When Two Paths Are Better Than One : Mexico: Its emergence as an industrial nation requires full economic integration with the U.S. and Canada and expanded ties with Japan.

Last month, Canada’s Prime Minister Brian Mulroney visited Mexico City where he signed 10 ambitious agreements with President Carlos Salinas de Gortari and, surprising his audience but perhaps not his host, strongly suggested that Mexico should no longer fear becoming a formal member of the North American economy. At least as unexpected were subsequent press reports that the United States and Mexico are pursuing negotiations to establish a free-trade agreement.

Mexico is facing one of the most critical choices of its economic and political history. One possibility is for Mexico to join the North American economy. Another is to continue expanding relations with Japan and, more generally, to diversify its economic relations with the rest of the world. The best course would be to pursue both paths simultaneously.

Mexico must decide to join the industrial world through a gradual and systematic process of integration with the North American economy. A formal agreement with the United States and Canada would turn Mexico into a more attractive investment site and lead to greater trade within the region. Most important, Mexico would gain the leverage necessary to negotiate more forcefully with Japan.

Even if a formal agreement with the United States is concluded, Mexico cannot be expected to restrict Japanese investment in its in-bond assembly plants, as certain members of Congress and organized labor have demanded. At the same time, because the three North American partners would have to work out a common approach toward third parties, such negotiations would legitimately include the concerns raised by the United States and Canada, in addition to Mexico’s interests.

Two central domestic objectives are at the root of current Mexican foreign policy. One is a strategy to restore self-sustained growth and development that is supported not by the ephemeral generosity of foreign investors and bankers, but by a genuine commitment on their part to become involved as Mexico’s long-term economic partners. Continued U.S. support in this area is critical.

Mexico also wants to reshape its relationship with the United States in a manner that will have the support of the majority of the Mexican people. Among other things, this means resolving the issue of providing full legal and economic protection to Mexico’s migrant labor force in the United States. While recent U.S. immigration reform has addressed some of Mexico’s concerns by helping to better protect certain groups of migrant workers, a comprehensive reassessment of U.S. immigration policy that includes special protection for all Mexican workers is needed.

Further, in contrast with Canada, Mexico currently lacks a forum in which to voice its goals and express its concerns regarding U.S. economic policy. A free-trade agreement and participation in formal consultations and decisions within trilateral institutions would help Mexico to plan more efficiently and protect itself from abrupt shifts in U.S. economic policy.

While further linkage to the U.S. economy is controversial within Mexico, domestic opposition is not likely to be strong enough to block a free-trade agreement. In fact, Mexican intellectuals and politicians who argue against economic integration on nationalist grounds may be surprised to find that the idea enjoys substantial support among their countrymen. Opposition, particularly from the left-of-center, will be rendered largely ineffective because of several strong factors: the lack of a credible alternative to the government’s economic project, the contacts with the United States experienced every day by millions of Mexicans of all social classes, and the expectations of economic improvements generated by the prospect of North American integration in a society that has suffered a decade of acute economic crisis.

There are two issues that should most concern leaders on both sides of the border: opposition to economic integration within the United States, and the consequences for Mexico’s relationship with Japan. Should Mexico fail to become a formal member of the North American economy, it will continue to lack the capacity to negotiate with Japan on a more equal footing. Moreover, should U.S.-Japan tensions escalate, Mexico will find itself facing a no-win situation: Japan is a key source of financial resources that Mexico cannot afford to alienate. Neither can Mexico turn and look the other way if the United States demands unqualified support in the event of a showdown with Japan, for this would be interpreted as lack of loyalty.

It is thus in the United States’ interest to seize the current opportunity and respond to Mexico’s interest in promoting North American economic integration. Otherwise, Mexico will feel compelled to further strengthen its economic relationship with Japan, without being in the position of having to pay much attention to U.S. concerns.