Asia-Pacific, Economy & Trade, Headlines, Latin America & the Caribbean

TRADE-LATIN AMERICA: China a Headache for Some, Remedy for Others

Diego Cevallos*

MEXICO CITY, Nov 11 2003 (IPS) - China’s thriving trade in Latin America is causing headaches in countries like Mexico, but is proving to be a powerful tonic for the economies of Argentina, Brazil and Chile.

China, with its average annual economic growth at nine percent since 1979 and expected to surpass 10 percent this year, is exporting a rising flood of goods to the region and has achieved top priority on the trade agendas of many Latin American governments.

Mexico and some Central American countries are looking for ways to stave off Chinese competition and have drafted some protectionist policies. But others, like the larger South American economies, are celebrating the Asian giant’s appetite for trade and are working to negotiate agreements to boost exchange.

“China has turned into a global challenge, allowing some to benefit, while others suffer,” José Leiva, researcher at the Autonomous National University of Mexico (UNAM), said in a conversation with IPS.

Chinese exports, known for their low prices, last year saw 22 percent growth, more than in any other country, making it the fifth world trade power.

As for imports, it is already among the top four international consumers, joining the United States, Germany and Japan.

Reports by the United Nations Conference on Trade and Development (UNCTAD) show that a large portion of Chinese trade growth is the result of the increased presence of transnational corporations in that country.

Last year, 363,885 of the world’s 866,119 transnational corporations had offices or subsidiaries operating in China, more than in any other country.

For Mexico, growing Chinese exports, most manufactured at very low cost, meant being pushed from the number-two spot among the leading suppliers to the United States in 2002.

At the same time, dozens of assembly factories, known here as ‘maquiladoras’ and once a major source of jobs in Mexico, have packed up and moved to China. The same has happened to maquiladoras in Central America.

In 2001, these for-export assembly companies employed more than a million people in Mexico. Today the figure has fallen to 821,000.

The competition is also reflected in imports. In the first half of this year, Mexico bought 3.8 billion dollars worth of Chinese merchandise, 46 percent more than in the same period of 2002.

The value of Chinese exports to Mexico grew from just 195 million dollars in 1989 to more than 4.0 billion last year.

“We are in serious trouble because of the Chinese presence and nobody can deny it,” Héctor Cortés, a textile industry executive, told IPS.

The Mexican chamber of textile industries reports that in the past year and a half, the local sector has lost more than 150,000 jobs due to the heavy inflow of contraband Chinese textile products.

In contrast to Mexico’s experience, Argentina, Brazil and Chile are pleased with the Chinese trade dynamic. Their exports of commodities like iron, soya and copper are on the rise, thanks to the demand in China.

Argentina’s exports to the Asian country grew from 242 million dollars to 1.1 billion dollars over the past 11 years. Brazil’s exports to China have increased from 1.1 billion in 2000 to 3.4 billion in the first nine months of this year.

Chile has also enjoyed some important benefits. Its exports to China in the first nine months of 2002 totalled 904 million dollars, increasing to 1.3 billion dollars in the same period of 2003. Almost 933 million dollars of this year’s sales to China were in copper, Chile’s leading export product.

As for Chinese imports, none of these countries cites problems, due to the favourable exchange rate of their currencies, or to the fact that the imported goods do not represent competition for local producers.

Mexican expert Leiva warns that the benefits that exporters of commodities to China are seeing today are unstable, and the situation could turn around as a result of fluctuations in prices or political or economic policy changes in the Asian country.

Renouncing efforts to compete in manufactured goods in order to maintain raw material exports is very risky, he says.

But it is the invasion of Chinese manufactured goods in Latin America, through undocumented imports or contraband, that is seen as a generalised problem and has some of the region’s government and business leaders very worried.

In Venezuela, in order to compete with inexpensive Chinese-made jeans, locally manufactured jeans are subsidised. The Chinese pants sell for the equivalent of 1.26 dollars each, while the average international price is 4.11 dollars.

Venezuelan footwear manufacturers protested that in 2002 an estimated 22 million pairs of Chinese shoes entered this country of 24 million people, and that most were smuggled in, taking a toll on the local industry.

In an ironic twist, the Venezuelan government is awaiting the arrival next year of sophisticated, “non-intrusive” inspection equipment so that the national customs service can monitor the shipping containers entering the country. The cutting edge equipment is “made in China”.

Brazil and Mexico also complain about contraband Chinese products. Following the example of Venezuela and other countries, they have imposed quotas and safeguard measures for merchandise from China.

Of the 288 claims about dumping (selling below production cost) that were filed with the World Trade Organisation (WTO) from July 2001 to June 2002, 46 were against China, which was the subject of more complaints than any other nation.

There are also voices in Paraguay speaking out against the growing presence of Chinese products. Gerald McCulloch, executive director of the Paraguay-Americas Chamber of Commerce, told IPS that he thinks all Latin American countries are nervous about the matter.

Although Paraguay does not have formal diplomatic or trade ties with China, its imports from that country grew from 40.4 million dollars in 2000 to just over 144 million dollars in the first nine months of this year.

McCulloch agreed with Leiva in noting that one of the countries most affected by China’s aggressive trade dynamic is Mexico.

China’s admission into the WTO, finalised in late 2001 after a long period of negotiations, was resisted by Mexico. But in the end, Mexico announced it would accept China because the vast majority of the member states were in favour, and because Beijing promised not to engage in dumping practices.

* With reporting by Marcela Valente (Argentina), Mario Osava (Brazil), Gustavo González (Chile), Alejandro Sciscioli (Paraguay) and Humberto Márquez (Venezuela).