AMBASSADORS HERTELL AND SANDERSON TOUR

UNCLAS SANTO DOMINGO 003482 SIPDIS SENSITIVE SIPDIS DEPT FOR WHA/CAR, INR/IAA; SOUTHCOM ALSO FOR POLAD E.O. 12958: N/A TAGS: DR PGOV PREL ELAB KTEX ECON ETRD EINV HA SUBJECT: AMBASSADORS HERTELL AND SANDERSON TOUR DOMINICAN-OWNED TEXTILE FACTORY IN HAITI REF: SANTO DOMINGO 3129 ¶1. (U) SUMMARY: On October 19 U.S. ambassadors to the Dominican Republic and to Haiti visited a "maquiladora" in the Haitian CODEVI Free Trade Zone (FTZ) owned by Dominican corporation Grupo M. The enterprise directly employs around 1,500 Haitian workers in garment assembly. It hopes to expand this number to 10,000 by 2009. Production costs are nearly 25 percent less in Haiti than across the border. Human rights reports from the Department of State have cited complaints about Grupo M's labor practices, but the company's 2005 agreement with labor unions appears to be holding. Grupo M has lost nearly USD 7 million in the CODEVI facility since its 2003 inauguration, but remains optimistic about the future of textile production in Haiti. END SUMMARY. - - - - GRUPO M - - - - ¶2. (U) Founded in 1986, Grupo M is the largest private sector employer in the Dominican Republic, with 12,200 employees working in 13 production facilities, and it is the largest apparel producer in the Caribbean/Central American region. Grupo M's main production facilities are located in two industrial zones developed by the group in Santiago, Dominican Republic. It supplies to major U.S. brand name companies such as Liz Claiborne, Polo, Levis, Hanes and Tommy Hilfiger. Fernando Capellan and family members are the controlling shareholders. ¶3. (U) Since 2003 Grupo M has operated two factories in the CODEVI Free Trade Zone (FTZ) in Ouanamithe, Haiti. The operations employ approximately 1,500 Haitian workers and are currently the only major industrial facilities operating there. The FTZ was developed in a region of northern Haiti adjacent to the Dominican border and the facility has its own dedicated border crossing. - - - - - - - - - - - THE AMBASSADORS' TOUR - - - - - - - - - - - ¶5. (SBU) Grupo M executives invited Ambassador to the Dominican Republic Hans Hertell and Ambassador to Haiti Janet Sanderson to tour their facilities on October 19. Grupo M had invited Ambassador Hertell previously, but labor unrest at the facility had prompted postponements. ¶6. (SBU) Grupo M officials appeared eager to seize the opportunity to generate positive media coverage for their facility. Company officials had drafted a joint press release that stated, among other things, that Ambassadors Hertell and Sanderson were "enthusiastic" about the work being done by Grupo M in Haiti. At USG request, the press release was toned down. The company had arranged to have present a television news crew from Santiago, Dominican Republic, to interview ambassadors at the visit's conclusion. - - - - - WHY HAITI? - - - - - ¶7. (U) Garment and textile production in the Dominican Republic generated nearly 100,000 jobs and over 30 percent of Dominican export earnings in 2005. But competition from lower-cost Asian suppliers in recent years had caused company closures, with the loss of some 40,000 jobs. Dominican garment and textile production fell by 10 percent between 2004 and 2005. The sector's total manufacturing employment fell by 30 percent during the same period. This year exports to the U.S. market are expected to fall by another 20 percent. Reftel predicts that free trade agreement DR-CAFTA is likely to provide a boost for the industry, but not enough to sustain it alone. ¶8. (U) Many see the use of Haitian labor as an attractive alternative for the increasingly uncompetitive Dominican textile industry, handicapped by the Fernandez administration's determination to maintain a moderately overvalued peso. Manufacturing labor costs in Haiti are 25 percent less than across the border, Capellan says, while Haitian employees are just as skillful and hard-working as their Dominican counterparts. Within ten years, he predicted, the bulk of the Dominican garment industry will have moved to Haiti. - - - - - - - - - - - - - - - DEVELOPMENT OF THE CODEVI FTZ - - - - - - - - - - - - - - - ¶9. (U) In 2001 Grupo M secured a USD 20 million loan from the World Bank's International Finance Corporation (IFC) to develop the CODEVI FTZ. Prior to 2001, Grupo M executives say, Haitian law did not allow for the creation and satisfactory operation of FTZs, so the company worked with the Haitian government to obtain all necessary changes. ¶10. (U) The project is a phased development of a site of 500,000 square meters in Haiti, contiguous to the Dominican Republic near Dajabon, Montecristi province. The first phase of the investment project - development