ARTICLE - HAITI OPEN FOR BUSINESS - PT. 2

MARTELLY GOVERNMENT BETTING ON SWEATSHOPS: "HAITI OPEN FOR BUSINESS"
(Haiti Liberte) - By Haiti Grassroots Watch - (The Second of Three Articles)

Why is Haiti “attractive”?

Last September, President Michel “Sweet Micky” Martelly told foreign investors that Haiti is ready for “new ideas and new businesses.” The country, he said, is “creating the conditions necessary for Haiti to become a natural and attractive destination for foreign investment.”

But the ideas are not that new. Over 30 years ago, the Haitian and U.S. advisors of dictator Jean-Claude Duvalier had almost the same plan for Haiti’s economy. The impoverished country would become the “Taiwan of the Caribbean” – a vast factory complex offering low sweatshop wages where U.S. industries could assemble textiles, electronics and baseballs.

How has it worked out? Three decades and billions of dollars in investments later, workers in Haiti earn less than they did under “Baby Doc,” as outlined in the first installment of this article. And studies like Yasmine Shamsie’s Time for a “High-Road” Approach to EPZ Development in Haiti note that “[w]hile the [Free Trade Zone] model did create jobs, it also had important negative effects on Haiti’s poor.”

Among the “negative effects” the Canadian researcher noted:

● Increase in income concentration and regional inequality

● A rise in food and housing prices

● Slums in marginal areas sprang up, in part because of the rural exodus spurred by the factories, but also because “wages were too low to provide workers with decent or safe accommodations.”

Those results haven’t stopped Haitian politicians and “development experts” from doing “déjà vu all over again” planning. This time, however, plans call for “decentralizing” the factories.

In 2002, President Jean-Bertrand Aristide kicked off the new round when he and Parliament passed sweeping “Investment Code” and “Free Trade Zone” legislation. The new laws offer 15-year tax holidays, duty-free import and export, and tax-free repatriation of profits. Only one Free Trade Zone (FTZ) opened last decade – CODEVI on the Haitian-Dominican border – but others were in the works prior to the Jan. 12, 2010 earthquake, thanks to the incentives offered by duty-free textile trade agreements with the U.S..

In fact, the changes in the international garment industry during the last decade – due to the 2005 expiration of the Multi-Fibre Arrangement (MFA) and the Agreement on Textiles and Clothing which gave developing countries low-duty or duty-free export quotas for the U.S., Europe and other “developed” countries – have created havoc.

When those agreements ended, thousands of factories in low-wage countries around the world shut their doors or laid off workers as international contractors sought out more advantageous locations to have their clothes stitched. Perhaps not coincidentally, the very next year, in 2006, the U.S. Congress passed the Haitian Hemispheric Opportunity through Partnership Encouragement (HOPE) Act that gave preferential access to Haitian-sewn clothing. Two years later, HOPE II expanded the preferences and locked them in place for ten years.

Then, in the wake of the earthquake, Congress approved the Haiti Economic Lift Program (HELP) Act, which nearly triples duty-free quotas for clothing exports from Haiti to the U.S. and stretches the access up through 2020.

But the names “HOPE” and “HELP” shouldn’t mislead readers into thinking the legislation is meant to be “hopeful” or “helpful” to Haitian factory owners or workers only.

Writing for the United Nations in 2009, economist Paul Collier noted that “[u]niquely in the world, Haiti has duty-free, quota-free access to the American market guaranteed.”

“Haiti has a massive economic opportunity in the form of HOPE II,” Collier wrote in his Haiti: From Natural Catastrophe to Economic Security report for UN General Secretary Ban Ki-moon. “The global recession and the failure of the [World Trade Organization] Doha Round accentuate this remarkable advantage because manufacturers based in other locations will undoubtedly be fearful that rising protectionist pressures may threaten whatever market access they enjoy currently. From the important perspective of market access, Haiti is now the world’s safest production location for garments.” [author’s emphasis]

Collier and the other cheerleaders say Haiti won’t be able to sell its “unique” advantage unless it carefully assures a few sine qua nons.

Low wages

Wages must be kept low. A World Bank/Inter-American Development Bank report prepared for the 2011 Davos World Economic Forum noted that, at the moment, Haiti’s labor costs were “fully competitive with China’s,” while wages in the Dominican Republic are “high,” which has led to a “decline” in the assembly industry there.

What are the wages across the border in the DR? In 2009, the minimum wage for Free Trade Zone workers was US$35 a week, which, according to the US State Department – cited in a study by Georgetown Professor John M. Kline – “did not provide a decent standard of living in any industry for a worker and family.”

The implication? Haitian sweatshop wages won’t be going up any time soon. They currently stand at about $35 a week.

