DATE=12-31-02

TYPE=DATELINE

NUMBER=7-37072

TITLE= NAFTA'S NEW YEAR

BYLINE=Steve Baragona

TELEPHONE=(202) 619-0720

DATELINE=Washington

EDITOR=Neal Lavon/Carol Castiel

CONTENT=

DISK: DATELINE THEME [PLAYED IN STUDIO, FADED UNDER DATELINE HOST VOICE OR PROGRAMMING MATERIAL]

INTRO: Mexican farmers are threatening to block U-S-Mexico border crossings tomorrow to protest impending tariff reductions. Under the North American Free Trade Agreement, tariffs on many agricultural goods imported from the United States will come down to zero on January first. Mexican farmers say the changes could cost them their livelihood. Steve Baragona reports for Dateline.

TEXT: How are Mexican farmers reacting to the tomorrow's tariff deadline? Ask Peter Rosset, co-director of the Institute for Food and Development Policy.

TAPE: ACT 1 ROSSET :15

"Basically, there is a generalized freak-out in the Mexican countryside. Almost all of the country's farmer unions have been in generalized protest all of the month of December against what they feel may very well mark the end of their livelihoods."

TEXT: This month, protesters have blocked a major highway out of Mexico City, disrupted the Mexican legislature, and even dumped tons of beans in front of the Senate building. Mexican farmers say that once the tariffs on most farm goods come down to zero on January first, they'll face unfair competition from American farms. Those farms are heavily subsidized under the one hundred ninety billion-dollar farm bill Congress passed last summer. As of tomorrow, the price of American pork, chicken, and other farm goods will drop sharply in Mexico. Mr. Rosset says although lower prices sound like a good thing,

TAPE: ACT ROSSET :24

"For Mexican farmer that's a bad thing, because the U-S products, which are heavily subsidized thanks to the U-S farm bills, come in to Mexico often below the cost of production. And local farmers can't compete with that. That tends to make them go out of business, drive them off the land, and into poverty and misery. This is supposed to get a lot worse now on January first."

TEXT: About a quarter of Mexico's one hundred million people lives on farms. Ryan Zinn coordinates activities in the poor, rural southern Mexican state of Chiapas for the activist group Global Exchange.

TAPE: ACT 3 ZINN :12

"I think what we'll see over the course of the year, and really the first six months, is a massive unemployment and an increased migration either to the urban areas like Mexico City, or to the United States."

TEXT: But economist Gary Hufbauer at the Institute for International Economics says that the shift from a rural to an urban society was already underway in Mexico before NAFTA.

TAPE: ACT HUFBAUER :17

"And that trend will continue regardless of what happens in NAFTA. That is part of Mexican development. The only way that trend would stop is if Mexico goes into a deep, long stagnation, just stops growing. So it would only stop if things were really bad in Mexico."

TEXT: Mr. Hufbauer says NAFTA adds pressure to that trend. He says there are better opportunities in the cities, away from the deep poverty of Mexico's rural areas.

TAPE: ACT HUFBAUER :20

"Whatever you earn in the farm areas, you can earn two and a half times as much in the urban areas, or even four times as much. I mean, it's a huge gap. With gaps like that, I mean even if Mexico kept all the protection, as long as the urban areas are growing and people can get jobs, they will go to the urban areas because that's the better life."

TEXT: The Cato Institute's Dan Griswold says this transition away from farming is Mexico's ticket to prosperity.

TAPE: ACT GRISWOLD :29

"Every nation that has gone from being a poor nation to being a first world, modern nation, has followed the same path. You go from a situation where the majority of your people are farmers, to where they are a large minority, to where they are a small minority. And Mexico is on that path. There is no way that Mexico is going to realize its dream of being a modern, productive, first world country without seriously downsizing its agricultural sector."

TEXT: But while the agricultural sector is downsizing, other sectors have to provide jobs for displaced farmers. Experts say progress on that front has been mixed. The country has added three and a half million jobs since 1995. More than half of them are export-related. NAFTA has turned Mexico into a major manufacturing and exporting power. Factories called maquiladoras have sprouted south of the U-S border, churning out everything from clothing to auto parts. But the current economic downturn is hurting Mexico's industries. Peter Rosset of the Institute for Food and Development Policy says now the Mexican manufacturing sector is losing jobs.

TAPE: ACT ROSSET :11

"The kinds of industry that are being driven into bankruptcy are very labor intensive ones. So that's a lot of jobs lost. And the few things that are being relocated to Mexico, say, from the United States like automobile plants, are being built with the most modern labor-saving technology. So they're not generating the kinds of jobs that are being lost."

TEXT: The Brookings Institution's Barry Bosworth says in today's global economy, businesses are finding Mexico isn't as attractive as some other big manufacturing countries.

