NAFTA's Dirty Dozen (Summation)

It’s my opinion that NAFTA is probably the single greatest cause of unemployment in Mexico and the flood of illegal aliens to the United States.

The NAFTA operations in Mexico existed prior to NAFTA. They were called Maquiladoras. The Maquiladoras were hampered though by retrictive U.S. Customs Regulations and Tariffs. With the passage of NAFTA everything changed for the better. NAFTA removed restrictions and duties and gave the U.S. NAFTA companies a free hand. To U.S. NAFTA companies amended their Maquiladora Programs to include NAFTA operations.

The Mexican operations had the labor and the U.S. companies had the work. So, American workers were terminated and the work was exported to Mexico and given to waiting hands to produce. Very few jobs were created in Mexico. Untapped capacity was released.

Besides the American workers who were terminated, Mexico's manufacturers were the first to feel the effects of NAFTA. Prior to NAFTA, Mexican manufacturers supplied most of Mexico's needs. With NAFTA, mass retailers like WalMart, K-Mart and Target flooded into Mexico with their Chinese products. What little the mass retailers needed to source locally they could satisfy through the U.S. NAFTA operations in Mexico. The undervalued products of the U.S. NAFTA companies drove the last of the Mexican made products out. Mexican manufacturing employment has been stagnant, even though operations such as GM, Ford and Chrysler have expanded dramatically.

NAFTA has denied millions of Mexicans the opportunity for meaningful and remunerative work!

Many of the miscarriages under NAFTA can be traced back to a unique happening 26 years ago. In 1982, Mexico’s most corrupt President was induced to quash the implementation of Labor Law mandates for foreign workers. Although Mexico was broke and desperate for revenues, industry lobbyists convinced the President of Mexico to forget the Labor Law mandates. In lieu of employer and employee payroll tax revenues, the President of Mexico was convinced to only levy a personal tax on the salaries of the American workers in Mexico. Corporate payroll taxes were obviated. The illegal practice has become a routine practice.

The 1982 decision by Mexico's President averted a civil and criminal disaster pertaining to the U.S. Customs dutiable net entered value of maquila articles imported from Mexico. Prior to 1979, the full cost of all Americans working in Mexico was dutiable as what U.S. Customs described as an "assist." U.S. Customs defines an assist as; "Any item that the buyer of imported merchandise provides directly or indirectly, free of charge or at a reduced charge, for use in the production or sale of merchandise to the United States." American employees sent to work in Mexico fell within the definition of an assist. The usual burden rate for American workers is 35% of the base salary. Imagine the catastrophe facing U.S. companies if the cost would have risen to 70% with overtime.

In 1979, Congress passed the Trade Agreements Act wherein industry lobbyists were successful in having the following provision added to the assist definition; "If this work is performed by a person domiciled in the U.S. who is acting as an employee or agent of the buyer of the imported goods......will not be treated as an assist." At long last a major cost item had been eliminated.

But, in 1982, the U.S. companies were facing a calamity. Mexico's President was persisting in implementing a recent Mexican Supreme Court ruling requiring social security taxes be withheld from the paychecks of all Americans working in Mexico. If Mexico had succeeded the American workers would have become aware of the past fraud and filed claims for up to five years of unpaid compensation. A second Mexican Supreme Court ruling requiring income taxes on the salaries of the Americans working in Mexico was fulfilled with a personal services tax.

The greatest liability though would have been U.S. Customs. For years U.S. companies had improperly asserted to U.S. Customs that Americans working in Mexico were subject to U.S. mandated benefits and perquisites and therefore not subject to Mexican burden rates of 70% (with overtime). Had Mexico's President persisted and implemented the social security tax on the salaries of Americans working in Mexico, U.S. Customs would've almost immediately discerned that the U.S. companies had stated falsehoods. The result most assuredly would have been civil fraud actions under 19 USC 1592 and criminal actions under 18 USC 542 and 18 USC 1001. Thousands of U.S. companies and tens of thousands of U.S. executives would have been disgraced, fined and probably imprisoned.

The combination of the successful efforts to terminate Mexico's plan to implement social security taxes on the U.S. paid salaries of the Americans working in Mexico and the exclusion from U.S. Customs dutiable assist value of the U.S. paid salaries of the Americans working in Mexico, allowed the U.S. companies began to breathe easy.

The crux of the NAFTA fraud issue is the concerted effort by U.S. companies through their industry associations to eliminate costs - even mandated costs - in order to maxamize profits.

A synopsis of the deleterious effects of NAFTA upon the citizenry and governments of the partner nations is as follows:

1. One to three million jobs (claims vary) have been exported from the United States.

2. Mexico’s domestic manufacturing employment is stagnant while Mexico’s population has grown by 28 million.

3. The meaning of middle class in Mexico has been expanded by moving the bottom limit of middle income to the poverty level. The upper lower class has been absorbed into the middle class. In this way the middle class has grown through trickery and even with the elimination of one portion and an inducement of another portion to emigrate to the U.S., the poor class has grown.

4. The structure of Mexico’s middle class has also changed. Entrepreneurs have been replaced by government and union employees as the dominant segment.

5. NAFTA trade (exports and imports) statistics have been manipulated in order to claim NAFTA is beneficial to all partners.

6. About 100,000 Americans working in Mexico have been defrauded out of billions of dollars in mandated compensation. The U.S. Border States of residence have been denied payroll taxes as has been the U.S. Government.

7. U.S. and Mexican States have been denied millions of dollars in tax and fee revenues as a result of Item #6 above.

8. U.S. Border cities have been denied sales tax revenues as a result of Item #6 above.

9. The U.S. and Mexican Governments have been denied billions of dollars in tax, duty and fee revenues as a result of Item #6 above.

10. Commodity brokers have dumped agricultural commodities onto the Mexican market. As a result, thousands of Mexican farmers have been bankrupted and agricultural commodities have been in short supply since. The dumping has driven up food prices and caused food riots.

11. The denial of corporate and payroll tax revenues has required the Mexican Government to curtail needed public services. Schools have languished and teachers salaries have been negatively impacted. One million teachers are needed to fill needs. The construction of public and industrial infrastructure projects such as highways, bridges, sewers, potable water service, transportation, and electricity have been put off. Mexico is in the process of selling exclusive rights to infrastructure projects to foreign corporations. To recoup investments, the foreign corporations will have the right to charge tolls and fees for what should be free access public services.

