Our purpose here is to explain Mexico's role as linchpin for free trade integration in the Western Hemisphere; list the free trade organizations in the Western Hemisphere as of January 1, 1995, and compare the U.S. and Canadian plans for the expansion of free trade areas; show how the emerging Mercado Común del Sur (MERCOSUR) poses a special challenge to and opportunity for Mexico; and discuss whether free trade is being imposed from above to exploit workers in the name of globalization or is a result of popular demand.

Discussion is divided into four sections. The first examines the expansion of free trade in the Americas led by Mexican President Carlos Salinas de Gortari beginning in 1990. Section 2 presents data that enable us to analyze relationships in the hemisphere and the rise of blocs elsewhere in the face of economic globalization. Section 3 evaluates future prospects for expanding and consolidating free trade areas (FTAs). The fourth section poses tests to determine whether free trade is being imposed on people or demanded by them.

1. Mexico as Linchpin for Western Hemisphere Free Trade

Although the idea of the North American Free Trade Area (NAFTA) can be traced back to presidents Lyndon B. Johnson and Ronald Reagan,1 it was President Carlos Salinas de Gortari who, in February 1990, explicitly proposed NAFTA.2 Salinas sought to attract U.S. investment to Mexico and pursued the goal of shared economic growth and development in North America. Until then, the world model for such a framework had been dominated by the European Community (EC). (On January 1, 1994, the EC became the European Union, or EU.)

Capitalizing on Salinas's concept of NAFTA, President George Bush proposed, in June 1990,3 the Enterprise for the Americas Initiative (EAI),4 which called for establishing free trade from the Yukon Territory to Patagonia. Because the United States was unmoved by the notion of such an initiative and Bush did not undertake a leadership role in the hemisphere, President Salinas took concrete steps toward promoting free trade in the Americas,5 making Mexico the linchpin for its expansion in the region. With NAFTA negotiations successfully under way by 1990, Salinas began immediately to sign the following accords to develop agreements for economic integration:

1. Mexico­Colombia­Venezuela (G3); proposed in September 1990; establishes a free trade area as of January 1995; creates a duty­free umbrella; plans to eliminate all tariffs by 2006.6

2. Mexico­Chile; signed October 31, 1990; took effect January 1, 1992.7

3. Mexico-System for Central American Integration (SICA); proposed January 12, 1991, with an effective date of December 31, 1996.8 May include Panama, not a member of the original Central American Common Market, or of CACM (which included Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua). Implementation hampered by serious disagreements within and among participating countries during 1992 and 1993, slowing Mexico's plans for free trade with the region.9

4. Mexico-Costa Rica bilateral free trade pact; signed in February 1992; effective January 1, 1995; considered critical boost to lagging Central American free trade.10

5. Mexico­Nicaragua free trade agreement; proposed August 1992; effective date not yet determined.11

6. Mexico-Association of Caribbean States (ACS); signed in Colombia in July 1994, becoming politically but not economically effective in January 1995.12 The 25-member ACS comprises the Caribbean Community and Common Market (CARICOM, 14 members), Mexico, Cuba, Colombia, Dominican Republic, Haiti, Venezuela, and the 5 Central American countries, and is offering associate membership to several independent territories in the region (see SALA Preface, Table 3, in Part 1). For Cuba, membership in ACS became most important following the collapse, after 1990, of the USSR­Eastern European Council for Mutual Economic Assistance (COMECON).

7. Mexico­Bolivia; signed September 11, 1994; effective date, January 1, 1995.13

Beyond these seven agreements, Mexico has or is negotiating another eight. Table A1 lists the major free trade organizations in which Mexico participates. Some of these are outgrowths, now being revitalized, of older regional associations dating to the 1960s. Such regional blocs as the Latin American Free Trade Association (1960) and Central American Common Market (1961) were only marginally successful in encouraging intraregional trade and did not promote trade outside their own bloc.

Mexico is especially concerned about its position vis­à­vis the MERCOSUR customs union, which not only seeks to become an EU of the Southern Cone but also to influence all of South America.14 The members of MERCOSUR are Brazil, Argentina, Paraguay, and Uruguay. Although Salinas's free trade agreement blitz of the early 1990s did not lead to Mexico's merger with MERCOSUR, it did produce free trade planning discussions between Mexico and the MERCOSUR countries15 (see Section 3, below). Suffice it to say here that for some in MERCOSUR, Mexico is a link between the Southern Cone and NAFTA; Brazilian policymakers, however, see Mexico as an impediment to organizing the South American Free Trade Area (SAFTA) under Brazil.

2. The Western Hemisphere and the Rise of Global Trading Blocs

Table A2 shows the status of other free trade area agreements (FTAs) in the Americas. Part I lists those with which Mexico is not yet associated or which are under discussion. Part II shows two bilaterally organized FTAs of which Mexico is not a part, one led by Chile and the other by Colombia.

Table A3 compares the major world trade blocs into which Mexico and Latin America fit. Mexico clearly has a minor role in NAFTA but is a big player in Latin America. Its gross domestic product per capita (GDP/C) is 15 percent that of the United States but the highest among Latin American countries shown in Table A3. Its GDP/C exceeds by 22 percent that of Venezuela, its oil-producing competitor.

The historical record achieved by FTAs in the developing world is shown in Table A4. In keeping with the original goal of the 1960s and 1970s to increase intraregional trade, the Central American Common Market (CACM) "flourished" from its establishment in the 1960s, intraregional exports increasing from 7.0 percent in 1960 to 25.7 percent in 1970. In 1969 the "Soccer War" between El Salvador and Honduras disrupted the region's trade; and "low- intensity" warfare beginning in Guatemala in the 1960s and in Nicaragua and El Salvador in the late 1970s spelled the end of the CACM, intraregional export trade declining to 14.8 percent by 1990.

