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/63 ABUSES WITHIN THE MEXICAN POUTICAL REGULATORY AND JUDICIAL SYSTEMS AND IMPUCATIONS FOR THE NORTH AMERICAN FREE TRADE AGREEMENT [NAFTA] Y4.B 22/1:103-93 Abuses UitiiiB the ffexican Political... HEARING BEFORE THE COMMITTEE ON FINANCE AND BANKING, URBAN AFFAIRS HOUSE OF REPRESENTATIVES ONE HUNDRED THIRD CONGRESS FIRST SESSION NOVEMBER 8, 1993 Printed for the use of the Committee on Banking, Finance and Urban Affairs Serial No. 103-93 - JUL 2 199^ HUSTONPiibauaBeAr U.S. GOVERNMENT PRINTING OFFICE 73-889CC WASHINGTON : 1994 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-044352-0 ABUSES WITHIN THE MEXICAN POUTICAL REGUUTORY AND JUDICIAL SYSTEMS AND IMPUCATIONS FOR THE NORTH AMERICAN FREE TRADE AGREEMENT [NAFTA] 4.B 22/1:103-93 uses Uitbii tfte ftexicao Political... HEARING BEFORE THE COMMITTEE ON FINANCE AND BANKING, URBAN AFFAIRS HOUSE OF REPRESENTATIVES ONE HUNDRED THIRD CONGRESS FIRST SESSION NOVEMBER 8, 1993 Printed for the use of the Committee on Banking, Finance and Urban Affairs Serial No. 103-93 JUL 2 199^ BOSTONeobuiju' U.S. GOVERNMENT PRINTING OFFICE 73-889CC WASHINGTON 1994 : ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-044352-0 HOUSE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS HENRY B. GONZALEZ, Texas. Chairman STEPHEN L. NEAL, North Carolina JAMES A. LEACH, Iowa JOHN J. LaFALCE, New York BILL MCCOLLUM. Florida BRUCE F. VENTO, MinnesoU MARGE ROUKEMA. New Jersey CHARLES E. SCHUMER, New York DOUG BEREUTER. Nebraska BARNEY FRANK, MasaachuBette THOMAS J. RIDGE, Pennsylvania PAUL E. KANJORSKI. Pennsylvania TOBY ROTH. Wisconsin JOSEPH P. KENNEDY II, Massachusette ALFRED A. (AL) McCANDLESS, California FLOYD H. FLAKE, New York RICHARD H. BAKER. Louisiana KWEISI MFUME, Maryland JIM NUSSLE. Iowa MAXINE WATERS. California CRAIG THOMAS. Wyoming LARRY LaROCCO. Idaho SAM JOHNSON, Texas BILL ORTON, UUh DEBORAH PRYCE, Ohio JIM BACCHUS, Florida JOHN LINDER. Georgia HERBERT C. KLEIN. New Jersey JOE KNOLLENBERG. Michigan CAROLYN B. MALONEY, New York RICK LAZIO. New York PETER DEUTSCH, Florida ROD GRAMS. MinnesoU LUIS V. GUTIERREZ. Ilhnois SPENCER BACHUS. Alabama BOBBY L. RUSH. Illinois MIKE HUFFINGTON, California LUCILLE ROYBAL-ALLARD. California MICHAEL CASTLE. Delaware THOMAS M. BARRETT, Wisconsin PETER KING, New York ELIZABETH FURSE. Oregon NYDIA M. VELAZQUEZ. New York BERNARD SANDERS. Vermont ALBERT R. WYNN. Maryland CLEO FIELDS. Louisiana MELVIN WATT. North Carolina MAURICE HINCHEY. New York CALVIN M. DOOLEY, California RON KLINK, Pennsylvania ERIC FINGERHUT, Ohio (II) CONTENTS Page Hearingheldon: November8, 1993 1 Appendix: November8, 1993 39 WITNESSES Monday, November 8, 1993 Argueta, Alex, DeveloperfromTucson, AZ 13 Duncan, Lucia, Coordinator,American Investors in Mexico 15 Moussavi, Kaveh, IBM's formerPoliticalAgent in Mexico 7 Vogel, Sarah, Commissioner, Department of Agriculture, State of North Dakota 4 APPENDIX Prepared statements: Gonzalez, Hon. Henry B 40 LaFalce, Hon.JohnJ 78 Maloney, Hon. Carolyn B 80 Argueta, Alex 112 Duncan, Lucia 121 Moussavi, Kaveh 104 Vogel, Sarah 81 Additional Material Submitted for the Record Gonzalez, Hon. Henry—B.: — Religious Services Annex I Mexico 43 Department ofthe Treasury, list ofnames ofindividuals who participated in theNAFTA meetings 53 U.S. Department of Justice press release dated August 20, 1993, with information on UnitedStates ofAmerica v. Robert Bostick 44 Moussavi, Kaveh, response to "The Moussavi File"(with attachments) 196 The Economist: "Mexico—Fightingthe machine,"November6, 1993 146 "Mexico—Respect Restored," February 13, 1993 147 "TheMoussavi File,"Reportby theAttorney General's Office ofMexico 162 Vizcarra, Alberto, Permanent Forum of Rural Producers of Sonora, written statement 125 White, Christine, written statement, with enclosure re The VALMAREST Association 136 (IID ABUSES WITHIN THE MEXICAN POLITICAL, REGULATORY, AND JUDICIAL SYSTEMS AND IMPLICATIONS FOR THE NORTH AMERICAN FREE TRADE AGREEMENT [NAFTA] MONDAY, NOVEMBER 1993 8, House of Representatives, Committee on Banking, Finance and Urban Affairs, Washington, DC. The committee met, pursuant to notice, at 10 a.m., in room 2128, Raybum House Office Building, Hon. Henry B. Gonzalez [chairman ofthe committee] presiding. Present: Chairman Gonzalez, Representatives Watt, Klink, Leach, Roth, Thomas, and Johnson. The Chairman. The committee will please come to order. The Chair wishes to thank the witnesses that accepted our invitation. It was a little quicker than we had anticipated, but we want to say at the outset that this was the first committee to have any kind of formal hearings on so-called NAFTA, beginning with the first one before there had been any referrals by the executive branch, but after we had received the five volumes, four of them telephone directory size which I brought to the hearing room at the hearing before last. Since then, we have had two hearings on NAFTA. The first hearing was held on September 8, and the second was on September 28, and this one is a continuation and also the third hearing on NAFTA. If we could only have enough time and opportunity because we also have a full plate in required legislation that this committee must confront and resolve. The