135. Memorandum From the President’s Assistant for National Security Affairs (Brzezinski) to President Carter1

SUBJECT

  • U.S.-Mexican Relations

The consultative mechanism established by you and President Lopez Portillo in February has been slow in getting started and slower in exchanging ideas with the Mexicans. Indeed, the mechanism has been almost completely dominated by a single issue—the undocumented workers’ problem—which you raised for reasons other than having to do with U.S.-Mexican relations.

After last year’s financial crisis brought on by excessive government spending and the attendant high rates of inflation, Mexico has reached [Page 298] agreement with the IMF on a stabilization program. Mexico has succeeded in holding wage increases to below 10 percent and inflation to roughly 15 percent. The major problem is that the program has caused increases in unemployment, on top of the high levels which existed before the program was instituted. Moreover, investment has been slow to pick up because of a continued lack of economic confidence and borrowing ceilings required by the stabilization program. Low investment and tight fiscal and monetary policies mean a decline in jobs. Growing population pressure on the rural and urban areas makes this decline a potentially volatile political situation. The U.S. immigration policy—which the Mexicans expect will result in the return of some workers and denial of access to new ones—is seen as seriously worsening the problem. Without the investment to create jobs in Mexico, or the ability of workers to seek jobs in the U.S., Mexico is worried that the problem of unemployment will reach crisis proportions.

Treasury is developing a proposal for a U.S.-Mexican Development Fund, designed to create employment in the rural areas of Mexico.2 It sounds like it might be a good approach to a very difficult problem. We will report to you when the outline of the plan is completed, which should be next week.

Attachment3

US–MEXICAN RELATIONS

ISSUE FOR DISCUSSION

—To determine in the light of our priority objectives in our relations with Mexico the US economic assistance that might be made available in connection with the undocumented aliens program.

[Page 299]

ESSENTIAL FACTORS

Status of the Consultative Mechanism—The US-Mexico Consultative Mechanism, established in May under the direction of Secretary Vance and Mexican Foreign Secretary Roel provides for high level Social and Economic Working Groups, with the Economic Groups further divided into sub-groups on Trade, Tourism, Finance and Energy, Industry, Investment and Minerals. All of these groups completed a full round of meetings in July and August.

The principal theme of the meetings of the Social Working Group in July and August was the US proposals on undocumented aliens. We explained the program, stressed its humanitarian aspects and sought Mexico’s cooperation in its implementation. The Mexicans voiced a wide range of objections to the proposals. They hoped that implementation might be indefinitely delayed or, failing this, that it be implemented in a gradual and humane manner. The Social Working Group agreed on a joint work program providing for further cooperation in curbing forgers and smugglers of aliens in studying the social and economic aspects of immigration, and in expanding cooperation in law enforcement, health and environment and border development.

Improvement of access to each others’ markets was the principal agenda item of the Trade Sub-group. Agreement was reached in principle on a tropical products agreement. The Mexicans reported progress in reducing their quantitative import restrictions, though these remain a problem. We reaffirmed our readiness to consider carefully specific Mexican proposals for liberalization, working within the context of the Multilateral Trade Negotiations. The two sides exchanged views in the Energy Sub-Group on the Mexican proposal to export natural gas to the US (which is now before the Federal Power Commission). In light of Mexico’s need for investment, we examined aspects of Mexican legislation considered restrictive by private investors. We also agreed to examine ways of assisting Mexico to stimulate small and medium-size business.

In the other sub-groups, Tourism and Finance, principal concerns were means of expanding the two-way flow of visitors and Mexico’s performance in implementing its stabilization program and financing Mexico’s energy development.

Follow-up action has been taken on some issues and consultations with the Mexicans on other issues surfaced in the working groups are continuing through regular channels.

Basic Objectives and Issues—Our basic objective in Mexico, which underlies and impinges on our specific interest, continues to be the preservation of a stable country on our border well disposed to cooperate with the US. Mexican stability and cooperativeness is the essential [Page 300] foundation on which we seek to advance our more specific current interests of: a) stopping the flow of illegal migrants; b) curbing the influx of narcotics; c) preserving US access to Mexico’s oil and gas reserves; d) assuring decent treatment of American visitors and residents in Mexico; e) maintaining Mexican cooperation on human rights and on other international issues; f) keeping Mexico a major market for US goods, and g) stabilizing the economy.

In the Consultative Mechanism, the undocumented worker proposals have emerged as the principal current issue in our relationship, an issue which has the potential for significantly affecting other US interests. The Mexicans have claimed that our proposals may harm their social stability and economic health. They have also warned that adverse domestic political reaction to our measures could make it difficult for the Lopez Portillo Administration to maintain its policy of close cooperation with the US. There have also been suggestions that Mexico’s cooperation in narcotics control or its support on international human rights issues could be affected, or that the condition of Mexican undocumented workers in the US could itself become an international human rights issue. (Our interests in access to hydrocarbons, the good treatment of US citizens, and a close bilateral trade relationship involve important economic advantages to Mexico as well and there has been no suggestion so far that the Mexicans might limit their cooperation in those fields.)