TAPE: ACT BOSWORTH :19

"Mexico is still a cheap place to produce relative to the United States. But it's not a cheap place to produce relative to China, or lots of other areas of Southeast Asia. And so trade diversion is beginning to hurt Mexico."

TEXT: And this diversion of manufacturing jobs to Asia and elsewhere is complicating Mexico's plans to modernize. Moving people out of the poor rural areas and into better-paying jobs in the cities was part of the Mexican government's plan when it negotiated NAFTA, according to analyst Sidney Weintraub of the Center for Strategic and International Studies.

TAPE: ACT WEINTRAUB :18

"And that might have worked. But Mexico had a big collapse in 1995. About a million people lost their jobs. And therefore the kind of job creation that might have taken place without this kind of crisis might have worked. It didn't."

TEXT: So there just aren't enough manufacturing jobs to absorb all the people moving off the farms. But Mr. Weintraub says don't fault the Mexican government for trying to move people out of rural poverty.

TAPE: ACT WEINTRAUB :

"The argument, the complaint you could make now is not that they shouldn't have wanted people to move off the farms, they're going to have to move off. Part of the argument that you could make, or a good argument you could make, is that the phase-out of the agricultural tariffs might have been too rapid."

TEXT: That rapid phase-out, or liberalization, is a by-product of the difficult bargaining over farm trade, according to Gary Hufbauer at the Institute for International Economics.

TAPE: ACT HUFBAUER :15

"When the NAFTA was negotiated back in the early 90s, agriculture was probably the most difficult area. The difficulties were so great that what happened was the negotiators back-loaded the liberalization which was promised."

TEXT: That meant Mexico kept its tariffs high until eight years after NAFTA took effect. And now the bill's coming due. Critics say the Mexican government hasn't done nearly enough to prepare its farmers for this day, which they've known for eight years was coming. The Cato Institute's Dan Griswold mentions a few areas into which the Mexican government should have put more effort.

TAPE: ACT GRISWOLD :09

"Finanacial modernization, so that Mexican farmers have access to credit and insurance that a fully modern economy would offer. Infrastructure."

TEXT: The lack of good infrastructure -- roads, rail, communications, and so on -- means it costs Mexican farmers more to get their goods to market. The Brookings Institution's Barry Bosworth agrees Mexico should have done more. But he says economic collapses in the 1980s and 1990s have left a big burden on Mexico's social safety net.

TAPE: ACT BOSWORTH :

"You would like to spend more on infrastructure, but it's hard to do when the alternative is somebody's going to starve to death. And so claims on public assistance payments have been a big drain on the Mexican budget. But what else are they supposed to do? I think it's easy to say you should have a better infrastructure. It's hard to say where you're going to get the money."

TEXT: But Mr. Bosworth agrees the Mexican government should have been doing more, like helping or pressuring Mexican farmers to consolidate so they would become more efficient and competitive. But instead he says it did very little, leaving farmers vulnerable to the massive dislocations that may result when the tariffs come down tomorrow. Mr. Bosworth says the Mexican government may be using the threat of massive dislocations to engage in a bit of brinkmanship.

TAPE: ACT BOSWORTH :28

"If we can make the cliff look big enough, nobody will jump off. So one way to not adjust is to refuse to do anything in the run-up to the deadline. And then hope that someone give mercy, and give you more time, or back off. I think the final argument in this case is, though, that maybe they should've done more, but they didn't. Now, what do we do?"

TEXT: Some protesters in Mexico are demanding the Mexican government re-negotiate NAFTA. Peter Rosset of the Institute for Food and Development says Mexico should follow the example of successful Asian countries like South Korea, Taiwan, and China.

TAPE: ACT ROSSET :33

"All of them started from a very poor position at the end of World War Two. They put up barriers allowing strong domestic economies to develop. And once they were strong, then they opened to the rest of the world and started to engage in export and international competition. That, to me, makes sense. You get strong first, then you enter competition. Unfortunately, what's happening nowadays is countries are entering into competition first, while they're still weak, and they're never able to get strengthened, and they basically get wiped out by the ferocious competition of the international market."

TEXT: But Sidney Weintraub of the Center for Strategic and International Studies does not think pulling back from the international market would help Mexico.

TAPE: ACT WEINTRAUB :09

"I can't think of any country, a developing country, that has closed itself off to international trade that's done well in recent years."

TEXT: And the Cato Institute's Dan Griswold says that lower tariffs will help Mexico's consumers.

TAPE: ACT GRISWOLD :10

"Mexico has a lot of poor people who are going to be better off because they can buy more affordable food that includes imports from the United States."

TEXT: The Mexican government is unlikely to try to re-negotiate NAFTA. But some experts say they expect Mexico will slow down the pace of opening trade. In the meantime, the government has passed a ten billion-dollar package of assistance for Mexico's farmers, including direct subsidies. Now Mexico's farmers will have to wait and see what the new year, and their new place in the world market, has in store for them. For Dateline, I'm Steve Baragona.