The Challenge

With the expiration of the Multi-Fiber Arrangement’s (MFA) textile quota system in 2005, all textile-producing nations face new challenges, as up to 60% of post-quota global textile production will likely move to China. For the Central American nations, even with the new trade preferences provided by the Central America Free Trade Agreement (CAFTA), they will certainly lose a portion of their production market share to their dominant competitor.

Some garment manufacturers and industry-dependent nations are seeking to compete with China and India by tapping a market niche driven by large, reputation risk averse retailers from the US and EU seeking to protect their brands from the tarnishing accusations of sweatshop abuse and corporate social irresponsibility. Recent studies and practical experiences indicate that if a country’s garment sector is competitive in price, quality, speed to market and innovation, then “brand security”—in the form of verifiable labor rights compliance—becomes a significant factor in corporate sourcing decisions.

How GFI is Addressing the Challenge

The Central America Labor Rights Project project seeks to promote market-driven social responsibility as part of an industrial growth strategy in nations where garment production is critical to export growth, starting with Guatemala. The project is not designed to advocate the implementation of any particular model in Central America, rather the project seeks to introduce the Central American stakeholders to various tools developed in other parts of the world—including Bulgaria, Cambodia, Turkey and China—that could help the local industry meet the evolving compliance needs of international garment buyers.

With CAFTA’s ratification, the Central American garment industry is in a state of transition, as production consolidates and modernizes. The GILCA partnership is designed to help the Salvadoran and Guatemalan industry seize the moment—to seek out and implement innovations that are important to large-scale garment buyers, and to modernize their compliance as well as their production—they could be well positioned to compete into the future.

After nearly nine months of multi-stakerholder discussions, the project facilitated an agreement between the Government of Guatemala, labor unions, and the textile producers that will enable Guatemala to estalish reliable, transparent, systems to verify compliance with national labor standards. Government officials plan to fully implement this proposal in 2007, in time for the compliance sytem to demonstrate its effectiveness before the next presidential elections in 2008. GILCA partners are now turning their attention to the country of El Salvador, where a similiar exercise will begin in 2007.

The key to industrial growth based on this emergent market niche is verifiable, credible and cross-sectorally acceptable assurances of labor rights protection. There are various models in practice or under development in some garment producing nations which have already delivered increased employment, enhanced conditions and improved productivity in the garment sector. While likely not fully replicable, some of these models may have highly relevant applications to the nations of Central America.

Photo © Julie Aucoin