Foreign Relations, 1977–1980, Volume XXIII, Mexico, Cuba, and the Caribbean

150. Minutes of a Presidential Review Committee Meeting¹

Washington, December 6, 1978, 9:30–11:00 a.m.

SUBJECT

• U.S. Policy to Mexico

PARTICIPANTS

• State

  • Secretary Cyrus R. Vance
  • Amb. Viron Vaky, Assistant Secretary for Inter-American Affairs
  • Ambassador Patrick Lucey, U.S. Ambassador to Mexico
  • David Newsom, Under Secretary of State for Political Affairs

• OSD

  • Walter Slocombe, Principal Assistant Secretary OASD–ISA
  • Lt. Col. Emmette W. Smith, OSD–ISA

• Treasury

  • C. Fred Bergsten, Assistant Secretary for International Affairs

• Justice

  • Mike Egan, Associate Attorney General
  • Doris Meissner, Deputy Associate Attorney General

• JCS

  • Lt. Gen. J.A. Wickham, Director, Joint Staff

• Office for Trade Negotiations

  • Steve Lande, Assistant Special Trade Representative
  • Sandra O’Leary, International Economist, Bilateral Trade and LDC’s Office

• Agriculture

  • Dr. Quentin West, Special Assistant for International Scientific and Technical Cooperation

• Labor

  • Charles Knapp, Special Assistant to the Secretary

• Commerce

  • Acting Secretary Haslam
  • Abraham Katz, Deputy Assistant Secretary for International Economic Policy and Research

• Energy

  • Secretary Schlesinger
  • Harry Bergold, Assistant Secretary for International Affairs

• CIA

  • Admiral Turner
  • [name not declassified], Analyst, Office of Economic Research

• OMB

  • Ed Sanders, Deputy Associate Director, International Affairs Division

• White House

  • Dr. Zbigniew Brzezinski
  • David Aaron
  • Amb. Henry Owen

• NSC

  • Robert Pastor, Staff Member

Secretary Vance opened the meeting by asking Ambassador Lucey to brief on the social and political situation in Mexico.

Current Situation in Mexico

Ambassador Lucey began with a brief historical perspective on Mexico and a description of the political scene. Mexico has a political party, which some have described as a combination of Democratic and Republican parties, although it is even wider than that. The PRI has been in power for 50 years, which is longer than any other political party has been in power except perhaps in the Soviet Union. Economically, Mexico has done quite well, with a consistent 6% rate of growth through the 1960’s. It has slowed somewhat in the 1970’s. They have, however, done relatively nothing with regard to the social structure or the distribution of income. One bright prospect is their oil reserves, which are currently estimated at 200 billion barrels. President Lopez Portillo used that figure in his Informe,² but Diaz Serrano, the Director of PEMEX, is expected to announce a new figure of perhaps 300 billion barrels around January 1st.

The population problem is a disaster, with the rate of growth of about 3.5 or 3.6 percent a year. In the last years of the Echeverria administration, the policy changed to one of “responsible parenthood.” Ambassador Lucey said that he believed that the present program is working, and the Mexicans claim that the rate of population increase has declined to 3.1 or 3.2 percent, and they are hoping to reduce it to 2.9 percent by 1985. The employment problem continues to be very bad, with the combined unemployment and underemployment rate of about 50% of the work force.

In summary, Ambassador Lucey said that the U.S. has fundamental interests in a Mexico which remains stable, friendly to the United States, and humane. Mexico’s human rights record is not perfect, but it is far better than most Latin American countries, and they are aware of the global concern for human rights.

Secretary Vance said that there is general agreement on the strategic, political, and economic importance of Mexico to the United States. The task for the PRC meeting was to reach some agreement on policy priorities. He assumed that all could probably agree that we haven’t done as good a job managing our relationship with Mexico as we should have, and we need to find better ways. He said there are two basic questions that we need to address: one is the short-term question related to the President’s visit, and the other is a long-term question which arises out of the increased interdependence and importance of Mexico to the United States.

He said that our problems will increase in size and complexity, and would be exacerbated if we don’t deal with them now. Mexico is currently working on these issues, and if we don’t find a way to work with them, we will not only have lost an opportunity but perhaps make problems worse.