24/7 production

The clothing industry “operates multi-shift production,” Collier noted in his report, where he called for Haitian factories to include night shifts. The Haitian private sector agrees. In its post-earthquake Vision and Roadmap for Haiti report, Haiti’s industrialists and business owners called for “flexible labor laws, including immediately legalizing the 3x8 work shift to allow increased competitiveness in the garment industry.”

Public investment

Not surprisingly, Haiti’s would-be sweatshop investors are also looking for subsidies and handouts. “Given the risk and timing associated with garment tenants, public funding is necessary to catalyze investment in the new economic development zones,” the Vision and Roadmap noted.

The factory owners got their wish – the U.S. and other donors are donating almost $200 million to the new Regional Industrial Park of the North (Parc Industriel du Region Nord - PIRN) project in Caracol (see below).

Land for FTZs

“Ensure that land is rapidly available for acquisition in Export Zones,” Collier recommended.

All of these elements will make sure that Haiti is, as Martelly called it, “a natural and attractive destination.”

What’s planned for Haiti?

“Free Trade Zones should be one of the spearhead’s to launch reconstruction,” recently said Jean-Alix Hecdivert, director of the Haitian government’s Free Trade Zone Office (FTZO).

Beginning 40 years ago, Haitian authorities and their backers pinned their hopes – in part – on Free Trade Zones (FTZs) and assembly jobs.

More recently, the Haitian government and its backers have nuanced their approach. The 2010 Presidential Commission on Competitiveness: Shared Vision for an Inclusive and Prosperous Haiti report named textiles as one of five “priority” sectors. (The other four are: animal husbandry, tourism, fruits and tubers, and construction.)

But in the wake of the earthquake, and with the advent of the HELP law which extends the HOPE II benefits, the main focus appears to be on FTZs and the assembly industry sector. The FTZO has received many requests for new authorizations, Hecdivert told Haiti Grassroots Watch (HGW).

“We are working on all of these projects because the focus is: create the most jobs possible in the shortest amount of time,” he added.

Echoing Hecdiovert, a key figure in the Martelly administration said the government is basically banking on “a massive influx of foreign capital.” In a Sep. 12 article in Le Nouvelliste, Laurent Lamothe, head of Martelly’s new Council on Economic Development and Investments, said “the biggest need for the Haitian population is job creation.”

According to HGW’s interviews with the FTZO, and the evidence culled from dozens of documents and reports, there are over a half-dozen new FTZs and other assembly industry-related projects in the works. These include FTZs, Free Trade Industries (essentially an FTZ that's the size of the building) and “Special Economic Zones” which are like expanded FTZs but with some non-FTZ businesses allowed in the region. One of the biggest projects is the PIRN. Another large project – although not much is known about it – is a giant combination of FTZs and other initiatives some journalists are calling the “North Pole Initiative.”

Despite numerous requests to FTZO officials, HGW was not able to obtain definitive paperwork on all of the projects, nor a map of approved FTZs....

Charity or profit?

The language in the press releases and on the websites announcing the millions in loans and grants for the expansion of the textile assembly industry constantly reinforces the idea that relocation of factories to Haiti is practically a charitable enterprise.

The Interim Haiti Recovery Commission says the project is in the “job creation” sector, making it sound almost like a social service. Billionaire George Soros’ investment group hyped that their participating in the West Indies Free Trade Zone would “improve the standard of living for 300,000 residents.” A Citi news release on its $250,000 grant to CODEVI congratulated itself for helping “create 1,400 new full time jobs for Haitians over the next 12 months.”

But a look at what the buying power of a Haitian textile worker’s salary dispels the myth that assembly jobs contribute to a significantly improved “standard of living.” And in any case, an investment is an investment – the objective is to make a profit. That is why financiers like Soros and Korean textile giants like Sae-A Trading are in Haiti, not in Alabama or France.

The jobs “created” in Haiti most likely already existed as jobs in another country before moving to the home of the hemisphere’s lowest wage. Haitian laborers are likely replacing more expensive laborers, and are basically making it possible for clothing labels like GAP, Banana Republic, Gildan, Levis and others to make even more profits by shutting down factories based in countries with better salaries and better worker protections.

A look across the border is instructive. Between 2004 and 2008, as wages rose a tiny bit, and a preferential trade agreement came to an end, the Dominican Republic lost 82,000 assembly jobs.

In the US, during about the same period (between 2004 and 2009), over 260,000 textile workers lost their jobs, according to the US Bureau of Labor Statistics. U.S. sewing machine operators – the least trained textile workers – earned about $9.50 an hour in 2008 (the most recent figures available). In Haiti they earn about $5.90 a day.

