PERSPECTIVE ON FREE TRADE : The Scare Stories Don’t Wash : Masses of Mexicans will be displaced in their economy’s overhaul, but most will be relocated in that economy, not ours.

Opponents of a North American free-trade agreement have seized upon the possibility that such a pact will intensify rather than reduce illegal migration by Mexicans to the United States. They cite estimates generated by computerized models suggesting that a flood of cheap U.S. imports would deprive hundreds of thousands of Mexicans of work and compel them to emigrate during the agreement’s first decade.

A careful review of the empirical evidence and the assumptions underlying these models reveals that the potential worker-displacement effects within Mexico are being greatly exaggerated by the opponents of free-trade. The most dire scenarios assume:

--that vulnerable sectors of the Mexican economy, like small-scale corn producers, would have little or no protection from U.S. imports;

--that relatively few displaced workers would be absorbed into other sectors of the Mexican economy that would be stimulated by free trade;

--that large numbers of would-be Mexican emigrants are now restrained only by existing trade barriers.

All three of these worst-case assumptions are highly questionable.

First, it is totally implausible that Mexico would accept an agreement that includes a complete and sudden liberalization of agricultural trade and the accompanying removal of all government subsidies to Mexican agriculture. Mexican negotiators have consistently insisted that some level of protection must be preserved for small-scale corn agriculture, which employs about 3 million small farmers and an equal number of landless workers.

The Mexican government has signaled that it will phase out price supports for corn--now about double the world price--but only gradually. The most likely outcome is an agreement with a long adjustment period for agriculture, permitting Mexico to retain the social safety net of price supports for staple crops.

The specific terms of the agreement will make an enormous difference. According to models developed by economists at UC Berkeley and UCLA, removing agricultural tariffs all at once would displace 839,000 workers in Mexican agriculture (they would be expected to go to the cities or to the United States to seek their livelihood); but reducing tariffs by one-half, for now, would cause only 44,000 to leave agriculture.

It is equally implausible that the Mexican government would stand by and do nothing to accelerate the re-incorporation of displaced rural workers into other sectors of the economy. Ambitious plans, backed by hefty new government investments, have already been announced to promote diversification of the agricultural sector and to put more resources into the hands of small-scale producers.

Special emphasis is being given to promoting fruit and vegetable exports and related food-processing industries. Fruit and vegetable crops are much more labor-intensive than corn and other staples. Free trade combined with expanded markets in Mexico would give a major boost to this sector of Mexican agriculture.

Moreover, the fruit-and-vegetable sector is expected to attract most of the new foreign agribusiness investment in Mexico. Recently enacted legislation encourages joint ventures between ejidos (agrarian reform communities) and private firms, both foreign and domestic. This change is aimed primarily at improving the competitiveness of this sector to prepare it for free trade.

The shift of agricultural labor from corn production to export crops will not occur overnight. Some experts believe that it will take at least five years to make the necessary improvements in irrigation, processing facilities, transportation and other infrastructure. This underscores the need for careful timing of policy changes. If tariff protection and subsidies for the corn sector are not stripped away too rapidly, employment losses in that sector can be offset incrementally by job gains elsewhere, averting mass emigration.

Outside of agriculture, Mexico can support the development of small subcontracting businesses linked to export-oriented manufacturing--even in rural communities and small towns where displacement from traditional agriculture has occurred.

Finally, there is the simply ludicrous argument that if trade barriers fall and prosperity rises, masses of rural Mexicans will be earning cash wages for the first time, which will enable them to join the U.S.-bound migration stream.

In fact, a high percentage of Mexico’s agricultural workers already sell at least a portion of their labor, either in some other region of Mexico or in the United States. In any case, studies show that relatives already established in the United States are the most common source of funds for emigration.

In short, it is easy to overestimate the additional emigration from Mexico that free trade may cause. Some temporary increase in emigration associated with economic restructuring can be anticipated, but an agreement can be structured and implemented in ways that avoid adding to emigration pressure.

Over the medium-to-long run, free trade should diminish emigration. It is not a quick fix for the current illegal immigration problem; no quick fixes exist. Indeed, there is no realistic alternative to the economic growth in Mexico that free trade could stimulate, if illegal migration is to be reduced significantly at any point in the future. Computer simulations show that if Mexico’s aggregate capital stock is augmented by 10%--a reasonable goal under the pact now taking shape--other sectors of the economy will grow enough to absorb the workers displaced from agriculture; and as real wages rise in both countries, net migration will actually go down.

Deterring migration by trying to restrict employer demand for Mexican labor in the United States--the approach embodied in the 1986 Immigration Reform and Control Act--has not been effective. Apprehensions of would-be illegal entrants along the border this year are expected to equal or exceed the peak level recorded before the 1986 law was enacted. The economic disparities between Mexico and the United States are simply too large to be overcome by such measures, and the U.S. demand for low-skill, relatively low-cost labor is too strong and too widely dispersed through the economy.

Serious delay or blockage of a free-trade agreement with Mexico would only postpone the day when the United States gets serious about immigration control.