NAFTA Debate Resurrected In Light of US Bailout of Mexico

Labor, environmental advocates are seething at US aid to Mexico

JUST when the Clinton administration thought the tough fights had ended over the North American Free Trade Agreement (NAFTA), Mexico's peso crisis has sounded anew battle cries over the issue in Washington.

President Clinton's top economic policymakers spent this week fending off attacks on their decision to provide Mexico with $40 billion in loan guarantees - a move the president, Treasury Secretary Robert Rubin, and United States Trade Representative Mickey Kantor describe as essential to US jobs and national security.

They warn that abandoning Mexico's now-battered economy will only hurt US exporters and American workers who have an increasing stake in Mexican commercial markets and cause a flood of illegal migration north in search of higher living standards.

While the White House has the full backing of the nation's prudent central banker, Federal Reserve Board Chairman Alan Greenspan, as well as bipartisan approval from congressional leaders, he must still fight an odd mix of critics to get legislators to pass the loan guarantee bill.

Labor and environmental activists, consumer gadflies, and the Republican right - all anti-NAFTA forces who were active until the accord was passed a year ago - are seething at the US move to help to its southern neighbor.

They call it the ``multibillion dollar bailout of NAFTA,'' designed to stick US taxpayers with the bill to shore up an economy competing for American jobs.

On Capitol Hill, some GOP lawmakers and a handful of Democrats are bucking their leadership by rejecting the Clinton plan. Rep. Duncan Hunter (R) of California is hopeful that House Speaker Newt Gingrich (R) of Georgia will back away from his initial ``patriotic'' response to Clinton's call for support.

Rep. Peter DeFazio (D) of Oregon, among others, wants to repeal NAFTA. Giving Mexico a financial boost will ``help pave the way for more US manufacturing jobs moving south of the border,'' he says. ``It's time to pull the plug on this disaster-in-the-making.''

``These guarantees are not foreign aid, they're not a gift, and they're not a bailout,'' Mr. Clinton retorted this week. ``They are equivalent to cosigning a note.'' Washington will impose conditions on Mexico, he says, including a demand that it make an advance payment. The US has extended loans and loan guarantees to Mexico since 1941, he added, stressing that ``Mexico has always made good on obligations to the US.''

Conservative Pat Buchanan seemed to capture many rejectionists' concerns when he told reporters that the loan guarantee would only benefit New York banks by ``saving the faces, fannies, and fortunes of Wall Street.''

But private bankers and analysts quickly point out that most of the investments Clinton seeks to protect are not individual investments made by well-heeled speculators but are large US mutual and pension funds representing average working Americans.

Mexico's sharp devaluation of its currency and the US loan guarantee can be ``very constructive ... if the right lessons are learned,'' says Susan Kaufman Purcell, vice president of the Americas Society in New York. Mexico must make the most of the low peso by exporting more.

Toward that end, she says, it needs foreign direct investment - in factories, waterworks, power plants, and other physical assets. Such essential building blocks for the Mexican economy are hard to remove when the going gets tough, ``unlike stock market financing, which can be pulled by portfolio investors with the flick of a computer button.''

The peso crisis sends ``a very strong message that portfolio investment is a dangerous foundation upon which to build growth,'' says David Rothkopf, deputy undersecretary for international trade-policy development at the Commerce Department.

``We've seen that in the face of these problems, this Mexican government has chosen more reform, not less; it has chosen more opening, not less,'' he says. ``The payback for the US loan guarantee is that a country with 80-plus million people sharing our 2,000-mile border stays stable.''

Mr. Rothkopf, the day-to-day director of the administration's emerging-markets strategy targeting up-and-coming regional economies as most promising for the US, says the Mexican government's commitment to additional reforms and the evolving reality of NAFTA ``makes it a better big emerging market than it was a year ago.''

Last year, Mexico overtook Japan as the second-largest market for US exports. Canada, the other NAFTA partner, remains the top country for US sales of goods and services. NAFTA still draws foreign investors, according to Klaus Agthe, the North American liaison for VIAG AG, one of Germany's top 10 firm with $4 billion invested and 15,000 employees in the US. ``We were and we are very high on Mexico,'' Mr. Agthe says. ``When we look at this whole region, we think of NAFTA.''

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