In the meantime, the Latin American Free Trade Area (LAFTA), comprising Mexico, Argentina, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay, and Venezuela, was founded in 1960 to increase intraregional trade, which rose from 7.9 percent in 1960 to 13.7 percent by 1980. LAFTA underwent a "rejuvenation" in 1980, becoming the Latin American Integration Association (LAIA), but by 1990 intraregional LAFTA/LAIA export trade had declined to less than 11 percent.

Given the mixed record of intraregional trade (only the European Community achieved the desired gains), in the 1990s the goal of such blocs has become to increase interregional trade. Countries that had sought to maximize exports and minimize imports now realize that imports are necessary because they:

Tables A5 through A12 show how Mexico, the United States, Canada, and the European Union have expanded their worldwide and Western Hemisphere trade.

Mexico's emergence on the global economic scene is depicted in Tables A5 and A6 which present the geographical distribution of Mexico's US$101 billion export­import trade with the world, as of 1992, the most recent year for which we have complete data as reported by partner countries about one another. The United States is Mexico's major trading partner, accounting for about three-quarters of Mexico's exports and about 63 percent of its imports. In contrast, apparently Mexico sends only 5 percent of its exports to Canada and Canadian imports amount to 1 percent of Mexico's imports. But as Table A6 notes, Mexico and Canada lose track of an estimated 15 to 30 percent of their trade with each other when it passes through the United States and becomes incorporated in U.S. figures. With regard to other areas, Mexico trades more with Japan than with all other Western Hemisphere countries combined. Japanese trade with Mexico exceeds by about US$1 billion the Mexican totals for all the rest of the Western Hemisphere. The value of Mexican trade with Central America and Cuba is minuscule, but will increase if Mexico's trade projections progress as planned.

U.S. foreign trade (totaling US$1 trillion) data are shown in tables A7 and A8. Canada is the most important U.S. trading partner, accounting for about 20 percent of U.S. exports and imports; Japan is second with about 11 and 18 percent, respectively; and Mexico is third, within 2 percent of matching Japan's share of the U.S. export market (Table A8). The United States exports more to Mexico than it does to all of South and Central America and the Caribbean. It imports as much from Mexico as it does from all the countries to the south of Mexico combined.

Canada's foreign trade (US$260 billion) is mainly with the United States and resembles the pattern of Mexican-U.S. trade: apparently three­quarters of Canadian exports go to the United States, and about 63 percent of Canada's imports come for the United States. (But these data include Canadian-Mexican trade "lost" in U.S. figures [see Table A10].) For Canada, export-import trade with Japan is four and seven times more important, respectively, than with countries to the south of Mexico. It is interesting to note that Canada trades less (in percentage terms) with the EU than Mexico does.

European Union foreign trade (US$3 trillion) data are shown in Tables A11 and A12. EU trade with the United States (about 7 percent of exports and imports) is greater than its trade with Japan (at 4 and 2 percent, respectively). EU trade with Canada is insignificant (.6 and .8 percent of exports and imports, respectively), with Mexico even less important (only .2 and .5 percent of EU exports and imports). The rest of the world, apart from the Western Hemisphere and Japan, receives 86 percent of EU exports in exchange for 88 percent of EU imports (Table A12).

With regard to the world's leading importing regions, NAFTA and Europe, Asia dominates with exports of more than US$150 billion. Europe follows with exports between US$101 and $150 billion. Extended Latin America (ELA),16 Africa, and the Middle East each export less than US$10 billion to NAFTA and Europe.

Africa stands out as the least important area in world trade. Economic dislocations following independence from European tutors have worsened in many countries, thus limiting trade possibilities.

ELA's ability to compete is only slightly better than Africa's. Statist policies of the 1960s to the 1980s turned the region inward at a time when world capital was readily available. Unfortunately, ELA now seeks capital when it is in short supply, underscoring the need to engage in the trading schemes listed in Table A2. ELA imports only slightly more from North America, Asia, and Europe than from Africa and the Middle East.

At the mid­range of world importers, the Middle East significantly trails Asia, which approaches but does not match Europe's higher level of imports. Europe itself is a leading exporter to both areas.

With regard to exports, NAFTA:

The assumption underlying NAFTA and other trade blocs is that effective union will increase competitiveness in relation to other areas of the world.

3. Free Trade and the Challenge of MERCOSUR

Complications as well as opportunities have greeted Mexico's efforts to expand free trade in the Americas (with NAFTA included explicitly or implicitly). Beyond its successes in forging FTA agreements in the Western Hemisphere, Mexico faces new issues raised to the north and south. Canada and Brazil, for example, seek leadership roles in world trade, while the U.S. plan for expanding NAFTA is not always clear because of mounting congressional opposition by the "isolationist" Republicans and Democrats who took office in January 1995.

The U.S. government has concerns about the overlapping FTAs established by Mexico. One is the "rules of national origin" issue, where, for example, Costa Rican goods enter Mexico under the new Mexico-Costa Rica free trade agreement and then are sent to the United States as Mexican goods under NAFTA. Another concern is that Mexico's proliferating trade agreements may force the United States to bring other countries into NAFTA with a major unintended result: increased protectionism not through tariffs as in the past but through sophisticated import regulations that impede trade.

