The Heritage Foundation

Backgrounder #818 on Latin America

March 22, 1991

March 22, 1991 | Backgrounder on Latin America

Refuting Six Myths About the U.S. -Mexico Free Trade Accord

(Archived document, may contain errors)

818 March 22,1991 RERlTING SIX MYTHS ABOUT THE US MEXICO FRlEE TRADE ACCORD INTRODUCIlON The United States, Mexico, and Canada are planning to negotiate a Free Trad e Agreement (FI'A) that will greatly strengthen their economic and political ties An FI'A would remove such barriers to trade as tariffs and quotas and, by eliminating or weakening laws that restrict foreign investment, would make it easier for the U.S to invest North and South of its borders A North American FI'A will offer Americans cheaper goods, increase U.S. ex ports to Mexico, and make U.S. expo& more affordable to the rest of the world.

It also will create jobs for Americans, reduce illegal immigration from Mexico help fight drug trafficking in Mexico, and serve as a model for similar agreements with other Latin American countries.

Something as nearly universally beneficial as the FI'A should have little opposi tion. Yet the proposed agreement is at tacked by the leaders of organized labor and environmental groups and by privileged industries like textiles that have en joyed special government favors to protect them from foreign competition. These groups distort the facts about an FI'A and are trying to spawn myths that the trade accord would harm America and Mexico. If Congress believes these myths, it could vote against the FI'A with Mexico.This would impair U.S. global competi tiveness, destroy American jobs, raise prices, lower the quality of U.S. products and restrict choices for American consumers cause, except for the Soviet Union, Mexico directly affects America's welfare more than any other country.The U.S. shares a 1,933-mile border with Mexico and is home to over 18 million Mexican-Americans . U.S. trade with Mexico has tripled since 1986; in 1990, the U.S. sold $28.4 billion of goods and services to Mexico and bought $30.2 billion from Mexico, for a total trade of $58.6 billion Economic Muscle. An FI'A with Mexico is particularly important to the U.S. beFree trade will boost the U.S.-Mexican exchange of commerce vastly. Perhaps even more important, by including Canada, an FTA will forge a great North American trading zone 25 percent larger in gross domestic product than the European Community and thus give North America enough muscle to challenge the emerging unified market in Europe and a Japan-dominated East Asian market In sum: A North America FI'A is America's best bet for maintahhg its long term world economic leadership.

The first steps t owards the U.S.-Mexico FI'A were taken last year when the two countries announced plans to create a free trade area.Then Canada this February 6, announced that it wanted to be included in the negotiations between Mexico and the U.S.The U.S. and Canada alr eady have signed their own FTA which began taking effect in 19

89. Formal trilateral negotiations are scheduled to begin this June.The three governments expect to sign an FTA by December and present it to their respective tional legislatures for ratificati on by next spring opposed to an FI'A. Such myths include with cheap Mexican goods. Untrue. An FTA with Mexico will create, not lose jobs for Americans A U.S.-Mexico FI'A may cost some jobs in some sectors of such labor-intensive industries as manufacturin g and horticulture. But these potential losses will be offset substantially as increases in U.S. exports to Mexico add new jobs for Americans in such industries as capital equipment, high technol ogy, and capital-intensive agriculture, and food processing M yth 2: U.S. businesses investing in Mexico as a result of an FI'A will be taking away the capital needed to expand U.S. industries and make them more internationally competitive Untrue. U.S. capital flowing to Mexico will help American businesses grow bec a use they will become more competitive against not only Pacific Rim nations like Japan, Korea, and the Republic of China on Taiwan, but against the European Community as well. The reason: U.S. com panies will be able to combine the technology and highly sk illed labor of America with Mexico's cheap labor and resources to cut the prices of their products in the global market. The amount of capital available to U.S. companies will grow as global demand for their products increases and their operations expand.

Myth 3: Mexico will not be a large market for U.S. goods because most Mexicans cannot afford them. Untrue. Mexican incomes will rise with the economic growth triggered by an FI'A. Mexicans then will be able to buy more U.S. goods, which today account for two-thirds of Mexican imports. Indeed roughly 20 million Mexicans already can afford to buy U.S. goods.

