283 August 11, 1983 MEXICO. AND. THE US. AT THE SUMIMIT INTRODUCTION On August 14, 1983, the fourth and by far the most important summit between President Ronald Reagan and Mexican President eguel de la Madrid takes place in La Paz, Baja, California. The increas ing turmoil in Central Am e rica, along with Mexico's serious econo mic problems, means a full agenda for me session I Because of its crucial location, bordering both the Caribbean and Central America, Mexico is inevitably an important factor in the current situation. Because Mexico thus far has chosen to pursue a Central American policy at odds with the U.S, the princi pal objective of President Reagan at this meeting should be to seek if not active Mexican cooperation, at least a Mexican policy of parallelism with the U.S. approach to Central America. Reagan should request that Mexico cease its rhetorical support for Cuba and leftist radical movements in Central America and place its weight, quietly if not publicly, behind policies which support elections rather than violence in El S alvador, which advocate pluralism in Nicaragua, and which oppose arms shipments to Marxist forces in Central America. Reagan must explain why this is in Mexico's long-term best interests At the same time, Reagan should review U.S.-Mexican economic relatio n s and urge Mexico to move away from a state-controlled economy toward a stronger private sector. While U.S. self-interest was a motivating factor in the recent U.S.-sponsored massive emer gency financial assistance to Mexico, it was still a major act of g e nerosity; Reagan should not hesitate to point this out and suggest that the U.S. would appreciate a reorientation of Mexico's Central American policies. Reagan should offer the possibility of import concessions in return for an increased private sector ro le in the Mexican economy, more encouragement of private invest ment, and a change in the Mexican policy of support for radicals in Central America 2 A third issue that should be on the Reagan agenda is immi gration.

U.S..is determined to end the unchecked flow of Mexican citizens into the U.S., but that the timing and application of this policy will depend upon Mexico's cooperation on foreign policy matters and its economic development policies Reagan should advise President de la Madrid that the UNITED S TATES-MEXICO RELATIONS United States-Mexican relations are sharply divided into two distinct, and often paradoxical, spheres: economics and politics.

Not only do the U.S. and Mexico share a 2,000 mile unprotected border, but until recently Mexico was the U.S.' number one trading partner in Latin America-and third in the world.

While U.S. and Mexican businessmen understand each other the politicians apparently do not U.S. presidents for the last several decades have had the thankless task of convincing Mexi co that its self-interest and well-being lies in cooperation, not confrontation with the United States rately courted former President Jose Lopez Portillo and Miguel de la Madrid with a frequent exchange of visits and discussions as well as major economic assistance programs. Yet Mexico's tradi tion of reflexive condemnation of the United States in the inter national arena remains unchanged President Reagan has elabo Mexico's ruling PRI (Institutional Revolutionary Party) came to power in 1929 following a protracted nationalist revolution with a strong socialist orientation emphasizing labor and land reform.

The PRI has won every presidential election since then six years the outgoing PRI president has named the PRI presidential candidate who has, without exception, been elected.

The national myth of Mexico having had its "revolution" has led the leaders of the country to assert that Mexico is in the vanguard of change for the rest of Latin America. Clearly Mexico fails to distinguish their relatively modes t reform programs with real Marxist revolutionary upheavals sustained by external inter vention in other Latin American countries Every Recent municipal election victories of the PAN (National Action Party) in some northern cities arenot yet a real threat to the PRI's entrenched power than PRI, PAN is led by Pablo Emilio Madero, a relative of Francisco Madero, the hero of the 1910 Revolution. This is.very important for the tradition of the revolution and the myths that have grown around it play a huge role in the Mexicans' political consciousness. Thus, although PAN is neither large nor strong the charismatic appeal of Madero is great. This, coupled with public lack of confidence in the PRI, could eventually challenge the one-party system of presidential el e ctions Considerably more conservative 3 Mexico's discomfort at existing in the shadow of the United States has been the principal motivation for its support of leftist causes abroad. But this has not made Mexico a Soviet client, un like Cuba and Nicaragua . 1960, when Mexico was the only member of the Organization of Ameri can States that did not break relations with Havana, it does so more out of self-interest than ideological solidarity. A tacit agreement between Mexico and the Soviet/Cuban bloc allows Me x ico to give the Soviets international verbal support in return for immunity for the present from Cuban-organized terrorism domestically Although Mexico has supported Cuba since MEXICO AND CENTRAL mRICA Mexico's aims in Central America should coincide with those of the United States. Its repression of domestic pockets of ter rorist activity is as harsh as its support of international radi calism is strong war with the Somoza government in Nicaragua was enthusiastic. As Nicaragua with Cuban support, has exte n ded its "revolution with out borders" into El Salvador, Mexico extended its support of the Sandinistas to the FMLN (Farabundo Marti Liberation Front) guer rillas in El Salvador Mexico's backing of the Sandinistas in their From the Mexican Ifpluralistic' r e volutionIf point of view opposition to the Somoza government could be justified as part of the myth that Mexico cultivates as the self-appointed liquidator of traditional oligarchies in Latin America however, Mexico's support for the FMLN or for undermini n g the Duarte government in El Salvador ating precisely the types of reform advocated by Mexico. Nonethe less in August 1981 Mexico and France issued a joint statement recognizing the Salvadoran guerrillas as Ira representative politi cal force,It elevatin g their status and credibility in direct oppo sition to U.S. policy. This French-Mexican initiative promptly was condemned as Itinterventiontf by 14 other Latin American coun tries; only Cuba and Grenada supported the initiative. Undeterred Mexico continue d to attempt to muster support for Cuban-backed peace proposals This does not justify The Duarte government was initi Along with Panama, Colombia and Venezuela, Mexico is part of the Contadora Group, named after the Panamanian island where they first met. T he Group is seeking an end to the Ilarms race" and to all foreign intervention in Central America. Until the appointment this spring of U.S. Special Envoy to Central America Richard Stone the Group's activity was limited to inspecting border areas. Late l y, it has been acting as a go-between for Ambassador Stone and the Salvadoran guerrillas.

