Freeing Mexican Trade : Commerce: Encouraged by government action and expecting a free trade agreement, American business turns increasingly south.

The Sheraton Hotel next to the U.S. embassy is full of English-speaking guests in business suits--trade missions from Denver, emissaries from the environmental industry, companies looking for distributors.

After eight years in which foreign debt, double- and triple-digit inflation, shrinking consumer buying power and a stagnating economy made American businessmen and bankers leery of Mexico, U.S. business is back.

Hardly a day passes without news of Mexican Commerce Secretary Jaime Serra Puche meeting with some U.S. or other foreign business delegation. What they all want to talk about--what has made the difference in the way they look at Mexico--are the prospects for a free trade agreement between the United States and its No. 3 trading partner.

Since the two nations announced their decision this spring to talk about opening their 2,000-mile border to free trade, talk has turned to the notion of a North American trading bloc created by adding Mexico to the free-trade zone established by the recent U.S.-Canada trade pact.

Mexico also could be the linchpin in President Bush’s “Enterprise of the Americas” initiative, a vision of an economic future that would eliminate trade and investment barriers from Alaska to Tierra del Fuego.

For Mexico, the agreement could provide assured access to the U.S. market, which buys nearly three-fourths of the country’s exports.

An agreement also could provide U.S. investors with assurances that President Carlos Salinas de Gortari’s economic liberalization--which has eased restrictions on foreign investments in Mexico--will continue after he leaves office in 1994.

For political reasons, Salinas has made most of the changes by modifying regulations, not laws, leaving potential investors worried that his successor might reverse them. But any provisions in a bilateral free-trade agreement would not be easily revised.

Along with those optimistic predictions, however, come doubts on both sides of the border.

There are concerns about what a free trade agreement will mean for businesses, such as agriculture, that already feel vulnerable to foreign competition.

Then there’s the question of what an agreement would include. The United States, for instance, is interested in opening trade in Mexican oil, but Mexicans don’t want petroleum products included in any pact.

And no one knows how far the Mexicans will be willing to open their highly protected financial services industries, particularly banking.

Finally, there is uncertainty about the social impact of an agreement. What will it mean for U.S. workers? Or for immigration from Mexico to the United States?

These issues are of particular importance for California because of the state’s growing dependence on immigrant labor and its booming trade with Mexico--$8 billion last year, $1 billion more than in 1988.

Eager to remove any stumbling blocks to an agreement the U.S. and Mexican administrations consider essential, U.S. Commerce Secretary Robert A. Mosbacher and his Mexican counterpart, Serra Puche, on Monday will jointly launch an unprecedented tour of four U.S. cities to promote the concept of an agreement.

Their first stop is Houston. Then they will go to New York and Chicago, finishing Friday in Los Angeles. The trip will be Mosbacher’s first chance to discuss the proposed free trade agreement with business people.

“With negotiations starting in late spring or early summer, we need to get a clear understanding of what the private sector wants from a free trade agreement,” said Roger Wallace, U.S. deputy undersecretary of commerce for international trade, in an interview here.

Herminio Blanco, chief negotiator for the Mexican team in the free trade talks, said that the trip will give the commerce secretaries the opportunity “to talk about the great benefits that a free trade relationship will have for both countries.”

In addition, presentations will focus on Mexico’s economic opening--the lowering of import tariffs and an about-face from its historic posture of restricting foreign investment.

The secretaries’ retinue includes top Mexican businessmen with U.S. ties, such as Claudio X. Gonzalez, president of the Mexican subsidiary of Kimberly Clark, the big paper-goods company. In each host city, they will add local businessmen who endorse the idea of free trade.

One of them is Safi Qureshey, president of AST Research Inc., an Irvine computer maker that entered the Mexican market this year. AST signed a distribution agreement with Mexico City-based SIGA Corp. in April, two weeks after Mexico stopped requiring permits for computer imports.

“There are still trade barriers, tariffs of 10, 15 or 20%, although this is a giant step forward from where Mexico was,” said Qureshey. By letting him cut prices, he noted, a free trade agreement would make AST more competitive in the Mexican market.

American banks, too, will benefit, even if the agreement does not overhaul Mexico’s protectionist policies in financial services, predicted Jorge Garza, vice president in Los Angeles-based First Interstate Bank’s Mexico City representative office.

Since eliminating Mexican loans from its portfolio over a year ago, First Interstate has concentrated on trade finance here. For a fee, bank representatives have helped Mexican companies get U.S. Export-Import Bank guarantees and capital market financing to pay for purchases of machines made in the United States, with virtually no risk to First Interstate.

That business did not exist a year ago. Since then, international confidence in Salinas’ policies has taken hold, with the renegotiation of Mexico’s foreign debt and the prospect of the free trade agreement. Those changes have allowed First Interstate to build a market in Mexican debt instruments--one that would only grow if a trade pact is concluded, Garza predicted.

“Manufacturers, businessmen and traders will have more opportunities in both countries,” said Carlos Valderrama, director of the California Trade and Investment Office in Mexico City.

California is expected to support the free trade agreement. Mexico is the state’s second-biggest trading partner, after Japan. One indicator, perhaps, of the sentiments of California’s congressional delegation is that 42 of the 47 members voted for the free trade agreement with Canada.

