The Mexican Connection

Back in 1956, when I spent a summer there as a high school student, Mexico really was “the land of eternal spring,” beautiful, though poor, and full of hope. The population, then at 34 million, was already growing fast and shifting from the countryside to the cities. Mexico City held 4.5 million. Today, the population of Mexico is nearing an estimated 90 million, with Mexico City home to 21 million: the biggest city in the world and the one with some of the worst air pollution. Across Mexico, poverty has become more desperate as it has become more urban.

Now there is another springtime of hope, with the outcome riding on a key vote in Congress in a week or so. That vote could pave the way for a North American Free Trade Association, the culmination of some remarkable political and economic changes in Mexico during the last decade.

To understand these momentous events, we first need to look at the past 40 years. Faced with adverse economic conditions and still resentful of historic North American imperialism, Mexico’s one-party government looked to Europe’s left for its economic ideas. By implementing many of them, the government allowed the country to suffer the same kind of sclerosis we have witnessed in Eastern Europe. In Mexico, mercantilism and socialism required that all elements in the population be protected, with a fair share of the economic pie guaranteed to each. But the pie kept shrinking. When an industry failed, the government would nationalize it, thus adding to the business inefficiencies and the government’s debts. Tariffs were kept high and foreign investment discouraged. In the 1970s, banks and international lending agencies were persuaded to lend huge sums to Mexico, burdening the nation today with a per-cap;-
ta debt four times that of the United States.

Another pernicious effect of the old system was political corruption, which is almost inevitable when governments operate supposedly private economic enterprises. Political competition was stifled by the realization that to be a political “out” in such a system often meant becoming an economic “out” as well. The individuals who defeated you in politics were in a position thereafter to limit your choices of future employment.

In the early 1980s, a policy realignment finally began, under pressure from the large, indignant younger generation of Mexicans who saw that their sole alternative to immigration to the United States was wholesale reform at home. Free trade, like other economic innovations, initially had to be forced on the ruling party, the PRI (Partido Revolutionario Institutional). Even today, under the leadership of Mexico’s ablé president, Carlos Salinas de Gotari, there seems to be an unwritten political understanding in force: reform and economic growth give the PRI its last chance to hold on to its broad political base, while privatization and the disentangling o f partisan patronage from economic activity give the PRI’s competitors a chance to create a multiparty democracy.

This is the context in which the Bush administration seeks to negotiate a free-trade agreement with the Mexicans, using a “fast track” that, if Congress authorizes it in the upcoming, controversial vote, will allow a final treaty to be returned to Congress in two years for a simple “up or down” vote with no amendments. When that happens, the United States and Mexico, with Canada, our present free-trade partner, will have effectively inaugurated a North American Common Market of 370 million people, the largest free-trade zone in the world,

Here in Washington state, we have a large stake in Congress’ forthcoming decision, for no state is more reliant on free trade or has as much to gain by increasing such trade worldwide.

Mexico is not a neighbor of Washington state, but it is on the Pacific Rim we talk about so much. More than 4 percent of our state’s population is now Hispanic, mostly Mexican-American. Economically, there is a modest but beneficial trade going on between Washington and Mexico, with $127 million exported from here in 1989, mostly in food, aircraft, and wood products. That trade is growing fast-according to some calculations, it is up 43 percent in two years. State exports to Mexico are running at a level six times that of imports, which are mostly chemicals and metals.

In the state Department of Trade & Economic Development, sentiment understandably favors the free-trade bill. A draft position paper on its way to Governor Booth Gardner forecasts a number of advantages, including increases in exports to Mexico of forest products, software, aluminum, and measuring and testing equipment. In contrast, it is hard to find any local industries that would be endangered by free trade. Washington doesn’t stand to lose automotive jobs, as critics claim will happen in the Midwest, or citrus-crop protection, as growers in Florida and California fear. Mexico under free trade may compete favorably with our asparagus crop and eventually with a few of our flower crops. Farmers may find that the very success of economic growth under the free-trade pact will ultimately reduce the flow of low-wage farmworkers.

