Wen, Fox Shake on Trade Accords

Chinese Premier Wen Jiabao, whose country’s rising economic fortunes have cost Mexico at least 230,000 factory jobs in the last two years, has agreed to help the government here combat a tide of smuggled Chinese clothing, shoes and other merchandise.

Wen made the commitment during a visit that ended Saturday, saying he was “firm in the fight against this illicit commerce.” Wen and Mexican President Vicente Fox signed several accords Friday, including one to set up a binational commission against contraband.

The visit by the Chinese leader, who quoted poetry by Mexican Nobel laureate Octavio Paz during a speech to Congress, was meant to pacify a bitter struggle between major trading nations. Rather than being “rivals or competitors,” Wen said, China and Mexico should think of themselves as potential partners in “a win-win situation” of expanded commerce between the two nations.

As their economy stagnates and China’s leaps ahead, Mexican leaders have become alarmed by the huge volume of Chinese merchandise smuggled into the country. Mexico’s National Apparel Chamber estimates that 58% of the country’s $16-billion domestic clothing market consists of tariff-evading contraband garments, most of it from China. The Fox administration is running “Buy Mexican” ads on television, and Congress is debating stiffer criminal penalties for those selling illicit goods.

“There are very significant amounts of contraband Chinese products that enter Mexico, affecting our jobs and affecting, unjustly, the competitiveness of our companies,” Fox told Chinese reporters Thursday as Wen headed here after visits to Canada and the United States.

Shortly after Wen’s arrival, tax police raided a warehouse in Chiconcuac, a textile hub about 20 miles northeast of Mexico City, and seized 20 truckloads of suede and plush fabric apparently smuggled from China, Mexican media reported. The owners, who were not caught, would have evaded an estimated $35 million in Mexican taxes, the reports said.

At a joint news conference Friday, Fox welcomed the Chinese leader’s acknowledgment of the contraband problem and his pledge to fight it. “This is good news,” Fox said, adding that Mexico’s efforts “will now become much more effective” with China’s cooperation.

The Chinese not only manage to undersell Mexican competitors in clothing, toys and housewares, they also export Mexican flags and cheap imitations of traditional Mexican items, including statues of the Virgin of Guadalupe, Mexico’s patron saint.

Mexico has imposed anti-dumping duties as high as 500% on such Chinese imports. But they continue to pour in, smuggled past customs agents who are bribed to look the other way or imported under false labels from a third country.

For example, Chinese-made pajamas first could enter a U.S. port, where tariffs are far lower, and would then be illegally retagged “Made in USA,” allowing them to pass into Mexico tax-free under the North American Free Trade Agreement.

What many Mexicans call “the China threat” is not just a result of smuggling. About 500 of Mexico’s 3,700 assembly plants have moved to China in the last two years to take advantage of cheaper labor and lower operating costs.

In a landmark shift, China displaced Mexico this year as the United States’ second-biggest supplier of imported goods, after Canada.

Fox and Wen agreed to exchange trade missions next year -- an opening that Mexican officials hope will bring more Chinese investment and tourists here and help close this country’s $5.8-billion commercial deficit with China.

“Over the next three years, China is going to import $1 trillion worth of goods from the rest of the world,” Fox said at the joint news conference. “This is a great opportunity for Mexican entrepreneurs.”