China in Mexico - Some Environmental and Employment Dimensions

China  in  Mexico:    Some  Environmental  and  Employment  Dimensions   This  study  explores  the  unique  characteristics  of  Mexico’s  trade  with  China  and   investment  from  China,  especially  for  Mexico’s  manufacturing  sector.  In  addition,  we   examine  the  environmental  and  social  characteristics  of  these  flows,  looking   specifically  at  greenhouse  gas  (GHG)  emissions  and  employment-­‐related  impacts  for   Mexico.  Finally,  we  perform  a  case  study  of  a  Chinese  company  doing  business  in   Mexico’s  manufacturing  industry.   Mexico  is  unique  relative  to  the  other  studies  in  this  project.  Mexico  has  indeed   experienced  a  surge  in  exports  to  China  but  these  still  remain  very  modest  as   compared  to  the  great  flow  of  imports  from  such  country.  This  phenomenon  reflects   Mexico’s  difficulties  in  competing  in  the  manufacturing  sector  with  China,  both  at   home  and  abroad  and  its  still  incipient  primary  goods  exports  to  that  country.   Moreover,  Mexico  has  thus  far  not  received  as  extensive  amounts  of  foreign  direct   investment  from  China  as  compared  to  the  other  countries  in  the  region.   GHG  due  to  Mexico’s  exports  to  China  are  increasing  much  faster  than  Mexico’s  GHG   generated  by  its  total  exports.  Though  there  has  been  some  offsetting  of  these   emissions  because  of  technological  changes  in  Mexican  export  to  China  in  several   sectors,  the  change  in  export  structure  toward  more  polluting  sectors  (including   primary  sectors),  together  with  the  high  rate  of  growth  of  these  exports,  explain  this   tendency.  When  looking  into  manufacturing  exports  from  Mexico  to  China,  the   structure  or  composition  effect  favors  less  polluting  sectors,  so  this  has  a  somewhat   compensating  effect  together  with  the  technology  effect.  This  shows  up  in  our   statistical  analysis  and  in  our  case  study  we  find  a  serious  effort  by  a  Chinese   1   enterprise  to  comply  with  Mexican  environmental  regulations.  Regarding   employment,  Mexican  manufacturing  firms,  particularly  in  the  textiles  and  apparel   sector,  have  shed  jobs  due  to  competition  with  China.  However,  technical  innovation   in  several  sectors  where  there  is  competition  with  China,  has  also  had  an  important   role  in  these  job  losses  especially  in  more  recent  years.   In  analyzing  a  group  of  36  manufacturing  Chinese  enterprises  in  Mexico,  we  can  see   that,  in  general,  they  display  a  varied  environmental  performance  and  labor   conditions,  but  generally  comply  with  Mexican  environmental  law,  which  has   improved  dramatically  over  recent  years  (though  its  enforcement  is  still  weak).  Our   case  study  exemplifies  the  fulfillment  of  environmental  regulations.  Of  course,  these   results  should  be  interpreted  with  caution,  as  this  may  not  apply  equally  in  sectors   where  Chinese  OFDI  is  present  and  expanding  in  Mexico.  Furthermore,  both  OFDI   and  exports  to  China  are  shifting  to  include  more  primary  sectors,  especially  mining.   In  terms  of  labor  relations,  labor  law  violations  appear  to  be  the  exception  rather   than  the  rule  in  the  manufacturing  Chinese  enterprises  and  in  our  case  study,  but   important  cultural  differences  seem  to  lead  to  some  incompatibilities  between  what   Chinese  firms  expect  from  their  workers  and  what  the  local  Mexican  workers’   customs  are,  with  some  conflictive  outcomes.   In  moving  forward,  there  are  important  roles  to  play  for  Chinese  firms  (in  adapting   to  Mexican  labor  and  environmental  laws),  Mexican  authorities  (in  enforcing  those   laws),  and  Mexican  labor  unions  (in  ensuring  that  labor  law  violations  are   addressed).       1. INTRODUCTION General  trends  show  that  trade  between  China  and  Mexico,  particularly  imports   from  the  former  to  the  latter,  has  grown  enormously  over  the  last  two  decades  as  a   result  of  China’s  entry  into  the  WTO  in  2001,  the  end  of  the  Multifiber  International   Accord  (MIA)  in  2005,  and  various  loopholes  in  Mexican  import  oversight.  This   phenomenon  has  created  a  significant  foreign  trade  deficit  for  Mexico  with  China.   Competition  has  been  especially  intense  in  the  textile  and  apparel  market.  Chinese   exports  to  the  US  displaced  Mexican  ones  in  this  sector  during  the  2001-­‐2006   2   period,  but  overall  Mexico  has  been  expanding  and  gaining  US  markets  again,  albeit   with  a  different  export  structure.  These  trends  in  the  first  half  of  the  2000s   contributed  to  great  tensions  between  China  and  Mexico,  which  only  very  recently   have  begun  to  subside.  These  phenomena  have  widely  been  studied  by  different   researchers  (Dussel  Peters  and  Gallagher,  2013;  Dussel  Peters,  2013,  Jenkins  and   Dussel  Peters,  2009,  Gallagher  and  Porzecanski,  2010;  Ayala  and  Villarreal,  2009).     As  to  Mainland  Chinese  OFDI,  Mexico  has  received  a  very  limited  and  fluctuating   amounts,  while  its  structure  is  increasingly  favoring  primary  goods  sectors,  namely   mining,  and  to  a  lesser  extent  the  construction  (of  infrastructure),  while   manufacturing  has  lost  importance  in  the  whole.     The  paper  is  organized  as  follows:  the  second  section  gives  a  general  background  on   trade  between  Mexico  and  China  and  on  Chinese  OFDI  flowing  to  the  manufacturing   sector  in  Mexico.  The  third  section  looks  into  the  environmental  effect  of  Mexican   exports  to  China  as  well  as  that  of  Chinese  OFDI  in  the  Mexican  manufacturing   sector.  The  fourth  section  studies  the  effects  on  employment  and  labor  conditions  of   Mexican  imports  from  China,  especially  in  the  textiles  and  apparel  industry  and  that   of  OFDI  in  the  manufacturing  sector  in  Mexico.  The  fifth  part  presents  a  case  study   on  GDA.  Finally,  we  draw  conclusions  and  propose  some  public  policies  for  Mexico   that  might  help  improve  environment  and  labor  conditions  as  Mexican  exports  to   China  and  Chinese  OFDI  in  the  manufacturing  sector  expand.     Two  caveats  are  warranted  regarding  this  study,  since  it  is  one  of  eight  country   studies  in  Latin  America  and  the  Caribbean  (LAC)  on  environmental  performance   and  effects  on  labor  conditions  of  trade  flows  and  OFDI  from  China.  