Secretary Vance said that the first issue in the PRM³ is whether the U.S. should approach our relationship as a partnership or as a relationship similar to what we have with other countries. Obviously, there are many important relationships which fall in between these two poles, but rather than discuss this philosophical question at this time, Secretary Vance suggested that the group move on to specific issues, and then return to the more general issue at the end. He invited Secretary Schlesinger to comment on the energy issue.

ENERGY

Secretary Schlesinger said that the United States has known through the intelligence community that Mexican oil reserves come close to, if they don’t equal, Saudi Arabia, in terms of prospects for future oil. He then summarized the state of negotiations between the United States and Mexico.

In his first meeting with Jorge Diaz Serrano, Director of PEMEX, in early 1977, Schlesinger indicated that the United States was very sensitive to Mexico’s long-standing concerns about its natural resources. He informed Diaz Serrano that the United States would be prepared to help with technical assistance to the extent desired by the Mexicans, but Schlesinger pointed out that the level of Mexican technology and technical confidence is very impressive. On financial assistance, we informed the Mexicans that we would be prepared to intervene with the IMF to try to get the IMF to treat loans which were given for oil development as outside of its standby arrangement with Mexico. As Schlesinger pointed out, oil was the solution for Mexico’s balance of payments problem, not the problem. Since then, the U.S. has been engaged in negotiations on gas with Mexico, and much less so on oil.

On gas, there was a proposal made by six U.S. companies to follow the price of the No. 2 distillate fuel oil. To do this, would have required a substantial rise in the price at which we are buying Canadian gas, and no one wants to see that price go from $2.16 to $2.60 immediately. The Canadians have been very blunt about what they would do if we gave the Mexicans $2.60. The problem is that President Lopez Portillo has said publicly that Mexico would be unwilling to accept a price below $2.60. In order to protect Lopez Portillo’s political position, we will have to come up with that figure. Since Lopez Portillo’s announcement, a team from the State Department and DOE visited Mexico and proposed a formula starting at $2.60 kept at a level commensurate with the Canadian level. This was initially accepted at the Deputy Assistant Secretary level in the Mexican government, but somehow it was rejected by the time it wove its way up to the top to higher levels.

At this point, the natural gas debate in the Congress was occurring, and we decided to let this issue slide until the National Energy Act passed. Of course, it took much longer than we had originally anticipated. But now that it is completed, we are now prepared to go back to the Mexicans to express our interest in negotiating natural gas, and to do so on the basis of certain principles, which we will have to recognize:

—First, we would have to accept $2.60 at a minimum, or else Lopez Portillo probably could not accept such an arrangement.

—Secondly, we cannot accept a price which will cause the Canadians to significantly raise their own prices. This is the case for both economic reasons and for political reasons since Senator Jackson and the legislators from New England are likely to scream if the price goes up any higher.

—Thirdly, the price of the natural gas in the future should be tied to residual fuel oils, rather than to the price of distillate fuels. There are two reasons for this: First, the gas which will be imported into the United States would substitute for residual fuel oil, and therefore it is an appropriate criterion. And secondly, the Mexicans are currently flaring 400–500 million cubic feet a day of natural gas, and while they are adapting their industry to be able to take some of this gas, they are losing it at about the rate of $2.00.

Secretary Schlesinger then summarized by saying that he hoped to develop a package that President Lopez Portillo and President Carter could consider and perhaps some favorable sounds could emerge from the discussions, which could then permit more detailed negotiations.

Oil was different since it is moveable, whereas the natural market for gas is the United States. Secondly, the Mexicans have an interest in trying to diversify their market on oil. Recently, Japan has made an arrangement to be able to call on 20% of Mexico’s oil for a concessional loan of about $2 billion. The Germans are also expressing some interest. Mexico’s motives on oil are different from that on gas; they don’t want to get themselves tied to a single market on oil, and while transportation costs to the U.S. would be less expensive than to other areas, the difference is not as great as in the case of gas.

Secretary Schlesinger said that we could encourage Mexico’s oil production to increase without appearing to be demanding that. He said that we do not have any desperate need for the gas at this time, but he thinks that we should try to reach a resolution of that outstanding problem anyway.

As far as the interrelationship of energy with other issues, he believes that if we work out the gas problem, this will no doubt have a favorable impact on our overall relationship and might lead to the favorable resolution of other issues. President Lopez Portillo, of course, has said that he would like to view the various issues in our relationship jointly.

