The Maquila in Guatemala: Facts and Trends

Prepared by Corey Mattson, STITCH volunteer
Updated by Marie Ayer, STITCH volunteer

What is a Maquila?

The use of the word 'maquila' in Central America originates from the Arabic word makila, which referred to the amount of flour retained by the miller in compensation for grinding a farmer's corn in colonial times. Today the term retains some of its original meaning. In current usage, a maquila is a factory contracted by corporations to perform the last stages of a production process --- the final assembly and packaging of products for export. Transnational corporations (TNC's) supply maquilas with the pre-assembled material, such as cloth and electronic components, and maquilas employ workers to assemble the material into finished or semi-finished products. The maquilas then export 100% of their products back to the TNC's.

The maquilas of Guatemala and other developing countries are one consequence of economic globalization and the "global factory" system. In some industries, entire production processes once housed under the roof of one factory have been dispersed to numerous production centers around the world. But, as has been the reality for centuries, the production processes have not been split equally between industrialized and developing countries. In the industrialized countries of the "North", the TNC's design and engineer the products, plan production processes, supply the raw material, and sell the finished products. In developing countries of the "South", the workers in maquilas assemble the saleable product, working for extremely low wages and without basic rights. In this developing "global factory" system, the maquila is a new center of production, where low-paid workers cheaply provide a significant share of the world's industrial labor.

A Short History of the Maquila in Guatemala

In 1984, there were only 6 maquilas operating in Guatemala, employing fewer than 2,000 workers. At this early date, most Guatemalans had not heard of the maquila. By 1992, however, the number of maquilas in Guatemala had climbed to 275, employing over 50,000 workers who produced $350 million in garments for export to the United States. What happened within during this 8 year period to bring about the maquila boom in Guatemala? What is the history behind the maquila revolution?

Beginning in the early 1970's, corporations faced a severe crisis of profitability. As profit rates fell to dangerously low levels, TNC's looked into increasing productivity and lowering production costs to restore profitability. One such way to restore and maintain the profit margins in their firms was to attack the gains of industrial, oftentimes unionized, workers. Companies started to slash their wages and destroy their unions. However, the already-unionized workers of the "North" refused to accept the massive wage cuts desired by the corporations. Rather than risk a protracted fight with unions in these richer countries, corporations decided to move their easily transferable, labor-intensive production processes completely overseas. They began to contract with independent maquilas to do the work for them. (The apparel industry was especially susceptible to dislocation, since the labor process is uncomplicated and easily transferable.) Whether by reducing wages in the North or moving their factories to the South, the TNC's stood to benefit tremendously with windfall profits, gained at the expense of workers in both the industrialized countries and developing countries.

Despite the global economic forces favoring maquila development all over the world, the maquila boom in Guatemala did not happen overnight. In fact, the development of the maquila arrived late in Guatemala in comparison to other countries in Central America and the Caribbean Basin. From 1966 to 1982, three laws were passed to attract maquila investment to Guatemala, yet substantial maquila growth did not materialize. In fact, the U.S. Agency for International Development (U.S. AID) spent millions of dollars to foster maquila development, but these U.S.-backed efforts produced no results in the 1970s. Many potential investors, foreign and domestic, were scared away by the political insecurity caused by the guerilla insurgency in the countryside and the military's counterinsurgency war. After U.S. President Carter reduced economic aid to Guatemala as a punitive measure for its deplorable human rights record, the AID project was sidelined until 1986. Indeed, Guatemala would have to improve its human rights record if it expected to attract foreign investment and entrepreneurial expertise for maquila development.

In the 1980's the conditions for maquila investment improved significantly, setting Guatemala upon a course that AID promoters and entrepreneurs describe as "maquila-led industrialization". The single most important factor was the revival of U.S. foreign assistance. U.S. AID revived its maquila promotion program as part of its economic aid package to Guatemala in 1986, led by experienced personnel of the maquila industry. Within three years, general U.S. official assistance totaled more than $800 million dollars, doubling the U.S. assistance given to Guatemala in the preceding 40 years. As its primary goal, U.S. AID sought to cultivate in Guatemala a new class of maquila entrepreneurs, a class that would eventually lead and manage the "neo-liberal revolution" in Guatemala. The newly established Nontraditional Products Exporters Association (AGEXPRONT) began promoting and assisting companies to export non-traditional products, like raspberries, flowers and clothing. The organization of this trade association, funded by millions of U.S. taxpayer dollars, increased the strength of both domestic entrepreneurs and U.S. corporate interests, further helping facilitate changes in favor of maquila expansion in Guatemala.

