Table Of Content/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 hear-
ing 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 be-
cause 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 environ-
ment in which all tnese institutions, particularly banking, will be
working in the environment of laws and regulations, judicial sys-
tems, 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 wit-
nesses 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 im-
pact 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 num-
ber 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 agree-
ment 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 pro-
found ways. I look forward to the testimony of our witnesses.
Whether I find it compelling or not doesn't mean that it isn't testi-
mony 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
