Panel Backs U.S.-Mexico Trade Pact, Urges Disputes Be Tackled

The California World Trade Commission on Thursday endorsed the concept of a free-trade agreement between the United States and Mexico and recommended that the upcoming negotiations tackle issues that recently derailed four years of international trade talks.

Agriculture subsidies, patent and trademark protection, and transportation and financial services all should be addressed when negotiators from the two countries try to work out a plan to eliminate trade barriers, according to the commission report on California’s stake in the U.S.-Mexico trade negotiations.

Those issues created an impasse that prevented the conclusion in December of the Uruguay Round of trade talks in the General Agreement on Trade and Tariffs, an international free-trade organization. Agricultural subsidies also were sidestepped in the U.S.-Canada free-trade agreement two years ago.

The 14-page report, based on interviews with about 100 companies and trade groups, makes California the first state to offer recommendations on the upcoming trade talks.

A five-page memorandum accompanying the report emphasizes the importance of the upcoming negotiations for California, which sold $3.7 billion in products to Mexico in 1989, making the country the state’s second-largest export market, after Japan.

“The commission believes that a comprehensive trade agreement with Mexico (and possibly Canada) would be generally positive for the state, although individual sectors may face increased competition,” the memorandum stated.

The commission was careful not to offend Mexican sensibilities in an area of major importance for both countries: Oil.

“The United States should urge Mexico to find a workable formula which encourages much-needed foreign investment in the energy sector without violating national ownership of the natural resource,” the report stated.

The report is the first step in the commission’s commitment to take an active role in the negotiations, according to the memorandum.

Recommendations include a call for far-reaching coordination--approaching uniform standards--on environmental, health and worker safety issues, which are not included in the two existing U.S. free-trade agreements with Canada and Israel.

Observers who have followed events leading up to the negotiations were skeptical that such provisions would be included in the finished agreement, which U.S. officials have said they hope to complete this year.

Negotiators will have to “keep certain issues out,” said Leslie Brown Cazas, president-elect of the Pacific Chapter of the U.S.-Mexico Chamber of Commerce. “Otherwise, it is not a trade agreement, it is an omnibus agreement.”

Ann Hughes, U.S. Commerce deputy assistant secretary for the Western Hemisphere, said in an interview in Mexico City that while social and environmental issues concern both countries, they probably would not be included in a trade agreement.

While negotiators are not likely to make worker safety, pesticide use and hazardous waste issues in the talks, Linda Newman, an international investment attorney based in the Los Angeles, said not to expect any easing of U.S. health and safety standards for Mexican products.

Agricultural products could be particularly affected.

“Mexican agricultural exports have increased dramatically,” she said, “but they have other outlets” for farm products, particularly in the Far East. Newman said there is a good chance that Mexico will choose to develop those markets rather than press for changes in U.S. health and safety standards.

Agriculture is expected to be among the most sensitive issues negotiated, especially for California interests, with Mexicans seeking more access to the U.S. market.

California fruit and vegetable growers want any tariff reductions to be phased in slowly and to include provisions for returning to high tariffs if domestic prices drop too low. Such provisions already are included in the U.S.-Canadian agreement.

The commission noted that Mexico has legislation pending on patent and trademark protection and that financial services are being opened to limited foreign investment as part of the government’s sale of 18 commercial banks.

Other commission recommendations are likely to be included in the negotiations, such as calls for dispute resolution mechanisms and phase-in periods for tariff reductions, observers said.

Mexican business people and trade officials have said they consider the dispute resolution mechanism one of the strengths of the U.S.-Canada agreement. They also plan to press for inclusion of such a mechanism in the U.S.-Mexico agreement.

“The Canadian dispute resolution mechanism is considered very good and can probably be adapted,” Cazas said.

However, other aspects of the U.S.-Canada agreement will not be as easily adapted to an agreement with Mexico, Newman said. This would include procedures used to enforce rules determining the origin of a product.

CALIFORNIA/MEXICO TRADE Mexico purchased $3.7 billion worth of California goods in 1989, comprising 8% of the state’s total exports.

Dollar value Top exports (thousands) 1. Electric and electronic equipment $683,247 2. Machinery (execept electrical) $463,634 3.Transportation equipment $353,908 4. Petroleum and coal products $308,040 5. Fabricated metal products $204,555

Source: California World Trade Commission