Fears of Free Trade : Mexico’s Textile Firms, Hurt by Asian Competition, Are Leery of New Pact

Alicia de la Cruz Martinez and 23 of her co-workers recently lost their jobs in a lingerie factory. The boss said it was because the company was not prepared for free trade.

“The companies that are not closing down are laying people off,” said Martinez, who after 26 years in the industry--often laboring for less than the $4-a-day minimum wage--can’t find work to help support her three children. “They say it is because of free trade, because they are not competitive.”

The proposed North American Free Trade Agreement negotiated by the United States, Mexico and Canada to reduce trade barriers on the continent is still subject to legislative approvals. But many workers from the Yucatan to the Yukon already count themselves as victims.

In the United States, where a million textile and garment-making jobs disappeared in the 1980s because of competition from low-cost Asian imports, workers fear that more will vanish if the proposed agreement encourages U.S. manufacturers to move south for lower-cost labor.

“We think it’s going to be hard for the workers here,” said Maria Guadalupe Escobar, a 40-year-old garment worker at a bathing suit factory in Vernon. “There are a lot of companies going to Mexico, and I think work is going to go there little by little. We’re already noticing that work isn’t coming in. The workers talk about it every day.”

But in Mexico, many workers do not see themselves benefiting from a rush of new jobs. Instead, they are worried that companies are so nervous about their ability to compete under a more open North American trading system that they are already throwing in the towel--and throwing them into the streets.

“We are already seeing the effects of free trade,” said Dora Elvira Banos, a 29-year-old Mexico City garment worker who recently lost her job. “A lot of companies want to close because they say they cannot compete with U.S. industry. They have started firing workers, beginning with the union activists.”

Some Mexican companies are thriving--particularly the garment-making maquiladoras along the border that sew for export markets. But industry leaders in Mexico say their textile and garment sectors overall are substantially weaker than the U.S. and Canadian industries they would compete with under the proposed agreement.

The presidents of Mexico’s textile and garment industry associations bluntly predict that most of their members will disappear over the next decade as various provisions of the trade agreement take effect.

The agreement would exempt North American garment and textile trade from the current complex system of quotas and tariffs. Some Mexicans see that as opening up Mexico to a flood of imports.

At the same time, they do not believe that many Mexican companies can take advantage of the wider opportunities provided under the agreement to export their textiles and garments to the north.

In fact, Mexican textile manufacturers last year exported to the United States about half the cloth that was allowed under higher quotas implemented by the United States apart from the free trade agreement.

Mexican industry leaders say that is because the antiquated machinery and inflexible financing arrangements afflicting their industries have hurt companies’ ability to produce the quality products needed to successfully export.

“If we don’t have the quality, we’re not going to be able to export,” said Fredy Revah, president of the National Textile Industry Chamber.

The winners under free trade, industry leaders say, will be those Mexican firms that are specialized and are able to form alliances with U.S. and Canadian companies.

“Those manufacturers who do not merge or grow or obtain a joint investment with foreigners will find it difficult to survive,” said Jorge Marin Santillan, president of the National Garment Industry Chamber.

Mexico’s garment and textile industries have already had a taste of foreign competition, and they have not fared well. Since the government drastically cut import duties in the 1980s, they have been losing market share to a rising tide of lower-cost, better-quality imports from Asia.

The steady erosion of Mexico’s industry is evident in Mexico City’s garment district--where two-thirds of the clothing sold in the country is distributed.

The district is a collection of plain, mostly two- and three-story, concrete-and-glass buildings that house factories and retail outlets.

The ground-floor shops--interspersed among cafes that sell tacos and shawarma, a Middle Eastern grilled meat dish that is a reminder of the Lebanese and Jewish immigrants that industrialized garment manufacturing here in the 1920s and ‘30s, compete with street vendors who have taken over the public gardens planted on the sites of buildings that fell in the 1985 earthquake.

These outdoor vendors do a thriving business selling cheap imports from Hong Kong and Taiwan.

Their trade has blossomed in the last seven years--since the government cut duties on imports to 20% from 50%, and eliminated required import licenses that were notoriously difficult to obtain.

Mexican producers responded to the import competition the same way some U.S. companies did in the face of low-cost imports from Asia. They moved in search of cheaper labor.

