Mexico & Nafta - 15 July 2003

Alejandro Moisés Ceja, vice-president responsible for international trade at the Consejo Nacional Agropecuario (CNA), claimed that China posed as great a threat to Mexico's agricultural exports to the US as to its manufactured exports, despite China's distance from US markets.  

To meet the potential threat from China, the Mexican government must, he said, provide incentives to help farmers improve their production quality.  

Crying wolf? Ceja is not crying wolf. Figures from the US Department of Agriculture show that food exports from China to the US have been growing fast over recent years.  

Ceja noted that in the first four months of the year Chinese food and agricultural exports to the US were equivalent to 17.5% of Mexican food exports to the US.  

What worries the CNA is that Chinese agricultural exports to the States are growing much faster than Mexican ones. In the first four months, Chinese exports were up by 31%, while Mexican exports were up by 10%.  

There is even some evidence, from the USDA, to suggest that China has pulled ahead of Mexico in markets that Mexico imagined it owned, such as fruit juices and vegetable juices.  

To be fair, some of the problems Mexican producers are facing may be temporary. Last year Mexico's output of citrus fruit fell by 70% because of the drought. China stepped into the gap in the market. Mexican producers are finding it hard to claim back the market.  

Figures from the USDA show that in the first four months of the year Chinese exports of fruit juices were US$16m, or double Mexico's. Compared with the first quarter of 2002, China's exports of fruit juices have risen by 94%, while Mexico's have fallen by 31%.  

Meat. Another major worry for Mexican ranchers is the increase in exports of red meat from China. These were up by 146% in the first four months of the year. China's exports of red meat are now half Mexico's in value terms.  

Central America: The Chinese threat to maquiladora (assembly) industries in Central America is so acute that one expert has warned that the industry in Central America could be wiped out within two years. This would have major implications, not only for the Central American economies but also for Mexico and the US, which would have to cope with more immigration.  

Pedro Morazán, from a German research insitute, Southwind, argues that the Honduran maquiladora industry, which currently employs 120,000 people (mostly in textiles) could be gone by 2005. He said that the big problem was the ending of the Multifibre Agreement (MFA). The ending of this agreement, which distorts and shapes the world trade in textiles and clothes, will allow China to flood the world market. The MFA has allowed countries such as Honduras to process US cotton and cloth and to export it back to the US. Such niches will be obliterated and this could mean that China's cheap labour will be the decisive factor in the industry.  

What bothers the Central Americans is that the US seems unwilling to let them use the free-trade deal it is negotiating with them, or the Free Trade Area of the Americas agreement, to offer them protection. The US line is that both those agreements must be on the principles agreed by the World Trade Organization.  

Human rights workers point out that Chinese companies pay textile workers a fraction of what they earn in Central America, and Chinese workers have no rights to organise unions. These advantages have been magnified by the huge amount of foreign investment that has meant that the country has huge, efficient plants with the capacity to supply a large chunk of the world market.  

Maquiladora swings... A computer monitor plant owned by Mitsubishi in Mexcali is to close in mid-July. Around 1,200 people were employed at the plant.  

Mitsubishi said that computer users no longer wanted old-style monitors, preferring liquid crystal displays. These use halogen lamps to illuminate the liquid crystal and give a much sharper image. Traditional monitors use cathode tubes, which are bulkier, and mean that the monitor has to be chunkier. Mitsubishi's plant in Mexicali made the innards for 17-inch monitors.  

Since the plant was set up in 1998, Mitsubishi has found the going tough. Its market is dominated by Phillips and Samsung, which handle 90% of the sales.  

...and roundabouts: The fears about the future of the television manufacturing industry in Mexico may have been misplaced. Sharp, the leading Japanese TV manufacturer, announced that it would double its production of TVs to 20,000 a month. Sharp says that Mexico's advantages mean that it expects its plant in Mexico to produce half of the flat screen TVs it sells to the US. Last year Sharp sold 400,000 flat screen TVs to the States. TVs are one of Mexico's key exports to the US. Last year TV exports were worth US$4.3bn.  

Some people had been worried that Mexico's TV production lines were obsolete because they were too focused on cathode tube sets. The other problem was that flat screen TVs from Japan face only a 5% tariff in the US. Sharp's decision lays some of these fears to rest.