Thanks to low wages and lucrative government incentives passed in the wake of Hurricane Mitch, more garments from Hanes underwear to Banana Republic safari shirts are sporting the ''Made in Honduras'' label.
Now, even the labels are being made in Honduras.Paxar Corp., a New York maker of fabric labels for brand-name clothing, expects to have 100 employees by year's end at the ZIP Bufalo industrial park in San Pedro Sula. Its main customers will be other free-zone manufacturers such as Fruit of the Loom, Sara Lee and Maidenform.
''Typically, labels are shipped from the United States in ocean containers along with zippers, buttons and cut fabric, and they just do the assembly work,'' said Jim Rollo, Paxar's vice president of Latin American business development. ''With us operating in San Pedro Sula, they would have less inventory and faster delivery time.''
Mr. Rollo, whose $630 million-a-year company already has factories in Mexico, Brazil and Colombia, says Honduras is an ideal place to manufacture because of the combination of low wages and no income tax in free zones.
''All things being equal, a company operating in a Honduran free zone pays no corporate income tax. That's not the case in Mexico, where corporate income tax is about 35 percent,'' he said.
''The fact that Mexico's labor rate is $1.08 vs. $1.31 for Honduras is not a real show stopper. Honduras has a developed infrastructure to support the apparel industry. They're very pro-active in training people to enter the sewing trade. In Mexico, they're organized but not on a national level to the same degree Honduras is.''
Yet Honduras is facing unprecedented competition from Mexico because of that country's nearly unfettered access to the U.S. market through the North American Free Trade Agreement - a subject sure to come up during the U.S. Commerce Department's trade mission to Central America set for March 21-27.
During 1998, according to Commerce figures, Honduras exported $1.9 billion worth of knit and woven apparel to the United States - an 18 percent jump over the same period of 1997. That impressive growth exceeds the gains reported by El Salvador, Guatemala and the Dominican Republic, but pales in comparison with Mexico, which grew 25 percent to $6.7 billion.
''Mexico has an advantage over us in that they don't pay any duties on aggregate value,'' says Jose Molina, chairman of ZIP Choloma, a free zone just outside San Pedro Sula. He explained that U.S. duties aren't assessed on labor-added value, but are assessed on raw materials added to the final product. In the case of blue jeans, this can be as high as 25 percent.
''Any cost advantage we had in Honduras is taken away by the duties we pay on aggregate value,'' he said.
That poses a particular danger for Honduras, whose 5.5 million people face an uncertain future following the economic upheavals inflicted last year by Hurricane Mitch.
Unprecedented damage was done to the transport network in Honduras when Mitch passed through, killing 8,000 people and leaving thousands homeless.
More than 90 bridges were either completely destroyed or severely damaged, eight of them in Tegucigalpa. An estimated 70 percent of the road network was damaged.
Preliminary estimates of the damage to roads are on the order of $454 million, or about 10 percent of the country's gross domestic product.
Mr. Molina and other industry officials are lobbying lawmakers in Washington to grant Honduras the same U.S. trade benefits that Mexico enjoys under Nafta.
If passed, so-called Nafta parity measures now pending in Congress could result in an explosion of textiles and apparel factories, more garment exports - and much more volume out of the country's Caribbean port, Puerto Cortes.
''The hurricane destroyed about 50,000 houses, and another 38,000 houses were badly damaged,'' says Mario Canahuati, president of the Cortes Chamber of Commerce, which includes San Pedro Sula.
''We need $388 million to rebuild these homes, without considering the fact that we already had a housing deficit,'' he said. ''These are very hard times for Honduras, and our people are at risk of losing their jobs. I don't think there's any alternative to Nafta parity.''
At present, some 220 companies operate in nine free zones around the country. Most are centered on San Pedro Sula, a growing industrial center 45 minutes from Puerto Cortes.
About half the companies operating in the free zones are U.S.-based, with the remainder divided among Taiwanese, Korean and local companies.
Approximately 96,000 salaried workers - 80 percent of them women - work at the huge industrial parks, where they turn out apparel for a growing U.S. market.
The factories, known as ''maquilas,'' generated $390 million in foreign exchange last year, making apparel manufacturing the country's second largest source of income after coffee, which brought in $397 million. Bananas were in third place, with around $150 million.
BETTER THAN COFFEE
This year, however, labor-intensive plants called maquiladoras will jump to $450 million, while coffee income will drop significantly as a result of the hurricane. Bananas - with nearly the entire crop destroyed - will be close to zero.
''My guess is, with the effort being spent on reconstruction and the damage to agriculture, exports to the U.S. are going to take a hit,'' says Walter Bastian, the U.S. Commerce Department's director for Latin America and the Caribbean.
''We want to work with governments in the region to integrate the amount of damage, and be able to share information on a timely basis,'' he said. ''It's a tragic event that may have a positive result. The intent isn't to put it back the way it was, but to make it better.'' Mr. Molina insists that ''we're not really asking for a handout, we're asking for jobs.'' He adds that ''right now, because of Mitch, there could be sympathy for approving the bill.''
Not everyone supports the Honduran maquila industry. Persistent allegations of worker abuses at garment factories - particularly those owned by Korean investors - have damaged the country's reputation at a time when it's trying to win support in Congress for even more trade benefits.
Some activists, however, claim the abuses are continuing. Charles Kernaghan, executive director of the National Labor Committee, says young women in free-trade zones in San Pedro Sula are being injected against their will with Depo Provera, a contraceptive that blocks pregnancy for up to three months.
Textile factory owners deny such allegations, though Mr. Canahuati admits that certain abuses involving underage workers did take place.
''We have established relationships with human-rights groups so we can monitor the situation. There's no question there were things we need to rectify,'' he said without elaborating. ''When you have 100,000 people working in maquilas, eventually you're going to have a problem.''
James Creagan, the U.S. ambassador to Honduras, said that under Honduran law, ''it is legal to work at age 15 with parental consent. Yet the maquilas studiously avoid anything that comes close to child labor. They're also conscious of working conditions, so they put in a code of conduct. Some Americans have told me it's more manageable here than in Mexico.'' Life without tariffs
Salomon Leiva is president of Interfashion S.A., a sprawling company in the ZIP Choloma free zone which assembles close to 80,000 pairs of pants a week.
''Sales would double if we didn't have tariffs,'' says Mr. Leiva, who employs 2,000 workers under one roof. ''Our main client is now looking at Mexico, so we need some sort of favorable legislation for this part of the world. If we don't get it, it's going to be tough.''
Mr. Creagan says that's why he supports Nafta parity for Honduras and other Central American countries.
''In the aftermath of the hurricane, Washington wants to support Central America,'' said the ambassador. ''With the banana industry destroyed and $200 million worth of exports lost, they need foreign exchange now, and the best foreign-exchange earners are maquilas, and they produce jobs fast.''
Paxar's Mr. Rollo said he hopes the U.S. government will see ''that one way of giving aid without directly sending dollars to Honduras is to give Central America parity.''
The manufacturing executive added, however, that ''our customers are prepared and in need of our services in Honduras, regardless of whether parity comes about or not.''