NEWS ANALYSIS : NAFTA Talks Face Critical Test : Trade: Three issues threaten free trade deal--workers’ rights, protection of domestic markets and the environment.

Negotiators from the United States, Mexico and Canada face a make-or-break mission when they resume talks today designed to sweeten their North American Free Trade Agreement into a politically palatable treaty.

Without improvements, Clinton Administration critics and allies agree, the treaty is almost certainly doomed.

At the center of the talks, intended to produce supplemental agreements to the already-negotiated treaty, are thorny questions posed by three issues, U.S. Trade Representative Mickey Kantor said Tuesday. Those issues: protection of workers’ rights, adherence to environmental regulations and protection of domestic markets--and the jobs tied to them--in the face of surges of imports fueled by cheaper Mexican production costs.

Hanging in the balance is the future of the free trade agreement and its target of tearing down all barriers to the free flow of food, factory goods and intellectual property across the three nations’ borders.

Walking a fine line between giving away too much of his bargaining position in advance of the closed-door sessions, while also trying to mollify skeptical members of Congress whose approval is mandatory before the agreement can go into effect, Kantor told a Senate panel on Tuesday:

“The test must be whether, on balance, we will be better off with NAFTA and meaningful supplemental agreements than we would be without it. In other words, will this economy be stronger, will workers be better off, and will the environment be better protected with or without the NAFTA and the supplemental agreements?”

The negotiators’ goal is to complete their talks and produce side agreements on the environment and labor practices, in time for legislative action this summer or early autumn. That is a best-case scenario, U.S. negotiators concede. The ultimate goal is to see the pact go into effect by next Jan. 1.

The talks that open today at an undisclosed location in Washington are considered exploratory. Detailed negotiating is likely to be put off for subsequent meetings.

The purpose of the treaty is to create a free trade zone from the Yucatan to the Yukon, by eliminating all tariffs and other barriers to international commerce. The result, expanding the reduced-tariff zone created by a 4-year-old U.S.-Canadian free trade pact, would be the most lucrative single common economic market in the world.

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To its critics, the agreement would open up Mexico’s cheap labor markets to industries that have paid solid wages in this country. U.S. industries, critics say, would be lured with two prizes: An average daily wage of $8.11, compared to $69.14 in the United States, and lax enforcement of environmental regulations and worker safety rules that drive up production costs.

To its proponents, NAFTA would lower import taxes across U.S. borders to the north and south like a crumbling Berlin Wall. That would boost American prosperity as markets for tools cast in Buffalo, refrigerators manufactured in Iowa, wheat grown in Kansas and computer software developed in the Silicon Valley grow by leaps and bounds in a Mexico made more prosperous, in turn, by greater access to U.S. markets and increased employment at home.

The treaty was signed Sept. 17, in the midst of the U.S. presidential campaign, but concerns that it was too lax in its environmental and labor provisions forced the three sides to begin work today on the supplemental agreements. Without a successful conclusion to the new talks, ultimate congressional approval of the overall pact is seriously in doubt, several Democrats have ominously warned the Clinton Administration.

Just how difficult a task the Administration is facing was illustrated in recent days as multiple committees of the House and Senate began focusing on the agreement even before what could be several months of private talks with Canada and Mexico got underway. And those on whom the Administration must count for its support expressed severe reservations, while Republicans were still on board.

“Maybe some of our colleagues see it as a cupcake that’s going to provide dessert for a few,” Sen. Charles E. Grassley (R-Iowa) said at a recent Senate hearing. “I see it as kind of a banquet cake just waiting to be cut and served.”

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“I hope it’s really very good for all of America,” he said.

But Sen. Howard M. Metzenbaum (D-Ohio), with his strongest support in the Rust Belt communities of his home state, warned: “This trade agreement will cause widespread job loss in this country, and cause environmental degradation on both sides of the (U.S.-Mexican) border. . . . We’re kidding ourselves. NAFTA will not be good for America.”

And House Majority Leader Richard A. Gephardt (D-Mo.), once a leader of protectionist sentiment in Congress, has played an uncertain role.

“He comes and goes,” said a senior trade official. “Sometimes he’s a loose cannon on these things.”

At the heart of the effort to save the agreement is a proposal to create a North American Commission on the Environment--a forum made up of representatives of Canada, the United States and Mexico that would be empowered to investigate environmental abuses and, without infringing on national sovereignty, bring about compliance with flouted anti-pollution laws.

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A similar panel would be created to consider violations of worker protection regulations.

During the presidential campaign last autumn, then-President Bush sought to turn the just-negotiated agreement into the economic centerpiece of his vision of a “new world order.”

Candidate Bill Clinton gave a limited endorsement to the proposed pact. He took care not to alienate his labor-union backers who feared that it would cost them jobs, while also building his economic plans around increased global trading relationships in the post-Cold War era.

Clinton called for the establishment of the commissions that are at the heart of the new talks. But then, and now, just how the commissions would work, and what authority they would be granted, was not specified.

As now envisaged, the commissions would overcome differing judicial approaches to environmental and worker protection in Mexico, the United States and Canada. In particular, they would address the inability of individual Mexican citizens, under that nation’s law, to sue for stricter enforcement of environmental laws.

The U.S. environmental community, while far from united, has favored the use of sanctions if Mexico violates its own anti-pollution regulations. Sen. Max Baucus (D-Mont.), chairman of the Senate Environment and Public Works Committee, favors the imposition of sanctions in severe cases. He also favors the establishment of a fee of no more than 1% of the value of goods crossing the border to help pay for border clean-up and retraining of workers adversely affected by the impact of the agreement.