12. The denial of social security and housing fund revenues has ravaged Mexico’s national public health and medical services. Pensions have also been negatively impacted. Mexican Hospitals have been remanding patients to U.S. hospitals to seek necessary surgery and treatment. Mexico can no longer keep pace with the demand for low cost housing.

The above is a summation of NAFTA’s most egregious injuries to the citizenry of the NAFTA partners. The “Dirty Dozen” so to speak. It’s obvious the complicitous Mexican Government will do nothing and unless a people’s movement arises to implement corrective actions and seek justice on behalf of the people of Mexico, nothing will occur internally to resolve the violations in Mexico of Mexican, U.S. and International Laws by the NAFTA companies.

The United States and its citizens on the other hand do have available corrective actions. The most significant are the actions shareholders can take to protect their investments. Retirees and the soon-to-be retired depend on plans that largely consist of investments into U.S. companies. +4,000 U.S. companies have NAFTA operations in Mexico. The odds are most retirement plans have invested into one or more U.S. NAFTA companies.

I’ve provided the means by which Halliburton shareholders can access the two significant Mexican Supreme Court rulings. Halliburton shareholders need to search all corporate reports and satisfy themselves whether or not Halliburton has reported the two rulings and their legal and financial significance to the shareholders.

While, you’re at it - check to see if the financial reports contain from one to four contingent liabilities, i.e., Due and unpaid American employee compensation per Mexican Law; Due and unpaid Mexican payroll taxes per Mexican and U.S. Law; Due and unpaid American employee compensation per U.S. Law; Due and unpaid 10% profit sharing to American employees per Mexican Law; and Indemnity Reserves for termination of American employees working in Mexico.

Once you’ve determined what deficiencies there are, you have the right to seek written explanations as to why and assurances from Halliburton that any perceived deficiencies by way of; 1) Not reporting significant legal events and/or 2) Violations of the Mexican Labor and Fiscal Laws, and/or 3) Failure to include contingent liabilities; will not negatively impact the value of your shares in Halliburton.

For shareholders in other U.S. companies that participate in NAFTA operations in Mexico. You definitely have the right to seek information and assurances as to whether the company is adhering to the full extent of the Halliburton rulings and complying with all Mexican Labor and Fiscal Laws pertaining to any and all American employees working in Mexico.

Moreover, if the company delays or refuses to provide explanations and/or assurances, you have the right to seek the same written explanations and assurances described above for Halliburton shareholders.

Recent news is replete with exposes of improper corporate financial transactions and the disproportionate compensation of executives implicated in shady financial dealings that have produced dire consequences for innocent shareholders. To the names of Enron, WorldCom, Tyco, Global Crossing and Adelphia can be added Bear Stearns, IndyMac, Fannie Mae, Freddie Mac, and Lehman Brothers. Could your investment be next?

The people of the United States are not powerless. The Congress drew up a response to Enron, et al. It’s called Sarbanes-Oxley Act. The legislation establishes new or enhanced standards for all U.S. public company boards, management, and public accounting firms. It does not apply to privately held companies.

The Act contains rules and regulations, ranging from additional Corporate Board responsibilities to criminal penalties, and requires the Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the new law.

The SEC and Sarbanes-Oxley provides investors with several means by which they can acquire financial information pertaining to operations in the United States and abroad.

Halliburton has contracted some of the most prestigious internal and external U.S. and Mexican attorneys, accountants and auditors to examine its operations and prepare periodic reports to public agencies, private institutions and shareholders of all lawful and unlawful activities of the company. That 12 categories of professionals can fail to detect the violation of mundane labor laws belies the fiduciary duty these professionals not only owe to Halliburton and the U.S. Government, but also to Halliburton’s shareholders.

Mexican agencies such Hacienda (Mexican IRS), Seguro Social (Social Security), and the Secretaria de Trabajo (Secretary of Labor) employ an aggressive auditing program of all businesses in Mexico. Foreign companies can also expect audits from Mexican agencies such as Gobernacion (Immigration), Aduanas (Customs), and Secretaria de Comercio (Secretary of Commerce).

Why is it no audit by a Mexican Government agency or an independent auditor has detected deficiencies in the compensation of Americans working in Mexico?

Why is it the Mexican Government is not aggressively enforcing the mundane Mexican Labor Law so far as it pertains to civil and labor rights of the Americans working in Mexico?

The next issue pertains to the United States Federal judicial system which has issued two pertinent rulings. The first ruling issued by the Federal Court is the United States v. the Palumbo Brothers. Palumbo provides that the commission of fraud through the interstate use of the mails or wires constitutes a RICO offense. Most, if not all of the NAFTA companies transmit payroll, tax, customs valuation and periodic financial data using the mails and/or wires. If the transmissions contain false data regarding defrauded payroll and/or evaded taxes and/or unpaid 10% profit sharing and/or non-accrued termination indemnity reserves for Americans working Mexico, they should run afoul of the RICO Statutes.

Likewise, most of the NAFTA companies use the mails and/or wires to remit payments and/or submit mandated cost information to U.S. and/or Mexican Government agencies based on deficient and/or undervalued costs. The Palumbo Brothers ruling asserts these actions to be in part violations of the RICO Statutes.

Similarly, the United States Supreme Court ruled in Pasquantino v. The United States that the evasion of foreign taxes by a U.S. company constitutes a RICO offense. In addition to the criminal penalties that the United States can apply, the RICO Statutes provide a mechanism whereby any person injured in his business or property by reason of a violation of the RICO Statutes may therefore civilly sue in any competent Federal or State court and recover threefold the damages he sustains and the cost of the suit, including reasonable attorney’s fees. By definition, shareholders and the defrauded Americans working in Mexico should qualify for filing a civil RICO action.

If RICO is a hammer, then the Foreign Corrupt Practices Act is the anvil. The Foreign Corrupt Practices Act is a Federal Law known primarily for two of its main provisions, one that addresses accounting transparency requirements under the Securities Exchange Act and another concerning bribery of foreign officials.

Somehow, internal and external company auditors and Mexican regulatory auditors have failed for years to detect Halliburton’s violations of mundane Mexican Labor Laws. Laws the Mexican Supreme Court has stated in more than twenty rulings during the last eighty years apply to foreigners working in Mexico.

Why is it that in the fourteen years of NAFTA, the Mexican Government has not seen fit to protect the civil and labor rights of the Americans working legally in Mexico?

