China, Mexico Try to Ease Trade Ties

Chinese President Hu Jintao pledged Monday to crack down on contraband Chinese merchandise coming into Mexico, whose ballooning trade deficit with the Asian nation has become a source of irritation here.

Hu, who met with Mexican President Vicente Fox in Mexico’s capital as part of a 10-day diplomatic swing through North America, is hoping to reduce trade friction between the exporting powerhouses. The two leaders signed accords to boost trade in fruit and lower some export taxes, and they discussed establishing direct flights between China and Mexico to encourage tourism and business travel.

Fox said that Mexico would open up a new consular office in Guangzhou province, one of China’s most important manufacturing centers, and China would put a cultural center in the Mexican capital.

“This reflects the will to take the bilateral relationship to a new level,” Fox said.

China has been aggressively courting Latin American nations to feed its growing economy. It is lavishing billions in new investment in the region to obtain petroleum, copper and agricultural products.

But many in Mexico still view China as a threat rather than an opportunity.

Mexico’s constitution puts strict limits on foreign investment in its state-owned oil sector, shutting Mexico out of the Chinese energy deals that have flowed to nations such as Venezuela and Brazil. Migration of low-wage industries -- such as apparel and electronics -- to China has cost Mexico tens of thousands of factory jobs in recent years.

China has displaced Mexico as the second-largest supplier of goods imported by the United States. China is even turning up the heat on Mexican chili growers, who say an increasing share of the spice indispensable to the Mexican kitchen is now imported from China.

“Their prices are below our cost of production,” said Octavio Pozo, spokesman for Mexico’s National Council of Chili Producers. “We’re worried.”

He isn’t alone. China’s exports to Mexico jumped by more than 50% last year as Mexicans snatched up $14.3 billion of Chinese-made apparel, toys and appliances. Mexico in turn sold less than $1 billion of goods to China in 2004, a figure that barely budged from 2003.

Cheap Chinese goods have been a bonanza for Mexican consumers. But domestic manufacturing industries such as footwear and apparel claim that some of that merchandise is smuggled into the country or brought in with fraudulent customs forms to avoid Mexican duties and quotas.

By raising the subject with Hu, Fox demonstrated to the affected industries that he was working on the issue.

China now trails only Canada in supplying goods to the U.S. market. And although Mexico’s exports to the U.S. continue to grow, its share is slipping. In 2001, Mexican goods represented 11.5% of all U.S. imports. Last year that figure was 10.6%. China’s share grew to 13.4% from 9% over the same period.

China is also stealing market share from Mexico in key product segments such as apparel. Last year, for example, Mexico exported $4.4 billion of cotton apparel to the United States, down 20% from 2000. China’s exports of cotton apparel surged 90% over the same period to $3.8 billion in 2004.

Experts such as Antonio Ortiz Mena say labor, energy, tax and legal reforms are needed to help Mexico shore up its crucial export sector, rather than worrying about keeping Chinese goods out of its markets.

“China shows some of the shortcomings of the Mexican economy,” said Ortiz Mena, an economist with the Center for Economic Research and Teaching, a Mexico City think tank. “Mexico must become more proactive and less defensive.”

He and others said Mexico must find a way to tap into China’s growing economy and look to the Asian nation as a potential source of investment rather than a fearsome rival.

Mexico has been successful at attracting foreign direct investment from South Korea and Japan, said Suhas Ketkar, an economist with RBS Greenwich Capital Markets in Connecticut. So far, China has made only modest investments in Mexico.

“Mexico has to find a way to fit itself into [the Chinese] supply chain,” Ketkar said.

Services such as tourism offer an opportunity to build trade ties with China. International visitors are an important source of foreign exchange for Mexico, and officials here are launching Chinese-language programs to attract some of the growing legions of Chinese travelers. But economists say that industry also could be a magnet for investment and expertise from China.

“Mexico should let China develop its Asian tourist business,” said Van Whiting Jr., senior fellow at the Center for U.S.-Mexican Studies at UC San Diego.

Last week, China’s Hu was in Canada, where he discussed forming a strategic partnership in energy and trade with Canadian Prime Minister Paul Martin.

His next stop is New York, where he will attend a United Nations special session on global poverty. Hu is scheduled to meet with President Bush in New York after earlier bilateral talks were postponed because of Hurricane Katrina.

Cecilia Sanchez of The Times’ Mexico Bureau contributed to this report.