Mexico, Canada getting the jump on NAFTA - North American Free Trade Agreement - includes related article on Canadian and Mexican businessmen trying to establish partnerships - Cover Story

Insight on the News, Sept 20, 1993 by Gayle Hanson

It's nine o'clock in the morning, and the three young MBA candidates from Canada's McGill International Consulting Group -- an independent company started by students at Montreal's McGill University -- are getting ready to head into Mexico City for another in a long string of 18-hour days. There's no need to stop in at the office -- they work out of the trunk of their car. And if the trilingual team is still a little wet behind the ears, it has youth and optimism on its side.

"This is the fastest-growing import market in the world," says Graham Mawer, who at age 27 is the eldest of the three. "This is a phenomenal opportunity for Canadian businesses, and we're here to help them take advantage of it."

That attitude is inspiring Mawer an other Canadians to 'swarm Mexico in search of business opportunities that they believe will blossom even more when the North American Free Trade Agreement is finally signed. The agreement, which would lower and eventually eliminate tariffs and so boost trade among Canada, the United States and Mexico, still faces an uphill struggle on Capitol Hill in the face of opposition from some labor and environmental groups. But, operating on the assumption that he who hesitates is lost, Canadian businessmen are flocking into Mexico in record numbers. And many of them believe that regardless of whether the U.S. signs on to NAFTA, trade between Canada and Mexico will continue to flourish.

In some ways, the opposition to NAFTA from some U.S. quarters is working to the Canadians' advantage. Historically, both Canada and Mexico have viewed the U.S. as a real or potential aggressor, first in terms of territory and today in terms of economy. So it's not surprising that there's a certain "us against them" camaraderie when Canada and Mexico join economic forces. And even as nay-sayers such as Democratic Rep. Richard Gephardt of Missouri and perennial free trade opponent Ross Perot relentlessly bash NAFTA, Canadians and Mexicans are quietly meeting over the negotiating table.

It might be true that on a clear day you can see forever, but at the top of the 43-story Latin American Center in downtown Mexico City, what passes for a clear day reveals a vast urban landscape, sprawling for miles in all directions before disappearing into a brown haze of smog. It's a pulsating center of 23 million people, the second-largest metropolitan area in the world and home to more than one-fourth of Mexico's population. It is where the deals get done, the rich get richer and the poor flock to gamble for a better future.

Stop on any corner and the pulse of commerce is everywhere: from the vendors selling gulps of oxygen out of canisters, to the rump-shaking clown out to garner a few pesos from passing motorists, to the clusters of yuppie businessmen conversing intently as they muscle through the crowds to their power lunches.

But more and more, the those businessmen have accents from north of the border -- the Canadian border. While the amount of trade between Mexico and Canada is still relatively small ($2.97 billion last year) and will probably never be as large as each country's trade with the U.S., Canada still sees Mexico as an important market. The entire population of Canada is only a few million above that of Mexico City, and a Canadian businessman sitting in his office in Toronto is about the same distance from Mexico City as he is from Vancouver.

The bilateral trade relationship between the U.S. and Canada, at $185 billion in 1992, is the largest in the world. And Mexico is the United States' third-largest trading partner behind Japan. However, sweeping reforms instituted by Mexican President Carlos Salinas de Gortari have had an extraordinary effect on Mexican-Canadian trade.

Those reforms began in the late 1980s, after the Mexican economy soured as the price of oil -- on which the country depends for much of its income -- steadily dropped. Faced with triple-digit inflation and spiraling foreign debt, Salinas instituted a number of reforms (popularly known as "Salinastroika") to make the Mexican marketplace more appealing to foreign business, including removing foreign ownership restrictions, privatizing government-owned corporations and lowering tariffs. Mexico joined the General Agreement on Tariffs and Trade, forswearing the usual transition period to drop tariffs from an average of 4S percent to a mere 9 percent. Salinas renegotiated the foreign debt, adopted a National Development Plan to revitalize the nation's infrastructure and encouraged the populace to undertake voluntary measures to restrain wages and prices as a way of reducing inflation. Today, by all measures, he has been successful; annual inflation has dropped from its 1987 level of 159 percent to less than 20 percent.

By 1992, trade between Mexico and Canada had more than doubled from its 198S level. But even more important than the increase has been the change in the nature of trade between the two countries.

For many years that trade was unbalanced because of Mexico's prohibitive trade regulations, which it began to drop only with its entrance into GATT At one time, most Canadian exports to Mexico consisted of raw materials and agricultural commodities. But recently there has been a shift toward services and manufactured products. Canadian exporters in telecommunications, plastics and high technology have all been able to penetrate the Mexican market.