Honduras: the power’s moving from Big Oil to Big T-Shirt

Once upon a time, it happened so often few newspapers bothered reporting it.
Soldiers arrest the President of a Central American country. He gets killed or expelled and "everyone" knows US Big Sugar is behind it. Or Big Oil. Or (most often) Big Banana.
Suddenly, someone seems to have rewritten the script. The Honduran army expelled their President, Manuel Zelaya, on June 28 and replaced him with an interim President who's a lot less pro-worker – the first armed overthrow of a Central American president in 25 years. So far, just your typical Central American coup. Just like the old days
Zelaya's best known activity as President was to introduce a 50% rise in the country's minimum wage – though he exempted maquila businesses, including the country's garment industry. Honduras's maquila factories are strongly behind the new government, with trade association president Daniel Facusse leading a delegation to Washington to promote the new regime's case. At first US garment importers called for trade relations to be unaffected by the coup – their response to calls by foreign trade unions to boycott Honduran ships, boycott Honduran clothes and withdraw Honduran trade concessions. On the face of things, just another episode in the normal Central American coup script. Predictably, activists all over the world started talking as if, yet again, US business was behind the coup – only this time it was Big T-shirt, not Big Banana, supposed to be orchestrating the troops surrounding the palace
Then the script started to change. A group of US apparel importers (including Gap and Nike) wrote to US President Obama on July 28 calling for "the restoration of democracy" (polite code for the resignation of the interim President Micheletti) – just as the US revoked the visas of a number of Hondurans known to be behind the orchestration of the coup. As far as I can tell, this is the first time US businesses have ever intervened to oppose a right-wing coup in Central America (or anywhere else).
Is US capitalism suddenly lurching to the side of workers? We'd suggest something a great deal more fundamental. The four letter-writers (Gap, Nike, adidas and Knights Apparel) all depend heavily on selling to the US college market – and in the case of Nike, adidas and Knights Apparel, on business got from heavy involvement in college sports. One competitor, Russell Brands, has so far lost 80 college contracts through adverse publicity over its handling of worker complaints in Honduras. If you're a hard-headed, non-political, business and you're buying clothes from Honduras you really, really, really don't want to look as if you're on the side of the people oppressing the workers.
Whether the workers ARE in fact being oppressed or not.
What's happening in today's apparel trade is that capitalism's working differently from the old days. Big Oil traditionally bribed corrupt governments that owned most of the world's oil, because only a limited number of countries own oil. Big T-shirt doesn't need to bribe: if a government doesn't ensure business is run the way it wants, Big T-shirt goes elsewhere. And that doesn't mean somewhere that exploits workers more ruthlessly: it's Burma, Uzbekistan and North Korea buyers don't want to be associated with – not Mauritius.
Big Oil got really worried that incoming leftist governments might nationalise oilfields without compensation, and Big Banana had the same worries about having their plantations seized. Big T-shirt doesn't care: few US brands or retailers own any foreign factories -and those that do make very sure indeed they're not seen supporting regimes customers aren't going to like. It's the Honduran owners of Honduran factories going round Washington telling Congressmen the new regime's just fine – and they're getting a lot less support from Big T-shirt than they naively expected.
This doesn't mean Big T-shirt has gone socialist, or that Big T-shirt thinks its customers have. But it sees no reason to risk alienating a vocal minority of its customers if it doesn't have to when there's a hundred other countries around the world not overthrowing their governments and perfectly capable of making a decent T-shirt too.
Globalisation, and intense competition between factories thousands of miles apart for sales to rich-country retailers, has been blamed for many things.
Nike's letter shows it's also responsible for the rules of Big T-shirt taking over from the rules of Big Banana.
Which isn't good news for anyone else planning to re-introduce the ancient Central American sport of Arrest Your President

Honduras shows union pressure has limited effect

A month after the Honduras coup – Central America's first forcible overthrow of a democratically elected leader in a century - there was little evidence of real support for activity liable to disrupt its industries.

Inside Honduras, there was clear evidence of support for the coup among garment factory owners.

Outside Honduras, though, there have been a number of gestures of disapproval with limited effect. Nicaragua briefly closed its borders – disrupting Nicaraguan exports on their way to Honduran ports, but having little effect on Honduras. The Organization of American States suspended Honduras from membership, but invoked no sanctions, The World Bank and the Inter-American Development Bank suspended loans. But dealings with the US go on almost unchanged, though some official lending was suspended

The International Transport Workers' Federation has called on the 4.5 million members of its 656 member unions worldwide to oppose the recent coup in Honduras by focusing protests on the Honduran merchant fleet. The ITWF said in a July 17 press release that this call for action "is likely to affect the loading and unloading of the 650 ships flying the Honduran flag,". A spokesman for the longshoreman's union that represents workers at US west coast ports said it would be up to each local branch to decide whether or not to take part in any protest actions.

