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December 14th, 2011 WW Staff | NikeLeaks Cables: North and South America
 

AMERICAN APPAREL BRANDS SEEK DIALOGUE ON HONDURAN LABOR ISSUES

     
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Reference ID: 09TEGUCIGALPA345   
Created: 2009-05-12 23:52    
Released: 2011-08-30 01:44    
Classification: CONFIDENTIAL    
Origin:  Embassy Tegucigalpa
                  

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C O N F I D E N T I A L SECTION 01 OF 03 TEGUCIGALPA 000345
 
SIPDIS
 
DEPARTMENT OF STATE FOR: MMITTLEHAUSER AND SMORGAN,
DEPARTMENT OF LABOR FOR: PAULA CHURCH, DEPT PASS USTR
 
E.O. 12958: DECL: 05/07/2019
TAGS: ELAB ETRD HO KDEM ECON
SUBJECT: AMERICAN APPAREL BRANDS SEEK DIALOGUE ON HONDURAN
LABOR ISSUES
 
REF: A. TEGUCIGALPA 332
     ¶B. TEGUCIGALPA 69
 
Classified By: Ambassador Hugo Llorens, reasons 1.4 (b & d)
 
¶1. (U) Summary:  Embassy hosted a meeting of U.S. brand name
apparel manufacturers April 28 in San Pedro Sula to discuss
the global financial crisis, their short-term and long-term
Honduran operational plans, and responsible management of
plant closings.  The group unanimously expressed interest in
establishing a multi-stakeholder group to share information
and work together to promote corporate social responsibility
(CSR), improve buyer-supplier relationships and ensure the
continued competitiveness of the Honduran apparel sector.
The multi-stakeholder group dialogue would include the
government of Honduras (GOH), unions, NGOs, private sector
firms and their affiliated organizations.  All parties agreed
that the group could only be hosted by a neutral party such
as the Embassy.  End Summary.
 
¶2. (C) Embassy hosted a meeting focused on responsible
management of textile operations for U.S. apparel brands in
San Pedro Sula (SPS) on April 28.  The meeting was attended
by over 20 representatives of U.S. brands including: Adidas,
Aeropostale, Calvin Klein, Champion, Fruit of the Loom, Gear
for Sports, Haynes, Nike, Russell, Timberland, Under Armor,
Van Heusen and Wal-Mart.  The meeting was closed, and all
discussions were confidential.  Topics included the
short-term and long-term operational forecasts for each
brand; experiences regarding their suppliers closing
operations (some in a responsible and others in an
irresponsible manner); and an introduction to the MFA Forum's
multi-stakeholder dialogue initiative.  (The MFA Forum is a
textile and garment sector organization that promotes social
responsibility and competitiveness created after the
expiration of the Multi-Fiber Arrangement (MFA) in 2004.
Nike was the driving force behind the meeting and the next
steps to establish the working group.  Its experience,
learned in the 1990s when it faced similar CSR challenges,
was very useful to other firms who have not faced CSR
challenges.
 
BACKGROUND
----------
 
¶3. (U) Since October of 2008, the textile manufacturing
sector has shed approximately 30,000 jobs due to dwindling
market demand.  This year, through April, over 20 textile
factories have closed and experts predict more job losses.  A
number of these closings have been handled irresponsibly with
owners closing shop and disappearing over night.  Post has
been reporting on the contentious closing of the Jerzees de
Honduras plant (reftel) and alleged labor violations there
since October of 2008.  The impetus for the meeting was the
spate of layoffs in the maquila sector in response to U.S.
recession and controversy over the Jerzees de Honduras
closure.
 
AMERICAN BUYERS' EXPERIENCES WITH HONDURAN SUPPLIERS
--------------------------------------------- -------
 
¶4. (C) The Regional Manager for Philips - Van Heusen (PVH),
Juan Carlos Contreras, stated that since 2002 PVH's profits
have quadrupled thanks to its acquisition of Calvin Klein and
Timberland, but they foresee significant consolidation in
their supply chain on the horizon.  PVH is optimistic about
Honduras in the long-term because in its view Honduran plants
respond very quickly to market changes and can produce jeans
and T-shirts that are competitive with Asian-produced
products.  PVH,s short-term concerns include the effects of
cost-cutting measures taken by its suppliers, such as
reducing inventories, which can lead to delays, and other
lean management techniques that lead to labor violations.
 
¶5. (C) Brands are often held accountable by workers, rights
NGOs for labor violations committed by their suppliers.  In
the past three years, PVH has had two of its suppliers close,
which puts them at-risk of being targeted by workers' rights
 
TEGUCIGALP 00000345  002 OF 003
 
 
NGOs.  Brands can and have put pressure on their suppliers to
pay the dismissed workers by withholding payments until
workers are paid, but this only works until suppliers file
legal grievances to collect what they are owed.  PVH
described a common tactic whereby after a plant has closed,
plant owners force workers to sign illegal agreements
relinquishing their entitlements, simply to receive a portion
of what they are owned and move on.  PVH said the Ministry of
Labor (MOL) does not pursue these cases because the MOL would
rather workers, collect something than nothing at all while
their cases languish in the inefficient labor court system.
 
