Are labor conditions improving under CAFTA?

Nicaragua has become Central America’s poster child for foreign investment and job creation under CAFTA, but is enough being done to ensure compliance with labor standards? Second in a two-part series on workers’ rights in Nicaragua

MANAGUA—After six years of record-setting growth in commerce and investment, Nicaragua continues to consolidate its position as the region’s unlikely poster child for the U.S. free-trade agreement with Central America (CAFTA).

Though the Sandinista Front initially attempted to block the trade agreement, claiming it would be a “death certificate” for farmers and small producers, the now-ruling party has changed its tune in office. The Sandinista government recognizes CAFTA’s role in attracting foreign investment, boosting exports and generating employment.

“CAFTA has been an important tool for development of our country’s trade and exports,” says retired Sandinista military general Alvaro Baltodano, head of the government’s National Free-Zone Commission.

Baltodano says Nicaragua’s exports to the United States have grown 75% over the past six years—more than twice the export-growth rate of Guatemala, which is in second place in Central America with 32%. Nicaragua now boasts a $1 billion-plus trade surplus with the United States, thanks in large part to CAFTA.

But are labor conditions improving under CAFTA? Baltodano says yes, thanks to the Sandinista government’s efforts to introduce a “social component” to the trade agreement in the form of Nicaragua’s “tripartite agreement” between labor unions, the government and free-zone factory owners.

“CAFTA has made important contributions to Nicaragua, and Nicaragua has made an important contribution to CAFTA because we gave it some social content, something that other Central American countries are now trying to do,” Baltodano says.

The tripartite agreement, hatched in 2010, establishes a gradual annual wage increase averaging 9% from 2011-2013, allowing foreign companies to accurately project labor costs without having to renegotiate minimum-wage increases every six months, as required by law. In exchange for wage concessions, the labor unions were promised a series of social benefits in areas of health, education, transportation and subsidized food baskets from state food bank Enabas.

The tripartite dialogue established labor stability in a normally volatile sector, helping Nicaragua to weather the financial crisis and recover quicker than other countries.

“Before there were constant labor conflicts, but with the tripartite agreement we were able to strengthen social dialogue during the crisis and look for solutions,” Baltodano says.

Better Work ensures compliance

The tripartite dialogue also established a beachhead in Nicaragua for the U.S.’ Better Work program, a global initiative aimed at improving labor conditions in the textile and apparel industry. The program, which is funded in Nicaragua by the International Labor Organization (ILO), works with major brands in the U.S.—Gap, Levis, Target, Wal-Mart, VF Corporation and J.C. Penny—to ensure labor compliance in the supply chain.

Better Work Nicaragua is the only program of its kind in Central America and an example of the Sandinista government’s commitment to improving labor conditions under CAFTA, says Elena Arengo, program coordinator for Better Work Nicaragua.

“Nicaragua signed this cooperative agreement because they see the labor piece as part of the strategy for the sector. Compliance with labor is important, and the government is on board,” Arengo says.

The program has only just started to evaluate the first group of seven free-trade zones that volunteered to be a part of the baseline evaluation, Arengo says. Thought less than 10% of the free-zone garment companies have signed up to participate in Better Work, Arengo is confident that others will come on board once they understand the commercial benefits of participation.

Elena Arengo, program coordinator for Better Work Nicaragua (photo / Tim Rogers)

Far from the old image of evil transnational companies outsourcing to tropical sweatshops where workers’ rights exist only in the lofty discourse of communist labor unions, Better Work is part of an interesting top-down model where major brands are demanding labor compliance from foreign-owned factories throughout their supply chain.

The bottom line is—of course—the major motivating factor in ensuring labor rights. As U.S. consumers become increasingly aware of deplorable international labor conditions, they are demanding that major brand-name clothing labels ensure their products are being produced under fair-labor conditions in overseas supply chains. U.S. brands, therefore, are increasingly interested in working with programs such as Better Work to make sure the garment factories that source their orders in foreign countries are being compliant with labor regulations. Plus, working with Better Work gives the brand name companies a stamp of approval from both the U.S. and ILO, and saves them from having to hire outside auditors to do the job themselves.

“This is a program that will help factories; it’s going to help them attract brands that are interested in working with suppliers that are compliant with labor laws,” Arengo said.  “Good labor conditions are now seen as a factor for competitive business. Brands want to make sure that their products are coming from factories that ensure worker protection and workers’ rights.”

As a result, slowly but surely, initiatives such as Better Work and cooperative governments are helping to reduce the “sweatshop” conditions that gave outsourcing a bad name in the last decade. 

“I think that the situation is definitely improved; we are not talking about the same conditions that characterized the sector 5 or 10 years, ago;” says Arengo. “That doesn’t mean challenges don’t exist; it’s a tough industry with lots of challenges, but I don’t think anybody would say the conditions now are same now as they were five or 10 years ago.”

The government agrees.  In a 2011 interview with state media, Labor Minister Jeannette Chávez said the free-trade zones in Nicaragua today are “nothing like the ones that were here in 2007.”

“They are nothing like they were before,” said the Labor Minister, who often makes categorical statements that make it seem like the government has already done its job to fix abusive labor conditions. “I think that this government, led by President Ortega, has restored workers’ rights and protected and defended the working class.”

Workers, however, claim Nicaragua isn’t quite the proletariat paradise that the minister describes.

Pedro Ortega, secretary general of the Federation of Textile Unions, says his organization is preparing a formal complaint to accuse free-zone factory owners of noncompliance with their end of the deal under the tripartite agreement.

Ortega says only 20 of the 161 free-zone factories supposedly included in the tripartite agreement are complying with their agreement to help provide subsidized food baskets for workers. Other companies, meanwhile, have allegedly denied workers access to health benefits such as free eye surgery from Cuban doctors, because that would mean missing six days of work afterwards.

In some of the smaller free-zones, Ortega says, factory owners claim they don’t recognize the tripartite agreement at all, insisting it applies only to the larger factories.

“The majority of noncompliance is in the smaller free-zones that employ fewer than 1,000 people. Those are the companies that are subcontracted by the bigger companies, so they don’t take direct orders from the big brand names,” Ortega says.

In general, the tripartite agreement is an important advance, the union boss says. But the social aspects must be consolidated if the unions are expected to negotiate another agreement after this one expires next year.

“This is something we still have to evaluate further,” he says.

Read part I in this series here.