Support also is more likely because California businesses are taking an active role in shaping the discussion. The California State World Trade Commission is currently preparing a report on which specific issues the state’s businesses would like to see addressed in a free trade agreement.

“It is is clearly in our interest to see how we can benefit,” said Janice McEntee, the commission’s manager of trade policy for manufacturing and services.

Still, the prospect of a U.S.-Mexico free trade agreement worries Bill Ramsey. Over the past decade, the head of Mann Packing Co. in the Salinas Valley has watched Mexico’s broccoli acreage grow as California’s has shrunk. Like many growers, Ramsey worries that free trade will mean giving up even more of his market to Mexican competitors.

The U.S. Commerce Department’s Wallace said any agreement would include phase-in periods, like those in the Canadian agreement, to provide sensitive industries on both sides of the border time to adjust.

Phase-ins would seem to be the biggest concession opponents can expect. Both U.S. and Mexican officials talk about the potential agreement as if it were inevitable.

From the U.S. perspective, Wallace said, “This is an emerging market on our border where we’ve had a tremendous historical marketing advantage.” A free trade agreement would increase U.S. access to the Mexican market, crucial at a time when 70% of U.S. economic growth is export-related.

“The world is not static,” said Wallace. “The European Community can now tap into the Eastern Europe labor force and Japan is going offshore into other parts of Asia.”

Said Blanco: “The competitiveness of our region ranks with any other--no, it’s the best. Together we can be globally competitive . . . “There is a great complementarity between our countries,” he continued, his comments indicative of the 180-degree swing in official Mexican attitudes toward the United States. “The United States is a country with capital and technology. Mexico also has capital and technology, although of a different type. We also have skilled labor and natural resources. Even our (agricultural growing) seasons are different, complementary.”

The youthful, growing Mexican labor force also is seen as providing an advantage to U.S. industry, because of its willingness to work in Mexico for less than workers would have to be paid in the United States.

Mexican officials have said bluntly that the only way to slow Mexican immigration to the United States is for corporations to build factories in Mexico to provide jobs and goods for the U.S. market.

That is little consolation to U.S. auto workers, for instance, who fear losing their jobs as their employers build ever-larger plants in Mexico.

Even without a free trade agreement, Ford makes engines and automobiles in northern Mexico for sale in the United States. General Motors is the largest employer among maquiladoras , mostly U.S.-owned factories in Mexico that assemble imported components into goods for the U.S. market.

Mexico’s decision, as part of its economic opening, to allow automobile imports for the first time in 30 years, will barely provide a trickle against the northward flow of autos and auto parts that accounts for nearly one-fourth of Mexico’s manufacturing exports.

On the other hand, Blanco noted that maquiladora workers cross the border to shop, spending most of their wages in the United States. That is just one example of how growth in jobs in Mexico--which buys over two-thirds of its imports from the United States--increases demand there for U.S. products, he said.

Rather than lament the increasing integration of the two economies, California’s Valderrama advises businesses and individuals to find ways to utilize it.

Under his chairmanship, that has become the thrust of the American Chamber of Commerce of Mexico’s import/export committee.

“You will not automatically sell more just because the duty rates are lower,” he said. Businesses in each country, he said, need to learn about safety standards and environmental considerations in the other, for example.

That could just be the beginning of the learning process. A free trade agreement with Mexico, particularly if it becomes a model for similar agreements with other Latin American countries, could force U.S. business to take a more global--or at least more hemispheric--view.

Said Wallace: “We hope Mexico will be (only) the first Latin American country with which we create a free trade agreement.”

10 BEST U.S. EXPORT PROSPECTS Products produced in the United States that are in demand in Mexico.

Oil and gas field machinery and equipment

Electric power production and distribution equipment

Computer systems and peripherals

Computer software and services

Agricultural equipment

Ceramics and glass equipment

Telecommunications equipment

Pollution control equipment

Hotel and restaurant equipment

Medical instruments, equipment and supplies Source: U.S. Embassy, Mexico City

WHAT THE U.S. BUYS FROM MEXICO Top 10 imported items (1989)

Value Import (in millions) 1. Crude oil $4,014 2. Insulated wiring sets for vehicles, ships, aircraft 1,148 3. Motor vehicle parts and accessories 1,059 4. Color television receivers 853 5. Internal combustion piston engines and parts 650 6. Parts for radar, radios, televisions, etc. 650 7. Radio broadcast receivers 531 8. Coffee 434 9. Seat belts 364 10. Silver 318

Source: U.S. Bureau of the Census

WHAT THE U.S. SELLS TO MEXICO Top 10 exported items (1989)

Value Export (in millions) 1. Motor vehicle parts and accessories $939 2. Parts for radar, radios, televisions,etc. 567 3. Insulated wiring sets for vehicles,ships, aircraft 490 4. Motor vehicle body parts and accessories 474 5. Oil (non-crude) 440 6. Corn (maize), other than seed corn 437 7. Data processing parts and accessories 391 8. Components for electronic circuits 354 9. Grain sorghum 320 10. Soybeans 309

Source: U.S. Bureau of the Census