Global Policy Forum

As China Gallops, Mexico Sees Factory Jobs Slip Away

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By Juan Forero

New York Times
September 3, 2003


At the Gicsa Corporation, workers hunched over bulky sewing machines, busily producing stacks of blue jeans for stores like Target and American Eagle Outfitters in the United States. But while the company still owns 10 factories filling orders for American clients in this lush swath southeast of Mexico City, all is not right in this and the 180 or so other low-wage textile plants packed into this region.

Mexico, long the king of the low-cost plants and exporter to the United States of products from Ford trucks to Tommy Hilfiger shirts to I.B.M. computers, is fast being supplanted by China and its hundreds of millions of low-wage workers. The competition from China is no doubt hitting American manufacturers as well, particularly in textiles. But perhaps nowhere are the effects being felt more keenly than here in Mexico, where the toll in jobs is mounting at a staggering pace.

More and more plants like Gicsa — so-called maquiladoras that are allowed to import components duty free so long as they are assembled for export only — are scaling back operations or closing altogether. In all, 500 of Mexico's 3,700 maquiladoras have shut down since 2001, at a cost of 218,000 jobs, the Mexican government says.

As for Gicsa (pronounced HEEK-suh), a Mexican company that now produces a third fewer jeans than it did two years ago, its work force has shrunk by 30 percent, to 2,500 employees. Company officials say they are pondering what was once unthinkable: moving to El Salvador, where labor is 22 percent cheaper and regulations are less stringent. "We may not go because we like the tortillas and the chilies," Luis Lapuente, the operations director and an owner, said with a wistful smile as he sat in a meeting room above the din of the factory floor. "But there are not many more reasons to stay."

The slide of companies like Gicsa has prompted soul-searching here in Mexico as this nation of 100 million assesses the last decade under a landmark free trade pact with the United States and a future of intensifying competition. Even given the advantages conferred by the North American Free Trade Agreement, Mexican businesses have watched China become a major exporter to the United States of increasingly sophisticated goods. Mexico's $67 billion worth of exports to the United States in the first half of 2003 still top China's, but just barely.

But China's exports to the United States grew 20 percent last year while Mexico's remained flat, and China is expected to surpass this country as the No. 2 exporter to the United States (Canada is still No. 1). Mexican manufacturing continues to lead the way in supplying the United States with big-ticket items like cars, auto parts, large-screen television sets and appliances. But China, which was admitted to the World Trade Organization in 2001, has displaced Mexico in many important industries, exporting more lamps, certain computer and electrical components, footwear, plastics, toys and sporting goods. "Mexico has nearly lost the battle on low-skilled, labor-intensive industries, where it simply cannot compete with China on labor costs and will likely continue losing market share," Merrill Lynch said in a recent report.

Business executives here direct much of their ire at President Vicente Fox's government, saying it has failed to respond as China vigorously pursued foreign investment. To compete with a country whose labor costs one-fourth of Mexico's, they say, the government needs to reduce taxes, provide cheaper electricity, improve roads and curtail corruption. "Right now, it is like competing in a race, but they are running on land and you are swimming in the water," said Mario Montes de Oca, owner of the Union Clothing Company, which has seen sales slip by 25 percent as exports to the United States tumbled in two years.

China itself, though, is not spared from criticism, some of it bordering on the xenophobic. Newspapers run headlines like "China: The Enemy to Vanquish," and "The Chinese Threat." Some government officials have reacted less than diplomatically. Fernando Canales, the economy minister, touched off a minor diplomatic dispute after recently telling reporters that China had "no respect for human rights" and was "not a country with solid political and economic institutions." It has not helped that Chinese-made products like clothing, toys and even figurines of Mexico's patron saint, the Virgin of Guadalupe, are also flooding this country.

Chinese officials say they are simply embracing globalization. "It is natural that there is concern," said Shi Wei, spokesman for the Chinese Embassy here. "But there should not be so much exaggeration of the economic threats from China."

The future was much rosier for Mexico in 1994 as tariffs fell after the trade pact with the United States and Canada went into effect. Mexican exports to the United States shot up and hundreds of thousands of factory jobs were created. But as Mexico prepares to play host to a World Trade Organization meeting in Cancún next week, many businessmen and economists say some of the benefits have eroded because Mexico failed to improve its educational system and infrastructure.

Economists and Mexican government officials say Mexico needs to focus more on sophisticated high-tech products and to maintain its edge in big export items that are expensive to ship from China. Mexican industries must also react quickly to orders, taking advantage of the country's proximity to the United States. "It's going to have to be upgrading and more sophistication in what they do, more skilled people making more sophisticated products," said Sidney Weintraub, an expert on Mexico's economy at the Center for Strategic and International Studies in Washington. That means that companies that produce low-value products may disappear or contract sharply — and no product is more symbolic to Mexico than textiles.

Just three years ago, Mexican textiles dominated the American market. The industry still remains robust, providing 12 percent of all clothing imported into the United States (China is No. 1, with 15 percent). But here in Teziutlán, considered a regional textile center, about 50 plants have closed in two years and others have laid off workers. Nationwide, 325 of 1,122 maquiladoras that make clothing have closed since January 2001, many moving to China. At Always First, a company that once employed 350, a sign painted on the factory wall attests to recent good times: "Immediately Contracting!" But the company is shuttered. "They never announced the closing," said Oscar Luis Nochebuena, 41, who worked at the plant until about two months ago. "They just stopped paying wages, or started paying less, and so people stopped coming to work."

At the Gicsa plants, it is hard to imagine that anything is wrong. Workers furiously sew pockets and seams. Others snip off pieces of hanging thread with small scissors. Young men dash off with loads of the bright blue jeans, which are then taken to another site to be stone-washed.

Word is spreading about China though, said Josefina Castro, 33, a 17-year veteran. "It worries us because there is very little other work around," she said, taking a break as sewing machines hummed around her. "In this plant no one has been laid off, but in others, yes, there have been lots of people who have lost their jobs." Mr. Lapuente says the company can still have a future here by accepting smaller, rush orders and finding a niche with high-end retailers.


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