First,  while   competition  from  manufactured  Chinese  products  has  had  a  visible  impact  in   Mexico,  especially  on  employment  and  labor  conditions  in  some  sectors  and  time   periods,  neither  Mexican  exports  to  China  nor  Chinese  OFDI  in  Mexico  are  drivers  of   environmental  or  social  conditions  in  Mexico,  because  in  both  cases  these  activities   are  very  limited  (in  contrast  with  other  LAC  countries),  albeit  growing  in  the  case  of   exports.  Also,  this  study  concentrates  mostly  on  the  manufacturing  sector,  so  its   focus  is  rather  restricted.  Finally,  there  were  great  information  limitations  to   carrying  out  this  research,  especially  regarding  Chinese  manufacturing  firms’   emissions,  since  very  few  of  them  generate  reports  on  the  subject.  Hence,  firm   3   environmental  behavior  was  evaluated  indirectly,  with  international  indicators,  but   mostly  qualitatively,  taking  into  account  their  great  heterogeneity.  The  same  was   true  for  the  labor  conditions  in  Chinese  firms  in  Mexico.  More  specific  information   was  found  for  the  case  study  on  Golden  Dragon  Affiliates  (GDA).  Notwithstanding   these  difficulties,  we  consider  this  study  to  provide  a  relevant  analytic  precedent  for   a  rapidly  intensifying  relationship  between  China  and  Mexico,  which  requires   attention  so  that  it  will  contribute  to  improving  rather  than  harming  the   environmental  and  labor  conditions  of  the  country.   2. TRADE  BETWEEN  MEXICO  AND  CHINA  AND  CHINESE  OFDI  IN  MEXICO 2.1.  Mexico  –  China  Bilateral  Trade   There  has  been  a  growing  trade  relationship  between  Mexico  and  China,  though   quite  asymmetric  since  the  Mexican  trade  deficit  with  China  increased  almost   tenfold  between  2002  and  2012.1  Imports  from  China  have  risen  at  a  very  high   speed  and  it  has  become  the  second-­‐largest  trading  partner  for  Mexico.  Mexico  is   now  the  largest  importer  from  China  in  LAC,  accounting  for  48%  of  the  region’s  total   purchases  (Rosales  and  Kuwayama,  2012).  Although  exports  from  Mexico  to  China   are  very  far  from  catching  up  with  the  inflows  of  goods,  they  have  also  grown  very   quickly  over  the  last  ten  years  (from  0.6  to  5.7  million  dollars  between  2002  and   2012,  according  to  COMTRADE  data),  though  they  accounted  for  only  2%  of  total   Mexican  exports  in  2013.2     Imports  from  China  consist  mainly  of  manufactured  goods  (Figure  1),  resembling   the  Mexican  total  import  structure.  However,  its  export  structure  to  China  has   changed  and  is  increasingly  concentrated  in  primary  goods  (predominantly   minerals  and  animal  feed),  reaching  about  half  of  the  total  exports  to  China  in  2010-­‐ 2012  (up  from  13%  in  2002-­‐2004)  while  almost  80%  of  Mexican  exports  to  the   1  COMTRADE.   2  Ibid.   4   world  were  still  manufactured  goods  in  2010-­‐2012  (Figure  2).3  Within  this  overall   export  tendency  at  least  two  exceptions  have  to  be  made:  Mexico’s  passenger   vehicles,  almost  inexistent  at  the  beginning  of  the  2000s,  and  telecommunications   equipment  parts,  which  gained  great  importance  among  exported  goods.  Within   imports,  around  85%  of  them  are  intermediate  goods,  among  which  electronic   goods  are  important,  especially  telecommunications  equipment  and  its  parts,   confirming  Mexico’s  involvement  in  final  assembly  stage  of  the  global  value  chain   (GVC).  Hence,  the  deep  imbalance  in  this  sector  with  China  (Mexican  manufacturing   exports  to  China  accounted  for  only  7%  of  the  value  of  manufacturing  imports  from   China  of  these  goods  in  2010-­‐2012)  is  to  some  extent  compensated  by  Mexican   exports  to  the  US  with  Chinese  inputs.  At  the  same  time,  the  figures  for  imports  of   textiles  and  clothing  seem  to  be  underestimated  since  they  explain  only  around  8%   of  total  imports  –  a  surprisingly  low  figure.  In  fact,  these  are  reported  in  an  irregular   way  and  have  negative  consequences  for  competition  in  the  domestic  market.     Figure  1:  Mexican  Import  Structure  from  China  and  the  World   100%   5.7%   11.8%   3.9%   17.5%   Primary   Manufactured   75%   50%   25%   0%   Imports  from   All  Imports   Imports  from   All  Imports   China   China   2002-­‐2004   2010-­‐202   Source:  COMTRADE   3  Ibid.   5   Figure  2:  Mexican  Export  Structure  to  China  and  the  World   100%   18%   17%   75%   23%   Primary   Manufactured   56%   50%   82%   83%   25%   0%   77%   44%   Exports  to   China   All  Exports   2002-­‐2004   Exports  to   China   All  Exports   2010-­‐202   Source:  COMTRADE   2.2.   Chinese  OFDI  in  Mexico   We  will  devote  more  space  to  Chinese  OFDI,  and  especially  to  that  going  to  the   manufacturing  sector  in  Mexico  (section  2.3.),  than  we  did  to  trade  between  Mexico   and  China,  because  of  the  limited  availability  of  statistical  data.  The  following   analysis  develops  a  more  qualitative  assessment  of  environmental  and  social  issues.   Mainland  China  had  become  the  third  largest  source  of  worldwide  FDI  in  2012  after   the  US  and  Japan  and  its  importance  is  rising  for  developing  nations  (UNCTAD,   2013).  There  is  evidence  that  China’s  government  has  given  wide  support  to  its   enterprises  to  invest  abroad,  making  use  of  the  massive  foreign  currency  reserves,   especially  through  the  Going  Global  Strategy  (since  1999).  The  support  given  to   OFDI  by  the  Chinese  government  has  included  financial  backing  (through  ExIm     Bank,  the  National  Development  and  Reform  Commission,  China  Development  Bank,   and  since  2003  commercial  banks),  logistics  help,  preferential  insurance  coverage,   6   and  others  (Dussel  Peters,  2012;  Dussel  Peters  2013;  ECLAC,  2010;  Lumsden,   2013).4 In  general,  Chinese  OFDI  is  carried  out  mainly  by  state-­‐owned  enterprises  (SOEs)   and  to  a  lesser  degree  by  privately  owned  companies  (Dussel  Peters,  2012a;  CCPIT,   2012;  CCPIT,  2013).  