Myth 4: With an FI'A, U.S. companies will move to Mexico to avoid strict U.S. environmental. and labor safety standards, causing the loss of American jo bs. Untrue. U.S. and Mexican environmental and safety standards are roughly The main obstacle to this is the web of myths being spun by the special interests Myth 1: Millions of U.S. workers will lose jobs because they cannot compete 2 equal. U.S. compani e s are moving to Mexico primarily to take advantage of lower labor costs Myth 5: An FTA would undermine human rights in Mexico because the treaty would strengthen the authoritarian central government. Untrue. An FI'A will move Mexico toward a stronger demo cracy and social stability by providing the majority of Mexicans with jobs in industries not controlled by the government.

The world has learned that economic freedoms and political freedoms are closely related. Democracy has not flourished in Mexico in part because the central government systematically has denied its citizens economic power independent of the state. Under th e pressures of the international free trade to be unleashed by an FM, state control of the economy will decrease as private industries grow. As economic freedoms grow, so too will political freedoms.

Myth 6 An FTAwith Mexico would increase the Bow of illeg al immigrants into America. Untrue.The economic growth stimulated by an FI'A will encourage Mexicans to stay home where jobs are being created. Lack of an FTA, by contrast keeps the Mexican economy weak, prompting great numbers of Mexicans to head north i n search of work.

The U.S. Congress should not be fooled by the myths fabricated by the FI'A's opponents. If the FTA is not approved by Congress, U.S.-Mexico trade would grow slowly at best, inhibited by Mexican tariff laws and investment barriers.

Withou t an FI'A, the U.S. would lose a potential 80 million-person export market for its goods, and face no prospect of halting or even slowing the influx of illegal immigration of Mexicans into the U.S SABOUTFREETRADEWITHMEXICO Myth 1: Millions of US. workers will lose jobs because they cannot compete with cheap Mexican goods.

Some leaders of organized labor, environmental organizations, and heavily protected industries like textiles and steel claim that an FTA with Mexico would allow cheap Mexican labor to tak e away American jobs. In fact, cheap labor from underdeveloped countries not only can strengthen the American economy, but will produce more U.S. jobs. Most U.S. jobs today are created in high technology industries, like computer sciences, aviation, and m edicine.This has been possible because since World War II the U.S. has allowed Third World countries to sell cheap, labor-intensive products to U.S. consumers, freeing up U.S. capital for in vestment in high technology industries.

While Mexicans mainly are semi-skilled and unskilled workers in agriculture light manufacturing, and electronics assembly plants, the U.S. work force is made 3 up largely of semi-skilled and highly skilled workers in high technology and ser vices industries.The average hourly rat e for manufaqg jobs today is $1.90 per hour in Mexico compared to 14.50 per hour in the U.S. Because of this dif ference in wages, Mexican companies will be able to compete directly with U.S companies that employ highly paid, unskilled and semi-skilled lab o r once tariffs quotas, and investment barriers are eliminated. America should welcome this competition. It will force inefficient U.S. industries to invest in more high technol ogy and services industries, like telecommunications, aerospace, and computers .

Since U.S. companies are most competitive in high-technology and services in dustries anyway, the economic incentives created by the FI,,A will boost the very industries that are creating most of the jobs for Americans. To be sure, competi tion from some low-cost labor compdes in Mexico may harm some U.S. labor intensive companies in the horticulture, textiles, and a few other industries and some of those that assemble electronic and automotive components Boosting Competitiveness. Charles Vanik, Counselo r for the free-trade group Coalition for North American Trade and Investment, has described how a U.S Mexico FTA would create jobs and boost competitiveness in high-technology in dustries. He told the Subcommittee onTrade of the House Ways and Means Com mi t tee on June 28,1990 The key to an abundance of high-wage jobs is to maintain technological leadership, develop the best-educated workforce, and invest worldwide to stay competitive.The true source of job security is a profit-making firm. A firm thats maki n g profits can accumulate capital and make the investments needed to sustain the more productive, better paying high-skilled jobs that yield a rising standard of living Vanik correctly suggests that Americas competitiveness is in developing in dustries tha t employ skilled 1abor.The U.S. economy created close to 20 million new jobs in the 198& mostly in such skilled-labor industries as banking, capital equipment manufactwhg, computer technology, insurance, transportation, and telecommunications. High technol o gy and services-related jobs now account for 76 percent of the U.S. labor force! According to Department of Labor studies 1 Rudiger Dornbusch, ItsTime to Open UpTrade with Mexico, C7dZmge, November-December 1990, pp. 52-55 2 United States International Tr a de (hmuss on, The Likely Impad on the United States of a Free Trade Agreement with Mexico, Investigation No. 2353, February 1991 p. 2-1 3 Testimony of Charles A. Vanik, Counsel for North American Trade and Investment, to the Subcommittee on Trade, House C o mmittee on Ways and Means, June 28,1990, p. 2 4 Lois M. Plunkert, The 1980s: A decade of job growth and industry Monthly Lobor Review, September 1990, p. 3 4 the fastest growing job sectors during this decade will be in computer technology and services, w hich wit account for 16 million of the estimated 20 million in new jobs by the year 20

