8. Mexico's major sources of imports are:

<table><thead><tr><th>Country</th><th>1965</th><th>1966</th><th>1967</th><th>1968</th></tr></thead><tbody><tr><td>U.S.</td><td>1,025.2</td><td>1,025.8</td><td>1,102.0</td><td>1,127.7</td></tr><tr><td>Japan</td><td>39.1</td><td>45.7</td><td>75.4</td><td>71.5</td></tr><tr><td>U.K.</td><td>53.6</td><td>52.1</td><td>67.7</td><td>69.1</td></tr><tr><td>LAFTA 1/</td><td>29.6</td><td>33.7</td><td>38.2</td><td>38.1</td></tr></tbody></table>

9. The United States is not only a good customer of the Mexican Republic but is also a main source of goods and services for Mexico. In a visit, October 1967, Diaz Ordaz spoke of trade relations between the two countries. He expressed concern for:

(a) The disparity of prices between Mexico's exports and the capital goods imported.

-- He proposed that primary stabilization for selected primary products be considered.

(b) Barriers (tariffs, etc.) which "disturb" the flow of manufactures to the United States.

(c) Spending restrictions on U.S. tourists to Mexico.

-- He proposed that these restrictions be removed.

10. In addition, Mexico has objected to Department of Agriculture restrictions which have forced unexpected market losses in exports.

-- Particularly, Mexico has objected to restrictions imposed on tomatoes.

1/ Includes Argentina, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru and Uruguay.

11. Mexico has, as do most Latin American countries, a trade deficit.

-- The deficit has been largely offset by positive balances on frontier transactions and travel account.

-- The Olympic games of 1968 have probably increased net tourism by nearly 13%.

g. Balance of Payments

1. Mexico's current account deficit rose in 1967 to U.S. $620 million - a 75% deterioration from the preceding year.

-- The main reason for this deterioration was the relative decline in major exports: cotton, coffee, tomatoes -- partially due to poor weather conditions -- and a large influx of imports.

2. The balance of payments problems brings out the need - already recognized, in theory, by Mexico - to diversify further its exports.

3. Despite its deficit on current account, Mexico has been able to attract enough external capital to cover it.

-- Mexico's good international credit account (Mexican pesos are used by the IMF) has permitted it to borrow abroad.

5. Major problems

a. Despite the steady growth of the Mexican economy, problems remain.

b. Further diversification of exports is still a necessary prerequisite to economic health.

-- At the same time, in the face of the balance of payments problems, the volume of imports will probably have to be controlled.

c. More jobs will have to be made available to keep up with population growth and demographic shifts.

1. At the present rate of expansion industry creates 180,000 new jobs per year but the working population is increasing at the rate of 400,000 annually.

-- This increase throws about 220,000 workers back on subsistence farming.

-- The Border Program is one project by which the Mexican government has sought to provide jobs in manufacturing and obtain foreign exchange.

2. It takes an investment of about $8,000 to create a new job in industry. Mexico does not have the necessary funds to do this. Major industrial movement will have to come from abroad. In addition, investment will have to be channeled into job-creating rather than capital-intensive channels.

-- This need conflicts with Mexico's economic nationalism and may become an increasingly difficult political-economic problem for the PRI.

3. Mexico's rate of consumption is low.

(a) For practical purposes, 27 million people are excluded from the market and 60% of Mexican families do not have an income above $80 (U.S. dollars) a month.

(b) Thus the problem is not just one of increasing production but of raising the whole level of consumption to produce a stronger internal market.

c. The Pious Fund Case

Closely tied to the successful conclusion of
the Chamizal dispute was the settlement of
the Pious Fund case in favor of the United
States.

(1) This claim originated from the settlement of the Mexican War when Mexico ceded Upper California to the U.S. but refused to fulfill their obligation to support Catholic missionary activities in that area. -- Since the Mexican government administered funds in trust for this purpose, the U.S. entered a claim on behalf of the Bishop of Monterey and the Archbishop of California.

