LUIS SUAREZ-VILLA : A Land of Opportunity : U.S.-Mexico Trade Pact Would Be Boon for Southland

The grandparents of the people who now govern Mexico fought a revolution, in part, to free their country from the colonialism imposed by foreign investors. In October, in a dramatic move that could reverse the protectionism that has been the fashion in Mexico for 80 years, President Bush and Mexico’s President Carlos Salinas de Gortari agreed to negotiate a free-trade pact between their countries.

Canada said last week that it would join the discussions. The three countries together could form a North American common market that would be the world’s largest trade group, representing more than 360 million people.

This presents opportunities for Orange County businesses, says Luis Suarez-Villa, an associate professor of social ecology at UC Irvine who specializes in regional economic change.

He sees an acceleration of programs like the “maquiladora,” which allows U.S. companies to form joint ventures with Mexican counterparts to take advantage of unskilled and cheaper labor in Mexico. Some companies may also find Mexico more attractive because its pollution laws are not as strict as those in the United States.

The proposed agreement has met with some opposition. The AFL-CIO has made heading off a U.S.-Mexico pact its top legislative priority for 1991. Some textile, steel and farm groups also oppose a pact.

These groups are worried that an agreement will erode the U.S. industrial base and cost U.S jobs by siphoning off capital to Mexico and by increasing Mexican imports to the United States.

However, the California World Trade Commission recently endorsed the concept of a free-trade agreement, making California the first state to offer recommendations on the upcoming trade talks. In 1989, California sold $3.7 billion worth of products to Mexico, making it the state’s second-largest export market after Japan.

Suarez-Villa recently authored a book, “The Evolution of Regional Economies,” analyzing U.S. regional change in the 20th Century. He spoke with free-lance writer Anne Michaud about what he expects a free-trade agreement to mean for Southern California.

Q. From the U.S. perspective, what industries do you think would see the most change?

A. That will be the electronics industries, especially consumer electronics, and some aerospace lines that involve assembly of electronic components like wafers and microchips. Also, some of the assembly that’s done in aerospace could work in Mexico--some of the simpler parts like landing gears, wing components and engine components.

There are also tremendous possibilities for biotechnology operations, processed foods, the garment industry, auto manufacturing and auto parts.

In terms of high-tech industries, the ones that can benefit are the ones that emphasize production, not research and development. Mexico is not advantageous for R&D.; But in terms of production, if you can use a labor force that is less skilled and can take much lower wages than would be paid here for someone to work, you have tremendous potential. The advantage of Mexico is that its salaries are still about one-fourth or one-fifth those of the United States.

Q. What other advantages does Mexico have for U.S. business?

A. Mexico is very close to the major growing U.S. markets, which are in the Sun Belt, where you have the greatest concentrations of high-tech industries. That geographical proximity is very advantageous, naturally, in terms of access, transportation costs and communications in general.

Also, in terms of Southern California, the advantages are enormous because this urban corridor--Santa Barbara to Ensenada (in North Baja)--will very soon pass the Philadelphia-Boston urban corridor to become the largest in the country. The L.A. metro area will pass New York City as the largest metro area in the country by the middle or late ‘90s. It’s an area that has been growing; it’s been urbanizing rapidly. Look at Orange County, for example. The L.A. metro area has been the most dynamic area economically in the country. It concentrates the advanced industries that determine a lot of what happens in terms of U.S. trade.

Right now the advantages for U.S. trade are in the high-tech industries, and many of those high-tech industries were born here. So the connection there with Mexico can be potentially very advantageous. Also, in Mexico the environmental restrictions are lower. They have environmental laws but the constraints are much lower.

Q. What areas of Mexico would be most attractive to U.S. business?

A. The northern border region because the infrastructure is very well-connected with the United States. The major Mexican cities along the northern Mexican states are like an extension of the U.S. urban system. The telephone and electricity systems can also be connected in some cases. For example, in Baja, the government buys electric power from the U.S., so it’s relatively easy to connect, and the cost would not be all that great. As you move inland, it’s more costly. You have areas that are very arid, and the road system is not all that well-developed. You have railways, but they’re slow and the airports are not large.

