Leaders of the United States, Canada and Mexico yesterday formally proposed the creation of a North American free-trade pact that "would link our three economies in bold and different ways."

The joint communique issued by President Bush, Mexican President Carlos Salinas de Gortari and Canadian Prime Minister Brian Mulroney will initiate a fast-paced round of negotiations on terms of the pact. If approved by Congress, the agreement would reduce the import duties on a wide range of products, ease restrictions on cross-border investments and pare quotas and other non-tariff barriers.

"Successful conclusion of the free-trade agreement will expand market opportunities, increase prosperity and help our three countries meet the economic challenges of the future," Bush said. A successful trade agreement among the three countries would be "a dramatic first step" toward ultimate formation of a hemispheric-wide open market stretching from the Arctic Circle to the southern tip of Argentina, the president said.

A U.S.-Mexico free-trade agreement was proposed by Salinas last year and Canada, anxious to protect its gains from a two-year-old free-trade pact with the United States, pressed hard to be included. After more than 20 meetings, the three countries agreed that including Canada would not impede a speedy conclusion of a U.S.-Mexican agreement.

While Canada endorsed the U.S.-Canadian agreement only after an emotional election that amounted to a referendum on the proposal, little opposition has surfaced to the proposed three-country arrangement in Mexico or Canada. But it faces rough sledding in the United States, where organized labor contends the pact would encourage American companies to move factories south of the border to take advantage of the lower Mexican wages. The AFL-CIO has made defeat of the free-trade pact its top legislative priority.

Also listed among the early opponents are textile and apparel makers, environmental and human rights activists and some agricultural interests -- all of whom believe they could be economic or political losers if a free-trade agreement is passed.

These battle lines are expected to form today, when the Senate Finance Committee opens a series of hearing on the proposal. Carla A. Hills, U.S. trade representative, and Eastman Kodak Co. head Kay R. Whitmore, representing the Business Roundtable, a business lobbying group, will testify in favor of the agreement, while AFL-CIO Secretary-Treasurer Thomas R. Donahue will oppose it as "an economic and social disaster" for U.S. and Mexican workers.

The Finance Committee is expected to approve the start of the negotiations and set up a timetable for consideration of any agreement under rules that permit Congress to approve or reject it -- but not amend it.

Signaling his support, Committee Chairman Lloyd Bentsen (D-Tex.) said that "free trade with Mexico can produce economic benefits for the United States," although he acknowledged "there will be winners and losers" and said that including Canada in the talks could delay progress with Mexico.

In a study released yesterday, the U.S. International Trade Commission (ITC) found the United States would benefit slightly in the short run from a free-trade pact with Mexico, but these gains will multiply in the long term as the Mexican economy grows stronger and increases its purchases of U.S.-made products.

Regionally, the ITC said the Southwest would gain the most from added trade between the United States and Mexico, although some segments of the border economy could lose. The impact on the industrial heartland of the American Midwest was less certain, the ITC reported, and depends largely on how the Big Three automakers -- General Motors Corp., Ford Motor Co. and Chrysler Corp. -- react to the pact. If they shift production to Mexico, both the U.S. and Canadian segments of the industry could lose, although the industry would be more competitive against Asian and European rivals, the ITC said.

In picking industrial winners and losers, the ITC said that U.S. citrus and winter vegetable growers in California and Florida are likely to suffer from competition against less expensive Mexican crops that would no longer face U.S. trade barriers.