Next Step for Free Trade?


A North American Common Market stretching from the Yukon to the Yucatan is one step closer to existence. In November, Canadian Prime Minister Brian Mulroney won reelection, guaranteeing passage of the U.S.-Canada Free Trade Agreement that eliminates most trade barriers between the two countries. During last year's presidential campaign, George Bush expressed interest in a common market for North America and indicated that he wanted to negotiate a free-trade agreement with Mexico. President Bush is expected to direct U.S. trade representatives to negotiate such an agreement.

Mexico is already our third-largest trading partner (behind Canada and Japan), with trade between the two countries totaling $35.1 billion in 1987. A free-trade deal could solidify relations between the United States and Mexico and improve both countries' economies. U.S. companies would have guaranteed access to the Mexican market, as well as greater access to Mexico's abundant supplies of labor and petroleum. Mexico, on the other hand, would gain from an infusion of U.S. capital and technology. Some American companies already have assembly plants in Mexico, and newly elected Mexican president Carlos Salinas de Gotari wants to expand American operations in Mexico.

However, the two countries must overcome many obstacles before an agreement is reached. In Canada, fear of American economic domination almost killed the free-trade pact. Mexico's economy is much weaker than Canada's, and many of its people fear that eliminating barriers to foreign investment will lead to American ownership of Mexico's natural resources. U.S. investors already account for $10.1 billion of investment in Mexico—60 percent of all outside investment.

Mexico's $104-billion foreign debt, most of which is owed to banks in the United States, will further complicate trade negotiations. President Salinas has declared that his top priority is dealing with the debt and has hinted that any negotiations toward lowering trade barriers must be linked to a plan to relieve Mexico of its debt burden.

In addition, Mexican officials insist that a true common market implies free movement not only of capital and commodities but also of labor. Many economists think that the United States' low birthrate and expanding economy will lead to a need for more immigrant and migrant workers, a need that Mexico, with its high birthrate and high unemployment level, could fill. Mexican officials, however, question whether the United States will welcome millions of Mexican workers.

Negotiators will have to overcome some serious obstacles, but there is interest on both sides. Many experts believe that the United States and Mexico can reach some sort of trade liberalization agreement, although not one as comprehensive as the U.S.-Canada pact.