SPECIAL REPORT

THE CHALLENGE FROM MEXICO

Peter C. Newman June 25 1990
SPECIAL REPORT

THE CHALLENGE FROM MEXICO

Peter C. Newman June 25 1990

THE CHALLENGE FROM MEXICO

PORTRAIT OF TWO NATIONS/BUSINESS WATCH

PETER C. NEWMAN

During the original free trade debate, which doubled as the 1988 general election, politicians stumped the land, calling each other scumbags, traitors, liars, power-hungry rats and, on at least one occasion, power-hungry scumbags. The Tories promised free trade would turn Canada into an economic Garden of Eden while the Liberals and NDP damned the deal as a pact with the devil that would destroy the Canadian dream.

Neither turned out to be right, but typical of the absence of understatement, which characterized the mudslinging, was Sheila Copps’s contention that the real victims of free trade would be the unborn. Once the agreement was signed, she shrilled, American lawyers would pour across the border, searching for surrogate mothers’ wombs to rent for their childless clients—presumably because Canadian childbirth would be cheaper with medicare. No cutrate womb-leasing has yet been reported, but just about everything that has gone wrong with this country’s economy since the free trade pact went into effect on Jan. 1, 1989, is being blamed on free trade.

As the survey in this issue shows, 57 per cent of Canadians believe that their country has been hurt by free trade, with only seven per cent recognizing any benefits. At the same time, two-thirds of Canadians are convinced that Americans have profited more from the deal than we have. The Canadian Labor Congress estimates that 105,000 jobs have already been eliminated by the pact. Not all these employment losses were due to free trade, but StatsCan confirms that 165,000 industrial jobs, a full eight per cent of the secondary-manufacturing labor force, disappeared in the past year. Undoubtedly, the combination of high interest rates and an artificially high Canadian dollar— most exporters would prefer a 77-cent exchange rate to the current 85 cents—have helped accelerate that process.

We now have the worst of both worlds: Canada is no longer the domicile of preference for American branch plants (which came here to jump over tariff walls that are about to

The worst is yet to come—Canadians who hated free trade with the United States are going to loathe free trade with Mexico

disappear), while most Canadian manufacturers brave enough to invade the American market are moving their factories south of the border. There have been minor Washington concessions, such as exempting Canadian companies in joint ventures with American partners from stiff antitrust rules soon to be applied to other foreigners, but so far the overall picture is bleak.

Bleak as our current situation may be, the worst is yet to come. Canadians who hated free trade with the United States are going to loathe free trade with Mexico. We’ll become peons to the Yankee dollar. Not only will such a tripolar North American trading pattern seriously dilute whatever small benefits have accrued from our treaty with Washington, but what’s left of Canada’s industrial base could disappear in the face of Mexico’s wage rates, which average 60 cents per hour.

At the Washington meeting held last week between presidents George Bush and Carlos Salinas de Gortari, the two leaders agreed that “a comprehensive free trade agreement between the United States and Mexico is the best vehicle” for achieving sustained trade and investment growth. White House spokesmen freely speculated that a full-scale North American free trade area, including Canada, will be

the ultimate result of these negotiations.

Bush apparently does not intend to be outdone by Ronald Reagan, who once speculated about a continental market, encompassing North America’s three geographical partners—355 million people with a combined gross national product of $6.4 trillion. Such an economic colossus would become the world’s most powerful trading bloc. (Under their 1992 economic union, the 12 Common Market countries will bring together 324 million people with an estimated GNP of $4 trillion.)

There is no firm timetable for such a daring rearrangement of trading patterns, but the U.S.-Mexico deal is likely to be signed during Bush’s first term. Canada will likely be involved in the talks and, last week in Montreal, Mexican Trade Minister Jaime Serra briefed Trade Minister John Crosbie on his country’s planned free trade discussions with the United States.

The Mexican initiative is part of Salinas’s impressive effort to revive the Mexican economy. Last July, Mexico concluded a precedentshattering deal with 500 commercial bank creditors, including Canada’s Big Six, reducing its $100-billion foreign debt by 10 per cent. Salinas’s National Development Plan projects that by the end of his term, in 1994, the value of the $26.5 billion that outsiders currently have invested in Mexico will double. The Mexican economy still has many structural problems, and a free trade partnership with the United States has become the centrepiece of Salinas’s recovery plan.

How, or even if, Canada plans to respond to the Salinas proposals is unclear. The ReaganMulroney agreement contains no provision for extending to Canada future trade benefits granted by the United States to any third country. Apart from having to compete in the American market against cheaper produced Mexican goods, Canadian manufacturers would have to face the devastating price levels of Mexico’s Maquiladora zone. That is the deregulated area of northern Mexico where workers turn out every imaginable product for duty-free import into the United States, under minimum income conditions, with virtually no health, safety or environmental standards.

Two-way trade between the United States and Mexico already totals $60 billion (Canada’s trade with Mexico is just over $2 billion), but the Americans are anxious to tap Mexico’s market of 85 million undersupplied consumers. What possible advantage the deal would be for Canada is impossible to calculate. But we may have no choice.

Back during the 1988 debate about free trade with the United States, Ottawa Citizen and Maclean ’s columnist Charles Gordon reflected some of the hysteria of the moment when he interviewed his dog on the issue. “Well now, Fido,” he demanded, “how do you think it will be when we have free trade with the Americans?”

“ROUGH!!”

Fido was right—and he didn’t even know about the Mexican connection.