LEON, MEXICO (By Marla Dickerson, Los Angeles Times) February 5, 2008 — Shoes are to this industrial city what cars are to Detroit. And like the Motor City, Mexico's footwear capital is feeling the heat of foreign competition.

The threat might not be apparent from the billboards hawking Mexican-made sneakers, boots and dress shoes that line the highway leading into town. Or from the malls devoted entirely to shoe stores. A statue of a cobbler graces a major thoroughfare. A footwear museum is under construction. More than 70,000 people in Leon and the surrounding state of Guanajuato labor for one of the region's shoe manufacturers or suppliers.

"Practically my whole neighborhood" works in the industry, said Lorena Hernandez Alcala, who sells cowboy boots in the Galeria del Zapato, or Gallery of Shoes, which boasts more than 50 footwear retailers. "We'd be in trouble" if anything happened to the sector.

So it's hardly surprising that thousands took to the streets of Leon in December to demand protection from what many here view as a lethal threat: China.

Low-priced Chinese imports have supplanted domestic shoe producers in many nations around the globe. The United States, for example, has all but abandoned shoemaking. About 98% of the footwear sold in the U.S. is imported. Most of it comes from China, whose low wages and nearly inexhaustible supply of factory hands have turned it into the world's largest shoe manufacturer.

Mexican producers say they have survived thanks in part to compensatory tariffs of as much as 1,105% on Chinese shoes. Domestic firms still manufacture the majority of shoes sold in Mexico. They produced nearly 174 million pairs in 2006, about 70% of them in Guanajuato, according to the state's Footwear Industry Council. China supplied just 5% of the 46 million pairs of shoes imported by Mexico that year.

But many here worry that's about to change. As part of a deal worked out when China entered the World Trade Organization in 2001, Mexico was allowed to maintain lofty compensatory tariffs on shoes and some other products for a six-year period that ended in December.

The transition period was supposed to give Mexican manufacturers time to prepare for unfettered competition with China.

Now Mexico's shoe industry is pressing the government to extend that protection for an additional five years. Businesses say that they have ample evidence of dumping and other unfair Chinese trade practices such as illegal government subsidies that they say make it impossible for them to compete.

"This is about preserving jobs," said Jose Antonio Abugaber Andonie, president of the Footwear Industry Council.

Mexico's government has agreed to keep the tariffs in place while it reviews the dumping claims. It has also begun talks with Chinese trade officials to see if a compromise can be negotiated within WTO rules.

Meanwhile, Mexican trade officials are feeling the heat from importers such as Nike, Adidas and Wal-Mart to stop sheltering domestic firms. Critics say the levies have coddled inefficient producers while raising shoe prices for 109 million Mexican consumers.

The flap underscores Mexico's prickly trading relationship with China, whose fast rise is viewed by many here as a threat rather than an opportunity.

Latin American nations including Venezuela, Brazil and Chile have reaped billions from selling commodities to feed China's booming economy. In contrast, Mexico's biggest export to the Asian giant has been jobs in basic industries in which it cannot match China's lower costs and higher efficiency.

China has supplanted Mexico as the United States' second-largest trading partner behind Canada. Mexico sells virtually nothing to China, while Chinese imports here have exploded. Mexico's trade deficit with China was nearly $23 billion in 2006.

Some people in this predominantly Roman Catholic country have appealed for divine intervention. According to a local press account, a protester at the December march in Leon carried a sign that read: "Virgin [Mary], protect us from the Chinese."

Shoemaking has a 400-year history in Leon. The sector grew up around the region's cattle ranches, which supplied abundant leather for the craft. Production exploded during World War II to supply boots and shoes to the United States.

But the Mexican industry has lost much of its export market to China. In 2006, Mexico exported 10.1 million pairs of shoes, down 40% from 2000.

Leon manufacturer Javier Plascencia recalled with pride how he pared costs to the bone to win a contract from a major American label, only to lose it to lower-cost Chinese competition. About 8% of the 1 million pairs of children's shoes his firm produced last year were exported, down from about 30% a decade ago.

Plascencia said he supported the Mexican industry's calls for China to eliminate any unfair subsidies and other alleged illegal practices that gave it an advantage over competitors. Still, he says sky-high compensatory tariffs on shoes have only encouraged smuggling of Chinese footwear into Mexico; by some estimates, 20 million pairs a year are brought into the country illegally.

"We have to have a plan of attack and not just play defense," said Plascencia, owner of Calzado Elefante.

He said Mexican producers needed to focus on niches and strengths, such as their proximity to the U.S. market, which allows them to quickly fill and deliver reorders of popular styles.

Plascencia also is helping to push an industry effort to establish a distinct international identity for Mexican shoes, much like Brazil and Italy have done. He said Mexico's government could help by cutting taxes and red tape and lowering utility rates.

Raul Gallardo, general director of Leon-based shoemaker Industrial Zapatera JR, said his company was investing heavily in new technology and opening Mexican retail outlets for its Brantano brand of men's and women's footwear.

Gallardo got his start in the business at age 18 with a friend and four employees. A quarter-century later, his firm has 1,000 employees and produces more than 2 million pairs of shoes a year.

A nattily dressed man who wears $500 Italian dress shoes, Gallardo said profit margins at his company were a lot tighter than they used to be, and added that it was almost inevitable that more Chinese shoes would enter Mexico.

He said he would consider importing some low-end styles from China to keep his workers focused on producing higher quality products.

"At some point I'll do some importing," he said. "It's tough to talk like this. But that's the reality."