But few would argue, at least publicly, that Mexico should stay poor so that low-wage farmworkers would be readily available here during harvest season. And the possible competition for our asparagus crop will be more than offset by the opening of a market of 90 million customers for Washington state apples. Mexico is aiready admitting our pears, and food-industry officials say that if Mexican consumers take to apples with comparable enthusiasm, the new market could absorb the equivalent of the entire Washington state apple crop just at the time when growers have developed pruning technology that will vastly increase production from existing trees.

Despite the overwhelming balance of ad. vantages for the Northwest in free trade with Mexico, however, there is no ignoring the arguments coming from other regions against the bill. Northwest branches of the AFL-CIO loyally endorse the national organization’s opposition to free trade with Mexico. But the passion is coming from the East and Midwest, especially from Detroit. Autoworkers fear that the free-market export zones, or maquiladoras, along Mexico’s northern border will be expanded to soak up still more US industrial jobs.

However, Mexico’s free-trade representative in Washington, DC, Dr. Hermann von Bertrab, said in Seattle recently that the maquiladoras are part of an overall liberalization of Mexico’s trade policies that, on balance, has helped, not hurt, US employment. In only four years, exports to Mexico doubled, and an estimated 400,000 jobs were added to our economy. That Mexico has gained, too, should not be held against it. Protection is a zero-sum game, but free trade it not.

Von Bertrab also chides free-trade opponents in the United States for exaggerating potential job losses due to a free-trade act, noting that even under present laws uncompetitive industries would continue to decline. Regarding the automotive trades, moreover, he cites a recent article by Hudson Institute economist Alan Reynolds that predicts that employment will likely go up in that field under free trade. The Mexican appetite for American automobiles persists despite a 20 percent tariff and exists for all kinds of models, not just the few produced–or likely to be produced–in Mexico. Under free trade, Mexico will import, as well as export, more cars and car parts.

Mexico, von Bertrab continues, does have cheap labor, but it lacks many other factors that go into job creation, such as infrastructure, distribution systems, education, and training an advantage that America already “Anyhow,” he asks, paraphrasing Keynolds, since when is poverty an unfair competitive advantage?”

Another argument used against the free-trade negotiations comes from Robert Kuttner, author of The End of Laissez Faire. Writing in BusinessWeek, Kuttner states that construction of a North American free-trade market would damage the ability of the US president to make more general progress in free trade under the GATT (General Agreement on Tariffs and Trade). “Preferential trade deals are clearly inconsistent with universal free trade,” he writes, and the Mexico deal could come back to haunt the Bush administration when it argues against similar preferential regional deals designed by other aspiring ‘mother nations’ in Europe and Asia”

The Kuttner assertion, however, looks suspiciously like “managed trade” or other protectionist policies in disguise. Under this approach, free trade cannot be achieved at all until it is achieved globally, perhaps in one great paroxysm of liberation or in several spasms. The GAl’T is stalled now, not by the prospect of a North American Common Market but by a belief among certain Europeans and others that their countries don’t have to stop protecting trade in order to grow. Far from removing incentives for free trade, a North American Common Market would be so attractive that America’s bargaining position for free trade would be enormously increased at the GATT. Free-trade agreements do not lead to retaliation by third parties, but to requests for the same treatment: more free trade.

There are, of course, other considerations of national interest that ought to be raised in the free-trade debate. Certainly, Mexican agricultural export products must meet U S health and environmental standards. And pollution generated by border-area export industries operating under the maquiladora program is a valid concern.

These and other issues are already being addressed, however. Mexico’s new environmental laws, for example, establish international standards of pollution control for all new plants. In any case, denying free trade to the Mexicans is not the way to improve their environment. Von Bertrab observes correctly that the most prosperous countries tend to have the best environmental programs, while the poorest countries have the worst. Impoverished Mexico seems ready now to make sacrifices to clean up its pollution problems, particularly after recent prodding by the Americans. The Salinas government recently closed the nation’s largest petroleum refinery, the worst air-polluter in Mexico City. But without economic growth it is hard to see where the government will find the constituency–or the money–to successfully wage this long-term environmental battle.

