Zones of Exploitation

Korean Investment on Guatemala

by Kurt Petersen

GUATEMALA CITY - Some 40 kilometers northwest of Guatemala City, along the highway to Chimaltenango, a weathered sign reads, "Korean Free Trade Zone." The 90 square kilometers of plowed-under, barren land behind the sign were designated to be a massive industrial park, housing 30 factories, including Lucky-Goldstar's television production facility, and employing 10,000 Guatemalans.

 The empty industrial park symbolizes the failure of South Korea's recent attempt to industrialize Guatemala based on the Korean development experience. Korean corporations have stopped investing in Guatemala.

The investment suspension marks a sudden change in Korean business policy. As recently as 1990, then-Korean Ambassador to Guatemala Key-Sung Cho confidently stated, "We would like to start an economic revolution in Guatemala during my term to demonstrate our model of economic cooperation - industrialization based on Korean cooperation and investment - so that other countries in Latin America might follow."

 Korea's commitment to Guatemala was not just rhetorical. Between 1988 and 1991, 50 Korean maquilas - foreign-owned factories which produce for export - started operations in Guatemala. Together, they exported more than $150 million worth of goods a year, accounting for more than half of the Guatemalan apparel industry's earnings. Guatemala became home to more than 20 percent of all foreign Korean apparel assembly factories.

 Today, Korean investment in Guatemala remains substantial, but new investments have stalled in the wake of U.S. State Department pressure on the Guatemalan government to crack down on the widespread labor abuse in Korean factories. State Department concern for Guatemalan workers began in 1990, when it became apparent that Korea was taking leadership of the Guatemalan apparel industry. In the mid-to-late 1980s, the United States Agency for International Development (U.S. AID) had worked with the World Bank to impose structural adjustment policies on Guatemala, including the devaluation of Guatemalan currency and the release of price controls on Guatemalan products. These changes created an extremely favorable investment climate in the country. However, it was South Korean firms, rather than U.S. investors, that took advantage of the incentives and protections offered by Guatemala.

Clearing a path for investment

 Guatemala's maquila industry exploded in the 1980s. In 1984, a half dozen factories employing 2,000 people assembled $6 million worth of clothing for export. Seven years later, more than 250 factories with a workforce of 60,000 exported more than $350 million of assembled garments to be sold in U.S. retail outlets.

 While the maquila sector in the rest of the Caribbean and Central America is dominated by U.S. investors, Guatemala's maquila industry is driven by South Korean capital and owners. A wide range of Korean corporations have opened maquila operations in Guatemala. About three-fourths of the factories are owned by small- to medium-sized Korean businesses. Korean transnational corporations (or chaebols) such as Samsung and Sam Phoong, which own five and three factories respectively, administer at least 12 of the largest and most sophisticated factories. Sam Phoong owns the largest maquila factory, one of the three largest industrial plants in Guatemala, which employs nearly 1,000 workers.

 The South Korean interest in Guatemala can be traced to a combination of labor unrest which rocked Korea in the late 1980s and trade quotas limiting its apparel exports. Searching for a new export platform, Korea selected Guatemala as its major investment focus in the Americas for a number of reasons: long-standing diplomatic ties between the two countries; what the Koreans viewed as an opportunity to dominate an undeveloped industry; Guatemala's proximity to the United States; and the country's low production and labor costs. During Guatemala's international isolation from 1977 to 1985, the Republic of Korea was one of the few countries, along with Taiwan and Israel, which sustained amiable diplomatic relations with the country. Sharing both an anticommunist ideology and a military-dominated government, Korea empathized with the Guatemalan government in its battle against a guerrilla insurgency.

 These ties formed the foundation of the relationship between the Guatemalan and South Korean governments, in which Korea offered massive investments in exchange for implicit assurances against government intervention and labor disruption. Guatemala's motives for such an agreement are self-evident. The country, like many of its neighbors, is in desperate economic straits. "The facts are simple. We need jobs, foreign exchange and capital," explains a representative from the Economy Ministry. "We are not in a position to discriminate against investors. If the Koreans or the North Americans want to invest, we have no leverage to refuse or negotiate their offers."