More  specifically,  CCPIT  (2012)  categorizes  OFDI  in  three   groups,  according  to  its  target:  i)  State-­‐owned  energy  and  resources  enterprises,   which  seek  resource  access;  ii)  high-­‐tech  companies,  especially  those  in   communications  and  IT  industries,  which  seek  greater  competitiveness  and  access   to  technology;  and  iii)  enterprises  with  comparative  advantages,  mainly  in  textiles   and  apparel  as  well  as  in  home  appliances,  which  look  for  greater  access  to   international  markets,  while  avoiding  trade  restrictions.  Some  domestic  restrictive   elements  motivating  Chinese  enterprises  to  go  abroad  include  increasing  domestic   costs,  rising  market  competition  in  their  markets  and  the  difficult  access  to  talent   and  capital  (CCPIT,  2012).     The  performance  of  Chinese  industries  in  foreign  countries  is  quite  different   depending  on  the  activity  they  undertake.  Mineral  and  oil  extraction  can  be  done   efficiently  by  Chinese  firms  abroad  and  can  be  securely  sold  to  the  Chinese  market   itself,  so  it  does  not  entail  much  risk.  As  for  construction,  their  knowledge,  logistics   and  technology  is  advanced  and  the  end  product  does  not  need  to  be  marketed.   Chinese  investment  in  the  manufacturing  sector  abroad  is  a  different  matter:  it  is  a   relatively  recent  phenomenon  and  when  its  initiative  comes  from  enterprises  with   little  or  no  prior  experience  investing  abroad  countries,  there  is  a  risk  of  being   unsuccessful  because  of  lack  of  marketing  networks,  and/or  technology  access,  or   cultural  misunderstandings  that  may  hinder  efficient  results.     When  dealing  with  international  manufacturing  investments,  Chinese  firms   frequently  looks  for  joint  ventures,  mergers  and  acquisitions  (M&A),  or  strategic   alliances  with  developed  countries’  companies  because  this  paves  the  way  for   acquiring  technology  (and  transferring  it  to  the  home  country),  market  access  and   4  In  2009  and  2010,  China  ExIm  and  CDB  together  lent  more  to  developing  countries  than  the  World  Bank   (Dyer,  Anderlini  and  Sender,  2011;  cited  by  WRI,  2013)   7   even  cultural  familiarity  of  the  firm  with  its  surroundings  (Zhang,  et  al,  2013).5    So   countries  like  Mexico  often  receive  OFDI  of  Chinese  manufacturing  firms  that  have   already  made  joint  ventures  or  other  forms  of  relationship  with  developed   countries’  enterprises.   Although  measuring  Chinese  OFDI  abroad  is  a  controversial  issue  (ECLAC,  2010;   WRI,  2013;  Lin,  2013;  Dussel  Peters,  2012b,  Dussel  Peters,  2014),  by  any  standard   such  flow  going  to  Mexico  has  been  very  modest.  According  to  the  Mexican  official   data  this  country  had  received  270.5  million  dollars  between  1999  and  the  second   quarter  of  2013  (Economic  Secretariat,  Mexico).  Mexico  has  attracted  less  OFDI  as   compared  to  that  of  other  large  LAC  countries,  because  of  its  more  limited   availability  of  natural  resources,  the  comparatively  fewer  incentives  to  foreign   investors,  as  well  as  the  trade  and  political  tensions  between  China  and  Mexico,   which  permeate  other  activities,  though  these  have  been  settling.     When  comparing  Chinese  FDI  to  total  FDI  going  to  Mexico  during  2000-­‐2012,  we   can  see  from  Figures  3  and  4  that  the  first  has  recently  become  considerably  more   concentrated  in  mining  than  total  FDI  received  by  Mexico,  while  almost  all  FDI  went   to  manufacturing  at  the  beginning  of  the  2000s  (though  the  amount  was   insignificant).  The  FDI  profile  in  Mexico  is  acquiring  that  of  the  Chinese  FDI  going  to   South  American  countries,  where  mining  and  other  primary  goods  are  very   attractive  and  construction  is  acquiring  relevance  (Lin,  2013).   5  Several  interviews  with  different  ProMexico  and  the  Economics  Secretary  officials  shared  this  view.   8   Figure  3:  Structure  of  Total  FDI  flows  to  Mexico   100%   Agriculture   75%   Mining   50%   Construction   25%   Manufacturing   Other   0%   Source:  Secretaría  de  Economía,  Mexico.  Note:  Sector  Classification:  NAICS.   Figure  4:  Structure  of  Chinese  Net  OFDI  flow  to  Mexico   100%   80%   60%   40%   Chinese  OFDI  Mlows  to  Mexico   Agriculture   Mining   Construction   20%   Manufacturing   0%   -­‐20%   Other   Source:  Secretaría  de  Economía,  Mexico.  Note:  Sector  Classification:  NAICS.   9   2.3.     Present  Chinese  OFDI  in  the  Mexican  Manufacturing  sector     Mexico  should  be  an  interesting  destination  for  Chinese  OFDI  in  manufacturing,   because  of  its  proximity  to  the  US.  Producing  or  assembling  goods  in  Mexico  to  be   exported  to  the  US  has  become  more  attractive,  as  many  enterprises  in  China  are   starting  to  experience  a  rise  in  production  costs  in  addition  to  existing  transport   costs  and  the  time  required  to  ship  goods  from  China  to  the  US  (UNCTAD,  2013;   Sirkin,  Rose  and  Zinser,  2012).  By  investing  in  Mexico,  Chinese  producers  have  the   additional  advantage  of  paying  lower  tariffs  because  of  the  North  American  Free   Trade  Agreement  (NAFTA),  and  may  avoid  facing  some  countervailing  duties  for   unfair  trade  practices  that  are  charged  to  them  if  exporting  directly  from  China.   Finally,  the  bilateral  investment  treaty  (BIT)  signed  between  Mexico  and  China  in   20086  provides  important  legal  guarantees  for  both  parties,  improving  certainty  for   Chinese  OFDI  (Berger,  2013).   Yet  Chinese  OFDI  has  been  very  scarce  in  the  manufacturing  sector  and  there  are   still  very  few  (mainland)  Chinese  manufacturing  enterprises  in  Mexico.  For  this   study  we  were  able  to  identify  36  manufacturing  enterprises  of  this  kind.  These   enterprises  are  quite  diverse:  they  are  in  the  automobile  industry,  electronics   industry,  textiles,  apparel  and  shoe  industry;  plastic  materials,  metal  products,   recycling,  and  products  for  the  construction  industry,  among  others  (see  Table  1).   The  nature  of  investment  is  also  varied.  As  stated  above,  a  portion  of  Chinese  OFDI   has  arrived  to  Mexico  through  Chinese  companies  already  in  joint  ventures,   especially  from  developed  countries.  This  is  the  case  of  Lenovo,  which  bought  the   Personal  Computer  Department  of  IBM,  and  afterwards  took  the  strategic  decision   of  setting  up  its  largest  firm  outside  China  in  Mexico.  