Big Three Revving Up for a Car-Hungry Mexico : Autos: Proposed reduction in tariffs makes the market south of the border a potentially lucrative one.

U.S. car makers won’t get as much protection from their Japanese competitors as they had hoped for under terms of the proposed North American Free Trade Agreement outlined Wednesday.

But thanks to proposed reductions in tariffs, they will get easier access to one of the world’s fastest-growing car markets, which auto executives and analysts say gives the American industry a competitive advantage over foreign rivals.

With the license to sell more cars in the fertile Mexican market and send vehicles and parts to and from the United States for less money, Detroit’s Big Three and their suppliers are likely to dramatically expand their existing Mexican operations over the next decade.

And the elimination of tariffs, combined with the economies of scale provided by an integrated North American market, should boost profits for auto makers and lower sticker prices for consumers over the long run, industry experts said.

Still, the U.S. manufacturers were disappointed with the outcome of the sharply contested “rule of origin,” which determines what percentage of North American-made parts a car must have in order to be shipped across U.S., Mexican and Canadian borders duty free. The agreement freezes the domestic-content requirement at its current level of 50% for the next four years, to be phased in to 62.5% over eight years.

The Big Three--which had originally pushed for a 70% domestic-content rule--complain that the lower the value of the domestic parts requirement, the easier it will be for Japanese and European producers to use Mexico as a duty-free launch pad for exports to the United States.

However, Japanese auto officials blasted the proposed stiffer domestic-content rules, calling them a blow to free trade and saying they would be forced to redesign cars to include more North American parts. Many Japanese cars, even those assembled in the United States, may not now meet the requirements for North American content and would still be subject to tariffs.

“It is outrageous,” Shigehira Yoshioka of the Japan Automobile Manufacturers Assn. told the Associated Press. “The three countries are building a wall around themselves.”

But while the Japanese are uniformly upset with the free trade accord, American industry officials will take what they can get--and the pact as it stands is nothing to sneeze at, acknowledged John Eby, executive director of corporate strategy for Ford Motor Co.

While the U.S. auto market is expected to grow only 1% annually through the rest of the decade, car sales in Mexico are expected to double to 2 million by the year 2000.

“Does it change our plans for Mexico? The answer is yes,” Eby said. “We’ve got a lot of long, hard nights ahead of us trying to figure out how best to structure our operations to get the greatest market penetration, the most jobs, the least costs and the most variety for our consumers.”

Still under debate, however, is whether the benefits of the free trade agreement will be bought at the cost of U.S. jobs. The United Auto Workers has predicted that thousands of jobs will migrate south of the border as auto manufacturers and suppliers seek out cheap Mexican labor. And those that remain, the UAW said, will suffer from downward pressure on wages exerted by Mexicans willing to work for one-tenth what U.S. auto workers earn.

But some analysts believe Mexico’s undeveloped infrastructure and the heavy costs of relocation make it unlikely that the auto firms will choose to transfer U.S. production to Mexico. Indeed, as the Big Three expand production for the Mexican market, more jobs may be created, especially among U.S. suppliers.

“We are committed to building where we sell,” General Motors Corp. Chairman Robert C. Stempel said Wednesday.

Arthur Watson, who was told last February that the GM engine plant he has worked in for 24 years would be closed to consolidate production at the auto maker’s Toluca, Mexico, facility, doesn’t put much faith in such proclamations.

“We gave them everything they wanted,” said the Moraine, Ohio, resident. “But there was no way we could compete with $2 an hour. It’s a pretty hard deal to swallow.”

Ironically, said David Cole, director of the Office for the Study of Automotive Transportation, GM, Ford and Chrysler have moved some operations to Mexico not to take advantage of lower labor costs, but to comply with the Mexican trade law that mandates U.S. car makers operating in Mexico to export $1.75 for every $1 they import.

But the ratio will decrease under the new trade pact, reducing somewhat the necessity of building cars in Mexico.

“This is not a zero-sum game,” Cole said, referring to the UAW’s concerns. “This is an opportunity to increase the sum for everyone.”