Mexican Business Braces For New Free-Trade Pact

MEXICAN, Canadian, and United States negotiators formally begin work tomorrow in Toronto on the North American Free Tree Agreement. The vision is to craft the biggest open market in the world: from the Yukon to the Yucatan, about 360 million consumers under one trading regime. But some Mexicans view this step with trepidation.

"This experiment is completely new," says Lorenzo Meyer, a Mexican historian. "There doesn't exist an example of an economic union between countries so unlike one another. Not one. Compare Spain, Greece, Portugal, or Turkey to other European countries [in the 1992 economic union] and you're talking about differences in per capita income of two, three, maybe four times. Not 10 times."

At $2,200, Mexico's per capita gross national product is about one-tenth that of its northern neighbors'. The gap between this developing nation of 82 million people and its potential NAFTA partners is wide in many areas:

*-Mexico's minimum wage (50 cents per hour) is 12 percent that of the US ($4.25).

*-Mexico's inflation (29.9 percent last year) is 4.9 times as high as that of the US (6.1 percent).

*-Mexican grain production per acre is one-tenth to one-third that of US production. Mexican farmers have seven tractors per 1,000 hectares (about 2,500 acres) of farmland, US farmers have 25.

*-Mexican education spending as a percentage of gross national product is about one-tenth that of the US.

But it is precisely the economic disparities that make this a good partnership, free-trade supporters argue.

"The economies are complementary," says economist Roberto Salinas of the Center for Free Enterprise Research. "Mexico needs the foreign investment capital, high technology, and infrastructure development the US can provide. And Mexico can provide low-cost labor the United States needs to produce better quality goods at lower prices - to be globally competitive."

Although Mexican businessmen generally support a free-trade pact, they are bracing for head-to-head competition with US and Canadian firms.

About one-third of the 22,000 metal, machinery, and equipment factories in Mexico may close because of the high cost of borrowing money to match increased competition that would arise from a free-trade agreement, according to a recent study here. About 50,000 textile workers have already lost their jobs because of Asian imports. Many small firms in the tire and rubber industry say they cannot compete against US and Canadian multinationals. And just as Florida and Texas citrus growers worry about low-cos t

Mexican competition, the grain, corn, and soybean farmers here say they cannot match the efficiency of US growers nor their subsidized crop prices.

"Differences do exist," allows Juan Gallardo Thurlow, who is coordinating the Mexican business sector's input into the talks. "It's very important we give every sector the time it needs to reach a competitive level," he told a conference of business executives last week.

Under the 1989 US-Canadian free-trade agreement, some tariffs came down immediately, some are being reduced over five years, and others will fall to zero after 10 years. The Mexican negotiators foresee a similar agreement.

Over time, the wage and competitive differences among the three economies will diminish, predicts Mr. Salinas, the economist. He points out that 70 percent of Mexico's trade is already with the US.

The Mexican government sees the free-trade pact as leveling a well-used playing field. The average US tariff on foreign goods and services is only 4 percent. At first glance, "that doesn't leave much space for negotiation," observes Herminio Blanco Mendoza, Mexico's chief negotiator. The trade talks, however, are not about averages but specifics. "The tariff peaks are centered in the areas [where] Mexico is most competitive," said Mr. Blanco at a conference last week.

The US has a 40 to 50 percent tariff on fresh orange juice. Mexican asparagus and melons are slapped with a duty up more than 20 percent. Some clothes are tagged with a 15 to 17 percent tariff, according to Blanco.

Then, there are the nontariff barriers. Mexico's sales to the north of clothing, steel, milk, peanuts, and sugar are limited by quotas.

One of the "most important" goals of the negotiations, says Blanco, is to minimize the possibility the US will impose trade barriers in the future. "In the past, when we started to get competitive, they invented a barrier," he says. Mexico also wants to set up a dispute-resolution system, similar to the one established in the US-Canada free-trade pact.

The negotiating teams in Toronto will be headed by Mexican Commerce Secretary Jaime Jose Serra Puche, US Trade Representative Carla Hills, and Canadian International Trade Minister Michael Wilson. The talks will begin by establishing negotiating principles and working groups. They will also determine which industries or products will require top officials' attention and the schedule for future meetings.