Mexico Opens Up to More Imports, but Impact Mixed

Korean-made television sets, Japanese videocassette recorders and American microwave ovens, false fingernails, toy electric guitars and Ferraris for Barbie Dolls: ‘Tis Christmas season, and Mexican department stores are bursting at the seams with glittering imports that seem to belie the country’s economic crisis.

Despite a dramatic drop in buying power for the average Mexican wage earner, consumer imports have risen 200% during the past year, the result of a decision by the Mexican government to join the General Agreement on Trade and Tariffs in 1986, end the country’s economic isolation and open its borders to foreign goods.

Newly inaugurated President Carlos Salinas de Gortari has said he will continue that policy and has expressed interest in bilateral trade pacts with the United States.

For lawyer Arturo Ibarra, who maneuvered the aisles of Aurrera department store on a recent evening with a $305 microwave oven in his shopping cart, the import boom is good, so long as it is reciprocal.

“This is a Christmas present for my daughter. If I bought it in the United States, the transportation to get it here would cost me as much as the merchandise,” Ibarra said.

“It is in our interest to open the borders, but only if they also are opened for our beers and textiles. Free trade is better for all of us in the long run, as long as there is fair play,” he said.

Most Mexicans do not have the spare cash to indulge in the $1 billion worth of consumer goods expected to have entered the country legally by year-end, but many of those who do are having a love affair with the imports.

“First I look at prices, then at quality, and if I can, I buy imports,” secretary and homemaker Maria Teresa Martinez said as she browsed through a display of steel cookware with the red, white and blue Importacion sticker. “Even though the price is higher, I consider it to be cheaper than Mexican cookware because it lasts longer. I know this takes jobs from Mexican workers, but why don’t they make better things?”

Tariffs Slashed

In part, that is the theory behind opening the borders: to give Mexican consumers and businesses more access to better goods at lower prices and, therefore, to force Mexican industry to become more efficient and more competitive. That, in turn, should stimulate sales and exports.

The strategy has been only partly successful. In the past three years, Mexico has eliminated more than 90% of required import permits and reduced the maximum tariff from 100% to 40%. The average tariff, about 13% last year, is 5.7%--compared to 10% for Canada, 7.6% for the United States and 3% for Japan.

As a result, overall imports increased 54% in the past year to $11.8 billion for the first eight months of 1988, with a projected total of $18.7 billion for the whole year. Most imports are not consumer goods, but machinery and raw materials for business and industry. Capital goods imports have risen about 74%.

But despite the increase in supplies, prices generally are not coming down and only a handful of domestic products seem to be improving in quality--TV sets, for instance. Some companies have ceased producing altogether and have turned instead to importing. Mexican officials complain that exports are not growing enough, in part because the United States and other countries have not opened their doors as wide as Mexico’s.

Some economists and businessmen fear that the long-term impact of imports will be an increase in unemployment. They worry that Mexico cannot sustain the current level of imports because of the drain imports put on the country’s foreign currency reserves.

Will Still Have Surplus

Claudio Urencio, an economist formerly at the federal Department of Commerce and Finance, said Mexico will have imported about $1 billion worth of consumer goods by the end of the year.

“We can sustain the level; what we cannot sustain is the growth of 200%,” Urencio said. Despite the increased imports, the U.S. Embassy projects that Mexico will continue to have a positive merchandise trade balance in 1988. It estimates that the surplus will be $2.2 million, although the current account balance, which includes services and debt payments, will be $2.7 million in the red.

Urencio insists that much of the merchandise entering the country does not represent an increase in imports but an increase in legally registered imports. Many of the same goods came into Mexico before as contraband and did not show up on official balance sheets, he said.

Consumer leaders, however, believe that his estimate of imports is low. They doubt a significant decrease in contraband.

“If he says it’s $1 billion a year, then it could be almost double,” said Arturo Lomeli, head of the Mexican Assn. of Studies for the Defense of the Consumer. “There is still heavy activity in contraband.”

Lomeli said that while imports have benefited the consumer with a greater range of choices and improved quality, there also have been many cases of dumping of unattractive and even faulty merchandise. Many goods come without Spanish-language instructions or guarantees. He cited one case of a defective television set that the buyer had to have repaired four times before the warranty finally expired. And the set still did not work.

“There is an absence of quality control. All imports should be subject to regulation and study by the Department of Commerce,” he said.

Few Price Declines

At the same time, he noted that less than 10% of Mexican industry has effective quality controls.

Lomeli said a few prices have come down--on such Mexican products as toilet paper, wine and olive oil--but that in general they have not.

The Mexican government began reducing tariffs in 1985 and joined GATT a year later. But the import boom began in earnest this year as a pacifier to the working and middle classes facing a package of wage and price freezes. The imports were supposed to help keep down prices on Mexican goods.

Adding to the boom is the Mexican peso’s appreciation against the dollar this year and speculative buying against a possible future devaluation.

Some business and industry leaders say the door has been opened to imports too quickly for them to improve quality and compete.

“It just wasn’t possible to become more efficient in the amount of time they gave us,” said Miguel Angel Torres, a spokesman for the Chamber of Information Systems and Electronics Industries.

Mexican businesses have long enjoyed fat profit margins and are grumbling about cuts brought on by the intensified foreign competition. In textiles, for example, the average profit margin for 1987 was 26%, down now to 19%. Paper and publishing profit margins are down to 36% from 52%. And in electronics, the hardest hit by imports, the profit margin has decreased from 15% to 5%, according to Urencio, the former Department of Commerce economist.

Lomeli tells a story of a blue jeans manufacturer who had always bought his fabric from a Mexican factory until he found a Taiwanese producer offering him the goods for 50% less. When he told his Mexican supplier he was switching, the producer offered to match the Taiwanese price.

“In the end, he decided to stay with the Mexican company but he was mad. He said he realized the guy had been robbing him for the last 20 years,” Lomeli said.