Viewpoints : Do We Need a U.S.-Mexico Trade Pact?

W ith the passage of a U.S.-Canada free-trade agreement and friendly relations between the administrations of George Bush and Mexican President Carlos Salinas de Gortari, a similar pact with Mexico appears to be gaining support.

Such a pact could eventually reduce or eliminate tariffs, quotas and other barriers to trade between the two countries. It also could coordinate rules in both countries on environmental protection, product standards and working conditions.

For a debate, free-lance journalist Sharon Bernstein interviewed Jeffrey Schott, a specialist on the issue with the Institute for International Economics in Washington, and Mark Anderson, international economist for the AFL-CIO. Both recently were key witnesses at Congressional hearings on the subject.

What impact would a free-trade agreement have on the U.S. economy?

Schott: It should bring significant benefits for the U.S. economy, though relatively far greater benefits for the Mexican economy. The strengthening of the Mexican economy will result in an expanded market in Mexico for U.S. goods and also an expanded market in Mexico for Mexican labor.

Anderson: It would encourage greater capital outflows from the United States to Mexico, bring about an increase of imports from Mexico to the United States and, as a consequence, further harm the industrial base in the United States and increase unemployment in this country.

On the Mexican economy?

Anderson: A free-trade agreement will serve to enrich the elites of both the U.S. and Mexico. Certainly the increase in commerce that could come about because of a free-trade agreement would tend to serve a narrow managerial or political elite in both countries, but would do little for workers in either country because Mexico needs to maintain a low-wage base to attract further U.S. investment. I certainly don’t think the mass of Mexican people are going to be advantaged by an increase of jobs that pay 75 cents an hour.

Schott: Mexico, like Canada beforehand, has a great deal to gain from a free-trade agreement with the United States and should see a very significant boost in income and employment. However, the adjustment that will be required in the Mexican economy will be more far-reaching than in the U.S. economy, where overall there should be very little dislocation caused by the agreement. In Mexico, there will be quite a bit of dislocation in the agricultural and industrial sectors.

On the Canadian economy?

Schott: The agreement is bound to accelerate movement toward closer economic integration throughout North America. So, in that sense, Canada has a very important stake in the negotiations between the United States and Mexico. For that reason, one sees a very strong interest in Canada to make sure that the benefits that Canada has gained in its own bilateral agreement with the United States are fully safeguarded.

Anderson: I think it will impact Canada only to the degree that they will get far more product from Mexico than they do now. They get very little product from Mexico now. A North American trade agreement would change that tremendously.

What are the political factors and considerations at play in a decision to open trade among the three countries? Who is in support of the idea and who is opposed?

Anderson: At least in so far as U.S. interests are concerned, really what this agreement is about is cheap labor. Wage rates in Mexico are less than a tenth of what they are in the United States.

Schott: Overall, there is a great deal of support across the board in the United States for freer trade with Mexico. Basically, a stronger Mexico is good for all countries in North America. The initial reaction from unions has been quite negative because of the potential impact on their membership from more open competition with Mexico.

Anderson: The decision on the part of the Bush Administration to initiate discussions with Salinas and the Mexican government is a political decision and not an economic decision. There has been tremendous change in Mexico over the last six to eight months in terms of how they structure their economy and social system, changes that the Bush Administration thinks are positive. The Bush Administration looks at free trade as a gift to him.

If there were to be a loosening of trade restrictions, what would be the best form for it to take?

Anderson: The governments would have to negotiate on other things besides trade. You would have to negotiate on setting up common standards on production between the two countries, on things like environmental standards, worker health and child labor.

Schott: Given the current political constraints, the best next step would be the negotiation of a free-trade agreement between Mexico and the United States as opposed to trying to negotiate a trilateral agreement between the U.S., Canada and Mexico. Some of the deals that led to the U.S.-Canada agreement would likely unravel faced with the need to accommodate concerns from Mexico. It would probably be easier as a first step to work out a bilateral free-trade agreement between Mexico and the United States, patterned after the U.S.-Canada agreement, and then try to smooth away the differences between the two agreements to establish a North American free-trade agreement in the medium term.

Would a free-trade agreement really affect immigration from Mexico?

Schott: In the short term, it should have some benefit because it sends a very positive signal, a signal of confidence in the future of the Mexican economy. The real impact, though, can only come after that signal of confidence is taken up and translated into new productive investments in Mexico that generate more jobs and greater opportunities for employment, greater opportunities for Mexican workers to work in Mexico.

Anderson: The argument is made that you either need to give us jobs or we’re going to send you people. And I think that’s true. The question is what kind of jobs. The free-trade agreement would be an extension of the maquiladora agreement that is already in effect, which encourages U.S. firms to establish plants in Mexico.

Most of the recruitment for those plants comes from the interior of Mexico. Workers come to these facilities because of the prospect of having jobs and providing for their families. When they get there and find that they can only get 75 cents an hour, that the living conditions are just as bad as they would have found in the South, they keep going another 100 yards across the Rio Grande. If you could look across the bridge and get illegal employment at $3 an hour, where would you go?

Given the political ramifications, how far is the Bush Administration really likely to go?

Anderson: The Bush Administration is committed to proceeding with this. I do not believe, however, that the country as a whole is committed to proceeding with this. The Bush Administration tends to look at it as an extension of the U.S.-Canada agreement. But at least Canada has living levels and a wage structure similar if not superior to ours. An agreement with Mexico, where wages and conditions are not comparable to our own, simply invites disaster for U.S. workers. People in Congress certainly are going to look upon it very differently than they looked upon the Canada agreement.

Schott: There are important political factors that argue for moving forward rather expeditiously with an agreement with Mexico. As far as the political constraints, I think those can be accommodated. The concerns of affected individuals and labor groups can be accommodated in the agreement.