COMMENTARY ON COMMERCE : FREE...

As Southern Californians, most of us are intimately familiar with Mexico. We’ve traveled there many times. Our experience has formed an indelible impression of Mexico’s economy and its government.

As a result of this, the electrifying changes now taking place in Mexico’s economy are all the more startling to Southern Californians.

“All of my stereotypes have been shattered,” said Jerry Boyle, former president of the Industrial League of Orange County, after returning from a recent trade mission to Mexico. He will be advising CH2M Hill, one of the largest environmental engineering firms in the United States, to re-evaluate totally its opportunities in Mexico.

Boyle was one of the half a dozen Orange County executives who joined me for two days of meetings with top government officials in Mexico City. We met with President Carlos Salinas de Gortari, and then with several of his key Cabinet members. We also met with the leaders in Mexico’s Congress.

The changes that the Salinas team has made are stunning. Already, tariff barriers have been reduced by 80%, increasing two-way trade between Mexico and California to $9 billion annually. (California now enjoys a trade surplus with Mexico.)

Salinas has spurred economic growth by cutting income tax rates dramatically--from a top rate of over 60% to 35%. The 42% corporate tax rate was cut to 35% and the double taxation of dividends was abolished altogether.

The results: Revenues to the government are up 33% since Salinas took office in December, 1988. Last year, the country’s budget was balanced. This year, Mexico expects a 1% surplus. (This does not even count revenues from the privatization of key state-owned assets, all of which are being used to pay down the national debt.)

Most importantly, Mexico’s economy is exploding. While the U.S. economy has been in recession, Mexico was racking up 5% real growth in its gross domestic product.

The opportunities that Mexico’s growing economy offers U.S. firms and workers are staggering. Even in advance of the further liberalization of tariffs that would follow from a free-trade agreement, Mexico has become the United States’ third-largest trading partner. With the free-trade agreement, according to a recent Peat Marwick study, U.S. real income will increase by an additional $1 billion, while American labor will benefit with higher real wages. The study concluded that our balance of trade vis-a-vis Mexico--and the rest of the world--will improve as the result of the agreement.

The fundamental reality is that job creation in Mexico puts money in the pockets of Mexican workers--instantly creating new consumers. American firms are better positioned than others to tap into this potentially huge consumer market: “Made in the U.S.A.” is today the label of choice for consumers in Mexico.

Best of all, simultaneously increasing the wealth of both California and Mexico will create jobs for Mexicans in Mexico. During our meeting, President Salinas told me: “We want to export goods, not people.” Stemming the tide of economic refugees from south of the border is the most effective immigration policy that America can adopt.

The 5% growth that Mexico is achieving this year will translate into more than $1 billion in increased American exports. That, in turn, means new jobs for American workers. Our Mexican neighbor has changed so quickly, we haven’t even noticed, but now it’s high time we got our own economy moving by taking advantage of this enormous new opportunity.