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Game Playing by "Free Trade" Rules Results from Indonesia and Dominican Republic

Game Playing By Free Trade Rules

by TONI SOLO

"I eat propaganda,
With a side dish of promises.
Guess who am I?
That’s me, the Indonesian worker!"

That’s what over 200 Indonesian factory workers sang as they demonstrated in front of the Indonesian Labor Ministry in January 1991. The workers, mostly women, were also protesting against army involvement in the settlement of industrial disputes. Right through the 1990s companies like Nike, Reebok and Adidas as well as many other North American and European companies earned extortionate profits by exploiting such workers, taking advantage of political repression of basic labor rights. 1

Over a decade later, the politics may have changed but life for these maquila workers stays the same. In November 2002, Indonesian garment workers called for a boycott of the Gap company in protest at labor conditions in Asia. One worker was quoted saying, "We are treated like animals….We are abused if we do not work the way the supervisor wants."2

What’s true in Indonesia is also the case in Central America and the Caribbean. The apparel companies are ruthlessly consistent in their unscrupulous efforts to fix the outsourcing game in their favour. The origins of the game lie in the 1960s.

Opening moves: heads we win, tails you get massacred

1965 was a busy year for US foreign policy. Apart from deepening involvement in Vietnam, in April that year Lyndon Johnson put marines into the Dominican Republic. Johnson moved to support the country’s military dictatorship against a popular uprising in favour of President Juan Bosch, deposed by the military in 1963. Bosch’s supporters were on the brink of victory when the US marines arrived. The intervention enabled the military dictatorship to survive and implement yet more brutal repression to wipe out popular opposition.

In October that same year the US supported General Suharto’s military coup in Indonesia, leading there as well to over twenty five years of corrupt tyranny. US officials supplied information on opposition targets, facilitating the massacre of up to a million people perceived to be political opponents by the US-trained generals leading the coup. Max Frankel of the New York Times wrote at the time, "the Johnson administration found it difficult today to hide its delight…. officials were elated to find their expectations being realized."3

Those successful attempts at murderous, repressive political pattern cutting are still paying off. Forty years ago media rhetoric depicted a heroic United States saving the world from communism. Last year the unfortunate peoples of Indonesia and the Dominican Republic enjoyed the benefits of ranking 110 and 94 respectively in the UN’s human development index. Cuba ranked at 55.

Some development numbers

Skewed and failed international development policies ride on the back of US intervention. International aid bureaucrats clearly identify the problem. One Food and Agriculture Organization (FAO) official was quoted recently saying, "The role of capital is decisive…Investment in agriculture is a precondition for growth in incomes of the poor and the food supply."4 But policies imposed by anti-democratic international financial institutions dominated by the United States prevent poorer countries investing in agriculture.

Instead they promote manufacturing for the benefit of wealthy foreign and domestic elites. Agriculture as a share of GDP in the Dominican Republic has declined by around 45%, falling from from nearly 20% in 1980 to just over 11% in 2001. In Indonesia over the same period, agriculture’s contribution to GDP dropped by over 7% while manufacturing more than doubled. The effects of these policies appear in income distribution.

In the Dominican Republic, the poorest 20% of the population earn just 5 percent of national income, the richest 10% earn nearly 40%. Over 30% of the population live in poverty. In Indonesia, over 50% of people earn less than US$2 a day. The wealthiest 10% of the country receive about 30% of its income while the poorest 20% of people receive only 8%. These poverty levels and extremes of income inequality hinder economic development but provide a happy hunting ground for predatory foreign businesses looking for cheap labour in a business environment free of social and environmental responsibilities.

Rules of the game

The effect of US interventions and the purpose of US-supported repression from the 1960s to the present has been deliberately to curtail people’s fundamental social and economic rights. In these countries, companies have been able to take advantage of desperate poverty to pay the lowest wages possible. They have also benefited from cost-cutting manufacturing processes that pollute the environment. The local police and army take care of any protests. For these reasons, impoverished, politically repressive countries like the Dominican Republic and Indonesia were among the first to be exploited by foreign big business using the maquila system. It’s true that maquilas are big employers, with over 140,000 workers in export production zones in the Dominican Republic for example.