of an area of 150,000 m2 and creation of 1,500 direct jobs - has been more or less completed. ¶11. (U) The development plan had envisioned recruiting further operations to produce apparel, footwear and other products, in facilities leased or purchased from Grupo M. The plan had projected that these expansions would create up to 20,000 direct jobs. Though the second phase has not come to pass, Grupo M maintains that they will expand their own presence to include up to 10,000 employees by 2009. ¶12. (U) The company presentation notes that the Haitian government evicted some 184 farmers and their families from the site to make possible the construction of the FTZ. Capellan insists that the action was not an expropriation, although, tellingly, his own PowerPoint presentation states that "more than 108 families whose lands, where today operates the FTZ, were expropriated by the Haitian government" (sic). The Haitian government has taken no steps to reimburse the affected families, Capellan said. He commented that that Grupo M has provided them with some assistance of its own. - - - - - - - - - - - - - - - - CORPORATE SOCIAL RESPONSIBILITY - - - - - - - - - - - - - - - - ¶13. (U) Company officials noted that some efforts at community outreach programs had been implemented, but that these had had mixed results. Their efforts to provide vaccinations to their employees, for example, ended in accusations that the company,s real intent was to sterilize the community. For these and other reasons, company officials repeatedly defended their lack of broader community outreach programs, saying they worried that programs like HIV/AIDS testing (which they currently do not provide) could be misinterpreted. They requested USAID assistance in expanding their community outreach efforts; USAID representatives replied they would consider their request. - - - - - - LABOR ISSUES - - - - - - ¶14. (U) The Department's Human Rights Report on Haiti records that workers began complaining of exploitation and mistreatment by management of the Grupo M textile company only months after it opened. Rounds of strikes and violence by union members, supported by "Batay Ouvriye," a labor organization of peasant workers, were followed by a series of employee terminations by the company throughout that summer. Grupo M was on the verge of terminating its CODEVI operations, but under pressure from major corporate clients the firm reversed course, reaching an agreement with Batay Ouvriye and SUKOWA (the employees' union) last year. ¶15. (U) Since then, both sides have adhered to their sides of the bargain. Grupo M has gradually rehired laid-off union workers, and Batay Ouvriye negotiated responsibly with the company management. Company officials stressed to visitors the effectiveness of their collective bargaining arrangement with the employee unions and expressed satisfaction with the manner in which it has evolved. Grupo M's General Manager commented that SUKOWA, the main employee union, had only 15 members; in subsequent e-mail correspondence Batay Ouvriye disputed this remark. ¶16. (U) Whatever the problems, Grupo M's labor policies at CODEVI appear to be more generous than the company's practices in the Dominican Republic. Dominican unions allege the company discriminates against labor organizers, fires their members, and has created a fraudulent "scab union" in order to circumvent the legitimate one. The company is currently involved in a legal dispute concerning this last accusation. - - - - - - - - - - - PROFITABILITY CONCERNS - - - - - - - - - - - ¶17. (U) Capellan blames labor unrest and political turmoil for the losses of nearly USD 7 million that Grupo M has experienced since the project's inauguration in 2003. He says another company had invested in the FTZ at around the same time as Grupo M but abandoned the project due to violence and political instability in Haiti. ¶18. (U) Still, at their October 19 briefing company officials were decidedly optimistic in their outlook. Grupo M was determined to expand employment at its CODEVI facilities, they said, to 2,250 by next year and to 10,000 by 2009. Capellan was particularly enthusiastic about the prospect of using the opportunities provided by the regional free trade agreement DR-CAFTA to export Haitian-produced garments duty-free to the U.S. market. Capellan said Grupo M is seeking to get approval from major clothing companies Liz Claiborne and Gap to use Haitian facilities. Bad press generated during Grupo M's labor problems in 2004 has not helped the company's efforts in this respect. ¶19. (U) Drafted by Alexander T. Bryan. ¶20. (U) This report and extensive other material can be consulted on our SIPRNET site, http://www.state.sgov.gov/p/wha/santodomingo/ HERTELL