The Melding Americas : Economy : Business Breaks Through Old Barriers of Fear : Latin governments in past have been suspicious of foreign investment, U.S. firms wary of corruption. But times are changing.

MEXICO CITY —  Not long ago, business was among the most divisive issues in U.S. relations with Latin America. Latin governments looked suspiciously on foreign investment as a menace to be regulated; U.S. companies were just as wary of expropriation-prone politicians who might confiscate their oil wells, plantations or mines overnight.

But nowadays, doing business is a driving force in bringing the Americas closer. Governments are even beginning to look upon foreign businesses as allies that can help them solve perennial problems.

For example, the Brazilian government is paying Raytheon $1 billion for a radar surveillance service to help stop poaching and monitor drug trafficking in the Amazon rain forest. Across Latin America, U.S. corporations are tackling one of the region’s most persistent irritations--lousy phone service. The Americans are the new owners of the notoriously unpopular national telephone companies, purchased from governments eager to unload the problem.

The most obvious political evidence of closer relationships in the hemisphere is the abundance of new trade alliances, starting with the 10-month-old North American Free Trade Agreement and extending to South America’s Mercosur, a combine of Brazil, Argentina, Paraguay and Uruguay. The big alliances complement a growing number of bilateral deals.

Even outside these agreements, import tariffs are tumbling. Mexico’s average tariff fell from 27% a decade ago to 13% last year. Chile’s average has been 11% for the last five years.

Once highly protectionist, Brazil has slashed tariffs from an average of 51% in 1986 to 14.2% this year. This month, the Brazilian government cut tariffs on 13,000 items. Imported autos, televisions, microwave ovens, stereos and video cassettes will all be cheaper as tariffs fall from 35% and 30% to 20%.

Lower tariffs should mean more robust trade. As Mexican tariffs fell over the last five years, two-way trade with the United States has doubled. Overall, American trade with Latin nations reached $141.5 billion last year, a 45% increase over 1989.

Investment has followed commerce, with U.S. money pouring into Latin American stock markets, industrial parks and natural-resource companies.

Already among the largest investors in the region, American auto makers have stepped up their activities. General Motors is pumping $90 million into a new pickup truck factory in Cordoba, Argentina, and building another factory in Silao, Mexico.

U.S. corporations are important investors in Chilean and Peruvian copper mines. Between them, Exxon Overseas Investment Corp. and Phelps Dodge have sunk nearly $2 billion into Chilean mining and have authorizations to invest $1.5 billion more.

In Peru, William Massey, president of the American Chamber of Commerce there as well as the country’s Goodyear subsidiary, noted: “I’d say that Peru is No. 1 on the list in Latin America. . . . People are amazed at how easy it is to invest. The proof is the number of new mining companies that have been formed.”

Those include Newmont Mining Corp. and Cyprus Minerals, in addition to two oil companies, Advantage Resources International Co. and American International Petroleum Corp. Peru. All are U.S.-owned.

Cyprus Minerals started off paying the government $37 million for the Cerro Verde copper mine, planning to invest $485 million more. Southern Peru Copper Corp. paid $65 million for a formerly government-owned copper refinery and plans to invest $445 million over the next five years.

Thus the government decision to sell off companies has fostered the growth of foreign investment in Peruvian mining--as it has in many other sectors of Latin American industry.

In Argentina, U.S. investors put $1.5 billion--27% of the total--into privatization from 1990 to May, 1994. GTE Corp. and American Telephone & Telegraph became part of the management team at the Venezuelan telephone company, Cantv, when the government sold controlling interest in the company in 1990.

Besides selling off their own companies, governments have encouraged foreign capital by lifting restrictions on the industries in which foreigners may invest.

Late last year, Mexico replaced its 20-year-old “Law to Regulate Foreign Investment and Encourage Domestic Investment” with a more neutrally titled “Foreign Investment Law.” The liberalized law permits broader foreign ownership of mines, airlines, airports, ports, farmland, courier services and cross-border freight. Two dozen applicants are now eagerly waiting to hear which will be the first foreign financial institutions licensed to open banks in Mexico in almost six decades.

Other countries in the region have opened up their oil industries. Esso Argentina, an Exxon subsidiary, plans to invest $80 million to $90 million over the next decade. Mobil Oil Corp. is exploring Peru’s Madre de Dios basin in southeastern Peru. Even government contracts are opening up. Hughes Aircraft, bidding against a French company, recently won a contract to provide launching services for a Brazilian satellite. Before 1992, only Brazilian companies were allowed to provide such services.

Importantly, there has also been a change in attitude about what has been the most important unwritten restriction on U.S. business in Latin America: corruption. In a sign that the days of impunity are over, both Venezuela and Brazil have jailed sitting presidents on corruption charges.

In Chile, bribes and kickbacks are not acceptable, foreign businessmen say. “If you are dealing with public officials, you’ll get into trouble, and if you are dealing with private officials, it will cause offense,” said J. Michael Combes of the U.S.-owned Marco Chilean shipbuilding company in Chile. Investment, meanwhile, is not all flowing one way. Mexico’s Vitro Corp. paid $800 million for money-losing Anchor Glass Container Corp. in 1989, turning the company around in less than a year. Cementos Mexicanos, or Cemex, has become North America’s largest cement maker, partly by buying up its U.S. competitors.

Cemex launched its aggressive acquisition campaign as a defensive measure when European companies tried to enter the Mexican market. Ironically, those same non-American companies have used U.S. anti-dumping laws to prevent Cemex from operating its North American holdings as a single cross-border unit.

And investment from the north is creating trade flows from the south. Ford Motor Co. plans to start exporting from its old Cuautitlan plant in central Mexico this week. The company already makes Mercury Tracers for the world market in Hermosillo and engines in Chihuahua for export to the United States.

Contributing to this article were Adriana von Hagen in Peru and Times staff writer Ron Harris in Brazil.

Closer Ties

U.S. investment in Latin America has increased steadily in recent years, rising even as capital from other countries fell, as it did in Brazil two years ago.

Following are statistics on accumulated U.S. investment in selected countries, in millions of dollars:

Country 1989 1990 1991 1992 1993 Mexico* 16,771 19,080 21,466 23,118 26,621 Brazil 10,224 10,488 10,959 11,277 12,400 Chile** 2,130 2,401 2,751 3,044 3,681 Peru 592 592 591 603 626

* Excludes stock market investment.

** U.S. investment in Chile accumulated since 1974. Most foreign companies had left Chile in 1973.

Following are statistics on accumulated U.S. investment as a percentage of total accumulated foreign investment:

Country 1989 1990 1991 1992 1993 Mexico 63% 63% 63% 62% 63% Brazil 30% 28% 28% 30% 30% Chile* 43% 21% 36% 30% 38% Peru 46% 46% 45% 40% 39%

* New investment; running figures on U.S. accumulated investment not available. However, U.S. accumulated investment in Chile was 49% of total accumulated foreign investment in 1989, but had shrunk to 39% of the total by June, 1994, as other countries increased investments there.

Source: Government reports