Continental <i> Shifts</i> : Mexico : President Salinas wants a free-trade agreement with the United States because the success of his controversial economic policy depends on it. But Washington has doubts.

Mexico’s economic relations with the United States took an ironic turn last week during President Carlos Salinas de Gortari’s “unofficial” summit with President George Bush. Each time the United States had previously sought closer trade relations with Mexico, Mexico resisted. But now that Salinas has thrown the traditional Mexican power structure into turmoil and tied his personal prestige to a free-trade agreement, the United States seems the reluctant party.

Salinas is eager for a quick agreement because the success of his controversial economic policy depends on closer ties with the United States. Toward that end, the Mexican president is rapidly--and without the endorsement of his political allies--changing his country’s economic and political structure. He has liberalized production by breathing new life into the market economy. “Salinastroika, “ as it is known, is really nothing more than neo-liberal economic policy imposed on one of Latin America’s most state-dominated economies.

An agreement on free trade and investment between the United States and Mexico would be far more than a commercial pact. It would be a historic new beginning for relations between two countries that have always viewed each other with resentment, mistrust and conflict. But this mutual perception seems lost on Salinas in his rush to prepare for the economic opportunities a trade pact would open up. His lack of attention to this history is just one of the problems that might dampen U.S. enthusiasm for an accord.

Another is that time is not on Salinas’ side. He must first overcome resistance from the nationalists within the ruling Institutional Revolutionary Party (PRI)--the old-boy network of Mexican politics--and those sectors of society--rural peasants, urban slum dwellers, the poor--for whom economic revitalization has never meant jobs, improved income distribution and social welfare.

The nationalists worry that Salinas’ neo-liberal doctrine and economic privatization will dislodge their ideological foundation. For the vast majority of Mexicans, the fear is of more poverty and marginalization. A crisis of expectations among these Mexicans, who have watched their already-low standard of living drop further as a result of austerity measures and anti-inflation policies, will add to the pressure on Salinas.

Dwindling support from these Mexican voters may culminate in the defeat of PRI candidates in the 1991 legislative elections. Some political observers believe that the National Action Party could win a majority in Congress in 1991 and that Cuauhtemoc Cardenas and his Party of the Democratic Revolution might get enough votes in the 1994 general elections to trounce any PRI candidate.

The only way the PRI can avoid political defeat and remain in power is to achieve at least short-term economic growth. Salinas’ government must rid the country of its current mood of economic uncertainty. He needs to create jobs for 7 million Mexicans, who are joining the work force for the first time. To create a million new jobs each year, Mexico must grow at an average annual rate of 6.5%. To alleviate the plight of 8.5 million unemployed and underemployed Mexicans, the economy must grow even more rapidly. (Salinas, it should be noted, formulated economic strategy during the six-year administration of President Miguel de la Madrid. During that time, the economy did not grow and not one single paying job was created.)

So the envisioned solution is a free-trade agreement with the United States. For the Salinas administration, an accord essentially would mean: guaranteed access for Mexican products to U.S. markets, more U.S. investment and greater confidence among Mexican investors in Salinas’ economic programs. These accomplishments would allow him, finally, to loosen the government’s fierce anti-inflationary controls without causing increased domestic instability.

Hence, Salinas has taken steps to strengthen ties with the United States even at the risk of sparking a crisis within the PRI, which traditionally works from a consensus in formulating Mexican foreign policy. Indeed, many of the changes Salinas has made in Mexico’s political and economic structure were carried out in the hope of furthering a trade agreement.

Sentiment in the United States, however, is that Mexico still has not lived up to American expectations. Some U.S. investors, for example, don’t just want a Mexican market open to foreign capital; they want no checks on their potential share of ownership in Mexican companies, even if that means amending the Mexican Constitution. Also, there are not a few U.S. business leaders who dimly view Mexican unions owning shares of businesses in Mexico.

Overall, the United States still sees the Mexican economy as unstable; it believes inflation is within bounds solely because of rigid price controls. And U.S. perceptions of Mexico’s political system still include the idea that the role of the state in the country’s economy is akin to socialism. So despite Salinas’ continuing push to put neo-liberal economics into practice in Mexico, many in the United States keep demanding more reform.

Finally, Canada nowhere appears in Mexico’s calculations. When Mexico-U.S. trade talks were disclosed, Canada was surprised. A clause in the new U.S.-Canada trade pact stipulates that Canada must approve any other bilateral arrangement made by the United States. Before that can happen in the case of Mexico, Canada must know what benefits it would obtain from Mexico. Right now, there are none. Canadians, according to some analysts, see Mexico as a potential competitor in the U.S. market.

So the likelihood of a free-trade agreement any time soon seems fraught with difficulties, though Salinas and Bush are enjoying a second honeymoon. The results of their meeting in Washington will do little more than further clarify the issues pending between the two governments. Mexico wants results now. Washington seems most interested in an agreement that would expand U.S. business opportunities in Mexico and strengthen drug-interdiction programs. But short of some results, Salinas will soon confront outright hostility to his policy of economic liberalization.

How to get beyond this potential impasse? Bilateral conversations must not solely revolve around the undeniable fact that Mexico and the United States are already economically integrated. They must go beyond the personal affection that has developed between Bush and the Mexican president. And they must command more attention in Washington than Secretary of State James A. Baker III’s urging U.S. Trade Commissioner Carla Hills to “speed up talks.”

The de facto economic integration of the two countries encompasses themes that touch on Mexico’s dependence on the United States. The current debate has implications for border commerce, narcotics trafficking, military affairs, foreign policy, the flow of undocumented workers and even the factories, or maquiladoras , along Mexico’s northern border. These economic ties are largely unregulated and unplanned, springing up in response to Mexican crises and U.S. needs. A free trade and investment agreement would bring order to the two countries’ interdependence.