 Thus, from about 1988 to 1991, Korean factories opened and operated as if in Korea, their operations carefully coordinated and controlled by the Korean embassy. The embassy is, in the words of a former U.S. Embassy trade attache, "the self-proclaimed headquarters for all Korean investors." A list of the phone numbers of the Korean maquila factories hanging in the receptionist's carrel at the Korean Embassy suggests the close contacts the embassy maintains with the maquilas. The Korean Embassy staff act as advocates, spokespersons, mediators and consultants for individual Korean factories, which are all connected in a grand scheme to establish a Korean production structure in Guatemala.

For its part, the Guatemalan government did everything possible to smooth the way for Korean investors. The Economy Ministry has never rejected the application or revoked the license of any Korean maquila factory. Hundreds of Korean personnel administered factories without proper work permits or visas. The Labor Ministry instructed its inspectors to ignore violations of the Labor Code at Korean factories. The then-Labor Minister refused to comment publicly on the mounting outcry against Korean managers and supervisors, merely referring to Korean labor practices as "distinct." In fact, up to the end of the administration's term, Christian Democrat officials remained silent about the notoriously harsh treatment of workers in Korean factories. The role of the embassy is so dominant that few of the administrators arrive in Guatemala with even a rudimentary understanding of Spanish. "Besides the ambassadors, they [Korean managers] never speak with anyone outside of the factory," says a U.S. Embassy official. "With the embassy as their voice, they really don't need to learn Spanish."

The United States steps in

The right-wing, pro-business MLM regime of Jorge Serrano took power in January 1991, as the Korean-Guatemalan alliance strained to the breaking point.

At the prompting of the U.S. State Department, the Guatemalan government shifted its policy toward Korean investment, suddenly subjecting Korean operations to unprecedented scrutiny. Prompted by U.S. Ambassador Thomas Strook, in March 1991, the newly elected Guatemalan Congress, as one of its first acts, formed a committee to investigate and recommend ways to counter deplorable labor conditions and wages in maquila factories. More significantly, the Labor Ministry - aided by the U.S. labor attache, who called the abuse of Guatemalan workers "a very, very serious problem in Korean factories" - began a highly publicized crusade against worker abuse in Korean- managed maquila factories. The Ministry issued a report concluding that the Korean maquila factories were guilty of egregious labor abuses and called for new labor legislation directed specifically at eliminating these violations. In response, Korean investors backed away from Guatemala.

 Most unionists and labor rights advocates, however, doubt the sincerity of both the State Department's and the Guatemalan government's newfound criticism of the maquilas.

As late as March 1989, they note, the U.S. Embassy was praising Korean investment in Guatemala. An unclassified memo reported that "[t]he Koreans also provide clean, well-lighted working conditions and a variety of non-cash benefits ranging from sports programs to housing improvements." Commenting on Korean labor practices, the memo continued approvingly, "Management is openly seeking to develop a spirit of worker identification with the company and to discourage union organizing."

 Critics also point out that throughout its campaign the new Guatemalan government has focused exclusively on Korean companies, without mentioning labor violations - including forced labor, poor health and safety conditions and paltry wages - rampant in Guatemalan or North American factories. Also ignored is the intense exploitation of farm workers on Guatemalan plantations, where wages are often even lower and the toil much more difficult than in the maquila factories. And the new administration, like its predecessor, has assisted maquila companies in fighting off unionization; most recently, the government delayed, without explanation, processing the application of workers at Phillips-Van Heusen factories for a union [see "Made in Guatemala: Union Busting in the Maquiladoras," Multinational Monitor, November 1991].

 The matter of the Korean maquila factories is, in the words of one political analyst, "the perfect political issue." The abuse is flagrant. The victims are young girls and minors. The abusers are recently arrived foreign intruders (who happen not to be North American); and, most important, they are intruding on the turf of wealthy Guatemalans. Most elements of the domestic private business sector want the Korean investment to stall, so that the Koreans do not swallow up the entire apparel industry. "The government comes off as the courageous hero, rebuking the foreign invaders and saving the young women," comments a Guatemalan journalist. "To make things perfect, the private sector is applauding its efforts."