00. These industries will benefit most from an FTkThe reason: Mexico does not have a developed high technology industry that can com pete with America, and as Mexico gro ws economically it will need many of the services U.S. high technology industries can provide. American firms, in turn, will benefit as Mexican companies import U.S. computers, telecommunication' equip ment, and other advanced technology products and serv i ces Bene5ts to Labor. While the gains in high technology service jobs will help the U.S. economy, the loss of some jobs in labor-intensive industries will not greatly harm it. According to the Department of Labor, manufacturing, the sector most protected b y U.S. tariffs and quotas, accounts for only 23 percent of America's gross national product, and employs only 18 percent of the U.S. labor force! The great majority of the U.S. labor force thus is unprotected and will benefit from an FrA The experience of the 1980s teaches that protecting industries not only harms the economy, but ends up losing jobs for those industries. For example, steel quotas in the 1980s raised the price of domestic steel and made U.S. steel products more expensive at home and abroad . Since U.S. manufacturers that use steel could not buy cheap raw steel from abroad, their end products were costlier than those made by foreign competitors who could buy the cheap steel. The result The U.S. manufacturers lost sales and then some 52,400 jo bs were lost in U.S steel-related industries?

Some of the poorest American workers in the U.S like those in food services and custodial jobs, will not be harmed by an FM, as some critics fear. There will not be a mass flow of Mexican immigrants into the U. S. once an FTA is under way. Increased trade under an mA will improve Mexico's economy, encouraging many Mexicans to seek work at home instead of in the U.S. If more Mexicans stay home to take advantage of new opportunities caused by economic growth, more jobs will be available for Americans in food services, construction, and custodial jobs.

Myth 2: U.S. businesses investing in Mexico as a result of an FI'A will be taking away the capital needed to expand U.S. industries and make them more internationally competitive 5 George SilveStri and John Lukasiewicz Projections of occupational employment, 1988-2o00 Monthly mor Review, November 1989, p. 51 6 Plunkert, op. cit. p. 14 7 Arthur T. Denzau, "CanTrade Protection Save Jobs Center for the Study of Amencan B u siness, April 1987 p. 5 5 Critics of an FI'A with Mexico often charge that free trade will drain America of badly needed capital. Organizations like the AFLCIO point to the experience of the rruqddbm program. Under this program U.S. companies send com pon e nts, like electronic and automotive parts, to assembly plants in Mexico. The finished product is then sold in the U. S. Labor groups argue that U.S. capital going to these industries prevents American companies from expanding their Operations To be sure, a n FI'A would cause a dramatic increase in U.S. investment in Mexico, currently valued at 7.1 billion, eliminating Mexican laws that limit foreign ownership in Mexican industries An FI for instance, likely will re quire the Mexican government to allow not only American banks access to Mexican financial markets, but more American investment in petrochemical in dustries.

