TORONTO, SEPT. 11 -- Canada has decided to seek a seat in free-trade negotiations between the United States and Mexico, providing that acceptable ground rules for the talks are worked out, federal officials said today.

If successful, the negotiations would create a North American trade zone larger than the European Community, according to economists here.

Although it will reopen a contentious issue that sharply divided the country in 1988, joining the talks is necessary if Canada is to preserve the gains it made by signing the U.S.-Canada free-trade agreement and avoid being frozen out of expanding markets, advocates of Canadian participation in the talks said.

Trade Minister John Crosbie is expected to make an announcement on Canada's role in the talks as soon as President Bush asks for congressional approval to launch "fast track" negotiations with Mexico early next year.

When it does, it is certain to rekindle the debate over Canada's dependency on the United States and revive claims of an adverse impact of the U.S.-Canada accord on the Canadian economy.

Public opinion surveys have shown that nearly 60 percent of Canadians believe their country has been hurt by free trade, with only 7 percent recognizing any benefits.

Critics of the step contend that opening Canada to competition against low-wage Mexican labor will force down Canadian wages and eliminate thousands of jobs.

They also argue that Washington will view trilateral talks as an opportunity to reopen the U.S.-Canada trade agreement and settle unresolved trade issues to Canada's disadvantage.

Although the U.S.-Canada free-trade agreement phased out most tariffs and other trade restrictions over 10 years, it left to working committees such unresolved issues as the use of state subsidies and countervailing duties.

"We think Canada will have to pay a price even to go to the table. There are about 20 different issues {from the 1989 U.S.-Canada accord} still being negotiated. Getting involved will weaken Canada's already not-very-hefty bargaining leverage and lead to more concessions," said Scott Sinclair, of Common Frontiers, a Toronto-based trade lobbying group.

Sinclair also warned of "enormous implications" for Canada's labor force, predicting that Canada-based multinational corporations will transfer production facilities to Mexico in search of cheap labor as part of a "brutal corporate restructuring."

With a loss of 8.64 percent in manufacturing jobs in the last year and some sectors of the economy already in a recession, Canada can ill afford any agreement that jeopardizes jobs, said Sinclair.

The Canadian Labor Congress estimates that more than 100,000 jobs have already been eliminated by the U.S.-Canada pact and that many more would be lost to a trilateral trade agreement.

However, the country's banking and business communities have lined up solidly behind Ottawa's participation in three-way trade talks, which Prime Minister Brian Mulroney effectively endorsed last month after meeting with President Carlos Salinas de Gortari in Mexico City.

The Royal Bank of Canada, the country's largest bank, this week issued a report in which it said Canada should not miss the "substantial opportunities" that would de derived from a market with 360 million buyers.

"Canada can ill afford to stand aloof while current discussions take place between the United States and Mexico which could reshape North American Trade and investment flows ... ," the bank said.

The report said that Canada, which last year had a deficit of more than $1 billion (Canadian) in trade with Mexico, could expand sales in agriculture, fishing and forestry products and financial services.

It also said that as liberalized trade raises Mexico's wage levels and standard of living, demand for Canadian goods and services would increase.

The Royal Bank acknowledged that there could be some diversion of trade away from Canada, especially in the manufacture of automobile parts.

Automotive parts manufacturing is a major component of Canada's branch-oriented industrial base and is the sector that traditionally has been hardest hit during economic downturns.

Mexico already has become a major competitor for Canadian auto parts markets in the United States.