(2) The Mexican government honored the U.S. claim after the United States agreed to accept their contentions in the Chamizal case.

d. Air Transport Agreement

(1) In an effort to promote and develop its own national airline Mexico limited or restricted the landing rights of carriers from the United States.

(2) Mexico's actions had an adverse effect upon its tourist industry so that, in 1956, the Mexican government concluded an agreement with the United States to permit both U.S. and Mexican lines to operate on seven routes.

(3) This agreement was liberalized in 1965 but there is the latent problem of flight frequency which may be raised when the Mexican airline increases its efficiency.

e. Colorado Salinity

(1) Under the 1944 water treaty the United States and Mexico agreed to the distribution of Colorado River waters for irrigation purposes.

(2) By 1961, the salinity of the water had more than doubled as the result of a deep well drainage system in the Wellton-Mohawk Irrigation District in Arizona.

-- Mexico protested and farmers refused delivery.

(3) A solution to the problem has been attempted.

(a) In 1965, the United States extended the Wellton-Mohawk drainage channel (2.5 million U.S. dollars) so that it carries the drainage beyond the point of damage.

(b) Mexico agreed to accept "improved" waters for five years with the understanding that the water was to decrease in salinity.

(c) The agreement will be reviewed in 1970, at which time Mexico may reject renewal.

-- Increased use of the waters - which seems to be a strong probability - will increase salinity. Consequently, the problem is not really one which has been completely resolved. 1/

1/ A U.S. Mexican agreement of 1965 with the International Atomic Agency calls for a preliminary assessment of the practicability of constructing a dual-purpose nuclear power plant to produce energy and fresh water for border regions.

## 2. Current problems

### a. Trade

#### 1. Tomatoes

(a) The tomato problem is primarily one between the Florida growers and the southwest processors. However, Mexican interests are involved.

(b) In order to limit the volume of Mexican tomatoes being imported into the United States and, consequently, protect Florida producers, the Department of Agriculture limited and changed the regulations concerning the size of tomatoes which could be imported (1968).

(c) Although, Mexican farmers objected, they have managed to increase their volume exports of tomatoes to the United States by 30-40%.

(d) The Department of Agriculture is now again changing the size provisions, but since the Mexican peak season is over, this should not be a major problem to the Mexican farmers.

(e) Despite the fact that U.S. policy has not, and evidently will not, impose economic hardship in this area at present, the Mexicans are concerned about:

- The recent "unannounced" shifts in tomato regulations.

- The future of U.S. import policy in this area.

B. Mexico and the OAS Organization of American States

1. Cuba

a. Mexico has obtained the following OAS re-
solutions on Cuba:

1. One sector of Cuba from participation in the OAS.

2. The suspension of arms shipments to Cuba.

3. The condemnation of the policies of inter-
vention advocated by Castro at the Havana
Tricontinental Conference and the proposal
for an OAS study of the Tricontinental
Conference.

4. The condemnation of Cuba for aggression
in Venezuela and Bolivia.

5. A proposal calling on friendly non-OAS members to restrict their commercial and financial operations - as well as their air and sea transport - with Cuba.

6. A request that member states not ship any government or government-financed cargo in vessels which ship to or from Cuba and that such ships not be allowed to bunker in members' ports.

b. Mexico opposed the imposition of diplomatic and trade sanctions against Cuba.

c. Mexico did support the "Cuban Missile" resolution which recommended that member states take all measures to prevent:

1. Sino-Sonnet military materials - which might threaten the security of the hemisphere - from reaching Cuba.

2. The offensive missiles in Cuba from becoming an active threat to the peace and security of the hemisphere.

d. The United States voted "yes" on all these issues.

2. The Dominican Republic

-- Mexico joined Uruguay, Peru, Ecuador and Chile in opposing the creation of an *ad hoc* peace force to restore normal conditions in the Dominican Republic.

