Extraordinary Opportunity to Make a Deal With Mexico : President Bush needs to be as aggressive as visionary President Salinas

President Bush and Mexican President Carlos Salinas de Gortari will hold their sixth summit meeting this week in the northern Mexican city of Monterrey. That’s more than a little symbolic. While Mexico City is far bigger, most Mexicans regard Monterrey as their nation’s business capital. And the business of business has come to dominate the Bush-Salinas agenda.

The two presidents are expected to move closer to launching negotiations on a free-trade agreement between the United States and Mexico similar to the trade pact this country signed with Canada in 1988. Formal talks may begin next spring--a lot sooner than many observers had expected, but nowhere near soon enough.

The world is moving into an era in which economic clout is every bit as important as military might, and superpower status belongs not just to underdeveloped giants like the Soviet Union and China, but to financially strong nations like Japan and economic blocs like the European Community. Most economists agree that if the United States is to remain a world leader in this new economic order, it will do so only if it remains a major trading nation that exports as much as it imports. And when it comes to U.S. trade, and the economic growth that comes with it, there is literally no country more important to us than Mexico. It’s our third-largest trading partner, behind only Japan and Canada. But those two countries don’t send us millions of unemployed workers as migrants. And the United States is just as important to Mexico, buying 69% of its exports in 1989.

The remarkable thing about these little-known statistics is that such a significant level of economic interdependence has come about despite formidable obstacles. We have been futilely trying to expel illegal migrants from Mexico for generations. And until recently, Mexico was one of the world’s most closed economies, with most key industries controlled by the state and those in private hands protected from outside competition. If so much was achieved with little encouragement from Washington or Mexico City, imagine the economic potential if both governments started knocking down trade barriers rather than erecting them. For years, farsighted Mexican and U.S. political leaders could only dream because the concept was not politically feasible. All of that has changed under Salinas, who is making over his country almost as radically as Mikhail Gorbachev is altering the Soviet Union.

THE ECONOMIC INSTINCT:

Salinas did not come into office two years ago intending to launch a second Mexican revolution. After taking over from Miguel de la Madrid, Salinas’ main problem was trying to resuscitate a Mexican economy that was stagnant after almost seven years of recession. A trained economist (who studied at Harvard, among other places), Salinas knew the only way to get Mexico back to financial health was to repay the country’s massive debt and stimulate new investment by foreigners and the many Mexicans who hid their money abroad when the economy took a nose dive.

Initially, Salinas focused on traditional economic remedies for Mexico’s troubles--he cut government spending, curbed inflation and sold off state-owned companies. It was a painful austerity program but it did reverse the downward trends of Mexico’s economic indicators. It also helped Salinas renegotiate Mexico’s foreign debt and get more favorable terms from its creditors. That boosted business confidence in Mexico somewhat, but not enough to bring in all the new investment Salinas wanted.

During a trip Salinas took earlier this year to generate more European investment in Mexico, he was jarred to learn that the newly freed nations in Eastern Europe were drawing investment dollars away from his country. He realized Mexico would have to find economic help closer to home.

THE WORTHY RISK:

When he campaigned for Mexico’s presidency, Salinas shared the view most other Mexican political leaders still hold--that the disparity between the two economies is so great that Mexico would inevitably get the short end of any free trade agreement with the United States. He now is convinced this is a risk worth taking in exchange for all the benefits a free trading system will produce in North America. Still, when Salinas sent representatives to Washington to broach the idea of a free trade pact earlier this year, it was an act of genuine political courage.

That’s why it was not just surprising, but disappointing, that his pitch got such a cool reception from the Bush Administration. U.S. trade officials said publicly that the process of getting a signed free trade pact with Mexico could take much longer than the four years of negotiations it took with wealthier Canada. They reminded the Mexicans about the many economic U.S. interest groups that would likely raise objections to it, among them industries that compete with Mexican imports, like steel and textiles, farmers who compete with Mexican winter crops and labor unions that worry about manufacturing jobs moving south of the border.

There was irony in a Republican Administration sympathetic to business--and dominated by Texans--suddenly being reluctant to press forward with a free trade proposal made by Mexico. But as time has passed, it is becoming clear that unless the opportunity to draw up such an agreement is seized now, the dream of free trade across the borders of North America could be stillborn.

THE POLITICAL STORM:

Already the free trade proposal is an issue for Salinas’ political opponents in Mexico, who are hoping to weaken his hold on the federal government in congressional elections next year. And the longer the idea of a free trade pact is debated in this country, the easier it will be for interest groups to nit-pick it to death. This is not to say that none of the objections to the free trade pact have merit--only that the potential long-term benefits of free trade far outweigh the problems.

So, despite the political and diplomatic complications involved, it is possible to get the trade pact talks moving quickly, and that’s where Bush and Salinas should focus their efforts. To begin with, they should agree to put off the most sensitive issues--oil and migration--for later. Oil is symbolically important to Mexicans, representing what they consider their national patrimony. And the idea of a free flow of Mexican workers into this country drives labor unions crazy. Both are non-starters. And to meet the objections that the two economies are so different, negotiators should agree to phase in reduced trade barriers faster in the United States than in Mexico. Even in its present uneasy condition, the U.S. economy is larger and stronger than Mexico’s and more capable of flexibility on such issues.

As always happens in U.S.-Mexican relations, extraneous issues will manage to get in the way of trade negotiations--from drug trafficking to border incidents to controversies over water rights. People with reasons to scuttle the trade talks will have lots of opportunities. So it will be up to Bush and Salinas to stay above the petty frays and remind people on both sides of the border of the long-term potential of a free trade pact, and why it’s so important. The Canadians certainly share this vision. They have been so pleased with the free trade pact they signed with the United States that they are talking about a three-way pact to cover all of North America.

The Canadian proposal raises one troubling philosophical question for those who believe in free trade. What is to keep a U.S.-Mexico-Canada trade pact from becoming an economic bloc? Sort of a Fortress America to compete against rival blocs in Europe and East Asia, undermining all the work that is being done to broaden the General Agreement on Tariffs and Trade. That is a danger. But we are among those, like former U.S.Trade Representative William Brock, who believe a U.S.-Mexico-Canada trade agreement would enhance GATT. It would serve as a model to the entire world of how well different nations cooperate when trade barriers fall.

That’s why the time for Bush to go along with Salinas’ initiative is now, while the Mexican president still has time to get it through his increasingly contentious political system. If not, it may be another generation before a Mexican political leader shows the vision and courage Salinas has.

MEXICO’S ECONOMIC PARTNERS

President Bush and Mexican President Carlos Salinas de Gortari will meet this week to discuss negotiations toward an eventual free-trade agreement. The U.S. is Mexico’s largest trading partner:

Foreign Investment in Mexico - 1989 United States: 63.1% United Kingdom: 7.3% W. Germany: 6.6% Japan: 5.1% Switzerland: 4% Others: 13.9% Total accumulated investment* : U.S. $25.7 Billion (*1982-1989) Mexican Foreign Trade - 1989 United States: 69% Japan: 5.9% Spain: 4.8% France: 2.5% Others: 17.8% Exports Total: U.S. $22.7 Billion Mexican Foreign Trade - 1989 United States: 64.4% Germany 5.4% Spain: 4.6% France: 2.3% Others: 23.3% Imports Total: U.S. $23.4 Billion