Does the Mexican Government not assume a legal duty when they issue work permits to Americans working in Mexico to advise them of their civil and labor rights and to audit the U.S. NAFTA companies to assure their compliance with all of Mexico’s Laws?

The professionals counseling Halliburton also counsel other U.S. companies with NAFTA operations in Mexico. The likelihood seems astronomically in favor that the same deficiencies exist with the other U.S. NAFTA companies.

Part 6: NAFTA's True Lies

In a nutshell, NAFTA was born out of a big lie, i.e., NAFTA will benefit everyone. We mistakenly trusted those telling us the big lie because it is our style to trust those who lead our society.

The Nazi Propaganda Minister, Joseph Goebbels, was fond of saying; If you tell a lie big enough and keep repeating it, people will eventually come to believe it.” A survey was taken in the United States and 69% of those asked agreed with Mr. Goebbels. Even if what we’re being told about NAFTA are half truths - they’re still lies. Half right is still wrong.

It has become obvious that our political leaders subscribe to the Goebbels Principle of Political Truth, i.e., lie and keep lying, soon it will become the truth.

We shudder at the thought that our leaders would intentionally harm us. We despair when we realize those who we’ve trusted have let us down. We get bitter when we grasp the concept that our leaders let us down for the sake of their personal benefit.

For some reason we refuse to accept that those who lead us have been corrupted by the power they wield. The days of our leaders adhering to Washingtonian ethics died with that fateful day in Dealey Square in Dallas. Camelot has been replaced with Babylon - the great harlot that glorified herself and lived in shameless luxury. If there are any among you that doubt, search the web and compare CEO compensation rates for the United States and the rest of the world. Search the web and see how many of our political leaders have become wealthy while serving “our best interests.”

At any given time the world’s wealth is finite. So for the new robber barons to receive and amass such ludicrous amounts of money means someone was denied those monies. Namely those of us who must partake of the goods and services they sell.

What is amazing is the barrier our leaders have raised to insulate themselves from NAFTA criticisms. I tried to advise my elected leaders about the treachery of our NAFTA companies. One Senator stated that she would not be an instrument to inflame the passions of a major ethnic block. The other Senator stated this was a Mexican domestic affair, but she would remand it to the State Department for review. The State Department later stated the Mexican Government denied my allegations. My Representative stated he would not get involved until Federal Law Enforcement became involved. Political expediency has replaced “for the good of the people.”

The True NAFTA Lies:

Lie #1: NAFTA will bring about fair trade between the partner nations.

Americans have dumped agricultural commodities onto the Mexican market and bankrupted thousands of Mexican farmers. See:

http://web.archive.org/web/20030705100025/imdiversity.com/article_detail.asp?Article_ID=15915

Moreover, the dumping of our grain reserves onto the Mexican market decreased the supply in the United States. A supply that could not be replaced by Mexican farmers because they were no longer farming. The diminishing of our grain reserves was a major element in the recent dramatic increase in food prices.

Lie #2: NAFTA will create jobs in Mexico and stop the tide of illegal aliens coming to the United States.

Mexican employment in export industries have barely kept pace with the loss of agricultural jobs. Domestic manufacturing employment has been stagnant. Meanwhile Mexico’s population has grown by roughly 28 million souls. Millions more Mexican have illegally entered the United States because NAFTA has not created the jobs promised to the unemployed. See:

http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=1473

Lie #3: NAFTA will create jobs in the NAFTA countries and lead to increased trade.

This is one of the most insidious of the lies. NAFTA pundits have used numerous artifices to obscure the truth. A large segment of the export trade to Mexico consists of affiliated materials. These are materials used to support U.S. jobs. When the jobs are exported to Mexico, the materials follow along. No new jobs to make export materials, just a change in the delivery point of the materials.

Another subterfuge is claiming circular non-commercial transactions are commercial export transactions. An example would be if you take your car to a mechanic for repairs. The mechanics only responsibility is to fix your car and return it.

Under NAFTA, the delivery of the car would be deemed a NAFTA export and the return of the fixed car would be deemed a NAFTA import. The materials shipped to Mexico are not a commercial transaction. This is done in order to bypass Mexican value added taxes.

Global Trade Watch has compiled a report of the many job and export lies told by NAFTA pundits. See:

http://www.citizen.org/trade/nafta/ and
http://www.citizen.org/trade/nafta/articles.cfm?ID=17640

Lie #4: NAFTA will protect the workers of all of the partner nations.

This is the other of the most insidious of the NAFTA lies. Almost from the beginning, Mexico has failed to live up to the central tenet of NAFTA and NAALC (The North American Agreement on Labor Cooperation). Per the requirements of NAFTA and NAALC, each partner was obligated to compose a booklet regarding the rights of foreign workers providing their services in a host NAFTA country. Mexico did compose the required pamphlet. See:

http://www.naalc.org/migrant/english/pdf/mgmexmes_en.pdf

The only problem is that I can find no instance when the pamphlet has been openly and freely distributed to the foreign workers to be found in Mexico. The Mexican Government knows exactly who and where the Americans workers are. The application for a Work Permit (FM3) provides the data.

Moreover, the Mexican Government performs an annual audit of each U.S. NAFTA company to assure all foreigners have the proper documentation. Periodically, every Work Permit must be renewed.

These are three opportunities to distribute the pamphlet to the Americans working in Mexico. My peers claim ignorance of the pamphlet.

I’ve discussed the pamphlet with Labor Attorneys. In their confusion regarding the pamphlet, some have inquired with State and Federal Courts and State and Federal Secretary of Labor offices and no one claims knowledge of the pamphlet.

Even if they had claimed knowledge, the pamphlet is unusable. My attorney states there is a glaring error. The pamphlet states that the Labor Law can only guarantee foreigners the Mexican minimum wage. The Mexican minimum wage is about $.50/hour. What astute American is going to raise an issue if his pay can rolled back to the Mexican minimum wage?

The pamphlet fails to include an "unless." Unless the worker has a contract (verbal or written) that provides for a salary greater than minimum wage and/or for work hours less than forty eight. This is a huge omission on the part of the Secretary of Labor in Mexico City. It seems the Mexican Government has acquiesced to industry standards.

