Report Sees U.S. Trade Pact as Mexico Pollution Threat : Environment: Experts warn nation that domestic businesses are likely to take shortcuts to compete.

In the Mexican government’s first admission that a free-trade agreement with the United States and Canada could worsen industrial pollution here, a new report warns that domestic businesses are likely to take environmental shortcuts to compete with foreign rivals if the agreement goes into effect.

The confidential report, prepared by foreign experts commissioned by a high-level governmental agency, is highly critical of Mexican environmental policies and is expected to add fuel to the already heated debate here over whether a free-trade agreement would have dire effects on Mexico’s environment.

Much of the free-trade debate thus far has focused on the impact on the environment should U.S. firms relocate just south of the border to escape stringent environmental regulations. But the report raises questions about how Mexican firms, under pressure to compete under free trade, would affect the environment throughout Mexico.

The report provides ammunition for those who have raised questions about free trade and insist that environmental safeguards be part of current free-trade negotiations. It also defines specific problems that must be addressed by those Mexican environmental regulators who want to see structural changes in how the nation goes about pollution control.

The report was made available to The Times on the condition that the source remain anonymous.

The free-trade agreement is being negotiated by U.S., Canadian and Mexican officials. Environmental and labor officials in the United States have raised questions about the agreement on the basis that it could worsen environmental conditions on both sides of the border.

The report contends that Mexican industry will comply with environmental standards only if the government rigorously enforces them. But to date, Mexico’s enforcement record has been spotty, the report acknowledges.

Competitive pressures are expected to force Mexican businesses to ignore environmental concerns, the report said.

“Competition in the proposed free-trade alliance with the United States and Canada will be strong, and the cost efficiency of Mexican industry must improve if it is to increase or even maintain current market share,” according to the document. “If it is possible to save money by improperly disposing of dangerous wastes, industry probably will do it.”

The report indicates that government officials privately share many of the worries about free trade expressed by ecologists throughout North America despite the government’s insistence that free trade will provide money for environmental improvement.

“Although industry generally is doing well, industrialists are reluctant to spend their money in proper waste management,” the report states. “The reason could partly be ignorance, but the main motive is probably economic.”

One of the major areas of concern for environmentalists is disposal of dangerous industrial wastes, which are rigorously controlled in the United States and Canada. Mexico has only a handful of authorized disposal sites for dangerous wastes.

The report recommends revising waste disposal policies, with the government stepping up enforcement at the same time it assures that the infrastructure is in place to allow companies to comply. The current policy requires that polluting industries both devise and pay for a cleanup system.

“The strategy and philosophy proposed by the (Environmental Protection Ministry) are beyond a doubt reasonable: Whoever pollutes should pay for treatment of dangerous wastes,” the report states. “However, there are good reasons to wonder whether this strategy is achieving the desired results.”

The report does not address concerns that U.S. and Canadian industry will move to Mexico in search of more lenient environmental regulations. Instead, it focuses on ways to make existing Mexican industry comply with safe disposal practices at a time of intense economic competition.

Overall enforcement of environmental regulations in Mexico is under control of the Environmental Protection Ministry, but Mexico City has its own inspectors and enforcement offices. The report focuses on the capital because it is the nation’s most populous city and the site of some of the most egregious environmental problems.

For example, the report found that less than one-third of the dangerous liquid wastes that Mexico City factories produce are disposed of properly. The rest are unaccounted for, probably dropped into the sewer system.

The city also lacks standards for incinerators, so that incinerators burning dangerous wastes operate in the same way as those disposing of nontoxic wastes.

In addition, red plastic bags used to designate dangerous wastes have been found at regular city dumps, the report stated.

The report was highly critical of waste disposal procedures in Mexico City’s 506 hospitals, which generate 133 tons of waste per day--10% of it classified as dangerous.

Only one city dump is authorized to receive even non-dangerous hospital waste, and operators at that dump are receiving 46 tons of waste a day--about a third of what the hospitals produce.

“That means the rest of it is going out to other dumps, where scavengers are picking through contaminated needles and who knows what else,” said a waste disposal expert, who spoke on condition that he not be identified.