SCENESETTER FOR THE SECRETARY'S VISIT TO MEXICO,

C O N F I D E N T I A L SECTION 01 OF 05 MEXICO 000803

SIPDIS

E.O. 12958: DECL: 02/05/2028
TAGS: PREL PGOV PHUM SNAR KCRM MX
SUBJECT: SCENESETTER FOR THE SECRETARY'S VISIT TO MEXICO,
MARCH 25-26

Classified By: Political Minister Counselor Charles V. Barclay.
Reason: 1.4 (b),(d).


1. (SBU) Mission Mexico warmly welcomes you to Mexico City
and Monterrey. President Calderon recognizes the
broad-ranging challenges his country faces, has the vision
and political will to address them strategically and wants to
work closely with us to meet common goals that are
fundamental to homeland security and North American
prosperity. The Merida Initiative provides a framework for
us to significantly increase counter drug cooperation and
support President Calderon's aggressive efforts to combat
Mexico's drug cartels. Calderon will stress the need for the
U.S. to do more on combating arms trafficking, money
laundering and the demand for drugs in the U.S. He will also
likely seek greater insight on our approach on NAFTA and
immigration issues and raise concern about the suspension of
the U.S.-Mexico trucking program. All of your interlocutors,
including President Calderon, will be keenly interested in
who our next Ambassador to Mexico will be.

PRESIDENT CONFRONTING SECURITY CHALLENGES WITH UNPRECEDENTED
COMMITMENT


2. (SBU) Polls suggest the public is becoming increasingly
concerned with rising drug-related violence but that most
concede there are few alternatives to President Calderon's
current efforts. While drug related arrests and seizures are
up, Mexico's demoralized police remain outgunned, and are
generally intimidated by the cartels. Security elements
remain suspicious of each other and reluctant to cooperate
and share information. Mexico's federal system makes it
difficult for federal law enforcement elements (merely five
percent of the country's police) to insert themselves into
state and city jurisdictions. Within Mexico's dysfunctional
judiciary, 90-95 percent of crimes do not result in
convictions and the average trial lasts over eight months.


3. (U) Despite these challenges, the Calderon government
remains committed to improving the country's security
situation through aggressive law enforcement and military
deployments, as well as reforming the country's policing and
judicial institutions. President Calderon is running joint
military-law enforcement anti-narcotic operations in ten
states. He has deployed 30,000 troops dedicated to
counter-drug activities, including 5,000 troops to Ciudad
Juarez in early March to take over policing activities there.
He has increased the budget of the security forces each
year since he took office, including a dramatic increase to
nearly USD 5 billion in the current budget. In coordination
with other political parties, he also ushered through
Congress four important security and justice reform packages
that, if appropriately implemented, will help to modernize
and restructure the country's justice system, as well as
improve and better coordinate Mexico's disparate police
forces.

U.S. JOINS GOM EFFORTS, CALDERON SEEKS MORE U.S. ACTION


4. (SBU) The Merida Initiative represents an historic
opportunity for the U.S. and Mexico to demonstrate shared
resolve in facing up to the challenges posed by organized
crime across our border. The U.S. is assisting Mexico this
year with $400 million in assistance programs earmarked for
inspection equipment, communications technology, technical
assistance, training, and helicopters and surveillance
aircraft. There have been some complaints from Mexican
officials (including President Calderon) and in the press
about delays in program implementation, but there is a smooth
flow of programs and increasingly close cooperation across
multiple agencies that is producing an entirely new
architecture for bilateral security cooperation There are
projects which have already begun to bear fruit and most of
the programs should be underway by the summer, although many
are long term in nature and will not yield early results.


5. (SBU) Meanwhile President Calderon has identified a
number of areas where he would like the U.S. to do more,
particularly on our side of the border.

-- Arms trafficking: With violence rising to unprecedented
levels and reports indicating that over 90 percent of cartel

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weaponry coming from the U.S., President Calderon will surely
raise his concern about the flow of arms south. ICE and ATF
are active at post and are expanding operations on the U.S.
side of the border to target the illegal sales of firearms
being smuggled into Mexico. The GOM will press for more
integrated and coordinated actions.
-- Money laundering/smuggling: The illicit drug trade is the
main source of funds laundered through the Mexican financial
system, though other major sources include corruption,
kidnapping and trafficking in firearms. We estimate that
since 2002, drug trafficking organizations have repatriated
more than $22 billion from the United States, capitalizing on
a sophisticated financial sector and relatively weak
regulatory controls. President Calderon is committed to
improving interdiction of money laundering, by further
empowering Customs agents, for example. We are providing
interagency assistance, training and support, but the GOM
will request the U.S. expand controls on our side of the
border as well.