Mexico has an aggressive auditing program directed at NAFTA companies. Periodically, Mexican IRS (Hacienda), Social Security, and Immigration auditors inspect company records. I have not heard of any NAFTA company being disciplined because they failed to adequately compensate foreigners per the mandates of the Mexican Law.

To the best of my knowledge and belief, no NAFTA company has ever been reprimanded and/or penalized by any Mexican State of Federal agency for having failed to properly pay foreigners all compensation required by law.

The Mexican Government is being very disingenuous when it clamors for the civil and labor rights of undocumented illegal Mexican workers in the United States. Meanwhile, the Mexican Government is being complicitous with the U.S. NAFTA companies in denying the civil and labor rights of documented legal American workers in Mexico

Part 5: In NAFTA We Trust

Charles de Gaulle once said that "in politics it is necessary either to betray one's country or betray the electorate. I prefer to betray the electorate."

As a nation and as a people we are too often too trusting of our leaders. The renowned seventeenth century scholar, Robert Burton noted that “stylus virum arguit, - our style betrays us."

Our political leaders have taken advantage of our trust and enacted a free trade agreement that after fourteen years has borne out the dour admonitions proclaimed by Pat Buchannan and Ross Perot.

History, I believe, will judge NAFTA to be a golden trough where rapacious U.S. NAFTA companies gorge themselves to the bursting point with ill gotten gains.

I’ve explained how the U.S. NAFTA companies have mislead and subordinated the Mexican Government and misled the hapless Americans sent to work in Mexico. Now let’s see how the U.S. NAFTA companies have deceived we the people and how our politicians made it feasible.

Our business and political leaders assured us that NAFTA would benefit all of the citizenry of the three partner nations, i.e., the United States, Canada and Mexico. The term used was “win-win-win for all.”

We discounted the gloomy warnings of Pat Buchannan and laughed at Ross Perot’s sucking sound. I believe we Americans owe both Pat Buchannan and Ross Perot an apology for our derision.

We were assured that NAFTA was devised to secure an international trade region where the enterprises of the United States, Canada and Mexico would flourish and jobs would be created for all.

What good are these assurances when tens of thousands of Americans working in Mexico are defrauded out of Mexican mandated compensation? Why does the Mexican Government refuse to abide by the laws of the land and provide equal protection for all workers?

Transparency International issues three indices pertaining to governmental corruption, i.e., The Corruption Perceptions Index, The Global Corruption Report, and The Bribe Payers Index. All three indices rate Mexico as a corrupt Government with weak public integrity. The affects of the corruption brought about by drug money is common knowledge. The corruption brought about by rapacious businessmen is obscure.

An example is Carlos Slim Helú, the youngest son of a Lebanese immigrant to Mexico. Through his influence with the Mexican Government, Carlos Slim has succeeded in parlaying a modest investment into the powerful quasi-monopoly called TelMex. Simultaneously, Carlos Slim has become the second most richest person in the world. Meanwhile, the citizenry of Mexico pay all too high rates for TelMex services.

Carlos Slim is not a the only example. Mexico can hold up numerous industrialists who’ve obtained the acquiescence of the Mexican Government to detrimentally control vital sectors of commerce. Numerous private and public sector monopolies and duopolies in energy, telecommunications, construction, food production, broadcasting, financial services, and transportation have long been a drag on competitiveness and job creation in Mexico.

Realizing that U.S. NAFTA companies are blatantly violating Mexican Laws without any repercussions demonstrates the collaboration between public and private organizations to breach the public trust in the name of personal and corporate gain.

But, the payroll and tax shenanigans are merely the grease that lubricates the wheels of the corporate gravy train. Article 303 of NAFTA is meant to protect NAFTA region manufacturers from undue competition from materials made in non-NAFTA countries. Article 303 provides that duty paid on imported materials cannot be drawn back (refunded) if and when the materials are incorporated into NAFTA qualifying articles that are then shipped to another NAFTA partner.

The intent of Article 303 was to provide an incentive to use NAFTA region made materials in lieu of non-NAFTA made materials. The articles of all non-NAFTA countries are to be subject to the usual import duties provided for in the tariff schedules of the importing NAFTA countries.

This was supposed to induce the NAFTA partners to invest in the manufacturing facilities to provide the materials necessary to make the articles to be marketed within and outside of the NAFTA region. Article 303 was one of the pillars of what was supposed to lead to a multitude of new jobs.

The truth is the United States and Canada have lost millions of manufacturing jobs and Mexico’s manufacturing employment is stagnant. If we are to believe the NAFTA pundits that NAFTA trade has tripled and quadrupled, where are the manufacturing jobs for the increased trade? Where are the materials coming from that are integrated into NAFTA articles?

Some would point to the growth of U.S. exports to Mexico. While exports to Mexico have grown, the export numbers contain a large portion of non industrial goods such as agricultural commodities, foodstuffs, metal scrap and used vehicles. Also, a significant portion of the exports contain redirected materials and circular non-commercial transactions. So, I reiterate - where are the materials coming from?

The answer - PROSEC, Presidential Proclamations, an Amended U.S. Customs Harmonized Tariff Schedule and trade supports. PROSEC is a Mexican Government duty exemption program that allows NAFTA companies to apply for duty exemption for foreign materials they will integrate into NAFTA articles.

Article 303 disallowed duty drawback (refund) so PROSEC exempted the duty. Now NAFTA companies can import materials duty free from subsidiaries in Asia and elsewhere and subject them to perfunctory operations that changes the tariff identity and viola - a duty free NAFTA qualifying material. An example would be installing Chinese electronic components onto a PC Board. The components have lost their identity and have become a NAFTA made PC Board.

The NAFTA Rules of Origin are intended to rule out NAFTA benefits being granted to non-NAFTA materials. The Rules of Origin require that vendors and manufacturers issue a binding Certificate of Origin claiming NAFTA origin for all materials incorporated into articles claiming NAFTA benefits.

Numerous Presidential Proclamations have modified and diluted the Rules of Origin in the U.S. Harmonized Tariff Schedule. The dilution led to conflicts and confusion. So, in 2006, a new Amended Harmonized Tariff Schedule was put forth. About 80% of the tariff classifications and most of the Rules of Origin were revised in the new Amended Harmonized Tariff Schedule.

What could the U.S. NAFTA companies gain from all of this tomfoolery? I will lay forth a feasible theoretical set of circumstances. Let’s suppose U.S. Co. “X” has operations in the Orient. These operations supply many companies and/or subsidiaries of Co. “X“. Co. “X” does not want to duplicate these operations in Mexico in order to supply NAFTA operations.

