WASHINGTON--The government of
Mexico is aggressively dismantling its trade
barriers with the vast Latin American market,
bolstering its own economy while hindering Clinton
administration efforts to create a hemisphere-wide
trading bloc.
In the five years since its free-trade pact with
the United States and Canada went into effect,
Mexico has capitalized on the accord by signing
strikingly similar agreements with six Latin
American countries: Chile, Venezuela, Colombia,
Bolivia, Costa Rica and Nicaragua.
Mexico is also on the verge of cutting
market-opening deals with eight more of its
neighbors to the south. In addition, it is negotiating
a free-trade agreement with the 15-nation
European Community and is discussing similar
pacts with Japan, South Korea, China and Israel.
The proliferation of free-trade agreements is
transforming Mexico into a hub for domestic and
international companies seeking to export their
products throughout the Americas. Already, some
U.S. auto makers and telecommunications
companies are expanding their operations south of
the border to take advantage of Mexico's tariff-free access to its
neighbors.
U.S. officials fear that Mexico's success at positioning itself as the
only country with unfettered access to markets throughout the
hemisphere will hamper the Clinton administration's five-year push to
create a 34-nation Free Trade Area of the Americas. Mexico's
campaign comes at a time when Washington's ability to take the lead on
opening markets has been hobbled by the loss of "fast-track" negotiating
authority.
Fast-track authority gives the executive branch broad powers to
negotiate trade agreements without being second-guessed on each point
by Congress. It was instrumental in getting NAFTA passed, despite an
angry, yearlong political debate led by labor organizations and
environmentalists concerned that expanding free trade impedes
protection of worker rights and the environment.
By securing lower tariffs to other Latin American countries for its
exporters, Mexico is making U.S.-made products less competitive in a
number of markets. And the web of agreements it has implemented not
only makes Mexico loath to jump-start a hemispheric trade pact, it
strengthens the negotiating stance of its new partners at the expense of
U.S. interests.
Mexico's Advantage
"Mexico has been one of--if not the most--successful countries in the
world at eliminating impediments to their exports," a senior U.S. trade
official said. "Meanwhile, it is the only country in Latin America with
duty-free access to the biggest market, the United States, and it has little
motive to see that advantage whittled away by a regional trade pact.
From a strategic standpoint, they're ahead of the game. . . . They are
improving their commercial prospects in Latin America, potentially at
our expense."
Mexico ranks as the largest exporter in Latin America and the
eighth-largest in the world. In addition to selling crude oil and other
commodities such as coffee and silver, it has become a leading exporter
of finished goods ranging from autos to consumer electronics.
More than 85% of its exports go to the United States, but it is
successfully using free-trade agreements to expand its markets. Between
1991 and 1998, for example, its trade with Chile soared by 572% to
$1.2 billion. Since 1994, when Mexico negotiated a number of trade
pacts with its neighbors, it has boosted trade with Costa Rica by 202%,
with Venezuela by 80% and with Colombia by 41%.
It hopes to do the same with the rest of its neighbors. The
government is negotiating free-trade pacts with Guatemala, Honduras, El
Salvador, Panama, Ecuador, Peru, Belize and Trinidad and Tobago.
Mexican officials are also considering entering into similar pacts with
Brazil and other South American countries, although those negotiations
are stalled for now.
While senior Mexican officials say they support the U.S. goal of
forging a hemisphere-wide free-trade bloc, they acknowledge their
growing leadership on trade gives them a strategic advantage they don't
want to lose.
"The strategy helps us get investment and helps us build the power of
our own industry. It puts us in a unique position in terms of attractiveness
for investment," said Luis de la Calle, undersecretary for international
trade negotiations for Mexico's Ministry of Trade and Industry.
"Foreign companies come to Mexico because we show that we have
guaranteed access, first to the Mexican market, and then to these other
markets, including to the United States."
Mexico is not the only Latin American country racing to tear down
barriers to trade and investment. Over the last decade, spurred by a
wave of democratization in the region, countries in the region have
signed dozens of agreements with one another, eliminating towering
tariffs and quotas that for years kept foreign products from competing
with those produced by local workers. Brazil and Chile, for example,
have ratified a network of agreements with their neighbors in recent
years, and other countries have followed suit.
But Mexico has moved further and faster at opening its markets to
foreign trade. Its negotiators cut their teeth by working out the North
American Free Trade Agreement with the U.S. and Canada. Now they
are close to striking a similar deal with the European Union, whose
members are eager to compete with the United States for access to the
Mexican market.