-- Drug demand: Calderon has recently spoken publicly to how
the U.S. appetite for drugs drives Mexico's present-day
security challenges. He is looking for the U.S. to
rededicate itself to combating drug demand at home.

WEATHERING THE GLOBAL FINANCIAL CRISIS


6. (SBU) Mexico's macroeconomic policy is well-run; however,
the global crisis has pushed Mexico into recession. Exports,
industrial output, remittances from abroad and foreign direct
investment all are decreasing, while unemployment and
inflation are on the rise. The peso has depreciated 50
percent against the dollar in the past year, and oil
production - a major source of revenue for the GOM - is
declining steadily. Calderon's stimulus package is not
protectionist; it includes tax incentives for businesses,
subsidies to shore up and boost employment, and a
multi-billion dollar infrastructure development plan.
However, these initiatives may not be enough to pull out of
recession. As 82 percent of Mexico's exports are destined
for the United States and we are Mexico's largest foreign
direct investor, the future of Mexico's economy depends
heavily on the future of ours.

BUILDING ON NAFTA


7. (SBU) The GOM wants details from us on how we would like
to proceed on NAFTA. While much of the Mexican left like to
use NAFTA as a scapegoat for Mexico's enduring poverty
problems, the Calderon administration has conveyed serious
misgivings about reopening NAFTA given the contribution it
has made to vastly expanded North American trade. At the same
time, Calderon has indicated willingness to build on NAFTA's
accomplishments, perhaps by strengthening side agreements in
the areas of labor and the environment.

TRUCKING AND OTHER TRADE IRRITANTS


8. (SBU) Since the congressional vote to end the
cross-border trucking demonstration project, Mexican carriers
operating in the U.S. have ceased operations, while Mexico is
considering allowing currently-authorized U.S. carriers to
continue to operate in Mexico. Consistent with a 2001 NAFTA
arbitration panel ruling, Mexico announced 17 March that it
would retaliate against $2.4 billion in U.S. goods. The list
of targeted products, which went into effect 19 March,
notably steers clear of several major exports, including
beef, pork, and corn syrup. The 90 affected products range
from potatoes and onions to wine and deodorant. The GOM has
left the door open to modify the list to apply or reduce
pressure as warranted. President Calderon has warned in
recent speeches against a turn to protectionism, but has not
commented publicly on trucking or retaliation. Mexico may be
receptive to a U.S. overture to establish a replacement
trucking program, but will be looking for a firm
implementation timeline and potentially a new program that is
broader than the canceled pilot.


9. (SBU) After WTO consultations in Washington on February
27, all indications are that the GOM will continue to move
forward with its WTO challenge against U.S. Country of Origin
Labeling (COOL) regulations. Prior to the consultations,

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Secretary of Agriculture Vilsack, in a letter to the U.S.
industry, committed to implementing the Final Rule on March
16 and urged them to exceed the minimum COOL requirements as
promulgated by the previous Administration. The GOM
continues to face pressure from the domestic livestock
industries to take immediate retaliatory action, such as a
"mirror policy" on U.S. pork imports. Mexican cattlemen
claim COOL requirements have significantly undercut the price
of each head of cattle exported to the United States, even
though they meet all U.S. sanitary requirements for entry.

THE ENVIRONMENT: EMERGING PARTNERSHIP?


10. (SBU) President Obama made fighting climate change and
other environmental risks a priority of his administration.
President Calderon is similarly committed to fighting climate
change. Mexico was one of the first developing countries to
announce a target for greenhouse gas. The GOM would welcome
the prospect of North America demonstrating greater
leadership and initiative in developing public and private
sector programs to combat climate change, deforestation, and
industrial waste and foster the development of alternative
clean energy sources. Mexico has significant potential to
expand renewable energy sources and has committed to
generating 26% of its electricity with renewables by 2012.
The Mexican government also supports a North American carbon
cap and trade program - something we have not agreed to.

