NAFTA DEPUTIES MEETING REVIEWS SMOOTH NAFTA IMPLEMENTATION,

UNCLAS SECTION 01 OF 02 MONTERREY 000096

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SENSITIVE

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DEPARTMENT PLEASE PASS TO USTR (KENT SHIGETOMI)

E.O. 12958: N/A
TAGS: ETRD ELTN ECON EAGR PGOV MX CA
SUBJECT: NAFTA DEPUTIES MEETING REVIEWS SMOOTH NAFTA IMPLEMENTATION,
IRONS OUT ISSUES


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1. (SBU) Summary. At their annual meeting NAFTA deputy trade
ministers discussed the proposed agenda for a NAFTA ministerial
to be held later in 2008. Agreed items include a trilateral
workplan to enhance North American economic competitiveness,
analysis to compare the NAFTA with more recent free trade
agreements, and launch of four sectoral promotion programs and a
trilateral website to promote the NAFTA. The United States also
held separate meetings with both Canada and Mexico to discuss
bilateral issues such as cross border trucking, sugar, pork, and
softwood lumber. End Summary.

Successful Trilateral Talks


2. (U) Deputy trade ministers from the United States, Mexico
and Canada meet each year to discuss implementation of the
NAFTA. On February 18-19 in Monterrey, Mexico, Deputy United
States Trade Representative John Veroneau met with his
counterparts Marie-Lucie Morin, Canadian Deputy Minister for
International Trade, and Beatriz Leycegui, Mexican Under
Secretary for International Trade Negotiations.

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3. (SBU) The NAFTA deputies noted that the final elimination
of NAFTA tariffs on January 1, 2008 had proceeded smoothly.
Despite some internal political opposition and protest, Mexican
Under Secretary Leycegui stated that the elimination of tariffs
on the sensitive products (corn, sugar, and beans) had gone
better than expected, and there were fewer social protests than
when other tariffs were eliminated in 2003. DUSTR Veroneau
agreed that there were fewer problems than expected, and he
emphasized the importance of regional integration. He also
discussed the administration's efforts to persuade Congress to
approve the U.S.-Colombia free trade agreement (FTA). Canadian
Deputy Minister Morin noted that although NAFTA was
controversial in the United States and Mexico, Canadians still
strongly supported NAFTA. Canada is focused on negotiating free
trade agreements with additional Latin American countries,
having just completed a Peru FTA. Canada is also negotiating
with Caricom and the Dominican Republic. Leycegui stated that
Latin America was on the top of Mexican President Calderon's
agenda, and Mexico hoped to integrate the various FTAs it had
already negotiated.


4. (SBU) The NAFTA deputies also discussed means to
'modernize' or enhance NAFTA, including a work plan to enhance
North American competitiveness. The deputies first agreed to
compare NAFTA with the most recent FTAs, such as Colombia and
Peru for the United States, before the next NAFTA ministerial
meeting. This comparison could identify differences between
NAFTA and more recent agreements. Moreover, Mexico will propose
a chapter-by-chapter review of NAFTA to determine where NAFTA
could be enhanced. The Deputies also reviewed work to date on
four 'sectoral initiatives' covering swine, chemical, consumer
electronics and steel and noted more detailed workplans and
organization structure should be completed before announcing
them at the Ministerial.


5. (SBU) At the August 2007 meeting of the Free Trade
Commission, ministers agreed to develop a workplan to advance
North American economic competitiveness. At the deputies
meeting, Canada discussed its draft work plan, which called for
research in nine sectors: global value chains; foreign direct
investment, capital mobility and financial services; global
account imbalances, exchange rates and interest rates; labor;
resources and energy; services, borders; competition from other
regions; and the environment. Canada proposed that in their
next meeting the NAFTA trade ministers agree on joint economic
research that would eventually lead to specific policy
recommendations to promote competitiveness. Mexico sounded
interested, and stressed that policies to improve
competitiveness were the most important part of the exercise.
Leycegui also thought that the work plan could be a platform to
create a framework of cooperation to advance regional
integration. DUSTR Veroneau agreed that it would be useful to
review existing NAFTA literature. Veroneau noted that internal
governmental policies, such as the education system and
infrastructure, are the real keys to national competitiveness.
Veroneau was also cautious because the proposed study would
reach far beyond trade policy and questioned whether the study
would extend beyond the NAFTA trade ministers' mandates.
Assistant USTR for the Americas Everett Eissenstat pointed out
that there are risks to amending NAFTA in the current political
climate, since the unintended result could be more trade