Others  have  become  Chinese   because  the  mother  company  has  been  taken  over  by  Chinese  capital  elsewhere,   such  as:     6  http://www.economia.gob.mx/files/China_actual.pdf   10   • TCL-­‐Thomson  (TCL,  with  majority  Chinese  ownership,  and  French  enterprise Thomson),  merged  with  the  purpose  of  producing  TVs  on  a  large  scale  and exporting  them  to  the  US,  through  Thomson’s  trade  networks. • Preh-­‐Joyson  (German  enterprise  Preh,  specialized  in  automotive  electronics, bought  by  Joyson  Group,  which  produced  automotive  parts,  in  2012)  built  a stronger  position  in  the  international  market  as  an  automotive  supplier  group, as  they  combined  the  strong  market  positioning  of  Preh  in  Europe  and  North America  and  access  to  the  quickly  expanding  Chinese  market  through  Joyson7. • TK  Minth  (a  joint  venture  of  Chinese  Minth  and  Japanese  Tokai  Kogyo  Co.  Ltd. Firms)  is  another  of  these  cases:  the  first  is  an  auto  parts  maker  and  the  second is  a  plastic  and  rubber  products  maker,  and  TK  Minth  produces  plastic  and rubber  automobile  parts;  Minth  is  favored  by  Tokai’s  global  resources  and strategic  partners8. • Foton,  a  very  important  truck  and  tractor  Chinese  producer  at  an  international level,  with  one  of  its  23  subsidiaries  in  Veracruz,  signed  a  joint  venture agreement  with  Daimler,  a  German  automobile  industry,  which  will  provide improved  technology  to  the  former  and  help  diversify  the  range  of  products  it makes.  This  will  create  an  opportunity  for  the  assembly  of  a  wider  range  of trucks  in  Veracruz  too9. There  are  a  few  examples  of  associations  between  Chinese  and  Mexican  firms.  An   important  case  is  Giant  Motors  de  Latinoamérica  (fully  Mexican  capital),  which  has   had  a  strategic  alliance  with  Faw  trucks  since  2006  by  which  the  latter  provides   technology,  technical  advice  and  parts  for  different  vehicle  models  to  be  produced  in   Mexico.  Such  models  range  from  light  passenger  vehicles  to  heavy  trucks,  built  with   7  http://www.prlog.org/12147592-­‐preh-­‐and-­‐joyson-­‐automotive-­‐show-­‐dynamic-­‐growth-­‐in-­‐every-­‐ market.html   8  “Minth  and  Tokai  Kogyo  Form  Auto  Parts  Joint  Venture”,  in  Plastic  News,  January  20,  2012   http://www.plasticsnews.com/article/20120120/NEWS/301209978/minth-­‐and-­‐tokai-­‐kogyo-­‐form-­‐auto-­‐ parts-­‐joint-­‐venture   9  http://t21.com.mx/terrestre/2013/06/18/foton-­‐autorizado-­‐vender-­‐camiones-­‐daimler-­‐mexico   11   imported  parts  from  China  but  increasingly  including  Mexican  inputs  (Dussel  Peters,   2014).   There  also  are  investments  made  by  fully  Chinese-­‐owned  firms  in  Mexico  in   industries  where  China  has  a  long  manufacturing  tradition  and  a  mastery  of  the   technology,  such  as  textiles  or  apparel;  or  in  steel  and  metal  products.  Among  the   most  important  are  SINATEX  S.A.  de  C.V  in  Sonora,  which  is  a  yarn  producer  and   now  a  part  of  a  very  large  Chinese  conglomerate.  Another  one  is  Golden  Dragon   Affiliates,  which  produces  precise  copper  tubes  in  Coahuila  and  also  belongs  to  this   category  (see  case  study).  One  more  case  worth  mentioning  is  HCP  Packaging   (packaging  of  cosmetic  products),  which  established  its  fifth  subsidiary  abroad  in   Tamaulipas,  Mexico,  in  2009.     Other  Chinese  firms  in  Mexico  were  initially  small  in  size  but  have  grown  to  be   medium  size.  This  is  the  case  of  Long  S.A.  de  C.V.,  which  produces  bicycles  and   motorcycles  in  Mexico  City,  mainly  for  the  domestic  market.    Finally,  there  are  those   very  small  Chinese  firms  that  continue  being  family  owned  for  which  little   information  is  available.   One  of  the  manufacturing  sectors  that  would  seem  very  promising,  in  theory,  for   Chinese  OFDI  in  Mexico  is  the  automobile  and  especially  the  auto  parts  industry,   since  Mexico  has  become  a  very  important  production  and  export  platform,   integrated  to  the  NAFTA  value  chains  and  markets.  As  China  needs  to  expand  its   industry  abroad,  Mexico  is  a  promising  location.  However,  the  experience  of  OFDI  in   the  automobile  industry  has  met  several  challenges  in  Mexico  and  there  are  better   chances  that  investment  in  auto  parts  will  expand  first  rather  than  in  finished   vehicle  production.  The  foreign  enterprises  that  invest  in  this  industry  in  Mexico   have  to  comply  with  demanding  regulations,  such  as  producing  a  minimum  of   50,000  vehicles  a  year,  though  under  certain  forms  of  strategic  alliances,  this  is  not   an  impediment  as  has  been  shown  by  Giant  Motors  (Dussel  Peters,  2014).   12   Furthermore,  some  Chinese  automobile  enterprises  may  find  it  difficult  to  meet  the   high  quality  and  environmental  standards  required  by  the  US.10     In  summary,  Chinese  OFDI  in  the  Mexican  manufacturing  sector  is  diverse,  though   still  very  limited.  The  reasons  for  this  are  numerous:  OFDI  flow  to  Mexico  has  been   inhibited  by  political  tensions  among  the  two  nations,  the  scarce  chances  for   Chinese  firms  to  engage  in  the  kind  of  joint  ventures  they  are  mostly  interested  in;   the  fact  that  their  technology  is  somewhat  behind  the  most  modern  required  to   enter  the  US  market;  the  government-­‐to-­‐government  tensions  derived  from  trade   conflicts  between  the  two  countries  and  the  obstacles  posed  by  cultural  and   linguistic  differences  between  them,  among  others.     Table  1:  Mexican  Enterprises  Owned  by  Mainland  China  Firms  and/or   Recipients  of  Capital  Flows  from  China  (1999-­‐2012)   Firm   Acerotech;  S.A.  de  C.V.   Asontech  S.A.  de  C.V.   Carrocerias  y  Remolques  SA   de  CV     Dong  Fang  Apparel;  S.A.  de   C.V. Fortune  Plastic  Metal  de   Mexico;  S.A.  de  C.V.  v   Fortune  Plastic  Metal  de   Mexico;  S.A.  de  C.V.   Foton   Giant  Motors  Latinoamerica   Activity   Steel  Industry   Valve  assembly  plant   Car  metal  bodywork,  lathe   conversions     State   Nuevo  Leon   Baja  California   Emissions     (CO2  eq./USD)   1.66   0.53   Baja  California   0.39   Apparel  assembly   Yucatan   0.53   Recycling  of  different  materials   Chihuahua   n.a. Recycling  of  different  materials   Trucks  and  agriculture  tractors   Assembly   Tamaulipas   n.a. Veracruz   0.39   Hidalgo   0.39   Jalisco   1.66   Baja  California   0.78   Coahuila   0.91   Tamaulipas   1.09   Mexico  City   0.66   Light  trucks   Cylinders  for  engraving,  products   for  printing  enterprises   Gdl  Yuncheng;  S.A.  de  C.V.   