AFTER meeting with President Bush earlier this week, Mexican President Carlos Salinas de Gortari left Washington satisfied that United States-Mexican talks for a bilateral trade agreement will commence in six months. The plan for December negotiations raised the ire of opposition groups here and expectations across the border. It also raised the prospect for a North American trade bloc - perhaps the largest single market - composed of Mexico, the US, and Canada.
Two-way US-Mexican trade is over $50 billion per year. The US is Mexico's largest export market and import supplier. The US and Canada, parties to a free trade agreement, are each other's largest trading partners. Canadian-Mexican trade is much smaller, less than 2 percent of US-Mexican trade in 1989 (see sidebar).
The proposed pact is expected to have a two-pronged impact on US interests. American manufacturers and wage earners argue that they will be undercut by low-cost Mexican workers and goods. US corporate investors, however, already enjoy Mexico's proximity, cheap labor, and loose environmental controls for their production. They look forward to a trade agreement that relaxes restrictions on foreign investment.
A joint statement issued by Mr. Bush and Mr. Salinas on Monday mentioned ``means to improve and expand the flow of goods, services and investment between the United States and Mexico.''
US Trade Representative Carla Hills says that Salinas is also pressing for greater labor mobility with the US. The Mexican economy cannot sustain the 1 million people entering the work force each year.
``Traditionally, immigration has not been a part of trade agreements.... When most Americans think of a free trade agreement, they do not think of an immigration agreement,'' she says. ``Therefore it's so easy to say, `I am for a free trade agreement.' '' Alluding to the potential problems of an influx of Mexican workers, she cautions both sides not to ``rush into unnecessary rancor because one set of expectations is different from the other.''
Salinas promotes impending negotiations as a step toward establishing the ``biggest market in the world.'' He also expects greater US investment in Mexico to spur confidence among Japanese and Europeans investors.
In February, Ms. Hills recalls, Salinas went to meet West European leaders only to find that Eastern Europe's needs have destroyed any enhanced financial interest in Latin America. Next week, Salinas will visit Tokyo to seek the Japanese assessment of a US-Mexican agreement.
Sylvia Ostry, chair of the Toronto University's Center for International Studies and former Canadian ambassador to the multilateral trade negotiations, says that a US-Mexican agreement ``is obviously driven by economics on the Mexican side and by politics on the American side.''
Opening up the US to Mexican goods and raising direct foreign investment would foster Mexico's growth. ``For the US, the choice is either capital flowing south or labor flowing north.''
Psychologically, Salinas sees an environment emerging in Mexico that is hospitable to outside investment. ``All over the world, there is a march to open up markets to investment. And real or imagined, there is a capital shortage in the world, with Eastern Europe making increasing demands,'' Ms. Ostry says.
Financial surpluses in countries like Germany and Japan are shrinking; the US savings rate may marginally increase, she says. ``There's a growing fear that if they don't open up, the resources will be gone.''
THE work toward an agreement may be Mexican driven, Ostry says, but it's important for Canada to get involved. It must watch how the agreement will affect investment flows to North America - will Mexico divert Japanese money, for example, from Canada?
She says that Mexico clearly wants to emulate Pacific rim countries such as Taiwan by providing foreign investors with lucrative opportunities and developing industrially in the process.
It is no accident that the negotiations are scheduled for December. By then, the Uruguay Round of multilateral trade talks on trade and investment barriers involving 106 countries, are scheduled for completion.
There is increasing skepticism that these talks will be completed successfully by the year's end. Ms. Hills stresses the talks as her top priority. ``The Mexicans didn't want to divert the agenda,'' says Ostry.