Common-Market Plan for N. America Gains Currency

By ESTHER SCHRADER

Oct. 15, 2000 12 AM PT

TIMES STAFF WRITER

WASHINGTON

There was scoffing at first, but the proposal by Mexico’s president-elect, Vicente Fox, to open the borders and adopt the U.S. dollar throughout North America is getting increasingly serious attention.

Fox’s ideas have sparked new thought among many in the United States--from economists and demographers to local government officials and business executives--about concepts that had been considered largely unthinkable.

In the process, some long-held assumptions about a more open border--for example, that it would send a wave of Mexican migrants northward and turn some American cities into refugee encampments--are being challenged.

What would happen if America’s fortified southern border became more of an open door? If the remaining barriers to trade and investment among the United States, Mexico and Canada were dismantled in favor of a North American common market? If the U.S. government spent money to improve conditions in Mexico?

Nobody is proposing that this happen overnight, or even in this decade. After all, securing the U.S.-Mexico border has been a fundamental element of American foreign policy for the last century.

But what is happening now in the newly integrating Europe and has been slowly taking place in the economies of the United States, Mexico and Canada over the last decade suggest the consequences of such change might be quite different than expected.

The feared surge of Mexicans into U.S. cities and towns might never materialize if wage levels and opportunities in Mexico improve and if population growth levels out, say proponents of economic integration--trends expected to gain momentum in coming years as economic links grow between Mexico and its northern neighbors.

Even without such gains, say many prominent economists who study Mexico, it is unclear that legalizing the movement of workers to the United States from Mexico would lead to a significant increase in the number of people crossing the border. As it is, hundreds of thousands of undocumented Mexicans enter the United States each year, despite the billions of dollars spent on fortifying the border.

“In a sense, you could argue that we now have an open border. While it is harder for people to cross, we are not able to stop the flow,” said Peter H. Smith, director of Latin American studies at UC San Diego. “It may well be that the actual flows and destinations and numbers of people crossing the border would not be dramatically different than what we currently see. I think the idea of a massive flood is unreasonable.”

Other fears, too, might prove overstated. For example, the incentives for U.S. companies to relocate operations to Mexico would diminish, rather than grow, as wages south of the border climb higher.

As for fears of more drug trafficking across the U.S.-Mexico border, proponents of the eventual creation of a common market argue that the flow of drugs is not significantly impeded under current border policy. A better way to undermine Mexico’s narco-economy, they say, is to improve economic vitality and living conditions by integrating Mexico’s economy with those of its stronger neighbors to the north.

Indeed, if Europe and Asia continue to move toward full-fledged common markets of their own, and as Mexico cultivates its own trade alliances with South America and Europe, the United States might begin to look at an alliance with Mexico and Canada as the best--and perhaps essential--way to compete.

“I think there may come a day when [a common market] is possible,” said San Diego Mayor Susan Golding, who as leader of a border city might figure to be the first to worry about the consequences of an open border. “I certainly don’t think Fox’s ideas should be dismissed. It is a direction that the entire world is moving toward.”

To be sure, the problems associated with creating a common market in North America are immense. What Fox is proposing--a common external tariff, the U.S. dollar as a common currency, a major investment of U.S. government and private capital in Mexico, guest worker programs and the eventual free movement of Mexicans, Canadians and Americans across their common borders--would entail colossal change.

And though there is widespread enthusiasm for Fox’s proposals among Americans who deal regularly with Mexico, so far there is no political constituency for making the sacrifices that might accompany such economic integration.

The economic union of 15 European nations into a single market, which Fox, who takes office Dec. 1, cites as his model for furthering economic integration on this side of the Atlantic, was driven by a history of hardship.

“It took two really grizzly world wars in Europe to begin to build a common market, on the notion that economic integration might make the region stronger,” said John Bailey, professor of government at Georgetown University. “There are no such strategic imperatives in North America. The imperatives are economic. And that’s a harder sell.”

And even now, serious problems continue to crop up, most recently the slumping value of the region’s new common currency, the euro, which has dashed enthusiasm for unity in many countries.

More perplexing is how to reconcile the colossal gap in incomes between the United States and Canada on the one hand, and Mexico. Nowhere in Europe have the inequalities between the most affluent and poorest countries come close to the chasm that divides the United States and Mexico, where the wage gap is roughly 10 to 1.

Unless that gap is narrowed to insignificance, critics charge, opening up the border could be catastrophic.

Then there are the radical differences in education levels, legal systems, professional licensing requirements and other quality-of-life signposts.