Both sides believe that whatever position it adopts on oil and gas will permit them to have leverage on other issues. Schlesinger, however, believes that neither are likely to be right in this assessment. Negotiations on oil and gas will be worked out on the basis of underlying economics, and neither side is likely to gain any influence as a result of the outcome.

In answer to a question from Henry Owen about whether a failure to reach agreement on gas will inhibit oil production, Schlesinger said that as a practical matter, he doubted it. He said he believes that PEMEX’s timetable for oil production is unlikely to be affected by any agreement on gas. PEMEX is working under real constraints, but these relate to equipment, financing, and to the fact that PEMEX wants to do it all itself. Schlesinger said there is a conceptual possibility that the pace of the development of oil could be inhibited by a failure to reach agreement, but he believes and expects that a gas agreement will be reached, and that the Mexicans have every motive to come to us to reach that agreement since they are flaring so much gas every day.

Henry Owen said that the World Bank has already developed a large program to help developing countries on energy projects, and it’s quite possible that the Bank could help Mexico as well.

Schlesinger pointed out that we are limited as a government in helping other governments on developing their energy resources, and there seems to be a growing reluctance by these governments to deal with U.S. companies. The only tool the United States really has is the Export-Import Bank. Other governments can do much more, and indeed do. He suggested that we need to develop better mechanisms for front-end assistance.

In answer to a question from Fred Bergsten, Schlesinger confirmed that our basic objective is to have Mexico produce as much as it can as soon as it can. But Schlesinger pointed out the great sensitivities of the Mexicans on this very issue. He also said that there is a temptation on Capitol Hill to believe that our energy problem can be solved by Mexico. He said that this is considerably exaggerated, and that the issue is not understood on Capitol Hill.

Ambassador Lucey confirmed that there are more and more Senators, Congressmen, and staff who are going down to Mexico, and that even staff people want to meet with Diaz Serrano.

Secretary Vance said that he had spoken to Senator Church about this the day before, and both agreed that there was a need for this issue to be managed well.

Secretary Vance summarized by saying that State and DOE would work with NSC in preparing a paper prior to the President’s trip which would outline a package and a plan which President Carter could use in his discussions with President Lopez Portillo.⁴

David Aaron said that one of the key implications of developing an energy relationship is trade. Instead of looking at energy as a potential instrument for leverage, one should examine the implications in our balance of trade that the new energy relationship is likely to bring.

Secretary Vance agreed on Aaron’s point, and said that energy also intersects with the population problem in Mexico.

Overall Relationship

Dr. Brzezinski said that he would like to raise the issues of how we structure our relationship with Mexico, organizationally and conceptually. He said that this was not the first time the government had addressed this issue, but usually the complexity of the issues and the dispersal of authority in the U.S. Government have resulted in the process getting bogged down. Therefore, he said that we should define the relationship conceptually. The U.S. and Mexico have a special relationship, but we have to be very careful about defining that so that it doesn’t frighten the Mexicans. “Partnership” may not be the right way to describe it. This is something that the President really needs to discuss with President Lopez Portillo, and perhaps the two of them could find a mutually compatible definition. He, however, suggested that a decision on this broader conceptual problem be deferred until after the conversation between the two presidents.

Secretary Vance interjected by saying that he agreed totally with Dr. Brzezinski, but particularly in his belief that the definition must be developed through a dialogue with the Mexicans.

Dr. Brzezinski said that the worst thing to do would be to attach a new slogan to our relationship. This would be bad not only because we have eschewed the idea of sloganeering with regard to our approach to Latin America and the Caribbean, but also because it would be unilateral, and we want to proceed together with the Mexicans. However, it is essential that we do the preparatory work on the different approaches to U.S.-Mexican relations. He said that he is attracted to the idea of someone being designated a Coordinator for U.S.-Mexican relations in order to negotiate these diverse issues. Unless we adopt this approach, we will find ourselves pulled apart by fragmentation again. He therefore favors a deliberate choice of someone to work out the details of this relationship. He said such a relationship is justified in that Mexico shares so many problems, and also because it is undergoing a radical historical transformation at this time.