Broadwoven  fabric  mills,  cotton   Godak-­‐Mex;  S.  de  R.L.  de  C.V.   (textile  assembly)   Golden  Dragon  Affiliates  S.   de  R.L.  de  C.V.v   Copper  tubes   Cosmetic  Plastics  packaging   materials  and  unlaminated  film  and   HCP  Packaging  USA  Inc  vu   sheets   Herramientas  Cleveland;   Cutting  tools  and  special  tools   S.A.  de  C.V.  vu   v 10  Interview  with  ProMexico  officials  in  China.   13   Hisense   Industria  Megacinta;  S.A.  de   C.V. Jincheng  Ronda;  S.A.  de  C.V.   KBL  de  México,  S.  A.  de  C.  V.   King  Cordmex;  S.A.  de  C.V.   Konka   Lenovo  vu   Long;  S.A.  de  C.V.   Mexico  Curtain  Wall  System   Engineering;  S  de  RL  de  CV   New  Field  de  Mexico;  S.A.  de   C.V. Plastico  Gigante  de  Mexico;   S.A.  de  C.V.  vu   Polygroup  Industrias   Mexico  S.A.  de  C.V.     Preh/Joyson   Ranboy  Sportwear;  S.A.  de   C.V. Reciclamax  Mexico;  S.A.  de   C.V. Rotomex  Yuncheng;  S.A.  de   C.V.v Sinatex;  S.A.  de  C.V.   Sinterama  de  Mexico  S.  A.  de   C. V. Production  of  TVs  among  other   electronic  products   Mexico  City   0.41   Adhesive  tape   Motorcycle  production   Apparel  assembly   Electric  cables   Consumer  Electronics   Personal  computers  and  iPhones   Bicycles  and  motorcycles   Glass  and  Aluminum  walls,  doors   and  windows   Mexico  State   Tlaxcala   Guanajuato   Baja  California   n.a. Nuevo  Leon   Mexico  City   1.09   0.34   0.53   0.41   0.41   0.41   0.34   Baja  California   0.91   Shoe  manufacturing   Plastic  parts  for  industrial  use   (molded  plastic  through  injection)   Parts  for  Christmas  trees  and   plastic  small  swimming  pools   Parts  for  automobiles'  transmission   systems    (it  includes  thermal   processes)   Apparel  (other  exterior  textile   material  clothing)   Guanajuato   0.49   Chihuahua   1.09   Chihuahua   1.09   Nuevo  Leon   0.39   Baja  California   0.53   Recycling  firm   Queretaro   n.a. Cylinders  for  engraving.   Yarn  manufacturing   Mexico  State   Sonora   1.66   0.78   Yarn  made  from  hard  natural  fibers   Tlaxcala   0.78   Consumer  electronics  (TV  sets  and   DVDs)   TCL-­‐Thomson    Chihuahua   0.41   Textiles  de  Guaymas;  S.A.  de   Exterior  apparel  made  from  knitted   C.V. yarn  and  other  products   Sonora   0.53   TK  Minth  Mexico;S.A.  de  C.V.   Molded  plastics  for  automobiles   Aguascalientes   1.09   Glass  and  metal  new  construction   Yuanda  Mexico  S.  A.  de  C.  V.   materials     Baja  California   0.91   ZTE   Smart  Phones   n.a. 0.41   Source:  Secretaría  de  Economía,  Mexico;  GTAP/Boston  University  China-­‐Latin  America  Project   Databases  (GHG  emissions  per  dollar  produced  in  2007);  Semarnat/Profepa  and  own  research.   v  Enterprises  which  made  annual  reports  for  SEMARNAT  (Cédula  de  Operación  Anual,  COA)  on  its   emissions  to  the  atmosphere,  to  the  water  system,  and  on  their  hazardous  wastes  and  their  disposal.   u Enterprises  that  reported  to  the  Pollutant  Release  and  Transfer  Registry  (PRTR) 14   3.                Environmental  Analysis  of  Mexican  Exports  to  China  and  Manufacturing   OFDI  in  Mexico     3.1.   Environmental  Characteristics  of  Mexican  Exports  to  China     This  section  looks  specifically  into  pollution  (GHG)  increases  resulting  from  Mexican   production  for  exports  to  China  and  we  will  compare  them  to  those  linked  to  total   exports  from  Mexico.  It  also  complied  with  the  environmental  impact  assessment   required  by  SEMARNAT.  It  distinguishes  between  emissions  changes  as  a  result  of   the  rise  in  exports  (scale  effect),  as  a  result  of  the  changing  structure  of  exports   during  the  period  under  study  (composition  effect)  and  as  a  result  of  technology   innovations  (technique  effect)  11.  The  methodology  is  described  in  the  technical   appendix.   Table  2  shows  that  total  exports  from  Mexico  to  China  increased  at  a  much  higher   rate  (1,280%)  than  manufacturing  exports  (774%)  between  2000-­‐2002  and  2010-­‐ 2012.  This  resulted  in  a  change  in  the  exports  structure  as  mentioned  before,  in   favor  of  primary  goods,  whose  GHG  emissions  are  higher,  in  general,  than  most   manufacturing  activities.     11   To  calculate  the  technique  effect  we  used  the  sectorial  GTAP  GHG  information  of  emissions  for  each   dollar  produced  for  exports  in  2004  and  multiplied  it  by  the  2000-­‐2002  average  exports  sector  and  did  the   same  for    exports  in  2007,  multiplying  it  by  the  2010-­‐2012  average  exports  by  sector.  We  calculated  what   the  emissions  would  have  been  in  2010-­‐2012  if  the  increase  in  exports  had  generated  the  same  amount  of   GHG  than  in  2004.  Thus  the  technique  effect  is  represented  by  the  difference  between  these  two  values.   15   Table  2:  Scale,  Composition,  and  Technique  Effects  of  Mexico’s  Exports  (2000-­‐ 2002  to  2010-­‐2012)   Exports  to  China   Exports  to  the  World   Total   Mfg.   Total   Mfg.   Exports   Exports   Exports   Exports   Change  in  exports:            In  millions  of  USD   2,957.4   1,560.5   175,297.8   121,318.0            In  percent   1,279.7   773.9   108.5   88.8   Change  in  export-­‐based  GHG  emissions:   In  millions  of  kg  CO2   equivalent   2,286.6   993.8   103,753.9   52,079.2                      Scale  effect   2,384.6   1,843.7   158,982.4   103,897.8                      Composition  Effect   912.3   -­‐496.7   36,759.4   -­‐8,555.0                      Technique  Effect   -­‐1,010.3   -­‐353.2   -­‐91,987.9   -­‐43,263.6            In  percent:   1,227.1   689.8   70.8   54.4   Source:  GTAP  Database  and  COMTRADE   The  increase  in  total  Mexican  exports  to  China  during  this  period  generated  a   1,227%  rise  in  GHG  emissions,  most  of  which  was  caused  by  the  scale  effect.   However,  the  composition  effect  also  increased  total  export  emissions  because  the   change  in  their  structure  favored  more  polluting  sectors.  The  technique  effect  had  a   partially  compensating  effect  on  GHG  emissions,  since  these  were  31%  lower  than   what  they  would  have  been  without  that  effect  (see  Table  2).  