Manufacturers do not take their jobs offshore in order to “jumpstart” industry or “improve the standard of living.” They do it to make a profit. As Canadian company Gildan Activewear said in a recent newspaper article, the savings offered are “too good to pass up.”

According to a 2009 study commissioned by the Haitian government and paid for by the World Bank, Haitian assembly plants seem to be making a good profit, also. At that time were netting between 8 and 67 cents profit per piece, with factories stitching up to 1.7 million items per month.

Not all bad

Industrialization brings some benefits. Haitian workers get training, industrial parks are built, and there is likely some transfer of technology. Electricity, water and other infrastructure is usually improved in the FTZ areas. But the industry is volatile, and at any moment a textile company can pick up and leave.

For these and other reasons, Haitian economist Camille Charmers thinks the current approach – marketing Haiti’s sweatshop-wage salaries – is “a big error.”

“Basing the country’s development on assembly industries is a big error, it will lead us into a hole, into dependency,” he told HGW. “We’ve already experienced it, we know what it does.”

While Chalmers admitted that the areas with FTZs have slightly better infrastructure than the rest of the country, and that workers use their meager wages to buy food, the overall effects are minimal and do not help the economy’s productive forces grow.

“The sector is practically cut off from the rest of the country,” he said. “You get some factories and some salaries, and everything else is imported.”

“It’s completely wrong-headed and it won’t help the country get out from under its economic crisis,” the economist concluded. “People need to know what FTZs are, what has happened in Mexico, or Honduras, so they don’t think these things will ‘save’ us.”

So how have other countries fared?

Stepping Stone or Dead End?

Haitian factory owner Charles H. Baker admits that by trying to attract manufacturers to Haiti with the lowest salary in the Americas, the country is engaged in a “race to the bottom,” but he insists that low-wage, low-skilled assembly industries are a “stepping stone” to more complex industrial development.

“It will last ten to 15 years,” Baker told HGW. “I count on it only as a stepping stone... It’s a step. We’re going up the stairs, and it’s one of the steps.”

Dozens of countries – and indeed, Haiti, on and off for the past 30 years – have already walked the walk, climbing onto the bottom of the “race to the bottom” steps.

HGW reviewed reports on the Dominican Republic, Mexico and Central America to see how those countries, economies and workers have done.

Resoundingly, the evidence on Free Trade Zone (FTZ) and low-wage assembly industries shows: Economy - Little evidence of “linkages” with the rest of the economy; Environment and Health - Assembly industry-led industrialization can have direct and indirect negative effects on the environment, and lax regulations or lax enforcement can mean that workers are exposed to hazardous materials; Society - While the employment of women does yield some positive effects (economic autonomy, etc.), assembly industries can also have negative effects on families and society.

“The literature on [Export Processing Zones] is voluminous but there are a few findings that stand out when considering Haiti,” notes Canadian researcher Yasmine Shamsie. “First, countries that applied the EPZ model relatively successfully (such as Mauritius and Costa Rica for instance) employed it as one pillar of a broader plan to diversify their economies. This means that the model on its own will yield hardly any beneficial results.”

What does the data say?

HGW cannot claim to have perused all of the literature, but a glance at some studies of countries similar to Haiti might shed some light…

Economy

In 2003, José G. Vargas Hernández of the University of Guadelajara looked at literature related to Central America where, during the 1990s at least, “most of the maquiladoras are owned by Asian capital, mainly Korean capital investors.”

The researcher concluded that “[t]here is no evidence that maquiladora industry’s technological complexity has a direct impact both in economic development and generation of well remunerated employment.”

Vargas Hernández went on to discuss universal “non-observances of labor rights,” the fact that foreign investors can leave a host country on a moment’s notice, and the frequent failure of the sector to develop beyond simple low-skilled, and low-wage jobs.

“There is not a clear understanding about the role that this type of industry is playing in economic growth and national development,” the researcher wrote.

In an exhaustive 2008 literature review, two US-based professors concluded that even Foreign Direct Investment (FDI) and the creation of high-tech assembly industry don’t necessarily produce “spillover” into the local economy. In Comparative Studies in Comparative International Development, Eva A. Paus and Kevin P. Gallagher looked FDI in Mexico and Costa Rica. For the latter, they found “some positive spillovers from FDI through the training, education… [but] spillovers via backward linkages [to the rest of the economy] have been small.”

Hopes were very high for Mexico, which had an indigenous electronics and computer industries prior to the FDI boom. Rather than source parts in Mexico, however, the foreign companies got inputs wherever they were cheaper – usually from Asia.

“Under the Washington Consensus, governments in both countries had great faith in the power of liberalized markets to render economic stability and growth, and for FDI to generate technological and managerial spillovers,” the authors wrote. “Our article contributes to the growing body of evidence that the Washington Consensus does not constitute a viable development strategy.”

