Big Gains for State Seen in Trade Pact

If a free-trade agreement between the United States and Mexico is ratified, it will bring a wealth of economic benefits to California and Mexico, including a tripling of trade between the two in the 1990s, according to a study released Monday by Bank of America.

California will “gain considerably” from such an agreement primarily because Mexico will become more prosperous, the study predicted.

“We are quite optimistic about the effects of a free-trade agreement,” said Frederick L. Cannon, vice president and senior economist at Bank of America. “Our optimism is based more on what’s already happening than on guesses about the free-trade agreement.”

The proposed North American Free Trade Agreement would phase out tariffs and restrictions on most goods and services traded between the United States, Mexico and Canada during a period of at least 10 years. Any agreement must be approved by all three countries before enactment, an event not expected until 1992 at the earliest.

Trade between California and Mexico is growing at a rapid clip already, jumping to $9 billion in 1990 from $7.4 billion the year before, the study noted. But with a free-trade agreement, the study found, California’s exporters would see increased growth south of the border as they gain access to Mexican markets and to the improving spending power of Mexico’s citizens, the study found.

As an illustration of what a free-trade agreement might bring, the study points to the fast-growing maquiladora program, under which components are shipped duty-free to Mexico for assembly and then are exported back to the United States with a minimal tariff. Maquiladoras employed 98,325 people at 860 plants in 1990, up from 37,600 people at 319 plants in 1985. The maquiladora industry has become Mexico’s second-largest source of foreign currency, after oil.

Unions have opposed the agreement out of fear that U.S. jobs would be lost as corporations head for Mexico because of lower wages paid there. Environmentalists worry that U.S. companies would head south to avoid U.S. pollution restrictions. And agricultural interests say they would be hurt by competition from lower-cost Mexican growers.

“Certainly there are very legitimate concerns by employees and companies who think the current environment gives them an edge,” Cannon said. But even without a free-trade agreement, companies constantly are announcing relocations to lower-cost areas, he said.

Protecting the environment “is dependent on economic progress, and this is promoting economic progress,” he said.

A Harbinger of Free Trade? The rapid growth in maquiladoras since 1985 illustrates what might happen under a broad U.S.- Mexico free-trade agreement, according to a study by Bank of America. Under the maquiladora program, components are shipped duty-free to Mexico for assembly and the finished products are returned to the United States with only a minimal tariff. Source: Commerce Department