Under NAFTA such regulations already have been incorporated into U.S.-Canadian and U.S.-Mexican trading agreements and could multiply under an expanded NAFTA. They include increased inspections and paperwork requirements intended to limit imports by imposing complicated new rules of national origin and labeling standards, numerous antidumping lawsuits, new health and safety requirements, and new labor and environmental standards. The result could be that many businesses will be no better off than they were before NAFTA.17 From another point of view, however, enforcement of the rules of origin is having the desired result of assuring that supplies are produced to stimulate the expansion of FTAs. Mexico is forcing importers to utilize raw materials and manufacturing components from NAFTA countries or other countries with which it has FTAs, such as Bolivia, Chile, and Costa Rica.18

Although some observers expected Canada to oppose an expanded NAFTA precisely because of the bureaucratic struggles it has experienced with the United States about issues such as rules of origin and implicit subsidies, Canadian Minister of International Trade Roy McLaren stated otherwise. Meeting with Chilean Treasury Minister Eduardo Aninat in Santiago in October 1994, he offered Canada's help to restart the stalled NAFTA negotiations between the United States and Chile. McLaren noted that, because NAFTA lacks a formal method for adding new members, each member is free to initiate talks with prospective members; and McLaren proposed to work with Mexico to make Chile's NAFTA membership a reality.19

Concern in the United States about its trade situation is becoming entangled with the possibility that the U.S. government may have to assume responsibility for two very troubled Caribbean economies.20 Haiti has been a problem since October 1994 when the United States and the United Nations embarked on a plan to create a new national infrastructure for the post-Cédras period. Cuba is a short-term problem for the United States, as Fidel Castro's prospects dim for maintaining his totalitarian power in the face of a crumbling economy. The United States believes that it must undertake a leadership role in both cases, to discourage massive emigration by boat to the Florida coast.

U.S. policy in the Caribbean is further complicated by the fact that in 1993 President Clinton removed many of the tax benefits that had been so successful in attracting U.S. investment to Puerto Rico.21 The policies of both Republicans and Democrats have compromised Puerto Rico's future. The phase out of the income tax exemption enjoyed by Puerto Ricans occurs at a time when the island has been reeling from the loss of business to countries given access to the U.S. market by presidents Reagan and Bush under the 1983 Caribbean Basin Initiative (CBI).22 Table A16 gives population and gross national product data for Caribbean nations with which the United States has important ties. Because the GNP/C of Puerto Rico (US$6,555) is about 18 times that of Haiti (US$373) and 4.5 times that of Cuba (US$1,481), it is clear that Puerto Rico will be further challenged as the United States focuses on dealing with problems closer to its shores.

Given U.S. concerns about the Haitian and Cuban economies, illegal immigration from Mexico, and the loss of mainland jobs, questions arose during 1994 as to whether the Clinton administration was willing to fulfill promises it made at the time of the NAFTA signing when the president raised expectations that Chile would be invited to join NAFTA and that he would host a Western Hemisphere summit meeting to begin the process of expanding free trade in the hemisphere.23 Thus Canada's McLaren stated in September 1994 that he feared the momentum toward expanding free trade was diminishing and that if the United States did not move quickly to bring such countries as Chile and Argentina into NAFTA, no other country would ever be admitted.24

In response to such pressure, President Clinton convened the Summit of the Americas in Miami December 9-11, 1994, at which 34 countries were represented. (Cuba, the hemisphere's sole dictatorship, was not invited.) At the meeting, Clinton announced plans to bring Chile into NAFTA (effective in 1996). He also agreed to establish a Free Trade Agreement of the Americas (FTAA) but put off the date to the year 2005.25 Under the terms of the FTAA, when fully implemented, NAFTA cars and computers could be shipped to South America and NAFTA consumers could purchase duty-free commodities such as Chilean grapes, Argentine wine and beef, and Colombian flowers. An indication of Latin America's interest in freer trade is the fact that Latin American countries have reduced tariffs on outside goods from an average of 56 percent in 1985 to 15 percent at the end of 1993.26

Because of the delay in structuring the FTAA, Mexico's strategy to negotiate with MERCOSUR (as well as individual countries) to in effect create the basis for Western Hemispheric free trade becomes all the more important. Mexico, however, has encountered Brazil's desire to establish SAFTA under its leadership. Rather than adopting the Mexican model for establishing free trade agreements, Brazil argues that FTAs should be developed under the umbrella of ALADI.27

Although according to ALADI rules Mexico should be expelled because it belongs to an FTA such as NAFTA (thus giving Mexico benefits denied to co-members of ALADI), Argentina and other ALADI countries won a special protocol from ALADI to prevent Mexico's expulsion. As part of the deal to permit Mexico to negotiate with MERCOSUR, Mexico must agree to lower tariffs in order to compensate ALADI countries which found themselves in a disadvantaged position relative to Mexico and the benefits it enjoyed as a member of NAFTA.

Brazil's view, strengthened by the October 1994 presidential election victory of Fernando Henrique Cardoso, is that SAFTA has the potential to grow much faster than NAFTA. Furthermore, Brazil argues that unless SAFTA is established before any negotiations with NAFTA take place, South American countries that sign bilateral agreements with Mexico or the United States will lose the South American region's bargaining chips, thus precluding SAFTA from establishing equal footing in the negotiations toward creating hemispheric free trade.

