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Aiding and Abetting Corporate Flight:
By Barbara Briggs
In 1990 and 1991, a striking advertisement containing a photograph of a woman working at an industrial sewing machine was appearing in the U.S. apparel trade journal, Bobbin. The caption reads: "Rosa Martinez produces apparel for U.S. markets on her sewing machine in El Salvador. You can hire her for 33 cents an hour. Rosa is more than just colorful. She and her co-workers are known for their industriousness, reliability and quick learning. They make El Salvador one of the best buys."
The ad was placed by an organization calling itself simply FUSADES [Salvadoran Foundation for Economic and Social Development]. Since its inception in 1984, FUSADES, a private sector business development organization, has received 94 percent of its budget -- over $102 million -- from the U.S. Agency for International Development (U.S. AID). FUSADES operates investment promotion offices in New York and Miami and has just opened a third office in California. In a 1991 funding agreement, AID instructed FUSADES to pursue a "pro-active, direct and systematic sales effort involving direct contact with targeted U.S. firms to convince them to explore opportunities in El Salvador."
The agreement stipulates, "[Initial] focus will be on companies likely to engage in assembly (maquila) operations. ... The industry focus will be largely apparel, but could also include electronic/electrical assembly and other labor intensive assembly activities." Targeted U.S. companies, in the words of a 1988 project paper on free zone development, will be able to "take advantage of one of El Salvador's best resources: plentiful, low cost labor with a strong work ethic."
The U.S. Commerce Department also actively promotes El Salvador as a low-wage offshore production site. The Commerce Department's 1990 Investment Climate Report notes, "Business with significant labor requirements should consider the positive factors of the Salvadoran labor market and make technology decisions reflecting an eager supply of inexpensive labor." A manufacturing production worker in El Salvador earns about 40 cents an hour, or $3.20 a day, $915 a year. This wage level is less than one-twentieth the average manufacturing wage in the United States.
The United States government funds many additional programs to help U.S. and other international investors exploit this "eager supply of inexpensive labor." The AID free zone project paper notes that, "Lack of available factory space was a critical disincentive to potential investors." And so, according to a 1991 agency trade strategy paper for El Salvador, "a major effort was undertaken to develop, promote and finance free trade zones." In 1988, the U.S. government allocated over $32 million toward the construction of 129 factory buildings to house U.S. and other foreign maquiladora assembly operations producing for the U.S. market. An additional $5 million from U.S. Food for Peace aid to El Salvador was used to build a 72,000 square-foot free trade zone factory now occupied by a U.S. company.
To make investment in a Salvadoran free trade zone even more attractive, AID officials assisted El Salvador's ministry of foreign trade in "revising laws and regulations which affect development of nontraditional exports and investments," according to a 1984 AID project paper. A "Foreign Investments Incentives" package, described in an El Salvador country profile handout sheet prepared by FUSADES, includes: 100 percent exemption from corporate income tax; 100 percent exemption from all import and export duties; and 100 percent exemption on all dividend and equity taxes.
AID also created The Salvadoran Foundation of Entrepreneurs for Educational Development (FEPADE) "to meet the immediate training needs of firms in El Salvador." FEPADE, which has allocated $27 million in U.S. funding to date, offers a 50 percent subsidy to cover worker training costs of U.S. firms relocating to El Salvador. AID further established a $15 million credit line to allow FUSADES to provide "favorable term loans" to "export-oriented light industrial or drawback operations in El Salvador."
To complete the package, exports from El Salvador are given unlimited access to the U.S. market with no quotas and no, or specially reduced, tariffs. All this, according to the 1988 AID project paper, makes El Salvador "an exceptionally attractive location for U.S. apparel manufacturers with offshore production sites."
FUSADES is only one of at least 11 U.S.-funded Central American and Caribbean investment and export promotion groups which maintain offices in the United States. In fact, since 1980, the U.S. government has spent hundreds of millions of dollars essentially assisting company flight from the United States. Research conducted by the New York-based National Labor Committee (NLC) has established that since 1983 AID has obligated over $289 million to development promotion groups in El Salvador, Honduras, Jamaica, Costa Rica, Guatemala, the Dominican Republic, Panama, Haiti, Nicaragua, Belize and the Caribbean Region.
Trade not aid
U.S. funding for these investment promotion programs came as the result of a dramatic shift in foreign policy under the Reagan Administration. The new policy, known as "Trade Not Aid" and expressed through the Caribbean Basin Initiative (CBI), stipulated that U.S. foreign assistance would increasingly be shifted from support to governments to private sector assistance. The new policy became known as "Trade Not Aid." In a 1982 speech, then-Vice President Bush stated: "We want to maintain a favorable climate for foreign investment in the Caribbean region -- not merely to protect the existing U.S. investment there but to encourage new investment opportunities in stable, democratic, free-market oriented countries close to our shores."
In the first two years following the 1984 passage of CBI, U.S. assistance to the Caribbean Basin region increased by nearly 40 percent, with much of this aid going to private sector programs. In fact, by 1991, AID would state in its Trade and Investment Strategy for El Salvador that "stimulat[ing] and foster[ing] positive free-market policy changes in Latin America and the Caribbean has become AID strategy for the ... region." The strategy paper noted, "U.S. economic assistance to the region to stimulate private sector-led development has been AID's key mandate in implementing CBI."