committee's first hearing, held on September 8, focused on the dangers posed by the agreement to the safety and the sound- ness of U.S. banks and other financial service providers. Now, my own opposition to the agreement stems from the very beginning. As they say in law, ab initio. Soon after some ofthe details were avail- able to us, about a year ago, it became obvious to me that what has been promoted as a trade agreement, in effect is the smallest residue and, for instance, never once even after we had the first hearing has any popular report been made indicating that there is an entire chapter on financial banking and financial services, and there was a separate chapter on securities and each one of them complex. But on top of that the overall significance of this treaty or agreement is that the most important portion still remains to be either divulged, much less discussed, and it has turned out to be popular in our country. (1) In other words, it isn't a question oftrying to inform and educate our citizens, and without which understanding those of us sup- posedly representing them would be working against a backdrop of ignorance, and therefore very definite misunderstanding as we go into the future. But as more and more opportunity rises to look into this, for instance, at what time has any spokesman from the President on down or any of the other ex-Secretaries of State and the like reported that the article 101 of NAFTA links it irretrievably to the Uruguay GATT round and inclusive thereof of article 24 ofthe General Agreement on Trade and Tariffs. Article 2001, the so-called free trade agreement or NAFTA also sets up the Free Trade Commission, which will be invested with powers, includingjudiciary powers, and that on top of the assump- tion that by the time we would get around to NAFTA, the Uruguay GATT round would have been approved but it hasn't happened. And it leaves this hanging midair in suspense, that is if NAFTA is approved. And so I think it is very important that we realize that today's hearing is to bring out the atmosphere and environment in which all tnese institutions, particularly banking, will be working in the environment of laws and regulations, judicial systems, and the like, so we will examine the nature and the scope ofthe system which universally is accepted as being corrupt. American investors and businesspersons must be fully aware, then if they wish to either out of greed or heedless disregard, at least this committee is on record as making an honest, forthright attempt to present the facts as they should be. I think our witnesses today will illustrate that with or without NAFTA, doing business in Mexico is always like facing a yellow light. Now, on top ofthis it has been predicated also that for some rea- son or other it is a mandate we must accept if we want to help Mexico, that Mexico will face dilemmas and crises and the like. I can't think of a more sorrier excuse for Congress' consideration of this agreement than that argument. In the first place, the highest financial officer in Mexico has indi- NAFTA cated that if is not agreed to that the detrimental impact will be fleeting and certainly not profound or lasting. So with that I will ask that the prepared text of my introductory statement be placed in the record as well as some of the lesser and unmentioned provisos, annex 1, volume 2, quote, "Representatives ofreligious as- sociations in Mexico must be Mexican nationals." Now, who has mentioned that we have religion in NAFTA? But there it is, page 1, M-4 ofannex 1, only lawyers licensed in Mexico and so forth, and so forth on transborder, even transborder trans- actions. Doctors, same way, only Mexican nationals licensed in Mexico can provide in-house services to Mexican enterprises even on the border. Now, all of these are not noted in any of the reports that I have seen emanating from any other level. Now, I do know that the Ways and Means Committee has been deliberating on the tax impact which, incidentally, if we vote and any Member who votes for this is going to vote for one way or the other finding revenues to make up for the losses to the Treasury, and that is in quite a number of billions of dollars. So with that I recognize Mr. Leach and thank you very much, Mr. Leach, for your continued support. [The prepared statement of Chairman Gronzalez can be found in the appendix.] Mr. Leach. Well, thank you, Mr. Chairman. I always am sup- portive of the chairman's investigatory initiatives, although I must say there is a bit of irony here that the chairman is working hard to upend an administration policy that the minority is more sympa- thetic to. I wouldjust like to stress two points. First, I think there can be a shared premise that Mexico has more corruption than some societies, mavbe less than others, but corruption is a problem, as it is everywhere, but significantly in Mexico. It is not completely a shared premise that the best way to do something about that is to maintain the status quo, with the status quo appearing to be one of corruption. But it is hard for me to believe that lowering trade barriers is not a prescription for less corruption. It is only when you have artificial governmental interplay at