Washington's reaction to the Group's efforts has been mixed.

Strong Cuban endorsement of Contadora has caused hesitation, as has the Group's double standard in asses sing the scope and content of Cuban versus United States activities in the region. At one time Reagan believed that Mexico and Venezuela could be enlisted to assume responsibility to keep the Cubans out of the area 4 Venezuela continues to straddle the is sue. Mexico, however, has maintained its tacit agreement with the Soviets of supporting them internationally in exchange for their restraint in organizing communist revolution within Mexico.

Nonetheless, when meeting de la Madrid, Reagan should raise the m atter of Mexican Central American policy, especially since the region is a vital U.S. concern the time is past when Mexico could score easy rhetorical and poli tical points with some constituencies by aligning itself with anti U.S. forces in the hemispher e and not expect a sharp reaction from the U.S. Mexico must accept its responsibility as part of the Western community of nations and insist that while political pluralism and non-alignment are acceptable, overt and active align ment by Central American an d Caribbean nations with, and violent changes in the status quo by, Marxist forces are not. If Marxist turmoil were to spread to Mexico, Reagan should note, the human and material cost of the conflict would dwarf those incurred in El Salvador and Nicaragua Reagan should stress that MEXICO s ECONOMIC CRISIS A second major subject for the two Presidents will be economic matters. President de la Madrid is a Harvard-educated economist and was Minister of Budget and Planning in the Lopez Portillo Administration. He is well aware of the precarious state of his nation's economy and how it got there moreover, suffers grievously from corruption and inefficiency.

Public expectations of prosperity soared as Mexico became a major oil producer in 19

79. Much of this increase in revenue, however stayed in the hands of the PRI elite, some,of whom are alleged to have embezzled tens of millions of dollars.

De la Madkid campaigned, as did most of his predecessors for a crackdown on corruption and a "moral renovation" of Mexico.

Thus far former PEMEX (the state-owned oil company) head Jorge Diaz Serrano, now a Senator, has been charged with a $34 million fraud of PEMEX.

Senator has been charged. Whether or not the crackdown will be significant or merely s ymbolic is key to de la Madrid's ability to restore public confidence The Mexican government It is the first time in over 30 years that a For four years Mexico based its public spending and borrowing policy on the fantasy that oil revenue would continue g ushing.

It was not anticipated that the world energy market would soften the way it has in the past year. As a result, Mexico's debts have mounted, fueled by excessive public sector spending and massive government subsidies to consumers and producers. This triggered the August 1982 announcement that Mexico could not meet payments on its $80 billion foreign debt, about one-third owed to U.S. banks.

This was a public recognition that government policy had failed.

Instead of a shift to free enterprise polici es, the government opted for more state control. In 1970, 20 percent of the Mexicant 5 economy was under state control. With the September 1, 1982 nationalization of the banks under outgoing President Lopez Portillo, public sector control soared to betwee n 70 and 80 percent..

Within days of the August crisis, the United States marshalled a massive assistance package. The U.S. Department of Commerce reports that !!the package included a 1 billion advance payment for petroleum exports for the U.S. Strategic Petroleum Reserve up to 1 billion of U.S. government guarantees issued by the Commodity Credit Corporation to support U.S. commercial bank loans for purchases of U.S. agricultural products; and a 1.5 billion short-term !swap loan involving the U.S. Treasu r y, the Federal Reserve and the Bank for International Settlements, representing a group of central banks from Mexicots other creditor nations In his December 1, 1982 Inaugural Address, President de la Madrid outlined his tlImmediate Program for Economic R e ordering which declared the state the I!caretaker!l of the Mexican mixed economy. He also has declared the nationalization of the banks to be I' irreversible. I One of the most devastating aspects of the crisis is the near collapse of the peso. Just two y ears ago, $1 bought about 25 pesos today the dollar buys about six times that. As such, it now costs six times as much in pesos to buy items priced in dollars as it did in 19

81. Inflation, meanwhile, ran at 98.8 percent for 1982.

The sole glimmer of good news is that for the first time in 39 years Mexico last year had a trade surplus of 6 billion. However this.was not due to increased domestic production (it has fallen sharply), but because there is no money to pay for imports. This has caused an additio nal economic slowdown as imported spare parts materials, and components are not available for.production.

