"The United States and Mexico have a close and complex bilateral relationship, with extensive economic linkages as neighbors and partners under the North American Free Trade Agreement (NAFTA). Bilateral relations are generally friendly, although the U.S. enactment of border fence legislation in 2006 caused some tension in the relationship. Drug trafficking issues are prominent in relations since Mexico is the leading transit country for cocaine, a leading supplier of methamphetamine and heroin, and the leading foreign supplier of marijuana to the United States. In October 2007, the United States and Mexico proposed the Mérida Initiative to combat drug trafficking, gangs, and organized crime in Mexico and Central America. In legislative action in June 2008 on H.R. 2642 (P.L. 110-252), Congress appropriated $400 million for Mexico -- $352 million in FY2008 supplemental assistance and $48 million in FY2009 bridge fund supplemental assistance. Shortly after taking office in December 2006, President Felipe Calderón of the conservative National Action Party (PAN) launched operations against Mexican drug cartels. He has sent some 40,000 soldiers and 5,000 federal police to drug trafficking 'hot-spots,' and is contending with an escalation of drug violence throughout the country. Calderón has increased extraditions to the United States, and has demonstrated an unprecedented willingness to reach out for counternarcotics assistance from the United States while also calling for increased U.S. efforts on arms trafficking and a reduction in the U.S. demand for illicit drugs. In his first two years in office, President Calderón secured approval of several major reforms, including fiscal and pension reforms in 2007, and judicial and energy reforms in 2008. An unexpected challenge for Calderón is the effect of the recent global financial crisis on the Mexican economy, which already has led to a decline in the stock market, the value of the peso, and remittances from Mexicans abroad."
CRS Report for Congress, RL32724