However, this U.S. investment in Mexico will not mean a cutback in U.S. in dustrial growth. Contrary to arguments of organized labor, U.S. c ompanies do not have a fixed amount of capital. Capital is attracted to companies that are competi tive. If U.S. companies hest in Mexico by moving part of their operations there they will be able to produce more globally competitive products by combining low-cost labor with high-technology U.S. 1abor.M competitive edge will allow them to expand their operations in the U.S example, U.S. companies criticized by the AFIrcIO for investing in the mu quiladom program have expanded industries and created jobs in America. Since the 1960s the maquiladom program has created lo0,OOO American jobs in direct export-related industries as these industries expanded their operations. Even in non-border states like Illinois and Michigan jobs have been created in the manufac t ure of components such as automobile parts that are then shipped to Mexico for assembly vices, real estate, transportation, and warehousing have been created in the bor der states of Arizona, California, New Mexico, and Texas, where trade has in creased d r amatically because U.S. companies invested in plants in Mexico ing in Mexico will do so in distant Third World countries.This has an effect quite different from investing in Mexico. When American companies transfer part of their operations to Mexico, most of their work force stays in the U.S particularly in administration, sales, warehousing, capital equipment and components manufacturing, and management. By contrast, when U.S. industries locate their operations in distant Asia or Europe, the U.S. firms ty p ically do not supply their Creating Jobs. One sign of expanded operations is the creation of new jobs. For Several hundred thousand more jobs in export support industries like food ser FI'A opponents seem not to realize that U.S. companies prevented from i nvest 8 U.S. International Trade Commission, op. ck, p. 1-7 6 subsidiaries with capital equipment, warehousing, and administration personnel This is usually done by foreign companies closer to the factories. Without a U.S Mexico FI'A, Mexican laws that re s trict U.S. investment in Mexico will stay in force.Thus U.S. companies seeking cheaper labor will invest further from home and American jobs will be lost as entire operations, and not just part of them, are moved abroad Mexicans cannot afford them the inc o me of most Mexicans is too low to buy relatively expensive American products.They cite the fact that per capita income in Mexico today is roughly 2,032 compared to $16,709 for America.The discrepancy in income is so great they argue, that U.S. export indu s tries will find inadequate purchasing power in Mexico and thus little market for their goods Myth 3: Mexico will not be a large market for U.S. goods because most FI'A critics argue that American firms will not benefit from an FI'A because a 2a 10 16 10 6 0 U.S. Exports to Mexico I I 1 Increased Imports. FTA critics who see Mexico's low per capita in come hindering U.S. exports fail to recognize other factors that make Mexico a good U.S. export market.

Removing Mexican trade barriers like quotas tariffs, a nd investment restrictions can greatly increase U.S exports to Mexico. For instance, in spite of Mexico's low per capita in come, U.S. exports to Mexico have increased dramatically beginning in 1986because the Mexican govern ment has lowered tariffs and q u otas since that year. Mexico in 1988 passed Germany to become America's third largest trading partner (after Canada, the largest trading partner, and Japan U.S Mexico trade reached $58.6 billion in 1990 U.S. exports to Mexico have grown during the past fi v e years without any increase in per capita 7 GNP in Mexico.This increase in exports has meant more jobs for U.S. export in dustries. The Department of Commerce estimates that fog every 1 billion in crease in U.S. exports, 22,800 jobs are created in the U. S . From 1986 to 1989 Over 300,000 jobs were created in the U.S. export industries because of the in crease in exports to Mexico.The value of U.S. exports to Mexico in this period grew from $10 billion in 1986 to $28.4 billion in 1989 Another factor overloo k ed by FI'A opponents is that Mexican per capita in come will increase because of the economic growth spurred by an FI'A As their incomes increase, Mexicans will buy more U.S. goods. Trade between the U.S and underdeveloped countries since World War 11 dem o nstrates how, as an under developed nation's per capita income rises, it imports more goods. Japan had a per capita income of $960 in 1960 and imported only $4 billion in goods. In 1989 Japan's income was $22,800 per capita and it imported $209 billion in goods and services 43 billion of which came from the U.S.1' Taiwan now buys $11 billion in imports from the U.S and South Korea purchases $13 billion of U.S. goods.

These countries bought practically nothing from the U.S. two decades ago, when they were a s underdevelopedas Mexico now is. An FTA will help raise Mexican per capita GNP so that it too can buy more imports proximity to the U.S. has helped U.S. export industries in the past and will help them even more under an FTAToday Mexico buys over two-thi r ds of its capital equipment from the U.S. An FI'A would strengthen this export trend because American industries would supply most of the capital equipment and investment for the modernization of Mexico's factories, highways, and telecommunications system s . In contrast, Asia and Europe bought very little U.S. capital equipment during their economic growth. Asian and European, not U.S. companies, over the past thirty years supplied most of the capital equipment, investment, and technol ogy for industries in Asia and Europe.