The  sectors  for  which   technical  change  contributed  the  most  to  reduce  emissions  (50%  of  the  total)  where   primarily  the  passenger  motor  vehicles  and  secondly  the  telecommunications   equipment  parts  (sectors  781  and  734  of  the  Comtrade  classification).  These  are  the   same  sectors  that  had  the  highest  technical  offsetting  effect  for  total  Mexican   exports  GHG  emissions.     The  technique  effect  had  a  different  behavior  if  exports  to  China  and  those  to  the   world  are  compared.  In  both  cases,  this  effect  pushed  emissions  downward,  but  this   impact  was  less  pronounced  in  exports  to  China.  Technology  improvements  reduced   emissions  in  exports  to  China  by  about  31%  compared  to  what  they  would  have   been  otherwise,  but  for  overall  exports,  they  reduced  emissions  by  47%  -­‐-­‐  nearly   half  of  what  they  would  have  been  otherwise.  This  difference  is  even  more   pronounced  in  manufactured  exports.  Technology  improvements  reduced  emissions   from  exports  to  China  by  26%,  but  among  overall  exports  they  reduced  emissions  by   45%.     16   The  GHG  emissions  growth  produced  by  total  Mexican  exports  to  the  world  (Figure   6),  as  in  the  case  of  exports  from  Mexico  to  China  can  mostly  be  attributed  to  the   scale  effect.  Also,  as  in  the  former  case,  Mexican  manufacturing  exports  emissions  to   the  world  expanded  at  a  considerably  lower  rate  than  those  of  total  exports  to  the   world.   Figure  5:  Decomposition  of  Mexican  Exports  to  China  (Emissions,  million  kg.   CO2  equivalent)   3000   2500   2000   1500   1000   Total  Exports   500   Manuf  Xs  excl  hydrocarb   0   -­‐500   -­‐1000   -­‐1500   Source:  Table  2     Figure  6:  Decomposition  of  Mexican  Exports  to  the  World  (Emissions,  million   kg.  CO2  equivalent)   200000   150000   100000   50000   0   Total  Exports   Manuf  Xs  excl  hydrocarb   -­‐50000   -­‐100000   -­‐150000   Source:  Table  2   17   The  composition  effect  on  GHG  emissions  is  somewhat  different  if  Mexican  exports   to  China  and  those  to  the  world  are  compared.  Such  effect  has  a  relatively  greater   impact  on  Mexican  exports  to  China  than  those  exports  to  the  world,  because  of  a   more  pronounced  reorientation  of  Mexican  exports  to  China  toward  primary  goods.   In  contrast,  within  the  manufacturing  sector  specifically,  the  composition  effect   reduced  emissions  more  among  Mexican  manufacturing  exports  to  China  compared   to  those  from  Mexico  to  the  world,  indicating  that  manufacturing  exports  to  China   shifted  to  cleaner  industries.     3.2.   Environmental  Characteristics  of  Manufacturing  Chinese  OFDI  in   Mexico   Because  it  is  still  quite  limited,  Chinese  OFDI  has  not  been  an  independent  driver  of   environmental  change  in  Mexico,  either  in  primary  goods  or  in  the  manufacturing   industry,  but  it  is  an  important  issue  to  be  studied,  especially  considering  its   growing  flow.   Until  now,  Chinese  investment  in  manufacturing  in  Mexico  has  not  been   concentrated  in  very  polluting  sectors.  From  the  group  of  36  manufacturing   enterprises  with  Chinese  capital  in  Mexico,  only  four  of  them  had  to  report  their   emissions  to  the  Pollutant  Release  and  Transfer  Registry  (PRTR)  (enterprises  from   environmentally  sensitive  sectors  and  large  in  size  have  to  provide  this  information)   and  eight  had  provided  a  COA.   Regarding  GHG  emissions  of  these  firms,  two  thirds  of  them  emit  less  than  1  kg  GHG   (of  CO2  equivalent)  for  each  dollar  produced  (Table  1).  As  a  point  of  comparison,  the   most  polluting  sectors  in  the  manufacturing  industry  are  glass  and  mineral   manufacturing,  with  2.40  kg  GHG  per  USD,  according  to  GTAP.  Among  the  36   companies,  the  ones  that  register  the  highest  GHG  emissions  are  a  steel  producer   and  two  metal  products  companies,  with  1.66  kgs  (CO2  equivalent).  GHG  emissions   are  only  one  aspect  of  pollution,  but  soil  and  water  pollution  caused  by  these   enterprises  may  be  quite  damaging  too  (Schatan  and  Castilleja,  2005).  Thirteen  of   the  Chinese  firms  produce  hazardous  wastes  and  three  of  these  have  been   18   sanctioned  for  not  complying  with  environmental  regulations  regarding  hazardous   wastes  and  soil  pollution  (information  provided  by  Semarnat/Profepa).  On  the   other  hand,  seven  of  the  Chinese  enterprises  generated  a  COA  and  four  provided   PRTR  environmental  emissions  accounts  (see  Table  1).   In  general,  our  findings  indicate  that  the  environmental  behavior  of  Chinese   enterprises  in  Mexico  is  quite  heterogeneous.     Firstly,  as  stated  above,  several  of  the  important  Chinese  enterprises  in  Mexico  are   joint  ventures  or  are  acquisitions  of  third-­‐country  companies,  and  several  of  these   are  from  developed  countries.  Hence,  it  is  difficult  to  ascribe  their  environmental   behavior  to  a  pre-­‐determined  Chinese  standard.  In  fact,  in  such  cases,  Chinese  firms   will  be  following  technical  and  environmental  procedures  mostly  inherited  from   their  European,  Japanese  or  US  partners.  Furthermore,  one  of  the  purposes  of  these   joint  ventures  is  for  Chinese  firms  to  be  able  to  master  new  technologies,  which  are   usually  cleaner  than  obsolete  ones.   Second,  for  those  firms  that  have  been  fully  owned  by  Chinese  capital  from  the   beginning,  though  the  information  is  limited,  there  is  evidence  that  some  of  them   comply  with  local  environmental  norms  (see  Golden  Dragon  Affiliates,  GDA,  case   study).  For  example,  they  may  be  contributing  with  environmentally   groundbreaking  products  (as  is  GDA)12;  or  may  have  numerous  quality  and   environmental  certifications  (as  does  CP  Packaging  USA  Inc,  a  cosmetic  plastics,   packaging  materials,  unlaminated  film  and  sheet  producer,  which  has  ISO  9001  and   ISO  14001  certifications).   Third,  there  are  three  recycling  enterprises  among  the  36  under  study,  which  have   an  environmental  value  for  Mexico,  since  these  sorts  of  firms  are  still  scarce  in  the   country.  The  potential  is  much  greater  for  both  PET  and  scrap  metal  recycling  (of   which  Mexico  is  also  an  important  exporter  to  China).   12  Golden  Dragon  Won  the  "Anti-­‐dumping  War"  in  the  U.S.  