Look Southward, US
The biggest trade opportunities for the United States aren't with Japan, but with the newly opening economies of Latin America. THE GLOBAL ECONOMY
THE market-opening objectives that were sought in vain by President Bush on his recent foray to Japan should be pursued closer to home - in Mexico and the rest of Latin America - where they are far more easily attainable. Mexico is ready to sign a North American Free Trade Agreement (NAFTA) with the United States and Canada, providing for reciprocal reductions in import and investment barriers, and most Latin American countries are eager to follow suit.Skip to next paragraph
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Americans, even those who should know better, tend to spurn Mexico and Latin America as a collection of poor countries without much economic importance for the US. They think Japan is where the commercial action is - where the high-profit markets are to be found.
Americans need to get the facts right. The US actually sells more to Latin America each year than it does to Japan - and more than one-half of those sales are destined for Mexico.
Living on less than one-tenth the income, the average Mexican spends nearly as much per year on US products as the average Japanese (about $300 versus $400). Not only is Mexico already a booming market for US goods and services - prominently including Detroit's automobiles - but the potential for expansion is also enormous, probably greater than that of Japan.
In the first place, Mexico - along with most other Latin American countries - is just beginning to recover its economic dynamism after a prolonged slump that forced imports, wages, and public spending to contract sharply.
Following a painful economic restructuring, Mexico has established a sound strategy for sustained growth that will require stepped-up purchases from abroad - most of which will come from the US. For each dollar that Mexico spends on imports, almost 70 cents goes to the US; the comparable figure for Japan is less than 25 cents. Stimulated by a free-trade agreement, an open and growing market in Mexico would mainly benefit US exporters. Not so in Japan, where European and Asian traders would score the most
gains from reduced protection.
Just as US sales to Japan mean more jobs for American workers, so do sales to Mexico. Reciprocal market access with Mexico - precisely what we demanded of Japan - is what NAFTA is all about, and it will create employment at home.
Substantial economic changes inevitably cause disruptions, however, and some American workers will lose their jobs. The US government should stand ready to assist these workers generously through, for example, retraining, resettlement allowances, and the like. Rather than opposing free trade with Mexico, labor unions in the US should fight for these kinds of benefits.
Economic advantage is a powerful reason for Washington to pursue a free-trade pact with Mexico. But it is not the only reason. For the first time this century, the US and Mexico - facing each other across a 2,000-mile-long border - have the opportunity to become genuinely good neighbors.
Never have the prospects been better for the two countries to engage in effective cooperation on such shared problems as drugs, migration, and the management of scarce water resources.
In addition, Mexico has become increasingly attentive to US concerns about human rights, democratic practice, labor conditions, and environmental contamination.
This is the right time for the US and Mexico to try to reach mutually acceptable agreements on these issues, although not necessarily as part of a free-trade accord. Indeed, none of them can be resolved once and for all; what is crucial is to assure that they remain prominent on the bilateral agenda.
The conclusion of a NAFTA agreement with Mexico and Canada would point the way toward free trade throughout the Americas. Whatever the economic and political gains of open trade arrangements with Mexico, these could be doubled by extending the arrangements to the entire hemisphere.
There are good symbolic and practical reasons for Washington to sign a free-trade pact with Mexico first. But the US should not be hesitant to start negotiating with other Latin American countries - like Chile and Venezuela - that are striving to meet US conditions for free trade. It would be understood that any early agreements would be subject to modification to insure their compatibility with NAFTA.
Ideally, the NAFTA agreement would be signed by this spring and quickly ratified by Congress - in defiance of the rising protectionist pressures in the US.
That timetable should then allow free-trade accords to be concluded with other Latin American countries and endorsed by Congress in early 1993 - prior to the termination of the special "fast track" procedure for approving international trade agreements. That, in turn, could create the necessary momentum for sustained movement toward free trade throughout the Western Hemisphere.
In the end, however, a good agreement with Mexico - one that can be supported by a healthy majority in the US Congress and is viewed positively by the American and Mexican people - is more important than any quick accord. And once a good agreement with Mexico is in place, others will follow.
Eventually, US trade routes to Sao Paulo and Santiago, to Caracas and Cartegena, and to Bogota and Buenos Aires may become busier than those to Tokyo.