MERCOSUR, signed on March 26, 1991, became effective on January 1, 1995. The accord ends tariffs on 95 percent of goods traded among its four member countries. (Tariffs had been gradually eliminated within MERCOSUR; 82 percent of goods would be free from customs duties by 1994.)28 As a potential counterweight to NAFTA, MERCOSUR is contemplating making Chile a member, but Chile wants to join as an associate member under its own scheme to use ALADI rules for its benefit.29 For Chile to join MERCOSUR, it needs to make decisions about import surges, trade preferences, and export subsidies and needs to protect its trade with other FTAs such as Mexico and NAFTA. To join MERCOSUR unconditionally, Chile would have to raise tariffs to non-MERCOSUR countries.

Chile, which dropped out of the Andean Pact in 1976 over a disagreement with the pact's policy to limit repatriation of foreign investment profits,30 has signed an FTA with Argentina while flirting with MERCOSUR. A leading promoter of free trade, after Mexico, Chile has also signed agreements with Bolivia, Colombia, and Venezuela.31 Chile is actively seeking NAFTA membership which means, if logic were to prevail, that "NAFTA" would become "NACFTA"-the North America and Chile Free Trade Area.32

Aware of potential intraregional economic imbalances resulting from implementation of MERCOSUR and expansion of the bloc, Argentine President Carlos Saúl Menem fears that Argentina's industry will be too heavily substituted by Brazilian products, and is therefore interested in a NAFTA connection to counter Brazil's influence. Brazil, in the meantime, has demonstrated little inclination to join NAFTA but as part of the path toward SAFTA has spoken of a possible Mercado del Norte (MERCONORTE) which would include its Amazon neighbors-Venezuela, Colombia, Ecuador, Peru, Bolivia, Guyana, and Suriname.33

At the time of MERCOSUR's inauguration in 1995, the United States finds its international economic leadership under attack by its own Congress. Even as many countries in South America seek admission to MERCOSUR, the European Union has made overtures to develop a special MERCOSUR relationship. Speaking about negotiations with the EU, the Argentine Minister of Economy Domingo Carvallo noted in September 1994 that talks are much more advanced with the EU than with NAFTA.34 Carvallo stated that since the U.S. Congress had not granted "fast-track" negotiating authority to President Clinton (if indeed Clinton had seriously sought it in light of his concern that the request would reinvigorate the anti-NAFTA forces to oppose extension of NAFTA), the U.S. government is unable to negotiate on firm ground. Clinton's negotiating position to create the FTAA has deteriorated since then owing to the U.S. electorate's repudiation of the Clinton leadership in the November 1994 election. Political power in the United States has shifted from the presidency to the Congress, which is now dominated by isolationists (both Republican and Democrat) who do not understand globalization of markets and are suspicious of international "entanglements."35

With NAFTA expansion and the FTAA in trouble in the United States, Mexico's role as de facto leader of the FTAA movement was only momentarily upstaged by the U.S. role at the Summit of the Americas. In proposing a long-range strategy to counter Brazil's intention to create SAFTA, Mexico announced on September 26, 1994, suspension of its negotiations with MERCOSUR.36 This strategy, if only temporary, encourages Mexico's allies such as Argentina, Bolivia, Chile, Colombia, and Venezuela to mobilize against Brazil's "SAFTA First" plan. In the meantime, while threatening to wait for MERCOSUR to decide on its future direction and how and when to open relations with outsiders, Mexico has proceeded on two bilateral fronts, a move that can not only bring further pressure on Brazil but also immediately benefit Mexico.37

First, Mexico has been expanding its trade with Argentina. Under a Mexico­Argentina agreement, which bypassed the required open bidding procedure, a Mexican private­public joint venture has contracted with an Argentine consortium, led by Techint, to build a natural gas pipeline from Bahía Blanca to Patagonia. In exchange, Mexico has agreed to import from Argentina high value added goods and services equal to the value of the pipeline.38

Second, Mexico is touting its September 1994 FTA with Bolivia.39 This Mexico­Bolivia venture specifically permits entry of other countries or groups of countries. Under the agreement 97 percent of Mexico's exports may enter Bolivia duty free and 99 percent of Bolivia's exports may enter Mexico duty free immediately. The pact discourages triangulation by eliminating trade taxes on goods produced entirely within the FTA, except that textiles are allowed without duties to buy imports outside the region during a four­year adjustment period.

Mexico is investing heavily in Bolivia and is providing technical assistance to help increase Bolivia's natural gas sales to Argentina (6.1 million cubic feet daily since 1971) and to open new markets in Brazil, Chile, and Paraguay.40 In its geographical position as the "cockpit of South America," Bolivia sees itself as the supplier of natural gas to its neighbors. Bolivia signed an agreement with Brazil in February 1993 to build a 2,228­kilometer pipeline from Santa Cruz to São Paulo, beginning twenty years of sales in 1997. Brazil will purchase 8 million cubic meters of natural gas daily from Bolivia and after seven years will double its purchases.

Bolivia's National Gas Company, which is to be reorganized with Mexican help,41 projects diplomatic as well as monetary gains from sales to Chile and Paraguay. The agreement will help overcome problems of international tension that date back to the War of the Pacific (1886­1888) and the Chaco War (1932­1935). Bolivia and Chile have agreed to build a 1,000-kilometer pipeline from Tupiza to Antofagasta to begin natural gas sales as early as February 1995.

Meanwhile, to energize its maquila assembly plants and meet the demands of industrial expansion, Mexico has increased imports of U.S. natural gas to the northern border region. Since NAFTA, maquilas42 (before NAFTA defined as foreign­owned or leased assembly plants established in Mexico for processing of U.S. inputs which were held in­bond until export, with taxes paid only on the value added by labor to the goods)43 have undergone a fundamental change in operation. These plants, which in 1993 had 550,000 workers, or 17 percent of Mexico's manufacturing employees, are no longer required to register with the Mexican government to receive a tax exemption on imported inputs because most U.S. (and Canadian) goods may now enter duty free, without being held in­bond.44 (All final tariffs will be eliminated within 10 to 15 years.) Furthermore, all maquila goods can now be sold in Mexico. Hence, the term maquila now refers to a "NAFTA­based assembly plant located in Mexico, the United States, or Canada."

