New Internationalist

The Rag Trade Goes South

Issue 246

new internationalist
issue 246 - August 1993

The rag trade goes South
Asian companies are flocking to Central America,
lured by bargain-basement labour costs and close proximity to
the huge US consumer market. Sarah Cox asks whether this new
investment is really a panacea for the region’s ills.

Along the arid highway that connects San Pedro Sula to the Atlantic Ocean port of Cortes, the bustle of bulldozers and work-crews is a sign of changing times. Up and down the dusty road, the skeletons of long, windowless factories are starting to take shape behind barbed wire fences and concrete walls. Soon these maquiladoras will form one of the ten new free trade zones in Honduras.

Near the city centre, at the Federation of National Workers of Honduras, union activist Maria Esperanza Rey is talking to three young women from the Korean-owned company Wonchang Industriales, one of the dozens of new foreign-owned factories scattered around the town. Tearful at times, they recount how the 600 maquila employees – mainly young women between the ages of 14 and 20 – are routinely shouted and sworn at, hit, and sometimes sexually harassed by Korean managers.

The women at Wonchang Industriales make about three dollars a day. Seated at rows of sewing machines, each woman stitches the same part of a piece of clothing over and over again. She then passes the finished button-holes or shirt-cuffs to her neighbour, who will sew another tiny part and pass the cloth down the long assembly-line. Employees are not permitted to talk to each other. There is little ventilation in the building and the tropical heat is made even hotter by steaming industrial irons used to press clothing.

‘The work starts at 7:30 am with the first half-hour break at noon,’ Maria explains. ‘The day ends at 6 pm if they don’t have to work overtime. Sometimes they are kept until very late at night, with no breaks. They have to work overtime with no extra pay.’

Maria and her union colleague, Mario Cesar Martinez, have heard many similar stories from women who work around San Pedro Sula. But they admit there is little they can do to help. ‘Someone in the government told the investors not to worry, they won’t let unions form,’ says Mario. ‘We tried to organize in some maquilas, but they fired almost everyone.’

Cheap labour is one of the main reasons for the wave of foreign investment in Central America over the past three years. But there are other incentives.

As part of economic adjustment measures adopted in the 1980s Honduras and the rest of Central America began to offer incredible rewards for companies involved in production for export. The idea, pushed by creditors and aid donors, is that new investment will spur both exports and growth, with new wealth eventually trickling down to the poorest.

Investors setting up shop in free-trade zones were exempted from income taxes and guaranteed that all profits could be taken back to their own countries. Investors were also offered cheap rent on government-built factories while import duties on equipment such as sewing machines, cloth and thread were dropped.

In Guatemala money from the US Agency for International Development (USAID) allowed the government to set up a ‘one-stop’ service for investors aimed at slashing bureaucratic red tape and speeding up investment approvals.

In El Salvador, where foreign investment has jumped since the end of the civil war, the big drawing card of late is a fast-sinking wage rate. In August 1990, an advertisement published in the US trade journal Bobbin featured a young Salvadoran woman bent over a sewing machine. The advertisement, sponsored by the US-funded Salvadoran Foundation for Economic and Social Development (FUSADES), was captioned: ‘Rosa Martinez produces apparel for US markets ...You can hire her for 57 cents an hour’. A year later the journal ran the same advertisement – instead of 57 cents an hour, Rosa could now be hired for 33 cents an hour.

In addition to the government’s undeclared ban on union activity, Honduras offers another enticement especially attractive to Asian investors. Since 1991, an investment of $25,000 or more automatically gets you Honduran citizenship. Similar deals are offered in several other Central American countries. In Costa Rica citizenship costs $200,000 – eight times the Honduran price.

The Honduran Foundation for Investment and Export Development (FIDE) estimates that 3,000 Asians became Honduran citizens between 1991 and 1993, mostly Hong Kong investors nervous about the change to Chinese rule in 1997. One enterprising Hong Kong company is constructing a 104-acre industrial park between San Pedro Sula and the capital of Tegucigalpa.

The park, which will have room for 70 maquiladoras, is designated for Hong Kong companies only.

Asian manufacturers in the region usually have contracts or licensing agreements with big American companies to produce clothing for the US market. There is some direct American investment in Central America by corporations like Phillips-Van Heusen, but in general the number of new US-owned factories seems to be dwindling. In Guatemala the maquila industry is overwhelmingly dominated by South Korean capital; in Honduras the amount of new American and Asian investment is about equal, with the scales beginning to tip slightly in favour of Taiwanese and South Korean companies.

Firms from South Korea and Taiwan first began to eye Central America in the mid-1980s when textile workers in their own countries started to agitate for better working conditions and higher wages. At about the same time the US imposed import quotas on South Korean textiles. Quotas had already been imposed on imports from Taiwan.

The move to increase restrictive quotas on South Korean imports coincided with Washington’s effort to derail support for revolutionary movements south of the border through its Caribbean Basin Initiative (CBI). The CBI allowed factories operating in Central America and the Caribbean virtual duty-free access to the US market.

Unlike Mexico’s maquilas, which produce everything from car parts to chewing gum, Central America’s new assembly factories produce only clothes. Bearing labels like The Gap, Levi’s and Liz Clairborne, clothes are shipped to the US to be sold in stores ranging from discount clothing outlets to designer boutiques.

Part of the hope is that the maquilas will create enough jobs to stem the tide of refugees and immigrants across the Rio Grande. Donald Knight from the US Embassy in Guatemala says bluntly: ‘We feel that if there are more jobs here, Guatemalans will be less likely to come to the United States and cause problems there. The maquilas are a quick way to create jobs. And Asians have the resources now; we don’t.’

José Salazar of FEDEPRICAP, a business umbrella-group in Central America and Panama, estimates the region’s free-trade zones have created 300,000 jobs so far, with more being created every month.

For Salazar the maquilas are symbolic of progress and development. ‘We can’t employ everyone in coffee and bananas,’ he says.

Salazar is right that bananas and coffee are not a panacea for Central America’s deeply-rooted problems. In fact, these industries have widened the gap between rich and poor in the area.

But neither is the maquila industry going to guide Central America down the elusive path to development. Like coffee and bananas, maquila production is geared to exports and controlled from abroad. And production is not based on the needs of Central Americans, but on the fashion whims and demands of North American consumers.

The whopping tax breaks guaranteed to maquila owners mean that virtually the only contribution the industry makes is the temporary creation of dead-end jobs. Maquilas don’t help to pay off foreign debts, nor do they help to increase government revenue so that vital programmes such as health-care and education can be expanded. And as long as factories pay workers two to three dollars a day, the hugely unequal distribution of wealth in Central America will remain.

More poignantly still, jobs will vanish the moment companies find they can reap higher profits over the next border. Says Honduran union organizer Marco Julio Alvarado: ‘If it doesn’t suit them to be here tomorrow, they will just go to another place’.

Sarah Cox recently returned from Central America where she was researching Asian investment in Central America for the Canadian aid agency CUSO.

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