MEXICO ECONOMIC NOTES, FEBRUARY 10 - FEBRUARY 16

UNCLAS SECTION 01 OF 02 MEXICO 000777

SIPDIS

SENSITIVE
SIPDIS

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

E.O. 12958: N/A
TAGS: ECON ECPS EFIN ELAB MX PGOV PREL
SUBJECT: MEXICO ECONOMIC NOTES, FEBRUARY 10 - FEBRUARY 16

Summary
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1. (U) Missouri Governor Matt Blunt promoted the Kansas City
Smart Port on a visit to Mexico City February 12. The
Embassy worked successfully to ensure Mexico included
petroleum products when it approved a third track of NAFTA
rule changes this week, thereby facilitating trade worth
roughly USD 20 billion. Calderon nominated Dr. Carlos
Hurtado, former Undersecretary of Spending, as one of the
Bank of Mexico's four deputy governors, and announced
creation of internal audit committees to oversee procurement
decisions of Pemex and the electricity monopoly, CFE. The
Supreme Court of Justice ruled that international treaties
including trade agreements like NAFTA take precedence over
federal and state laws. Economy Secretary Sojo said his
Secretariat would create a new organization for Mexican trade

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promotion. The Secretary of the Chamber of Deputies Finance
Committee does not expect that fiscal reform will be debated
in the Chamber before August. And, despite renewed calm, some
striking teachers are still causing unrest in Oaxaca. End
summary.

Governor of Missouri visits Mexico
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2. (U) Governor Matt Blunt of Missouri headed a trade
delegation to Mexico City on February 12. During the visit he
met with Secretaries Carstens (Finance),Tellez
(Communications and Transport),Espinosa (Foreign Relations)
and President Calderon. Accompanying him was a delegation of
businessmen from the Kansas City Smart Port. While the
meetings were mainly to promote the Smart Port facility with
the new administration (see septel),the governor also spoke
with Calderon about promoting Missouri investment projects in
Mexico and the mutual support for expanding the Port of
Lazaro Cardenas in the state of Michoacan. During the visit,
Gov. Blunt also participated in the signing ceremony between
Kansas City Southern de Mexico and the State of Michoacan for
an 80 million USD inter-model terminal at the port. At the
ceremony Kansas City Southern de Mexico announced additional
investments of 300 million USD.

NAFTA Rule of Origin Changes Finalized
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3. (U) As part of the ongoing process of simplifying NAFTA
rules of origin, which determine whether a particular product
qualifies for preferential NAFTA treatment, the three North
American governments have agreed on a Track Three package of
products for which the rules of origin will be changed.
These changes will make it easier for American, Canadian, and
Mexican exporters to take advantage of NAFTA's benefits. The
total amount of trade covered by these changes will be
roughly USD 67 billion, USD 20 billion of which will be
accounted for by the inclusion of a variety of petroleum
products. Earlier this week, the Embassy was active in
ensuring that the Mexican government approved inclusion of
these petroleum products. These changes must still be
approved by the Mexican Senate. Previous sets of changes were
implemented in 2002 ("the seven"),2004 (Track One),and 2006
(Track Two),covering a total trade value of USD 39 billion.
The three countries are working on a Track Four set of
changes.

Hurtado Nominated to Central Bank Board
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4. (U) President Calderon on February 9 nominated Dr. Carlos
Hurtado Lopez, a former Ministry of Finance Undersecretary of
Spending, as one of the Bank of Mexico's four deputy
governors. If ratified by Congress, Hurtado would replace

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Jesus Marcos Yacaman, whose eight-year term ended December
31, 2006. Hurtado has an economics degree from the
Autonomous Technological Institute of Mexico (ITAM) and a
doctorate in economics from the University of Chicago.

Calderon Announces New Audits for Energy Sector Contracts
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5. (U) President Calderon announced creation of internal
audit committees to oversee procurement decisions made by
Pemex and the Mexican Electricity monopoly, CFE. In making
the announcement, Calderon said that fighting corruption is
essential for a competitive economy. Pemex and CFE together
account for 48 percent of Mexican government procurement.

Supreme Court Rules for NAFTA Ahead of Domestic Law
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6. (U) Regarding 14 injunctions filed by 12 companies
against Mexico's General Import Law, the Ministers of the
Supreme Court of Justice ruled six to five that international
treaties including trade agreements like NAFTA, were above
federal and state laws, with the exception of the
Constitution. The majority determined that international
treaties such as NAFTA are the equivalent to a "supreme law"
and should be respected at all levels of the government as if
they were the Constitution itself.

New Mexican Trade Promotion Organization
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7. (U) Economy Secretary Sojo announced that his Ministry
would create a new organization for Mexican trade promotion
during the first quarter of 2007 that will take on some of
the functions of the current Bancomext,the Mexican export
credit bank.

Deputies to Debate Fiscal Reform in August
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8. (U) Antonio Soto, Secretary of the Chamber of Deputies
Finance Committee, told the press he expected Congress would
work on fiscal reform during August 2007 as he did not
believe there would be sufficient time during the current
session, which ends in April.

Oaxaca: Not All Quiet with the Teachers' Union
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9. (SBU) Although civil unrest in Oaxaca has improved
measurably (Mexico 719),the situation for the teachers'
union remains unstable. As a result of the Oaxaca protests,
membership in the national teachers' union (SNTE) split. In
December 2006, those teachers disposed to work with besieged
governor Ulises Ruiz broke away from the existing local 22
with the support of the union's national leadership forming
their own local, 59. SNTE members in local 59 work in 2000 of
Oaxaca's schools. On February 14, section 22 members staged
a protest which forced the closure of schools with local 59
teachers. The local 22 teachers also protested in front of
the office of Oaxaca's Lieutenant Governor.


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