BUSINESS

TRADING PUNCHES

MEXICO’S PRESIDENT TRIES TO SHORE UP SUPPORT FOR A NORTH AMERICAN FREE TRADE ZONE

ROSS LAVER April 22 1991
BUSINESS

TRADING PUNCHES

MEXICO’S PRESIDENT TRIES TO SHORE UP SUPPORT FOR A NORTH AMERICAN FREE TRADE ZONE

ROSS LAVER April 22 1991

TRADING PUNCHES

MEXICO’S PRESIDENT TRIES TO SHORE UP SUPPORT FOR A NORTH AMERICAN FREE TRADE ZONE

BUSINESS

In public, Mexican President Carlos Salinas de Gortari says that he is optimistic about fulfilling his dream of a free trade zone encompassing Mexico, the United States and Canada. But a glance at Salinas’s hectic travel schedule last week indicated that he is taking nothing for granted. The Mexican leader’s agenda included private sessions with President George Bush in Houston and Prime Minister Brian Mulroney in Ottawa. He then visited Montreal, Toronto, Boston, Chicago and Austin, Tex., meeting with politicians, business leaders and labor representatives in a whirlwind campaign to secure their support for the proposed three-way trade agreement. But despite his efforts, Salinas left many of his opponents unconvinced. “He was very eloquent, very firm, very friendly,” said Canadian Labor Congress president Shirley Carr, who spent 45 minutes with Salinas in Ottawa last week at the Mexican president’s request. “But I was not swayed one bit.”

A day after that meeting, Salinas attempted to reassure a business audience in Toronto. He said that he is confident that his goal of eliminating trade barriers among the three countries “will prevail over the temptation towards protectionism.” But clearly, the Mexican leader knows that he must counter powerful protectionist forces. Both Bush and Mulroney have strongly endorsed his call for North American free trade. They say that it will benefit all three countries and improve their ability to compete with Europe and Japan. But labor leaders, environmentalists and members of some business groups in the United States and Canada take a different view. They maintain that hundreds of thousands of Canadians and Americans will lose their jobs under a trilateral free trade agreement as businesses move to Mexico to take advantage of cheaper labor and less stringent pollution controls.

In the short term, at least, the debate about North American free trade is likely to have little effect on Canada’s participation in the talks. Mulroney has strongly supported Salinas’s drive for liberalized trade since meeting the Harvard-educated political economist in Mexico City in March, 1990. Opposition to such an agreement has come mainly from labor unions and the New Democratic Party. The federal Liberals, who campaigned against the Canada-U.S. Free Trade Agreement (FTA) in the 1988 election, have taken a more muted position towards trilateral free trade, although Opposition Leader Jean Chrétien has said that it must be accompanied by retraining programs for workers who lose their jobs as a result.

Despite the criticism, Mulroney is under little immediate pressure to change his policies. His party now holds 159 of the 295 seats in the Commons—enough to guarantee safe passage of a trade bill if, as currently planned, a final agreement is worked out by the end of this year.

In the United States, however, the legislative process is more complicated. That is because the U.S. Constitution grants Congress, rather than the President, jurisdiction over all matters involving international commerce.

To ensure that the negotiations with Mexico and Canada proceed smoothly, Bush needs to secure an agreement with Congress that it will deal with the accord under a provision known as “fast-track.” Under that process, Congress has the authority only to approve or reject the entire agreement signed by the President—it cannot amend it. Bush’s right to negotiate under the fasttrack procedures is set to expire on June 1, but it will be extended automatically for another two years unless a majority of members in either the House of Representatives or the Senate votes to rescind the authority.

During his U.S. visit, the Mexican president repeatedly stressed the dangers of failing to reach an agreement, dealing head-on with the job-loss fears raised by opponents of trilateral free trade. He added that failure to approve a liberalized trade treaty could lead to a massive wave of Mexican immigration to the United States. Said Salinas: “Without the agreement, there is a real prospect of generating a flow of millions of immigrants seeking jobs in the United States.”

In the House of Representatives, the opposition to freer trade is led by Democratic Representative Byron Dorgan of North Dakota, a state heavily dependent on agriculture. Democratic Senator Ernest Hollings of South Carolina, a state whose textile industry is vulnerable to low-cost imports, has also spoken out in

favor of protectionism. Fearing that their constituents would be hurt by freer trade with Mexico, both men have introduced motions that would prevent an extension of the fasttrack rules.

