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 development 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 contractors, 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, wholesale apparel sales were $78.4 billion while retail sales were $211 billion in 1994. There are about 30,000 clothing manufacturers in the United States, which employ over 800,000 production workers in this country (down 30% from the mid-1970s). They directly or indirectly employ at least 400,000 people overseas. More textile and apparel is produced and sold 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 imported 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.
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 modern technology.
Large modern textile mills are prospering, as they continue to invest in new, capital-intensive technologies. Meanwhile, smaller, older mills,Junable to withstand 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 industries that served the domestic market are dying off throughout Latin America.
The clothing industry is marked by ferocious 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 competition with one another, deprived of their labor rights, and forced to accept the discipline of low wages and the market.
The textile-apparel industry can be pictured as a chain in which different segments of production and distribution are integrated to form a final global product--an article of clothing. Advances in transportation and communications technology as well as organizational changes in corporate management have dispersed the production of clothing across an unprecedented number of developing and Northern industrialized countries.
Competition favors producers and distributors that can operate in a consistent way at lower costs, particularly those who can sell at prices that are substantially above costs (due to technical and commercial advantages). Proximity to large markets saves transportation costs and reduces turn-around time. Long-term contractual relationships with large buyers and product designers offer another competitive advantage.
Because clothing manufacturing remains a labor-intensive process, the cost of labor is an important consideration. Large retail buyers have been able to take advantage of the availability of a global pool of workers who differ in their wages for historical, institutional as well as economic reasons--as well as outright repression of workers' rights in some cases. 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 segment, the most concentrated (at the level of production), 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 industrialized countries such as the United States, Mexico, Brazil, Chile, Argentina, Colombia and Venezuela. The United States, however, clearly dominates textile production in the continent.
The region is dotted with embattled, small-scale textile industries that produce natural fibers for internal 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 major exporter. Nonetheless, the relatively abundant supply of cotton in the hemisphere, the lower level of capital required to produce cotton fabrics, and formerly protected domestic markets sustained small cotton-production industries in countries such as El Salvador, Paraguay and Ecuador. Wool is another important natural fiber in the 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 fashion 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 categories 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 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 sudden 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 sportswear). 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. Geographical proximity 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 populations such as New York and Los Angeles offer another source of low-wage labor. Indeed, sweatshops are simply companies under contract with larger manufacturers 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. These sweatshops represent a reemergence of organizational forms and working conditions 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 international--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 companies 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 produce 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 suddenly 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.
If 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 concentration. 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. These department stores and, more recently, fast-growing discount mass-merchandise retailers like Wal Mart and Kmart constitute the most important single determinant of continent-wide production patterns.
Over the past decade, retail markets have been characterized by significant price slashing. Average retail clothing 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 manufacturers are around 2% below manufacturing as a whole.
These price reductions have been prompted by the slow growth of apparel demand associated with declining 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. 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 outlets like Anne Taylor and Banana Republic. The declining 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 operating costs substantially more than competitors through organizational innovations such as low-cost inventory-control methods, and through "outsourcing" garments from contractors who pay less than subsistence wages. As a result, these retailers have been able to offer consumers relatively less expensive clothing, which nonetheless includes a substantial markup.
Retailers are caught in a Darwinian battle for survival. More than half of all clothing stores in the United States today are expected to go out of business by the year 2,000. Mergers and consolidations among U.S. retailers have cut even further into the number of retail outlets. Fewer stores means fewer markets for apparel makers to sell clothes to. This allows the remaining retailers to exert considerable pressure on manufacturers, demanding lower prices, faster delivery, and better service.
Ironically, in spite of the increased number of U.S. garment imports from Latin America, the region's industry as a whole is in severe crisis, with much of its productive capacity idle. Latin America's traditional textile-and-apparel industry has notably declined since the late 1970s.
Meanwhile, countries that have garment-assembly enclaves such as the Dominican Republic and Guatemala are faring better, but not in ways that suggest long-term growth. In fact, these countervailing trends are often present within the same country. In El Salvador, for example, textile production declined by 40% and clothing manufacturing by 55% between 1975 and 1991, while the clothing sector as a whole grew 12% from 1985 to 1991, largely due to export-oriented assembly.
Neoliberal free-trade policies are largely to blame for the sorry state of Latin America's domestic textile and apparel industries. These policies opened up previously closed domestic markets, exposing national industries to fierce global competition. Austerity measures imposed by the International Monetary Fund (IMF) and World Bank exacerbated the region's already pronounced income inequality, decimating domestic markets. Fiscal austerity and cutbacks of state support have increased the cost of imported fabrics, equipment and other essential inputs into garment production.
