US embassy cable - 05GUATEMALA492

UNCLAS SECTION 01 OF 03 GUATEMALA 000492 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ELAB, ECON, ETRD, PHUM, CASC, ASEC, PINS, EAID, SNAR, GT 
SUBJECT: U.S.-OWNED MAQUILA IN TROUBLE IN GUATEMALA 
 
REF: A. GUATEMALA 462 
     B. FOSTER/JACOBSEN 2/2005 TELCONS WITH S/ES-O 
 
Sensitive but unclassified.  Please protect sources and 
proprietary business information. 
 
1. (SBU) Summary:  Guatemalan maquila workers detained an 
Amcit factory manager in the workplace for nine hours in 
response to the factory's closure.  The workers still have 
the Amcit under virtual house arrest.  The workers are 
protesting that the factory owners offered them only twenty 
percent of the legally required severance benefits.  After 
our contact with high-level GOG representatives, a Ministry 
of Labor inspector was assigned to alleviate tensions and 
help the two sides reach a settlement.  The U.S.-based 
owners, however, told us they are not disposed to raise their 
offer.  We will continue to work with the GOG to protect 
American lives and property and urge for a peaceful solution 
to the crisis.  End summary. 
 
Crisis in a maquila; protecting Amcit manager 
--------------------------------------------- 
 
2. (U) Labor relations at a U.S.-owned maquila in Guatemala 
reached a crisis point February 18, when workers held the 
American citizen manager and ten of her senior staff hostage 
in the factory for nine hours in a dispute over severance 
packages.  After a negotiated release, the workers allowed 
Frances McCall, the factory manager who has been resident in 
Guatemala since at least 1989, to return to her home at 2:00 
AM on February 19, where workers kept her under house arrest 
throughout the weekend.  To date, McCall can travel between 
her home and the factory under observation by the workers, 
but to no other location.  The factory is located in the town 
of Izabal, in the rural and economically underdeveloped 
region of the same name approximately 150 miles east of 
Guatemala City. 
 
3. (SBU) After learning of the crisis on February 18, we 
discussed McCall's safety and the general situation with 
Government of Guatemala (GOG) officials over the weekend, 
including the Ministers of Foreign Affairs and Labor, and 
with the director of the Labor Inspectorate (IGT).  GOG 
officials decided that the Ministry of Labor should take the 
lead on the case but that the Attorney General's Office would 
also look into possible criminal charges against the workers. 
 On February 20, the IGT's director assigned Rene Estrada, 
the IGT's inspector resident in the Izabal region, to 
accompany McCall to the factory on February 21 in order to 
appeal for a negotiated solution.  We have also maintained 
daily contact with McCall and with company management in 
Florida. 
 
Shutting down operations 
------------------------ 
 
4. (SBU) The factory is operated on behalf of Florida-based 
Gator Inc.  Gator's owner, Frank Agliano, told us in a 
telephone conversation that the Guatemalan apparel company, 
known as J&R Sportswear, suffered declining orders from U.S. 
brand name apparel companies during the final quarter of CY 
2004 and the first quarter of CY 2005.  Agliano told us that 
J&R intended to file for a three-month work suspension during 
which Gator Inc. would terminate all employment contracts and 
search for new production contracts.  If successful in 
finding production contracts, J&R would reopen under a new 
corporate charter and rehire the 360 member workforce. 
 
5. (SBU) Agliano told us that he sent two members of his 
staff from Tampa, Florida, to Guatemala during the week of 
February 14-18 to negotiate severance packages for the 
workers.  After meeting with each department of the 
enterprise, the negotiators offered twenty percent 
(approximately USD 104,000) of the legally required benefits. 
 The Executive Committee of the J&R Sportswear Workers' 
Association (not a union) rejected this offer, claiming they 
were legally entitled to USD 522,000.  Following this demand, 
the negotiators left Guatemala overland to Honduras, where 
Gator also owns a maquila.  (Note:  Agliano told us that 
Gator Inc. enacted a four-month work suspension in its 
Honduran operation in 2004 for similar reasons.  Gator also 
owns maquilas in El Salvador and Nicaragua.  End note.) 
 
6. (SBU) Agliano told us that, in light of the February 18-19 
detention of McCall, his two negotiators refuse to return to 
Guatemala and that he has no intention of visiting Guatemala 
either.  Agliano also rejected an arbitration or mediation 
role for the Ministry of Labor, stating that the GOG would be 
biased in favor of the workforce.  Indeed, Estrada told us 
that Agliano inflamed tensions by telling him that if the GOG 
wanted the workers to be paid, the GOG could pay the workers 
itself out of the profits from GOG-sanctioned drug smuggling 
and that his twenty percent offer was now a zero percent 
offer.  (Note:  Agliano repeated this comment to us, but did 
not attribute his drug smuggling allegation to any particular 
source.  End note.) 
 
7. (U) Estrada told us February 21 that the GOG's position is 
that J&R Sportswear's owners must meet their legal 
requirements to pay 100 percent of the legally mandated 
severance benefits.  All companies, continued Estrada, must 
maintain a cash reserve for such eventualities. 
 
