Trade deal tightens US grip on Mexico

Issue 

By Martin Mulligan

With a great flourish, US President George Bush announced in mid-1990 that his administration was committed to the creation of "Enterprise for the Americas" — a free trade zone stretching from Alaska to Tierra del Fuego. A first stage in this process was a Free Trade Agreement (FTA) with Mexico.

Mexican President Carlos Salinas de Gortari quickly emerged as an unexpected enthusiast of this project. "In 1992 the European Community will be the largest market in the world. The United States will be Number 2, but the US and Mexico together could be Number 1", he told a press conference in Washington.

Salinas neglected to mention Canada, which already has a free trade agreement with the US, but he clearly believed that free access to the North American market would enable Mexico to trade its way out of its economic crisis.

Delighted with the Mexican president's attitude, the US administration has promised that negotiations will be completed before crucial mid-term elections in August for the Mexican Chamber of Deputies, half the Senate and seven governors.

North American critics have suggested that the US has in mind a "three-decker sandwich": Canada on top as a reservoir of raw materials; the US in the middle with its capital, industrial infrastructure and technological capacity; and Mexico on the bottom as the pool of cheap labour.

While Washington sees the free trade zone as part of its response to the growing strength of the German economy and the influence of Japan, the gathering recession in the US and gloomy economic prospects for Mexico and the rest of Latin America are looming as big obstacles. With cheap Mexican products surging into the US market, the protectionist lobby is already working overtime against the FTA.

Preparations

Although formal negotiations for the FTA were scheduled to begin in March 1991, Salinas has already made the process virtually irreversible. Over the past two years, duties and tariffs have been reduced from a maximum of 100% to 9.5%; laws regulating foreign investments have been repealed; and 70% of the public sector has been privatised (including banks, copper mines, steel mills, the telephone company and airlines).

As a result, US-based corporations are queuing to set up shop south of the border. Already the Ford plant at Chihuahua (where workers are paid US$3-5 a day compared to an average US$15 an hour for US auto workers) is turning out 1000 engines a day for the US market, and the Giant Green broccoli packaging plant in California, made famous by a 1987 Mexican immigrant workers' strike, has moved to Guanajuato.

The Salinas government is hoping for similar investment in the industry and it has high hopes for the sale of cheap Mexican fruit and vegetables in the US. However, many Mexican economists are predicting that the deal will spell disaster for Mexican farmers who — as small-scale producers of crops like corn, beans and sorghum — cannot hope to compete with large-scale producers in the US.

The rush of capital south of the border is already exacerbating unemployment crises in the southern states of the US, where the textile industry is important, and in the "rust bowl" states of the north and mid-west (where car plants used to be crucial). It also threatens to turn Mexico into a gigantic free trade zone with a severely distorted economy.

Within Mexico, Salinas faces strong opposition to his plans. After more than 70 years in power, the ruling Institutional Revolutionary Party (PRI) is facing its toughest challenge yet from the Party of Democratic Revolution (PRD) — a new left-wing force led by Cuauhtemoc Cárdenas, a high-profile defector from the PRI. The PRD is opposing the headlong rush into the FTA.

Representatives of the Pro-Canada Network — which argues that Canada's free trade agreement with the US has led to a loss of jobs, natural resources and sovereignty — have also beaten a path southward, warning against the deal.

US critics of the FTA also warn that large-scale relocation of industry to Mexico will enable the corporations to get around US restrictions on pollution control and industrial safety.

The union movement in both North America and Mexico is also beginning to respond. The Canadian Auto Workers Union has set out to support union organisation at the Mexican plants, and the women who led the 1987 strike at the Giant Green broccoli plant have decided to follow it to Mexico.

Economic hole

Already, economic indicators suggest that the Salinas project will not get Mexico out of its economic hole. A crackdown on tax evasion and the fire sale of public assets helped reduce the budget deficit in 1988-89 and brought inflation down from an annual rate of 160% to 20%, but in 1990 inflation crept back up to 30% and the growth of Gross Domestic Product slowed despite windfall profits generated by the Gulf crisis for the state-owned oil corporation, Pemex. This might cause the Salinas government to reconsider its plans to sell off Pemex as well.

Selling assets and removing restrictions on foreign investments will not resolve the problems flowing from Mexico's huge foreign debt. Under the so-called Brady Plan of February 1990, the total debt was reduced from US$100 billion to US$85.8 billion in exchange for the new investment opportunities created by the Salinas government. But even the lower figure is beyond all possibility of payment.

Once it has clinched the deal with Mexico, the Bush administration wants to move the borders of the free trade zone further south. However, the proposal has received the thumbs down from a summit ican presidents, and the governments of Brazil and Argentina are working on a counterproposal to create a Common Market for the Southern Cone (Mercosur).

South American crisis

It is likely Mercosur will be stillborn due to the economic crisis gripping both Brazil and Argentina. Unable to pay even the interest on its massive foreign debt, Brazil experienced inflation of 2400% in 1990, while its GDP declined by 4%. The oil price hike resulting from the Gulf crisis hit Brazil hard, and US investments declined sharply as a result of the new opportunities in Mexico. Things were not much better in Argentina, where inflation reached 1,800% and GDP declined by 2%.

The debt-ridden countries of Latin America are already being forced by their creditors to gear their economies towards export-oriented industries relying on cheap labour. If Bush's Enterprise for the Americas ever gets off the ground, it will certainly accelerate this trend. Ever larger sectors of Latin America will plunge deeper into poverty while unemployment grows in parts of North America.

But none of this is likely to dampen the enthusiasm of North American big business for cheap labour. In July 1990, Forbes magazine advised: "Forget Eastern Europe. The next economic miracle will take place right on our borders." Mexico had become a "revolution you can invest in".