A North American Common Market: Good for All, but a Hard Road Ahead : Free Trade: Mexico hopes for less austerity and more aid. Washington thinks it would be a way of getting Mexico to take more IMF medicine.

The long, complicated and often unhappy relationship between the United States and Mexico has entered a new and hopeful phase: Discussions on a U.S.-Mexico free-trade agreement are under way. But the relationship remains a minefield for negotiators.

Both countries have mixed feelings about the other; not everybody in either country favors closer ties. Mexico matters for the U.S. Southwest, not much for Maine and Minnesota. In Mexico, some see deeper North American involvement as the only solution to their country’s prolonged economic downturn; others argue that the political and economic costs of Yanqui capital outweigh its benefits.

Yet Mexico has a president who believes in the United States, and the United States has a President who believes in Mexico. Since both leaders also believe in free trade, it is not surprising that the current climate is conducive to plans for a North American common market.

Problem is that the idea means different things on each side of the border. Washington still has a touching faith in the kind of ultra-free market, ultra-austerity programs supported by the International Monetary Fund. Raise taxes, cut social spending, pay the foreign debt, keep wages low, allow foreign companies unrestricted rights to compete in domestic markets; the doctors of the international economy proscribe these remedies to all their patients.

Mexico’s ruling party has been swallowing this medicine in increasing doses for more than a decade. The result: the most serious political crisis since the horrors of the Revolution. Mexico hopes that a common market would mean less austerity and more aid. Washington thinks it would be a way of getting Mexico to take a bigger dose of medicine.

The American concept of a common market is simple: Mexico will drop its barriers to U.S. investment while each side removes impediments to trade. This version of the common market will be popular in corporate board rooms here and in Japan, but it will be controversial elsewhere.

In the United States this plan won’t find friends among labor and environmental groups. In essence, the plan would make it easier for U.S. firms to avoid paying U.S. wages and to comply with U.S. environmental and safety requirements. Japanese and other foreign investors would also be spared the necessity of building plants in the United States to take advantage of our markets; their products assembled in Mexico would benefit from the free-trade agreement and they would not face the higher costs of production in the United States.

Such a free-trade agreement would also be controversial in Mexico, though for different reasons. A surge of new foreign investment would bring badly needed jobs to Mexico and extend the benefits of the maquiladora system of export-oriented production beyond the immediate border zone. New exports would provide the foreign exchange with which Mexico could service its debt. Both these developments would be widely welcome.

But the consequences of a free-trade agreement would go farther. For 70 years, Mexico’s political and economic system has rested on the protection of key industries and limits on foreign investors. The Mexican Revolution was a revolution against foreign investment. In 1910, U.S. investors owned roughly 10 million of the 14 million hectares in Baja California, and more than 100 million hectares, overall, in Mexico. U.S. companies controlled Mexico’s railroads, mining industries and oil; altogether, according to John Mason Hart’s “Revolutionary Mexico,” foreign investors controlled 130 of the 170 largest enterprises in pre-revolutionary Mexico.

Mexican President Carlos Salinas de Gortari is in a difficult position. The economic order that emerged from the Revolution is no longer viable. But neither Salinas nor Mexico’s ruling party is prepared to return to the policies of Porfirio Diaz, the much-hated turn-of-the-century Mexican dictator who tried to build national prosperity on the basis of foreign investment.

When Mexicans think about a common market with the United States, they think of the Common Market in Europe, and, specifically, the way in which the richer countries in the European Common Market have reached out to help the poorer members, especially Spain.

Rich European countries like West Germany and France are still making generous contributions to the Spanish economy. Some estimates put the annual aid to Spain at close to $20 billion; on a per-capita basis, that would mean $40 billion annually from the United States to Mexico for such things as infrastructure construction, debt relief and agricultural assistance.

This kind of aid to Mexico would probably be good for the United States, and pay for itself in new export business. If linked to better wages, working conditions and more stringent environmental standards in Mexico, a substantial aid program would overcome many of the most troubling consequences in the United States of such a pact. Even a fraction of that money would help Salinas explain more convincingly to his constituents the difference between his program and Diaz’s. But it is safe to say that neither the Bush Administration nor the Congress is contemplating $4 billion, much less $40 billion in aid to Mexico.

These different ideas suggest that the United States and Mexico are still far from a mutual understanding, and that the route to a common market will be a long and torturous one--much more so than in the case of the U.S.-Canada free-trade agreement. A North American and ultimately a Pan-American common market could be good for everyone, but we need to think more clearly about what such an agreement would be worth to us. The lesson out of Europe is that the rich countries have gotten plenty out of their Common Market only after making substantial, long-term cash commitments.