Q. So the potential for U.S. investment is limited?

A. Yes. It’s limited beyond the Mexican border region. But if you have port sites for shipping with suitable airports, then the area is probably viable. There are a number of cities on the Pacific Coast that have potentially very good port access. But the areas of Mexico that will benefit most will be the border states.

Q. What can companies here do now to prepare to take advantage of a trade agreement?

A. It would be important to know how Mexico works politically and economically, and especially to learn the language. English is not widely spoken in Mexico.

Q. How can business people learn about Mexico?

A. If you’re a business person, there’s a U.S.-Mexico Chamber of Commerce in Mexico City and cities here have them as well. There are specialized newsletters that tell you pretty much everything that’s happening in Mexican business.

Educationally, there are places that teach courses on aspects of Mexican society, history and culture. At UCI we have an interdisciplinary program on Mexico. The Center for U.S.-Mexican Studies at UC San Diego is very good, and they have a large visiting fellows program. They bring in former cabinet ministers and politicians, and they put on several conferences a year in Mexico.

At UCLA, there’s the Latin American Center, and San Diego State has the Institute for Regional Study of the Californias. If you can go outside this area, the University of Texas at Austin has probably the largest center for Mexican studies.

Also, business groups like the Lions Club or the Rotary, where people have connections across the border, are very good places for making contacts.

Q. How do you view the trade discussions historically?

A. Initially, when the idea of a North American common market came up, Mexico was not interested at all. It was only the U.S. and Canada. But there was a 180-degree turn in terms of Mexico’s interest. To a great extent it was because of the economic situation there. And I think one has to look at the political situation in Mexico to understand the sudden shift there, which amazed a lot of people.

Q. And how do you read the political situation?

A. Coming into the late ‘80s, Mexico’s economic crisis was creating a lot of tensions within the government. It was becoming very hard for the government to keep the allegiance of the left side of the party and much of the public. After the election, (President) Carlos Salinas had enormous pressure to find a way out of the economic crisis. If the economy doesn’t move ahead soon, the PRI (the ruling Institutional Revolutionary Party) would have a very hard time getting itself elected the next time around.

So they did something that was very unusual for Mexico--they stimulated foreign investment. Mexico was very nationalistic about its economy, and they did a total reversal of a policy that they had had for 50 years. The trade agreement in the North American common market is seen as a solution that would stimulate exports, create jobs, ease the foreign debt and provide the capital that Mexico needs to grow. The shift towards a strategy of export promotion is in some ways like the models of South Korea and Taiwan.

Q. What else is Mexico hoping to get out of an agreement?

A. They are hoping it might possibly also lead to some immigration agreement with the United States, although that seems rather doubtful. But, perhaps in terms of a guest worker program like some countries in Europe have, it might take the pressure off. It might create jobs for Mexicans, and it might solve what Mexico sees as the injustices of the U.S. immigration system.

Q. What can U.S. business expect in terms of political shifts in Mexico?

A. For U.S. business, the PRI looks pretty good. All the policies they’re following and their interest in joining the North American common market will mean that they will stimulate foreign investment a lot.

The main fear right now is the left opposition that Cuauhtemoc Cardenas (who ran against Salinas in the 1988 presidential election) is managing, because they are rather large and they have a lot of sympathy among workers and in some rural areas.

Q. And what is the left’s position on a free-trade agreement?

A. They’re generally against it. Their economic philosophy seems to be more of the old traditional import-substitution and economic nationalism perspective, plus a strong emphasis on income distribution toward the poor. In many ways, they have a socialist democratic perspective.

Q. Then, will a free-trade agreement strengthen the PRI?

A. Yes. They hope that a combination of foreign investment and out-migration will help.

Q. Are there many similarities between a North American free-trade agreement, or a North American common market, as some people call it, and the European Common Market?