But sourcing their main inputs from overseas, paying poverty wages and exempt from export duties, benefits from these export production zones to local economies are few. Over the last decade environmental problems and the failure of free market capitalism to deliver sustainable development have become increasingly self-evident and embarrassing. Neglect of labor rights has been a prominent feature. In April this year the ILO issued a report citing 300 workplace accidents a day in Indonesia, the worst record in South East Asia. This may or may not be a direct result of the World Bank’s notorious East Asian Miracle report in 1994 which argued openly and forthrightly for the suppression of free trades unions.5

The Indonesian variation–Dita checks Reebok

People with the courage to organize and defend their rights have made some gains. In Indonesia, worker’s rights activists like Dita Sari have been arrested and tortured–presumably with the tacit approval of the World Bank–for their attempts to organize labor unions. In 1995, she was defending workers earning US$2 a day or less, making shoes for companies like Reebok and Adidas when she was detained and held for three years before being released following the fall of General Suharto. Suharto’s dictatorship was sustained for decades by Britain and the United States. Since her release she and other determined workers have worked hard to defend basic labor rights. 6

People like Dita Sari are very clear about economic realities. Explaining her rejection of a human rights award from Reebok in 2002, she stated, "In Indonesia, there are five Reebok companies. 80% of the workers are women. All companies are sub-contracted, often by the South Korean companies such as Dung Jo and Tong Yang. Since the workers can only get around $1.50 a day, they then have to live in a slum area, surrounded by poor and unhealthy conditions, especially for their children. At the same time, Reebok collected millions of dollars of profit every year, directly contributed by these workers… The low pay and exploitation of the workers of Indonesia, Mexico and Vietnam are the main reasons why we will not accept this award."7

How it plays in the Dominican Republic

In the Dominican Republic too workers have begun to make gains in the face of repression and intimidation. In September this year an International Confederation of Free Trades Unions report detailed cases of attacks on union activists. "There were eighteen members of the union committee last year when Grupo M attacked. Only one of them still works in the factory. After they began to organize, the company brought two gang members into the factory to begin attacking union supporters. Union members were chased by the gang members at work, and physically attacked with metal tubes, hammers, and machetes." 8

Even so, in March this year apparel workers at the BJ&B factory, one of the biggest maquila plants located near the capital Santo Domingo, secured wage increases and won management recognition for their union. The union now has a collective bargaining agreement. But maquila companies are responding to those hard won gains by seeking cheaper more vulnerable labor elsewhere.

The same Grupo M criticised in the ICFTU report is now beginning to relocate apparel production to Haiti with help from the repressive-business-friendly World Bank. A look at international comparative hourly pay (in US dollars) in the apparel industry for 2002 tells some of the story.

Indonesia $0.21

Vietnam $0.22

Bangladesh $0.28

Ethiopia $0.28

Pakistan $0.31

India $0.38

China $0.48

Haiti $0.49

Russia $0.70

Nicaragua $0.88

Colombia $0.94

Mauritius $1.25

Estonia $1.30

Honduras $1.50

Dominican Republic $1.65

Jamaica $1.83

Poland $2.07

Mexico $2.17

Israel $5.72

Spain $6.66

United States $11.11

Germany $15.20

Japan $17.29

Haitian wages are a third of those in the Dominican Republic and Honduras, half those in Nicaragua or Colombia. And while double those of Asian competitors, Haitian products have only to hop across the Caribbean to Florida to enter the United States. Finished products from China can take weeks to ship to the US market. 9

The Haitian gambit

Another part of the story is that World Trade Organization rules mean that the Dominican Republic will have to phase out tax exemptions for businesses in 2007. In effect Haitian quotas and tax exemptions will be taken over by Dominican Republic owned businesses to prolong their tax holiday. In October, the International Finance Corporation, a World Bank institution, agreed to loan over US$20m to Grupo M, to build a factory complex at Ouanaminthe on the Maribahoux Plain in north-east Haiti.

This business project shows up all that is wrong with international development thinking. The deal was cut between local elites in Haiti and the Dominican Republic and international financial institutions under the influence of the United States. Support for a volatile manufacturing enterprise supplanted long term sustainable agricultural production. The environment is being despoiled to deliver short term benefits for remote corporate entities while local people are exploited for their labor, but without basic infrastructure, adequate health or education services.

The UN has already expressed concern about desertification in north eastern Haiti. But the Grupo M project will accelerate it. Around 1200 acres of agricultural land and woodland will be devastated by the factories, their supply roads and the effects of the inevitable shanty towns that will spring up.

The first factory at the new free trade zone near Ouanaminthe opened in August 2003 with 300 workers making Levi’s Jeans. Grupo M expects to employ a total of 2,500 workers when the project is completed. Other companies hope to start up plants soon. But as the project develops employees are finding they are prohibited from organizing. Workers have already been fired for seeking improvements in working conditions.

The IFC insists that Grupo M received the loan on condition that it included the right to form labor unions in its Code of Conduct. But Codes of Conduct have not helped the Haitians fired for seeking better working conditions. Nor did they help the hundreds of unionised workers fired by the Tarrant-Mexico Ajalpan factory. That factory shares clients like Levi’s and Tommy Hilfiger with Grupo M’s plant at Ouanaminthe in Haiti. Liz Claibourne and Ralph Lauren are other brands supplied by Grupo M.

Umpires and referees–paid to rig the game?

Multiple labor rights recidivist Nike has also used advocacy of industry-funded monitoring and Codes of Conduct to cover up its failure to negotiate fair terms and conditions for workers producing its goods. Just as Grupo M is shifting labor intensive production to Haiti so Nike is sourcing its labor intensive processes in countries like China and Vietnam. As Jeff Ballinger of Press for Change puts it, "…now that independent unions have begun to gain some ground in Indonesia, production is shifting inexorably to China. Simply put, the very things that anti-sweatshop campaigners put at the top of the list–defending workers’ right to organize and those workers’ demand that Nike contractors sit down in dignity to collectively bargain–have been obscured by a blizzard of corporate self-reporting and other Nike-financed artifices aimed at reassuring consumers about the Nike corporation’s high regard for contract-workers’ aspirations."10

These Codes of Conduct and monitoring schemes stem from pressure on multinationals. As the market model has failed to meet people’s basic needs, local populations have organized to improve terms and conditions. They have been supported by consumers in wealthy countries. Companies like Nike, Adidas, Reebok, Liz Claiborne and others have faced the prospect of either losing business or doing better on labor rights and care for the environment. But their response, promoting business-friendly NGOs along with cosy social audit processes, attempts to lull unwary consumers rather than seriously address labor rights and environmental concerns.

The Council on Economic Priorities Accreditation Agency (CEPAA) based in New York and London approves professional firms to carry out social audits. Schemes like Social Accountability 8000 (SA8000) offer business standardized packages of training programs, guidelines and complaints procedures. The packages are based on International Labor Organization and UN conventions. But the scheme provides for little or no input from independent NGOs or workers’ organisations. Self-evidently, auditors are overwhelmingly influenced by the needs of their corporate clients. Arthur Andersen and Enron are only the most recent worst example of that. Other monitoring schemes are the Fair Labor Association in the US which morphed out of the Apparel Industry Partnership Accord in 1999, the Ethical Trading Initiative Base Code in the UK, and the Dutch Code of Labour Practices for the Apparel Industry Including Sportswear.

Have game will travel–Nike walks off with the board

None of these codes and monitoring procedures alter the fact that the only worthwhile substantive defence of workers rights is a direct freely negotiated agreement between workers and their employers. The recent behaviour of the P.T.Doson company in Indonesia showed clearly the uselessness of Nike’s adherence to any code of conduct. Nike had outsourced manufacturing to P.T.Doson who made 7000 workers redundant when production was cut back. Doson reneged on statutory obligations leaving thousands of workers without adequate severance pay.

Indonesian voices made the story clear to the Globalization and Labor Rights Panel in Davos in January this year. Ida Mustari a garment worker said, "After working for nine years I earned approximately US$70 per month. That was not enough to cover basic needs…. In September 2002 about 7,000 workers were laid off from PT Doson when Nike stopped the orders and the factory was closed. The Doson factory is refusing to pay workers the full severance pay required by the Indonesian government. Even if Nike is not required by law to contribute to workers severance pay, Nike has a moral responsibility. A lot of these 7,000 workers have families but they can’t support their families any more, while for over 10 years Nike has profited from our hard work."11

Union representative Yeheskiel Prabowo explained, "Doson Director Sin Jung Yang, claims that the factory, which has been producing shoes since 1993, has routinely filled complex orders that cannot be handled by other subcontractors…. Nike also encouraged Doson to expand and build a new factory. Yet when the factory was expanded in mid 2001, Nike reacted by withdrawing its orders, making the expansion pointless."12

Nike’s profits are based on the company’s ruthless outsourcing policy, chasing the cheapest wages from one country to another as soon as workers organize to defend themselves. Whether it’s from Indonesia to China or from Dominican Republic to Haiti, the story of greed and opportunism stays the same. In the case of Grupo M, the greed is funded by the World Bank’s IFC.

