Bush Bulls Ahead On Free Trade With Mexico

It's a gambit few thought George Bush would try in the heat of a Presidential campaign. He's already wading through an economic quagmire, and Democrats are taking potshots at his trade policies with Japan and Europe. Undaunted, he plans to send Capitol Hill a controversial free-trade pact linking the U.S. to Mexico and Canada. Declares U.S. Trade Representative Carla A. Hills: "Politics is not a cause for delay or derailment."

Bush is gambling that free trade's promise for exports and growth will win out over widespread doubts. The political payoff: a "yes" vote by the Democratic-controlled Congress would hand the President a major election-eve victory. But Bush is running a big risk. Democrats have warned that opening the border in an election year may trigger a bitter battle over job losses to low-wage, polluting industries in Mexico.

The crunch starts on Feb. 17 in Dallas, where 400 negotiators from the U.S., Canada, and Mexico will convene for a marathon bargaining session to complete a draft North American Free Trade Agreement (NAFTA).

They'll be wrestling with such thorny issues as local-content regulations, a phaseout of tariffs on everything from avocados to petrochemicals, and methods to resolve future trade spats (table).

URGENCY. A provisional pact could reach Congress by April. For it to fly, it will probably have to make concessions to congressional opponents on issues such as safeguards for farmers and vulnerable industries such as glass and textiles. And the Mexicans' hunger for a deal means they are likely to yield to key U.S. demands, such as raising hurdles for investors outside North America.

One reason for the urgency is the near paralysis in the five-year effort to lower global trade barriers under the General Agreement on Tariffs & Trade (GATT). That could leave NAFTA as Bush's only major initiative in international economic policy. Moreover, "regardless of how GATT goes, ultimately it's a good idea to have a NAFTA," says Joseph T. Gorman, chairman of automotive and aerospace manufacturer TRW Inc.

Although the political timing is chancy in the U.S., it can only get worse in Mexico and Canada. Mexican President Carlos Salinas de Gortari, a free-trade advocate, can't run for reelection when his term expires in 1994. And Canadian Prime Minister Brian Mulroney, whose approval rating has fallen below 20%, faces the voters next year at a time when opposition to free trade is rising.

Within the Administration, free trade is an article of faith. Robert A. Mosbacher, who chairs Bush's reelection effort, and Secretary of State James A. Baker III, insist that NAFTA is crucial to maintaining the U.S. export boom. The two Texans like to point out that free trade with Mexico is popular along the border, especially among Hispanics in vote-rich California and Texas.

But some recent Administration actions have won few converts on the Hill. Despite promises to ease the strains caused by opening the borders, Bush's 1993 budget would even delete funding for existing trade-adjustment assistance programs. These are designed to help workers whose jobs are wiped out by imports. "Even the Administration has to realize that's not going to wash," says Mark Anderson, a lobbyist for the AFL-CIO, which opposes the accord.

Nor did news from Mexico reassure U.S. labor. On Jan. 31, Salinas' police arrested a Matamoros union leader after he led a successful strike by workers in a maquiladora, or border plant.

U.S. corporate enthusiasm for the accord is strong, however, and the White House is counting on the business lobby to push a bill through. Mexico is becoming "the most important investment site in the world" for small and medium-size U.S. businesses, says Willard A. Workman, director for international policy at the U.S. Chamber of Commerce.

FOURTH NEGOTIATOR. Yet others are worried that Japanese companies will move faster to take advantage of the opening. "I would not want Mexico to become a launching pad for more Japanese production," warns Robert A. Lutz, president of Chrysler Corp. To avoid that, U.S. carmakers want a stiff local-content requirement: To qualify for duty-free status, 60% to 70% of the value added to each car would have to be North American parts or labor. "It ought to be high enough so that you get the guts of the automobile--at least the brainwork--performed in North America," TRW's Gorman says. But to lure foreign investment, Mexicans want the content requirements kept to the 50% level adopted in the 1988 U.S.-Canada Free Trade Agreement.

In effect, Japan has become the fourth party at the negotiating table. Nearly all U.S.-made laptop computers now incorporate Japanese flat-panel displays. As a result, U.S. computer makers oppose an Administration proposal that laptops must include screens made in North America to qualify for duty-free status. Tying origin requirements to a single component "sets an outrageous precedent," complains William Fasig, Apple Computer Inc.'s manager for international government affairs.

Congressional Democrats are still skeptical that negotiations will produce a pact they can live with. If Bush's all-or-nothing push is rebuffed by Congress, the result could be a setback to free trade that lasts long after the election hubbub has died down.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE