U.S., Mexico, Canada Agree to Form Huge Common Market : Trade: Pact would eliminate most barriers to the flow of goods and services. Fierce political battles loom as approval is sought from lawmakers.

The United States, Mexico and Canada on Wednesday unveiled a historic North American Free Trade Agreement, declaring their intent to create the world’s largest common market by eliminating most barriers to the free flow of goods and services from the Yukon to the Yucatan.

The proposed agreement, announced by President Bush in an early morning Rose Garden speech, could by the early 21st Century transform the North American continent into a formidable competitor with Europe and Asia in the increasingly cutthroat global economy.

But for all the enthusiasm of Bush Administration officials and free trade advocates, the agreement--and the basic concepts behind it--remains highly controversial. The coming months will see a fierce political battle between the agreement’s sponsors and opponents who contend it will devastate American workers, damage many businesses, aggravate environmental problems and have a host of other undesirable effects.

Even treaty advocates, who maintain that the benefits of free trade will prove significant in the long run, acknowledge that the gains will be slow in coming and widely dispersed. The negative effects, on the other hand, are likely to be more concentrated and the pain more intense in the short term.

One thing is certain: If approved by a skeptical Congress and legislators in Ottawa and Mexico City, the agreement will leave virtually no aspect of the economy untouched.

It will reduce the prices consumers pay for groceries and many other goods. It will shape the investment decisions made by businesses big and small. It will influence the kinds of jobs available to American workers in the next generation.

Bush, who had pushed for completion of an agreement before next week’s Republican National Convention, said the pact “marks the beginning of a new era on the North American continent. This is a good day for America, a good day for North America,” he declared.

The proposed three-nation accord, a significantly expanded version of an earlier U.S.-Canada free trade pact, represents the first time that a First World nation has agreed to eliminate trade barriers with a developing country like Mexico.

The ultimate impact on jobs remains unclear. Supporters argue the accord will spark an export-generated job boom in the United States, while critics contend it will lead to a massive shift of manufacturing from high-wage plants in America to low-wage havens in Mexico.

Also, the agreement raises new concerns about the environment. The Administration says it contains adequate safeguards, but opponents fear that U.S. firms long opposed to tough federal anti-pollution laws will try to take advantage of Mexico’s more lenient standards.

Because of the trade pact’s potential for altering the economic landscape, the governments of all three nations have been under enormous pressure during 14 months of negotiations to protect existing industries from the ravages of open competition.

As a result, the final agreement contains numerous exemptions, exclusions and safeguards designed to soften the effect on individual industries ranging from agriculture to automobiles.

The special deals for specific industries make the agreement fall somewhat short of Bush’s original goal of a rapid, region-wide transition to truly free trade. Even so, the agreement represents a significant step in the direction of a regional trading bloc, much like the European Common Market.

“This is managed trade, not free trade,” said Theo Lee, an economist with the Economic Policy Institute, a Washington research group funded by organized labor. “What they are talking about here is who is going to win and who is going to lose. And I think big multinational corporations that can afford to move to Mexico have an advantage over companies that cannot.”

Dozens of industries, companies and labor unions issued position statements on the trade pact; their reactions were generally determined by whether they landed in the winners or losers column. The responses provided an early indication of the intensity of the political battle facing the pact when it is sent to Capitol Hill for ratification early next year.

U.S. Trade Representative Carla Anderson Hills, who estimated that the agreement eventually will create more than 400,000 new jobs in this country, said the pact “brightens America’s future by making it and all of this region more globally competitive.”

Mexican and Canadian leaders also hailed the accord. In Mexico City, President Carlos Salinas de Gortari said the agreement “will allow us to grow faster, create more and better-paid jobs.” In Ottawa, Prime Minister Brian Mulroney said that Mexico is “a welcome addition to what is to become the largest trading bloc in the world.”

But leading Democrats in Congress, as well as representatives of organized labor and some industries that feel threatened by the pact immediately criticized the agreement.

House Majority Leader Richard A. Gephardt (D-Mo.) and Senate Banking Committee Chairman Donald W. Riegle Jr. (D-Mich.), both of whom represent auto-producing states, said they want to revise the pact in Congress to provide more protection for U.S. workers. “This is a jobs program for Mexico, and that means taking jobs from the United States,” Riegle said.

Thomas Donahue, secretary-treasurer of the the AFL-CIO, said at a news conference: “What the agreement really means is more job losses for U.S. workers.” An AFL-CIO-sponsored study predicted that the agreement will result in the loss of 600,000 American jobs by the end of the decade.

Roger Milliken, chairman of Milliken & Co., one of the nation’s largest textile manufacturers, issued a statement denouncing the pact. The agreement, he said, “fails because it instead adopts a low-wage strategy, seeking to make us more competitive by forcing the shift of the higher-paying jobs of American workers to other countries where wages, and therefore costs, are far less.”

