Mexico's new oil politics sidesteps US trade

Mexico's emerging oil politics, the newest version of its historic economic nationalism, could be a two-edged sword -- very beneficial for middle-power industrial partners, like Canada, but bad for US-Mexican relations.

President Jose Lopez Portillo is developing oil-for-technology deals with selected industrial middle powers, Canada, Sweden, France, and West Germany. These nations need Mexican oil but have non-American sources of high technology. They are eager to sell overseas.

While reducing Mexican dependency on American technology by permitting the chosen middle powers to sell to his country (but not to build more branch plants or joint ventures), President Lopez Portillo could be interfering dangerously with Mexican-American trade.

The two nations are very much each other's largest trading partners, with the US buying 70 percent of Mexico's exports, while supplying the Mexican economy with 62 percent of its imports.

Washington is already annoyed with the Lopez Portillo administration for rejecting last March's liberal proposals for Mexico's entry into GATT (the General Agreements on Tariffs and Trade). As a result, Mexico continues to practice its high protectionism. The country's well-organized business and trade union associations put great pressure on the President for continued tariff protection.

Meanwhile, the long-range Mexican plan to seek out alternative sources to US technology has started, beginning with the Canadians.

The Canada-Mexico Industrial Cooperation Agreement, originally signed in March 1979, which was linked to the oil export deal finally signed on Aug. 15 of this year, is the first of the Mexican-inspired oil-for-technology bilateral agreements excluding the US.

The first part of the deal with Canada is guaranteed export of 50,000 barrels a day. That is about 15 percent of this country's total oil imports, but half, incidentally, of what the Canadians anticipated.

In return the Canadians will competitively offer several key lines of their high technology to Mexico, financed by a $50 million credit line from the Canadian government's Export Credit Corporation to the Mexican Government's Nacional Financiera SA (Nafinsa).

Nafinsa is Mexico's longtime fiscal and development control agency, which approves and directs most major technology flows and foreign plant penetration of the Mexican economy.

The Canadians are moving with unusual haste to seize much of the business promised by the bilateral deal. In doing so, they will take some of it away from traditional American suppliers to key Mexican industries.

Moreover, the Canadians can deal with Mexico through parallel state corporations in power, railways, energy, and financing, a pattern which the Mexicans like and which American companies cannot do.

For example, Hydro-Quebec, the vast state power corporation owned by the province of Quebec, is about to sign a major technical-sharing agreement with the Comision Federal de Electricidad, Mexico's state-owned electric power counterpart.

The same suppliers to Canada's state-owned Canadian National Railway system and the Ferrocarries Nacionales de Mexico, the latter's nationwide railway network, are entering into a new phase of aiding the Mexicans in hump yard modernization and new Canadian-made diesel locomotive deliveries.

In the private sector, Northern Telecom Canada Ltd., owned by Bell Canada and perhaps this country's biggest high-technology producer, will sign an agreement for telephone switching equipment with Monterrey's Alfa Group, dominated by the Garza Sadas, one of Latin America's chief industrial families.

Canada's aggressive new trade minister, Ed Lumley, a former Ontario business executive, is making up for lost time, having led his first carefully selected trade mission to Mexico last June.

A Spanish-speaking foreign trade expert, Claude Charland, who is Canada's busy ambassador in Mexico City, has publicly warned Canadian businessmen that the Lopez Portillo administration ends in late 1982.

After that, a new president means a different cabinet and new players in charge of the all-important Mexican state agencies.

Following closely behind the Canadians are the Swedes, also with plenty of high-quality and domestically designed technology, but needing Mexican oil imports much more desperately than Canada.