vir- tually every level of society that you end up with higher levels of corruption, and so movements toward freer trade are movements toward lower levels of corruption, and that is something I think this committee ought to keep in mind. Sec—ond, under the jurisdiction of this committee and this agreement and the chairman is very wise in saying that the—re are a lot of elements of the agreement that need to be reviewed but under the jurisdiction of this committee is the creation of a North Amer- ican Development Bank. I personally think this is an issue that ought to be looked at very, very carefully. It carries some of the costs that the chairman has indicated have to be paid for through taxes. One of the great questions is: Is this something that effec- tuates free trade or is it something that is designed to buy votes here in Washington, not to lower trade barriers in Mexico? We as a committee are going to have to look at that particular proposal very carefully. In any regard, I am open-minded about it because there is some reasons to have it, but I am also skeptical in some other very profound ways. I look forward to the testimony of our witnesses. Whether I find it compelling or not doesn't mean that it isn't testimony that doesn't need to be heard. Thank you, Mr. Chairman. The Chairman. Do you have any statement, Craig? Mr. Thomas. No. [The prepared statement of Ms. Maloney can be found in the appendix.] The Chairman. I am going to recognize the presence of a col- league. Congressman Pomeroy, and ask him to introduce the first witness, the Honorable Sarah Vogel, who is the commissioner of the Department of Agriculture of the State of North Dakota. Congressman. Mr. Pomeroy. Thank you, Mr. Chairman. It is a pleasure to be in the Banking Committee today, and I commend the chairman for holding this very important hearing. I am very pleased to introduce a friend and State official of the State of North Dakota to the committee. Sarah Vogel is North Dakota's agriculture commissioner. She has experience in both agriculture, finance, and law. She formerly served as an attorney for Manufacturers Hanover Trust. She has served as Special Assistant for Consumer Affairs to the Secretary of the Treasury. She was lead counsel on the national class action Coleman v. Block, which stopped unconstitutional farm foreclosures by the Farmers Home Agency in the 1980's, and she has served now, she is in her second term as North Dakota's agriculture commissioner. As North Dakota's agriculture commissioner she serves as a member of the State Industrial Commission which manages the largest bank in North Dakota, the State-owned bank, the Bank of North Dakota, with nearly $1 billion in assets. She is president of the Mid-America Agritrade Council, a trade group of 12 Mid- western States, and she is president ofthe Midwestern Association ofthe State Departments ofAgriculture. So, Mr. Chairman, she is indeed someone very thoroughly quali- fied in the matter she is about to present to the committee this morning. It is high pleasure to introduce her to you. The Chairman. Thank you very much, Congressman. We deeply appreciate your presence here and your cooperation. Well, our first witness, we want to thank you, as we had before. We will have whatever prepared written testimony in the record as you are graving it to us and you may proceed as you deem best. STATEMENT OF SARAH VOGEL, COMMISSIONER, DEPARTMENT OF AGRICULTURE, STATE OF NORTH DAKOTA Ms. VoGEL. Thank you very much, Chairman Gonzalez and other members of the committee. I am going to summarize my written testimony because it is awfully long, and I wouldn't want to burden the committee with that level of detail, so I will try to hit the high points today. I am here today to talk about what I deem to be a serious abuse of the GSM-102 Export Credit Guarantee Program in Mexico. The GSM-102 Program, as you are aware, is an Export Credit Guaran- tee Program whereby USDA, acting through the Foreign Ag Service and the Commodity Credit Corporation, underwrites letters ofcred- it issued by foreign banks to pay for imports of U.S. agriculture commodities. The GSM-102 Program is one of our major export programs. The annual allocation for the GSM-102 Program is $5 billion a year. Mexico is our number one user of this program. We guaranteed $1,321,000,000 last year of Mexican bank credit for the purpose of purchasing United States ag commodities. I have been familiar with the GSM-102 Program since I helped start a program at our State-owned bank in North Dakota several years ago to purchase portions of loans which were used to export pinto beans to Mexico. I then thought it was a good program. I still do think it is a good program, but I am disturbed by the way it is being run in Mexico. Let me give you some background on how I found out about it. In September I was at the World Trade Subcommittee meeting of the National Association of State Departments of Agriculture at our annual meeting. At that meeting a representative of the State of Missouri came in to the committee with a proposed resolution. This resolution is attached as exhibit C to my testimony, and I will just read three paragraphs of it. The proposed resolution by the State of Missouri