"A lot of people think of Mexico as being very unsophisticated and
our neighbor to the south and all that, but in fact they are being very
strategic and setting themselves up as being potentially a hub for the
entire region," said Diane Sullivan, director of international trade policy
at the National Assn. of Manufacturers. "There is certainly some
concern that we don't want to be left behind, nor do we want to have an
export platform on our border that allows companies to get into the U.S.
market while circumventing our rules."
The Clinton administration has sought to harness the free-trade wave
since 1994, when President Clinton emerged from a meeting with
Western Hemisphere leaders in Miami and pledged to create a
free-trade area by 2005 that "would stretch from Alaska to Argentina."
If created, it would be the largest single market in the world.
Washington has a significant economic stake in Latin America and
the Caribbean, which together represent the fastest-growing regional
market for American exports. According to an analysis by the U.S.
trade representative's office, U.S. exports to Latin America will reach
$232 billion by 2010--more than to the European Union and Japan
combined.
But the administration's efforts to create a hemispheric trade bloc
have been hampered, first by the 1994-95 collapse of the Mexican
peso, then by a political backlash against expanding trade links to the
south, and finally by the loss of fast-track negotiating authority.
Although Congress had granted fast-track authority to every
president beginning with Jimmy Carter, it declined to do so after the
status lapsed in 1994. Clinton made a major push for renewal in 1997
but fell several votes short.
U.S. Lagging in Region
U.S. Trade Representative Charlene Barshefsky has argued
consistently that the U.S. is lagging other countries in the region on
free
trade.
"We recognize that the countries of Latin America, including Mexico,
are negotiating subregional free-trade areas," Barshefsky said. " . . .
These efforts are helpful to the extent that they open Latin American
economies to ever wider spheres of competition, making them more
comfortable with multilateral liberalization or hemisphere-wide
liberalization. On the other hand, the resulting margins of preference
place exports from the U.S. at a competitive disadvantage."
U.S. companies with operations in Mexico are already taking
advantage of the new pacts.
General Motors, for example, sought for years to increase its sales to
consumers in Chile but was stymied by that nation's high tariffs on auto
imports. Since 1996, when Mexico and Chile signed a NAFTA-style
free-trade agreement, Chilean duties on vehicles made in Mexico have
dropped to zero. The Mexico-Chile pact has been a boon to General
Motors: Exports from its Mexican plants to Chile jumped from 14,000
vehicles in 1994 to 50,000 last year.
"Our export opportunities from Mexico have definitely increased
because of the free-trade agreements," said Jeanne Pryce, director of
Western Hemisphere policy for GM. "Latin America is an extremely
important emerging market, and Mexico is well-positioned because it is
right next to it. And certainly these trade agreements they are signing
create an incentive for us to expand there. We want to take advantage."
Mexico's strategy is based on a simple calculus: While the rest of its
economy has been limping along since its currency crashed in December
1994, its exports have surged. Exports accounted for 30% of Mexico's
gross domestic product in 1998, up from 15% only five years earlier,
according to Mexico's Ministry of Trade and Industry. More than half
the 1.9 million new permanent jobs created since August 1995 are
related to exports and foreign direct investment in Mexico. On average,
those jobs pay 30% more than comparable jobs elsewhere in Mexico.
"The Mexicans have gone to another level in Latin America that none
of the others have," said Scott Otteman, a trade analyst with the
Inter-American Dialogue, a Washington think tank on Latin America.
"The Mexicans basically took the big chunks of NAFTA and have
transplanted them into free-trade agreements with other countries in the
region. They've taken the lead in the hemisphere in spreading disciplines
that are essentially U.S.-inspired. And they're doing it to advance their
own interests, not ours."
* * *
The Boost From Free Trade
Free-trade agreements negotiated by Mexico have dramatically
boosted the level of business Mexico does with its trade partners.
Mexico's growth in total trade after agreements
Mexico' growth in total trade after agreements
Chile: 572%
Costa Rica: 202%
U.S.: 120%
Venezuela: 80%
Canada: 78%
Colombia: 41%
Bolivia: 13%
Amount of 1998 Trade
In millions of U.S. dollars
U.S.: $188,000
Canada: 7,300
Chile: 1,170
Venezuela: 850
Colombia: 600
Costa Rica: 370
Bolivia: 42
Source: Mexican Ministry of Trade and Industry
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