PROGRESS IN MEXICO DRUG WAR IS DRENCHED IN BLOOD

MEXICO CITY -- Headless bodies in Tijuana, kidnapped children in
Phoenix and shootouts on the streets of Vancouver: These are the
unwanted byproducts of progress in the Mexican drug war.

While the headline-grabbing chaos creates the appearance of a drug
trade escalating out of control, evidence suggests Mexico's cartels
are increasingly desperate due to a cross-border crackdown and a
shift in the cocaine market from the U.S. to Europe.

Those pressures are forcing Mexico's criminal networks, once
accustomed to shipping drugs quietly and with impunity, to wage ever
more violent battles over scraps and diversify into other criminal
enterprises, including extortion and kidnapping for ransom on both
sides of the U.S. border.

"This is not reflecting the power of these groups," Attorney General
Eduardo Medina Mora told The Associated Press in an interview. "This
is reflecting how they are melting down in terms of capabilities, how
they are losing the ability to produce income."

As evidence of that pressure, the U.S. government says the amount of
cocaine seized on U.S. soil dropped by 41 percent between early 2007
and mid-2008. Reduced supply is said to have raised street prices by
nearly a third to about $125 a gram in the U.S. and lowered purity by
more than 15 percent. Both the U.S. and Canadian governments are even
seeing prolonged shortages of cocaine.

"The reason you see the escalation in violence is because U.S. and
Mexican law enforcement are winning," Garrison Courtney, spokesman
for the Drug Enforcement Administration, said Tuesday. "You are going
to see the drug traffickers push back because we are breaking their
back. It's reasonable to assume they are going to try to fight to
stay relevant."

Mexican cartels are being cut out of the U.S. methamphetamine market
as well, the U.S. and Mexican governments say, though smuggling of
marijuana from Mexico has increased steadily since 2005 as demand increases.

The trouble for Mexico's illicit trade began on Sept. 11, 2001, when
terrorist attacks in the United States prompted heightened security
at the border. President Felipe Calderon upped the ante by directly
confronting the cartels on his first day in office two years ago,
sending 45,000 soldiers and federal police to battle the cartels
across the country.

Improved cooperation with the U.S. since then led to the recent
arrests of 755 Sinaloa cartel suspects in U.S. cities and towns as
small as Stowe, Iowa. Mexican authorities, meanwhile, rooted out more
than two dozen high-level government security officials, including
Mexico's former drug czar, who were allegedly paid to protect the
same gang, Mexico's most powerful.

The U.S. Embassy reported a record 85 extraditions from Mexico to the
U.S. in 2008, contributing to a power vacuum that sparked an all-out
war among the cartels as they battle for routes to the U.S. and
control of Mexico's growing domestic drug market.

These successes, however, come with a brutal cost: skyrocketing
violence in Mexico, with twice as many deaths last year and more than
1,000 people killed in the first eight weeks of this year; more than
560 kidnappings in Phoenix in 2007 and the first half of 2008, and
more than two dozen shootings so far this year in Vancouver, British
Columbia, where a shortage of cocaine from Mexico has pushed prices
up from $23,300 to almost $39,000 a kilo.

The Mexican government estimates that 90 percent of those killed are
linked to the drug trade, and many kidnappings in the U.S. are also
drug related.

Mexico was just a token player in the cocaine trade some two decades
ago, when the U.S. cracked down on the Caribbean routes for Colombian cocaine.

Suddenly, Mexican cartels that already trafficked marijuana and
heroin controlled the main routes to the coveted U.S. cocaine market.

Today, 90 percent of all cocaine that ends up in the U.S. moves
through Mexico, according to the U.S. State Department, and the gangs
make an estimated $10 billion in annual profits.

But the U.S. market is being eclipsed by booming demand for cocaine
in Europe, where users now pay twice the going U.S. rate, and
Colombian gangs don't need Mexican middlemen when shipping across the Atlantic.

Mexican gangs have tried to develop their own routes into Europe,
even forging ties to the Italian Mafia. But they have had limited
success and Medina Mora predicts the Colombians will win out in the end.

"There is no sense to ship the product north, losing value, and then
ship it to Europe, if it is possible to do it straight from South
America to Europe," he said.

The Mexicans have also lost control of the vast U.S. meth market, the
U.S. and Mexican governments say. In 2003, Mexico legally imported
235 metric tons of the key precursor chemical pseudoephedrine - about
twice what was needed to supply its entire cold and allergy market.

But Mexico banned pseudoephedrine imports in 2007 after the
spectacular discovery of $207 million in cash in a Chinese
pharmaceutical businessman's Mexico City mansion. Medina Mora says
Asian smugglers have responded by shipping such chemicals directly to
the U.S., where small sales of legal medicine containing
pseudoephedrine are another source of the drug.

While Mexican gangs may be on the defensive for the first time since
their rise to power, they are far from dead.

A December report by the Justice Department says Mexican cartels
already pose "the greatest organized crime threat to the United
States," and the U.S. Joint Forces Command recently compared Mexico
to Pakistan, saying both governments are at risk of "rapid and sudden
collapse."

Many - even Calderon - believe the violence could get worse before it eases.

To make up for lost drug profits, the gangs are morphing into
powerful organized crime syndicates that are terrorizing Mexicans
through kidnapping and extortion, crimes that are spreading into the U.S.

Both Mexico and the U.S. are ramping up cooperation, using $400
million in new U.S. aid to further weed out corruption among Mexican
security officials and better equip and train those that stay. The
U.S. has also promised to crack down on the estimated 2,000 weapons
smuggled into Mexico each day and then used in 95 percent of all killings here.

It's a fight both countries say they have no choice but to wage. If
Mexico gave up, then "the next president of the republic would be a
drug dealer," Mexican Economy Secretary Gerardo Ruiz Mateos predicted
last month.

Calderon says he won't back down until Mexico's drug cartels are a
problem local police can handle - and no longer a national security
threat. His goal is to attain that by the time he leaves office in
2012, but he admits that may be too optimistic.

"Yes, we will win," he said, "and of course there will be many
problems meanwhile."