A portion of the resistance in the states to the tree-trade pact is due less, one suspects, to doubts about the Mexicans’ sincerity in adopting free-market views than to dismay that they have done so. Faced with the unexpected loss of faith in socialism, worldwide, some in America have sunk into a sullen pique. They have spent so much of their lives explaining how the capitalist West should at least converge with the statist Eat and, better yet, learn to be good losers that they are in danger of becoming sore winners. Whereas they would rush to embrace a Mexico that angrily demanded foreign aid as if it were reparations, they are put off by a Mexico that wants to be an equal trading partner. Oh, for the days when Mexicans plastered their library walls with murals of giant Yanqui plutocrats bent on eating Indian peasants!

But there is a new generation in Mexico and it is entitled to interpret the country’s present–and future–in its own way. It is impatient with condescension from any quarter. And it is quite pragmatic. President Salinas’ political masterstroke probably was to appropriate the economic program of the PRI’s lesser opposition party, the free market-oriented PAN (Partido Action National), thereby broadening his popular appeal and his international credibility.

In any event, there is no denying the genuineness of the progress under Salinas’ policies. Privatization of the government’s vast commercial holdings is not only removing the hand of partisan politics from daily economic activity; sales are reducing the national debt and, by removing subsidies and increasing taxable income, helping to balance the federal budget. Foreign. investment was first encouraged only in the export zones in the north, but is now also directed at the central part of the country, where most of the people and infrastructure are found. Import tariffs were dropped from as much as 100 percent to a maximum of 20 percent.

Among results that ordinary citizens can see are a decline in inflation from 180 percent to 20 percent, a big jump in exports as well as imports, and several years with economic growth rates of 3 percent and more. With free trade, the Mexicans think they can increase their annual growth rate to 6 percent.

Even the main opposition party’s leader, Cuanthemoc Cardenas, of the leftist PRD (Partido Revolutionario Democrata), seems to have a hard time arguing against the re form measures. He was in Canada a few days ago to meet with opponents of free trade there. Peter Cook of the Toronto Globe & Mail wrote that Cardenas was “cautious in his criticism, saying only that if he formed a government after the presidential election in 1994, it would “review a free-trade treaty.” Cardenas added that he personally would prefer “compensatory financing of development in Mexico by its northern neighbors, which Cook described as the sort of “woolliness” that got Mexico

Opponents in the United States, meanwhile, are coming up with their own unrealistic preferences for achieving a free-trade agreement that would protect America. (These preferences would include, for example, advance guarantees against job loss. While such guarantees are impossible, job retraining is definitely being planned now.) A bill by Senator Donald W. RiegleMichigan lists so many topic areas in which Congress could amend any treaty that comes out of the fast-track negotiations that the Mexicans would be sure to decline to enter the negotiations. Had such a bill been adopted with respect t o Canadian negotiations a few years ago, there would have been no treaty at all.

So far, the debate in the Northwest has been mild. Both Congressman John Miller and the Washington Council on International Trade have made strong statements advocating the negotiations. Senator Slade Gorton and the other Republican members of the state congressional delegation are sure to vote in favor. Speaker Tom Foley has announced that, consonant with a long record of support for free trade and subject to the administration’s assurances that ecological and other concerns he has raised will be addressed, he supports the fast-track negotiations with Mexico-although, as speaker, he will not be voting. Other House Democrats are still reviewing the bill’s particulars or quietly keeping their own counsel: Representative Jolene Unsoeld of Olympia is leaning against support of the bill; Norm Dicks of Tacoma is thought to be leaning in favor; Senator Brock Adams is currently supporting the Riegle bill. Votes could be close.

The fast track will probably be approved in the end, and for larger reasons than regional advantage or the worries of individual industries or unions. First, it is a major national interest of the United States to have a prosperous and stable trading partner south of our border, which free trade can help accomplish and which protectionism clearly cannot. Second, in an era when we have advertised the blessings of free trade to the whole world, it would be an international embarrassment for the United States to withhold a warm, free-trade abrazo for a neighbor who finally, and after many difficulties, is eager to return it.