¶6. (C) PVH stated that competition is so fierce in the
textile industry that many suppliers do not set aside
contingency funds for workers, severance and fringe
benefits.  The results are that when a factory goes bankrupt,
the workers are the last to collect, and typically receive
little or nothing.  In one Guatemalan case, after a supplier
closed, the plant,s workers were able to collect substantial
amounts from the plant,s owner by threatening to bring
negative publicity on the well-known Asian corporation.  This
would not be effective in Honduras, however, as many Honduran
apparel makers are small family-owned operations that can
disappear without facing the ramifications of their actions.
 
¶7. (C) Nike stated that it was well insulated from the global
financial crisis and currently increasing its operations in
Honduras because of positive long-term relationships it has
established with several high-quality suppliers who respect
labor regulations.  Haynes Brands stated that they have had
suppliers close "overnight" without any forewarning because
of the owner's financial troubles caused by the current
global financial crisis.  Even though the brands do not own
their supply chain, but simply buy the finished product they
commission from the factory owners, they are often blamed for
the plant closings and are vulnerable to public outcry and
negative publicity that result when their suppliers close.
 
WHAT CAN BE DONE?
-----------------
 
¶8. (U) The discussion shifted to determining how brands can
influence their suppliers in a positive manner while still
maintaining the competitive advantage of sourcing their
products in Honduras.  The discussion began with a
realization that as buyers, the brands pay for a finished
product, but the suppliers are the ones who incur the capital
costs and business risks associated with procuring inputs,
paying workers, and financing their operations.  Scarcity of
financing was discussed, but most brands seemed unaware of
the status of their suppliers, working capital.  The
consensus was that labor violations have risen as a result of
increased competition and buyers procuring products at lower
prices.  However, many buyers cannot afford to pay higher
prices because their profit margins are determined by their
retailers.  There was unanimous agreement that all should
work toward a better buyer-supplier relationship with more
trust and less policing and auditing.  Consensus was reached
that one way of achieving this ideal model is to begin
sharing information and promote an inclusive dialogue of all
interested parties.
 
MULTI-FABRIC AGREEMENT (MFA) FORUM
-----------------------------------
 
¶9. (C) The MFA Forum,s multi-stakeholder committee, begun in
2005, is currently chaired by Levi,s.  A number of countries
(including Mexico and Nicaragua) have established working
groups at the country level made up of the private sector,
public sector, civil society and organized labor, which meet
to discuss pertinent industry issues.  Nike,s Director of
Compliance for the Americas, Fukumi Hauser, participated in
the meeting in SPS on April 28 and has close contacts in the
Secretariat of the MFA Forum.  Under the leadership of
Hauser, Nike would like to form a working group in Honduras
and is anticipating some form of support for these
developments from the MFA Forum as well as possible World
Bank monies for supply-chain trade financing and/or
 
TEGUCIGALP 00000345  003 OF 003
 
 
entrepreneurial training programs for dismissed workers.
 
HONDURAN MUTLI-STAKEHOLDER APPAREL INDUSTRY WORKING GROUP
--------------------------------------------- ------------
 
¶10. (U) There was unanimous agreement that the working group
could prove very useful for the American buyers, while also
providing a means to renew tripartite (government, labor, and
business) dialogue, which has been largely abandoned for
nearly two years.  The participants requested that Embassy
host the working group because it is widely viewed as a
neutral party.  The working group's purpose would be the
following: establish a dialogue to share information and work
together to explore how the combined competencies of
participants can improve sustainability while promoting
social responsibility and competitiveness of the apparel
sector in Honduras.  It was agreed that the working group
will engage the apparel sector at three levels: 1) to seek
and sustain supply chains, and in times of retrenchment
advocate for responsible transitions; 2) advance responsible
competitiveness that includes labor rights; and 3) influence
trade and other public policies.
 
NEXT STEPS
----------
 
¶11. (U) The group agreed that Hauser should approach the MFA
Forum Secretariat to seek their interest and engagement in
the Honduran multi-stakeholder group to either provide
guidance or official recognition of the group as an
"official" working group of the MFA Forum.  The working group
will base itself on the MFA Forum Framework and hopes to
become a network of participants open to all who want to
participate.  The next group meeting was tentatively
scheduled for early July of 2009, and Laboff asked
participants to provide him with a list of suggested invitees.
 
¶12. (C) Comment:  Nike representatives had many innovative
ideas for the multi-stakeholder working group.  They have
already met with Honduran NGOs that teach entrepreneurial
skills, talked to the University of San Pedro Sula about
supporting its textile engineering and industrial relations
programs, and established contacts with the labor
confederations.  Laboff will continue to monitor the
situation and follow up with Nike in regards to the MFA Forum
discussions.  The Embassy will host the next event
tentatively set for July in San Pedro Sula, and work to
ensure that the group facilitates positive dialogue between
the GOH, private sector and organized labor.  End Comment.
LLORENS

 
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