U.S. Aid Agency Helps to Move Jobs Overseas : Enterprise: Officials say Central America is assisted in luring businesses that might have gone to Asia.

The advertisement in a U.S. magazine shows a Salvadoran woman in a bright print dress bent over an industrial sewing machine. “Rosa Martinez produces apparel for U.S. markets on her sewing machine in El Salvador,” the ad promises the readers of Bobbin, a textile industry trade journal. “You can hire her for 33 cents an hour.”

Dozens of American companies have done just that, moving operations to El Salvador, Honduras and Guatemala to take advantage of low wages even as they have slashed jobs in California and other states.

What the advertisement doesn’t say is that the factory Rosa works in, the training she received--even the ad itself--were paid for partly with U.S. government funds.

The Agency for International Development, which administers U.S. economic aid programs in developing countries, has shifted its efforts in Central America from large-scale government programs to promoting private enterprise--and that, in practice, has meant working to attract U.S. companies in search of low-wage workers.

AID officials argue that low-wage jobs are moving overseas anyway, and their programs are merely helping Central America win some of that business instead of Hong Kong, Taiwan or South Korea.

But labor unions and other critics charge that the policy is harming an already battered U.S. work force and that AID has ignored congressional instructions to avoid promoting the export of jobs from the United States.

The issue illustrates an uncomfortable dilemma for U.S. foreign aid policy in a new, more globalized economy: Stimulating economic development in poor countries may mean abetting new competition for U.S. workers in low-tech jobs.

Its implications extend beyond Central America to President Bush’s proposed North American Free Trade Agreement, which would enable Mexico to promote itself as a manufacturing center for U.S. business much as El Salvador and Honduras have done.

“This is a harbinger of what will happen with NAFTA if we don’t bring it under control,” a senior State Department official said.

AID officials strongly defend their role, although top agency managers agreed to respond in detail to the charges if they were promised anonymity.

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In a brief written statement, AID spokesman Stephen D. Hayes said, “It is not the policy of AID to shut down U.S. manufacturing operations and shift them to Central America.”

He argued that AID programs that created low-wage jobs in Central America have helped boost U.S. exports to the region by making those countries more prosperous.

But that position is hotly disputed by Jack Sheinkman, president of the Amalgamated Clothing and Textile Workers Union.

“American workers, as taxpayers, are helping to pay to export their own jobs,” he charged. “At the same time that the government has been promoting and financing offshore production, the U.S. has lost 2.6 million manufacturing jobs.”

Furthermore, Sheinkman and other labor leaders charge that much U.S. aid funding has gone into private pockets or been wasted.

For example, they say, AID has spent more than $20 million to support a Salvadoran development foundation run by a prominent pro-U.S. political figure. Internal agency documents record AID officials’ complaints that too much of the money was going to overhead.

An investigator for the Textile Workers Union has produced evidence suggesting that AID officials cooperated with American and local industrialists to make sure Central American unions were kept out of their plants--including a computerized blacklist of union organizers at an AID-supported free-trade zone in Honduras.

AID officials respond that the textile workers--who have seen about 497,000 jobs disappear as clothing manufacturers have moved operations offshore during the past 12 years--are merely fighting a rear-guard battle against job losses that are inevitable.

“This would have been the buggy whip union 100 years ago,” one senior AID official said angrily, “and if they had their way, we’d still be producing buggy whips. . . . (They) are trying to save sewing jobs instead of training the next generation of workers to do airplane production.

“Don’t we want these economies to develop?” he asked. “Or do we just want to send sacks of grain, the way we do to Somalia, to keep people alive for another day?”

AID’s interest in helping private enterprise in Central America dates from the early 1980s, when the new Reagan Administration decided to overhaul the U.S. foreign aid apparatus using free-market principles.

Reagan Administration officials argued--and most Latin American governments eventually agreed--that economic development efforts should focus on fostering private enterprise that could export products to the United States and other markets--”trade, not aid,” in the catchword of the day.

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“We want to maintain a favorable climate for foreign investment in the Caribbean region, not merely to protect the existing U.S. investment there, but to encourage new investment opportunities in stable, democratic, free-market-oriented countries close to our shores,” then-Vice President George Bush explained in 1982.