Throughout Latin America, numerous companies that produced for local and regional markets are being wiped out by lower-cost imports of new and "second-hand" garments from the United States and East Asia as well as, in the case of South America, more industrialized neighbors such as Brazil. While these domestic textile and apparel industries were often outdated and inefficient, they nonetheless employed tens of thousands of workers. Only companies with access to both modern technology and export markets, usually through joint ventures with U.S.-based transnational corporations, have been able to survive.
These joint ventures, while still numbering only a handful, are growing rapidly. Perhaps the most dramatic example is the joint venture between North Carolina's Cone Mills and Mexico's top denim company, CIPSA. Cone Mills, the United States' leading textile exporter, is among the world's largest producers of denim fabric. One of its most important customers is Levi Strauss, with whom the company has a close partnerhip. Cone Mills and CIPSA are in the process of building the world's largest and most modern denim complex in northern Mexico, which will incorporate all segments of the fashion chain from textile manufacturing to the production of finished clothes. The complex will employ some 3,500 workers. They will be predominantly young men and women who, if paid at current local wages, will earn about $38 for a 48-hour week. This translates into a 70 cents per hour wage, compared to the $10 hourly wage typically earned by a unionized worker in a U.S. textile mill.
The most dynamic part of the region's apparel industry are the offshore garment-assembly operations. 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 normally three times higher than the industry's average. The fortunes made in this business come largely at the expense of the workers, the majority of whom are women and children who work as many as 50 to 80 hours a week at a miniscule wage. For example, a Liz Claiborne jacket made at the Doall maquiladora plant in El Salvador's Progresso Free Trade Zone sells for $178, while the workers making the garment earn just 56 to 77 cents per hour. The horrible conditions in which garment-assembly workers work and live have become the subject of increasing public outcry.
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 garments since it offered low-wage labor (20% to 30% of the 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 profits 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. protectorate, many companies found it appealing to set up their own manufacturing operations as well as a network 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 disappeared. 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 intensified and labor costs in Puerto Rico began to rise during the 1960s, U.S. apparel companies began to move elsewhere in search of cheaper labor. Most sought out contractors in Japan, Hong Kong, Taiwan, South Korea and other Asian countries. Others set up operations in the Dominican Republic, under the auspices of the U.S. government which wanted to promote economic stability there after the military invasion of 1965.
U.S. companies also began to take advantage of special trade and investment arrangements with neighboring Mexico in the 1960s. The much-publicized maquiladora program in the U.S.-Mexico border provided low wages, geographical proximity to the U.S. market, and political stability. These benefits gave U.S. companies a powerful incentive to locate labor-intensive manufacturing processes there. Today, Mexico's maquiladora sector employs about 100,000 workers in the apparel industry, and to a lesser extent in textile production. 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 themeselves into merchandisers, working as intermediaries between U.S. apparel manufacturers and retailers, and Mexican retail outlets.
Maquiladoras in Central America were established in the 1970s, but only registered significant growth during the mid-1980s. Revolution and political instability in Central America combined with low-wage competition from Asia prompted the Reagan Administration to initiate the Caribbean Basin Initiative in 1983. The accord established special tariffs and quota arrangements 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 inhibited through repression, as trade unionists were black-listed and even assassinated. Mandatory employee benefits and rights were weakly enforced. Employers, though, were quickly organized in exporters' associations like Fusades, the organization representing contractors in El Salvador, and CINDE, representing contractors in Costa Rica.
Textile and apparel now account for 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/apparel imports under the Caribbean Basin Initiative increased by 396.3% over the same period.
The maquilas offer certain advantages to the countries where they are located: they generate jobs and foreign currency. Parallels have been drawn between industrial development in East Asia, in which the assembly of garments and electronics for export supposedly "kicked-off" the growth of modern industry. But the thesis that maquilas are a first stage in the industrialization of the region is shaky at best. Control of production and distribution ultimately rests in the hand of a few, powerful U.S. retailers and brand-name manufacturers or jobbers. Moreover, the maquiladora industries offer few backward linkages with the local economy which might spur wider economic development.
The future of the clothing industry in the hemisphere looks bleak. It is likely to be marked by increased wage competition among workers and the loss 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 cooperation and solidarity that parallel the changes in how the industry operates. These new organizing strategies have already begun to emerge in the struggle against the North American Free Trade Agreement (NAFTA), against neoliberal economic policies, and for worker rights in the maquiladora sector. Alternative economic-development strategies will also be needed. As long as global commodity chains continue to discipline and direct the region's economies to satisfy the needs of powerful transnational corporations, the working conditions of people throughout the hemisphere are not likely to improve.
Source: NACLA Report on the Americas; Vol 29:4 pp 34-40. Copyright 1997 by the North American Congress on Latin America, 475 Riverside Dr., #454, New York, NY 10115-0122. For subscription information, email email@example.com
Hector Figueroa is assistant research at the Service Employees International Union.