TACKLING THE IMMIGRATION CHALLENGE


11. (SBU) Facilitating migration between the U.S. and Mexico
remains a high priority. The remittances sent back here by
undocumented Mexicans living and working in the U.S.
represent the largest source of foreign currency after oil
and tourism. Remittances were down 3.6 percent from 2007 to
25 billion dollars. Illegal migration will remain a
challenge between our two countries for some time. GOM
officials and the Mexican public will be looking for the new
administration to tackle this challenge.

MEXICO'S ENERGY DILEMMA


12. (SBU) Energy reform legislation passed last year did
little to improve prospects for the kind of private
investment Mexico needs to explore for oil in deeps waters
and expand declining production. The Mexican government
depends on oil revenues to finance almost 40% of the federal
government, and oil exports are the largest source of foreign
exchange. Mexico is ratcheting up efforts to engage the USG
on a possible treaty governing transboundary reservoirs. The
GOM may raise this issue with you in an effort to create
momentum. With leading Mexican papers routinely printing
articles erroneously claiming that drilling on the US side of
the Gulf of Mexico is siphoning off huge quantities of
Mexican oil, the GOM is also under pressure from the Mexican
Congress to take quick action. US and Mexican officials are
meeting in New Orleans March 31 to discuss the possibility of
a bilateral treaty.

SEEKING A LARGER INTERNATIONAL PROFILE


13. (SBU) Mexico seeks to assume a larger, more responsible
profile on the international stage. It views itself as a
leader in Latin America as manifested last year when it
offered its services to broker an understanding between
Ecuador and Colombia after the later crossed their border in
pursuit of FARC leaders. (Note: Several Mexican student were
killed in the attack. End Note.) At the same time, it values
greatly its membership in North American fora as well as its
unique relationship with the U.S. and is proud that Mexico
represents your first visit to Latin America. Under
Calderon, Mexico has normalized relations Cuba allowing for
expanded trade and an immigration agreement that facilitates
the repatriation of illegal Cubans detained in Mexico;
Calderon is looking at making a possible trip to Cuba in late
April. We have been informed Mexico will seek U.S. support
for its candidacy to the Inter-American Human Rights
Commission.


14. (SBU) Mexico is a member of the United Nations Security
Council (2009-2010) and assumes the presidency in April. On
March 13, at the request of the GOM, a delegation of State

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Department experts lead by Acting Assistant Secretary of
International Organizations Jim Warlick visited Mexico for
consultations focusing on issues likely to be on the agenda
in April including the renewal of the UN's mandate for the
Western Sahara (Mexico recognizes Polisario),the Sudan
(Mexico favors respect for the ICC's decision against
al-Bashir),Iran and North Korea (Mexico shares our
concerns),Haiti (Mexico is UNSC lead but is not ready to
contribute to PKO for internal reasons) and Children in Armed
Conflict. Mexico shares our concern about the UN's spiraling
budgetary expenses and has signaled its disposition to
working closely with us on key issues and serving as a bridge
to NAM countries.

POLITICAL LANDSCAPE


15. (SBU) In addition to growing concerns over the economy,
crime and violence, the President and his party face a
hardening political environment here in advance of
legislative and key gubernatorial elections later this year.
The long-ruling Institutional Revolutionary Party (PRI),in
particular, is expected to make gains. In this political
environment, each of the parties including the governing
National Action Party (PAN) have assumed a more assertive,
populist stance. Comments on the U.S. regarding its
"responsibility" for Mexico's organized crime problem, and
calls on the U.S. to solve its own "corruption" problems
should be viewed in light of the building competition for
votes, as well as sensitivity about several U.S. reports
describing Mexico as a potential "failed state." Conveying
strong support for the government's efforts to meet the
challenges posed by organized crime by, in large measure,
building strong institutions should go far in demonstrating
our confidence in Mexico's contribution to the region's
stability and prosperity.

MONTERREY NOT IMMUNE TO SECURITY, ECONOMIC PROBLEMS


16. (SBU) In the final months of his six year term, Nuevo
Leon Governor Jose Natividad Gonzalez Paras still enjoys
respectable approval ratings despite security concerns. The
Governor has had a vision to transform Nuevo Leon from
manufacturing to innovation and services, to further develop
the state as a transportation hub, and to build a cultural
heritage. To promote innovation and high technology
products, he built a &City of Knowledge8 industrial park
near the airport that houses government agencies, local and
international businesses and Mexican and U.S. academic
institutions. He has also built substantial infrastructure
in Nuevo Leon. As an important outstanding goal remains
construction of the Colombia railroad bridge to connect
Monterrey to Texas, the Governor will inquire about a
Presidential Permit for the bridge, a process which is nearly
complete.


