SAE-E's "risky" play in Haiti (Caracol Industrial Park)
By CEPR, October 23, 2012
As both Clintons and a coterie of celebrities and foreign investors flew into northern Haiti yesterday, some took the opportunity to praise Sae-A, the giant Korean garment manufacturer that opened a factory in the new Caracol industrial park. Hillary Clinton, for one, told reporters: "And I too want to thank Sae-A, because Sae-A took a decision that was something of a risk, never having worked in Haiti before, after a tremendous natural disaster that was so devastating. But they brought their expertise and they brought their commitment. And Chairman Kim, we thank you for everything that you and the leadership of Sae-A is doing."
But Sae-A's decision to set up shop in Caracol could hardly be described as risky, as almost the entire cost of the project was borne by other actors. The New York Times, in an in-depth July investigation into the new park in July, 2012, reported that the land was provided free of charge by the Haitian government, the physical infrastructure was provided by the Inter-American Development Bank for around $100 million, and the United States government chipped in $124 million for infrastructure, energy and housing services. The industrial park tenants are also granted significant tax-exemptions, and will only have to pay docking fees, which are estimated to be just $17,500 a year, hardly a boon to Haiti's coffers. Sae-A, which reported over $1.1 billion in export business last year, committed to spending just $39.2 million on the factory.
Additionally, U.S. legislation provides duty-free access to the U.S. market, which was used by Clinton to "woo" the apparel industry. Deborah Sontag of the Times sums it up: "In exchange, thanks to a deal that Secretary of State Hillary Rodham Clinton helped broker, Sae-A looked forward to tax exemptions, duty-free access to the United States, abundant cheap labor, factory sheds, a power plant, a new port and an expatriate residence outfitted with special kimchi refrigerators. "
Of course, it is also the case that if labor costs go up, subsidies end, or business doesn't boom, Sae-A can simply walk away. Though non-binding, a memorandum of understanding between the Haitian Ministry of Economy and Finance, the World Bank's International Finance Corporation, the IADB, and the United States Department of State includes the following provision: "It shall be acknowledged by the Participants that the continuation of participation under this MOU for Sae-A is contingent upon the existence of adequate infrastructure, labor force, labor policies, favorable access to export markets, access to sufficient funding and any other circumstances that affect the feasibility of investment by Sae-A."
Sae-A and other global apparel companies often compete in a race to the bottom, leaving countries in search of lower labor costs after wages rise. Due to rising expenses in Guatemala, Sae-A has closed their factory there. A local paper carried the story with the headline, "A Maquila Closes and Goes to Haiti." A Sae-A spokesperson also told the New York Times that once trade preferences for Nicaragua end in 2014, "a lot of product orders now going to factories in Nicaragua can go through the Haiti operation.? But what's preventing this from happening in Haiti down the road?"
Mr. Aguerre, of the IADB sums it up: "Yes, it's low-paying, yes, it's unstable, yes, maybe tomorrow there will a better opportunity for firms elsewhere and they will just leave. But everyone thought this was a risk worth taking."
So, though there may not be much risk for Sae-A, there is a definite risk for the people of Haiti. There's also conceivably a risk for the U.S. government, which is touting this as the "centerpiece" of their reconstruction efforts, as well as for the IADB, Haitian government and other entities that are providing financial backing for the project.