The Miami Herald | By JANE BUSSEY | October 20, 2003
Mexico's trade troubles
The textile executive's complaints about Chinese competition have a familiar ring.
''China operates with rules that have nothing to do with the free market,'' said textile executive Rosendo Valles. Labor works in ''slavelike'' conditions and the government offers factories export subsidies and numerous tax breaks, Valles charged.
While Valles' objections may sound like those of the embattled American industry, he is from Mexico. And he is talking about competition from China in Mexico's domestic market -- not in exporting to the United States.
A decade after the U.S. debate over the North American Free Trade Agreement made Mexico the brunt of accusations about low wages, lax enforcement of labor and environmental laws and crony capitalism, Mexican business executives are making similar arguments about unfair labor and business practices in the Asian powerhouse.
NEW QUESTIONS
The complaint that Mexican manufacturers cannot compete on their own soil raises new questions about their country's competitiveness. Not only is Mexico the star pupil of trade liberalization -- the nation the rest of the hemisphere wants to emulate -- but it also has the world's most protectionist trade agreement with China of any of the 148 countries in the World Trade Organization.
Fourteen hundred Chinese products -- apparel, textiles, leather, footwear, toys -- all have import duties running as high as 600 percent when they enter Mexico. The average American duty on Chinese apparel products is 11.7 percent.
Valles, president of the National Chamber of the Textile Industry, said the biggest problem for fabric and apparel producers was the large amount of contraband Chinese goods, smuggled into the country under other labels in order to avoid paying import duties.
''We have to crack down on smuggling [because] $6 of every $10 in sales are illegal,'' Valles said in an interview in his Mexico City office. His figures come from a government study that shows that 60 percent of the estimated $16 billion in annual domestic clothing sales were actually illegally imported goods.
Despite the high duties, the border is porous. Any visit to stores and street markets shows low-cost Chinese goods: clothing, dishes and shoes. From almost zero trade a few years ago, Mexico's largest trade deficit now is with China. For every dollar Mexico exports to China, it imports $14; the U.S. balance is about $1 of exports for every $6 of imports. But the U.S. trade deficit with China is running at more than $100 billion annually, while Mexico's trade deficit is projected to reach more than $6 billion this year.
''So Mexico cannot compete directly, much less in the U.S. market,'' said Armen Kouyoumdjian, a financial and political analyst in Chile.
NO HOPE FOR CATCH-UP
Kouyoumdjian recently wrote an analysis of Latin America and China, concluding that no Latin American country could catch up with China's level of investment, industrialization and competitiveness.
'The whole story line of the Latin American plan was, 'Let's get our act together so that we can become centers for user-friendly industry,' '' Kouyoumdjian said. Instead, Latin America's repeated financial crises sent investment looking for more stability and faster economic growth in Asia, he said.
''The conclusion is that Latin America is condemned to being an unsophisticated energy and commodity producer with all the uncertainty and the lack of sophistication that entails and never will really have the takeoff that it wanted,'' Kouyoumdjian said.
CHILEAN PROBLEM, TOO
Mexico is not alone. Chile now exports its main commodity, copper, to China, while one-fourth of all Chile's imports of consumer goods come from that nation.
All of these trends raise the question whether all countries are supposed to gain from globalization, or just China and a few other ''mini-Chinas'' in Asia.
''This demonstrates that the free-trade model is a loser,'' said Charles W. McMillion, chief economist at MBG Information Services in Washington who has also been looking closely at the China phenomenon. ''China doesn't have a free-trade model. It's the managed trade model of China which has been wildly successful.''
Earlier this year, a report from Fitch Ratings said Mexico's export competitiveness was damaged by the rising exchange rate, a shortage of skilled labor and wages that are three times higher than those in China.
Since 2000, China's exports to the United States grew at 12 percent annually, while Mexico's U.S. exports stalled, falling 2 percent last year. In the same period, 200,000 workers in the maquiladora plants lost their jobs, and 500 of these factories that assemble goods for the U.S. market were closed down.
''China represents the greatest peril to Mexico's maquiladora industrial policy and export strategy,'' the report concluded.
Not all of the lost apparel jobs have gone to China; some have been moved to Central American assembly plants.
Another sign of the diminishing competitiveness is investment. Mexico's foreign direct investment is running behind 2000. Last year China reaped $53 billion in foreign direct investment, more than all of Latin America together and surpassing the United States as well.
U.S. JOINS IN
The United States, with far more open borders than Mexico, has also taken aim at China's failure to play by the free-market rules. At a recent hearing in Maine, Grant Aldonas, undersecretary of the Commerce Department, stated that China's state-controlled banks heavily subsidize state-owned enterprises. The factories have no need to turn a profit and can dump the subsidized goods on the world market -- putting all competitors at a disadvantage, from South Carolina to the southernmost tip of Chile.
In contrast to the United States, which is lowering its tariffs to Chinese goods, Mexico worked out an agreement when China joined the WTO that allowed Mexico to impose punishing duties and prohibited China from challenging those duties in the WTO until 2008.
''Mexico had a reason to pay special attention,'' said former Deputy Trade Minister Luis de la Calle, who negotiated the deal.
DUTIES CONTRIBUTE
But the former trade official, now director of the consulting firm Public Strategies de Mexico, said the high duties spur on the smuggling. ''No one is going to pay that duty. So if they import it, they are going to bring it in illegally.''
Valles said the industry is asking for other breaks from the government, from cheaper energy costs to lower taxes. ''We will be pushed out if things don't change in Mexico,'' he concluded in words that also echoed warnings from U.S. textile producers.The Miami Herald:
