Maquilas: End of Quotas Threatens Central American Region

This information appeared in the July 2004 issue of the U.S./Labor Education in the Americas Project (US/LEAP) newsletter.
Posted August 4, 2004

In this report:

1. An explanation of the Multi-Fiber Agreement (MFA);
2. What may happen when it expires January 1, 2005
3. Suggestions for action

What is the Multi-Fiber Agreement (MFA)?

Apparel production around the world is headed for a seismic shift when the long-standing quotas of the Multi-Fiber Agreement (MFA) are completely phased out at the end of this year.

While apparel quotas were originally initiated in 1974 primarily to protect the apparel industries of developed countries from rapidly-growing exporters like South Korea and Taiwan , providing quotas for each country had the impact of creating apparel export industries in countries that had not previously been major apparel exporters. For example, Korean and Taiwanese apparel manufacturers began investing in Central America in the late 1980s and early 1990s after they reached their own quotas and were no longer able to increase exports from their home countries. By taking advantage of quotas set aside for Central American countries, Korean and Taiwanese investors played a major role in the rapid expansion of the apparel industry in the region over the last 15 years, with the quotas providing an export platform somewhat protected from an open market.

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What could happen when it expires?

Now, the long-scheduled phase-out of the quotas will end this protected platform and enable companies to shift production to whichever countries provide the best business deal. The general consensus of industry analysts is that China will be the big winner; the only question is how much, with some analysts arguing that China could account for as much as 90% of global apparel export production in a few years. Others are skeptical of this number but agree that there will be a major shake-out in the industry that is likely to have negative ramifications for hundreds of thousands of apparel workers around the world, including the U.S.

Various studies suggest that Mexico and high-cost Caribbean countries will be losers as well as Honduras , while Guatemala has done a better job at positioning itself to survive the end of quotas. Some apparel analysts point out that cost is not the only factor for retailers. Gap, for example, has been clear that it intends to retain some production in Central America and does not want to put all of its eggs into one basket. Physical proximity to the U.S. market is another factor that works to the region's advantage.

Nevertheless, major shifts are expected. Not surprisingly, anti-union employers in Mexico and Central America have begun citing the phase-out of MFA as one more reason why they can't afford unions–and to shut down plants.

While there are growing demands that phase-out of the quotas be suspended or slowed, doing so would require a unanimous action by the World Trade Organization (WTO), which is considered highly unlikely.

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What can be done?

The Interfaith Center for Corporate Responsibility has initiated a letter-writing campaign to retailers urging them to approach the transition in a socially-responsible fashion. See ICCR's webpage at www.iccr.org for background information on MFA and suggested actions. ICCR encourages investors and consumers to write to textile and apparel companies and urge them to provide information on their plans to address the phase out of the MFA and whether their plans address the disruptions to their supply chain, the potential dislocation of workers in factories where they currently source products or other social impacts of the MFA expiration. Go to: http://www.iccr.org/issues/css/mfa_companies.PDF for a list of companies.

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