December, 17 2003 |  Download PDF |  Share

Hanchang Textiles/Oriental Tex in El Salvador


This new NLC report documents harsh sweatshop conditions, union busting and apparent tax fraud with the complicity of the Salvadoran Ministry of Labor - in a South Korean maquila factory sewing clothing for Osh Kosh B'Gosh and Wal-Mart.


This case study carried out over the course of two years documents the systematic violation of worker rights, union busting and apparent tax fraud—all carried out in plain view in front of the Salvadoran Ministry of Labor, which has refused to intervene.

The case of Hanchang concretely demonstrates that the Salvadoran government has no intention of implementing its own labor laws, for which reason, El Salvador should not qualify for inclusion in CAFTA without major reforms.

The United States Trade Representative's office points to WRAP—the U.S. apparel industry's factory monitoring and and compliance program—as one of the positive assurances that worker rights will be protected under CAFTA. But, as this report will show, in the midst of mass firings, union busting and the return of serious labor rights abuses, WRAP certified the Hanchang factory as complying with all of the U.S. apparel industry's worker rights standards.

Hanchang is a remarkable story of young women who, despite repression and constant threats, went on to organize a union in May of 2001. They wanted to end the violations and maltreatment they faced in the factory. Within a matter of days, 15 founding members and newly-elected union leaders were fired. However, in a rare victory, under pressure from the Phillips Van Heusen company and the National Labor Committee, the fired workers were quickly reinstated to their former positions and paid back wages.

Maquila companies in El Salvador enjoy 100 percent tax-exempt status—paying no corporate, state, city or even local sales taxes, as well as no tariffs on imports or exports. The only catch is that this tax exemption runs out after 10 years. So Hanchang management came up with a scheme. They would simply change the name of their company to Oriental Tex, but they would remain in the exact same factory, with the same machinery, the same workers, producing the same labels. With this slight of hand, they could slip out of their obligation to pay taxes. Moreover, management realized that they had the opportunity to kill two birds with one stone. In the process of creating their "new company," they would fire and rehire everyone except the union leaders and most active members. In this way they could kill the legal union, which they did, and avoid paying taxes all in one shot.

Hanchang has now come full circle and is once again a sweatshop, producing clothing for Wal-Mart. Mandatory overtime has returned, as has abusive treatment on the part of the supervisors, and workers once again must ask permission and receive a toilet pass in order to use the bathroom. As in the past, management threatens the workers explaining that if they try to organize they will be immediately fired. The company only wants "these workers to have better luck than the Hanchang workers had!"

Again, this was all done in plain view, right in front of the Ministry of Labor. Hanchang, sadly, is what labor rights—or the lack thereof—will look like under CAFTA. Without enforceable labor rights standards, El Salvador will never implement its own laws, especially freedom of association or the right to organize.


Download the full report