NAFTA has affected Japan's ability to use Mexico as an export platform to the United States. Whereas previously Japan could import its inputs from Asia and ship them to the United States and pay minimal duties, it must now pay duties on inputs not purchased within the NAFTA area. This situation will change in 2001 when, according to Article 303 of NAFTA, inputs from outside the region which are incorporated into export products of the region will be charged duties at the lowest rate established by the importing and exporting countries.45

Establishment of NAFTA has resolved two major problems in U.S.-Mexican relations and has begun to resolve a third, at the expense of Japan and other Asian countries. Mexico Policy News notes:46

First, [because] Japan's policy exploited northern Mexico as a platform for assembling Asian component input systems for shipment as finished goods into the U.S. market, . . . there was less demand for U.S.­manufactured components and less job creation for the United States as well as Mexico. At the same time, the finished goods imported into the United States from Japanese­owned assembly plants in Mexico counted as Mexican exports in spite of the fact that up to 90 percent of inputs came from Asia; and the imports paid duty only on the value added to the goods by assembly jobs.

That the pre­NAFTA maquila industry represented a back door into the U.S. market is illustrated by the case of Korean television manufacturers which could import picture tubes into the United States through Mexico and pay only 5 percent U.S. tariff under U.S.-Mexican border arrangements instead of the 15 percent they will now have to pay under NAFTA.47

Second, maquilas were limited in the amount of production they could sell in Mexico. Foreign­owned auto manufacturing plants enjoyed some flexibility in that the number of cars they could sell in Mexico was only limited by the number exported, but these plants had to buy 36 percent of their spare parts from Mexican suppliers.48 In addition, there were import license requirements and Mexican tariffs as well as restrictions on access of U.S. trucks to Mexico. For Mexico, the maquila operations were hampered by the fact that young Mexican workers spent time and energy assembling products but did not participate in the marketing of those products.

Third, inadequate Mexican infrastructure in such areas as public health, education, housing, transportation, water supply maquila workers. These low wages, however, are offset by higher transportation costs, higher tariffs, and the loss of the U.S. market and possible access to Mexico's FTA partners in the Americas. Such considerations are especially important to Japan and other Asian countries in light of the U.S. reluctance to expand NAFTA to include APEC (Asia Pacific Economic Cooperation), which is a forum for discussion of policy, not an economic bloc. Mexico, meanwhile, joined APEC in 1993.51

Mexico's vision in developing FTAs has not been fully recognized, even in Mexico. Thus, Eugenio Anguiano wrote in 1994 that Mexico lacks any integrated commercial policy for its foreign commerce.52 Other observers wonder if the idea of hemispheric integration will fail, whether led by a single country such as Mexico or by many countries as discussed above. Yet after reviewing past achievements, one study finds that pessimism unwarranted.53

The success of the EU in not only increasing its intraregional share of trade from 35 percent to over 60 percent in 1990, but also in capturing 41 percent of world trade (Table A4, Part II) shows why trade blocs are so popular now. Such blocs are organized in order to expand their share in world trade, thus changing the proportions that existed in 1992 when the Asia-Pacific region accounted for 26 percent of world trade compared to the Western Hemisphere's 20 percent (Table A14).

The diversity of the Western Hemisphere countries, illustrated by population size and trading capacity, is shown in Table A16. Although the United States dominates trade in the hemisphere, projections show that by 2010 its biggest export market will be Asia (Table A15).

The MERCOSUR challenge to Mexico for leadership is a healthy one, in that it has attracted the attention of the EU, which is concerned about how to interact with the developing FTAs in the Americas. Because 32 percent of MERCOSUR's exports go to Western Europe and exports to NAFTA are only 21 percent (Table A13), MERCOSUR seems more interested in Europe than NAFTA.

The EU, however, exports less than 2 percent of its total exports to MERCOSUR while more than 9 percent go to NAFTA (Table A12). Recognizing NAFTA's pivotal role in the long run, the EU officially announced in February 1995 that it would seek to establish FTA relations with Mexico.54

Mexico, then, as FTA leader for NAFTA is destined to play a crucial part in the development of hemispheric trade.

Conclusion

Mexico's innovative commitment to expansion of free trade, then, forms the basis for hemispheric trade integration. In the scheme of global trade blocs, Mexico is the Western Hemisphere hub, from which its FTAs extend, like the spokes of a wheel, to create strategic outreach for Mexico's economic development based upon a network of partnerships that can lead to hemispheric integration. Mexico's role as a link between Latin America and NAFTA places it in a unique position, and South American business has already undertaken investment in Mexico to gain access to NAFTA. Likewise, U.S. business may soon find that Mexico is the fastest and most convenient route to FTAs south of the border-down Latin America's way.

Beyond this hemisphere, Mexican policy implicitly (if not explicitly) offers Japan and other Asian countries not only a base to maintain market share in the NAFTA region but also to gain access to the larger market of FTAs in the Americas as Mexico expands its role as a leader of integration.