 An unanswered question is whether the Guatemalan government, which seems intent on continuing to pursue the World Bank - U.S. AID model of export-oriented development, can afford a split with Korean entrepreneurs. The Korean firms have brought a significant influx of jobs and capital into the teetering Guatemalan economy. Whether U.S. investors will step in and fill the void remains to be seen.



The South Korean Model of Labor Repression

THE KOREAN INVESTMENT drive in Guatemala is based on a brutal system of labor control which closely resembles the repressive industrial relations found in Korea. Korean managers claim their repressive management techniques are necessary to teach Guatemalan workers - the majority of whom are young women - the "work habits" of Korean employees. A Korean official explains, "They [Guatemalan workers] have their own work habits but we have Korean habits and discipline. For example, Guatemalan workers must learn to show up on time, work as long as necessary and be obedient to their superiors. The job of Korean technicians is to train Guatemalan workers in Korean habits and discipline. Soon, most Guatemalan workers will be working according to our discipline and work habits."

 A manager of Korean-owned Ace International in Guatemala City claims that the worker behavior which most troubles his staff is the excessive time employees spend in factory bathrooms. He attributes these visits to irresponsible behavior and laziness, adding, "I don't understand why they would want to use them [the bathrooms] anyway. They smell so bad. I am disgusted by them." A Guatemalan supervisor at the factory offers some insight into why the workers spend time in the bathrooms: "After a Korean supervisor scolds and humiliates a worker, she runs to the bathroom to cry and regain her composure."

 Disobedience, broadly defined as any divergence from management's dictates, is categorically prohibited in Korean factories. For Korean managers, regimentation depends on total conformity; every command, no matter how trivial, must be followed to sustain the system. A Guatemalan manager at the Korean-owned Modas Del Este garment assembly factory points to the rigidity of this policy: "We even lose good workers because of disobedient behavior. If a worker fails to follow a supervisor's command, she will go, no matter how productive."

 Conformity is achieved through progressive punishment and extreme pressure to produce. The severity of punishment generally increases with the cost and/or frequency of the offense. If a worker turns to speak to a neighbor, a Korean supervisor may yell at her to return to her proper position. Or, if nearby, the supervisor may place his hands on the worker's shoulder and roughly guide her back into place. Some supervisors routinely rap workers' heads with their hands and knuckles for such minor acts of misconduct. The line between these relatively innocuous punishments and more violent and humiliating ones is easily and often breached.

 "Misconduct" that is often met with more serious punishment includes eating at the work station, repeated talking or movement, or a sewing mistake. Most frequently, supervisors scream at the offender, calling her stupid or slow. In most Korean factories, each day at least one or two operators endure a supervisor's wrath while her peers look on. "When a supervisor yells at a worker, they do it at her worktable," says a worker. "The rest of us just pray we are not the next one."

 Korean supervisors and managers also regularly practice corporeal punishment against workers. While physical punishment is most commonly reserved for the most serious offenses, it is not unusual for supervisors to strike workers for routine errors. For example, some workers report that supervisors grab or shake an employee's neck or hair if she is caught talking for a second or third time. Other supervisors slam sticks on the workers' hands, or throw pieces of cloth in workers' faces. In one factory, workers report that female Korean supervisors squeeze workers' breasts as punishment.

The Korean system of labor control also involves a relentless pressure to produce. Explains one female worker, "They holler, æFaster, faster!' æMake haste!' They push us. How can I understand their language? I try to explain that I don't understand their explanations. They just keep yelling, æFaster, faster!' but we are human beings, not robots that simply work faster by pushing a button."

 Organized workers pose the only serious threat to Korean-style production. On at least a half dozen occasions, enraged by working conditions and abusive treatment at a Korean factory, workers approached trade unions for representation. However, on each occasion, a union failed to materialize. The Korean Ambassador Wung-Sik Kung openly admits that the Guatemalan government "arranged" the settlement of several of these disputes.