Mexico Learns Lesson Well in Pursuit of Trade Accords

By ESTHER SCHRADER

Sept. 14, 1999 12 AM PT

TIMES STAFF WRITER

WASHINGTON —

The government of Mexico is aggressively dismantling its trade barriers with the vast Latin American market, bolstering its own economy while hindering Clinton administration efforts to create a hemisphere-wide trading bloc.

In the five years since its free-trade pact with the United States and Canada went into effect, Mexico has capitalized on the accord by signing strikingly similar agreements with six Latin American countries: Chile, Venezuela, Colombia, Bolivia, Costa Rica and Nicaragua.

Mexico is also on the verge of cutting market-opening deals with eight more of its neighbors to the south. In addition, it is negotiating a free-trade agreement with the 15-nation European Community and is discussing similar pacts with Japan, South Korea, China and Israel.

The proliferation of free-trade agreements is transforming Mexico into a hub for domestic and international companies seeking to export their products throughout the Americas. Already, some U.S. auto makers and telecommunications companies are expanding their operations south of the border to take advantage of Mexico’s tariff-free access to its neighbors.

U.S. officials fear that Mexico’s success at positioning itself as the only country with unfettered access to markets throughout the hemisphere will hamper the Clinton administration’s five-year push to create a 34-nation Free Trade Area of the Americas. Mexico’s campaign comes at a time when Washington’s ability to take the lead on opening markets has been hobbled by the loss of “fast-track” negotiating authority.

Fast-track authority gives the executive branch broad powers to negotiate trade agreements without being second-guessed on each point by Congress. It was instrumental in getting NAFTA passed, despite an angry, yearlong political debate led by labor organizations and environmentalists concerned that expanding free trade impedes protection of worker rights and the environment.

By securing lower tariffs to other Latin American countries for its exporters, Mexico is making U.S.-made products less competitive in a number of markets. And the web of agreements it has implemented not only makes Mexico loath to jump-start a hemispheric trade pact, it strengthens the negotiating stance of its new partners at the expense of U.S. interests.

Mexico’s Advantage

“Mexico has been one of--if not the most--successful countries in the world at eliminating impediments to their exports,” a senior U.S. trade official said. “Meanwhile, it is the only country in Latin America with duty-free access to the biggest market, the United States, and it has little motive to see that advantage whittled away by a regional trade pact. From a strategic standpoint, they’re ahead of the game. . . . They are improving their commercial prospects in Latin America, potentially at our expense.”

Mexico ranks as the largest exporter in Latin America and the eighth-largest in the world. In addition to selling crude oil and other commodities such as coffee and silver, it has become a leading exporter of finished goods ranging from autos to consumer electronics.

More than 85% of its exports go to the United States, but it is successfully using free-trade agreements to expand its markets. Between 1991 and 1998, for example, its trade with Chile soared by 572% to $1.2 billion. Since 1994, when Mexico negotiated a number of trade pacts with its neighbors, it has boosted trade with Costa Rica by 202%, with Venezuela by 80% and with Colombia by 41%.

It hopes to do the same with the rest of its neighbors. The government is negotiating free-trade pacts with Guatemala, Honduras, El Salvador, Panama, Ecuador, Peru, Belize and Trinidad and Tobago. Mexican officials are also considering entering into similar pacts with Brazil and other South American countries, although those negotiations are stalled for now.

While senior Mexican officials say they support the U.S. goal of forging a hemisphere-wide free-trade bloc, they acknowledge their growing leadership on trade gives them a strategic advantage they don’t want to lose.

“The strategy helps us get investment and helps us build the power of our own industry. It puts us in a unique position in terms of attractiveness for investment,” said Luis de la Calle, undersecretary for international trade negotiations for Mexico’s Ministry of Trade and Industry.

“Foreign companies come to Mexico because we show that we have guaranteed access, first to the Mexican market, and then to these other markets, including to the United States.”

Mexico is not the only Latin American country racing to tear down barriers to trade and investment. Over the last decade, spurred by a wave of democratization in the region, countries in the region have signed dozens of agreements with one another, eliminating towering tariffs and quotas that for years kept foreign products from competing with those produced by local workers. Brazil and Chile, for example, have ratified a network of agreements with their neighbors in recent years, and other countries have followed suit.

