Free Trade’s Dead End in Nicaragua

Thanks to over a decade of international campaigns, many U.S. consumers know most of their clothes are made in developing world assembly plants known as “maquilas” that routinely violate workers’ rights. Pointing out the abusive and illegal conditions at these factories is often met with the following matter-of-fact rebuttal: “These are poor countries. For them, a bad job is better than no job at all.” In the case of Nicaragua, this statement generally rings all too true.

Ben Beachy

Thanks to over a decade of international campaigns, many U.S. consumers know most of their clothes are made in developing world assembly plants known as “maquilas” that routinely violate workers’ rights. Pointing out the abusive and illegal conditions at these factories is often met with the following matter-of-fact rebuttal: “These are poor countries. For them, a bad job is better than no job at all.” In the case of Nicaragua, this statement generally rings all too true.

In a recent nationwide poll, Nicaraguans once again identified unemployment as the greatest problem facing their country.1 In a country where one out of three people are underemployed and two out of three hold fleeting informal sector jobs, many choose to endure the maquilas’ violations of national and international labor law.2

A couple of years ago, voices in both the U.S. and Nicaraguan governments promised that the Central America Free Trade Agreement (CAFTA) would bring relief. While critics argued that a projected influx of U.S.-subsidized crops would displace hundreds of thousands of farmers, CAFTA proponents assured the public that any job loss in small-scale agriculture would be outweighed by a surge in maquila investments. The source of the supposed boom would come from the fact that CAFTA would grant Nicaragua a unique Trade Preference Level (TPL). The TPL allows textile maquilas operating in the country to buy up to 100 million square meters of fabric from even cheaper countries that were off-limits prior to the trade deal. With Nicaraguan maquilas able to use cheaper fabric, argued CAFTA’s proponents, the agreement would spawn a wave of new maquilas, and therefore, jobs.

Critics charged that under CAFTA’s weak labor standards the new maquilas would continue to disregard Nicaraguan labor law. Yet, if we embrace the motto that a bad job is better than no job at all, then the success of CAFTA can in part be measured on how many jobs, albeit bad ones, the agreement created. Given that the Nicaraguan government implemented CAFTA over a year ago, preliminary assessments are now possible.

During the first half of this year, two new textile maquilas decided to invest in Nicaragua, generating an estimated 176 new jobs.3
During the same six-month period, Nicaragua has seen mass firings in at least seven textile maquilas, as well as the complete closure of two textile factories, prompting the alarming loss of up to 4,120 jobs.4
In nearly every closing or personnel reduction, factory management has explained they were obliged to fire workers when the U.S. brand names contracting with the factory decided to sharply curtail their orders. Various inside sources report that the recent rash of closings and firings are due to an overall 30-50% drop in business for Nicaragua’s maquilas.5

How could this be true if the very promise on which CAFTA was sold was that Nicaraguan maquilas, through the TPL provision, would attract more business?

The answer is a little-discussed trade arrangement called the Multi-Fiber Agreement (MFA). Since 1974 this agreement had regulated the amount of textiles developing countries could export to the United States. The agreement granted ample quotas to various small countries like Nicaragua while restricting U.S. market access to behemoths like China. Such favorable treatment for Nicaragua ended with the MFA’s expiration on January 1, 2005.

About a month later, while touring a U.S.-owned maquila in Nicaragua, a Witness For Peace delegation asked the factory owner how the MFA expiration would affect his business. The owner flatly responded, “Listen, China can pay its workers less than what I’m legally required to pay these people. China could ship its jeans over to the U.S. in planes and still offer Sears a better deal than me. I don’t think I’ll probably be here in a few years; I don’t think these people will have jobs here.” The owner had cause for concern. In January 2004, while under the MFA quota, China exported 941,000 cotton shirts to the United States. In January 2005, that number soared to 18.2 million shirts. During the same period, Chinese exports of cotton trousers to the U.S. jumped by 1,332%.6

In February 2007, a Taiwanese-owned factory in Nicaragua closed down a few assembly lines, firing over one hundred workers. In a subsequent meeting, the factory’s administration manager explained the various brand names for which the factory produces cotton shirts all decided to scale back their contracts in the months before the closure, prompting a 30% reduction in production. The manager further complained that the factory had no orders for production past July, a scarcity she had not seen in her ten years of maquila management in Central America. When asked the reasons for the brands’ decision to reduce contracts, the factory manager pointed to an overall shift in the brands’ contracting preferences—a shift away from Central America and towards the cheaper labor of China.

CAFTA had been passed with the TPL provision so that Nicaragua’s maquila jobs would not just stay put, but multiply. While a bad job may be preferable to no job, the CAFTA model does not even seem to be offering Nicaraguans this dismal choice. Instead of moving from no job to a bad job, many Nicaraguans are moving in the opposite direction. When asked to explain this conundrum, the Taiwanese factory manager responded, “The TPL means nothing to the brands. They only care about wages.”

When it passed, CAFTA was presented as a generous gift to Nicaragua, a gift that would enable the country to create jobs through the further exploitation of its comparative advantage in cheap labor. Besides being inherently exploitative, the “gift” proved short-lived. This proven reality must be recognized for the CAFTA model, and its tired myth of job creation, to be finally discarded. As soon as “free trade” is defined to include other developing countries, with even more desperate work forces, the comparative advantage evaporates along with the jobs.


Ben Beachy is an educator with Witness for Peace in Nicaragua. Witness for Peace is a politically independent, grassroots organization that educates U.S. citizens on the impacts of U.S. policies and corporate practices in Latin America and the Caribbean.

Notes:
1. Matilde Córdoba, “Alto porcentaje quiere votar,” El Nuevo Diario, June 13, 2007: http://www.elnuevodiario.com.ni/2007/06/13/politica/51163.

2. “VIII Censo de Población y IV de Vivienda 2005,” Instituto Nacional de Estadísticas y Censos, November 2006.

3. “Empresas Usuarias Aprobadas en el Año 2007,” Comisión Nacional de Zonas Francas, July 10, 2007. If counting all new maquila investments (that is, beyond the textile sector), from January to June 2007, the number of new maquilas is seven and the number of jobs generated 1,993. The number still pales in comparison to the 4,120 textile jobs lost during this time period.

4. Data compiled from multiple sources: “Situación de Conflictos y Despidos en las Empresas del Sector Privado,” Confederación Sindical de Trabajadores José Benito Escobar, June 27, 2007; Interview with, Harling, Bobadilla Roger Hernández, and Pedro Ortega, Mesa Laboral de Sindicatos de la Maquila, July 10, 2007; Data obtained through communication with the Free Trade Zones Corporation and interviews with several former maquila workers.

5. As cited by US Embassy personnel in Nicaragua.

6. Barboza, David and Elizabeth Becker. “Free of Quota, Chinese Textiles Flood the U.S.” New York Times. March 10, 2005: http://www.globalpolicy.org/socecon/trade/2005/0310freeofquota.htm.

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