Virtually all foreign aid -- even that intended for other uses -- was used to support the development of free-market-oriented economies. According to an AID policy paper, "There are no restrictions on types of funds or modes of assistance applicable to the pursuit of private enterprise objectives. ESF [Economic Support Funds], DA [Development Assistance], and PL480 [Food for Peace] loans or grants are all appropriate ways to support private enterprise development. Forms of assistance ... can be used ... in exchange for appropriate policy changes or for support of country performance in areas of significance to private enterprise development."
In 1990, AID commissioned a survey/evaluation of private sector investment and trade support projects. The survey, conducted by the Development Economics Group (itself the recipient of a $9 million AID contract in 1991) identified 58 Caribbean Basin region projects for which over $811 million had been obligated between 1980 and 1989. The NLC updated the Development Economics Group's study to include FY 1992 obligations. The NLC also added in several related investment incentive programs -- free trade zone development or subsidized worker training, for example -- and attempted to account for the use of counterpart funds (host government contributions to the projects which in fact came from other U.S. assistance such as Economic Support Funds or local currency generated by Food for Peace).
The NLC's investigation revealed that since 1980, the U.S. government has obligated over $1.3 billion to 93 investment and trade promotion projects, at least half of which were directed toward developing Central America and the Caribbean as low-wage assembly production sites for companies fleeing U.S. wages, benefits, unions and environmental standards.
A decade ago, Vice President Bush declared, "The U.S. is willing to put its commitment to free trade in action through the one-way Free Trade area proposal of the CBI. The success of our Free Trade Area proposal will dramatically prove the following truth: that free trade is indispensable to world prosperity."
Ten years and over $1.3 billion later, the results have been dismal.
True, over 500 foreign-owned companies have established operations and over 300 more have expanded already existing operations in the Central American/Caribbean region since the enactment of CBI. More than half of all exports from the region, including apparel, footwear and leather goods, are produced in maquila assembly plants. In fact, the Caribbean Basin region has become the world's largest supplier of apparel to the United States, surpassing even China. Between 1980 and 1991, apparel exports from the region to the United States increased by 688 percent, accounting in 1991 for a full 15 percent of total U.S. clothing imports.
But aside from this dramatic increase in apparel assembly for export, CBI has been a failure. Overall exports from the Caribbean Basin region to the United States have actually dropped by over $1 billion a year. A 1991 U.S. International Trade Commission (ITC) study concludes: "In general [CBI] has not fueled economic growth and development in the region." The ITC report says, "Caribbean business and government representatives reported diminished expectations of the program."
And CBI has certainly done nothing to raise the standard of living in Caribbean Basin countries. In 1990, the U.S. Commerce Department reported that CBI had made "no dramatic difference yet in the living standards in the Caribbean Basin." In fact, between 1980 and 1989 per capita income fell at 2 1/2 times the rate of the rest of Latin America. Living standards were pushed back to 1960s levels and real wages declined precipitously. In Guatemala, the real wage fell 30 percent between 1986 and 1990. The prevailing maquila production worker's wage of $105 per month provides only 40 percent of the average family's minimum basic needs. In El Salvador, real wages were cut in half between 1985 and 1991, and the monthly wage of $76 provides for only 15 percent of a family's basic needs. In Honduras, real wages have fallen 60 percent in the last 2 years. The United Nations now estimates that almost 60 percent of the Central American/Caribbean region's population -- over 18 million people -- live in poverty. And, between 1980 and 1989 Central America's external debt tripled, reaching $27.3 billion.
Despite the increased foreign debt, falling exports, plummeting real wages and soaring levels of poverty, AID declared in 1988, "The health of the region's free trade zones is excellent and should continue to prosper." Today, there are 204 export processing zones in the Caribbean Basin region and Mexico. They house over 3,000 companies, employ over 735,000 workers and export $14 billion to the United States annually.
Cameron Clark, a leading promoter and consultant on privately owned export processing zones, predicts that 100 million square feet of free zone factory space will be created by the year 2000, split evenly between the Caribbean and Mexico, employing some 1.5 million maquila workers. According to the Virginia-based consulting firm the Services Group, over 55 multinational corporations including AT&T, General Electric, Marriott, Motorola, Rockwell International and Westinghouse have joined a corporate advisory group planning to create a 500-square kilometer "superzone" somewhere in the Americas "as a precursor to increased economic integration in the Western Hemisphere."
Research conducted for the World Bank by the Services Group indicates that a growing number of smaller U.S. companies are joining the larger multinationals in relocating offshore in free trade zones.
Cheap labor agreement
It seems certain that the implementation of the North American Free Trade Agreement (NAFTA) as it currently stands will mean even greater downward pressure on wages and living standards in Central America and the Caribbean. Not only will Mexico's 67 cent-an-hour minimum wage set the competitive standard for the region, but the CBI countries will have to make up for Mexico's greater proximity to the United States and the transportation cost advantage of a shared border. Industry analysts give the Caribbean Basin region 8 to 12 years to find market niches and to lower labor and other production costs in order to successfully compete.
The message has not been lost on the region's government and business leaders. For example, when asked at a recent business conference how the Dominican Republic would meet the challenge of NAFTA, Frederick Eman-Zade, executive director of the Dominican Republic's AID-funded Investment Promotion Council, explained that while a U.S. apparel company operating a maquila plant in Mexico will save $20,000 per worker per year in labor costs, the same company can save $23,000 per worker per year in the Dominican Republic.
The race to the bottom is on.
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