As you read this article, there is a good chance that you or someone close to you is wearing clothing imported from Latin America. A quick check of the label may reveal that it is a shirt from the Gap made in Honduras, a pair of Lee Ryder jeans made in Brazil, Bali underpants made in Guatemala, a Levi's golf shirt made in the Dominican Republic, or a Haggar sports jacket made in Colombia. Garments produced in Latin America and imported into the United States represent a growing segment of the U.S. clothing market. As industry analysts, business people and, increasingly, workers, realize, such a devel- opment is by no means accidental. It is the product of a search for higher profits by U.S. apparel companies, by some of their competitors like Korean-owned contrac- tors, and, above all, by large clothing buyers such as Wal-Mart and Macy's at the expense of low-wage labor in Latin America. It is also the product of trade policies and political decisions adopted by the U.S. and Latin American governments. Clothing is big business. In the United States, whole- sale apparel sales were $78.4 billion while retail sales were $211 billion in 1994.1 There are about 30,000 clothing manufacturers in the United States, which employ over 800,000 production workers in this coun- try (down 30% from the mid-1970s). They directly or Hector Figueroa is assistant research director at the Service Employees International Union. He is a former research associate at the Amalgamated Clothing and Textile Workers Union. 400,000 people AtcAinoi r an -- ldA today in the United States than at any other time in the nation's history. The U.S. clothing market, one of the most attractive in the world, has become the final destination for an increasing amount of apparel assembled overseas, much of it in Latin America. Imported clothing represented 66% of total sales in the U.S. clothing market in 1992 compared to only 28% in 1973. Likewise, textile imports have grown from 5.8% of the U.S. market in 1973 to 21.7% in 1992.2 The share for garments import- ed from Latin America under special duty-free tariff programs has increased from 3.9% of the U.S. clothing market in 1970 to 16.7% in 1993.3 The industry throughout the Americas is undergoing significant changes, which have produced clear winners and losers. Increased market integration-in the wake of neoliberal economic restructuring and "free-trade" accords-means that a particular country's role in the industry is determined to a large extent by the size of its domestic market, its level of industrialization, and its access to modem technology. Large modem textile mills are prospering, as they continue to invest in new, capital-intensive technolo- gies. Meanwhile, smaller, older mills, unable to with- stand the competition from cheap fabric imports, are being wiped out across the hemisphere. Likewise, while garment-assembly enclaves in the Caribbean Basin and Central America are booming, older apparel NACIA REPORT ON THE AMERICAS 34REPORT ON TRANSNATIONAL INVESTMENT industries that served the domestic market are dying off throughout Latin America. The clothing industry is marked by fero- cious competition between big retailers, and among apparel manufacturers vying for these retailers' business. In this cut-throat business, companies are anxious to find ways to cut costs. In the process, workers throughout the Americas are placed in com- petition with one another, deprived of their labor rights, and forced to accept the disci- pline of low wages and the market. The textile-apparel industry can be pic chain in which difi ments of production and d are integrated to form a f product-an article of Advances in transportation In this cut-throat business, workers throughout the Americas are placed in competition with one another, and deprived of their labor rights. municatons technology as wenl as organizational changes in corporate management have dispersed the production of clothing across an unprece- dented number of developing and Northern industrial- ized countries. 4 Competition favors producers and distributors that can operate in a consistent way at lower costs, particu- larly those who can sell at prices that are substantially above costs (due to technical and commercial advan- tages). Proximity to large markets saves transportation costs and reduces turn-around time. Long-term contrac- tual relationships with large buyers and product design- ers offer another competitive advantage. Because clothing manufacturing remains a labor- intensive process, the cost of labor is an important con- sideration. Large retail buyers have been able to take advantage of the availability of a global pool of work- ers whose wage rates differ for historical, institutional and economic reasons-and, in some cases, because of the outright repression of labor rights. Companies bring these workers into competition with one another by relocating production from high-wage areas to low- wage ones, by contracting out-the industry term is "outsourcing"-aspects of production to companies already operating in low-wage areas, or by forcing the movement of low-wage workers to high-wage areas in conditions where they cannot demand higher pay. The fashion chain has three major segments: textile production, clothing production, and