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Sweatshops Overrunning Honduras

HONDURAS

Workers reap what's sewn

Honduras has built a cluster of textile companies, taking advantage of cheap labor and close proximity to the United States.

BY JOHN AUTHERS

Financial Times
SAN PEDRO SULA - Few countries rely on their textiles industry more than Honduras.

The original ''Banana Republic,'' it is one of the poorest countries in the Americas, with an average per capita income of about $800 per year.

But in the last decade, imaginative government incentives have combined with canny exploitation of trade concessions and the international quota system to create a large cluster of textile companies.

Industrial parks cluster around San Pedro Sula, the economic capital.

They were set up under the maquiladora model, first used in Mexico, whereby foreign suppliers could import components duty-free, for subsequent untaxed re-export. Apart from cheap labor, Honduras offered a generous tax package -- no income tax, value-added tax or duties.

SAFE BET

It also offered a relatively stable political background, unlike its neighbors El Salvador, Guatemala and Nicaragua, all convulsed by civil wars during the 1980s.

It could also offer convenience. A good highway allows access in barely 30 minutes to Puerto Cortes, Central America's biggest port, which developed to transport pineapples and bananas. From there, it is only 22 hours to Miami.

International labor rights groups complain there are barriers to union recognition, to which Honduran officials reply that the sector's average wage of about $3,500 per year is more than four times the national average.

The ''value added'' by plants covered by the maquiladora scheme reached 6.5 percent of Honduran gross domestic product in 2003.

The sector employs 114,000 people, or 30 percent of the country's total formal industrial employment. The problem is the ending later this year of the Multi-Fibre Arrangement governing world quotas.

QUOTA CONCERN

Employment has stayed steady during the first three phases of the lifting of quotas. However, about 80 percent of Honduran garment production is simple products such as T-shirts, which are hardest to protect against low-cost producers, while 20 percent of the industry's employment comes from Asian companies who first located there because of the quotas.

Honduras' response is the Central American Free Trade Agreement, initialed by the United States and five Central American countries this year. However, it faces what could be awkward progress through the U.S. Congress. ''There are two things that are necessary -- a free trade agreement to trade with the U.S. duty-free and without limitations, and allowances between the U.S. government and Central American governments,'' said Norman García, trade and industry minister, who led the Honduran team at the CAFTA negotiations.

The government is also investing in improvements at Puerto Cortes, and in a new Textiles and Apparel University to train future managers and supervisors for the maquiladora plants.