In a prediction that organized labor said is invalid, rail carriers foretell a business boom with increased rail employment if the North American free- trade agreement is approved by Congress.

The Association of American Railroads believes passing the Nafta will fuel cross-border increases in traffic volume in line with the 22 percent annual growth occurring since 1986, said Lee Lane, the group's vice president of policy and special projects.The Transportation Trades Department of the AFL-CIO said approving the Nafta would damage the transportation industry, including railroads, by reducing U.S. manufacturing jobs, eroding contract agreements and increasing maintenance and repair work in Mexico to tap the lower-wage work force there.

The AAR foresees rail business with Mexico increasing from 2 percent to 7 percent of nationwide freight volume by 2000. The latest full-year statistics showed that U.S.-Mexico rail traffic generated $631 million in revenue for U.S. carriers in 1991.

Mr. Lane contended that many commodities moving between the United States and Mexico have long lengths of haul, making them less susceptible to trucking competition. He also contended that inbound materials moved by rail to Mexico for manufacturing would increase if the Nafta is adopted.

Mr. Lane said recent gains in traffic volume will stop altogether if the Nafta is defeated.

"If Nafta fails, I think you will have in the short term a diminution in trade volumes," Mr. Lane said. "A lot of the existing trade is based on capital inflows into Mexico that are based on investments that assume Nafta is going to be approved. There is a real danger of restarting serious capital flight out of Mexico."

The Transportation Trades Department said in a briefing paper that "as U.S. companies accelerate the move of production facilities to Mexico, long- haul (rail) freight may be impacted even more quickly than the traffic that motor carriers traditionally carry."

The briefing paper also predicts major negative impact on the trucking and maritime industries, including questions about trucking safety due to licensing and potential diversion of cargo now handled through U.S. ports to Mexican facilities.

"There is no scenario in which trade liberalization does not add up to economic hardship for transportation companies and economic dislocation on the U.S. side of the border with no associated benefit for the nation," the union trade group said.

The AAR also believes that passing the Nafta will generate 12,000 new rail jobs, based on recent volume increases. Mr. Lane said no statistics are available on whether rail employment has increased due to cross-border traffic increases since 1986.

Nationwide, employment on major railroads fell from 342,000 to 275,000 between 1986 and 1992, according to AAR statistics.

James Brunkenhoefer, national legislative director for the United Transportation Union, said: "We don't agree that by approving Nafta that there will be a net gain in railroad jobs. We have been promised gains in railroad jobs almost daily since 1980. Instead, just the opposite has happened."

Edwin L. Harper, president of the AAR, said existing highway congestion at highway border crossings and concerns about pollution also were arguments that would benefit rail traffic.

Mr. Brunkenhoefer disputed the congestion argument, saying railroads had congestion problems of their own at border crossings resulting from car utilization on Mexican railroads.

Dick Davidson, president of Union Pacific, last week said capacity was being constrained at the railroad's Laredo, Texas, border crossing, where the railroad handles more than $300 million of traffic annually.

UP has announced plans to build a new double-track international bridge bypassing Laredo that is meant to increase capacity, reduce traffic in downtown Laredo, accommodate anticipated growth and make train operations more efficient.