retail sales. Textile production is the most capital-intensive seg- ment, the most concentrated (at the level of produc- tion), and the least internationalized (as far as direct ownership or control). This portion of the fashion industry in the Americas is located primarily in larger, more industrial- ized countries such as the United States, Mexico, Brazil, Chile, Argentina, Colombia and Vene- zuela. The United States, however, clearly dominates textile produc- tion in the continent. The region is dotted with embat- tled, small-scale textile industries that produce natural fibers for inter- nal as well as external consumption. Cotton accounts for about one-third of natural-fiber production. The United States is the second-largest producer-after China-and a tjor exporter. Nonetheless, the relatively abundant sup- of cotton in the hemisphere, the lower level of capi- required to produce cotton fabrics, and formerly pro- ted domestic markets sustained small cotton-produc- n industries in countries such as El Salvador, Paraguay I Ecuador. Wool is another important natural fiber in me region, particularly in Southern Cone countries like Argentina, Chile and Uruguay. In addition to natural fibers, textile manufacturers in the United States, Mexico and Brazil produce man-made or synthetic fibers such as polyester and nylon. These fibers are generally produced in large, sophisticated chemical facilities by large transnational or domestic companies with state-of-the-art equipment. Synthetic fibers are used not only in apparel, but also in household and industrial goods. In the end, this industrial capacity to produce both natural and man-made fibers divides countries into those with the potential for a diversified textile industry and those likely to see their domestic industry radically transformed, if not disappear. Clothing production, the middle segment of the fash- ion chain, is the most fragmented, least technologically sophisticated, and most geographically dispersed. In an effort to drive down costs, clothing manufacturers- primarily from the United States but also East Asian and some Latin American ones-have increasingly opted to work with subcontractors in low-wage areas. The decision whether to use subcontractors in the United States, overseas, or in both places depends largely on the type of garment and the type of company behind the brand name. There are two general cate- gories of clothes: mass-produced (staple) garments and fashion garments. Mass-produced garments-such as underwear, men's and boys' clothing, and sportswear- are subject to less variation in demand and style. The companies which produce these garments are closely integrated with the manufacturing of fabrics; in some instances, they even own their own textile-mill plants. Because they are generally large and technologically Vol XXIX, No 4 JAN/FEB 199635 Vol XXIX, No 4 JAN/FEB 1996 35REPORT ON TRANSNATIONAL INVESTMENT sophisticated, these companies can establish more favorable, long-term contracting relationships with big retail buyers. They also tend to own their own facilities overseas, and use contractors largely to respond to sud- den growth in demand. Fashion and seasonal garments, by contrast, have a very short life cycle (from a few months to a couple of weeks, to even days in the case of event-related sports- wear). These garments are manufactured by thousands of small companies, mostly contractors and smaller retail chains who rely on low-wage labor. A number of companies have set up operations in Florida and other low-wage states in the U.S. South. Geographic proxim- ity to Latin America makes it relatively easy for these firms to send cut fabric to maquiladoras and receive finished garments within a few days. If resources are scarce or proximity to the final retail market is vital, U.S. cities with large immigrant popu- lations such as New York and Los Angeles offer anoth- er source of low-wage labor. Indeed, sweatshops are simply companies under contract with larger manufac- turers that try to produce a dress or other garment for as little as $3 a piece, using child, undocumented, and sometimes slave immigrant labor. More than 50% of U.S. garment contractors pay less than the minimum wage, fail to pay overtime premiums, or violate labor laws in some other way. 5 These sweatshops represent a reemergence of organizational forms and working con- ditions reminiscent of Victorian capitalism. In the clothing-production segment of the fashion chain, it is useful to distinguish between national brands and small brands. National-increasingly inter- national--brands are heavily concentrated. In the United States, 30% of all wholesale clothing sales is produced by just 20 companies with household names like Fruit of the Loom, Liz Claiborne, Phillips Van Heusen and Oshkosh B'Gosh, Inc. Most of these com- panies manufacture or contract out the manufacturing of more than one brand-name product. Small brands account for the other 70% of all wholesale apparel sales in the United States. About 23,000 establishments pro- duce these small brands. This universe of apparel companies is characterized by manufacturers, jobbers and contractors. Manufacturers carry out the whole process from design to finishing to marketing. They contract out work when demand