Hollings and many other U.S. legislators say they are worried that every job created in Mexico by free trade will be matched by a job lost in the United States. Some of them even oppose the administration’s participation in the current round of international trade negotiations under the General Agreement on Tariffs and Trade. Declared Hollings: “The emerging GATT deal and Mexican free trade are so damaging to key sectors of our economy and workforce that they simply will not stand up under unfettered congressional debate.”

As in Canada, organized labor is spearheading the opposition in the United States. But many large employers are also actively opposed to a trilateral trade agreement, and they are pressing Congress to block the negotiations. “I’m not a protectionist, but free trade with Mexico is very threatening to us,” said John Meier, general manager of Libby Glass Inc. of Toledo, Ohio, the largest U.S. manufacturer of drinking glasses. He added that he has asked each of his firm’s nearly 16,000 employees to write their congressional representatives to express their opposition to the trade talks. He also travelled to Washington in February to testify before the House ways and means committee. “Mexico is already responsible for producing 15 per cent of the glassware imported into the United States,” Meier said. “Their wage rates are 90 per cent less than mine, and they are not restrained by the same sort of environmental laws and labor regulations.” In fact, most analysts say that they doubt that many legislators will actually vote against extending fast-track. For one thing, most congressional representatives will want to avoid open opposition to a president whose domestic popularity is still soaring as a result of the U.S.-led allied victory in the Gulf War. “The President is staking a lot of political capital on this issue,” said Jonathan Lemco, a senior researcher for the Washington-based National Planning Association, a trade group that closely monitors hemispheric affairs. “My gut instinct is that, coming from his success in the Persian Gulf, the President will get what he wants. But it will be very close.”

Bush also has a powerful ally in Senator Lloyd Bentsen, the Texas Democrat who is chairman of the Senate finance committee. Bentsen, whose committee handles trade matters, is a strong supporter of free trade with Mexico—in part, his colleagues say, because

he believes that it would result in a commercial boom for impoverished Texas border towns. And it is up to Bentsen, the 1988 Democratic vice-presidential nominee, to decide when the finance committee votes on Hollings’s motion. As one committee staff member told Maclean’s, “Bentsen will hold the vote at a time when it has the least chance of passing.”

Still, the Bush administration is clearly concerned about growing protectionism. In a concession to Democrats worried about Mexico’s lax environmental standards, Trade Representative Carla Hills has undertaken to pressure Mexico to crack down on industrial polluters. At the same time, the U.S. Environmental Protection Agency is now negotiating an agreement with Mexico to reduce air and water pollution in border areas. Administration officials also say that they will respond by May 1 to congressional demands for tougher child-labor and worker safety laws in Mexico, and for measures to assist U.S. workers who lose jobs because of free trade. Said House Majority Leader Richard Gephardt, a Missouri Democrat whose support is critical to the success of an agreement: “I am prepared to lend my full support to a North American free trade zone if the agreement creating that zone fights for American jobs, preserves the world’s environment and defends the rights of Mexican workers.”

In its efforts to appease Congress, the Bush administration has stepped up its pressure against Canadian trade interests. Last month, Hills announced that the United States was planning to appeal a recent unanimous ruling by a five-person binational trade panel that ordered the U.S. government to stop imposing duties on imports of Canadian pork. Under the FTA, trade panels normally have the final say in settling disputes between the two countries, except in cases in which it is alleged that the panel has exceeded its jurisdiction or that one of its members is guilty of gross misconduct. According to Canadian trade officials, neither of those conditions applies to the pork decision. They argue that the Bush administration bowed to pressure from Congress in appealing the ruling and, in the process, has cast doubt on the FTA’S dispute-settlement mechanism.

In the end, most trade experts predict, the United States will lose its appeal of the pork ruling. But the controversy over the U.S. decision is unlikely to fade soon in Ottawa. Last week, Trade Minister John Crosbie told reporters in New York City that the U.S. appeal was an “abuse” of the FTA and that its outcome “will affect whether or not Canada enters into any other free trade agreement.” For his part, Salinas said that one of the key attractions of the Canada-U.S. trade pact was that it helped to remove trade disputes from the political arena. By appealing the pork ruling, the Bush administration has undermined that feature of the 1989 agreement—and, it appears, complicated efforts to create a wider free trade zone involving Mexico.

ROSS LAVER

NANCY WOOD

DEIRDRE McMURDY

WILLIAM LOWTHER