Within a few years, U.S. AID and the newly organized entrepreneurs easily won important legislation to establish the economic and legal framework for the fledging maquila industry. The Guatemalan government passed three specific laws that guaranteed certain benefits to maquila entrepreneurs: Decree 21-84 (1984); Decree29-89 (1989); Decree 65-89 (1989). Altogether, these decrees bestowed to maquila entrepreneurs a ten-year tax "holiday", low customs duties, and streamlined bureaucratic procedures. Now with this massive organizational and financial assistance, a legal framework, the required financial incentives, and expectations of a future peace signing between the government and Guatemala National Revolutionary Unity (or the URNG), the maquila boom in Guatemala began in earnest. According to the United States Department of Commerce, the value of Guatemalan apparel imports to the United States rose from $6.4 million in 1983 to $349.6 million in 1991. By the year 2000, Guatemala’s total exports amounted to $2.7 billion, $395 million of which came specifically from apparel exports.

The U.S. AID program was coupled with trade benefits for Guatemala and the region under the Caribbean Basin Initiative (CBI) , designed by the Reagan Administration to curb political instability and Communist insurgency in the region. Under CBI, duty (or import tax) would be charged on the “value added” to products assembled from U.S. materials. Although this duty still applied to apparel imported from the region, quotas were liberalized, meaning that companies were allowed to ship more goods to the U.S. Thus the Caribbean basin offered cheap access to the coveted U.S. market. Seeking this market access and fleeing strong labor movement and rising labor costs in their own countries, many East Asian investors set up shop in Central America. In Guatemala, the Korean Embassy facilitated a veritable boom of Korean investment in the late 1980s. Guatemala continues to have one of the highest concentrations of Korean-owned apparel plants outside of Korea. In Guatemala, almost 60% of maquilas are Korean-owned. In contrast, U.S. investment directly owns only 7% of the maquila industry in Guatemala.

The Social and Economic Impact of the Maquila

The impact of increased maquila activity is visible throughout peripheral areas of Guatemala City, where large, new factories dot the rugged landscape and shantytowns of tin and cardboard amble up precariously steep hills. Despite the tremendous growth of maquilas in Guatemala, some argue that maquilas and "free trade", by themselves, have not provided the country with a sensible and humane path to industrial development. As the industry has functioned thus far, the maquila sector operates as a foreign "enclave" within Guatemala, an export platform for multinational corporations without significant connections to other branches of the Guatemalan economy. Two points should be made concerning the "enclave" nature of the industry. First, maquila owners (both foreign and Guatemalan) take advantage of the low cost of labor within the country, as well as the incentives offered by the Guatemalan government and international trade rules, to cheaply and conveniently access the gigantic United States apparel market. Secondly, it has been argued, much of the increased growth of maquilas does not greatly benefit local economies through increased overall investment. Assembling imported inputs into low value goods contributes very little value to the country’s economy. In fact most of the maquila profits are repatriated to the United States or Asia. Like the small amount of corn paid to the miller for his or her service, the meager wages paid to workers are the main economic benefit to the country.
The maquila has been the birth of a new working class in Guatemala, comprised of tens of thousands of workers, many of whom have left their landless poverty in the countryside to seek their fortune in the city. According to the non-traditional export association, today over 100,000 persons work in approximately 250 maquilas in Guatemala. Another 15,000 persons work in maquila related jobs such as factory security and transportation of workers (Trejo 2002, p. 25).

Approximately 80% of maquila workers are women, a significant fact given that men have historically constituted the vast majority of manufacturing workers. (Note: As a result of the current economic crisis in the country, the number of men working in the maquilas is on the rise, as is their inclusion in work traditionally done only by women in the maquila such as sewing and cleaning. What impact this change will have on female workers remains to be seen.) More women are now working outside the home in the formal economy than ever before, but for low pay and for long hours. In the present day, women maquila workers are organizing against great odds to fight the oppressive working conditions in the maquilas.

Working Conditions in the Maquilas of Guatemala

The working conditions inside maquilas are often appalling. Unventilated workrooms, unsafe workshops, verbal abuse, sexual harassment and abuse, firings for pregnancy, arbitrary dismissals and forced overtime are just some of the issues workers face in Guatemalan maquilas. Given this grim reality and the fact that conditions vary from factory to factory, most maquila workers do not work in the same plant for very long. In fact, somewhere between 10% and 30% of the maquila workforce resigns or is fired every month. Most maquila workers move from job to job, seeking the best rate for their time. Many work only long enough to save money to start their treacherous trek to the U.S.