Nike is big enough not to need any funding to facilitate its opportunism. Penniless, vulnerable workers yield all the funds it needs. Yeheskiel Prabowo also said at Davos, "We are concerned that just as free and democratic unions are starting to emerge in Indonesia and to campaign for better working conditions, foreign investors like Nike are reducing their investment and moving to countries where union rights are not respected"13, like China and Vietnam.

Hey, this looks like a good place–heads or tails?

But even within China, having dumped its long-suffering Indonesian workforce, Nike is pressuring suppliers to cut costs. The only costs those suppliers can cut are labor costs and costs incurred manufacturing responsibly so as to protect the environment. In November this year the Standard and Poor’s rating service assigned a BBB rating to the Yue Yuen company who supply Nike, Reebok and Adidas. The company supplies around 17% of the world market in athletic and casual shoes. Yue Yuen have just issued a US$300 million bond to raise capital. The bond matures in 2008.

Standard and Poor’s says, "Yue Yuen is controlled by Taiwan’s Pou Chen Corp., which has a 49.8% stake in the company, and the Tsai family, which has a 19.9% interest. The rating reflects Yue Yuen’s leading market position, low cost operations as a result of economies of scale and low cost production bases, healthy internal cash generation, and strong financial flexibility. These strengths are partially offset by increasing pressure on pricing from Yue Yuen’s customers and high customer concentration."14

In plain laguage Standard and Poor’s are saying that Taiwan-controlled Yue Yuen, producing mostly in South China, grind their workforce as hard as they can but are still being pressed by Nike, Reebok and Adidas to cut costs even more. And when the "high customer concentration" firms like Nike, Reebok and Adidas decide to cut and run, Yue Yuen will dump its workforce just as P.T.Doson did in Indonesia.

As Congressman Sander Levin stated in May this year following a visit to Central America, "Efforts by American retailer-purchasers to promulgate and implement private business codes will not make up for a lack of a basic governmental and societal structure…..The solution has to be labor laws that are adequate, respected, and enforced."15If people in Congress had been making that kind of speech back in 1965, millions of people around the world might have avoided penury and had some chance of a decent life.

TONI SOLO is an activist based in Central America. Contact tonisolo01@yahoo.com

NOTES

1 "INDONESIANS PROTEST PROPAGANDA DIET WITH PROMISES ON THE SIDE" Reuters. Jakarta. 18 June 1991.

2 "Workers Call for Holiday Gap Boycott" By IAN STEWART. The Associated Press State & Local Wire, November 28, 2002

3 "Elated U.S. Officials Looking to New Aid to Jakarta’s Economy", Max Frankel, New York Times, March 13th 1966

4 Hartwig de Haen, assistant director of the FAO’s economic and social department in Washington. Quoted in "How the world is getting hungrier each year" By Paul Vallely, Independent, London 26 November 2003.

5 "The East Asian Miracle". Report prominently featured on the World Bank’s web site, available in paperback from the bank for $23.95.

6 "Running From Reebok’s Hypocrisy" by Alexander Cockburn, February 7, 2002.Los Angeles Times

7 Statement by Dita Sari of the National Front For Indonesian Workers Jakarta January 29, 2002

8 "Export Processing Zones: Symbols of Exploitation and Development Dead-End" International Confederation of Free Trades Unions Report, September 2003

9 (Includes wages and fringe benefits) from Consulting Network Jassin O’Rourke Group LLC of New York City cited in "TROUBLES LOOM FOR CARIBBEAN PRODUCERS WHEN THE WORLD QUOTAS ARE LIFTED IN 2005, GOODS FROM ASIAN NATIONS WILL FLOOD U.S. MARKET" By Doreen Hemlock. Sun-Sentinel (Fort Lauderdale, FL) November 24, 2002.

10 "Spin to Win: How Nike Profits by Lies and Distortion" By Jeff Ballinger, No Sweat News, April 21, 2003

11 Yeheskiel Prabowo, FSPTSK Union representative, Davos Globalization and labour rights panel, 27 January 2003

12 Ida Mustari, Worker at the PT Doson factory. Davos Globalization and labour rights panel, 27 January 2003

13 OXFAM-Community Aid Abroad Press release "Footloose Nike leaves workers rights behind" January 27th 2003 -

14 PRESS RELEASE: "S&P Rates HK Yue Yuen’s Convertibles BBB", Hong Kong Standard & Poor’s, November 28th 2003

15"Central America Free Trade Agreement and Beyond: Seizing the Opportunities and Addressing the Challenges" Congressman Sander M. Levin Ranking Democrat, Subcommittee on Trade, Ways and Means Committee. Speech before the Center for Strategic and International Studies. May 19th, 2003