sud- denly peaks. Jobbers design garments, acquire fabric, and arrange for the sale of finished clothes, but they carry out production by cutting fabric and hiring contractors to assemble the clothes. Contractors are companies that receive already cut garment in bundles from the jobbers and process it into finished clothes. The contracting sub- segment of the apparel chain allows companies in the fashion industry to expand production to meet increased demand, avoid large capital outlays, and prevent workers sitting idle when demand drops off. Sub-contracting is also done more and more by large retailers like the Gap that sell their "own" brands. f we think of the fashion chain more as a train than a chain, the engine would be located at the retail end. The importance of marketing and of being able to respond rapidly to changing fashion trends gives apparel buyers enormous power over producers. Retailers have grown in importance as well as in con- centration. For example, four department-store chains- Sears Roebuck, J.C. Penney, Federated Department Stores (including Macy's), and May Department Stores-account for about 77% of department-store sales by the top-ten apparel companies. 6 These depart- ment stores and, more recently, fast-growing discount mass-merchandise retailers like Wal-Mart and Kmart constitute the most important single determinant of con- tinent-wide production patterns. Over the past decade, retail markets have been charac- terized by significant price slashing. Average retail cloth- ing prices in the United States are growing at rates that are less than inflation, and are sometimes even falling. As a consequence, average profit margins for apparel manufac- turers are around 2% below manufacturing as a whole. 7 These price reductions have been prompted by the slow growth of apparel demand associated with declin- ing average wages and household incomes in the United States and increasing income inequality. U.S. consumers are buying less clothes ($11 billion less annually) today than in the early 1980s. 8 They are also buying clothing from different retail outlets, depending on their income group. For example, workers with falling wages are shopping at stores like Wal-Mart, while upper-income groups buy from specialized out- lets like Anne Taylor and Banana Republic. The declin- ing U.S. middle class in this country is reflected in department stores' shrinking market share of the retail business. Prices are also being kept down because of brutal competition from the mass-merchandise discounters. Stores like Wal-Mart have managed to lower their oper- ating costs substantially more than competitors throu organizational innovations such as low-cost invento control methods, and through "outsourcing" garme to contractors who pay less than subsistence wages. a result, these retailers have been able to offer c( sumers relatively less expensive clothing, whi nonetheless includes a substantial markup. Retailers are caught in a Darwinian battle for s' vival. More than half of all clothing stores in the Unit States today are expected to go out of business by t year 2,000.9 Mergers and consolidations among U retailers have cut even further into the number of ret outlets. Fewer stores means fewer markets for appa makers to sell clothes to. This allows the remaini retailers to exert considerable pressure on manufact ers, demanding lower prices, faster delivery, and bet service. ronically, in spite of the increased number of U garment imports from Latin America, the regio industry as a whole is in severe crisis, with much its productive capacity idle. Latin America's tradition textile and apparel industry has notably declined sir the late 1970s. Meanwhile, countries that have g ment-assembly enclaves such as the Dominic Republic and Guatemala are faring better [see tal below], but not in ways that suggest long-term grow In fact, these countervailing trends are often presi within the same country. In El Salvador, for examp textile production declined by 40% and clothing mar facturing by 55% between 1975 and 1991, while clothing sector as a whole grew 12% from 1985 1991, largely due to export-oriented assembly. 1 0 Neoliberal free-trade policies are largely to Garmeni blame for the sorry state (In of Latin America's dom- estic textile and apparel industries. These policies opened up previously closed domestic markets, Mexico exposing national indus- Dominican Republic tries to fierce global com- petition. Austerity mea- Costa Rica sures imposed by the Haiti International Monetary Jamaica Fund (IMF) and World Colombia Bank exacerbated the Honduras region's already pro- nounced income inequali- ty, decimating domestic El Salvador markets. Fiscal austerity Source: U.S. International T and cutbacks of state sup- U.S. textile, apparel and fo port have increased the (HTS) Subheading 9802.00. cost of imported fabrics, gh equipment and other essential inputs for garment pro- ry- duction. nts Throughout Latin America, numerous companies that As produced for local and regional markets are being rn- wiped out by lower-cost imports of new and "second- ch hand" garments from the United States and East Asia as well as, in the case of South America, more industrial- ur- ized neighbors such as Brazil. While these domestic ted textile and apparel industries were often outdated and the inefficient, they nonetheless employed tens of thou- .S. sands of workers. Only companies with access to both ail modern technology and export markets, usually rel through joint ventures with U.S.