NAFTA Expansion Is Slowed, but Not Stopped

DESPITE the setbacks this year, the United States should not give up on the long-term goal of building a Western Hemisphere free-trade area. Nor should the other countries of the Americas give up on the US.

When the leaders of 34 nations of the Americas (excluding only Cuba) met in Miami nearly a year ago, their most significant accomplishment was to agree to establish - by 2005 - a free-trade zone that would span the hemisphere. The agreement was regarded as an opportunity to reshape inter-American economic relations. Although the governments left vague how they would proceed, provision was made for intensive consultations, extending through March 1996, to lay the groundwork for subsequent negotiations. And one concrete step was taken: The three NAFTA partners - the US, Canada, and Mexico - announced plans to add Chile to their ranks.

The consultative process is functioning. Working groups have been charged with gathering and analyzing information in seven key areas that affect regional trade. Four other groups will be set up next year. The statistical and technical foundations for eventual free-trade talks are being put in place. The politics, however, have been far more difficult to manage.

The biggest disappointment has been the failure of the White House and Congress to reach agreement on renewed ''fast track'' negotiating authority for the president - which is essential to undertake any serious trade negotiations. There is almost no chance the authority will be approved before next November's presidential election.

That means Chile's entry into NAFTA will be deferred at least until mid-1997. Another setback is Congress's inability to agree on an interim trade program for the economies of the Caribbean Basin until they are able to participate in NAFTA.

No one pays much of a price for failing to move forward on free trade, at least not right away. It will not do much harm to the US economy or to the economies of Latin America. The costs are mostly in missed opportunities. US leadership on trade and economic issues in the hemisphere has visibly diminished. A parallel trend appears to be the declining priority many Latin American countries are giving to free trade and economic integration. Governments in the region have been actively negotiating their own trade arrangements and have succeeded in boosting intraregional commerce, but market access to the US is what most propels their interest in free trade.

The good news is that the factors preventing Congress and the White House from agreeing on fast-track negotiating authority may be transitory:

* Ideological differences over how to deal with labor and environmental issues in fast-track legislation were heightened, first, by the unusually extreme partisanship that characterized US politics this year, and then by the start of the presidential campaign. Finding compromise on these issues should be easier after next November's elections.

* Mexico's year-long economic crisis, which erupted just two weeks after the summit, was an unexpected reversal. It reignited the contentious US debate over NAFTA and free trade generally - and NAFTA, Mexico, and, by extension, the rest of Latin America all became increasingly seen as political liabilities by members of both parties. The best guess is that the Mexican economy will have substantially recovered by the end of next year.

* At present, Chile is the only serious candidate for incorporation into an expanded NAFTA, or for any free-trade arrangement with the US. Although it is extraordinarily vibrant, the Chilean economy is small and distant. In the next year or so, other countries of the region should be able and willing to begin pursuing free-trade talks - including Brazil and Argentina, South America's two largest economies. This will create a far stronger and more active constituency within the US business community for free trade with Latin America.

Ideally, the president and Congress would find a way to compromise so fast track could be authorized soon and negotiations started with Chile. But that is not very likely before next year's presidential elections. In the interim, the Clinton administration could seek to improve bilateral trade relations in the region, while consistently reaffirming its commitment to the longer-term goal of free trade and broader economic cooperation.