The average Mexican makes it through sixth grade, the average American through two years of college. In Mexico, there are no laws regulating bankruptcy and far fewer protecting fledgling businesses than in the United States. Product standards differ wildly among the three North American countries.

And although on paper Mexico has arguably more stringent environmental and copyright laws than does the United States, violations are rampant. Even between the United States and Canada the differences in licensing requirements are vast. Policymakers from the two countries worked for years to harmonize professional requirements to permit Canadian doctors and other professionals to practice in the United States. But only in one field, architecture, did they achieve the free movement of labor they were seeking.

Another potential barrier to economic integration is the need to establish common tariffs. For Mexico, that would mean dropping its relatively high tariffs to U.S. and Canadian levels.

Mexico fears that would force its industry--still relatively inefficient--to compete in its own market against lower-cost producers from Asia and elsewhere. Such competition, they fear, could severely disable the Mexican economy. Still, tariffs have already begun to drop under the North American Free Trade Agreement, and Mexico’s competitiveness has arguably begun to increase in some industries.

Perhaps the thorniest issue involves intangible calculations: Building an economic union of three countries would require each to forfeit some degree of sovereignty. Would Mexico and Canada be willing to give up the peso and the Canadian dollar respectively and embrace the U.S. dollar, the strongest of the three currencies, as their own? Would the United States be willing to harmonize its monetary policies with such unequal partners?

Still, among Americans who deal regularly with Mexico, Fox’s proposal is regarded as far-sighted, not outlandish.

Those eager to hear more include businesses already heavily invested in Mexico. They also include politicians and policymakers in U.S. cities and towns near the border, where cross-border economic and political integration between local governments on such basic issues as electric power and water delivery already far outpaces anything happening on the national level.

They include State Department and U.S. Trade Representative strategists in Washington who have long privately talked about broadening NAFTA, even as they advised politicians that doing so wouldn’t fly politically.

And they include presidential candidates Al Gore and George W. Bush, both of whom said after meeting separately with Fox this summer that they wanted to explore the consequences of his proposals.

The idea of a North American common market has even attracted U.S. labor, an unlikely constituency because it fiercely opposed NAFTA. Today, many labor leaders, especially those in border cities, see economic integration as inevitable. Indeed, in a stunning turnaround earlier this year, the AFL-CIO broke with its previous anti-immigration stance to endorse amnesty for certain classes of immigrants and to advocate a guest worker program to help address labor shortages.

If the kind of social development programs suggested by Fox narrowed the wage gap between the United States and Mexico, they also would reduce the flourishing underground job economy. For labor, that would be a welcome change.

“We all know that labor is mobile. There’s millions of workers crossing borders to get jobs for their families, so we should legalize that and insist on standards, make every job pay well and insist on benefits,” said Donald Cohen, political director of the San Diego-Imperial Counties Labor Council. “We’ve got a long way to go with Mexico. But this is something we should work toward. A level playing field only helps American workers.”

Among U.S. businesses, which have long sought unfettered access to Mexican markets, Fox’s ideas are particularly popular. Since NAFTA, cross-border ventures such as U.S. ownership in Mexican banks and forays by Mexican television networks into the United States have begun to weave together the two nations at the commercial level.

“Fox is right on the money here. He is exactly where the business community wants this to go,” said Richard Sinkin, managing director of InterAmerican Holdings Co., a San Diego investment and consulting firm with vast interests in Mexico.

“NAFTA was the politicians catching up with where the businesspeople were for decades,” Sinkin said. “What Vicente Fox is doing is catching up with what the businesspeople are doing. . . . We’ve got a North American auto industry, for example, we don’t have a U.S. auto industry. It’s one market. This is just a reality check.”

Gary Jacobs, chairman and president of Texas-based Laredo National Bank, which has a long history of doing business on both sides of the border, said, “Why not go boldly forward with maybe not exactly the blueprint that Vicente Fox put on the table, but something very close to it, and work toward an easing of income disparities? Maybe it won’t take as long as we think for it to happen.”

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How Economies Stack Up

Vicente Fox, Mexico’s president-elect, has proposed a North American common market akin to the European Union. A look at how such a market might compare with other regions, based on their respective shares of world gross domestic product in 1999:

How a North American common market would rank:

North American common market (proposed): 34.1% of world GDP

European Union: 21.3%

Japan: 14.2%

All other countries: 30.4%

Countries’ percentage of world GDP:

North America

United States: 30.4%

Canada: 2.1

Mexico: 1.6

Europe (partial list)

Germany: 6.9%