Mexico's Trade Chief Sees Role for US Oil Investment

WITH the paint barely dry in his ninth floor offices, Herminio Blanco Mendoza already stipulates that immigration will not be part of the Mexico-United States free-trade talks. But Dr. Blanco, Mexico's newly appointed chief trade negotiator, leaves the door open to some form of US participation in the Mexican oil industry, an area constitutionally off limits to foreign investment.

Hand picked last month by President Carlos Salinas de Gortari, Blanco will head Mexico's team in the trade talks slated to formally begin next year.

For Mr. Salinas, a free-trade pact is crucial to restoring investor confidence and ensuring economic prosperity, economists say. US officials see it as a counterbalance to the growing economic unity in Europe. Presidents Salinas and Bush have put the talks on a fast track in hopes of signing a deal before the 1992 US presidential elections.

US tariffs on the table

Blanco, who has a PhD in economics from the University of Chicago, will target US trade barriers for negotiation.

``On average, the United States has low tariffs. But not when it comes to vegetables, fruits, textiles, apparels, glass, shoes, and most recently brooms,'' says Blanco in a Monitor interview.

Mexican glass sold in the US pays import taxes as high as 38 percent. Orange juice import tariffs are more than 30 percent. Tariffs on brooms made here shot up to 32 percent last month, he says. But if these US barriers are to be lowered, what will Mexico put on the table?

``It's easier to tell you what's going to be excluded: the sectors in our Constitution which are reserved for the Mexican state.... Everything else can be talked about,'' Blanco says.

According to the Constitution, the Mexican government has exclusive rights to oil exploration and production, basic petrochemical manufacturing, mining of radioactive materials, nuclear energy, electricity, railroads, satellite ownership and operation, and radio and telegraphic communications.

But given that Mexico sits on one of the largest petroleum reserves in the world, US officials have recently expressed a strong interest in including oil in the negotiations.

When pressed on this point, Blanco indicates there may be a way to include foreign investment in oil exploration and production in the talks without rewriting the Constitution.

``I don't rule out creative financial formulas, so that Pemex [Petroleos Mexicanos] cooperates with American companies. But the ownership must be reserved for Mexicans,'' he says.

Mexico's banks, nationalized in 1982, were also sacrosanct until this year. Salinas is privatizing the industry, though foreign ownership is limited to a 30 percent equity stake. Most US banks will not consider investing unless they can gain a controlling interest.

Again, the financial sector is on the table. ``But that doesn't mean that we're going to fulfill all the wishes of American banks,'' Blanco says.

There has been some discussion here about Mexico using the negotiations as a forum to ensure a freer flow of labor across the border. Blanco quashes this idea: ``Immigration will not be included in the talks. The main reason we want to negotiate an agreement with the US is we want to create jobs in Mexico. Our workers are our main asset.''

But more jobs for Mexicans will come at the expense of US jobs, US trade union officials say. A trade agreement will prompt US companies to move factories to Mexico to take advantage of lower wages, they say.

Blanco, who will speak at Harvard University on Mexico's foreign policy Friday and Saturday, argues that the US will not lose jobs to Mexico. If Mexico's economy receives a boost from the agreement, more jobs will be created in the US, Blanco says.

Global competition is forcing some US companies abroad. ``If they go to Malaysia or Singapore, those factories will be supplied by Korean or Japanese manufacturers,'' says free-trade supporter Antonio Madero Bracho, chairman of Industrial San Luis, a Mexican conglomerate. ``If they move to Mexico, they'll buy US materials.''

Canada's entry into talks

``As the two countries specialize in what we are best at,'' adds Blanco, ``it's obvious the US will keep some of the most capital- and technology-intensive jobs, and we will do some of the jobs that are more labor intensive.''

Canadian officials want bilateral free-trade talks to become trilateral. A North American trade zone with 360 million consumers would exceed Europe's 325 million common market in 1992.

But Canada's participation may slow down and complicate the process. In coming months, the parties will discuss how three-way talks might work. But neither US or Mexican officials want to jeopardize a bilateral deal.

Blanco welcomes Canada's participation, but says trade with Canada is $2 billion annually, while trade with the US this year may reach $56 billion. ``These are different marriages,'' he says.