Enter the dragon: Mexico's textile industry struggles to hold its own against the Asian invason.

As textile companies in the United States are shutting down machines and closing shop, many Mexican textile industrialists are unnerved, and scrambling to diversify exports. Battling the challenges posed by market Saturation and Asian contraband clothing and textiles, it is only inevitable that the market will be tightly squeezed by the transition to full package inclusion of China in the World Trade Organization (WTO), Mexican officials say.

Textile and clothing chambers throughout the country have met China's WTO entry with great concern, vociferously demanding clearer rules and better enforcement, so that incoming fabrics must comply with all legal aspects including labelling, duties and certificates of origin. Mexico's textile and clothing sector officials say they see the delicate economic situation in the industry as precarious for the internal market and for the competition it hopes to generate abroad.

According to the coordinator for the Board of Jalisco Industrial Chambers, Ignacio Guerrero Mann, China's presence in the WTO represents a clear danger to the health of Mexico's clothing and textile industry due to the inferior prices. He estimated that nearly 50% of all textile and clothing items or products on the market are imported, although it is difficult to quantify how much of that is contraband, and how much enters legally through customs.

The opening of the commercial market with China "is a direct threat to the Mexican industry," Guerrero told reporters during a recent industry conference. "It's a very dangerous market."

He said that while Mexican workers in manufacturing and textile plants make between US$300 and US$400 per month, Chinese laborers make less than half of that.

MARKET SHARE

Guerrero noted that Mexico's textile industry is now rushing to diversify its export market, as nearly 85% of all the nation's textiles are sent north to the United States and Canada. One tool to beat China at home is to push entry into markets such as the European Union (EU), he said.

The European Union-Mexico Free Trade Agreement entered into full force in July of 2000, and many textile products already enter duty-free into European nations. By 2003, when industrial products will be fully liberalized in Nafta, all Mexican exports will enter the EU duty-free and EU exports will only have to contend with a maximum tariff of 5%. For example, EU exporters of shoes and textiles will have to contend with tariffs slashed from 35% to 5%.

But Guerrero says the industry, lacking investment for expansion and facing stiff competition, has fallen behind in the exports of textiles and shoes to European nations, and now has to deal with a smaller trade scale as China enters the world's free markets.

Mexico's president of the Confederation of Industrial Chambers (Concamin), Javier Prieto, has also said he fears the textile and clothing industry will suffer due to the new competition China will present in the United States.

He also noted that the illegal contraband through the United States into Mexico will likely increase. While Mexico will not be able to export textiles or clothing to China, the Asian country has too many ways to flood the Mexican market through illegal practices, such as altering the certificates of origin on clothing products.

"Even if China has agreed to comply with the international rules to enter the WTO, in real practice we all know that the organization's mechanisms and solutions to the controversy of contraband are slow and don't always work," Prieto told reporters at a recent press conference.

Meanwhile, recent trade agreement talks with Japan were met with hesitation, as textile officials cited fears of yet more illegal contraband clothing flooding the national market. Yet most have seen the agreement as a necessity, as Japan is a great consumer of clothing and shoes.

Industry officials in Jalisco say that the lack of control on contraband clothing items has been the cause behind thousands of job losses in recent years according to the Clothing Industry Chamber of Jalisco (Canive).

Mexico's textile industry has been further squeezed by effects of the U.S. textile market, reeling from one of the worst economic crises since the Depression. Most recently, Burlington Industries, which has gone from being the world's largest textile maker to filing for bankruptcy protection, announced plans to cut 4,000 jobs and close or sell five plants in the United States and Mexico. The Greensboro, North Carolina-based company said the reorganization of its apparel fabrics business would lead to 2,800 layoffs in the United States and 1,200 in Mexico.

Citing competition from foreign imports and an uncertain economic outlook for its actions, Burlington said it will close or sell plants in four cities in three different states, as well as shut down a denim garment operation in Aguascalientes, Mexico. However, Burlington has announced it will continue to make synthetic and wool products at plants in Yecapixtla, Mexico. All denim production will come from either the Yecapixtla, Mexico, or Navsari, India plants, the company said.

"We deeply regret the loss of jobs resulting from these actions," said George W. Henderson III, chairman and chief executive, in a recent press release. "Continued pressures from foreign imports and unfair trade practices coupled with slowing and uncertain economic conditions have made it necessary for us to further reduce our U.S. capacity."

RISING PROSPECTS

Some economists, however, see harder times ahead for Mexican consumers, and some are forecasting a drop in private consumption in 2002.

But not all is negative, officials say. Despite the recession, Mexican shoppers have remained resilient. Retail sales grew 7.8% in 2001.

While companies such as Burlington may be shutting doors in the United States, few are leaving Mexico. Indeed, other foreign textile firms are increasing business in Mexico.

Canadian textiles company Canatex said recently it will invest $100 million pesos over the next five years to set up factories in Mexico. The company plans to manufacture prestigious brand clothing, adding to the two factories it already owns in Mexico. Canatex said it will be increasing its number of employees in Mexico from 1,000 to 10,000.

Other companies are also upbeat about the Mexican textile industry.

Arturo Maciel, commercial director for clothing store and manufacturer Diesel de Mexico, said his company uses a total of about 20% to 30% of Mexican fabric for its clothing. The company seeks out cloth from textile firms, then brings it to the store's manufacturing plant in Mexico City.

"We use a lot of blended cloths and denims, so a lot of our material is imported from the United States," Maciel said. "But we buy some of the plain cloths and specialty material like Chiffon from Mexico because it's the best there is."

Looking out his window in Mexico City, Maciel watches as employees busily unload a truck stacked with boxes of denims and clothing. He says he is optimistic for clothing companies, even if specific textilers may not have the same luck.

Deisel saw almost zero sales growth in 2001 compared to the previous year, whereas some of his client stores will see a drop in sales of some 10%, Maciel said. But he expects that to quickly turn around by the end the year.

While Chinese products may have a negative impact on the industry, he doesn't see it destroying the sector.

"We base our buys on quality, on design, on color, not just what is the cheapest in the market," he says, referring to why the company wouldn't buy Chinese material.

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Camila Castellanos is a Mexico City-based freelance writer.