NEWS ANALYSIS : U.S. Court Ruling Threatens Mexico’s Ambitions : Trade: A NAFTA delay puts President Salinas under pressure to reassure foreign investors that economic reforms will stay.

By threatening to derail the North American Free Trade Agreement, a U.S. court ruling is undermining Mexico’s best hope for lifting itself from developing nation to industrial power.

Certainly, the possibility of at least a delay in U.S. approval of NAFTA places increased pressure on Mexican President Carlos Salinas de Gortari to reassure foreign investors that Mexico’s economic reforms will continue with or without the agreement.

Salinas, whose government has depended on foreign dollars to help his country in its march toward becoming a global economic power, may now be forced to push through legislation to guarantee economic reforms that NAFTA was expected to make permanent.

A federal judge in Washington on Wednesday may have set back the agreement, which is designed to remove restrictions on trade among Mexico, the United States and Canada, by months, or even years, when he ruled that the U.S. government must complete a full study of the environmental effects of the pact before Congress can vote on it. Some U.S. officials believe the pact will fizzle altogether unless the ruling is quickly overturned on appeal. The Clinton Administration expressed confidence Thursday that Congress can still vote on the pact by September.

While President Clinton has been pushing hard for NAFTA, arguing that it will create jobs in the United States as a wealthier Mexico buys more American goods, the agreement was seen as far more important to Mexico’s still-developing economy.

In recent years, foreign investment has funded the modernization of Mexican industry and given some Mexican companies the means to expand internationally. Although foreign money has been drawn to Mexico, primarily because of reforms pushed by the Salinas administration, many of the reforms have been accomplished by regulation, not law, and in this presidential system they could easily be reversed by Salinas’ successor.

NAFTA has been seen as a guarantee that friendly attitudes toward foreign investment and limits on government involvement in the economy would continue after Salinas leaves office next year. Many provisions of the agreement, for example, specify a minimum level of foreign participation in several sectors of the economy.

Based in part on those assurances, foreign investors have poured $32 billion into Mexican stocks in recent years. But if passage of NAFTA continues to appear dubious, some observers say, the government will have to take strong steps. “The administration needs to reassure investors that there is a plan in case NAFTA fails,” said Mexico City economist Rogelio Ramirez de la O.

Ramirez said the administration must, for example, reassure investors that the new patent and copyright laws will be strictly enforced and that import taxes, reduced by regulation, will not again increase.

“Investors are willing to give Mexico the benefit of a doubt if NAFTA fails,” he said, “because it’s not Mexico’s fault, but the government must have something to replace it with.”

“Since their entire economic program is built on confidence, I don’t think there is anything they can do to avert a crisis of confidence if NAFTA dies,” said a major U.S. institutional investor, who spoke on the condition he would not be identified. However, the government can minimize the crisis by staying the course on its current policy, observers agreed.

“They have sent the message of sticking to their guns,” said Mauro Leos, vice president of Cimex-WEFA, a Philadelphia-based economic think tank that specializes in Mexico. He cited the government’s continuing fight against inflation and its efforts to keep a tight lid on federal spending.

Some foreign investors said government officials have said they have been working for the last six months on a contingency plan, in case NAFTA fails, that includes generous concessions for foreign investment and the continuing privatization of some 400 companies still owned by the government.

However, Raymundo Riva Palacio, economic information editor at the El Financiero financial newspaper, said the government prefers to give the impression of having no contingency plan. “They want to play the terror card,” he said. “They want to threaten the U.S. Congress with the idea that, should NAFTA fail, Mexico will degenerate into a major political problem.”