The Mexicans have reacted more positively to our offer of economic assistance and improved trade for immigration-source countries. They have stressed the linkage between access to US markets and employment levels in Mexico in the Consultative Mechanism and have indicated in general terms through diplomatic channels their interest in economic assistance. Some GOM officials remain skeptical that our assistance will be nothing more than a scheme to placate them. In treating this issue in the Consultative Mechanism we have agreed to consult further with the Mexicans on the interrelation of the undocumented aliens problem with other economic issues and to work jointly in research on the economic and social aspects of migration. In response to their trade interest we have also urged the Mexicans to submit proposals for products of special interest to be considered during the current round of the Multilateral Trade Negotiations.

US Objectives in the Consultative Process—Recognizing the undocumented aliens problem as the most pressing current issue in our bilateral relationship, we intend to give it, and its related economic issues, priority attention in the consultative process. We intend to use the Consultative Mechanism to consult closely and frequently with the Mexicans as the immigration program goes through the legislative process, stressing the humanitarian aspects. We intend to reaffirm our [Page 301] willingness to cooperate in alleviating the root causes of illegal migration and engage the Mexicans in more specific discussions of possible forms of assistance. We will continue to encourage the Mexicans to seek improved market access in the US and in other countries within the context of the Multilateral Trade Negotiations, but in close consultations with us to identify specific products of special interest to them in the US market. Finally, we intend to use the Mechanism, availing ourselves of any added leverage we may derive from economic assistance, to impress on the Mexicans that greater ability to export must ultimately depend on improvement in the competitive position of Mexico’s heavily protected industries.

ASSISTANCE TO MEXICO

The Mexicans would find the US measures for undocumented aliens more palatable and would be more disposed to cooperate in their implementation if accompanied by some positive indication of US economic assistance directly targeted at the root causes of migration. However, because of the size of the Mexican economy, its fundamental structural problems, and the great disparity between the standards of living of our two countries, it is unlikely that any amount of external aid would in the short run eliminate the incentive for Mexicans to emigrate to the United States.

Among the internal structural elements requiring attention in Mexico are: a maldistribution of income, a concentration of wealth and economic power in the urban centers, leading to a dismal and potentially explosive agrarian condition, and continuing corruption in all levels of Mexican society.

A major source of Mexico’s economic woes can be laid at the door of its government’s policy of adherence to a “State Capitalism” model. A model which current evidence would indicate is not meeting the pressing development needs of that nation. The private sector has become overly cautious reflecting its deep and fundamental distrust of GOM economic policy prescriptions. Statist economic development policies have led to a burden of some 900 state enterprises. Most of these operate in an economically inefficient manner. Massive Federal intervention in the economy has been financed, in large part, by external borrowings when internal capital formation capacity was outrun. The results have been economic stagnation coupled with inflation, capital flight, a loss of international confidence and eventually a major devaluation. President Lopez Portillo appears to be vacillating in terms of continuing this pattern. It is important that we encourage him not to replicate the mistakes of the past.

Economic assistance at this time could provide a considerable stimulus to Mexican recovery and economic development. Therefore, assist[Page 302]ance should not be viewed solely as a means of alleviating the flow of aliens or of assuring Mexico’s acquiescence to our undocumented alien program. Rather, it serves the US interest of having a politically and economically stable neighbor to the south, whose domestic problems impinge heavily on the US. For this reason an assistance program should continue to be made contingent on Mexico undertaking reforms agreed to by the US and the International Financial Institutions (IFI’s) as necessary for its stabilization and recovery.

Currently Treasury is coordinating for interagency consideration a proposal for the formulation of a US-Mexican Development Fund, which could be financed jointly by both countries, and disbursed through the IFI’s under conditions designed to obtain maximum effectiveness in developing the Mexican economy. This effort is not far enough along to be discussed with any specificity with the Mexicans.

Recommendation:

That we reiterate to the Mexicans our desire to exchange views with them on what the US might do to assist Mexico in connection with our undocumented aliens program. You may wish to indicate that this question is currently under study within the USG. However, we should express our interest to them in the possibility of achieving a more market-oriented allocation of resources, in the interest of economic efficiency.4

  1. Source: Carter Library, National Security Affairs, Staff Material, North/South, Pastor, Country, Box 28, Mexico, 8–9/77. Confidential. Sent for information. Brzezinski wrote below the subject line, “This is an update, in case you chat with Minister Roel. Carter underlined “Minister Roel” and wrote, “No.” Reference is presumably to a possible meeting during the Panama Canal Treaties signing ceremonies in Washington.
  2. In telegram 14900 from Mexico City, September 6, the Embassy stated the best way to spur Mexican rural development and address the problem of undocumented immigration was to build industrial plants in the interior of Mexico, which would prevent “drawing job seekers to the frontier.” (National Archives, RG 59, Central Foreign Policy File, D770322–1004) In late September, Senator Lloyd Bentsen (D–TX) proposed a plan to create a joint U.S.-Mexican development fund that would finance job opportunities in regions of Mexico where undocumented workers originated. President Carter, however, had not yet proposed the plan to the Government of Mexico (Telegram 16467 from Mexico City, October 3; National Archives, RG 59, Central Foreign Policy File, D770360–0269)
  3. Confidential.
  4. Carter checked the approve option but wrote in the margin, “I’m not meeting w/Mexico.”