The host countries of Co. “X” Asian operations offer tax breaks and subsidies for materials exported to other countries. For most countries, these tax breaks and subsidies reduce the cost of otherwise expensive materials. Since these countries do not have domestic competing industries - the tax breaks and subsidies are welcome.

Not so in most of the major industrialized nations. Terms such as dumping and countervailing duties crop up. But, if a related Asian company is shipping to a related Mexican company - whose to know. The two companies will operate on Transfer Pricing Schedules and the companies can put forth whatever numbers they deem adequate.

Whose to stop them? Not the corrupt Mexican Government officials. So, the forbidden tax breaks and subsidies become lost in the various layers of Transfer Pricing Schedules and audits by corrupt government officials. The artificially lower cost materials require lower cost inputs to sustain NAFTA qualification. By deception the foreign materials become NAFTA qualifying materials and Co. “X” makes a few million more.

Another advantage to this flow is the high cost of marine freight from the orient to the west coast. There is an adage that “parts ship cheaper than finished goods.” Marine shipping containers can by a factor of 2, 3 and 4 times hold more parts than finished goods. Moreover, the value per pound is less, therefore the marine freight charge is less.

There is one other advantage. The U.S. Customs Service Inspectors and Import Specialists plying their specialties at west coast ports of entry have long been wary of shipments from the orient. This same distrust existed along the U.S./Mexican Border until NAFTA. The reasoning behind this is NAFTA is duty free so commercial fraud is inconsequential. Besides there are more important issues such as drug trafficking, terrorism, etc.

Meanwhile, American, Canadian and Mexican workers continue to wonder when will they prosper from NAFTA? Answer - NEVER! The early neigh Sayers had it right. NAFTA was not crafted to benefit the many - only the few.

Part 4: NAFTA: A Contingent Liability

In practically every nation employee payroll incurs payroll taxes - especially in Mexico and the United States. So when a U.S. company like Halliburton with NAFTA operations in Mexico fails to pay mandated compensation to Americans working in Mexico, the U.S. company is also failing to pay applicable Mexican and U.S. payroll taxes.

Another Mexican Supreme Court ruling states that a foreign parent corporation is responsible for the acts of its subsidiary (filial) and visa versa. In the present issue, if Halliburton incurs a Mexican tax debt, Halliburton de Mexico can be held responsible. Likewise, if Halliburton de Mexico incurs a Mexican tax debt, Halliburton can be held responsible. The same can be said of any and all U.S. NAFTA companies.

The remittance of all payroll related taxes are the responsibility of the employer . There are two sources of payroll taxes, i.e., the employer and the employee. The company must compute all payroll related taxes due from either the company or the employee, report the types, sources and amounts of the payroll taxes, and remit all sums to the appropriate Mexican Government revenue agencies.

What kind of payroll taxes are involved?

15% Professional Service Tax (income tax)
35% (up to) Social Security (includes 5% Housing Trust Fund)
2% Retirement Savings System
2% State Payroll Tax

In addition, Americans working in Mexico have been duped out of mandated compensation such as double and triple overtime pay, seventh day pay, holiday pay, vacation premium, Christmas bonus, seniority premium, profit sharing, trans-border travel to and from work, meals while at work and company sponsored employee benefits and perquisites.

The Mexican judicial system ruled I was defrauded the equivalent of 70% of my base pay. Various groups estimate that there are between 65,000 and 125,000 foreigners working in Mexico. I’ll use 100,000 for the prime reason that Mexican Law allows companies to import up to 10% of their Mexican workforce as foreign workers. The +4,000 U.S. companies claim they employ +1 million Mexican workers.

The major segment of the Americans working in Mexico are Vice Presidents, General Managers, Managers, Engineers and Technicians. The balance is comprised of supervisors. The preponderance of the salaries will be at the high end, so I’ll use a base pay of $65,000/year. Thus, 100,000 Americans @ $65,000/year X 70% equals $4.55 billion dollars the Americans might be defrauded.

The combined tax rate for the Mexican States and Federal Government are at its highest - 54%. Therefore, the U.S. NAFTA companies could’ve evaded up to $2.5 billion dollars in Mexican fiscal levies!

There is no doubt payroll has been withheld from Americans working in Mexico. The Mexican Supreme Court in its Halliburton rulings support this claim. I will demonstrate below why a large segment of the U.S. companies with NAFTA operations in Mexico are also culpable of this misdeed.

The U.S. companies and/or their subsidiaries have incurred what is called a contingent liability. A contingent liability is a sum of money that may or may not be paid by a company depending on the outcome of a future event such as an audit or court case. A contingent liability is recorded in a company's account’s and shown in the balance sheet. A footnote to the balance sheet describes the nature and extent of the contingent liability. The need to account for and report contingent liabilities is set down by the Financial Accounting Standards Board (FASB)

In 1973, the Securities and Exchange Commission (SEC) designated FASB as the organization responsible for setting accounting standards for public companies in the United States. FASB is a not-for-profit nongovernmental organization whose primary purpose is to develop generally accepted accounting principles (GAAP). The principles are promulgated through a series of statements. FASB Statements 5 and 11 define and delineate the what, why, where, when and how much concerning contingent liabilities.

In the matter at hand, the above does not infer the legal mandate for the payment of the sum of the withheld salaries and unpaid taxes is in question. The sums are owing, just not paid. The above states that the need for the company to remit payment is contingent on someone discovering the liability and/or someone, such a court, ordering the liability be satisfied.

However, defrauded payroll and evaded taxes are not the only contingent liabilities. Mexican Law requires that annually an employer must reserve 10% of the company’s profit and divide the profit among its employees. Per the American employees Work Permit (FM3), they are employed by the U.S. parent. As demonstrated, the profit sharing tally can be astronomical. The probability that Halliburton and the other U.S. companies have voluntarily paid an annual 10% of their profits to their American employees working in Mexico are also astronomical.

There is one more significant contingent liability. Of the twenty one Mexican Supreme Court cases that I’ve been able to locate, all carry a common theme, i.e., one or more Americans have been unjustifiably terminated and they sought redress through the Mexican judicial system. The oldest of the cases dates 1925 and the most recent (Halliburton) dates 2007.