The Mexico City earthquake, in which over 1,000 garment workers died, was the catalyst for Mexican companies to move.

But faced with rebuilding and improving deplorable conditions exposed during the disaster, manufacturers stampeded out of the city. They built new factories in smaller towns, where they were able to pay even lower wages.

But lower-cost labor has not made the industry competitive. Mexico has run a growing trade deficit in textiles and clothing the last four years. Textile production has dropped 11% since 1981, according to government statistics.

“Mexico has virtually stopped producing certain goods altogether,” said Gordon H. Hanson, assistant professor of economics at the University of Texas, Austin.

Hanson says the centralized structure of the industry is a significant competitive disadvantage.

“Textile suppliers, garment manufacturers and garment retailers are linked by overlapping credit flows,” he said. Garment makers buy cloth with 90- to 120-day payment terms and sell clothes on 30- to 60-day payment terms--basically manufacturing on interest-free loans from suppliers, he explained.

Such arrangements have been essential in a country where credit was practically unavailable to small businesses. However, they have tied companies into a system that is crumbling.

If the supplier who provides the credit does not have quality, stylish fabric, the manufacturer is stuck. And when a long-time supplier closes its doors, the failed textile company takes many of its garmentmaking customers down with it.

Despite such gloomy assessments of their industry, some Mexican companies are fighting hard to stay viable under the expected free trade agreement.

Proyecciones de la Moda, which makes Julio--a distinctive brand of career clothing on sale at top department stores and the firm’s boutiques--has succeeded by cutting traditional financing ties to suppliers.

The company imports all its cloth, which has helped it compete with imported garments. “We had the styles, we had the workmanship--that was the only thing we needed to make a top-quality product,” said an executive who declined to be identified.

“Imports allow manufacturers to use fabric designs and colors which are exclusive to their products,” explained Hanson. “The imported label is also important to middle- and upper-middle-class consumers.”

However, most garment makers cannot import fabrics because they do no have the cash or credit to make the purchases.

Some garment makers have found exporting success by taking aggressive measures to improve quality and delivery times.

Marco Antonio Haddad grew up playing in the garment factories that his father and uncles, Lebanese immigrants, owned in the spa town of Tehuacan, 158 miles south of Mexico City. He was a college student when the government began loosening trade restrictions in 1985. His family decided to import denim from Hong Kong to make jeans for export to the United States.

“I remember a meeting where we all sat down with our local bank manager to figure out how to fill out a letter of credit,” he said. That first year, the Haddads exported 10% of their production. This year, they will export 96%--7,000 pairs of pants, mainly jeans for Bugle Boy, Lee and some brands owned by Levi Strauss.

The most important lessons the Haddads have learned are the importance of delivering on time and producing what customers want. They eliminated their own design department and now cut and sew pants and jackets from designs supplied by their foreign clients, a strategy copied from the border maquiladoras.

The Haddads have expanded their supply network from a few trusted former employees to other small shops among the 169 registered in Tehuacan. But they ensure that new suppliers meet their standards by sending their own managers to supervise operations and quality control.

“If our suppliers are not ready, we cannot compete,” Haddad said.

The Haddads’ success worries labor activists in California who are trying to gauge the U.S. garment and textile industries’ competitive strength under free trade.

California garment workers have kept their jobs, in large part, because of fashion-conscious consumers. When a style is hot, retailers need to restock quickly--they cannot wait the 12 weeks for shipment from the Far East. California shops can have the item on retail hangers in one-fourth that time.

That gives the California garment industry an important advantage, said Steve Nutter, Southern California spokesman for the International Ladies Garment Workers Union.

However, delivery time from Mexico is five to seven weeks and dropping. For example, the Haddads can get out an order in about two weeks, plus a 20-hour trip to the border.

If many other Mexican companies can duplicate the Haddads’ success, California could lose its advantage, Nutter said.

Times staff writer Psyche Pascual contributed to this report.

Textile Trading The growth in garment ad textile trade between the United States and Mexico has benefited U.S. manufacturers, who sell more goods to Mexico than are imported. in millions

1988 1989 1990 1991 United States $598 $702 $854 $1,017 Mexico $565 $646 $678 $879

Source: Commerce Department