Online Extra: It May Be Time for a "NAFTA Plus"

To reap the pact's true potential, many officials and experts say it needs to be implemented on a broader scale

When the North American Free Trade Agreement was being negotiated, Mexican President Carlos Salinas wanted it to include freer labor movement across the border and legalization of Mexican workers already in the U.S. President George H.W. Bush wanted Mexico to open its oil sector to foreign investment. But both men realized these subjects would be deal-killers in their respective congresses, and so they left such issues to future generations.

Now, government officials, academics, and businesspeople are focusing again on migration and energy cooperation -- and on agricultural policy and regional infrastructure development as well -- to achieve what some call "NAFTA Plus." The agreement has been great for business, says Andrés Rozental, president of the Mexican Council on International Affairs. "But we've done nothing to build the idea of a North American community that would deal with the issue of broader economic and political integration,"he says.


  President Vicente Fox, upon taking office three years ago, proposed that the U.S. and Mexico start a profound discussion of where they thought the bilateral relationship should be in a decade or two. Top on his list was immigration reform: Fox wanted Washington to expand the guest-worker program that allows Mexicans to work temporarily in America and give legal residence to several million Mexicans living in the U.S. But that was sidetracked by September 11.

Mexican officials stress that they're not asking for a handout. "A migration agreement would be the way to find an equilibrium between demand and supply of workers in the two markets," says Foreign Minister Luis Ernesto Derbez.

Former Commerce Secretary Jaime Serra Puche, Mexico's chief NAFTA negotiator, also is promoting greater cooperation in agriculture. He believes the U.S., Canada, and Mexico should protect North American agricultural products from imports, just as Europe and Japan safeguard their own farm sectors. The three countries would decide which crops it makes sense for each to grow: The U.S. and Canada would produce high-volume grains, and Mexico would concentrate on labor-intensive fruits and vegetables.


  Farmers who suffer as a result -- say, tomato producers in Florida or corn growers in Mexico -- would receive compensation from a regional fund to help them switch to alternative crops or activities. "If we created an adjustment fund, a common agricultural policy, and a long-term regional subsidies scheme, we would be showing real, visionary leadership," says Serra Puche.

Another key issue is energy: Analysts envision a future when the NAFTA partners share electricity, natural gas, and petroleum, capitalizing on their geographical proximity. Already, U.S. companies are building power plants in Baja California to supply energy north of the border, while 13 gas pipelines cross the U.S.-Mexico border. Mexico's crude-oil exports to the U.S. have climbed 67% since NAFTA and now account for 13.5% of U.S. imports.

However, Mexico's state oil company, Pemex, lacks resources to develop its natural gas and oil reserves. The Mexican congress is unlikely to lift a constitutional ban on foreign oil companies. But analysts say Mexico could double its oil production in 10 years by issuing bonds linked to future oil production or by negotiating long-term supply contracts to the U.S. Such schemes, which will be discussed at a North American energy-cooperation conference slated for April in Monterrey, would allow Mexican to free financial resources needed for social and economic development.


  Perhaps most controversial is the concept of grants from the U.S. and Canada to Mexico, to help reduce the gap in incomes, education, and infrastructure. Raul Hinojosa, director of the North American Integration & Development Institute at UCLA, notes that if Mexico were to receive the same $1,000 per-capita transfers that Europe gives its poorer new members, the country would have $100 billion a year to invest.

But U.S. officials are cagey: "You can do an awful lot of this with private-sector investment. That's more sustainable over time," says U.S. Undersecretary of State Roger Noriega. "I don't think the market would bear a big, new -- it would have to be gigantic -- program of government-to-government transfers."

More modest steps are possible, however. The North American Development Bank, created in the NAFTA debate's final hours to win key swing votes, has a $3 billion endowment -- contributed in equal parts by the U.S. and Mexican governments -- to finance water and sewage projects along the 2,000-mile border. But Nadbank has lent only $95 million in the last seven years because it charges commercial rates and because many border municipalities are inexperienced at project design. The U.S. could substantially increase contributions to Nadbank, whose mandate could be expanded to include development projects in Mexico's most migration-prone zones.


  Rozental notes that in contrast to Europe and Asia, the U.S. and Canada are the only development region's "locomotive" countries that haven't made major investments to help their poorer neighbors raise educational and infrastructure standards to the same level as the wealthier partners. "There's no investment in the future of the region -- everything is left up to the market," he notes.

It's something the three NAFTA partners should be thinking about, he says, not for reasons of charity but to ensure North America's continuing competitiveness.

By Geri Smith in Mexico City

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