As Mexican per capita income rises, Mexicans will buy a much larger percent age of their consumer goods from the U.S. than do Asian and European countries. American product name recognition is extremely high in Mexico. Some 65 percent of Mexico's imports a lready come from the U.S and experience teaches that this figure surely will rise under an FIA For example, as tariffs and quotas for many goods such as cars, clothing, and food were eliminated in Mexico during the past three years, Mexicans doubled their imports of U.S. goods In contrast, Hong Kong buys only 8.1 percent of its imports from the U.S Japan buys 22.9 percent, and Germany only 75 percent. Hong Kong has in creased its exports to the U.S. by $14 billion since 1979, but has increased its im Benef i ts of Proximity. Another factor FI'A opponents overlook is that Mexico's 9 Lester A. Davis Contribution of Exports to US. Employment, 1980-l.987 US. Department of Commerce International Trade Administration, March l.989, p. 6 10 International Monetary Fun d , International Fmd StatktksYearbook, IMF 1990 8 ports from the.U.S. by only $4 bil lion during the same period As these countries grew they relied on countries closer to their bor der for most of their imports which meant that U.S. export in dustries did not win the new con tracts and thus did not create new jobs.This will not happen in Mexico because of its proximity to the U.S and Mexico thus natural ly will turn to American goods and services to modernize its economy.

Another important reason why U.S. export industries would benefit is that an FI'A would eliminate a host of specific restric tions on U.S. exports. With these restrictions removed, U.S. goods would be cheaper than they are now to Mexicans, who then could buy more U.S. goods. An FTA Purcha s es of U.S. Exports 1989 for example, would require that Mexico eliminate the licensing fees that U.S firms now pay to sell their products in Mexico. Special import licensing restric tions in Mexico, it is estimated, now reduce U.S. sales in Mexico by 20 p ercent.

An FTA also would end laws mandating that goods sold in Mexico, like automobiles, be made from Mexican parts.The majority of U.S. exports to Mexico are in motor vehicle parts, telecommunications equipment, electronic components, processed foods, an d basic grains, which today suffer from quotas and 10 percent to 20 percent The reduction of these barriers under an FTA would make these products cheaper and more accessible to an already growing Mexican consumer market.

Myth 4: With an FTA, U.S. companies will move to Mexico to avoid strict U.S. environmental and labor safety standards, causing the loss of American jobs.

Groups like the AFLCIO and the National Wildlife Federation fear that lax environmental and labor safety standards in Mexico give companies based there an unfair advantage over U.S.-based firms, which must meet tougher standards.

Environmental and labor safety regulations in America raise the costs to U.S companies of producing goods and services. Labor groups argue that since American companies will not be able to compete against their counterparts in Mexico, they will move to Mexico to lower their operation and production costs 9 Similar Environmental Laws. These fears are exaggerated. Mexican environ mental and labor safety laws are r oughly equal to those in the U.S. Before toxic wastes can be transferred across the border, for example, both Mexican and U.S laws require a 45 day notification to the receiving countxy, identification of the toxic waste being transferred, and the destina t ion of the toxic waste. Mexican en vironmental regulations require any company working within 62 miles of the bor der to comply with all U.S. federal Environmental Protection Agency (EPA standards. Mexico's environmental protection agency, the Mexican Sec retariat of Urban Development and Ecology (SEDUE has even more power than does the EPA. SEDUE can shut factories immediately for violating environmental and safety regulations; the EPA cannot.

An EPA and SEDUE task force, meanwhile, since September 1989 ha s been designing ways to police environmental problems in the border region. In this pro gram EPA and SEDUE officials train each other on enforcement methods during plant inspections in both countries. According to EPA officials working on the SEDUE/EPA p r oject, SEDUE enforcement is comparable to the EPA's Ex ample: SEDUE last year temporarily closed several U.S. businesses inTijuana Mexico, that violated SEDUE environmental and safety standards. One unnamed U.S. company operating in the Ciudai Juarez, Mex ico, was fined $70,000 for non compliance of a SEDUE regulation.