In my almost fifty years of business on the U.S./Mexican border, I’ve realized a common theme, i.e., U.S. companies will select a small cadre of Americans who will be transferred to work in Mexico. The Americans are usually a core of employees that have survived a massive layoff because their jobs were exported to Mexico.

The Americans will sell their homes and pack up their families and relocate them to a U.S. border town or city. When they arrive, they realize their new home is in an economically depressed zone. They will soon realize their new home cost much less than the home they sold and guess what? Uncle Sam wants his cut of the profit on the sale of the home.

The spouses of the American workers will find it almost impossible to find meaningful work to supplement family income. There are two primary reasons. First meaningful jobs are difficult to find. Second, mastery of Spanish is almost always a requirement.

The strain on the family grows. Dad is at work for eleven to fourteen hours per day - sometimes six and maybe seven days per week. He can’t attend little Johnnies Little League games and little Mary’s swim meets. When the family does have free time, there’s little to do.

Within a year or two or maybe more, the company will determine some of their American workforce is unnecessary - expendable. The Americans are terminated for no other reason than they’ve done their job too well. If they complain or show animosity, they’ll be placed onto a do not hire list (blackballed) maintained by the local industry association. The only job he’ll be able to find is a minimum wage job flinging mystery meat at the local fast food outlet.

Soon, the proverbial bovine feces will impact the oscillating ventilator. The family is drowning in debt, the creditors are pounding on the door and the spouses are at each others throats. What’s left? Why bankruptcy of course.

According to an attorney acquaintance, a significant number of his clients are ex-employees of U.S. NAFTA companies who were transferred to the area and within a few years terminated. Most ended up being blackballed. He was surprised to hear from colleagues with offices along the border that they too had significant portions of their clientele who were ex-employees of U.S. NAFTA companies.

The common thread with my attorney friends clientele was they had not received any mandated Mexican termination indemnity compensation. For most, their sixty day window of opportunity to file an action to collect their termination benefits had lapsed.

Termination indemnity compensation in Mexico can be rather generous. Unjustifiably terminated fifteen year workers can demand ninety days pay as a minimum with an added 20 days for each year of employment plus 12 days seniority premium for each year of employment. The employee is further due any and all withheld mandated compensation plus any accrued benefits for the partial year before termination. Mexican Law requires companies establish a reserve account to accrue monies to cover the termination indemnity of its employees. Termination costs are a contingent liability.

The following example is necessarily a brief illustration of a complicated subject. John Smith is unjustifiably terminated after fifteen years as a production supervisor. He had worked in Mexico for three years and his highest salary for the last three months of his employment was $40,000/year.

90 days = $10,000
20 days X 15 years = $33,333
12 days X 15 years = $20,000
Withheld Overtime (est.) = $63,000
Withheld Xmas Bonus = $ 5,000
Withheld 7th Day Pay = $24,960
Withheld Vacation Prem. = $ 1,440
Profit Sharing = $30,000
Termination Pay (est.) = $187,733

That’s more than 4½ years salary for a $40,000/year ex-employee. No need for bankruptcy. Using the above example, a $65,000/year ex-employee could expect up to $305,000 in termination indemnity.

For arguments sake, I will estimate that 5,000 Americans are unjustifiably terminated each year. That’s more than $1.5 billion dollars per year they‘re not compensated. Moreover, the Mexican taxes due for the termination indemnity totals up to $800 million dollars.

Let me summarize the total of the contingent liabilities incurred by the scofflaw U.S. companies:

Unpaid Payroll = $4.55 Billion Dollars
Unpaid Taxes = $3.3 Billion Dollars
Unpaid Termination $1.5 Billion Dollars
Sub Total $9.35 Billion Dollars

That’s 10% of the reported production costs incurred in Mexico by the U.S. NAFTA companies. Yes, I do mean Sub-Total. The Mexican subsidiaries of U.S. NAFTA companies must because of their affiliation and control by the U.S. NAFTA company, compute a transfer price. The transfer price is used by the Mexican Government to levy income taxes on an otherwise break even operation.

Transfer prices contain a computed profit that is usual for the industry. Most often 10% has been deemed usual. Therefore, 10% of $9.35 Billion dollars times 28% income tax rate equals $261,800,000 of further taxes due of $3.5 billion and a Grand Total of $9.55 Billion Dollars!

This is the real reason the U.S. companies have gone to Mexico and not China. If the U.S. companies reserve these dollars as part of their budget for Mexican costs of production and do not incur the costs - the reserve dollars go straight to the bottom line. These dollars create the false impression the executives and managers have excelled at their jobs and should be rewarded with promotions, raises, bonuses, automobiles, stock options, etc.

If there are contingent liabilities in Mexico, there are contingent liabilities in the United States. But, in the U.S. the issue of fraud and evasion are compounded. If Mexican taxes have been evaded, so have U.S. payroll and taxes. The U.S. NAFTA companies have left themselves open to a multitude of enforcement actions.

Most of the Americans working in Mexico live in a U.S. border city and daily commute to work. The salaries of each of the Americans is subject to State and Federal payroll taxes. Remember, they live in the U.S. and are employed by a U.S. company, but their compensatory benefits and perquisites are mandated by Mexican Law.

Whatever taxes the Americans pay to the Mexican Government can be offset through tax credits provided for under the Internal Revenue Tax Code. Payroll taxes have been paid on already paid salaries and payroll taxes will be due on the illegally withheld mandated salaries.

Moreover, the States and Federal Government rely on periodic company financial reports and Transfer Pricing Schedules to compute the duties and taxes to be paid by each of the U.S. NAFTA companies. The financial reports and Transfer Pricing Schedules lack the due but unpaid mandated payroll and taxes. Therefore, duty and tax computation are erroneous.

U.S. Customs fraud actions actions under 18 USC 542, 18 USC 1001 and/or 19 USC 1592 are onerous. If an importer is found culpable of fraud, the fines and penalties can total the full value of the imported articles. The full value would not only include the value declared when the articles were imported, but also the deficient costs.

Likewise, shareholders and potential shareholders rely on audited financial reports when deciding on investing into U.S. companies, some of which are U.S. NAFTA companies. The SEC monitors annual financial reports to spot anomalies that portend trouble.

Most if not all of the U.S. NAFTA company financial reports and Transfer Pricing Schedules do not reflect billions of dollars in contingent liabilities. In its PASQUANTINO ruling, the U.S. Supreme Court upheld the premise that evasion of foreign taxes by a U.S. company is a violation of the RICO Statutes.