(James W. Wilkie is Professor of History at UCLA. He is President of PROFMEX, the Consortium for Research on Mexico, and Director of "Cycles and Trends in Twentieth-Century Mexico," a research project funded by the William and Flora Hewlett Foundation at the Program on Mexico, UCLA Latin American Center. Olga Magdalena Lazin is PROFMEX director for Eastern European Affairs. A Romanian citizen, she lived in Bordeaux, where she conducted research on the European Union, and in Mexico City, where she conducted research on NAFTA and free trade in the Americas. Currently she is enrolled in the Latin American Studies master's program at UCLA.)

[Linchpin notes]

1 - President Johnson called for free trade at the 1967 Summit of the Americas, according to Michael Kleinberg, "After Americas Summit [December 9-11, 1995], the Real Work Begins," Mexico City News, December 18, 1994. President Reagan called for free trade in the Americas during his presidential campaign of 1990, according to Michael G. Wilson, "The Next Step After NAFTA: Expanding Free Trade in Latin America and the Caribbean," Heritage Foundation Backgrounder 978, February 24, 1994, p. 5.

2 - Art Pine, "Bush, Salinas Agree to Seek Trade Accord," Los Angeles Times, June 11, 1990. Mexico had finally overcome internal opposition to joining GATT in 1986, which laid the basis for developing framework accords for expanded trade between the United States and Mexico (1987) and Canada and Mexico (1990). In the meantime, negotiations on the U.S.-Canadian FTA (which began in May 1986) led to the signing of an agreement in January 1988; the accord went into effect January 1, 1989. In June 1990 President George Bush agreed to Carlos Salinas's proposal to create NAFTA. The two leaders joined in June 1991 with Canadian Prime Minister Brian Mulroney to begin trilateral talks. The negotiations culminated in the NAFTA signing on December 17, 1992. Legislative approval in the three countries would occur during 1993 and the agreement would become effective on January 1, 1994. See Gary Clyde Hufbauer and Jeffrey J. Schott, Western Hemisphere Economic Integration (Washington, D.C.: Institute for International Economics, 1994), pp. 220 and 247.

3 - For FTA chronologies, see Hufbauer and Schott, Appendix C, pp. 219-249.

4 - Wilson, "The Next Step."

5 - Ibid.

6 - Gregory D. Cancelada, "Southern Strategy," Business Mexico 1, March 1991; and James Brooke, "In Latin America a Free Trade Rush," New York Times, June 13, 1994.

7 - See Table A1.

8 - Los Angeles Times, January 10, 1991; Times of the Americas, July 24, 1991.

9 - Central American Report, February 12, 1993.

10 - Mónica Gutschi Salazar, "Mexico, Latin America Free Trade in Peril," The News (Mexico City), June 21, 1994; Wilson, "The Next Step"; Brooke, "In Latin America"; Mexican Free Trade Office in Canada.

11 - Idem; "Decision Time for the MERCOSUR," Mexico and NAFTA Report, RM­94­07, July 21, 1994.

12 - James Canute, "CARICOM Shrugs Off U.S. Concerns Over Cuba," Financial Times (London), July 8, 1994.

13 - El Financiero Internacional, September 19­25, 1994.

14 - On the rise of MERCOSUR since the mid­1980s, Peter H. Smith notes that it has established a Council of the Common Market (coordinated by the ministries of foreign and economic relations of its member countries) and a Joint Parliamentary Commission drawn from the national parliaments. See Peter H. Smith, ed., The Challenge of Integration: Europe and the Americas (New Brunswick, N.J.: North­South Center and Transaction Books, 1993), pp. 8­9. MERCOSUR seeks to establish a fully functioning FTA as part of a joint trade policy which coordinates and harmonizes national economic policies in relation to nuclear development, military exchange, communications, and transportation (including river traffic). Over the long term, there exists the prospect that MERCOSUR may develop into a full economic and monetary union, according to Alberto van Klaveren, "Why Integration Now? Options for Latin America," in Peter H. Smith, ed., The Challenge of Integration, pp. 122­123.

15 - Luigi Manzetti, "Economic Integration," North­South, December 1992; Luigi Manzetti, "The Political Economy of MERCOSUR," Journal of Inter-American Studies and World Affairs 35:4 (1993-1994), p. 101ff.; Cancelada, "Southern Strategy."

16 - Extended Latin America excludes Mexico and includes the Caribbean countries where the language is not based on Latin.

17 - See Allen R. Myerson, "New Limits Are Seen to Freer Trade," New York Times, September 6, 1994, p. C1, for a review of the report to the U.S. Federal Reserve Bank by William C. Gruben and John H. Welch. See also Juanita Darling, "Despite NAFTA, Barriers Remain for Small Business," Los Angeles Times, September 1, 1994. Laurens Grant, "Ahoga la burocracia a las comisiones del TLC," Excélsior, September 27, 1994. Cross­border trade has been hampered by an unrealistically low nontaxable limit of US$50 per individual on the amount of goods that can enter Mexico from the United States. (The nontaxable limit when entering Mexico by air or boat is US$300.)

18 - See William Kail, "[Mexican] Importers Squeezed by Customs Rules," Mexico City News, September 24, 1994. Kail notes that Mexico is seeking to prevent "triangulation," a situation where non­FTA countries circumvent Mexican antidumping laws by shipping goods through a Mexico­related FTA country and falsely claiming origin there of the goods.

19 - Reforma (Mexico City), October 7, 1994.

20 - See James Flanigan, "Caribbean Challenge: U.S. Is About to Acquire Cuban, Haitian Economies," Los Angeles Times, September 18, 1994.

