SMALL MEXICO FIRMS UNPREPARED TO COMPETE UNDER TRADE PACT

SMALL MEXICO FIRMS UNPREPARED TO COMPETE UNDER TRADE PACT

Small businessmen here are unprepared for the fierce competition expected with the implementation of a North American free trade agreement, despite this city's reputation as a bastion of Mexican entrepreneurship.

Some industrialists, still using 19th-century machinery, are ill-equipped to modernize, while others don't know what to do because they don't know what the accord will stipulate."They don't even know what's happening. They just know some guy from Harvard is selling what they're selling cheaper," said Jose Luis Mastretta, director of economic thought for the National Chamber of Commerce here.

The veil of secrecy surrounding free-trade negotiations is not allowing businesses to prepare.

Even many who agree with Mexican President Carlos Salinas de Gortari's economic liberalization program acknowledge small businesses and industries could shut down if the agreement is signed.

Eighty percent of Mexican businesses and 80 percent of the country's industries are considered "small," employing less than 100. Many of these enjoy government protection and are notoriously inefficient.

Some small firms already have been affected by the lowering of tariff

barriers. Even so, there is little open opposition to free trade or to the few programs to help small business prepare for what could be an economic revolution.

Underlying fears are masked by a spirit of anticipation, captured in headlines predicting the likelihood of the signing of the trilateral trade accord encompassing Mexico, Canada and the United States.

"If people only read the newspapers, they're happily awaiting the free- trade agreement," said Fernando Villarreal Palomo, general director of the Chamber of Industry in Transformation. "But the more conscious they are the more fearful they are."

Francisco Montes, owner of Textiles Monterrey, which employs 75 workers, said he can't finance the modernization of his plant.

"I'm not sure what this free-trade agreement will do to us," Mr. Montes said. "It's hard to plan because we don't know what it is. But the economic changes so far have been very painful."

The few cries of dissent come from the leftist Democratic Revolutionary Party (PRD), whose members think Mr. Salinas is putting Mexico up for sale.

"The small and medium businesses here are going to disappear. Mexico will become a country of maquiladoras," said Roberto Benavides, a PRD executive committee member in Monterrey. "The type of employment generated will not lead to the development of our country."

Maquiladoras are assembly plants on the U.S.-Mexico border.

Servulo Anzola, a professor at the Technological Institute of Higher Education who studies small businesses, believes weak firms may suffer during a period of adjustment. But he argues they can prepare for competition if they have government support.

"There are strong fears here," Mr. Anzola said. "Only about 10 percent of these businesses are doing anything to prepare. What we need are programs. There isn't one university that I know of from the Rio Grande to Patagonia offering an integral program to help small business."

Gregorio Canales, a foreign trade administrator at the Treasury, said small businesses lack incentives because of U.S. tariff barriers.

"The problem with investing is not financing; it's a sale," he said. "If we had free access to the U.S. market the growth would be 100 percent."

Villareal Paloma said businesses are stifled by real interest rates of 30 percent, back-breaking mortgages, inefficient administrative practices and red tape.

"There needs to be a profound and radical change in what is considered the promotion and fomentation of industry," Mr. Villareal Paloma said. "We are going through so many changes and too fast. The small business and industry is likely to fall prey to these changes."