Canada Will Join U.S.-Mexico Trade Talks, Bush Says

President Bush announced Tuesday that Canada will join the United States in trying to forge a free-trade agreement with Mexico, which could be a step toward the President’s goal of creating a giant international trading bloc that ultimately would span the hemisphere from Point Barrow to the Strait of Magellan.

Bush said that the talks, already under way between the United States and Mexico, will be aimed at reducing trade barriers and that they would “expand market opportunities, increase prosperity and help our three countries meet the economic challenges of the future.”

Those challenges include competition from the increased economic power of the 12-nation European Community, which is scheduled to become a single market next year, and Asian countries, which are also seeking to forge closer ties among their economies.

“With more than 360 million consumers and output of $6 trillion, the countries of North America are poised to reap the abundant rewards offered by free trade,” said U.S. Trade Rep. Carla Anderson Hills, who will lead this country’s negotiating team.

The move to negotiate a three-country free-trade agreement comes two months after the breakdown of global trade-liberalization talks. Those negotiations had sought to limit the ability of the world’s nations to organize themselves into formidable trading blocs that could wage economic war upon each other.

In Geneva, efforts continue to restart those 4-year-old international talks, known as the Uruguay Round. But negotiators have yet to reach a breakthrough on the critical issue of agricultural subsidies.

Hills conceded that the current global economic slowdown provides “a poor backdrop for trade liberalization,” because harder times generally breed greater protectionism.

The U.S.-Mexico talks already had encountered strong opposition from many quarters, including organized labor. Opponents have contended that a free-trade agreement would encourage U.S. industries to move their operations to Mexico, where they can escape union wage scales and stricter government regulation of pollution and workplace conditions.

Mexico is already this nation’s third-largest trading partner, after Canada and Japan. Under President Carlos Salinas de Gortari’s economic liberalization program, Mexico has moved to ease restrictions on foreign investment and other barriers that have made U.S. firms leery of doing business in that debt-laden, inflation-ridden nation.

A free-trade agreement would give U.S. investors confidence that these measures would survive after Salinas leaves office in 1994.

Mexican economists welcomed Canada’s participation in the talks. Canada’s input could help Mexico counterbalance the huge economic weight that the United States brings to the negotiations, particularly in areas where Mexico and Canada have common interests, such as oil, said Rogelio Ramirez de la O, director of Ecanal, a Mexico City economic analysis firm.

Oil is a particularly sensitive area, because Mexico’s constitution forbids foreign ownership of natural resources, Hills noted. She expressed hope that the free-trade agreement would open the way for other forms of U.S. investment, such as joint ventures.

Some supporters of the U.S.-Mexico talks, however, had raised the concern that the talks could be complicated by including Canada, this country’s largest trading partner and a nation with which the United States has had a free-trade arrangement since 1989. That agreement was the subject of intense political debate in Canada.

“I think inclusion of Canada in these negotiations could delay the progress of free-trade talks with Mexico,” said Sen. Lloyd Bentsen (D-Tex.), chairman of the Finance Committee, which has primary responsibility for the issue in the Senate. “I am still concerned about that, but Canada has made it clear that this is a matter of national concern for them and Mexico has not objected to Canada’s participation, so I am not inclined to block Canada’s request.”

Hills, however, said she did not believe that the talks would be impeded by Canada’s participation. She predicted that the negotiations, which will begin formally this summer, could be wrapped up by year-end.

It will be politically impossible for the talks to go forward, however, unless Congress approves a “fast-track” procedure, under which it agrees to accept or reject the final package as a whole, rather than amending it. The congressional vote on the fast-track procedure is expected in mid-May, and could prove to be a “real fight,” said Rep. Jim Kolbe (R-Ariz.), whose congressional district lies along the U.S.-Mexico border and who supports the negotiations.

Even as Bush announced the three-way talks, the U.S. International Trade Commission released a study that found that a U.S.-Mexico free-trade pact would benefit the overall U.S. economy by expanding trade, lowering prices, increasing competition and improving the ability of U.S. firms to reap so-called economies of scale--or increased efficiency by doing business in larger volume.

However, the commission noted that those benefits would be relatively small in the near future because the U.S. economy is so much larger than either Mexico’s or Canada’s and because the three countries already have relatively few trade barriers among them.

The commission estimated that a free-trade agreement would affect California and other states along the 2,000-mile Mexican border “in a number of conflicting ways, with the net effect ambiguous.”

One example of how the agreement could cut both ways is the effect it would have in the short run on retailing, which is the largest industry on the U.S. side of the border and provides more than a quarter of the region’s employment.

While small U.S. retailers along the border might suffer from increased competition from Mexican businesses, the commission concluded, larger firms would have the resources to take advantage of the opportunity to set up new outlets in Mexico.

“However, any short-run losses will probably be offset in the longer run when retailers will benefit from overall increased economic growth in the border region,” the study concluded.

Times staff writer Juanita Darling in Mexico City contributed to this report.