In reality, the scofflaw executives have engendered a huge ruinous liability that endangers the shareholders investment.

But, what about the expert counsel of internal and outside attorneys, accountants and auditors that are charged with the responsibility of protecting the companies and their shareholders from liability?

Where were these experts when Halliburton so grievously violated the Mexican Labor, and Workplace Health and Safety Laws? Where are these experts as Halliburton annually prepares and files inaccurate audited financial reports with State and Federal revenue agencies, State and Federal monitoring agencies and with actual and potential shareholders?

I’ve shown that going back to 1925, the issue of foreign workers rights in Mexico has been defined and delineated by the Mexican Supreme Court. The principle is fundamental and no basis should exist for violation of the mandated civil and labor rights of foreigners working in Mexico. There are at least six levels of scrutiny and protection, so why the blatant violations?

That accounting firms have previously breached codes of ethics is well known. Examples are:

Arthur Anderson; Enron, Global Crossing, Peregrine and Halliburton (what a surprise).

Delloitte & Touche; Adelphia, Duke Energy, Rite Aid and Parmalat.

Ernst & Yound; AOL Time Warner, Dollar General and HealthSouth.

Coopers-Lybrand; Network Associates and Phar-mor.

That multinational corporations have pushed the envelope and breached the law is well known. The list is longer than your arm and grows daily.

After fourteen years of NAFTA, the fraud could total up to $160 Billion Dollars owing to American workers and the State and Federal Treasuries of nations of Mexico and the United States.

Why hasn’t the Mexican Government auditors (Hacienda, Seguro Social, Secretaria de Trabajo y Prevision Social and Gobernacion) detected the violations in at least one U.S. company?

Why have U.S. law enforcement agencies such as the SEC, FBI, ICE, IRS and U.S. Attorney rebuffed my efforts to make known the various transgressions of the U.S. NAFTA companies?

Why haven’t internal and/or outside attorneys, accountants and/or auditors uncovered and exposed the misdeeds to company executives, shareholders and/or the appropriate agencies of the Mexican and United States Governments?

Intriguing questions. There are several answers. I’ll go into the possible reasons and the impact the reasons have on the United States in my next posting.

Part 1: NAFTA is Fraud on Steroids

This is a prelude to the blog. Please take this into consideration when reading through the postings.

The use of steroids creates a formidable being that is unnatural and distorted. All accomplishments are false and misleading. Likewise, the U.S. multinational companies that partake in NAFTA become dominant, unnatural and distorted and their results are false and misleading. Once outside the confines of the United States, the U.S. companies enter the world of corruption, influence peddling, power brokerage and fear mongering.

The list of the injured encompasses the gamut of the citizenry of the United States and Mexico.

The list of the injured is astounding; the hapless Americans transferred to work in Mexico, The Government of Mexico, The Government of the United States, The stockholders of the U.S. companies, the citizenry of Mexico and the citizenry of the United States.

The hapless Americans that are transferred to work in Mexico are usually a core of employees that have survived a massive layoff because their jobs were exported to Mexico. The U.S. companies secure Mexican work permits for their American employees all the while telling them they will remain on the U.S. payroll and be subject to U.S. labor and tax laws while working in Mexico.

They’re told the only exemption is a personal service tax levied by the Mexican Government. They’re told not to fear because the IRS grants a foreign tax credit on their U.S. income taxes. If they question the incongruities of working in Mexico under U.S. law, they’re usually told NAFTA makes it legal. At no time during this process are the Americans advised by the U.S. companies of the American workers rights under The Mexican Constitution and Labor Law.

When any company incorporates in Mexico, it must by Mexican Law sign a covenant known as the “Calvo Clause.” A “Calvo Clause” is unique to most Latin American countries and requires a foreign investor to agree to comport themselves as a citizen of Mexico. They agree to abide by all of its laws and be subject to the Mexican courts if a legal dispute arises. They further agree not to seek the protection of any branch of the government of their resident country. They’re told that failure to adhere to the covenant can result in a forfeiture of all of the investments in Mexico. Few, if any shareholders are ever told of this stipulation.

Mexican Law requires that before an employer puts an employee to work, the employee must be apprised of their rights, guarantees, wages, benefits and perquisites as provided for under the Mexican Constitution and Labor Law. In general U.S. companies do not tell the Americans who will work in Mexico that they are subject while in Mexican territory to the protections and guarantees of the Mexican Constitution and Labor Law.

Nor are they told they qualify for the numerous lucrative Mexican mandated benefits and perks, such as double and triple overtime, seventh day pay, 15 days Christmas bonus, 25% vacation premium, free medical services, free child care services and 10% of the profits declared by their employer. These are some but not all of the benefits and perks found in Mexico.

Some Americans, like myself are becoming aware of their civil and labor rights under Mexican Law. Most have initiated legal actions to recoup monies improperly withheld from their paychecks.

To forestall the American workers, some U.S. companies have begun circulating a document whose purpose is ostensibly to protect the American workers from being assessed additional Mexican taxes. The true nature of the document is to frighten the American workers into believing they are the ones who owe added taxes. The document fails to say that added taxes would only result if withheld wages and benefits were to be paid to the American workers.

Moreover, the document menaces the American workers with a vow to file an action in a Superior Court if and when the American workers pursue their civil and labor rights in Mexico. The document fails to disclose that the Labor Commissioner for their U.S. state of residence is the sole party empowered to adjudicate labor, wage and hours issues. The Labor Commissioner cannot rule on labor issues that arise outside the state.

Some Americans working in Mexico have bucked the system and sought redress through the Mexican courts. Nearly all have won, but because the victories can only be to the victor, the rest of the Americans suffer. To receive their due compensation, the other Americans must also seek redress through the Mexican court system.

Subsequent postings will reveal in detail the full implecations to the citizenry of the United States, Canada and Mexico of the actions of the rapacious corporations and scofflaw executives.

Part 3: Fraud Under NAFTA

Halliburton is a +$15 billion dollar per year multinational corporation with operations in more than 120 countries. By its very nature and commitment to its shareholders, Halliburton must be knowledgeable about the laws of the many countries they operate in.

However, the Mexican judicial system has ruled that Halliburton has violated exceedingly fundamental sections of the Mexican Constitution, Labor Law, Social Security Law and Occupational Health and Safety Laws.