-based transnational ng corporations, have been able to survive. ur- These joint ventures, while still numbering only a ter handful, are growing rapidly. Perhaps the most dramat- ic example is the joint venture between North Carolina's Cone Mills and Mexico's top denim compa- .S. ny, CIPSA. Cone Mills, the United States' leading tex- n's tile exporter, is among the world's largest producers of of denim fabric. One of its most important customers is nal Levi Strauss, with whom the company has a close part- Ice nership. Cone Mills and CIPSA are in the process of ar- building the world's largest and most modern denim an complex in northern Mexico, which will incorporate all ble segments of the fashion chain from textile manufactur- th. ing to the production of finished clothes. The complex ent will employ some 3,500 workers. They will be pre- ,le, dominantly young men and women who, if paid at cur- nu- rent local wages, will earn about $38 for a 48-hour the week. This translates into a 70 cents per hour wage, to compared to average wages of $10-15 an hour in the U.S. textile industry. t-Assembly Industry in Latin America sports to the United States in millions $) 1985 1987 1989 1991 1993 282 380 460 143 234 390 62 92 172 80 97 116 28 84 115 22 30 57 17 27 50 6 20 42 6 13 20 725 547 254 101 131 82 107 117 44 1,075 896 374 65 251 113 236 218 103 Percentage change 1985-1993 +381 +626 +603 -80 +896 +513 +1,388 +3,633 +1,717 tade Commission. The above figures represent the duty-free value of otwear imports for consumption under Harmonized Tariff Schedule 80. NACLA REPORT ON THE AMERICAS 38REPORT ON TRANSNATIONAL INVESTMENT The most dynamic part of the region's apparel industry are the offshore garment-assembly oper- ations. Maquiladoras in export processing zones in Mexico, Central America and the Caribbean Basin now employ over 300,000 workers. Profit margins in these activities are An Ed normally three times higher than the industry's average. The fortunes made T-Shil in this business come largely at the at a ma expense of the workers, the majority of whom are women and children who in El work as many as 50 to 80 hours a week at a miniscule wage. For example, a Liz sells Claiborne jacket made at the Doall while tl maquiladora plant in El Salvador's Progresso Free Trade Zone sells for mak $178, while the workers making the gar- ment earn just 56 to 77 cents per hour. The horrible conditions in which gar- ment assembly workers work and live have become the subject of increasing public outcry [See "The Gap an( Sweatshop Labor in El Salvador," p. 3( The history of offshore garment assembly by U.S. companies began in Puerto Rico during the 1940s and 1950s. At that time, Puerto Rico became a preferred source of garment since it offered low-wage labor (209/ di rt f h ir S 30Vo of me u.S. minimum wage) as well as unlimited access to the U.S. market without tariff restrictions. Profits could be easily repatriated from Puerto Rico, federal subsidies were abundant, and prof- its were not subjected to taxation when they arrived back in mainland coffers. As a result, apparel employment grew from a few thousand jobs to more than 50,000 over the course of a few decades. Because Puerto Rico is a U.S. protec- torate, many companies found it appealing to set up their own manufacturing operations as well as a net- work of contractors, many of which were small U.S. companies following their major customers. In the process, domestic apparel manufacturers not linked with U.S. manufacturers and retailers quickly disap- peared. Department stores like J.C. Penney and Sears Roebuck-followed in the 1980s by Kmart and Wal- Mart-set up stores in Puerto Rico. Most local retailers found it difficult to compete with the large chains and, just like many of their manufacturing counterparts, went out of business. As international competition in the industry intensi- fied and labor costs in Puerto Rico began to rise during the 1960s, U.S. apparel companies began to move else- where in search of cheaper labor. Most sought out con- tractors in East Asia. Others set up operations in the Dominican Republic under the auspices of the U.S. gov- ernment which wanted to promote economic stability there after its military invasion of the island in 1965. U.S. companies also began to take advantage of spe- cial trade and investment arrange- ie Bauer ments with neighboring Mexico in the 1960s. The much-publicized Border made Industrialization Program gave U.S. ,uiladora firms a powerful incentive to locate labor-intensive manufacturing processes alvador in Mexico, where they could benefit from cheap labor, geographical prox- or $12, imity to the U.S. market, and lax envi- e worker ronmental, health and safety regula- tions. Today, Mexico's maquiladora ng the sector employs about 100,000 workers in the apparel industry, and to a nt earns lesser extent in textile production. per shirt. Meanwhile, imports of U.S. and Asian fabrics and clothing are taking away business from Mexico's domestic apparel and textile manufacturers. Many companies have gone bankrupt or have turned emselves into merchandisers, working as inter- mediaries between U.S. apparel manufacturers and retailers, and Mexican retail outlets. aquiladoras in Central America were established in the 1970s, but .. v a. only registered significant growth during the mid-1980s. Revolution and political instabil- ity in Central America combined with low-wage com- petition from Asia prompted the Reagan Administration to initiate the Caribbean Basin Initiative in 1983. The accord established special tariffs and quota arrange- ments to promote imports of clothing made with U.S.