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Mexico’s shoemakers feel squeeze of globalization

Chicago Tribune | January 7, 2008

Mexico’s shoemakers feel squeeze of globalization

By Oscar Avila
Tribune foreign correspondent

LEON, Mexico

In a three-story mall filled entirely with shoe stores, the worried staff at the Bucker’s shop displays a sign next to those advertising their locally made sandals and loafers. "Proudly Mexican," it reads.

About 40,000 factory workers and allies recently echoed the sentiment in the streets of Leon, urging the Mexican government to keep tariffs against Chinese shoes. In a rally tinged with nationalism, protesters chanted "Mexico, yes! China, no!"

The heart of Mexico’s shoe industry is closing ranks because a deal expired last month that permitted tariffs to protect it from cheaper Chinese shoes. Mexican officials said they now must open the market or face sanctions by the World Trade Organization.

"We are people, vulnerable, who are fighting to survive. We have to defend our sector," said Ysmael Lopez, the owner of Tecno Shoes, who participated in the protest.

The growing pains of globalization have rippled through other key Mexican industries, especially as corn producers face open competition from the U.S. as of this year. This removal of barriers under the North American Free Trade Agreement has prompted protests from labor leaders and farmers on both sides of the border.

The crisis in Leon and the ongoing debate over NAFTA reflect unease in some Mexican sectors that they are poorly positioned for a global economy. Mexicans can’t match the low wages and cheap production of China, and they can’t keep up with the technology and productivity of the U.S. and other industrialized economies.

Government officials and employers say that if Mexico cannot make its economy more competitive, jobs will disappear and even more citizens will be migrate illegally to the U.S. to search for work.

Key employer

That reality hits home in Leon and small towns in the rugged state of Guanajuato, which first won fame by capitalizing on a ready supply of leather to produce handcrafted cowboy boots. That work expanded to leather shoes and cheaper plastic sneakers.

The state’s shoe sector employs about 80,000 people in 2,800 factories. In small towns such as San Francisco del Rincon, the industry accounts for 80 percent of private-sector jobs, according to CICEG, the shoe industry’s trade association.

On a side street in San Francisco del Rincon, Lopez opened his modest factory in 1989, during the shoe industry’s boom. Lopez and his 30 employees rely on efficiency and quantity, producing the Tecno sneakers that offer an economical alternative to Adidas and other brands.

Lopez prides himself on treating his employees well. Many start at about $300 a month, well above Mexico’s minimum wage and a typical Chinese salary.

Lopez will be going toe-to-toe with China in sneakers, the slice of the shoe industry where China has made its biggest inroads in Mexico, according to industry officials.

Even with Mexican tariffs that can reach 300 percent, Mexico’s overall trade deficit with China grew from $500 million in 1995 to nearly $23 billion in 2005.

Lopez and other skeptics of free trade have raised an uncomfortable reality: that Mexico suffers not just because of favorable conditions for its competitors but because Mexican taxes and regulations make it difficult for them to compete.

Lopez says he and other small companies are burdened by costly phone lines and utility bills. As he plans an expansion to a facility three times larger, he has been forced to wade through a cumbersome and discouraging permit process.

In October, the World Economic Forum ranked Mexico 52nd out of 131 nations in competitiveness, behind nations such as Tunisia and Latvia. The survey cited Mexican bureaucracy as a key impediment to competing in a global economy.

Luis Fernandez Godard, a columnist with the Leon newspaper A.M., blamed manufacturers and the government for not priming their economy for an open market. "Today’s protests," he wrote, "are the kicking of a drowning man."

At the Shoe Plaza, the mall where many local and a few imported shoes are sold, general manager Pablo Garcia blamed complacent manufacturers who assumed that their government would protect them.

"You can’t compete in the world market having protectionism," said Garcia, a native of Spain. "If people weren’t prepared, they should have been."

Investment needed

Arturo Anguiano, the general manager of shoemaker Grupo Karosso, agreed that the Mexican shoe industry must transform, perhaps stressing niche products such as boots. Low wages and proximity to the U.S. remain an asset, he said, but those strengths must be supplemented by capital investments.

Anguiano, for example, recently bought machines from Korea and the Netherlands that helped him win a trial contract to produce Nike sneakers for the domestic market. He says Mexico can survive with higher quality: more durable shoes that will be cheaper than Chinese products in the long run.

"The Mexican doesn’t die," he insisted over the whir of machines cutting and combining the shoes’ components. "We’ve already survived many crises."

Jose Antonio Abugaber of CICEG said the industry will present Mexican officials proof of unfair Chinese trade practices with the hope that Mexico will push to keep the tariffs. Mexico and China had signed a "peace treaty" in 2001 allowing tariffs on certain goods.

The transition to a truly open market will take at least a year, according to industry and government officials.

Top officials with Mexico’s Ministry of Economy say open markets in shoes and other products will eventually benefit Mexican consumers by lowering prices. Critics say that multinational companies such as Wal-Mart, now Mexico’s largest private-sector employer, will reap most of the profits.

Lopez, the shoe factory owner, says he doesn’t dismiss the economic calculus that has led Mexico to embrace free trade over the past two decades. But he hopes the shoe crisis will cause his leaders to look beyond macroeconomic indicators.

"Either these people make shoes or they go to the U.S.," he said. "I don’t understand how the government discounts the humanity that exists in this sector. There needs to be a social responsibility, not just saying, ’Either you live or you die.’"

 source: Chicago Tribune