Mexico will consider joining the new
Anti-Counterfeiting Trade Agreement designed to protect IPR. U.S.
Embassy and Mexican officials are working to combat the import of
contraband audio-visual discs from Asia into Mexico that enter via
Long Beach and are re-labeled as being of U.S. origin. End Summary



Dramatic Telecom Proposal for North
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Americans Leader's Meeting?
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2. (SBU) The welcome surprise of the August 3 Mexico City meeting of
the Principals of the High Level Consultative Committee on
Communications (HLCC) was the endorsement of Communications and
Transport Secretary Luis Tellez of an exciting proposal by
Undersecretary for Communications Rafael del Villar. The
Secretariat of Communications and Transport (SCT) will try to

SIPDIS
propose that at the Security and Prosperity (SPP) summit in
Montebello, Canada on August 20-21 (officially called the North
Americans Leaders' Meeting),the U.S. and Mexican Presidents and
Canada's Prime Minister announce a goal of making policy and
regulatory changes to allow telecom carriers to have low cost
"local" calling rates regardless of whether the call is within a
country or across the U.S.-Mexico border. Such a move would
pressure Mexico's powerful monopoly Telmex to dramatically lower its
international interconnection rates. Although time before the
Leaders' meeting is short, SCT has been discussing the idea with
President Calderon. (See septel)


U.S.-Mexico Telecom Negotiations
--------------


3. (U) The HLCC, the first U.S.-Mexico telecom negotiations under
the Calderon Administration, resulted in the signing of a Permanent
Protocol concerning the allotment and use of the 138-144 MHz band
for terrestrial non-broadcasting radio communication services along
the U.S.-Mexico border, as well as a Directory of Bilateral Issues
for 2007-2009. Regarding spectrum negotiations overall, U.S.
officials report unprecedented levels of engagement with their
Mexican counterparts. (See septel)

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Mexico Says "No" To Open Skies
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4. (U) Secretary Tellez is not willing to take on all Mexico's
special interests in order to improve competition, however. This
week he publicly said that Mexico rejected the "U.S. proposal" to
implement an open skies policy between the two countries. Tellez
said there would be no open skies aviation agreement during
President Calderon's Presidency. (Comment: Given President
Calderon's stated commitment to improving Mexico's competitiveness
and boosting tourism, it is disappointing that pressure from
Mexico's remaining state airline and its employees is overcoming the
larger interest in improving cargo and passenger transport between
the United States and Mexico.)


Supreme Court Publishes
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"Televisa Law" Decision
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5. (U) On August 9, the Mexican Supreme Court released the final
version of its decision on the unconstitutionality of several
provisions of the 2006 Telecom and Broadcasting Law (known as the
"Televisa Law" because it favored the duopolies and monopolies that
dominate telecommunications in Mexico.) The industry has been
anxiously waiting for document and will be closely analyzing its
content in the coming days and weeks to determine its implications.
There are currently four proposals circulating around the Mexican
Congress in response to the Supreme Court's draft decision in July.
The Congress hopes to move forward on revising Mexico's telecom
legislation now that the final decision has been published. The
900-page decision is available in Spanish on the web.


Central Bank Expects Inflation to Decline
--------------


6. (U) On July 27, the Bank of Mexico (BOM) kept its overnight
lending rate unchanged at 7.25%. The BOM expressed confidence that
inflation will decline during the second half of 2007 toward its 3%
target, despite inflationary risks posed by high food prices, higher
medium-term inflation expectations and possible contamination from
other prices. In June, annual inflation was 3.98%, but in July the
headline inflation rose to 4.14% due to high food prices. Core
inflation rose 0.07% from the previous month to 3.77%. The BOM will
announce its monetary policy at the end of August.


Economy Expected to Grow 3.3
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Percent in 2007
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7. (U) The Finance Ministry reported that the economy grew 2.8%
during the second quarter thanks to dynamic domestic demand,
recovery of the U.S. manufacturing sector and the automobile sector.
The Ministry forecast 3.3% economic growth for 2007. The Ministry
also reported a surplus in the government's public finances thanks
to improved tax collection, despite the 6.2% drop in oil revenues
compared to the same period in 2006. In May, employment in the
manufacturing sector rose 0.9%, while wages grew 2.2%.


Remittances Down
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8. (U) The inflow of remittances from the U.S. to Mexico is slowing.
In the first half of 2007, remittances only grew 0.64%. In June,
remittances totaled USD 2.02 billion, 6.2% lower than in May.
Banamex-Citigroup explains that the slowdown is due to a correction
in statistics and an improvement in how remittances are measured by
the Central Bank. According to the Inter-American Development Bank
(IDB),which polled Mexicans living in the U.S., the deceleration is
due to anti-immigrant sentiment in the United States. Other
analysts attribute the slower growth to the slowdown in the U.S.
construction sector. A study performed by the Mexican Central Bank
reveals that the average monthly payment sent by an immigrant to his
family in Mexico decreases with the number of years that the person
has been living in the U.S.; most likely because it is presumed that
the immigrant has been able to bring his/her family to the United
States.