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restrictive. After more discussion, Veroneau requested time for
consultations and review, and the deputies agreed to discuss the
proposal further in mid- March.


6. (U) The NAFTA deputies agreed to develop a NAFTA website to
communicate the benefits of NAFTA to the general public. Canada
will provide initial funding and host the website, which will
include facts, statistics and success stories, and links to
other sites. The United States and Mexico agreed to provide
funding to maintain the site. All three countries will provide
the content. The goal is to formally launch the site at the
Ministerial meeting.


7. (U) After the NAFTA deputies meeting, DUSTR Veroneau held a
press roundtable, where he explained the benefits of NAFTA to
newspaper and television reporters. Veroneau's remarks were
carried in the leading Monterrey newspaper El Norte,
highlighting a study that without NAFTA, Mexican exports would
have been 50% lower. Veroneau emphasized how the United States
expects Latin America to experience strong economic growth, and
the bilateral FTAs with Peru and Colombia will assist the member
countries' economies.

Mexican Bilateral Issues


8. (SBU) Cross-Border Trucking: Mexican Under Secretary
Leycegui thanked the United States for continued implementation
of the cross border trucking pilot program, but she asked about
the legal challenges. DUSTR Veroneau noted that the
administration has worked hard to maintain the pilot program.
There could be a preliminary ruling in the lawsuit against the
pilot program in the next two to three months, but USTR expects
the administration to prevail in the case. Both sides agreed
that it would be helpful to have additional American trucking
companies involved in the program to generate political support.



9. (SBU) Mexican Pork Exports: Leycegui is under pressure
from her pork industry. In December 2007 Mexico shut down 10
border posts to U.S. pork exports (constituting 5-6% of U.S.
exports). Moreover, the prime Mexican pork producing states are
prohibited from exporting to the United States until they are
certified free of classical swine fever. Leycegui pressed the
U.S. to certify the Mexican pork areas as free of classical
swine fever, in part to assist Mexico to open Asian markets.
Veroneau offered to check with USDA on the status of
certification. Veroneau was also concerned about the closing of
Mexican ports of entry for U.S. animal exports, particularly if
Mexican blocks more ports or expands its blockage to additional
products. The United States and Mexico also agreed to encourage
additional communication between their pork industries.


10. (SBU) Sugar: Leycegui and Veroneau both noted that
although sugar is a very sensitive product, both governments
held firm and implemented NAFTA to permit free trade. However,
Mexico is still interested in the establishment of a NAFTA
Chapter 20 dispute settlement panel on sugar. Veroneau pointed
out that the NAFTA panel would be unable to grant any relief
since the markets are now open and any relief could only be
prospective.

Canadian Bilateral Issue


11. (SBU) Softwood Lumber: Due to the downturn in the United
States housing market, there is considerable closure and
consolidation in the U.S. and Canadian lumber industries.
Canadian Deputy Minister for International Trade Morin and DUSTR
Veroneau first discussed issues with a data reconciliation
project between Canada and U.S. Customs on the value and volume
of Canadian lumber exports. Veroneau also responded to Canada's
questions about an upcoming U.S. import surveillance mechanism
to monitor Canadian exports. Although Canada was concerned,
Veroneau explained that the monitoring project was permitted
under the Softwood Lumber agreement, and it was necessary to
maintain U.S. industry confidence.
WILLIAMSON