Bobbin / November 1995
By Larry Luxner
Competition from neighboring Mexico is threatening one of the brightest sectors of Guatemala's economic future: the apparel assembly industry.
"Guatemala has ceased to be the promised land for the maquiladoras," wrote Jessica García Kihn in a recent edition of La Cronica, one of Guatemala's largest and most influential newspapers. "The drying up of incentives for investment and the North American Free Trade Agreement have banished that industry from the country, leaving over 10,000 people unemployed."
Indeed, NAFTA -- together with U.S. threats of restraining Guatemalan exports of cotton and synthetic fiber skirts -- are worrying many manufacturers and workers alike in Central America's largest and most populous nation.
Recently, Guatemala's largest organization, the Coordinating Committee of Agricultural, Commercial, Industrial and Financial Associations (CACIF), produced a 53-page position paper lamenting the nation's "lack of course or direction" and "the high degree of poverty in our country." According to the report, only 60% of Guatemala's 10 million people have access to potable water and health services, 37% to electric power and 2.7% to telephones. CACIF says that some $66 billion will have to be spent over the next 25 years to remedy these ills. This would require tripling current tax income, but CACIF also calls for holding the line on Guatemala's current low tax levels.
At the same time, a number of firms that provide employment in Guatemala -- mainly Korean-owned apparel companies -- have been denounced for violating labor laws, even though none have been prosecuted.
A much greater threat comes from Washington. In September, the United States was poised to slap quotas on several new categories of Guatemalan apparel imports on the grounds that such imports were damaging U.S. industry. According to an article in The Journal of Commerce, Guatemala exported 319,000 dozen skirts in the 12 months ending February 1995, a 22% jump from the previous year. The newspaper said other categories, including men's wool suits, various types of women's and men's shirts, and cotton and synthetic fiber nightwear, are already restricted under terms of a bilateral agreement between the United States and Guatemala.
And from nearby Mexico City comes the threat of more peso devaluations, which only make Mexico a more attractive place from which to manufacture. In 1994, Guatemala lost 74 companies to Mexico, according to GEXPRONT (the Union of Exporters of Non-Traditional Products). Another 29 have left so far this year. One manufacturer, Lee Thomas, has reportedly canceled production orders to 18 Guatemalan subcontractors.
Nevertheless, during the first five months of 1995, Guatemalan apparel exports to the United States under Item 807 came to $190.6 million, up 30% from the $146.8 million recorded for the same period in 1994. Guatemalan exports of cotton shirts to the United States remain in first place among nations of the Caribbean Basin.
According to GEXPRONT, 350 maquiladora firms operate in Guatemala City and in the departments of Sacatepequez, Chimaltenango, Baja Verapaz, Quetzaltenango and Iazabal. These companies provide jobs for nearly 70,000 Guatemalans. According to Carlos Arias, owner of the Cardiz Inc. factory, "every sewing machine installed generates at least two direct jobs. If the investors had not chosen to go to the neighboring countries, at least 20,000 jobs would have been created."
For that reason, the Guatemalan Embassy in Washington is lobbying hard for passage of the Crane bill -- a measure officially known as the Caribbean Basin Trade Security Act. If passed, it would extend NAFTA benefits to all 24 CBI signatory nations for 10 years. It would also permit -- for the first time -- duty-free imports of previously dutiable items from the Caribbean Basin.
"This measure would help preserve our original commitment to help foster economic expansion and political stability in the Caribbean and Central America," Crane said upon introducing the bill earlier this year. Indeed, GEXPRONT argues that "a dozen pairs of pants manufactured with fabric from the United States and assembled in Mexico pay zero percent of the import tax. On the other hand, if they are processed in Guatemala, a 17% tariff must be paid for them to enter the U.S. market."
But Mexico isn't Guatemala's only competitor. Arias says the incentives offered by El Salvador and Honduras are much better than those of Guatemala, which GEXPRONT says is "limited by an overvalued exchange rate, and by high interest rates, which prevent the procurement of favorable loans."
Guatemala's only immediate salvation, it appears, is passage of the Crane legislation on CBI/NAFTA parity. As Arias told La Cronica: "The White House has been rabidly opposed to backing the bill. That is why it is vitally imporant that President Ramiro de León take action on the diplomatic level. If there is no positive response before year's end, it will be the end of Guatemala's maquiladoras."