Mexican "PTA" Criticizes Teachers
--------------


9. (U) The President of the National Federation of Heads of Families
(FENA-PAF),roughly the equivalent of the PTA in the U.S., says that
his organization has developed into a counter-weight for the
powerful National Teachers' Union (SNTE). The SNTE is the largest
single union in Mexico, and reportedly in Latin American. According
to the FENA-PAF President, the ordinary teachers who make up the
rank and file of the SNTE are fully aware of how important
educational reform is if Mexico wants to prepare its citizens to
compete in the global economy. Unfortunately, he said, the SNTE
leadership is more interested in further enriching themselves and in
wielding political power than they are in improving Mexico's
educational system. Nevertheless, the FENA-PAF President asserted,
his organization is winning increasing support from parents across
Mexico and this in turn is increasing its standing with governments
at the municipal, state and federal levels. Ultimately, FENA-PAF
wants to persuade SNTE to devote more time to education and less
time to politics.


Union Pacific Proposes New
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Matamoros/Brownsville Bridge
--------------


10. (U) The Presidents of the Brownsville-Matamoros Bridge Company
and Union Pacific de Mexico met with the Embassy on August 8 to
discuss the bridge's concession with the Mexican government which is
up for renewal in 2009. The Brownsville-Matamoros Bridge, in
operation since 1910, is operated by the Brownsville-Matamoros
Bridge Company and jointly owned by the Federal Government of Mexico
and the Union Pacific Railroad Company. The concession is up for
renewal every 15 years, and thus far the company foresees no issues
with the current renewal. The company president also discussed
future plans for the bridge, which include the building a new rail
bridge and the redesignation of the current rail bridge for private
vehicle traffic.


NAFTA Trucking Demonstration Project
--------------


11. (U) Post and the Departments of State, Transportation and
Homeland Security continue to work closely with their Mexican
counterparts on the steps necessary to ensure the successful
implementation of the NAFTA cross-border Trucking Demonstration
Project. As of August 9, 2007, 36 Mexican trucking companies had
passed through Department of Transportation (DOT) inspections and
are ready to receive operating authority. At the same time, SCT
inspectors are on their way to Ohio to conduct the first inspection
of a U.S. trucking company interested in participating in the

MEXICO 00004286 004 OF 004


Project. DOT Secretary Mary Peters and SCT Secretary Tellez are
planning a trip to the San Diego/Tijuana area in August to observe
the DOT inspection process of a Mexican trucking company.


Mexico Considers Joining
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Multilateral IPR Negotiations
--------------



12. (SBU) Mexican IPR officials expressed strong interest in having
Mexico participate in multilateral negotiations aimed at
establishing a new international agreement to strengthen protection
of intellectual property rights beyond levels called for in the WTO
Agreement on Trade-related Aspects of Intellectual Property Rights
(TRIPS). The United States, Canada, Japan, the European Union, and
Switzerland have agreed on a concept paper outlining the basic
elements of this Anti-Counterfeiting Trade Agreement (ACTA). In a
digital video conference held August 9, U.S. officials explained
these elements to Gilda Gonzalez, Director of IPR Protection, and
Irma Herrera, Coordinator of International Affairs, both from the
Mexican Institute of Industrial Property (rough equivalent of the
U.S. Patent and Trademark Office). Gonzalez said other Mexican
agencies would have to be consulted, but that the Mexican government
would be able to provide a firm answer on Mexican participation by
mid-September, when the U.S. and other sponsoring countries are
hoping to announce the start of negotiations. Mexican inclusion in
the ACTA from the start would help attract other developing
countries to join the pact later on, and having the three North
American countries as founding members of the ACTA would represent a
significant progress for ongoing trilateral IPR cooperation under
the auspices of the Security and Prosperity Partnership.


Embassy/PGR Working to Combat
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Contraband Imports
--------------


13. (SBU) Embassy ECON and DHS officials have held a number of
meetings with Mexican officials from the Attorney General's Office
(PGR, the rough equivalent of the U.S. Department of Justice) and
Customs on how to combat the influx of huge quantities of contraband
audio-visual discs into Mexico that are subsequently used for
pirating movies, music, and software. Apparently these discs are
made in Asia, shipped to Long Beach, California in-bond for transit
to Mexico, but then re-labeled as "made in the U.S." before passing
through Mexican Customs, where they avoid being charged the 15
percent Mexican tariff by claiming NAFTA (versus Chinese or
Malaysian) origin. The U.S. and Mexican sides have agreed to
coordinate efforts to investigate this fraudulent activity and take
appropriate administrative or criminal measures against those
engaged in it.


BASSETT