Secretary Vance agreed on the need for a fresh look. One alternative would be a special representative or coordinator of U.S.-Mexican relations. He said that he also thought that we shouldn’t push aside the Consultative Mechanism which Lopez Portillo had first proposed in his first conversation with President Carter. This mechanism could still be used, but the question of the special representative is one which should be considered. The questions should relate to coordination, and where that coordination should be located.

Henry Owen said that we could link both ideas by placing the coordinator in the consultative mechanism, and by strengthening the consultative mechanism.

Secretary Vance said that he had thought of some people who could be able to do something like that.

Schlesinger pointed out that one problem with a coordinator is that in the area of energy, price agreements must be approved by the Federal Energy Regulatory Commission, and could not be approved just by the Coordinator.

Trade

Secretary Vance then moved to trade and border issues, where he felt some choices were necessary. On trade, he sketched out the three options in the PRM. First, treat Mexico as any other “upper tier” developing country; second, mutual accommodation; and third, towards an economic community. State prefers Option Number 2.

Fred Bergsten said that Ambassador Lucey and Secretary Schlesinger were wrong in thinking that there was only one bright spot on the Mexican horizon. The real growth rate for Mexico of 6 to 7% in the last few years has generated a 20 to 25% year increase in real exports during the last decade. But David Aaron was correct in pointing out that Mexico is still not a member of GATT, and there are high trade barriers in Mexico. Indeed, he said that the Mexican trade problem is moving in the direction of the Japanese problem, though it is not nearly as bad. He said that Mexico may be making a decision within the week on the MTN.⁵ This whole issue is a time-bomb, with the possibility of tremendous spill-over effects onto other issues. If Mexico does not enter GATT, we will have a much more conflictual trading relationship. However, he recommended that we have got to do something to jointly manage the trade problems better.

Secretary Vance said that in addition to just the MTN, we want to get some movement towards accommodation in other areas.

Steve Lande of STR agreed with Bergsten. If we continue to press the Mexicans, we are more likely to get Mexico to join the GATT. If Mexico does not join the GATT, we may have to withdraw our own concessions, and that will be at considerable political cost. He therefore urged that we apply as much pressure as possible on Mexico in the next week to make sure that Mexico joins the GATT, and after that decision is made, then we should look into other trade decisions on accommodation and the other options. In short, we should defer any further decision on these trade issues until the Mexican decision on GATT.

Secretary Vance agreed with that statement and asked if there was any disagreement.

Henry Owen said that STR was correct. The problem is how to orchestrate the pressure on Mexico during the next week. In response to a question by David Aaron about how the President should be involved, Henry Owen said that he would speak to Strauss after the meeting about the possibility of a Presidential letter.

Lande cautioned, saying that when Hernandez was in Washington, he said that whatever the United States does on GATT, it should not appear as if we are pressuring them to join, because it might be counterproductive.

Secretary Vance agreed with that statement, and urged Lande to speak to Strauss as well.

Dr. Brzezinski said that regardless of what happens on GATT, the discussion seemed to be consistent with Option Number 2, which he preferred.

Secretary Vance said that in the long term, we should look at Option 3—an economic community—as a real possibility.

Dr. Brzezinski said that he visualized Option Number 2 as definitely leading to Number 3. All agreed that the idea of an economic community is an interesting one which should be pursued, but Secretary Vance reaffirmed the need to have this idea emerge from a dialogue rather than just from the United States.

Henry Owen said that Brookings was trying to set up a seminar involving several Mexican scholars that would look into this general idea of an economic community. He said that it would probably be preferable for a private group to be considering this idea, and especially for a private Mexican group, than for the U.S. Government.

The Acting Secretary of the Commerce Department Haslam said that a decision to pursue and discuss sectoral arrangements need not wait until Option #3 is selected.

David Aaron pointed to the need for joint planning with Mexico on resources that will be coming out of the United States. It is necessary that Mexico recognize that the growing interdependence will require long-term and joint planning between our two countries. That’s where partnership will lead to. This issue is essential; and we want as a result of that decision to have a say in their development issues.

Secretary Schlesinger cautioned that the Mexicans are extraordinarily sensitive about our involvement in their development process. We have not done anything like that in Saudi Arabia or in Venezuela or in Iran or anywhere else. The Mexicans are even more sensitive than the others.

David Aaron elaborated by saying that the oil created an economic dynamic in Mexico, and we both have an interest in understanding that dynamic better and in planning for the way it would play out.

