MEXICO CITY (Reuters) -- Mexico said Thursday five years of free trade
                  with the United States and Canada have been a resounding success, but it
                  conceded that huge challenges remain in spreading its benefits to the bulk of
                  its citizens.

                  Mexican Trade Minister Herminio Blanco said Mexico was very happy with
                  the results of the North American Free Trade Agreement (NAFTA), which
                  came into effect on Jan. 1, 1994.

                  "It's a huge success for Mexico," he told reporters. "It's been a success from
                  the point of view of foreign direct investment (FDI), salaries have increased,
                  ... and Europe now looks on Mexico as part of North America."

                  Blanco said FDI had increased threefold since NAFTA came into force,
                  averaging $11 billion between 1994 and 1997, the bulk of which originated
                  from the United States.

                  And changes in perception the treaty has brought about were now helping
                  Mexico in fresh negotiations for a free trade treaty with the European Union.

                  But he conceded Mexico still had considerable ground to cover so that
                  NAFTA benefited the broader economy.

                  While the number of Mexican exporting firms had increased to an estimated
                  34,000 in 1999 from 22,000 in 1994, that was still a small percentage of
                  Mexico's total industry.

                  "The challenge is for small and medium enterprises to reach the levels of
                  competitiveness of big companies," he said.

                  Similarly the maquila sector, which imports components for assembly in
                  Mexico for export chiefly to the United States, has not led to the creation of
                  Mexican suppliers for more than two percent of those parts compared with
                  an official target of 5 percent.

                  "There is a lot to do to achieve more added value," Blanco said. "The
                  challenge is enormous ... to turn Mexico's small and medium firms into
                  providers of parts for exporters."

                  Some critics say wages on the Mexican side of the border have failed to get
                  close to those in the United States-- Mexicans had hoped for a rise in their
                  standard of living.

                  However Blanco said NAFTA's first five years of existence had been
                  accompanied by "one of the sharpest crises in our history"-- the 1994/95
                  peso devaluation which brought a crushing 20 percent fall in salaries.

                  In 1993 average wages in the maquila sector were 3.7 times Mexico's
                  average wage, while in 1997 they were 4.4 times that level. The average
                  wage is about $3 a day in Mexico City.

                  Blanco said surveys showed firms that exported 50 percent of their product
                  paid workers 33 percent more than the average wage.

                  "That shows that exports do help give Mexicans better salaries," he said.

                  The maquila industry provides about 40 percent of the country's exports and
                  employs about one million workers.

                  The most dynamic sector of the Mexican economy, the maquiladora industry
                  generated 100,000 new jobs in the first nine months of this year. However
                  officials estimate Mexico needs one million new jobs a year in order to
                  develop.

                  Blanco said the advent of the maquila industry had helped heal rather than
                  worsen the rift between Mexico's relatively wealthy north and its
                  impoverished south.

                  "Now the great majority of new maquilas are not on the frontier-- they are in
                  the intermediate states and in the southeast, in Yucatan and Oaxaca," he
                  said. "They are opening up the country to equal conditions of development."

                   Copyright 1998 Reuters.