LOS ANGELES TIMES INTERVIEW : Jaime Serra Puche : The Free Trade Agreement From the Mexican Perspective

This week, the North American Free Trade Agreement--under which the United States, Canada and Mexico will create the world’s largest free-trade zone by eliminating tariff and non-tariff barriers--will confront yet one more test in its sinuous and tortured route toward passage. Negotiations for the so-called parallel agreements to address labor and environmental concerns, apparently not included in the signed text of NAFTA, might finally be finished.

The race for ratification in Congress will now heat up and the Clinton Administration’s commitment to the agreement must be proved beyond the rhetoric in two crucial arenas: the courts and Congress.

The challenge posed by Judge Charles R. Richey of the U.S. District Court for the District of Columbia--demanding an environmental impact statement on NAFTA before the President submits it to Congress--will have to be addressed legally.

At the same time, the battle in Congress to persuade the labor and environmentalist sectors of the President’s own party will have to be fought politically--using these agreements as well as others. For example, roughly 100 Democratic congressmen sent a letter last week asking the President to postpone NAFTA until health-care reform is approved.

Waiting on the sidelines, but observing intently, will be Jaime Serra Puche, a 42-year-old economist, described by Federal Reserve Board Chairman Alan Greenspan as “one of the brightest and ablest public servants in the world.” As head of the Mexican team to negotiate the agreement linking Canada, the United States and Mexico, no one else, apart from President Carlos Salinas de Gortari, has more at stake in the outcome.

Cool, congenial and self-assured, the commerce secretary gives the impression that no obstacle can stop him from achieving his goals--as his own experience demonstrates. Admitted to the doctoral degree in economics at Yale--although he did not speak fluent English--he did it on time and with honors. “Fortunately,” he confides “there was a lot of math in almost every subject I took the first term. That gave me enough time to learn the language.”

Author, teacher and a dedicated jogger, Serra is married to Joanna Wright and they have two children, Sebastian and Daniel.

Question: Some believe the Mexican government placed all its bets on a George Bush victory, ignored Bill Clinton and the Democrats, and that you are now paying the consequences. Is that so?

Answer: Our negotiation was from government to government. Besides, the reaction of the Clinton Administration has been very positive, and the bilateral relationship between Mexico and the United States could not be better.

Q: Then you don’t believe that signing the agreement in San Antonio right before the election was a mistake that may have cost you political capital with Clinton?

A: The Mexican government signed the agreement with the American and the Canadian governments. Period.

Q: Those who oppose NAFTA maintain that NAFTA will mean job losses in the United States? How do you answer them?

A: There are two ways to look at NAFTA. You may see it as a zero-sum game--where one wins and the other loses; or you may see it as a positive-sum game--where both parties win. Every one of the 23 independent studies on NAFTA that I know of demonstrate that it is a positive-sum game. They say there will be job creation in the three countries due to the synergy of the three countries’ economies. This would make the region more competitive vis-a-vis other regions.

Q: But how do you answer those who fear that low wages in Mexico may attract many U.S. industries to move there?

A: Those who say NAFTA is a zero-sum game use two arguments: One, low wages determine exports. If low wages could determine the behavior of exports, there would be no country with low wages. Countries like Haiti would be a true export power. Ironically, if you take a look at the export products that sell in the United States, you’ll see they come from Japan and Germany--both high-wage countries.

Q: What is the other argument?

A: Some people say that once NAFTA is in place, businesses will not have to pay tariffs to export to the U.S., thus they will try to relocate in Mexico. Do you believe that a business that now pays 3.8% as an average tariff to export from Mexico to the United States will move to Mexico to have a 0% tariff after 15 years?

Q: In terms of job dislocation in the United States, what would happen if Mexican exports to the United States double in 15 years?

A: Mexican exports to the United States now represent .57% of the country’s gross domestic product. If we were to double it, which would be fantastic, it would be 1% of the GDP. This percentage cannot create massive job dislocation . . . . Furthermore, I do believe that this is a positive-sum game, where the synergies and complementing economies will generate more jobs in the three countries.

Q: There is also the fear that NAFTA will increase environmental pollution at the border. How do you answer that?

A: This is an extremely important issue that has generated a debate that is quite paradoxical. Listening to it, one would say that both Canada and the United States are more concerned with Mexico’s environment than we Mexicans are. Well, we are the ones who live here and we are the ones who want a clean environment. There is a Princeton study that says there is a relationship between per-capita income and environmental degradation. The very poor countries have little degradation but as they grow economically, pollution also increases.