State  Intellectual  Property  Office  of  the  PRC   (SIPO),  http://english.sipo.gov.cn/news/iprspecial/201309/t20130909_817185.html   19   On  the  less  encouraging  side  of  this  heterogeneity,  the  Chinese  and  Mexican  legal   and  regulatory  frameworks  for  environmental  protection  are  still  insufficient  for   OFDI  to  have  an  improved  and  more  uniform  environmental  performance.  China   does  not  have  a  specific  legal  framework  for  corporate  social  responsibility  (CSR)  of   its  OFDI  abroad,  although  there  is  an  increasing  awareness  that  environmental  and   social  transgressions  can  contribute  to  the  failure  of  Chinese  OFDI  projects  (WRI,   2013).  Still,  OFDI  can  mostly  choose  to  comply  or  not  with  the  mostly  voluntary   guidelines  provided  by  governmental  institutions.     The  greatest  oversight  over  the  environmental  and  social  performance  of  Chinese   OFDI  seems  to  come  from  several  Chinese  institutions  that  intervene  when   financing  or  approving  Chinese  OFDI  projects.  This  is  the  case  of  the  China  ExIm   Bank,  which  has  the  “Guidelines  for  Environmental  and  Social  Impact  Assessments  of   the  China  Export  and  Import  Bank’s  Loan  Projects”,  which,  among  other  things,   requires  investors  to  perform  environmental  impact  assessments  (EIAs)  on  their   projects.  Also,  the  China  Banking  Regulatory  Commission  (CBRC)  issued  the  “Green   Credit  Guidelines”  in  2012,  which  gives  guidance  on  environmental  and  social  risk   management  for  lending  both  at  home  and  abroad  (WRI,  2013).  More  recently,   MOFCOM  has  produced  the  Guidelines  for  Environmental  Protection  in  Foreign   Investment  and  Cooperation,  which  help  Chinese  investors  understand  and  observe   environmental  protection  policies  and  regulations  of  the  host  country  (MOFCOM,   2013)   When  looking  at  the  concrete  CSR  of  Chinese  OFDI  abroad  there  are  signs  of  very   uneven  company  policies.  The  CCPIT  (2013)  report  on  a  wide  survey  of  Chinese   firms  with  investments  abroad  found  that  SOEs  are  stronger  and  more   institutionalized  regarding  CSR  than  private  firms.  A  general  result  of  the  survey   indicates  a  much  higher  level  of  CSR  in  OFDI  operating  in  the  European  Union  and  in   the  US  than  those  in  developing  nations.  Therefore,  CSR  of  Chinese  enterprises   abroad  seems  to  respond  to  host  countries’  laws  and  regulations  instead  of  having   its  own  improved  targets  in  this  area,  regardless  of  where  they  operate  (CCPIT,   2013).   On  the  Mexican  side,  the  country  has  developed  and  progressively  improved  its  legal   and  regulatory  framework  for  the  protection  of  its  environment,  which  makes  it   20   increasingly  difficult  for  domestic  and  foreign  investors  to  undertake  activities  that   overtly  violate  the  law.   The  institutional  setting  for  designing  and  enforcing  the  environmental  policy  is  the   Secretaría  del  Medio  Ambiente  y  Recursos  Naturales  (SEMARNAT)  and   Procuraduría  Federal  de  Protección  al  Ambiente  (PROFEPA,  linked  to  SEMARNAT).   According  to  the  information  provided  by  PROFEPA,  in  June  2013  it  had  69,124   sources  of  pollution  under  its  surveillance.  There  also  are  several  Mexican  Official   Norms  and  other  rules  that  have  been  enacted  during  the  last  20  years,  meant  to   curb  pollution  of  manufacturing  sectors.  The  fact  that  Mexico  has  joined  important   international  and  regional  agreements  has  also  improved  its  environmental   standards.  By  becoming  a  part  of  NAFTA,  which  includes  an  Environmental  Side   Agreement  (ESA)  with  tools  that  offer  cooperation  among  the  three  countries  and  a   dispute  settlement  agreement,  Mexico  has  received  support  both  to  improve  its   environmental  standards  and  to  enforce  them,  as  well  as  to  advance  its  capacity  in   many  aspects  of  environmental  protection.     Other  initiatives  by  the  Commission  for  Environmental  Cooperation  of  NAFTA  (CEC)   include  the  Sound  Management  of  Chemicals  (SMOC),  which  aims  at  phasing  out  the   use  of  specific  substances  through  the  North  American  Regional  Action  Plans   (NARAPs).  Two  of  these  are  meant  to  eliminate  or  reduce  considerably  the  use  of   mercury  and  another  will  also  try  to  do  so  with  lead  (CEC).  All  these  measures   impose  limits  on  certain  pollutant  emissions  for  all  producers,  including  Chinese   ones,  and  have  a  positive  environmental  influence  on  the  production  process  of   some  activities.   Therefore,  Chinese  OFDI  coming  to  Mexico  have  had  to  comply  with  the  rules,   standards  and  international  environmental  agreements  signed  by  Mexico,  especially   if  the  final  destination  of  its  goods  is  the  US,  and  even  if  these  products  are  to  stay  in   the  domestic  market.  However,  Mexico  still  faces  many  corruption  problems  and   capacity  limitations  that  are  an  obstacle  in  the  surveillance  of  environmental   behavior  by  economic  actors.  Hence,  with  weak  Chinese  environment  policies  for   their  companies  abroad,  and  still  somewhat  weak  enforcement  in  Mexico,  there  is   much  to  be  done  to  ensure  an  efficient  policy  for  Chinese  and  all  FDI  coming  into   Mexico.   21   4.  Employment  Effects  of  Trade  between  Mexico  and  China   4.1.   Employment  Effects  of  Trade  between  Mexico  and  China.   The  accelerated  growth  of  Chinese  exports  to  Mexico,  described  above,  has  probably   had  a  negative  impact  on  overall  employment  in  Mexico,  especially  in  the  first  half  of   the  2000s.  However,  at  an  aggregate  level  there  are  no  precise  estimates  on  job   losses  from  this  cause,  nor  an  econometric  model  that  demonstrates  a  clear  link   between  the  import  growth  from  China  and  employment  in  Mexico  (Dussel  Peters,   2009).  However,  at  a  disaggregated  level  there  is  much  more  evidence  that  this  has   happened,  especially  in  the  textiles  and  apparel  industry  (and  to  a  lesser  extent,  this   has  also  occurred  in  the  steel  and  machinery  industries,  among  others).  Hence,  we   will  concentrate  in  the  textile-­‐apparel  sector  to  illustrate  the  employment  effects  of   Chinese  competition  on  Mexico.  