Along the Mexican-U.S. border, home to the maquiladora boom, especially following the implementation of the North American Free Trade Agreement (NAFTA), income disparity is higher than at any other commercial border in the world, a 2007 article in the Golden Gate University Environmental Law Journal reports. Minimum wage in Tijuana buys one-fifth what it did in the early 1980s, and “67% of homes have dirt floors, and 52% of streets are unpaved,” researcher Amelia Simpson wrote.

Environment and Health

There are generally two types of environmental concerns associated with assembly industry plants – direct environmental damage due to waste, and indirect damage or effects, due to increased pressure on the water supply from both the industry and the typical population influx inspired by the hope of jobs.

Damage or benefits to the environment appear to be highly dependent on the ability of the host country to enforce laws and standards. Some studies claim that assembly industry factories are more careful about the environment because they know foreign consumers might boycott a polluting industry.

A 2002 UN report on Mexico found that “the maquiladora industry performs better than the non- maquiladora industry with respect to direct environmental externalities.”

The case of the blue jeans water run-off in the Mexican state of Puebla is by now well-known. In order to “fade” jeans, they are usually beaten or chemically treated. Tehuacán means “Valley of the Gods,” but reporters call it “Valley of the Jeans.” A 2008 study from Ciencia y el Hombre journal in Veracruz reported blue dye run-off polluting rivers and irrigation ditches. Of equal or greater concern is the increased demand on water supply, Blanca Estela García y Julio A. Solís Fuentes wrote.

"Due to the intensive use of water, the water table is diminishing between 1 and 1.5 meters every year, at the same time the population is growing between 10,000 and 13,000 people per year,” they noted.

In some parts of Mexico, factories now buy “water rights” from local farmers in order to cover their needs, harming agriculture and driving up the cost of water. The 2002 study noted that: “The shortage of water, both in quantitative and qualitative terms, has already forced the industry to start to purchase water rights, temporarily or permanently, from surrounding agricultural water shareholders. These water rights are traded with high market prices. One example is Nissan’s automotive plant in Aguascalientes that purchased water rights required for its painting processes.”

The NAFTA has an environmental “side agreement” that calls for companies to clean up after themselves, but the 2007 Golden Gate article noted that the agreement is neither “enforceable” nor has it “brought adequate protections for workers or the environment.”

Surveys of Haitian factories attest to the lack of protections for workers from environmental hazards. Better Work Haiti found that almost all factories violated national and international laws and standards. “Average non-compliance rates are high also for Worker Protection (93%), Chemicals and Hazardous Substances (89%) and Emergency Preparedness (82%).”

According to the April, 2011, report, “factories initiated remediation efforts to improve the situation,” but as noted earlier, Better Work does not have enforcement powers.

Society

As the record in Haiti shows, the installation of assembly industries and FTZs can have dramatic effects on population movement. According to Simpson, in Mexico, the maquiladora industry “triggered the largest migration since the 1960s.”

“Tijuana’s population increased more than sevenfold from 1960 to 2000,” she wrote.

Society is also impacted in another way. More than any other industry in poor countries, assembly plants employ women. In some countries, the workforce is up to 80% female, often young. Women are preferred because, according to Canadian researcher Yasmine Shamsie, quoting another researcher, “they are cheaper to employ, less likely to unionize and have greater patience for the tedious, monotonous work employed in assembly operations.” (In Haiti, the balance between women and men is more even. Women make up about 65% of the workforce.)

The impact on women can be both negative and positive. On the negative side, women are exposed to the toxic chemicals, develop injuries due to movement repetition, and can contract respiratory illnesses. On the other hand, having an independent income – albeit insufficient – can be empowering.

Still, women are usually the primary care givers for children. “Family life, the foundation of every community, has deteriorated under the influence of the maquiladoras,” wrote Richard Vogel about Mexico’s Ciudad Juarez in 2004 for the Houston Institute of Culture. “About half of the families that reside in the two and three room adobe houses in the working-class neighborhoods of Juárez are headed by single mothers, many of whom toil long hours in the maquiladoras for subsistence wages. The resulting stress on families has lead to chronic problems of poor health, family violence, and child labor exploitation. Children suffer the most. Because of the lack of child-care programs, kids are often left home alone all day and fall prey to the worst aspects of street culture, such as substance abuse and gang violence. Ciudad Juárez, by any measure of social progress, is moving backward rather than forward under the influence of the maquiladora industry.”

Haiti Grassroots Watch is a partnership of AlterPresse, the Society of the Animation of Social Communication (SAKS), the Network of Women Community Radio Broadcasters (REFRAKA) and community radio stations from the Association of Haitian Community Media. To see images, video and to access links to primary sources - http://www.haitigrassrootswatch.org .