COLUMN

A modem hero for a developing nation

North American free trade will especially benefit Mexico, which has suffered from a history of revolution and repression

DIANE FRANCIS April 8 1991
COLUMN

A modem hero for a developing nation

North American free trade will especially benefit Mexico, which has suffered from a history of revolution and repression

DIANE FRANCIS April 8 1991

A modem hero for a developing nation

COLUMN

North American free trade will especially benefit Mexico, which has suffered from a history of revolution and repression

DIANE FRANCIS

Many people think of Mexico as a right-wing Latin American dictatorship. But it is really a burgeoning democracy hobbled with socialism that didn’t work, more similar to Poland than to Paraguay. Despite huge oil wealth, Mexico has been unable to provide a decent standard of living for most of its citizens. This is largely due to its cancerous population growth and also because of a history of government ineptness, economic intervention, corruption, bans on foreign investment and a poor work ethic fostered by excessive union interference. Unions are mandatory in workplaces with five employees or more, and many unions exercise the right to hire and fire workers.

On the plus side, however, Mexico has one of Latin America’s highest literacy rates, 90.3 per cent, and provides many benefits, including free universal medical care to all its citizens— something the Americans do not even have. Despite these goodies, Mexico, like Eastern Europe, found that one of its biggest exports was people. An estimated 1.5 million Mexicans brave bullets to pour across the U.S. border every year, for the chance to work there illegally. Stopping this flood of humanity is the biggest force driving Mexico and the United States to a free trade deal.

The growing opposition to free trade in the United States, and Canada, has prompted Mexican President Carlos Salinas de Gortari to visit both countries this month. Salinas is worried that the recession-frightened Congress may take a protectionist stance and deny the Bush administration its requested fast-track mandate to negotiate a deal with Mexico. Both countries consider that fast-track approval, which means Congress would vote on the entire proposed agreement rather than subject the deal to a clause-by-clause vote, is essential to obtaining a free trade treaty. To counter the U.S. opposition, Mexico has set aside a $ 14-million war chest for lobbying efforts. Its fears are well founded. After all, Canada barely obtained fasttrack approval in 1987 from an equally protec-

tionist Congress at a time when both economies were booming and the wage gap between Canada and the United States was slight.

Influential Californians, for one, worry that cheap goods will flow into their state if tariffs fall or if bans on Mexican agricultural products are lifted. Canada, by contrast, has little reason to worry. Our direct two-way trade with Mexico is only about $2.7 billion annually, and is mostly in food and automotive parts. Even when Canadians and Mexicans compete for U.S. market share, it is mostly in commodities such as oil, natural gas or forestry products, which already flow tariff-free.

Canadians also need not fear that cheap Mexican labor rates will cause a flood of cheap products here. If that is going to happen, it would have happened already, due to our relatively low tariffs on Mexican imports, currently averaging 10.6 per cent. Indeed, low wage rates alone do not translate into, trade success, nor do high wages always cause catastrophe. Both Canada and the United States enjoy high wage rates, but still compete handily against the world’s low-wage countries. North America’s success mostly relies on productivity, education, automation, a modem economic infrastructure, proximity to markets, relatively low

interest rates, access to cheap capital, economic and political stability, and talented executives.

Salinas, a Harvard-trained PhD in economics who advised his predecessor before becoming president in 1988, has been instrumental in trying to drag Mexico’s economy into the 20th century. Ruinous debts were renegotiated, wage and price controls imposed and the economy opened to foreign investors and trade. Tariffs dropped dramatically after 1986, when Mexico signed the General Agreement on Tariffs and Trade. Even after such sweeping changes, Mexico remained an orphan outside trading blocs, so Salinas sought, and found, support from Bush (who has a Mexican daughter-in-law). They initiated trade talks and now seek Congress’s blessing. Ottawa has already given its nod wisely in a move that, as Salinas told me in an interview in Mexico City last month, will mean Canadian (or American) workers will benefit from “a stronger Mexican market, with 82 million people.”

As for Mexico’s low wages, he added: “We do not want low wages to be permanent. On the contrary, we are looking for economic recovery to improve and increase real wages in relation to productivity. Our perspective is that with such a trade agreement, real wages in Mexico will increase. Last, but not least, if you do not cope with competition, jobs will be lost anyway to other countries.”

Those who remain unconvinced should look at the European Community experience, where cheap-labor countries such as Spain, Portugal and Greece joined forces with high-cost-labor countries such as Germany and other community members. Not only are all of them now prospering, but also the richer members lend the poorer members millions of dollars to build railways and other infrastructure to facilitate trade. This is what Canada and the United States should do for Mexico. Those still skeptical should look at the benefits derived from the Canada-U.S. 1965 Auto Pact. Between 1975 and 1988, wages in U.S. manufacturing, largely driven by auto-industry wages, went to $16 an hour from $7.50 while in Canada they increased similarly, to $16 from $7. Meanwhile, the EC and the multilateral GATT process have resulted in Japanese wage rates soaring to $15.50 hourly from $3.75, Spain’s to $10 from $3, and South Korea’s to $3 from 50 cents an hour.

Such figures underscore the fact that freer trade, whether multilateral, trilateral or bilateral, is not a zero-sum game. Every country wins, and hopefully President Salinas will convince Congress of that. Not only will a North American free trade area produce economic benefits for all three countries, but it will particularly give a hand to the Mexican people, who have struggled and suffered through a savage history of revolutions and repression. Salinas institutes electoral reforms, cracks down on corruption and human rights abuses and continues to clean up the environment. He is to Mexico what Lech Walesa, with his tough economic medicine, is to Poland and the world: a patient visionary who should be encouraged, not spurned, as he tries to lift his people out of their malaise and misfortune.