Mexico’s shoe industry is straining under the weight of globalization, yielding ground to aggressive Chinese exporters on the march.
A deal between Mexico and the World Trade Organization (WTO) permitted the Mexican government to protect its shoemaking industry by imposing high tariffs on inexpensive Chinese imports. The measure was established in 2011, tagging certain categories of imports from China, including footwear, with duties as high as 300 percent. However, since the measure expired, a deluge of imports have flooded across the border; some estimate Mexico has absorbed as many as 43 million pairs of shoes in the last month.
Ysmael Lopez Garcia, president of the lobby group CICEG, said that by the end of 2014, as many as 85 million shoes from China could find their way to Mexican consumers, eating away the domestic market, which accounted for 218 million pairs in 2013. As cited in just-style magazine, Garcia pleaded for government help, “We want anti-dumping measures and we want them now. The government is currently analyzing this and we hope will happen soon.”
Garcia complained that the Mexican shoe market simply can’t compete with China’s inexpensive offerings. “In 2011, the average price was $15 while now it’s around $7 and in the past two months as low as $5.” He also said that the shoe market that remains suffers from margin compression. “Every year, producers’ profit margins are falling.”
Mexico has languished, according to some, under the pressure of globalization, especially as certain protectionist measures under the North American Free Trade Agreement (NAFTA) have begun to expire. Particularly in states like Leon, where shoe manufacturing is heavily clustered, factories can’t match the low wages and cheap, efficient production of China. However, they also fail to duplicate the technological advantages and productivity of U.S. and Canadian factories, squeezing them out of the market. Leon’s shoe sector currently employs about 80,000 laborers across approximately 2,800 factories. In some of its towns the industry accounts for as much as 80 percent of all employment.
Part of the problem for Mexico, though, is not merely an elimination of protectionist tariffs but also its own counterproductive regime of taxes and regulations. Even with the mammoth tariffs in place, Mexico’s trade deficit swelled from $500 million in 1995 to $23 billion in 2005. Last October, the World Economic Forum ranked Mexico 52nd out of 131 nations in terms of economic competitiveness, lagging behind Tunisia and Latvia. According to the report, the central obstacle Mexico faces to economic growth is its own government. Garcia said, “You can’t compete in the world market having protectionism. If people weren’t prepared, they should have been.”
CICEG’s Jose Antonio Abugaber said that his organization will build a case to the Mexican government that unfair trade practices on the part of China justify the renewal of tariffs. Even if Mexican authorities agree, though, they would still have to convince the WTO to permit the extension, or potentially face steep penalties.
Nevertheless, there are some trade officials in Mexico that argue the opening of its shoe market could be good in the long run, forcing the industry to remake itself, and the government to reform its byzantine bureaucracy.