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.