21 - The Clinton administration in 1993 won changes in Section 936 of the U.S. Internal Revenue Code under which up to 300 U.S. firms had been exempt from federal taxes on income earned in Puerto Rico. Under the new law, companies have a choice. They can claim 60 percent of their Puerto Rican tax credits current value in 1994, with the credit reduced by an additional 5 percent each year until it reaches 40 percent by 1998. Or they can take a tax deduction based on a formula that reflects Puerto Rican wages, fringe benefits, and depreciation. The latter option is more attractive to labor­intensive industries. The administrator of economic development for the Commonwealth of Puerto Rico, Clifford Myatt, suggested at the time that Section 936 was modified that in the long term Puerto Rico will have to look for business investment from Europe and Asia rather than from mainland United States. See David R. Olmos, "Hazy Forecast for Puerto Rico [with Modification of Section 936]," Los Angeles Times, August 16, 1993.

22 - On the CBI, established in 1983, see James W. Wilkie, "On Defining the Concepts of Latin America, the Caribbean, and Economically Questionable Nations (EQNs)," in James W. Wilkie and Adam Perkal, eds., Statistical Abstract of Latin America, vol. 23 (Los Angeles: UCLA Latin American Center Publications, 1984), pp. xx­xxv.

23 - Seeming U.S. reluctance to move decisively on expanding NAFTA may also be influenced by the erroneous view of Charlene Barshefsky, deputy to U.S. Trade Representative Mickey Kantor, who suggested in a memo circulated internally in the Clinton administration that Mexico will not want to support U.S. plans to expand NAFTA. Ironically, Barshefsky's interpretation may be backwards. She claims that Mexico (not the United States) will jealously guard the NAFTA connection to benefit only itself. See Keith Bradsher, "U.S. Memo Says Mexico May Bar NAFTA Growth," New York Times, March 1, 1994, who quotes Mexican Ambassador Jorge Mantaño as strongly denying any truth in Barshefsky's memo.

24 - "Peligra la extensión del TLC a países de AL: Roy McLaren," Excélsior, September 24, 1994. See also Excélsior's accompanying front­page article, Juan Castaingts Teillery, "TLC, la economía y poder mundial."

25 - On the schedule for Chile, see Table A1. On FTTA negotiations, see Kleinberg, "After Americas Summit." The Clinton administration favored the name "AFTA," but that would be confused with "Asian Free Trade Agreement," on the one hand, and "Aftosa" (Spanish for "hoof-and-mouth disease"), on the other hand. "FTAA" is an unfortunate choice because it cannot be pronounced as though it were a word.

26 - James Brooke, "With a View of One Hemisphere, Latin America Is Freeing Its Own Trade," New York Times, December 29, 1993.

27 - "Poles Apart: Mexico and Brazil," Mexico and NAFTA Report, RM­94­09, September 29, 1994.

28 - William R. Long, "Trade Winds Are Blowing Across America," Los Angeles Times, January 1, 1994; Wilson, "The Next Step."

29 - "Decision Time for the MERCOSUR."

30 - For the history of memberships in Western Hemispheric organizations, see James W. Wilkie and Carlos Alberto Contreras, eds., Statistical Abstract of Latin America, vol. 30, part 1 (Los Angeles: UCLA Latin American Center Publications, 1993), pp. x­xix.

31 - Brooke, "With a View of One Hemisphere."

32 - The possible name "Western Hemisphere Free Trade Area (WHFTA)" is discussed, for example, by Richard G. Lipsey, "Getting There: The Path to a Western Hemispheric Free Trade Area," in Sylvia Saborio, ed., The Premise and the Promise: Free Trade in the Americas (New Brunswick, N.J.: Transaction Publishers, 1992), pp. 95­116. Lipsey argues, however, that the WHFTA idea is a pipe dream.

33 - Steven Greenhouse, "U.S. Plans Expanded Trade Zone," New York Times, December 29, 1993.

34 - "Interesa a la UE un TLC con el MERCOSUR y Chile," and "Posible tratado [UE] con el Pacto Andino," Excélsior, September 29, 1994. The EU has offered aid and technical assistance to the Andean Pact but must overcome resentment there about its limitation on banana imports from Latin America. Ecuador had hoped to lead a united front against the EU's policy to favor countries formerly colonized by Europe, but Colombia, Costa Rica, Nicaragua, and Venezuela struck their own agreement. These four countries gained higher quotas in return for dropping their complaints against the EU system of apportionment of banana imports. See "Banana Producers Fail to Heal Split," Latin America Weekly Report, WR-94-38, October 6, 1994.

35 - When, for example, the new isolationists in Congress refused to support Clinton's plan to assist Mexico and calm fears among developing markets worldwide of the expanding liquidity crisis of December 19, 1994-January 31, 1995, Clinton had to pursue the aid package on his own initiative. He used the U.S. Exchange Stabilization Fund (US$20 billion), and mobilized the IMF (US$17.8 billion), the Bank of International Settlements (US$10 billion), as well as Canada and Latin American countries (US$2 billion) to provide the nearly US$50 billion in loans and loan guarantees necessary to maintain international investor confidence that local currencies can be converted into dollars. See New York Times, February 1, 1995.

36 - See "Sorprende la posición de México en la ALADI [de suspender negociaciones comerciales con el MERCOSUR]," Excélsior, September 27, 1994.

37 - For information on these two fronts, respectively, see Mike Zellner, "MERCOSUR: Can Rivals Become Partners?" El Financiero Internacional (Mexico City), July 22, 1991, p. 5; and "En marcha, el Tratado de Libre Comercio México-Bolivia," Epoca (Mexico City), September 19, 1994, pp. 46-47.

