Mexico Shoemakers Hear Footsteps of China, WTO

TIMES STAFF WRITERS

Every day at noon, the 75 workers at the Mares Manufacturing factory step away from the assembly line where they make shoes, bow their heads and chant their common hope.

"Senor, gracias por nuestro trabajo," they pray, thanking God for their jobs. "Y conservalo para nosotros," asking God to keep the jobs alive.

It is more than the poor economy that prompts the call for divine intervention. Shoe workers in Guanajuato state will need all the help they can get when China enters the World Trade Organization, probably by the end of the year, and gets freer access to world markets.

The unleashing of China's export-oriented manufacturers is a fearsome prospect for Third World countries that have depended on low wages to give them a competitive advantage. In the last decade, China has become a world leader in the production of footwear, textiles, apparel and light electronics and is the third-largest manufacturer of information technology goods, said Nicholas Lardy, a China economic expert at the Washington-based Brookings Institution.

Dominating the world's shoe industry is clearly one of China's goals, and Mexico is in the line of fire. "Modernize or be erased," warned Mario Abedrop Davila, president of the China business committee of the Mexican Council on Foreign Trade, a trade group.

The China challenge assumes different forms around the globe. In India, it is felt by the producers of batteries; in Taiwan, computer hardware. Manufacturers of apparel and electronic components in Southeast Asia have suffered as Japan, the region's leading foreign investor, has shifted its subcontracting to China.

"India has much the same problem as Mexico--it's been flooded with high-quality Chinese goods," Lardy said. "China can outproduce the Indians."

'A Sensible Alternative to China'

The nightmare already has come true for Humberto Bugarin, manager of Armamex, a U.S.-owned plant in Mexicali that produces door hardware sold in the U.S. under the Weslock label. Even though Bugarin couldn't match China's prices, he offered U.S. customers a closer working relationship and shorter turnaround time.

"Every [tooling] die we take away from China, we throw a party," the 52-year-old plant manager said two months ago. "We're saying to [our customers], 'We're a sensible alternative to China. We may be a little bit more expensive, but we're at your backdoor.' "

It wasn't enough. Last month, Tulsa, Okla.-based Vintage Group closed the Armamex plant, leaving 300 workers without a job. Clint Brumble, the controller, said the fixed costs--land, utilities, labor--were too high in Mexico to compete with lower-cost competitors in China.

"One of our competitors is importing locks from [China], and they are able to come in with such a low price that we can't beat 'em," he said.

Mexico has lived through a Chinese invasion before, which is why it has erected such high barriers on more than 1,400 Chinese products. Producers of cheap apparel, shoes and other goods were crushed by a flood of low-cost Chinese goods in the early 1990s before convincing their government to impose sky-high dumping penalties. Once Beijing finalizes its WTO membership, countries such as Mexico will have to remove discriminatory barriers aimed at protecting their manufacturers from low-cost Chinese products.

Trade, of course, is a two-edged sword. When China enters the WTO, it would be forced to open its market wider to Mexican goods such as tequila and seafood, which Mexican businesspeople hope will help offset a huge trade imbalance between the two countries. Mexico imported $2.9 billion in Chinese goods last year, while exporting only $200 million to China.

Of course, Mexican retailers interested in selling Chinese products also support the removal of those high duties.

Chinese goods have found a home, albeit an illegal one, in Mexico. In the capital's Tepito barrio, famous for contraband and where the streets are lined with stalls selling everything from microwaves and CDs to wigs and shoes, manager Eduardo Garcia of Zapateria Locale happily sells China-made shoes and would welcome more, although he and other merchants said the quality of Chinese footwear is typically inferior.

"People buy them because they are cheaper and because some of the designs are nicer than Mexican shoes and they are imitations of famous brands," Garcia said. "They have affected the sales of the national shoes we carry."

Feeling Very Vulnerable

But President Vicente Fox, whose family owns a boot factory near Leon, has vowed not to let the Mexican shoe industry die, which is a big reason why his government is the only one that has not signed a bilateral agreement with China, a necessary step in the WTO process. Mexico has said it will not stand in the way of China's entry but hopes to garner a deal that will postpone for a decade or more the elimination of some tariffs against Chinese goods, including shoes, which run as high as 1,005%. China initially offered five years.

Negotiators from the two countries are expected to meet again since intense negotiations last month in Geneva failed to produce an agreement. "There is nothing definitive," said a spokesman for Mexico's Economy Ministry, which is handling the talks.

The shoe industry in Guanajuato and everywhere around the globe is among those most threatened by China's huge low-cost work force. "Over the long term, our disappearance could be inevitable," said Ramon Ascencio, an official at the Leon-based Mexican Footwear Chamber, a manufacturers' trade group. "What we are talking about is how to administer this disappearance."

Shoe manufacturer Jose Luis Mares is equally pessimistic, and with good reason. Chinese manufacturers are able to cut rock-bottom Mexican costs in half, Mares said.

He said he spent $1 million on a robotic German shoe assembler last year and still lost out in a bid to supply Payless ShoeSource, a Topeka, Kan.-based U.S. retailer, with 20,000 pairs a month. He bid $6.50 a pair, which turned out to be twice as much as the winner, which he is certain was a Chinese manufacturer.

"We are trying to change rapidly, investing in technology, becoming more productive," said Mares, whose company is one of the 10 largest sports shoemakers in the country. "But we don't have a way to survive. I feel very vulnerable."

Tim Reid, spokesman for Payless ShoeSource, said it is the company's policy not to comment on bidding procedures, but he acknowledged that China supplies 74% of all shoes sold at Payless' 4,907 outlets, more than any other shoe chain.

Mares is getting a chilling glimpse of the future. He said his sales are off 25% this year because a huge black market in contraband Chinese shoes has developed to get around the high tariffs. Illegally imported Chinese shoes are cropping up in retail chains and the informal outdoor stalls that sell half of all Mexican shoes. The Mexican shoe manufacturers said the number of contraband shoes this year could reach 40 million pairs, or 20% of sales, a figure the Mexican government disputes.

While acknowledging the high volume of contraband in Chinese shoes, textiles and other products, Mexico's top customs investigator, Juan Carlos Lopez, said Monday that the shoe chamber's estimate of illegal goods is imprecise, and that manufacturers are being hit by other factors, including a drop in exports caused by the strong peso and the U.S. economic slowdown.

Mexico is in the midst of restructuring its customs operations, having fired 43 of 48 port directors, Lopez said. His department has given top priority to stopping the traffic in shoe and textile contraband, he said.

Romer Cornejo, a professor of Chinese history at the College of Mexico in Mexico City, said the government has to mount a multi-pronged strategy, including low-cost loans and job training, if some Mexican manufacturing sectors are to survive the coming Chinese onslaught.

"There is an enormous amount of Chinese contraband entering the country, taking on the Mexican market at prices one-tenth as much as Mexican products," Cornejo said.

But for 3,500 workers in the shoe business in Guanajuato, it is too late for training, financing or prayers.

"We can compete with a lot of countries, but not China. We are sure of that," Mares said.

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Alison Trinidad of The Times' Mexico City Bureau contributed to this report. Kraul reported from Mexico and Iritani from Los Angeles.

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