No such actions have been reported

Neil Kearney, General Secretary of the International Textile, Garment and Leather Workers' Federation (ITGLWF): said on June 30 "It is particularly regrettable that some elements of the Honduran business community, including the export sector, appear to support the overthrow of democracy. This makes it all the more urgent that trade with Honduras be reviewed. With this in mind, the ITGLWF is calling on the UN and the OAS to consider the imposition of sanctions if democracy is not restored immediately."

The ITGLWF later (on July 10) called for clothing businesses to stop using Honduras, saying "it is difficult to see how brands can continue doing business in Honduras in the present circumstances, particularly given that employers appear to be strongly in favour of the coup." Kearney on July 15 added a call for the EU to withdraw its GSP+ duty-free status for Honduras. He had previously described as "disgusting" a letter from major US clothing, textile and retail trade associations to President Obama urging him to secure the US economic relationship with Honduras.

No-one seems to have heeded Kearney's calls – and he provided no evidence of support from any of the workers he claims to represent for these calls to destroy their livelihoods.

Whatever the rights and wrongs of the Honduran coup ousting a populist president in favour of more right-wing alternatives, the striking fact about calls for action against Honduran exports is that they have all come from outside the country. Though electricity and water company unions support the overthrown president Zelaya, there has been no significant industrial action by them disrupting production.

There are, of course, a number of different explanations for why Honduran unions have been so undemonstrative. But the simplest, we believe, is that desperately poor workers, at a time their employers are losing sales, have no interest in anything that undermines their job security. The implications of this for international union federations are profound, and may well affect all their future campaigns

Daniel Facussé, who heads the garment industry association AHM, said allowing ousted president Zelaya to remain in power would have been worse for private industry. Zelaya had increased the minimum wage by 60% at the end of 2008 against string opposition from business owners, though he exempted maquila businesses from the increase. and business leaders are ready to hunker down until new elections scheduled for November.

Facussé was part of a group of businessmen and politicians who presented the position of the Honduras interim government to US officials, trying to prevent US economic retaliation. Claims many pro-coup demonstrations were funded by garment factory owners (allegedly paying their workers to demonstrate) have not been denied. There is no evidence of garment factory owner complicity in the murders of three trade union activists on June 28 and July 11.

Kellwood and CIT: we may still be near the brink

Kellwood and CIT have survived the threats of bankruptcy. But the spectre of serious damage to the world garment supply chain remains.

The threats to CIT, though, may not have gone away at all. On July 21 CIT agreed a $3bn loan with some of its main bondholders after the US government refused to bail it out. But the loan it obtained was a full ten points over LIBOR, news reports believe. And, after reporting $3 bn of trading losses in the past eight quarters, CIT predicted a $1.5 bn loss in the second quarter of 2009 alone.

CIT, according to some estimates, had 60% of factoring in the US apparel and footwear industry, meaning its demise would cause major disruptions in the apparel supply chain. Retailers would have been short of stock, their immediate US suppliers would have faced bankruptcy, and the knock on effects of unpaid bills owed to highly vulnerable emerging market vendors was rarely even discussed.

It is clearly possible CIT may go under at a later date

The Kellwood threat appears truly over. The company had been unable to get Deutsche Bank, a key bondholder, to agree repayment terms, leading to a high likelihood of a bankruptcy being triggered. The business says it is fundamentally profitable, Deutsche has now committed to a new payment schedule and there seems no likelihood of any other immediate threat to Kellwood.

But the Kellwood case does demonstrate that risk is still there. It now appears Deutsche refused to renew its bonds in the first place because it had protection programmes that actually improved Deutsche's trading position by refusing renewal – and ensured Deutsche had little to lose if Kellwood did go under. Though Kellwood are unlikely to hit this problem again, the episode shows how modern debt trading systems can make bankruptcy profitable for some lenders. Businesses selling to cash-strapped US retailers or intermediaries need to review their credit management to avoid being the victims of an ultimate CIT failure or a Kellwood-style problem turning into a real bankruptcy.

In the Kellwood/Deutsche case, it seems as if Deutsche would have scarcely been damaged if Kellwood had gone bust. Many of Kellwood's suppliers would have been wiped out