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Story Publication logo May 11, 2012

Nicaragua Sets Pace for Region Under CAFTA


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Back in power since 2007, Nicaraguan President Daniel Ortega is leading what he claims is a “second...

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Elena Arengo, coordinator of Better Work Nicaragua, says the program will help attract major brands interested in suppliers that comply with local labor laws. That way, she says, labor can benefit from regional free trade. Image by Tim Rogers. Nicaragua, 2012.

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.-Central America Free Trade Agreement (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 ruling party has changed its tune once 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 Gen. Álvaro Baltodano, head of the government's National Free-Zone Commission.

Baltodano notes that Nicaragua's exports to the United States have grown 75 percent in the past six years – more than twice the export growth rate of Guatemala, which is in second place in Central America with 32 percent, and more than four times the export growth of Costa Rica, which joined the party late. Nicaragua now boasts more than $1 billion in trade surplus with the U.S., 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 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 percent 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, 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 more quickly 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 textile and apparel industries. The program, which is funded in Nicaragua by the International Labor Organization, works with major brands in the U.S. including Gap, Levis, Target, Wal-Mart, VF Corporation and J.C. Penney 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 issue as part of the strategy for the sector. Compliance with labor is important, and the government is on board," Arengo says.

The program only recently began evaluating the first group of seven free-zone companies that volunteered for a baseline evaluation, Arengo says. Although less than 10 percent of free-zone garment companies have signed up to participate in Better Work, Arengo is confident others will join once they understand the commercial benefits of participation.

"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 says. "Good labor conditions are now seen as a factor for competitive business. Brands want to make sure their products are coming from factories that ensure worker protection and workers' rights."

As a result, slowly but surely, market pressures by educated consumers, initiatives such as Better Work and governments intent on enforcing labor codes are helping to reduce the sweatshop conditions that gave outsourcing a bad name in the last decade.

"I think the situation has definitely improved; we're not talking about the same conditions that characterized the sector five or 10 years, ago," Arengo says. "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 are the same now as they were five or 10 years ago."

Workers, however, claim Nicaragua isn't quite a proletariat paradise yet.

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 by providing 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 following surgery.

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 bigger companies, so they don't take direct orders from the big brand names," Ortega says.

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

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





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