BUSINESS WATCH

Danger lies south of the Rio Grande

Peter C. Newman December 3 1990
BUSINESS WATCH

Danger lies south of the Rio Grande

Peter C. Newman December 3 1990

Danger lies south of the Rio Grande

BUSINESS WATCH

PETER C. NEWMAN

The house organ of American capitalism, Business Week, is already proclaiming the birth of “THE NEW NORTH AMERICA—population, 356 million; gross national product, $6.6 trillion!” It would be the world’s most humongous trading bloc—even gaining a trillion dollars or so, when its commercial flows are calculated in Canadian dollars. The magazine celebrates the vision of a new trading bloc “stretching from Anchorage to Acapulco,” with new trade and financial flows “touching off a decade or more of rapid economic growth fuelled by a surge of investments to restructure industry on a continental scale.”

Great stuff.

The advantages for Mexico of a North American common market are obvious. President Carlos Salinas de Gortari, the Harvardtrained economist determined to reform his grievously underemployed economy, faces the dilemma of a population due to grow by 25 million, to 109 million, in the next two decades. His only hope of providing them jobs is to attract capital investment south of the Rio Grande: the lure is hourly wages plus benefits that average $1.89, less than half the going rates in Taiwan or South Korea. Salinas rightly regards free trade as the best chance of keeping his citizens from moving north. “To us,” he says, “free trade means more job creation and less immigration to the United States. We want to export goods, not labor.” (When Mexico hesitated to send a team to the 1984 Olympics in Los Angeles, the joke explanation was that every Mexican who could run, jump or swim was already in the United States.)

The United States has even better reasons for signing a free trade deal with the Mexicans. As well as the overwhelming advantages of tapping a cheap and easily accessible labor pool, free trade would give American manufacturers an extra market of 84 million goodshungry consumers. In the past four years, U.S.-Mexican commerce has tripled to $70 billion, and a comparison of per capita annual

A new trade deal would stop Canadian manufacturers from fleeing to the United States. They’ll move to Mexico instead

incomes ($2,668 for Mexico compared with $24,360 in the United States) demonstrates how much of a gap in consumer spending there still exists. And then there’s oil. At the moment, Mexico’s constitution prohibits foreign investment in energy, but access to petroleum will be Washington’s main bargaining objective, as it was with Ottawa. Now that the Middle East is a tinderbox, the Americans want to ensure safety of supply on this continent. Whether or not the Americans are able to buy into or sign exploration contracts with Pemex, Mexico’s state-owned petroleum monopoly, could determine the success of the free trade talks, due to start on June 1.

In Canada we’re being reassured by Ottawa and such advocates of the potential deal as the Business Council on National Issues that we have nothing to fear from cheap Mexican goods flooding our domestic market under continental free trade, because, although 80 per cent of Mexican imports already come in duty free, the annual total is still less than $1.5 billion. That’s true. But it’s not the point. As the Canadian novelist and current head of PEN John Ralston Saul warned at the time the Mulroney government was negotiating free trade with the Americans, because of the maquiladoras

sweatshops, our already tottering secondarymanufacturing sector will become terminally vulnerable under the proposed arrangement. At least a North American trade deal would stop our manufacturing plants from fleeing to the United States. They’ll move to Mexico instead.

Canada’s main flash point for any North American trade deal will be the continued viability of the U.S.-Canada Auto Pact. Once free trade with Mexico is a fact, there would be little reason for any car manufacturer to stay in Canada, no matter how heavily his company has invested here. Half a dozen Canadian autoparts manufacturers have already opened Mexican plants and others are in the process of moving there. The wage differentials in what remains a labor-intensive industry are just too wide to be bridged. Unskilled assembly-line workers in Ontario average $14.71 an hour, compared with Mexico’s $1.20.

Ford recently shifted some of its car-seat production from St. Thomas, Ont., to Mexico, throwing 140 people out of work, and the trend will continue. Car manufacturing has almost overnight become Mexico’s fastest-growing industry, and General Motors is the country’s largest private employer. Chrysler assembles complete cars there, and Ford has just spent nearly $1.2 billion for a new assembly line to produce Mercury Tracers for the U.S. market. Nissan is investing $1.2 billion for a car plant, with a dozen Japanese parts suppliers opening feeder operations in the same area. The Japanese consider the cars to be of high enough quality to ship back to Japan. Volkswagen’s whole North American production has been concentrated at Puebla, just east of Mexico City, where a new factory is planning to supply its Beetles to the entire South and Central American market.

What has maintained the Auto Pact as an important protection for us is that under its terms cars with less than three-quarters Canadian or American content are considered imports. That makes them subject to both tariff and non-tariff barriers. But if this “North American content” rule is widened to include Mexico, the high-cost Canadian carand partsmanufacturing plants will be left out in the cold.

Dealing with our new trading partners may prove to be tricky. “Mexico is a cuate society,” says Ted Rushton, an expatriate Canadian essayist who has spent a lot of time there. “It’s a term from the Nahuatl Indians which means ‘twin brother,’ and the basic principle underlying social relations is this one of reciprocal interchanges between partners through which personal and collective security exists in the creation of personal and economic support networks. On a personal basis, it means Mexicans share deep and intense friendships, fierce loyalty and, within the network, unrestrained generosity.”

With no benefits due to us, we should stay out of any free trade arrangement with Mexico. Facing the dangers of a North American common market, we should adopt Ramon Hnatyshyn’s slogan when he was federal energy minister. “Free trade,” he warned, “is like wife-swapping with a bachelor.”