8. (U) Agliano told us that J&R Sportswear had been in 
business in Guatemala for 18 years, producing trousers and 
skirts for U.S. brand name retailers such as Talbots, Lands 
End, and JC Penney.  He said that production contracts became 
more scarce in the final quarter of CY 2004, when JC Penney 
cancelled a production run of cotton/lycra trousers.  Agliano 
told us he had hoped to keep the facility in operation with a 
contract from Perry Ellis to produce 18,000 pairs of trousers 
per week, starting in the second quarter of CY 2005. 
 
9. (SBU) Agliano claimed that J&R did not win the contract 
because Perry Ellis representatives visited the operation and 
were dismayed by the lack of professionalism.  Agliano told 
us that the Perry Ellis team cited workers eating and 
sleeping at their workstations and that the workers had 
adopted a dog that was living in the factory. 
 
Final contracts and making payroll 
---------------------------------- 
 
10. (SBU) McCall told us that J&R met payroll obligations on 
February 18, and that tempers flared afterwards as some 
workers wondered if it was their final wage payment.  In 
fact, McCall and Agliano told us that J&R has one more wage 
payment due in the coming week.  (Note:  Wages at J&R are 
based on piecework and are distributed one week after the 
work is done.  Thus, the payment made on February 18 was for 
the workweek of February 7-11.  Workers stayed in their jobs 
until the afternoon of February 18.  End note.) 
 
11. (SBU) McCall went to the factory on the morning of 
February 21 with her staff -- and IGT inspector Estrada -- to 
begin the accounting and data entry tasks necessary to pay 
the workers for their final week on the job.  McCall told us 
that they intend to pay the workers on February 24 and that 
she expected the wire transfer of funds on the morning of 
February 22.  Agliano, however, told us that there is still 
one final container load of apparel destined for JC Penney 
that is awaiting shipment.  Agliano noted that the workers 
are unwilling to release that final container and that he 
would not make the final payroll disbursement until the 
container is sent.  At cost, the goods in the container are 
worth approximately USD 105,000.  At wholesale, the goods are 
worth approximately USD 150,000. 
 
Who is responsible? 
------------------- 
 
12. (SBU) When asked who would represent ownership at any 
subsequent meetings, given that no U.S.-based staff were 
willing to come to Guatemala, Agliano noted that McCall could 
speak for the company.  Agliano then told us that J&R was an 
independent company with no legal tie to Gator, thus 
absolving himself of responsibility.  Agliano was vague as to 
the legal ownership of J&R Sportswear, alluding to some of 
his family members, himself, and then finally to McCall, 
although he had originally referred to her as merely an 
employee. 
 
13. (SBU) An infuriated McCall told us that she was, in fact, 
listed in the original incorporation papers as one of the 
owners, but that she never had any investment stake, share in 
profits, or executive authority.  She also flatly refused to 
negotiate on behalf of the company, noting that it was 
outside of her role and that "someone better get down here 
from Florida, and they better offer more than twenty percent." 
 
Next steps 
---------- 
 
14. (SBU) Agliano told us that there are three sequential 
issues:  get the container out, make payroll, and negotiate a 
severance package.  J&R is represented by a Guatemala City 
based attorney.  However, McCall told us that he fled the 
scene on the afternoon of February 18 and has been 
unavailable since.  For that reason, she hired a local 
attorney in Izabal, who negotiated her release in the early 
morning of February 19.  McCall said she will continue to 
work with this local attorney.  Agliano told us that the 
Guatemala City attorney filed work suspension papers at the 
Ministry of Labor on February 21. 
 
15. (SBU) The Workers' Association is also represented by a 
local attorney.  McCall hopes to reach an agreement with this 
attorney to send out the final shipment of apparel in 
exchange for the final week's pay.  Estrada told us, however, 
that the workers see the final shipment as their only point 
of leverage with management.  McCall continues to stress that 
negotiations on severance packages must be between Gator and 
the Workers' Association. 
 
16. (SBU) The Ombudsman for Human Rights (PDH) representative 
for the Izabal region told us that he has asked the lawyers 
for the two sides to meet in the PDH office to discuss 
potential negotiations on the severance package.  The PDH 
representative had been unaware of the controversy regarding 
the final week's pay and the final shipment of apparel but 
said he would try to raise that issue in his discussions with 
the lawyers as well. 
 
Comment 
------- 
 
17. (SBU) While the U.S. is the leading consumer of 
Guatemala's maquila products, very few of the maquilas have 
U.S. ownership.  This situation, however, highlights the 
vulnerability of maquila workers since maquilas can (and do) 
close overnight, leaving behind no assets.  The 
WOLA-U.S./LEAP GSP petition noted the ease with which 
maquilas can shut down to evade their obligations and then 
re-open elsewhere.  As pressures mount within the global 
textile and apparel market, we expect to see more of these 
situations in the region. 
 
18. (SBU) As noted reftel, tensions in maquilas are high and 
most workers fear imminent unemployment.  As in many 
countries in this hemisphere, maquilas represent a huge 
percentage of formal sector employment.  The expiration of 
quotas on Chinese and Indian production threatens the entire 
Guatemalan economy.  We expect that as maquilas close, a 
great number of the 126,000 maquila workers will head north. 
 
19. (SBU) We have raised with McCall the issue of her 
departure (along with her daughter and granddaughter) if the 
situation deteriorates.  We will continue to monitor the 
situation closely and assist as appropriate. 
HAMILTON