17. (SBU) In addition to national mid-term Congressional
elections, the Nuevo Leon Governor's race in July 2009 could
be an important bellwether demonstrating the relative
strength of the PRI and the PAN parties. Since the PRI party
is expected to do well in the national Congressional races,
the PAN party hopes to recover the Nuevo Leon Governorship
from the PRI to demonstrate support for the PAN party and
President Calderon. The local PAN and PRI parties are
ideologically similar, both supporting trade and a supportive
business climate to create jobs. Both have also nominated
mainstream pro-U.S. candidates; the leftist PRD is a
non-factor locally.


18. (U) Nuevo Leon has been hit hard by the U.S. economic
recession, as shown by falling exports, employment and
foreign investment. Although Nuevo Leon is working to move
into services and innovation, its bread and butter remains
the manufacture of durable consumer items such as
automobiles, home appliances and electronic goods. On the
brighter side, Nuevo Leon is relatively unaffected by
declining remittances, since due to its past economic success
far fewer people from Nuevo Leon have migrated to the United
States to find work.


19. (SBU) Historically, Monterrey had been seen as a safe
city, where drug cartels operated their lucrative drug
trafficking routes into the United States but without

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disruptive violence. The rules have changed, and the drug
cartels are now openly challenging the government and civil
society.

-- On October 11, 2008, near midnight unknown gunmen shot six
to eight rounds and tossed an undetonated grenade at the U.S.
Consulate. Post law enforcements officials interpret this
attack as a warning to stop assisting Mexican federal police
and the military with intelligence in operations against the
drug cartels.

-- On January 6, gunman attacked the Monterrey affiliate of
the Televisa TV network during a live broadcast, shooting at
the building and throwing a grenade that did explode --
although no one was injured.

-- The publisher of the leading newspaper El Norte has fled
to live in the United States due to threats by the drug
cartels.

-- In February, drug cartels staged demonstrations against
the Mexican military's involvement in local law enforcement
operations, shutting down major thoroughfares for hours in
Monterrey for five straight days, with the state and local
police afraid to intervene.

The drug cartels and common criminals have taken advantage of
weak and intimidated state and municipal police forces to
extort money from small Mexican businesses and kidnap middle
class Mexicans for ransom. So far, these kidnappers have
refrained from striking either foreigners or the wealthiest
Mexican business leaders.


20. (C) Nuevo Leon also faces major problems with
corruption of state and municipal police. The Nuevo Leon
Secretary for Public Security publicly admitted that over 50%
of the municipal police forces in the state have been
infiltrated by the narcotics cartels, and efforts to reform
state and local police forces have not been successful.
Meanwhile, state and municipal police officials support the
Merida Initiative, and they have asked Consulate officials
for Merida resources to assist them. The Mexican drug
cartels, aside from intermittent Mexican military operations,
operate with near impunity in Nuevo Leon. The public
strongly supports President Calderon's fight against the drug
cartels, but given rampant corruption and the strength of the
drug cartels, the fight against narcotics traffickers will be
long and bloody.

MEETING DAUNTING CONSULAR CHALLENGES ACROSS MEXICO


21. (U) Mission Mexico is the largest U.S. consular
operation in the world with 9 consulates, 14 consular
agencies, and the consular section in the Embassy. Consular
work here impacts directly on more than 150,000 U.S. citizens
who come to the Embassy or a consular post each year for
services. Separately, Mission Mexico processed 130,000
immigrant visas last year, nearly 20% of the world's total as
well as over 1,300,000 nonimmigrant visa applications. We
expect the latter number will rise to approximately 2.7
million a year as we replace Border Crossing Cards with
security enhanced laser visa cards. Since full
implementation of the Western Hemisphere Travel Initiative in
June 2009 will require U.S. citizens to hold passports when
traveling to Mexico, the mission is also prepared for a surge
in demand by resident and traveling U.S. citizens for
passports. With our two hundred consular officers, often
working in dangerous or inhospitable environments and
reaching constituencies throughout the entire country, more
foreign service officers work in consular sections than in
any other section of the mission.

Visit Mexico City's Classified Web Site at
http://www.state.sgov.gov/p/wha/mexicocity and the North American
Partnership Blog at http://www.intelink.gov/communities/state/nap /
BASSETT