But Mexico has moved further and faster at opening its markets to foreign trade. Its negotiators cut their teeth by working out the North American Free Trade Agreement with the U.S. and Canada. Now they are close to striking a similar deal with the European Union, whose members are eager to compete with the United States for access to the Mexican market.

“A lot of people think of Mexico as being very unsophisticated and our neighbor to the south and all that, but in fact they are being very strategic and setting themselves up as being potentially a hub for the entire region,” said Diane Sullivan, director of international trade policy at the National Assn. of Manufacturers. “There is certainly some concern that we don’t want to be left behind, nor do we want to have an export platform on our border that allows companies to get into the U.S. market while circumventing our rules.”

The Clinton administration has sought to harness the free-trade wave since 1994, when President Clinton emerged from a meeting with Western Hemisphere leaders in Miami and pledged to create a free-trade area by 2005 that “would stretch from Alaska to Argentina.” If created, it would be the largest single market in the world.

Washington has a significant economic stake in Latin America and the Caribbean, which together represent the fastest-growing regional market for American exports. According to an analysis by the U.S. trade representative’s office, U.S. exports to Latin America will reach $232 billion by 2010--more than to the European Union and Japan combined.

But the administration’s efforts to create a hemispheric trade bloc have been hampered, first by the 1994-95 collapse of the Mexican peso, then by a political backlash against expanding trade links to the south, and finally by the loss of fast-track negotiating authority.

Although Congress had granted fast-track authority to every president beginning with Jimmy Carter, it declined to do so after the status lapsed in 1994. Clinton made a major push for renewal in 1997 but fell several votes short.

U.S. Lagging in Region

U.S. Trade Representative Charlene Barshefsky has argued consistently that the U.S. is lagging other countries in the region on free trade.

“We recognize that the countries of Latin America, including Mexico, are negotiating subregional free-trade areas,” Barshefsky said. “ . . . These efforts are helpful to the extent that they open Latin American economies to ever wider spheres of competition, making them more comfortable with multilateral liberalization or hemisphere-wide liberalization. On the other hand, the resulting margins of preference place exports from the U.S. at a competitive disadvantage.”

U.S. companies with operations in Mexico are already taking advantage of the new pacts.

General Motors, for example, sought for years to increase its sales to consumers in Chile but was stymied by that nation’s high tariffs on auto imports. Since 1996, when Mexico and Chile signed a NAFTA-style free-trade agreement, Chilean duties on vehicles made in Mexico have dropped to zero. The Mexico-Chile pact has been a boon to General Motors: Exports from its Mexican plants to Chile jumped from 14,000 vehicles in 1994 to 50,000 last year.

“Our export opportunities from Mexico have definitely increased because of the free-trade agreements,” said Jeanne Pryce, director of Western Hemisphere policy for GM. “Latin America is an extremely important emerging market, and Mexico is well-positioned because it is right next to it. And certainly these trade agreements they are signing create an incentive for us to expand there. We want to take advantage.”

Mexico’s strategy is based on a simple calculus: While the rest of its economy has been limping along since its currency crashed in December 1994, its exports have surged. Exports accounted for 30% of Mexico’s gross domestic product in 1998, up from 15% only five years earlier, according to Mexico’s Ministry of Trade and Industry. More than half the 1.9 million new permanent jobs created since August 1995 are related to exports and foreign direct investment in Mexico. On average, those jobs pay 30% more than comparable jobs elsewhere in Mexico.

“The Mexicans have gone to another level in Latin America that none of the others have,” said Scott Otteman, a trade analyst with the Inter-American Dialogue, a Washington think tank on Latin America. “The Mexicans basically took the big chunks of NAFTA and have transplanted them into free-trade agreements with other countries in the region. They’ve taken the lead in the hemisphere in spreading disciplines that are essentially U.S.-inspired. And they’re doing it to advance their own interests, not ours.”

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The Boost From Free Trade

Free-trade agreements negotiated by Mexico have dramatically boosted the level of business Mexico does with its trade partners. Mexico’s growth in total trade after agreements

Mexico’ growth in total trade after agreements

Chile: 572%

Costa Rica: 202%

U.S.: 120%

Venezuela: 80%

Canada: 78%

Colombia: 41%

Bolivia: 13%

Amount of 1998 Trade

In millions of U.S. dollars

U.S.: $188,000

Canada: 7,300