Such  phenomena,  as  is  well  known,  comes  in  two   forms  at  least:  the  direct  competition  of  Chinese  imports  in  the  Mexican  markets,   and  the  one  posed  by  China  to  Mexico  in  the  US  market.   The  textiles  and  apparel  industry  has  lost  prominence  in  total  manufacturing   industry  employment  in  Mexico,  from  roughly  18%  in  2000  to  15%  in  2003  and   11%  in  2012.  During  this  period,  within  the  aggregate  sector  of  textile  inputs,   textiles  and  apparel,  the  greatest  number  of  jobs  were  lost  in  textile  inputs  and   apparel.  It  must  be  noted  that  apparel  had  its  greatest  jobs  loss  after  2004  (with  the   elimination  of  the  MIA),  but  employment  was  still  falling  in  all  textile  and  apparel   subsectors  between  2007  and  2012  (INEGI,  2000,  2009,  and  2013).     The  surge  penetration  of  Chinese  textiles,  and  especially  apparel,  into  the  Mexican   markets  occurred  through  legal,  but  mostly  illegal  channels  since  the  international   opening  up  to  China.  It  was  estimated  that  in  2007,  65%  of  domestic  consumption  of   textiles  and  apparel  in  Mexico  was  satisfied  by  illegal  imports,  especially  from  China   (Dussel  Peters,  2007b;  interview  with  CANAINTEX,  2013).  In  fact,  the  surge  in   imports  from  China  occurred  notwithstanding  the  agreement  Mexico  and  China   signed  when  the  latter  country  joined  the  WTO  and  which  granted  Mexico  a  6-­‐year   transition  period  for  phasing  out  its  compensatory  tariffs  on  Chinese  products  and  a   22   further  three  year  trade  remedy  agreement.13  Hence,  the  avalanche  of  these   products  was  the  result  to  a  great  extent  of  the  irregular  imports  based  on  false   declarations  of  goods  descriptions  and  origins  to  avoid  duties,  as  well  as  entry  of   Chinese  exports  to  Mexico  with  US  labels,  and  other  forms  of  disguising   mechanisms.14  These  Chinese  imports  have  hit  the  whole  yarn-­‐textile-­‐apparel  value   chain  in  Mexico,  so  this  industry  has  not  only  been  reduced  in  size  but  also  has   become  more  shallow,  with  fewer  economic  interrelationships,  and  hence  engaging   less  employment  at  all  stages  of  production  (Dussel  Peters  and  Gallagher,  2013).     Direct  competition  of  Chinese  textile  and  apparel  goods  in  the  Mexican  market  is   only  part  of  the  problem  faced  by  this  industry,  since  the  challenge  they  have  had  in   the  US  market,  where  there  has  been  a  fierce  competition  from  the  first  country,  has   been  also  important.     The  signing  of  NAFTA  (1993)  allowed  Mexico  to  be  very  successful  in  some  goods   exports  to  the  US,  among  which  textile  and  apparel  (including  footwear)  was  a   prominent  sector,  contributing  to  this  sector’s  employment  expansion  from  497,454   to  703,102  between  1994  and  1999.  But  over  the  following  years  the  industry  lost   about  260,000  jobs,  mostly  in  the  apparel  industry  (INEGI,  2000;  2009;  and  2013).   There  is  little  doubt  that  there  is  a  role  of  Chinese  competition  in  these  job  losses,   but  to  what  extent  this  is  so  is  a  matter  of  debate.   According  to  Dussel  Peters  and  Gallagher  (2013)  between  2000  and  2009  52%  of   Mexican  manufacturing  exports  to  the  US  were  under  direct  Chinese  threat  (i.e.,   China’s  market  share  in  the  US  export  market  was  expanding  while  Mexico’s   country’s  share  was  shrinking).  They  found  53  sectors  in  which  both  Mexico  was   threatened  in  the  US  and  the  US  was  under  threat  in  Mexico,  17  of  them  were  in   yarn,  textile  and  apparel  (including  leather  products).  Although  the  authors  do  not   13  Over  these  three  years,  anti-­‐dumping  duties  on  China  would  be  partly  replaced  by  transitional  duties,   and  finally  these  would  be  eliminated  by  December  2011.   14  A.  Vazquez,  H.  López-­‐Portillo,  V.  Vázquez-­‐Bravo;  How  far  is  Mexico  willing  to  go  to  protect  itself  from   China?,  International  Law  Office,   http://www.internationallawoffice.com/newsletters/detail.aspx?g=ccc3e33e-­‐221a-­‐44dd-­‐abba-­‐ 00290b32c6ca   23   analyze  employment,  we  can  infer  that  there  were  negative  effects  on  this  variable.   There  are  few  studies  that  estimate  the  impact  of  Mexican  exports  displacement  by   Chinese  exports  to  the  US  on  employment  in  the  first  country.  Ayala  and  Villarreal   (2009)  find  that  such  displacement  occurred  mostly  in  four  Harmonized  System   sectors  (three  in  textiles  and  apparel  and  one  in  non  electrical  machinery  and   equipment).  According  to  their  study,  the  period  in  which  the  contraction  of   employment  was  the  greatest  (-­‐6.5%  a  year),  Chinese  displacement  of  Mexican   exports  to  the  US  market  explains  one  third  of  such  loss,  while  the  rest  is  the  result   of  other  factors,  mainly  of  technical  change.   The  apparel  sector  is  not  only  the  sector  hardest  hit  by  job  losses,  but  also  among   the  sectors  with  the  weakest  collective  bargaining,  lowest  trade  union  affiliation  of   workers,  and  greatest  informal  working  arrangements.  So  it  is  unsurprising  that   labor  conditions  in  this  sector  also  had  a  setback.  This  sector  has  traditionally  had   lower  salaries,  on  average,  than  most  other  manufacturing  sectors,  as  well  as  more   vulnerable  labor  conditions.  Between  1995  and  2000,  when  there  was  a  great   expansion  of  exports  to  the  US  because  of  NAFTA  and  the  peso  devaluation,   conditions  improved  somewhat  (including  a  greater  number  of  written  contracts   and  more  benefits  offered  to  workers).  But  after  2001  conditions  have  worsened  for   most  enterprises  –  predominantly  medium  and  small  size  -­‐  contracts  became   shorter  and  included  very  few  or  no  worker  benefits  (Guadarrama  Olivera,  et  al,   2012).   Lastly,  modern  technology  has  borne  an  increasing  responsibility  for  job  losses  and   limited  job  creation  in  the  textile-­‐apparel  sector  and  therefore  has  also  been   responsible  for  the  deteriorating  working  conditions,  especially  in  the  apparel   segment.  In  fact,  technological  innovation  has  widely  been  introduced  in  these   sectors  in  China,  Mexico  and  internationally,  partly  as  a  result  of  intensifying   competition  since  the  early  2000s  (Duran  and  Pellandra,  2013;  Watkins,  2013,   INEGI,  2013).   24