Critics of the Administration’s negotiating stance argued that the White House had failed to insist on detailed provisions in the agreement to require Mexico to improve enforcement of its tough new environmental laws. They also faulted the Administration for not providing funds to assist U.S. workers who lose their jobs as a result of the shift of work to Mexico.

The Administration noted that the agreement includes provisions governing the settlement of international disputes, not only those involving tariffs and duties but those arising from industrial pollution as well. The White House also stressed that the pact will not undermine existing environmental laws in the United States.

But the Administration did not push for explicit provisions in the agreement to help the Mexicans finance tougher anti-pollution enforcement. Noting that omission, critics cited a recent General Accounting Office report that found that U.S.-owned plants in Mexico have been skirting environmental laws.

Hills said the Administration already has developed a program with Mexico to clean up border pollution, with Mexico pledging to spend $460 million toward that goal over the next three years. Bush is seeking $240 million in border cleanup funds this year.

But there is little in the agreement that addresses the massive pollution problems throughout the rest of Mexico; the Mexican government is opposed to any American or Canadian intervention in the enforcement of its domestic environmental rules.

The pact also does not include any new displaced worker assistance or job training programs for Americans. Hills argued that such efforts should be financed from the government’s general fund through new taxes or increased federal spending, and not tied directly to the trade agreement. By spurring economic growth, she said, the pact will increase federal revenues, making it possible to finance worker assistance programs.

Administration officials have said privately they will deal with these sensitive issues in the enabling legislation for the treaty that is sent to Congress next year.

But congressional Democrats contend that the Administration had promised that it would seek more extensive environmental and labor provisions during the negotiations. They charge that the Administration ignored those issues to rush out a streamlined agreement that Bush could trumpet in his reelection campaign.

California Rep. Robert Matsui (D-Sacramento), a member of a House trade subcommittee, warned that “ultimate approval of the trade agreement is very much up in the air” because of the absence of detailed labor and environmental provisions. “This looks like a move of desperation by the Bush Administration to rush something out for political purposes,” Matsui said.

Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.), whose panel has jurisdiction over trade law, said he would hold hearings next month to determine whether the Administration honored its 1991 pledge to include strong environmental and worker protection provisions in the trade pact.

Critics of the pact made it clear they think the Administration has failed that test.

“The Administration has yet to provide any indication . . . that it has any intentions of adhering to even the limited promises President Bush made on environmental and labor issues,” said the Sierra Club, one of several interest groups issuing critical statements.

Despite the hail of criticism, Hills argued that the agreement will level the playing field for cross-border trade, improving an unacceptable status quo in which countless illegal immigrants pour across the border in search of jobs. The Administration, in fact, believes the pact will create an economic boom in Mexico that will make it possible for many poor Mexicans to work--and stay--at home.

In addition, Hills noted, the agreement will force Mexico to eliminate tariffs that are now much higher than comparable U.S. duties. “Let’s face it: Right now we have a one-way free trade agreement with Mexico,” Hills said at a White House briefing. “This dismantles (Mexican) tariffs 150% higher than ours.”

For California and other border states, the agreement would be certain to alter the fundamental nature of virtually all cross-border trade. While many U.S. farmers are deeply concerned about the prospect of competition with cheap Mexican imports, most analysts believe that the border region will be the greatest beneficiary of the trade pact. Indeed, as Mexico gains jobs and its economy grows, the Administration predicts that thousands of jobs will be created in border states.

Even without a free trade agreement, the Commerce Department noted that total exports to Mexico from California surged to $5.5 billion in 1991, up 145% from $2.3 billion in 1987. Mexico is the third-largest export market for California goods, with the largest sales involving manufactured products such as electronic equipment and industrial machinery.

The department said that 61,300 new jobs have been created in California since 1987 as a result of the growth in exports to Mexico and Canada.

Times staff writers Juanita Darling in Mexico City and Mary Williams Walsh in Toronto contributed to this report.

A COUP FOR SALINAS: Pact symbolizes end of a nationalist Mexican economy. A6

OTHER STORIES: A6-A7, D1-D2

What Trade Pact Would Do

The agreement would link the United States, Mexico and Canada into the world’s largest trading area. It still must be ratified by the national legislatures:

Key Elements

Tariffs: The pact would allow goods produced in North America to move freely across borders by eliminating duties, tariffs and other trade barriers over 15 years.

Automobiles: U.S. automakers would get greater access to the Mexican market, the fastest-growing in the world.

Transportation: Pact would give truckers with international cargo “open roads” throughout the three nations.

Banking: U.S. banks and securities firms could establish branch offices in Mexico.

Investment: U.S. firms in Mexico would receive the same treatment as Mexican companies, increasing investment opportunities.

The Debate

Proponents say: Hundreds of thousands of export-related jobs would be created, boosting the U.S. economy. Jobs in Mexico would also rise, thereby reducing illegal immigration.

Critics say: Tens of thousands of jobs would be transferred from the United States to Mexico, as U.S. firms seek out cheaper labor. Environmentalists argue that while Mexico has instituted tough new pollution laws, it has not backed them up with adequate funding.