Lande said that before moving from Option 2 to Option 3, the President should definitely talk to the Mexicans first.

Secretary Vance agreed, and reiterated that as this relationship develops, the most important thing is to pursue full consultations. The relationship won’t work if we just step off of a plane and announce a new relationship. It must be developed as a result of a dialogue.

Ambassador Vaky agreed completely with the Secretary. He stressed the importance of the two Presidents’ exploring the central focus as well as the various issues in our relationship.

Henry Owen said that there were basically two issues: first, the broad question of relating to the nature of the relationship, and secondly, the organizational mechanism that will best serve our other purposes. Under the second question, is whether we should proceed by negotiations, or whether the Consultative Mechanism will be adequate.

Secretary Vance moved the discussion to immigration. The shortterm question is what does the U.S. Government do this year with regard to the policy developed in August 1977. Should we reintroduce the legislation, modify it, or delay in introducing it?⁶ The second question is a long-term one, whether we should wait for a decision to be made by the Select Committee. He said that a related question centers on the border arrangements. Before departing, Secretary Vance said that it will be necessary to set up a second PRC meeting to complete discussion of these issues. (Under Secretary Newsom became the chairman.)

Mike Egan of the Justice Department explained that we currently have a policy in which 45,000 Mexicans enter the country annually on a legal basis, and a half a million enter illegally. He said that if Justice were given sufficient resources, they could stop the illegal migration, but it would be a tremendous cost to Mexico. Mexico obviously needs to export its labor; there are not enough jobs to go around. Anything that the United States does to stop that flow causes great concern in Mexico. Right after the President announced his undocumented workers policy in August 1977, a high-level United States delegation visited Mexico and encountered an angry and hostile reaction. Part of the problem was that General Chapman, the Director of INS in the previous Administration, had stirred the country up into thinking that this issue was a great problem to the United States. Since his departure, this issue has died down considerably. The bill that the President introduced was received very coldly; there was practically no interest in dealing with the subject. To the extent that the Administration decides to stir up interest in the bill again, Egan believes that we will stir up concern about the issue itself.

Egan said that he didn’t think it was urgent from a political perspective to do anything about this issue at this time. He said that Labor may have a different view on this.

Justice was uncomfortable with the policy of letting the illegal migrants enter the states, but overall, there was no political necessity to address this issue at this time.

As to the specifics of such a policy, Justice continues to believe that employer sanctions are important. The degree to which these sanctions are enforced is, in a sense, our “faucet” to be turned on or off depending on the degree of cooperation we are receiving from the Mexicans; we can use border enforcement in a similar way. Justice also believes that amnesty is important. In the bill we introduced, 1970 was the pertinent date for adjustment of status; but perhaps this could be moved up to 1974 or 1975. Realistically, there is really no way to deport these people at this time. Of course, when we do adjust the status of so many people, we will be creating new family cells which will lead to many more immigrants. Another option is to consider the expansion of the H–2 program.⁷ Egan understands that the Secretary of Labor is considering that.

In the long-term, Egan said that the only way to solve the problem is to build up labor-intensive industries in Mexico, and to discuss this directly with the Mexicans. He said that the Mexicans don’t want us to do anything that will cause a reduction in the flow of migrants to the U.S. He reiterated, however, that a capability could be created in INS that would severely curtail the flow of illegal immigration into the United States.

Newsom agreed that is the question, whether to go in the direction of more enforcement or less.

Charles Knapp of the Labor Department said that whatever decision is made on illegal aliens is likely to strain the relationship with Mexico. A central issue that Labor was examining is the temporary workers program. It would be very difficult politically to get a bracero-type program, and this probably holds for an expansion of the H–2 program as well. However, such an expansion has never really been tested, so we really don’t know.

Owen summarized by saying that more enforcement would certainly adversely affect U.S.-Mexican relations and could generate instability in Mexico, while it is unclear whether or not the aliens harm the United States or whether they fill a need. Given the certainty of the problems that would be caused by stringent enforcement, and the uncertainty of the real effects of illegal migration, he argued strongly for maintaining the status quo.

Ambassador Newsom agreed with that analysis.

Egan explained that the status quo will only exacerbate tensions along the border and within INS.

