One Mexico, divided.

When President Clinton failed to deliver his report on NAFTA to the Congress on July 1, friends and foes alike of the treaty tapped their feet in audible frustration. To the former, the report had offered a chance to trumpet NAFTA's undoubted successes: things like the fact that annual U.S. foreign direct investment in Mexico has burgeoned in the three years of the treaty's existence to an impressive $2.3 billion. For their part, NAFTA's enemies were looking forward with relish to fingering the treaty's equally indisputable failures: among them the fact that - for all NAFTA's supposed trade-boosting powers - American FDI in Mexico remains stalled at a measly $2.3 billion a year.

It is not only north of the border that this numbers game is being played, however. In Mexico, too, U.S. FDI inflows are being watched, and at least as keenly by foreign investors as by domestic ones. The main difference south of the Rio Grande is that interest is focused less on the size of these inflows than on their distribution.

The experience of Mexico's car business - one of the three principal recipients of directly invested U.S. dollars, along with electronics and textiles - suggests the reason for this difference of focus. With the exception of the ubiquitous Volkswagen Beetle, Mexico's auto business has remained pretty much a U.S. fiefdom since Ford opened its first plant in 1928. This history has little to do with free trade, however. In the early '60s, a protectionist Mexican government decreed that American cars assembled in Mexico had to run on Mexican-made motors. Gringo car makers - loathe to lose their place in Latin America's largest market - grudgingly obliged, opening motor plants that turned out gas-guzzling V8 engines. A quarter of a century later (to the visible detriment of Mexico City's smog levels) they still were.

All this was to change with NAFTA. Talk to Jose Manuel Machado, newly appointed CEO of Ford Mexico, and he will wax lyrical about three-way catalyzers, proudly noting that his Contours and Mystiques - assembled at Coaotitlan, just north of Mexico City - "are now the cleanest vehicles Ford makes anywhere." If Mexico's drivers (and asthmatics) have reason to be grateful for the $200 million Ford spent effecting this change, they were hardly the intended beneficiaries of the company's largesse. Where all of Coaotitlan's cars were sold in Mexico five years ago, 80 percent now end up on trains bound for the U.S. - a land where three-way catalyzers are not viewed as optional extras.

The attentive among you may have noticed a distant cloud in this sunny tale, however. When Coaotitlan was opened 30-odd years ago, its primary market was visible (on a good day) from the factory's front gate. Now that primary market is three days away, via an agonizingly slow and robbery-prone train ride. The inconvenience of this has not gone unnoticed in Detroit or Columbus. When then-President Salinas began negotiating his country's NAFTA membership in the mid-'80s, the Big Three U.S. car makers all opened huge new facilities in Mexico. The trouble - at least as far as southern Mexicans were concerned - was that all three were within spitting distance of the U.S. border: at Hermosillo in the case of Ford, at Saltillo in that of Chrysler and General Motors.

The question that now suggests itself is whether any justification can be found for running two factories in Mexico when one might clearly do the trick. Ford's Machado insists that "there is no reason at all why [his company] should not continue to invest in Coaotitlan," pointing to the existence of a local supply base as a reason to stay put. At the same time, he admits that local input remains low - as little as 10 percent in some lines - and that NAFTA has actually allowed him to increase component imports "substantially." Oscar Cano - foreign trade manager of one local supplier, German headlamp maker Hemex - is also unconvinced by Machado's rationalizing. "Nissan is opening up in the north," muses a fatalistic Cano. "It can't be long before Ford does the same."

Stand near the U.S. border, in other words, and you may fancy you can hear a great sucking sound: not of American jobs disappearing southwards, but of foreign investment - not just American, and not just in the car business - flowing north. In the wake of this sound comes another noise: of rising crime in central and southern Mexico as unemployment and poverty follow disinvestment. According to Cano, so great has the fear of kidnapping become that Hella's German executives are now advised not to bring their families with them to Mexico City: hardly an incentive to further investment. What NAFTA may yet succeed in doing is to create two Mexicos: one, a southward extension of pax americana, the other a northward extension of the Third World. Which of these future foreign investors will find the more attractive seems all too easy to predict.

Charles Darwent is senior correspondent for the World Economic Forum magazine, WorldLink, based in London. He was named the British business writer of the year in 1994 by the Periodical Publishers' Association.