Mexican backlash threat if US blocks trade deal: President Salinas has staked much to bring about a thriving North American free market, writes Phil Davison

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The Independent Online
THE STREET vendors in Mexico City's bustling central Tepito market do not dress with the flair of Arthur Daley nor drive Jags. But like him they deal in what they call fayuca, slang for goods that 'fell off the back of a lorry'. Specifically, a lorry that came down from the United States illegally without paying import tariffs or taxes.

You can buy just about anything in Tepito - only a few blocks from the historic Zocalo (main square) and Cathedral - from designer perfumes to Japanese stereo sets, at half or even less than the listed price. Bribes to police and local officials ensure the marketeers' survival. But for how long?

From the Tepito street vendors and the chicleros who sell chiclets at traffic lights, to bankers, big businessmen and President Carlos Salinas de Gortari more than anyone, all Mexican eyes are on Wednesday's US congressional vote on the North American Free Trade Association (Nafta), the proposed accord between the US, Mexico and Canada.

Though most Mexicans remain unsure of its details, most believe any economic deal with the northern neighbour can only narrow the giant gap between them and raise living standards south of the border. Only the Tepito street vendors and the rest of the 'parallel', ie black-market, economy are worried that lowered trade barriers will put them out of business.

With an astonishing annual turnover of more than pounds 20bn ( pounds 13.6bn) a year nationwide, the parallel economy covers millions of people. According to President Salinas, the increased investment and trade certain to follow the passing of Nafta would allow them to be absorbed into the legal economic infrastructure.

President Salinas, whose term ends next summer, has bet his political career on Nafta, first negotiated with President George Bush and later amended to include changes on environmental and labour issues pressed by President Bill Clinton. If Nafta passes in the US, Mr Salinas is likely to retire with not only the massive wealth that Mexican presidents magically accumulate during their six-year term but with the reputation of having torn down what, along the banks of the Rio Grande, was in many ways an economic equivalent of the Berlin Wall.

Tens of millions of Mexicans have crossed the Rio Grande in the last 50 years seeking decent wages, and millions have stayed. Even if Nafta is passed, the migrant flow is unlikely to drop dramatically until Mexican wages - around one-fifth the US average -close the gap.

If the US rejects Nafta, Mr Salinas could eventually go down as the man who let slip the six-decade monopoly on power of his Institutional Revolutionary Party (PRI). Awaiting the US decision, Mr Salinas has delayed the 'unveiling' of the PRI's presidential candidate for next August's elections. Traditionally, naming the candidate has, due to the PRI's virtual monopoly on power, meant he was effectively naming the next president.

In the last election in 1988, however, Mr Salinas scraped through with a fraction more than 50 per cent of the national vote and only after a mysterious computer failure delayed vote counting by the PRI- controlled Electoral Commission. The populist candidate, Cuauhtemoc Cardenas, claimed he had been the true winner and had been robbed through fraud. Mr Cardenas is running again next year and, if Nafta is by then history, the likely anti-American backlash could conceivably sweep him to power and put an end to 65 years of PRI rule.

Mr Cardenas has been ambiguous on Nafta, not rejecting it outright but suggesting an accord that is more oriented towards development, ie of Mexico. He has warned that, if the PRI continues with its traditional fraudulent tactics next year, 'there will be a civil insurgency that would lead to a national confrontation'. With a tiny percentage of Mexicans controlling the vast majority of its wealth, and poverty rife in the countryside, that warning is more than mere rhetoric.

Although few Mexicans were able to follow the Ross Perot-Al Gore debate 'live' last week on cable television, news reports of Mr Perot's anti-Mexican remarks had even Mexican opponents of Nafta fuming. Had there been any doubt of the passage of the treaty in Mexico, in fact, the Texan businessman's remarks might have tipped the balance against his Nafta point of view.

'If the treaty is not approved, it would not be impossible that Mexico turns its eyes towards Japan or the European Community,' Octavio Paz, Mexico's Nobel laureate, wrote at the weekend in the Spanish daily ABC. 'What's more, a wave of anti-Americanism would break out that would not be long in spreading to the rest of Latin America. The consequences of a rejection of Nafta would be not only economic but political and historic'.

Mr Salinas is said to have a contingency plan ready should Nafta fall through, continuing the freeing of his economy, seeking further foreign investment and trying to increase productivity.

He is likely to have to raise interest rates to attract foreign capital. Up to pounds 5bn was said to have 'fled' the country in two days last week, and stocks plunged as speculators became edgy over Nafta's future. An interest rate rise of more than three percentage points, coupled with Mr Gore's perceived debate defeat of Mr Perot, brought much of the money back and the stock market regained its upward trend.