Where environmental enforcement problems along the U.S.-Mexico border do exist it is because the SEDUE program is so new, not because of Mexico's lack of commitment to enforcing environmental laws. Many Mexican industrial cities, for instance, do not have enough environmental inspectors. Still, environmental and labor safety enforcement in Mexico has improved under the government of Presi dent Carlos Salinas de Gortari. He has said along the b order, we are introducing strict penalties for polluting companies. In this, we are acting decisively."13 To prove this, Salinas boosted the SEDUE budget 200 percent from last year to this year. SEDUE has plans, moreover, to add 50 to 150 inspectors in in dustrial cities like Guadalajara, Mexico City, Monterrey, and Tijuana. This continuing improve ment in environmental and labor safety enforcement reduces the incentives for American companies to move to Mexico to escape U.S. standards.

Myth 5: An FI'A would undermine human rights in Mexico because the treaty would strengthen the authoritarian central government.

Critics charge that an FTA with Mexico would strengthen a governmental sys tem with a history of electoral fraud, police brutality, and corruption . Human rights organizations such as Amnesty International, Freedom House, and 11 Telephone interviews with officials of US. Environmental Protection Agency l2 Telephone interview with Ron Pettis, chairman of the Envkonmental Working Group of the Border T r ade Alliance, December 3,1990 13 "A New Hop for the Hemisphere New Puspcctives Qumedy, Vol. 8, Winter 1991 10 Americas Watch, as well as several Mexican political opposition groups such as the PartidoAccion National (PAN) and the Partido Revolucbnario Den wcrdco PRD have reported a history of civil and human rights violations by Mexico's government non-democratic characteristics of Mexico's political system.This has begun to change since Salinas took office in December 1988.

Salinas Reforms. He has launched a dramatic economic and political reform campaign. He has arrested drug traffickers and corrupt union leaders and has begun reforming the Mexican bureaucracy, prosecuting officials for taking bribes and retraining anti-narcotics police units to ferret ou t corruption. He also has backed changes to make the electoral laws more democratic. No longer will offi cials from Salinas's ruling Institutional Revolutionary Party (PRI) be able easily to stuff ballot boxes.The new electoral code, which will takes effec t before the federal elections in August 1991, allows any opposition party access to the registry to check its accuracy reforms. Already, the planned privatization of the government owned paper com pany A.oductom e Importadom Papel SA. (PIPSA) and the lift i ng last April of government control over the sale of newsprint has made the press more inde pendent from the government. Now the government no longer can intimidate the press, as it has since the 193Os, by withholding newsprint. The result: a much more op e n and critical press. Now El Norte, a daily newspaper in Monterrey, and such publications as MIRR, Ptoceso, and Jonroda routinely criticize Salinas and his government Toward Greater Democracy. Free market and political reforms in Mexico since 1986 have st r engthened and supported the progress of each other. One American trade negotiator, who wished to remain anonymous, explained how an FI'A would guarantee faster movement toward democracy These groups and reports by and large are correct in their complaint a bout the An FTA will accelerate these democratic changes by boosting free market Mexico has the form of democracy but not the subs tance Mexico might not be a functioning democracy in the Western tradition, but it is not a brutal military count either Pol i tical freedom and economic freedom go hand in hand. Rising expectations [in Mexico] wiU create demands for change by creating a system that fosters change.14 An FTA will put tremendous pressure on the government to allow the under ground economy to operat e legally. The reason: An FI'A will open the Mexican 14 United States International Trade Commission Phase Ik Summary of Views on Prospects for Future United States-Mexican Relations Investigation No332-282, October 1990, p. 14 11 economy to international c ompetition.To survive in an increasingly competitive international market, Mexican businesses will pressure the government to simpliQ tax laws, reduce excessive regulation, and make credit more easily avail able through the marketplace.Tbis in turn will e n courage the so called informal sector to seek legal status. An estimated 30 percent of Mexicos gross domestic product is produced by small and medium businesses that work in the informal sector a part of the economy that operates outside the law to avoid the severe bureaucratic restrictions, regulations, and taxes that exclude it from the mainstream economy.This informal sector, combined with small and medium businesses in the formal sector, account for 80 percent of Mexicos work force.

Growth in the infor mal sector and among small to medium sized businesses will enrich the middle class.The middle class in Mexico has been politically powerless because it has.had little economic independence from the state. Middle class economic success will create a founda tion,upon which a true democratic system can stand, in the same way a large middle class formed the foundation for a strong democratic system in the U.S.

Myth 6: An FIA with Mexico would increase the flow of illegal immigrants into America.

The AFLCIO argues that an FTA will increase illegal immigration to the U.S.