But there is a turning point. When a country reaches a per-capita income of about $4,000 annually, the trend reverses. Well, Mexico is almost there, and if we can raise our per-capita income with NAFTA, we shall be able to diminish the environmental degradation. Then, we will have more economic resources to invest in a cleaner environment. This is the first time that a free-trade agreement has in writing--on article 1114--what could be called green prohibitions. NAFTA will help the environment, not hurt it.

Q: The concern, however, is not on the rules but on the enforcement.

A: But this is enforcement. Do you know how many environmental inspectors per business firm we have? We must have around 600,000 businesses in Mexico and the United States must have around 6 million. Counting the number of environmental inspectors per firm, we have the edge 3 to 1!

Q: Another issue that concerns many people is whether NAFTA will increase immigration to the United States.

A: (UC San Diego researcher) Wayne Cornelius’ last book says NAFTA will decrease the migratory flux from Mexico to the United Sates. And there is a logic to it. If Mexico increases its capacity to generate jobs, the decision to emigrate will take into consideration new factors. When people decide to emigrate they make a comparison between the expected income in the United States and the expected income in Mexico. Obviously, it will be smaller in Mexico but the probability of having a job in Mexico will weigh heavily in that decision. As long as we can increase the probability of creating jobs in Mexico, the incentives for immigration will decrease.

There is, however, a curious contradiction among the NAFTA critics. They say jobs will move to Mexico but also say immigration from Mexico to the United States will increase. Well, you cannot have your cake and eat it too! It should be one or the other.

Q: Would Mexico accept an independent judicial review if, after NAFTA, a worker complains that his or her labor rights have been violated?

A: In the parallel agreements, we are now negotiating the establishment of commissions that may follow up on those cases in accordance to the law in each one of the three countries. The job of these commissions, however, will be to follow up to ensure the complaint is heard by the existing proper authorities. In the case of Mexico, for instance, the Mexican labor law would be the one that would apply.

Q: Would Mexico accept trade sanctions in case of violations to NAFTA?

A: NAFTA itself has trade sanctions for trade-related issues. However, Mexico does not believe in having trade sanctions for non-trade issues--such as environment and labor. Mexico is suggesting that we place financial sanctions to remedy both environmental and labor problems. To place trade sanctions on a whole category because one firm is committing a violation would be to punish the wrong people. The firm doing the violation is the one who should suffer the consequences.

Q: Would Mexico accept harmonizing labor standards for the three countries?

A: Well, the first big difference is that Mexico has labor standards that are well above those of the United States. Every business in Mexico has to share 10% of its profits with its workers. This does not exist in the United States. There are no strike replacements in Mexico. If there is a strike, the employer cannot hire new workers. The strike has to be resolved. Before committing to harmonization, in our conversations on the parallel agreements we decided that, for historical reasons, each country must keep its own standards.

Q: There is a complaint about Mexico’s national labor relations board, charging that it is manipulated by the government. Would Mexico adhere to the International Labor Organization standards?

A: Mexico has signed 79 agreements with the ILO, the United States has signed 12 and Canada, 30. This may give you an indication of how serious we are on this issue. We believe, however, that a new labor commission, to assist in reviewing issues regarding labor standards and the absolute enforcement of the labor laws of each country, is in order.

Q: How would you respond to critics who say that the Solidarity Pact in Mexico keeps wages artificially low while the productivity of the Mexican worker increases considerably?

A: That is an absolute fallacy! Real contractual wages in Mexico have risen more than 22% in the Salinas Administration. And while it is true that the minimum wage has fallen in real terms in Mexico--just as it is the case in the United States--I must tell you that only 12% of the labor force in Mexico make the minimum wage, while 88% of the workers make more than the minimum.

Q: Some Mexican small businesses still are concerned about the economic reform that preceded the NAFTA negotiation. They feel the end of the import-substitution policies of the past has left them in a highly competitive and vulnerable situation; and they wonder what the future with NAFTA may bring.

A: This is a very complex issue but let me try to answer it in a nutshell. We have put in place several programs to assist them based on this philosophy: The Mexican economy is going through a period of transformation. We are going from a closed economy, where businesses had high rates of profit and low production volumes, to an open economy with low margins of profit and high production volumes. This is a complicated transformation because, in order to increase production, you have to, among other things, increase your investment--and we are now going through a time when interest rates are too high. That is making this transformation very costly. What is evident, though, is that we cannot go back to the past.

Q: Let us suppose that NAFTA is approved but an opposition political party wins the elections in Mexico in 1994. Will the agreement hold?

A: These are commitments established between countries and governments, so they should hold. But, there is a little-known clause in NAFTA that says: If a country wants to pull out of NAFTA, it can do so by only giving notice to the other two parties six months in advance.