MEXICO EAGER TO REVISE NAFTA ORIGIN RULES; STILL

C O N F I D E N T I A L SECTION 01 OF 02 MEXICO 000656 SIPDIS SIPDIS STATE FOR WHA/MEX/ROTH, WHA/ESPC, EB/TPP, E/PIERCE STATE PASS USTR FOR EISSENSTAT/CROWDER/MELLE/SHIGETOMI/VETTER USDA FOR FAS/ONA COMMERCE FOR ITA/MAC/NAFTA/WORD/BASTIAN E.O. 12958: DECL: 02/12/2012 TAGS: ETRD EAGR ECON MX SUBJECT: MEXICO EAGER TO REVISE NAFTA ORIGIN RULES; STILL CONSIDERING SUGAR CASE VERSUS U.S. Summary -------------- ¶1. (C) According to Mexico's top trade official, many of the NAFTA's provisions need to be updated, and she wants North American POLITICAL leaders to consider re-opening the chapters dealing with market access, rules of origin, and customs treatment, despite the POLITICAL challenges such an initiative would face. She also said Mexico might lodge a NAFTA complaint against the U.S. regarding access to the American sugar market if Mexico loses a separate NAFTA investor-state case brought by U.S. corn syrup makers against the GOM. Embassy officers discussed two other commercial disputes with her top aides. End summary. Bold Ambitions For Overhauling NAFTA -------------- ¶2. (SBU) At a February 9 meeting with the Embassy's Econ Min-Couns, commercial officer, and econoff, Sub-Secretary of Economy for International Trade RELATIONS Beatriz Leycegui said Mexico wants to push its NAFTA partners to consider re-opening the NAFTA chapters that deal with market access, rules of origin, and customs procedures. Leycegui opined that NAFTA has in many respects become outdated, citing as illustrative examples the rules on net costs and de minimis for calculating a good's country of origin in Chapter Four and the NAFTA prohibitions on tariff drawbacks and using disassembly to confer origin. All these rules have been modified and streamlined substantially in subsequent free trade agreements (FTAs) negotiated by the NAFTA countries with their more recent free trade partners. In each case, the newer FTAs provide easier and more flexible mechanisms for manufactured goods to receive the preferential treatment accorded by said FTAs. Leycegui also proposed adding a trade facilitation chapter to the NAFTA, and more expansive cumulation provisions (which would permit, for example, one U.S. free trade partner like Chile to ship a product to the U.S. duty free under the U.S.-Chile FTA even if the product was made mostly from inputs from another free trade partner like Mexico). This would allow the pro-trade countries of the Hemisphere to bypass what Leycegui called the "dead" Free �A;Trade Area of the Americas process, integrating their manufacturing sectors and helping to boost the competitiveness of the Americas vis-a-vis other parts of the world. Leycegui indicated that these ideas for revisions to the NAFTA might be included in the talking points of President Calderon (who is scheduled to meet with President Bush in early March),Economy Secretary Sojo, and other top Mexican officials who will be meeting with their North American counterparts in coming months. ¶3. (C) Econ Min-Couns responded that the U.S. was committed to stronger economic integration, but cautioned that re-opening the NAFTA would be very sensitive politically. He noted that it would make sense to see how U.S. congressional renewal of trade promotion authority proceeds before broaching such an ambitious proposal. Econoff noted that re-opening NAFTA's provisions on rules of origin or customs procedures would open the door to calls from anti-trade groups for adding new labor and environmental provisions to the agreement. He recommended that the three governments first focus on identifying the areas in which NAFTA has fallen behind successor FTAs. Leycegui agreed that timing was important, and acknowledged that anti-trade groups in Mexico might use such an opening to press for re-negotiating Mexico's commitment to free trade in corn and beans, as was urged by a number of Mexican politicians and farmer advocates who participated in a forum called "Revising NAFTA's Agriculture Chapter" the same day. Nonetheless, she insisted that making the NAFTA a more user-friendly instrument was key to improving North American competitiveness and thus worth the POLITICAL price that such modifications might entail. Sugar Case Still Possible -------------- ¶4. (C) Econ Min-Couns urged that Mexico not lodge a NAFTA dispute settlement case against the U.S. regarding access to the American sugar market. He pointed out the USG was not a party to the ongoing investor-state complaints that U.S. corn MEXICO 00000656 002 OF 002 syrup makers had initiated against Mexico, and thus should not be linked to those cases. He added that our two governments had signed an agreement last year resolving the outstanding market access issues for sugar, removing the grounds for a dispute over this matter, and pointed out that such a decision would send an unfortunate signal in the run-up to President Bush's March visit. Leycegui replied that the GOM had not yet made a decision on whether to proceed with a case, and understood the potential repercussions. However, she pointed out that if the imminent judgment in the first investor-state case goes against Mexico, the GOM would have great difficulty in coming up with the money to pay the required compensation and could not afford to look passive to its own domestic constituency. She said she would inform us in a timely manner of any decision on the matter, and would work with us to limit negative fall-out if the decision is affirmative. Other Business Issues -------------- ¶5. (SBU) Leycegui had to leave for another meeting, but invited emboffs to raise other issues with her colleagues Ken Smith Ramos (Director General for Trade Negotiations) and Jose Saenz (Director General for Trade Policy). Commoff brought up the stalled accreditation of two U.S. conformity assessment organizations (Intertek and Underwriters Laboratories),and econoff raised the dispute between Fireman's Fund Insurance Company (FFIC) and the GOM regarding unequal treatment that FFIC claims it suffered when a Mexican bank it had bought bonds from collapsed. Smith and Saenz said the GOM was reviewing both cases. Visit Mexico City's Classified Web Site at http://www.state.sgov.gov/p/wha/mexicocity GARZA