Labor union officials say that under an FTA, jobs along the Mexican border will increase as new industries locate to border regions would prompt Mexicans to move to border regions from the interior of Mexico, and make it easier for them to migrate illegally to the U.S. Union officials also believe that the rise in Mexican per capita income will enable many more Mexicans to make the costly il legal migration to the u.s An FIA will n ot increase illegal immigration to the U.S. By boosting jobs and per capita incomes in Mexico, an FIA will remove the incentive for Mexicans to leave home and migrate to the U.S. in search of jobs.The root cause of illegal im migration to the U.S. is the failing Mexican economy. Illegal immigration across the border from Mexico increased from 345,353 in 1970 to 1,046,420 in 19

90. Last year the U.S. Immigration and Naturalization Service (INS) apprehended 1 mil lion immigrants at the border, a 20 percent i ncrease from 1988.The INS estimates that 85 percent to 90 percent of illegal immigrants crossing the border are Mexicans. During the past two decades Mexicans per capita income has dropped an estimated 40 percent. The Immigration Reform Control Act (IRCA) of 1986 by placing penalties on U.S. companies that hired undocumented workers, only temporarily slowed illegal immigration. This immigration is once again increasing because of Mexicos deteriorating economy, especially in rural areas 15 Contrary to popul a r beliet, it is not the very poorest Mexicans that hmigate, but those who can afford passage across the border 12 The Bush and Salinas administrations understand that the only way to reduce the illegal flow of labor from Mexico to the U.S. is to improve e c onomic and so cial conditions in Mexico. Salinas stated in an interview with New Penpectiva Qzuwterfy in January that through economic growth "Mexicans would be able to find jobs in Mexico and wouldn't have to look for them in the United States."16 CONCLU S ION It is in America's strategic and geopolitical interests to enter into a FreeTrade Agreement with Mexico. Political and economic instability in Mexico would in crease illegal immigration and drug trafficking and decrease trade.This would directly affec t the well-being of Americans. FI'A opponents such as labor union officials, environmental groups, and government-protected manufacturing in dustries spread myths about the harm an FTA supposedly would cause both countries.These myths, if believed, could p rompt Congress to defeat the FIX This then would poison U.S.-Mexico relations, cost jobs in both countries, and decrease America's global competitiveness.

These myths fail to withstand scrutiny and analysis. Critics say, for example, that millions of U.S. workers would lose jobs because they could not compete with cheap Mexican goods.To be sure, an FI'A will make consumer goods cheaper for Americans, but there will not be a net loss of U.S. jobs. An FI'A will create more U.S. jobs as U.S. companies use ski lled American workers to produce high-tech nology components and unskilled Mexican laborers to assemble products that are globally competitive.

Creating More U.S. Jobs. FTA opponents argue that U.S. capital needed to build industry at home will flow to Mexico.True, Americans will invest in Mexico.

But economic growth in Mexico will create a demand for capital goods that will be mainly supplied by U.S. companies. This means more jobs in U.S. industries that produce machinery, telecommunications, computers, and other capital equip ment.

Environmental groups charge that an FI'A will make it easier for U.S. com panies to move their operations to Mexico to avoid strict U.S. environmental and safety standards.Yet Mexican environmental and safety laws are similar to those in the U.S.These laws thus will play only a small role in the decisions of American companies to move their operations to Mexico.

FT'A opponents complain that an FI'A will increase the flow of illegal im migrants into the U.S and strengthen a go vernment system in Mexico which has a history of electoral baud, police brutality, and corruption. But an FI'A will do the opposite. It would stem the flood of illegal immigrants coming across the bor 16 "A New Hope for the Hemisphere op. ut 13der because it would give Mexicans work in Mexico. And it would sewe the causes of human rights and democracy by advancing those economic rights and freedoms which are the foundation of political freedom fects the welfare and security of America as does Mexico. An FI ' A would bind America and Mexico in a common future. A U.S. FI'Awith Mexico offers both countries great advantages. In contrast, problems between the two countries would grow if free trade between them is not established. For the U.S the case is irresistib ly compelling for the FI'Awith Mexico Compelling Case. Except for the Soviet Union, no other country so directly af Wesley Smith Policy Analyst Heritage Foundation research intern Bruno Stapo wntriiutted to this study 14

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