38 - Zellner, "MERCOSUR: Can Rivals Become Partners?," p. 5.

39 - "En marcha, el Tratado de Libre Comercio México­Bolivia," pp. 46­ 47.

40 - "Será Bolivia exportador de gas [a Paraguay, Argentina y Chile]," Excélsior, October 4, 1994.

41 - According to Antonio Cisneros, PROFMEX La Paz, speaking at the PROFMEX International Policy Analysis Symposium titled "Mexico and Its Development Process Seen from the World," Mexico City, July 29, 1994.

42 - An alternate term is "maquiladora," which we prefer to use to apply to individual plants that fall under the generic term of maquila. The word "maquila" comes from Spain where it referred to the toll charged by the miller or lord of the manor for processing another's grain, flower, or oil. On the history and statistical growth of Mexico's maquila industry, see James W. Wilkie, "From Economic Growth to Economic Stagnation in Mexico: Statistical Series for Understanding Pre­ and Post­1982 Change," in James W. Wilkie, David E. Lorey, and Enrique Ochoa, eds., Statistical Abstract of Latin America, vol. 26 (Los Angeles: UCLA Latin American Center Publications, 1988), ch. 35, especially pp. 930­935.

43 - On the maquila in the historical context of Mexico's economy, see James W. Wilkie, "The Six Ideological Phases of Mexico's `Permanent Revolution' Since 1910," in James W. Wilkie, ed., Society and Economy in Mexico (Los Angeles: UCLA Latin American Center Publications, 1991), ch. 1.

44 - For required reading on the maquila industry pre­ and post­NAFTA, see Héctor Vázquez Tercero, "El TLC y las maquiladoras," El Financiero, September 26, 1994, p. 32.

45 - Ibid. See also "In-Bond 2001," El Financiero, October 17, 1994; and Herb Vest, "NAFTA Provides Tax Shelters for Maquiladoras," El Financiero Internacional, December 14, 1992.

46 - Adapted from George Baker, Paul Ganster, Stephen Jenner, and James W. Wilkie, "Why Japan Wins if Perot's Anti­NAFTA Policies Prevail," Mexico Policy News 9 (1993), p. 52.

47 - See Bob Davis, "Pending Trade Pact with Mexico, Canada Has a Protectionist Air," Wall Street Journal, July 22, 1992.

48 - Ibid.

49 - Baker, Ganster, Jenner, Wilkie, "Why Japan Wins."

50 - Jim Impoco, "Smashing Trade Barriers," U.S. News and World Report, October 11, 1993, p. 71.

51 - "No pretende EU expandir el TLC dentro de la APEC," Excélsior, September 29, 1994.

52 - Eugenio Anguiano, "Hace falta un enfoque integrado de política comercial para México," Excélsior, October 23, 1994.

53 - See C.A. Primo Braga, Raed Safadi, and Alexander Yeats, "Regional Integration in the Americas: Déja Vu All Over Again?" The World Economy 17:4 (1994), pp. 577-601.

54 - "Aprueba la Comisión Europea un Proyecto de Acuerdo de Libre Comercio con México," Excélsior, February 9, 1995; William Kail, "EU Proposes Mexico Free Trade," Mexico City News, February 9, 1995. See also William Kail, "Europe Union Wants Free Trade with Mexico, Ambassadors Say," Mexico City News, December 17, 1994, and Martha Trigo, "Temen a bloques cerrados: Negociarán con la EU," Reforma, December 19, 1994.

55 - This discussion follows that in James W. Wilkie, "Free Trade for Mexico: Imposition from the Top or Demand from Below?" Mexico Policy News 7 (Winter 1992), p. 15.

56 - See Sergio Zermeño, "Desidentidad y desorden: México en la economía global y en el libre comercio," Revista Mexicana de Sociología 3/91 (1991), pp. 15­64 (Spanish version of Wilkie's works cited in notes 56 and 60, below).

57 - The 1994 national elections in Mexico are seen as a model for other countries to emulate. Officials sought to verify credentials, register lawful voters, and count the votes with domestic and foreign observers present at polling places throughout the country.

58 - For example, in El tiempo de la legitimidad: Elecciones, autoritarismo y democracia en México (México, D.F.: Cal y Arena, 1991), an otherwise important book on the history of Mexican elections from 1946 to 1991, Juan Molinar Horcasitas mistakenly claimed that the PRI had reached its final crisis and, indeed, could not survive an honest count of the vote.

59 - The account of these field interviews in Mexico and Eastern Europe is adapted from James W. Wilkie, "The Political Agenda in Opening Mexico's Economy: Salinas Versus the Caciques," Mexico Policy News 6 (Spring 1991), pp. 11­13; and Wilkie, "Free Trade for Mexico," pp. 15­16.

60 - Alejandro Junco, "The Case for an Internal Mexican Free­Trade Agreement," Wall Street Journal, March 22, 1991.

61 - Some of this rage within the PRI appears to have led to the 1994 assassination of Colosio in Tijuana.

62 - These interview excerpts and the discussion of Eastern Europe follow Wilkie, "Free Trade for Mexico."

63 - For further reading, see Robert P. O'Quinn and James P. Sweeney, "Putting Trade with Asia and Latin America on a Fast Track," The Heritage Foundation Backgrounder, no. 1027 (March 23, 1995); Susan Kaufman Purcell and Francoise Simon, eds., Europe and Latin America in the World Economy (Boulder, London: Lynne Rienner Publishers, 1995); Sidney Weintraub, NAFTA: What Comes Next? The Washington Papers/166 (Westport, Conn.: Praeger, 1994).