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TRADE: SARS in China Gives Mexican Business a Break

Diego Cevallos

MEXICO CITY, May 8 2003 (IPS) - China’s aggressive presence in local markets has caused headaches for Mexican entrepreneurs, to the point that some say they are relieved by the temporary decline in the Chinese drive resulting from the spread of severe acute respiratory syndrome (SARS) in the Asian giant.

"You can say what you want, but I think SARS – with the deaths and the fear it has generated in China – has brought relief to many Mexican manufacturers and exporters," an entrepreneur in the shoe business, who requested anonymity, told IPS.

SARS was first identified in the southern Chinese province of Guandong in November. And China remains at the centre of the outbreak, with the contagious disease taking its toll on the regional Asian economy and putting the breaks on some Chinese exports.

Of the 7,053 SARS cases and 506 deaths resulting from the disease that were reported by the World Health Organisation (WHO) as of May 8, China had 4,698 people confirmed infected with the virus and 224 fatalities.

The impact of SARS on the Chinese economy could be worse than that of the 1997 Asian financial crisis, says Zhang Zhongliang, head of the Chinese government’s economic monitoring centre.

The World Bank estimates that economic losses related to the SARS epidemic could reach 15 billion dollars in Asia this year.

To date, there have been no SARS cases reported in Mexico, and the country should take advantage of the opportunity to recover clients in the United States and within its own domestic market that were lost to Chinese competitors, says business leader Julio Millán.

There are Chinese companies that can no longer export and others whose workers are under quarantine as a result of the disease, he noted.

Sources from Mexico’s footwear, clothing and glass industries say they are alarmed by the expansion of Chinese imports. Locally- made products have a hard time competing when the prices on the Asian-made goods are as much as 60 percent lower.

The value of Chinese exports to Mexico rose steadily over the past decade from 195 million dollars in 1989 to more than four billion dollars in 2002.

More than two billion dollars should be added to least year’s total to take into account the volume of merchandise reaching Mexican territory as contraband, without customs controls or taxes, according to the calculations of the Mexican Chambers of Industry Confederation.

"SARS today is a blessing for many of us, because we can’t compete with the dumping (disloyal competition) that lies behind low wages, subsidies and widespread pirating," said the shoe manufacturer interviewed by IPS, in reference to products arriving in Mexico from China.

A report by the non-governmental Centre for Private Sector Economic Studies states that the average hourly wage in Mexico’s manufacturing sector is 2.30 dollars, while in China the average is 0.28 dollars.

Luis de la Calle, former deputy secretary of trade negotiations, says Mexico will soon relinquish to China its second- place ranking as supplier of products to the United States. Canada holds the number-one spot.

The U.S. market takes in 90 percent of Mexico’s exports, for an annual total of 160 billion dollars.

China, in contrast, sends just 22 percent of its annual 325.6 billion dollars in exports to the United States.

Mexico strongly opposed China’s admission to the World Trade Organisation (WTO), which was finalised in late 2001 after a long period of negotiations. But the Latin American country ultimately accepted it, due to the vast majority of nations in favour, and to the fact that Beijing promised not to engage in dumping practices.

But China has been a persistent headache for the Mexican business community and for the government of Vicente Fox.

In the 2000-2002 period, Chinese exports rose 14.3 percent, while Mexico’s fell 1.7 percent, a stark contrast to the relative parity of the previous eight years, when Mexico’s sales to other countries grew 17.4 percent, while China’s had risen 14.4 percent.

In the past three years, faced with the advance of Chinese products, Mexico saw its share of the U.S. market decline in furniture, clothing and telecommunications and recording equipment, reported investment bank Merrill Lynch in December.

China is one of Mexico’s leading rivals for U.S. markets in a dozen industries due to the Asian giant’s low wages and its policies for industrial and trade incentives, according to Merrill Lynch.

While Mexico has the advantage of geographic proximity to the United States, it needs to improve and diversify its production, says the investment bank’s report.

Chinese competition has generated so much concern in Mexico that Trade Secretary Fernando Canales launched some choice words against Beijing last month as he listed what he considers Mexico’s trade advantages.

"Mexico is a democratic country where there is respect for human rights, freedom of the press, alternating powers in government, long-term policies and an efficient banking system," Canales said.

China, however, "is not a democratic country, does not respect human rights and does not have solid financial institutions," he added.

His statements, which subsequently required an apology from the Mexican Foreign Secretariat to Beijing, "demonstrate how far desperation has spread as a result of the trade threat posed by China," said Enrique Quintana, columnist for ‘Reforma’ newspaper.

The headache has been intense for domestic commerce as well. In the past two years, clothing imports from China have carved out a 58-percent share of the Mexican market, says Salomón Presburger, president of the Chamber of Clothing Industries.

Many Mexican shoe manufacturers have either closed up shop or reduced production because the shoes coming from China cost up to 60 percent less than those produced here.

A Mexican-made broom, for example, sells for around five dollars, but brooms imported from China go for 2.5 dollars. Similar price disparities are found in ceramic and glass products and toys, among others.

"It is difficult to confront the competition from China," said the shoe manufacturer, adding, "The government should reinforce border controls and file complaints at the WTO against China for its dumping practices."

According to the WTO, the country with most dumping complaints filed against it in the international organisation’s dispute settlement system is China.