How South America Must Respond to North's Free Trade

FOR years the relationship between Mexico and the United States was beset with troubles. Neither side was able to rise above differences in ideology, attitude, and style to define a common vision for turning their 2,000-mile border from a source of conflict to one of mutual benefit. Recently, however, Presidents Carlos Salinas and George Bush launched their two countries toward a new era of cooperation. They committed their governments to negotiate a free trade agreement covering the whole range of visible and invisible trade as well as investment. In light of the free trade agreement between Canada and the US and ongoing negotiations between Mexico and Canada, a North American Free Trade Area could be in place within a few years.

Indeed, it is even possible to imagine an eventual common market with important elements of economic and political integration among the member states.

This prospective evolution of North American commercial, economic, and political relationships has important implications for South America. On the one hand, it will press the US to think constructively in regional terms, at a time when the national debate is increasingly tinged with elements of isolationism and economic nationalism. On the the other hand, it could reinforce an inclination in the US not to look much beyond its immediate neighbors. After all, Mexican economic and political stability is demonstrably in the US national interest, and it is not too difficult to find commercial opportunities which combine resources from both countries in ways that make each more competitive internationally.

However tragic might be the consequences, a case could be made that the evolution of South America is no more than a remote interest of the US.

Of course, no government official would state the case so bluntly, and the recent proposal by President Bush of an ``Enterprise for the Americas'' points in the opposite direction. Yet the seeds of disengagement are well planted. The fact that the US, after almost a decade, has failed to resolve the Latin American debt crisis suggests that the region has already been pushed to the margin of the US self-perceived interests.

Why is Mexico an exception? The easy answer would be the geopolitic reality imposed by a long, porous border. Throughout Latin America the conventional wisdom is that the US had no choice but to help with the Mexican debt and to open up to Mexican trade.

This explanation not only underestimates the US ability to miss the obvious - after all, the Mexicans experienced six years of economic stagnation and several failed attempts to reorganize the debt before the Brady Plan produced any significant debt relief - but fails to recognize the over-arching role of Carlos Salinas in defining the new bilateral relationship.

Specifically, the Mexican side contributed three key elements. First, the Salinas government, building on the efforts of its predecessor, consolidated the country's economic stabilization and accelerated the pace of structural reform. Second, the government defined the minimum debt relief which was needed to sustain Mexican economic recovery and persuaded the US to incorporate its ideas into what is now called the Brady Plan, just as President Bush was assuming office and looking for new initiatives. Third, the Mexicans - having dramatically liberalized their own trade regime upon joining the General Agreement on Tariffs and Trade - pushed the US side to accept North American free trade as a partial antidote to growing European and Asian regionalism.

The genius on the American side has been to recognize a good idea, and a willing partner, when it sees one.

What are the implications for others in the Americas? First, without successful economic stablization, nothing is possible. Second, the US is receptive to ideas which can be shown to be in its national interest. But those must be clearly defined and aggressively pursued.

President Bush's September trip to Argentina, Brazil, Chile, Uruguay, and Venezuela provides an opportunity to open a new chapter in intra-American relations. Unfortunately, despite the ``Enterprise'' speech, Bush is unlikely to come with either a comprehensive strategy for economic progress in the region or massive new financing to overcome the lingering debt crisis.

But the rapidly maturing relationship between Mexico and the US demonstrates the possibilities which exist for the rest of the region.

Our South American neighbors must convince us that closer economic relations are in the US national interest. Otherwise, free trade in North America will become an end in itself rather than the cornerstone for expanded regional cooperation and development.

And the whole hemisphere would lose.

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