A. Yes, there are many, although the Europeans are moving toward greater integration. But there are many similarities in terms of trade linkages, migratory flows and potential industrial movements from one country to another. Part of the reason the North American common market was developed was to be able to compete with a European trading block.

It looks like we’re going toward a world that will have three major trading blocks. One of them will be Europe, and another North America. The Japanese are sort of off on their own, but it’s possible they may work out some arrangements there within their area, with China, Korea, the Philippines, Singapore, Taiwan. They may be limited, though, because the main markets for those countries have been primarily North America and Europe.

Q. You have pointed out that the border between California and Mexico offers the most vivid contrast of any border in the world in terms of wealth. Will the contrasts diminish with a trade agreement?

A. It will tend to diminish, I imagine, because there’s a very strong push from the U.S. side. It’s a one-way push. The return way is for migration here.

Q. There is a huge underground Mexican labor force in the United States, people who are here because they cannot find work at home. Do you foresee the Mexican economy eventually providing jobs for its own laborers?

A. Possibly, depending on whether it allows foreigners to own property there. In terms of manufacturing, that would make it easier to invest there. Mexico has had a lot of restrictions on real estate ownership. If you are within 50 or 60 kilometers of a border area or a coastal area you cannot own property. What Americans do now is they find a bank or a Mexican representative who will hold the title for them, a lawyer or a friend. That may change; it just depends on how far Mexico is willing to go to become more integrated with the U.S. economy.

Q. U.S. workers are worried about losing jobs to Mexico. Do you expect a backlash when that starts to happen with more frequency?

A. Yes, I would. That’s a real possibility because there are so many industries here that could use lower-cost labor. I would imagine that will very likely happen, and the main opposition will come from U.S. labor unions. What has happened, however, is that labor unions have become weaker in U.S. society, so I’m not sure how much they can do to keep that from happening, especially if it makes U.S. companies stronger. And especially in the face of Japanese competition and European competition, which is probably going to improve.

In terms of labor unions, it’s absolutely negative, and it will increase the pressure on them. It will reduce their bargaining power for sure.

Q. From your study of other cases like this, can you make any predictions about what displaced workers here would do?

A. What you’re going to find is pressure being applied in Congress by the labor unions, through the Democratic Party. Possibly you’re going to have a need for retraining. Whether it’s going to happen, I don’t know. Because of the budget deficit, cuts need to be made.

More manufacturing jobs may be lost to the service sector. This is one of the issues also happening in Canada. Canada is worried that some of its industries, which have been relatively protected, will go to the United States. But the main impact would be here, because there are a lot of jobs less-skilled labor can do.

Q. Is there any cultural clash or common misunderstanding when Mexicans work for U.S. employers or vice versa?

A. My impression is it’s much less now that it was 10 or 20 years ago, for several reasons. American companies are the owners of most Mexican export plants. And many of them have learned how to deal with the labor force. Second, many of those operations are now subcontracted to Mexican entrepreneurs.

In any case, the American companies, when they have a direct operation there of their own, usually have Mexican managers. The capital comes from the U.S., but the management there is Mexican, or Mexican-Americans who speak Spanish.

Q. So the two cultures understand each other better now?

A. American culture has penetrated in Mexico enormously. Mexican schoolbooks are still very anti-U.S., but individually, Mexicans are very attracted by U.S. customs.

It’s very funny. In the universities in Mexico, they’re usually very anti-U.S.--radically anti-U.S. But individually, it’s totally different because many Mexicans would like to come to the U.S., or they imitate many things that Americans do.

Q. Could you give some examples?

A. The cultural role models and symbols, progress, wealth, knowledge, all that. For someone who lives in a Third World country, the U.S. is very attractive. It creates a lot of dreams, sometimes unreal, but it creates a lot of dreams about how they might achieve better things for themselves--especially for young people, and the Mexican population is very young.