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Market Newsletter : 'Yukon to Yucatan' Accord Within Sight : The stakes are different for Canada, the United States and Mexico in the three-sided trading bloc.


TORONTO — This June, the United States, Mexico and Canada are to begin negotiating what's billed as the deal of the century: creation of a tripartite trading bloc that would make North America a unified economy with an output of $6.6 trillion--enough to dwarf the much-ballyhooed unified market planned for Europe after 1992.

Heads of state in each country are eager to close a deal before their respective national election campaigns begin in earnest--1993 in Mexico and Canada, 1992 in the United States. So optimists are forecasting an early, rough draft of a Yukon-to-Yucatan accord, perhaps by the end of this year.

The main issues at stake are different for each country.

* The United States is especially interested in improved access to Mexican oil, having learned yet one more painful lesson on the risks of overreliance on Middle Eastern sources over the past seven months. (At present, the Mexican constitution forbids any foreign investment in energy.)

* Mexico, with its burgeoning population and embarrassing flight of human capital to the United States, is interested in attracting foreign investment and needed jobs. Mexico is also looking for rewards from Washington for the various free-market reforms enacted since President Carlos Salinas de Gortari took office in 1988.

* Canada, meanwhile, seems to want in for defensive reasons--if the country doesn't join the talks, its two southern neighbors will press ahead anyway, granting each other favorable trading terms and leaving Canada out in the cold.

There is clearly some ambivalence in Canada.

For years, economists have said that Canada needed to open up to international trade. Manufacturers here had grown inefficient and uncompetitive while long protected by tariffs and other trade barriers. To make up for the shortcomings of its manufacturers, Canada came to depend heavily on exporting its rich, but ultimately exhaustible, natural resources.

Free trade with America might seem the natural course, but for a long time no government would advocate such a step for fear of committing political suicide--Canadians tend to want their governments to keep a distance from the powerful, dominant United States.

But when Canada's present prime minister, Brian Mulroney, took office, he decided it was time to break with the past and move the country toward trade liberalization. He signed a bilateral trade accord with the United States in January, 1989, telling his country it would lead to the creation of hundreds of thousands of jobs.

In fact, ask people here and they will say the pact has done little for the country. Instead of creating jobs, it looks to him like free trade with the powerful Yankees has cost them. And with an economy that has been mired in recession for much of the time since the pact was signed, the government can offer little proof to the contrary.

Although Canada still posts a strong trade surplus with the United States, economists here say that's due in large part to stagnant Canadian imports, as recession-stricken consumers and manufacturers have tightened their belts and bought fewer American goods.

There's no question but that Canadian jobs have disappeared.

But whether the free-trade pact is to blame is unclear. Business people, who generally favor liberalized trade, say the real problem is that the government has kept the Canadian dollar substantially overvalued ever since 1989. As a result, Canadian businesses that ought to be benefiting from their new access to the huge U.S. market are instead finding that would-be U.S. customers cannot afford their overvalued products, they contend.

Others admit that the accord has prompted plant closures and production shifts out of the country:

* Robertshaw Controls Canada Inc., for instance, a subsidiary of a Virginia appliance-controls manufacturer, began shifting production to larger plants in the United States last fall, and said the new free-trade environment helped spur the decision.

* Cobi Foods Inc. closed a vegetable-packing plant in Ontario and likewise cited free trade, among other factors.

* And when Nabisco Brands Ltd. asked for concessions from workers at its cereal plant in Niagara Falls, it blamed new competitive pressures brought on by the bilateral trade accord.

Unionists have little doubt that the free trade pact is to blame, however.

They say that, particularly in Canada's uncompetitive manufacturing industries, a shakeout has begun as the protective tariffs have been lifted. Bruce Campbell, senior economist at the Canadian Labor Congress, counts 22,000 jobs lost in the textile industry as a result of bilateral free trade, 23,000 in the garment industry, 19,000 in the automotive industry and 22,000 in food processing.

"The job losses . . . will not come back when the country emerges from the recession," he predicts, claiming that free trade is bringing about "the deindustrialization of Canada."

There is one area where the trade agreement with America may be helping the Canadians.

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