Polite applause, no wild cheers greet NAFTA - foodservice industry lukewarm toward North American Free Trade Agreement

Washington - food service operators weren't breaking pinatas over the North American Free Trade Agreement's passage, but many were pleased by the prospect of agreement to gradually abolish most obstacles of trade between the United States, Mexico and Canada - should enhance the attractiveness of what has already proved to be lucrative markets.

Many small operators said they were basically isolated from the economic activity NAFTA is expected to spark, but that if the policy proved good for the national economy, then it would inevitably be good for their businesses.

"Mexico is probably one of the hottest, if not the one or two or three hottest, markets in the world right now for franchising," explained Andy Trincia, public-relations manager for the International Franchise Association.

"The Mexican people have embraced American concepts, especially fast food," Trincia continued. "Many have tried the products in Texas, Arizona and California, and they are already familiar with the concepts and some Mexicans have already picked up on this."

NAFTA, which passed the House in mid-November by a 234-to-200 vote and soon after passed in the Senate in a 61-to-vote, 38 would establish a free-trade zone between the United States, Canada and Mexico. With the United States and Canada already participating in free trade, the new agreement focused largely on the two countries' trade relationships with Mexico.

Under NAFTA's terms, tariffs and quotas between the United States and Mexico would be phased out over the next 15 years. Those on agricultural products would be eliminated immediately.

The agreement also would dictate that investors within the three countries be treated the same as domestic investors although there would be exceptions and Mexico would continue to prohibit foreign investors from owning certain land.

All of that bodes well for the franchisors who recently have been moving south by helping the Mexican economy, the confidence of Mexican investors and making it easier to send supplies to franchisees across the border, according to Larry I. Tate, vice president of franchising for Golden Corral.

"I think it will definitely help us - no question about it," he said. "If it had failed to pass the House, it would have hurt us rather badly in our expansion plans for Mexico. The negative side would have been the possible devaluation of the peso."

Raleigh, N.C.-based Golden Corral has one unit in Juarez, Mexico, and another under construction in Monterey, Mexico. Plans are on the drawing board for several others.

"We had a prominent prospective franchisee in Raleigh last week who serves on a businessman's advisory council to President Salinas, and his opinion was that if NAFTA failed, the peso could be devalued as much as 30 to 40 percent, so U.S. products would have been more expensive in Mexico.

"Our franchised restaurant in Mexico purchases all of its food, groceries and meat from a U.S. distributor, and that would have been a serious blow to the economics of our business if food costs went up 30 to 40 percent because of a peso devaluation."

Other franchisors said they already have profited in Mexico - thanks largely to the efforts of President Carlos Salinas de Cortari, who has opened up the Mexican market over the past few years. But they agreed that a free-trade gesture couldn't hurt.

"We don't see much of an impact," said Michael Evans, company spokesman for Miami-based Burger King. "We've been in Mexico for two years now, and a very aggressive expansion plan is already in place." Since June 1991 Burger King has opened 51 units in Mexico, he noted.

"We haven't seen NAFTA as being one of the things that will really have a major impact on our business," said Lane Cardwell, executive vice president for strategic development at Brinker International in Dallas.

"Ultimately, we do think it will make it a little bit easier to move things back and forth across the border to some of our Mexican franchisees," he continued. "But we really don't see there being a tremendous impact in the next couple of years from a sales standpoint.

"There's already a pretty good level of movement people-wise back and forth across the border, and the restaurants that are down there already benefit from that."

Smaller operators will have to wait a few years for NAFTA's payoffs, said Rep. Dan Miller, R-Fla., who voted in favor of the agreement. He is also co-owner of the Pier Restaurant in Bradenton, Fla.

"For the individual free-standing single operation, there will not be too much effect," he said. "The effect is in the overall growth of the economy. This really is the defining moment for economic policy in the post-Cold War era."

The United States' economic growth will occur gradually as NAFTA helps Mexico create a middle class with a hunger for American goods that will stimulate our economy, he continued.

"Of course, there may be losers," he added. "Some manufacturing jobs may go to Mexico, but they would have anyway."

Marty Clark, a Wilmington, Del.-based TCBY franchisee with six units, shares Miller's sentiments.

"I can't really see it having any effect on us," he said. "Most of our stores are in suburban strip shopping centers surrounded by upscale neighborhoods, and I don't think those are the kind of jobs that will be arrested by NAFTA. I think I'm too insulated from it, but the small businesses in Delaware are engineering-related and it may be a positive thing for them."

There is dissension, however.

Adrian Stevens, president of Independent Innkeepers in Freehold, N.J., believes NAFTA eventually will hurt business at his four restaurants.

"It's going to a have a negative effect on most ordinary Americans," he said. "Most of us don't fit in with the social economic elite. As a restaurateur, I think it's the ordinary people who eat in restaurants, and we are a disposable income business.

In 18 months to two years, you'll see the effects of this," he continued. "The middle class is going to feel the squeeze. We're in the middle America market, and it's not going to heighten our expansion plans. NAFTA is simply one of the cornerstones of the problems that face us in the private sector at large."

COPYRIGHT 1993 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.
COPYRIGHT 2004 Gale Group