- cut fabric. Offshore garment assembly in the region mushroomed, first in Dominican Republic and Costa Rica, and later in Guatemala, Honduras, El Salvador, Colombia and Jamaica. As the United States regained political and military hegemony in the region, Nicaragua and Panama followed suit. Declining prices of traditional exports such as cotton, coffee and bananas, combined with the need to obtain U.S. dollars to service large foreign debts, induced Central American governments and domestic elites to invest in the maquila sector. These governments passed laws and decrees establishing new free-enterprise or export processing zones (EPZs). They granted tax exemptions, special exchange systems, free utilities, and complete profit repatriation for companies that set up businesses in these areas. Labor organizing was inhibit- ed through repression, as trade unionists were black-list- ed and even assassinated. Mandatory employee benefits and rights were weakly enforced. Employers, though, Vol XXIX, No 4 JAN/FEB 1996 39 Vol XXIX, No 4 JAN/FEB 1996 39REPORT ON TRANSNATIONAL INVESTMENT were quickly organized in exporters' associations like backward linkages with the local economy which might Fusades, representing contractors in El Salvador, and spur wider economic development. CINDE, representing contractors in Costa Rica." The future of the clothing industry in the hemisphere Textile and apparel now account for looks bleak. It is likely to be marked by increased wage 30% of Central America's exports to the United States. Between 1983 and 1990, traditional garment imports from Latin America, not eligible for Caribbean Basin Initiative special tariffs, declined by 165.2%. By contrast, textile and apparel imports under the Caribbean Basin Initiative increased by 396.3% over the same period. 1 2 of tens of thousands of jobs. Textile and garment production in the Americas is increasingly a decentralized but highly integrated chain of commodity, capital, and labor flows. To match that level of globalization, trade unions will have to establish new forms of international coop- eration and solidarity that parallel the The maquilas offer certain advantages to the coun- changes in how the industry operates. tries where they are located: they generate jobs and for- These new organizing strategies have already begun to eign currency. Parallels have been drawn between emerge in the struggle against the North American Free industrial development in East Asia, in which the assem- Trade Agreement (NAFTA), against neoliberal econom- bly of garments and electronics for export supposedly ic policies, and for worker rights in the maquiladora sec- "kicked-off' the growth of modern industry. But the the- tor. Alternative economic-development strategies will sis that maquilas are a first stage in the industrialization also be needed. As long as global commodity chains con- of the region is shaky at best. Control of production and tinue to discipline and direct the region's economies to distribution ultimately rests in the hands of a few pow- satisfy the needs of powerful transnational corporations, erful U.S. retailers and brand-name manufacturers or the working conditions of people throughout the hemi- jobbers. Moreover, the maquiladora industries offer few sphere are not likely to improve. In the Name of Fashion 1. Standard and Poor's Industry Survey "Textile, Apparel and Home Furnishings," September, 1994. 2. Standard and Poor's Industry Survey 3. American Apparel Association, "Apparel Industry Trends," April, 1995. 4. For a detailed analysis of the apparel commodity chain, see Gary Gereffi and Miguel Korzeniewicz, eds., Commodity Chains and Global Capitalism (London: Praeger, 1994) and Peter Dickens, Global Shift: The Internationalization of Economic Activity (New York: Guilford Press, 1992). 5. "In a Sweat Over Sweatshops," Business Week, April 4, 1995, and Joanna Ramey, "NY Labor Raids Show Hotter Competition," Women's Wear Daily, May 5, 1993. 6. Standard and Poor's Industry Survey. 7. Standard and Poor's Industry Survey. 8. Standard and Poor's Industry Survey. 9. Standard and Poor's Industry Survey; also Gereffi and Korzeniewicz, eds., Commodity Chains. 10. James Wilkie, ed., Statistical Abstract of Latin America, 1995, and Teresa Rend6n, La empresa maquiladora textil y de confec- ci6n en Centroamerica (Mexico: UNAM, 1995), unpublished manuscript. 11. For details, see Kurt Petersen, The Maquiladora Revolution in Guatemala, Occasional Paper Series 2, Center for International Human Rights at Yale Law School, 1992; and Teresa Rend6n, La empresa maquiladora. 12. Mark Rosenberg and Jonathan T. Hiskey, Annals of the American Academy (May, 1994).