If the sections that were violated were an untested novel legal precept without any litigation history under the Mexican judicial system I would begrudgingly agree that unwary companies could innocently run afoul of the above cited Mexican Laws. But since the 1920’s, the Mexican Supreme Court has numerous times interpreted the Constitution of 1917 regarding the issue of the rights and guarantees to be accorded to foreigners working in Mexico. The statutes and case law are fundamental to Mexican college and university business, accounting and law courses .

Each time, the Mexican Supreme Court has been consistent. Per Article 1 of the Constitution, all persons - national or foreign - are to be equally accorded all of the rights, protections and guarantees enumerated in the Mexican Constitution. Per Article 123, a framework for a labor law is provided with a central principle the labor law shall apply equally to all workers regardless of sex or nationality.

Corporations such as Halliburton have induced Americans to accept work in Mexico without informing the American workers of their labor and civil rights in Mexico. The result in the case of the following Americans working for Halliburton in Mexico, was their workplace safety rights were violated, their rights to medical services for workplace injuries were denied, their termination rights were breached and their rights to mandated compensation were contravened. This is a bold statement, but the ensuing facts will bear me out.

Even though court records are sealed in Mexico, reasonable conclusions can be reached by analyzing the written decisions. In the matter of Halliburton, in 2003, a Federal Magistrate issued a Constitutional Amparo (Federal Court issued injunctive order) directing a lower court to “abide by the rights and guarantees accorded by the Mexican Constitution…..and…..the International Labor Organization Convention of 1935.…..to all foreign workers…..in Mexico.”
The Amparo further instructs the lower court to assure that the “rightful claimant foreign workers who were victims of a workplace accident,” receive “equal treatment without any condition.”

The synopsis of the decision does not state that Halliburton denied company sponsored medical treatment to the foreign victims. It seems only logical the only reason foreign workers (Americans) would seek redress in a Mexican Tribunal would be if they were denied medical treatment because Halliburton refused to authorize the medical services for its foreign (American) employees injured while working in Mexico.

On the same day, the same Federal Magistrate issued another Constitutional Amparo directing the same lower court to protect the rights and guarantees of foreign workers who were unjustifiably terminated by Halliburton. The Amparo further states the foreign workers are “mandated indemnification for unjustified termination, withheld salaries, seventh day pay, holiday pay, vacation pay, vacation premium, obligatory Christmas bonus, etc.”

In 2007, the Mexican Supreme Court reviewed and upheld the two Constitutional Amparos issued by the Federal Magistrate.

The compensation referred to by the Mexican Federal Magistrate are Mexican payroll benefits and perquisites. The list is incomplete and the abbreviation etc. is used to indicate there is a logical continuation of other applicable benefits and perquisites under Mexican Law.

The synopsis of the decision does not state that Halliburton unjustifiably terminated (fired) the injured foreign (American) workers. But, it seems reasonable to infer that the same Magistrate, issued two Amparos to the same lower court where injured foreign workers were pursuing legal action against Halliburton. It also seems reasonable to infer that both Amparos relate to the same action wherein the foreign workers were injured on the job and Halliburton refused to authorize company paid medical treatment. When the foreign workers complained they were fired.

The Federal Court instructed the lower court to acknowledge that foreign workers have the same occupational health and safety protections as Mexican workers. When those rights are infringed the foreign workers have the same rights to redress as Mexican workers. If a company takes a rash action such as firing “rightful claimants,” the Mexican Labor Law provides onerous punitive termination compensation to the unjustifiably terminated workers.

In my instance, the court ruled I was defrauded 70% of my base pay. The court also ruled that after seven years I was awarded almost $1.5 million dollars in withheld pay, profit sharing, fines, interest and penalties. The court also ruled that unpaid mandated compensation also resulted in unpaid corporate payroll and social security taxes owing to the Federal Government.

Herein lies the problems for corporations such as Halliburton. Most Americans working in Mexico are listed as exempt workers and are paid for a forty hour week. Standard work weeks for exempt employees can be as high as fifty five to sixty hours per week. One of the etc’s not listed above is overtime.

Overtime in Mexico is very burdensome to employers. The first nine hours are paid at double time and all subsequent hours are paid at triple time. When an American worker is transferred to Mexico, he has under Mexican Law a forty hour per week labor contract. Thusly, if sixty hours were incurred, the first nine hours would tally to eighteen hours and the subsequent eleven hours would tally to thirty three hours for a grand total of forty one hours of overtime.

That’s more than 100% of the Americans base pay. But this isn’t the end. To the overtime hours must be added the mandated benefits and perquisites applicable to the hours. Thereby driving the cost of the overtime hours much higher. Potentially as great as 35% more.

Herein lies the rub. As long as the American workers don’t know their labor and civil rights in Mexico, the weekly cost to corporations such as Halliburton are usually less than for comparable Mexican workers who must be paid the incurred overtime and added benefits and perquisites. This proviso usually causes comparable Mexican workers to be more expensive than American workers. Who would’ve thought.

But, there is a more insidious reason to keep foreign workers in the dark regarding their labor and civil rights. I referred to this above - 10% annual profit sharing. Mexican Law mandates that all workers in Mexico must be paid by their employers an annual 10% profit sharing. Most Mexican subsidiaries of U.S. NAFTA companies operate on a break even basis. Most compute a transfer price which includes a minimal profit. From this profit all Mexican employees receive a nominal share of the profits.

However, the lower the stated costs in Mexico, the greater the profits for the parent corporation. When Americans are transferred to work in Mexico, they apply for and are given a Work Permit (FM3) which claims they are an employee of the U.S. parent. Therefore, under Mexican Law, the Americans working in Mexico should divide 10% of the U.S. parents stated annual profit. Halliburton declared a c.$3.5 billion dollar net income. Ten percent would amount to $350 million. If Halliburton were to have 500 foreigners working in Mexico, they’d each receive a profit sharing check for c.$700,000 dollars.

This is a fact most shareholders lack knowledge of. If this were to ever surface, the shareholders would rise up, grab their pitchforks and torches and storm the corporate headquarters.

I have reviewed available Halliburton annual reports and I cannot find any reference to the two significant court rulings. Nor can I find any disclosure to the shareholders that annual dividends may be diluted by mandated Mexican 10% profit sharing owing to Halliburton employees working in Mexico.

My next posting will bring to light the fiscal implications to the United States and Mexican Governments.