-- The United States voted "yes".

3. Mexico opposed the incorporation of the Inter-American Defense Board into the OAS Charter structure and abstained on a resolution calling for OAS consultations prior to granting recognition to a government which was formed as the result of a *de facto* seizure of power.

-- The United States abstained on the first issue but supported the second resolution.

4. On most major issues before the OAS, the United States and Mexico have disagreed.

C. Geneva Law of the Sea conferences (1968, 1960)

1. Mexico has opposed the United States' proposal to recognize "historic" fishing rights.

2. Mexico also abstained from voting on a U.S.-Canadian proposal for the establishment of an internationally accepted six-mile territorial sea and six-mile fishing zone within which "historical" rights of other nations would be recognized for a ten-year period (1961-1971).

-- Mexico's abstention permitted the adoption of the resolution by one vote.

D. In most issues which concern the hemisphere, Mexico and the United States have disagreed.

APPENDIX I

Labor Sector

1. Affiliated with BUO

<table><tbody><tr><td>A. Confederacion de Trabajadores Mexicanos (CTM)</td><td>1,500,000</td></tr><tr><td>B. Confederacion Regional de Obreros Mexicanos (CROM)</td><td>35,000</td></tr><tr><td>C. Confederacion General de Trabajadores (CGT)</td><td>25,000<sup>a</sup></td></tr><tr><td>D. Railroad Workers Union (STFRM)</td><td>102,000<sup>a</sup></td></tr><tr><td>E. Mining and Metal Workers Union (STMMSRM)</td><td>90,000</td></tr><tr><td>F. Petroleum Workers Union (STPRM)</td><td>85,000<sup>a</sup></td></tr><tr><td>G. Telephone Workers Union (STRM)</td><td>10,000</td></tr><tr><td>H. Motion Picture Workers Union (STPCRM)</td><td>6,000</td></tr><tr><td>I. Other independent unions (FNRT, FTDF, FNUT, FAO, ANDA, ATA, etc.)</td><td>20,000</td></tr><tr><td></td><td>1,873,000</td></tr></tbody></table>

2. Anti-BUO Affiliates

<table><tbody><tr><td>A. Confederacion Revolucionaria de Obreros y Campesinos (CROC)</td><td>150,000</td></tr><tr><td>B. Confederacion Revolucionaria de Trabajadores CRT)</td><td>25,000</td></tr><tr><td>C. Electrical Workers Unions (3 unions)</td><td>50,000<sup>a</sup></td></tr><tr><td>D. Other independent unions</td><td>15,000</td></tr><tr><td>E. Sindicato de Trabajadores Agricolas (in formation)</td><td>240,000</td></tr><tr><td>Total in Labor Sector</td><td>2,113,000</td></tr></tbody></table>

APPENDIX II

Popular Sector--CNOP

1. Civil Servants

A. Bureaucrats Unions (FSTSE) 300,000
B. Teachers (SNTE) 55,000a

2. Cooperatives

A. National Federation of Cooperatives 275,000
B. National Cooperative League 3,000

3. Small Farm Proprietors

A. Confederacion Nacional de la Pequena Propiedad Agricola 850,000
B. Asociacion Nacional de Cosecheros 15,000

4. Small Merchants

(These overlap) 40,000

5. Small Industrialists

6. Professionals--Intellectuals

55,000

7. Youth Groups

A. Confederacion de Jovenes Mexicanos 75,000

8. Artisans (nonsalaried service employees)

70,000

9. Women's Organizations

A. Sociedad de Tecnicas y Professionales 25,000
B. Others (Mujeres Revolucionarias, Mujeres en Marcha, etc.) 10,000

10. Diversified Persons (a catchall for all kinds of otherwise unaffiliated Mexicans)

75,000

Total in Popular Sector 1,848,000
Grand Total in Three PRI Sectors 6,621,000