Currently, the industry minimum wage is $3.70 (Q29) per day plus a variety of production bonuses arbitrarily calculated and inconsistently awarded by the owners of the maquila. With production bonuses and overtime, a good machine operator in a large maquila earns about $170 (Q1300) per month. Minimum living expenses for an average family (5.38 members) calculated by the national institute of statistics for April 2000 was $284 (Q2185) per month. According to the UN Mission for Guatemala, the majority of Guatemalan workers would need a 140% salary increase to reach a decent standard of living.

In addition to the stress of supporting a family on a maquila wage, many workers incur health problems due to factory conditions. Bathroom access is restricted causing kidney infections. Permission to see a doctor is usually denied, allowing illness to reach a critical stage before it is treated. Respiratory problems are common due to poor ventilation. The legal workweek is 44 hours long; nevertheless, it is not uncommon to work 70 to 80 hour weeks in the maquila. This increases the number of industrial accidents and causes repetitive motion injuries. All told, many workers do not work more than a few years in the maquila before health problems force them back into the informal economy.

Worker Solidarity

In an effort to change these conditions, maquila workers have repeatedly attempted to organize unions in Guatemala. However, this has proved to be extremely difficult. There are currently only two independent maquila unions in Guatemala, and neither have collectively bargained contracts yet. Although both the Guatemalan Constitution and Labor Code guarantee workers' freedom of association hardly any of these laws are enforced. This leaves workers extremely vulnerable to employer attacks. Unionization campaigns by workers are routinely met with retaliatory firings, psychological intimidation, the relocation of factories, and even attempted murder. The history of the union campaign at the Camisas Modernas plants, owned by Phillips Van Heusen, reveals the obstacles to union organizing in Guatemala. After 10 years of brave union struggle and a well-organized U.S. solidarity campaign, workers won their union and the first union contract on the industry. However, one year after the victory, PVH shut down the factory and shifted production to five different non-union plants in the area.

The Future

With changes in international trade rules in store, the maquila in Guatemala will be facing serious restructuring. As of 2005, Central America and Caribbean basin countries will no longer have privileged access to U.S. markets, as textile quotas across the world come to an end, trade preferences disappear, and tax incentives are abolished (Clewer 2002, p.4). At the same time, China will become fully integrated into the world market, unleashing on to the market a huge productive capacity for both high and low value products, and approximately 1 billion extremely poorly paid workers (Clewer 2002, p. 4).

If Central America cannot compete in the maquila sector based on its previous selling points (low salaries, preferential access to the US market, and special tax incentives) it must develop new attractions for maquila investors. Central American and Caribbean countries biggest asset is their proximity to the U.S. market, which would allow them to specialize in high value fashion sensitive products that are subject to change every four to six weeks according to consumer trends. Perhaps Guatemala, more than any other Central American country, is well positioned to do just that. In response to the changing strategies of U.S. transnational clothing corporations that no longer want the logistical risk and cost of actually producing the clothing, nor the direct responsibility for working conditions in the production chain, the Guatemalan business sector has been promoting “full package production” in its maquila sector (Clewer 2002, p.6). This means that their contracting firm is producing under agreement to supply the client with a completely finished good. Rather than simply assembling imported pieces into low value goods, maquilas in Guatemala are in some cases designing, sourcing, cutting, sewing, assembling, labeling, packaging, and shipping their products. Along these lines, the maquilas can cater their full package production to high value fashion sensitive clients.

In order to survive, the Guatemalan maquila must continue developing the “full package production” outfit so that it is both highly flexible and capable of rapid response. Yet for workers this means even less employment stability, more forced overtime requirements, and increased intensity of work. Furthermore, many fear that if the changes in 2005 do not actually result in massive job loss, it will cause working conditions and labor relations to spiral downwards as China and other Asian countries redefine the race to the bottom.

Yet in spite of the sober reality of the maquila as it exists today and the pending changes, workers, unions, and solidarity groups are fighting hard to put decent working conditions- as a prerequisite for sustainable national development- on the agenda of both government and business (Clewer 2002, p.9). International solidarity and strong union organizing will continue to play an important role in winning lasting changes in the maquila industry in the future.

Sources:

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Clewer, Lorraine. January 2002. “Big Fish, Little Fish: The World Trade Organisation
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Clewer, Lorraine. January 2001. “Concept Paper: The Maquila Project in Context”.
maquila@guaweb.net

Paz Antolin, Maria Jose. January 2002. Desvistiendo La Maquila: Interrogantes Sobre el Desarrollo de la Maquila en Guatemala- Una Aproximación a los Conceptos de Valor Agregado y Paquete Completo. Serie: Hacia Estrategias Sindicales Frente a la
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Petersen, Kurt. The Maquiladora Revolution in Guatemala. Yale University Printing Press, 1992.

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Trejo, Alba. “Ocho Maquiladoras de Ropa Abandonan el Pais”. El Periodico. May 15,
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