Until the crisis, Mexico ranked only after Canada and Japan In 1982 Mexican imports were as the leading U.S. trade partner down $10 billion, which mea nt a loss of approximately 250,000 jobs for Americans in export industries. In addition, U.S. border com munities have reported losses of up to 80 percent in sales; local unemployment runs at 27.2 percent, nearly three times the national average.

One solu tion for Mexico may be to pump more oil until it pays off its debts. This is not feasible for two reasons: the current oil glut weakens the market for increased sales and Mexico does not have the foreign currency to buy the equipment necessary for increas ed production.

Domestic belt-tightening and compliance with International Monetary Fund loan conditions have allowed Mexico to meet its debt payments on time. In June, Mexico became financially stable enough not to need an additional $1 billion that bankers had made ava il- able on May 31 Given the close relationship between the Mexican and U.S economies and their importance to each other, President Reagan 6 obviously will raise the economic issue at the summit meeting.

He should urge Mexico to take steps to improve its t rade perform ance A central issue in Mexican-U.S. trade relations involves countervailing duties-l Mexico is not a signatory of the GATT (General Agreement on Trade and Tariffs Under U.S. law, a U.S. manufacturer can request that, because its business is b eing hurt by unfair foreign compe tition, a U.S. tariff (countervailing duty)--equivalent to the amount of government subsidy the foreign company is receiving should be levied on the foreign product when it enters the U.S If, however, the country of the f o reign competitor is a signatory of the GATT, then the U.S. manufacturer must prove that it is being injured. If, as in Mexico's case, the foreign country is not a signatory, then the fact of government subsidization is itself sufficient for the imposition of countervailing duties injury need not be proved.

Though Mexico refuses to remove subsidies from its manufac tured products, it wants to have the '!injury test" applicable to its products-despite the fact that Mexico has not signed GATT.

Washington cou ld accommodate Mexico by requiring that U.S. pro ducers prove injury caused by Mexican imports administratively give a relatively loose interpretation to the definition of a flsubsidy.fl This could be in U.S. interests for a stronger Mexican economy will buy more U.S. goods pledges to make economic concessions to Mexico, such as imposing a strict proof of injury test, Reagan should obtain, in return, a change in the Mexican stand on Central American political issues.

If Mexico makes efforts to be more coop erative, then U.S. economic policy can be responsive It could also If the U.S Additional imaginative economic initiatives can be pursued in a more friendly political climate, including expansion of the 12-mile free trade zone along the border. Under this p rogram in bound materials and parts can be used for assembly and production under special restrictions. 129 plants are now operational under this system. Finally, the U.S could grant Mexico's request for 2 billion in official credits, including $1 billion to buy food spare parts, and basic industrial goods. But credits should only be approved on condition that Mexico's private sector be strengthened.

ILLEGAL IMMIGRATION For Mexicans, immigration to the U.S. is the most sensitive of issues year and unemployment at 50 percent, Mexico sees emigration as a'safety valve.

In 1982, an estimated 500,000 illegal aliens entered the United States, most of them Mexican. A further With 1,000,000 youths pouring into the workforce each Countervailing duties are levies im posed by the U.S. Government on imported products where foreign governments have subsidized production costs. 7 deterioration of the Mexican economy or increased political turmoil will increase the flow.

The immigration issue not only is complex-requiring careful analysis-but is politically sensitive supports the Simpson-Mazzoli bill which would establish a limited form of amnesty for illegal aliens already in the United States It then would establish a system designed to reduce substantially the future f l ow of illegal aliens to the U.S the timing and implementation of this policy, if Mexico makes good faith efforts to strengthen its private sector and is more forth coming on foreign policy issues The Reagan Administration President Reagan can offer Mexico marginal modifications of CONCLUSION Mexico has proudly proclaimed its ttfndependentlt foreign policy.

The truth is that it is not independent, but is obsessed by an apparent need to oppose the United States to set its policies in terms of their relevance to Mexican security and economic interests It is-time for Mexico It is time too that Mexico reassess where its true interests reside. Its cultural, political and economic systems have much more in common with the West than with the various socialisms of t he East or of Cuba faithfully all nuances of,U.S. policy. As with Canada, that other country bordering the U.S:, Mexico could follow a policy of paral lelism on important security and economic matters and cease from actively undercutting U.S. efforts to p r event the expansion of Marxist influence in Central America It is not necessary for Mexico to follow At the same time, Ronald Reagan should point out that the expansion of the state sector in Mexico will make economic develop ment more difficult, and coop e ration with the U.S. government'and the private sector less likely. Further, the U.S. cannot continue absorbing large numbers of undocumented aliens and will take deci sive steps to end this situation, thus making Mexican economic development even more im portant.

One meeting cannot change fundamentally the course of U.S Mexican relations. However, by stressing the crucial issues of Mexican Central American policy, economic development, and immi gration, and by impressing upon President de la Madrid the urg ency with which the U.S. views all of these matters, small but signifi cant modifications in Mexican policies might be obtained.

Prepared for The Heritage Foundation by Victoria Craig Washington, D.C.