Ambassador Lucey said that in a conversation he had with a high Mexican official, Lucey asked what is the best thing Jimmy Carter has done for Mexico. The Mexican explained that it was Carter’s inability to get a bill passed on undocumented workers. If we could recognize the inevitability of a flow of undocumented aliens and regulate that flow, as Mike Egan said was possible, Ambassador Lucey said that could be very good.

Ambassador Vaky suggested caution. While recognizing that this is “our” problem, we really shouldn’t do anything on this issue before the President goes down and has an opportunity to describe our concern to the Mexicans.

Mike Egan agrees as did Charles Knapp. However, Knapp pointed out that if unemployment goes up, we are likely to have a lot of political problems which will cause us to look at this issue quite differently.

David Aaron suggested that one possible reason why the bill has gotten such a poor reception in the Congress is because current policy is what people want. He questioned whether anybody would want to tolerate an H–2 program which would involve 400,000 to 500,000 Mexicans, and probably a vast expansion of the bureaucracy to handle it.

Knapp said that it was an option which should be considered.

David Newsom summarized the consensus that nothing should be done before the President’s meeting with Lopez Portillo, and nothing should be done without full consultations with the Mexicans. On his third point, he said that we need to take a closer look at the impact of the illegal alien issue on labor dynamics in the U.S., but after interjection by Henry Owen, who pointed out the empirical difficulty of designing such a program, he backed away from the third point.

David Aaron asked whether Justice and Labor believed they could get Mexico to agree to a flow of 400,000 to 500,000 people.

Knapp said that Labor would be willing to consider this option, and would consult on it to get some outside views.

In answer to a question about the fence,⁸ Doris Meissner said that the fence has been redesigned and is ready to be built, but we want to talk to the Mexicans first before building it. David Aaron asked for a complete memo from the Justice Department, including pictures, aspects related to the building, when the fence is likely to be built, how long it’s likely to take.

Henry Owen repeated that because of its controversial nature, the fence issue should be reviewed in the White House before any decisions are made.

Doris Meissner thought that construction of the fence before the President’s trip would be desirable.

Bergsten asked whether border management proposals were in need of high-level attention.

Newsom, Ambassador Lucey, and David Aaron all agreed that it was necessary to discuss the border management issues with the Mexicans first before announcing them publicly.

Ed Sanders of OMB said that the reorganization people expect to send the memorandum to the President later this month, and they believe it is necessary to talk to the Mexicans about it.

Henry Owen reiterated that like the fence issue, this should be reviewed by the White House.

David Newsom asked what should be the relationship between the federal government and the governors in the border states? He suggested that the next PRC meeting should focus on the issue of finding an organizational mechanism to better manage our relationship.⁹

1. Source: Carter Library, National Security Affairs, Staff Material, North/South, Pastor, Country, Box 29, Mexico, 12/1–14/78. Confidential. The meeting was held in room 305 of the Old Executive Office Building.
2. Roughly equivalent to the State of the Union address. See footnote 4, Document 145.
3. See Document 146.
4. The Department of Energy paper, a December 14 memorandum from Schlesinger to Carter, is printed in Foreign Relations, 1969–1976, vol. XXXVII, Energy Crisis, 1974–1980, Document 174. The memorandum proposed a strategy for negotiations for the purchase of Mexican natural gas. The NSC’s comments on the memorandum, circulated on December 21, are in the Carter Library, National Security Affairs, Brzezinski Material, Brzezinski Office File, Country Chron, Box 30, Mexico, 10–12/78. For Secretary Vance’s comments, circulated on December 26, see Document 151.
5. In telegram 310476 to Mexico City, December 9, the Department reported that there was “still a considerable gap to close between the U.S. and the Mexican positions in the Multilateral Trade Negotiations.” (National Archives, RG 59, Central Foreign Policy File, D780507–1026) Mexico did not join the GATT until 1986.
6. See footnote 2, Document 142.
7. An H–2 visa allows a foreign worker into the United States for seasonal or agricultural work.
8. See footnote 3, Document 148.
9. On December 12, Brzezinski sent a memorandum to members of the Cabinet informing them that the President approved the conclusions of the December 6 PRC meeting, including reaching an agreement on natural gas with Mexico. (Carter Library, National Security Affairs, Staff Material, North/South, Pastor, Country, Box 32, Mexico: PRM 41 (Policy), 10/77–11/78)