Bush, Salinas Agree to Seek Trade Accord : Diplomacy: The pact would open markets in U.S. and Mexico and encourage investment. It would reverse long-aloof economic relations.

President Bush and Mexican President Carlos Salinas de Gortari agreed Sunday to begin preliminary work on a broad free-trade agreement, with hopes of starting formal negotiations on the accord as early as December.

In a private meeting at the White House, the two leaders decided to order their top trade officials to begin informal “consultations” on the proposal with business, labor and key lawmakers in both countries--both to seek their advice and to build support.

The White House issued a statement later saying the two had agreed that the United States and Mexico “would each derive substantial and long-term benefits” from a comprehensive bilateral trade agreement. Trade between the two countries totaled $52 billion in 1989.

The accord, similar in scope to one that the United States has signed with Canada, would be designed to open markets in both countries and pave the way for increased U.S. investment in Mexico by guaranteeing the rights of foreign firms there to ownership and intellectual property.

Salinas proposed the pact last February in hopes of attracting more U.S. investment to help spur economic growth in Mexico. Mexican officials say that completion of a trade accord would “send a signal” that investments would be safe there.

The completion of a U.S.-Mexico free-trade accord would mark a major reversal in Mexico’s traditional inward-looking economic policies, which have viewed foreign investment and free trade--particularly with the United States--as a threat to Mexico’s sovereignty.

But Salinas, a U.S.-trained economist, has taken the view that closer ties to the United States are Mexico’s best economic hope. Over the last two years, he loosened Mexico’s investment rules, sold off state-owned banks and industries and relaxed trade restrictions.

“They say that living next to the United States is like being in bed with an elephant,” a senior Mexican official said last week, in explaining Salinas’ position. “Well, we have decided to sleep with the elephant.”

U.S. officials also want to use Mexico as an example in its drive to persuade other Latin American governments to abandon their state-run economic systems and adopt more of a free-market stance, as Mexico has begun to do in recent months.

The White House has begun a full-scale review of U.S. policy in Latin America, with plans to develop a new package of economic aid for the region similar to that now in place for the emerging East European democracies.

At a meeting of the Organization of American States in Paraguay last week, U.S. Trade Representative Carla Anderson Hills invited other Latin American countries to join in such a regional “partnership.” And Bush sounded Salinas out informally on the aid package Sunday.

Some analysts say one reason Mexico is moving so rapidly is to enable it to get part of the available foreign investment capital before it is diverted to Eastern Europe. Several Latin American governments have expressed fears that the region will be left in the cold.

There also has been some talk of eventually inviting Canada to be part of any trade accord with Mexico, effectively converting the agreement into a North American trade compact. Canada has acknowledged the proposal but so far has not said whether it would be willing to go along.

Despite the enthusiasm of the two leaders, the free-trade accord they are promoting would face some serious opposition in both countries. In the United States, labor and some agricultural interests--particularly in California--are expected to oppose the pact.

And while Salinas has won initial approval of the idea from the Mexican Senate, both labor and some domestic manufacturers are skeptical. “This will take a lot of selling in both countries,” a U.S. official said.

There also could be some difficulty over the issue of U.S. immigration policy. Mexico has signaled that it wants to see free movement of labor as part of any such accord, but the Bush Administration has insisted that immigration be dealt with in a separate pact.

The two presidents are expected to announce the start of preliminary consultations on the accord in a joint statement today and to instruct Hills and Mexican Commerce Secretary Jaime Jose Serra-Puche to get the process moving.

U.S. and Mexican officials said that if this initial phase goes well, the two sides are likely to begin formal negotiations on a two-way agreement in early December, when Bush is scheduled to visit Mexico again for what has become an annual meeting between the two leaders.

Salinas arrived Sunday afternoon for what has been termed an “unofficial” visit. He is scheduled to return to Mexico City on Tuesday after an informal meeting with Vice President Dan Quayle. He will also meet with Secretary of State James A. Baker III.

Sunday’s decision to move still closer to a free-trade accord is intended to provide a political boost for Salinas, who has been urging the Bush Administration to move more quickly on the accord as a sign of support for the policies he is pursuing.

Bush told Salinas in February that he supported the idea in principle but wanted to move slowly, for both political and legal reasons.

Hills, for one, does not want the U.S.-Mexican negotiations to distract from global trade-liberalization talks now going on in Geneva. The White House statement late Sunday said the two leaders agreed that any U.S.-Mexican trade pact “can and should complement” the broader trade talks in Geneva.

White House strategists also do not want to trigger too early a congressional rule under which the Administration can get “fast-track” consideration of any new trade accord.

To qualify, the Administration must complete its negotiations within 60 legislative days--or about five months--after such talks are officially announced. Since such negotiations traditionally take a long time, Hills wants to get as much done informally as she can. Without such procedures, the pact might well bog down, Administration officials believe.

But the effort is being propelled by political forces, both in Mexico and the United States. Although Hills has been proceeding cautiously, Baker has been urging faster action as a way to bolster U.S. policy throughout Latin America.

For all the talk about the candor of their conversation, Bush and Salinas reportedly did not dwell on any of the more sensitive disputes between their governments, such as last week’s disclosure by The Times that the U.S. military has set up a listening post at the U.S. Embassy in Mexico City to provide intelligence to Mexican authorities on cocaine-laden aircraft using Mexican airstrips. U.S. involvement in the drug war there has been seen by many Mexicans as a threat to their country’s sovereignty.

The two did pledge to renew their cooperation on the drug front.

Officials on both sides said that the two simply voiced their disagreements and ordered subordinates in the two governments to intensify efforts to resolve any differences and to take steps to make sure that each country observes the sensitivities of the other.