As a result, AID began funding trade associations, chambers of commerce and investment promotion organizations in Central America.

In El Salvador, where a decade-long civil war left many institutions a shambles, AID focused on a private nonprofit group called the Salvadoran Foundation for Economic and Social Development. Its president, Roberto Murray Meza, was a wealthy, sophisticated, politically conservative businessman who so impressed U.S. diplomats that they began talking him up as a potential president of the country. Murray Meza’s detractors grumble that he used the foundation to burnish his image.

Since 1984, AID has pumped more than $102 million into the foundation, of which about $82 million has gone into development projects overseen by the group. The remaining $20 million has gone to support the foundation itself, amounting to 94% of the organization’s budget.

The foundation has used the money to provide loans and grants to small enterprises, launch a vocational and technical training program and open a center for textile and apparel manufacturing.

At the same time, the foundation began actively wooing U.S. companies to come to El Salvador, publishing advertisements like the one starring Rosa Martinez and opening investment promotion offices in New York and Miami, with a third office under consideration in Los Angeles.

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That promotion drive was approved and funded by AID. In the agency’s agreement with the foundation in 1991, AID called for “a proactive, direct and systematic sales effort involving direct contact with targeted U.S. firms to convince them to explore opportunities in El Salvador. . . . The industry focus will largely be apparel but could also include electronic/electrical assembly and other labor-intensive assembly activities.”

The Textile Workers Union was angered by the discovery that the federal government was paying for a foreign country to entice U.S. apparel firms, even as the industry was shrinking rapidly at home.

An intense young union official, Charles Kernaghan, decided to investigate the AID programs by posing as a potential investor. He printed up business cards, made himself president of “New Age Textiles” and met with AID officials in Miami, El Salvador and Honduras. (He turned over his findings to The Times and to CBS Television’s “60 Minutes,” both of which investigated the issues independently.)

Kernaghan said AID officials spoke glowingly of Central America as a place to start a small plant assembling cloth tote bags--the business venture he proposed--and described the loans, U.S. government investment insurance and AID-funded training programs he could use. “That’s their job,” an AID official agreed. AID doesn’t think those efforts entice firms out of the United States, he argued; they merely help Central America’s chances of snagging companies that are seeking overseas facilities anyway.

In Honduras, Kernaghan said, businessmen at AID-supported free-trade zones told him they maintained a blacklist to keep local union organizers from getting jobs. He said he asked an AID official about the union-blocking efforts, and the official replied, “Oh, yes. . . . I think they can deliver on that.”

A senior AID official said that after he learned of the reported conversation, he cabled the agency’s officials in the field reminding them that U.S. policy is to support peaceful, democratic union efforts. “Our guidance may not have been perfectly clear,” he said.

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In the AID archives in Washington, Kernaghan discovered minutes of a conference at which agency officials reviewed an evaluation of the Salvadoran development foundation. “(The foundation) has had tremendous costs and overhead which are going to be very difficult to explain,” one participant said, according to the minutes.

A senior AID official acknowledged that the minutes were correct but said that the meeting “was designed to be adversarial.” The foundation was later given a clean bill of health by AID auditors, he said. Still, he admitted that the agency has probably relied too heavily on the Salvadoran organization. “If we were starting over and there hadn’t been a war, we probably would have done it differently,” he said.

Among U.S. companies that have put facilities in Central America, Kernaghan said, are Koret of California, which closed a plant in San Francisco in 1990, eliminating about 300 jobs.

Another is Marcade Group Inc., which began operating in El Salvador in 1990 shortly before shutting down a Decaturville, Tenn., plant run by one of its apparel subsidiaries, Marlene Industries. The Textile Workers Union charges that Marcade videotaped workers in Tennessee for training films it used in El Salvador. The 1991 closure eliminated 306 jobs.

The Marcade subsidiary in El Salvador, Perry Inc., received an AID-funded start-up loan through the development foundation and insurance from the U.S. Overseas Private Insurance Co. Perry now operates two apparel assembly plants in the Central American nation, employing about 900 workers.

AID officials said there was no direct link between the U.S. plant closings and the new facilities in Central America. Marcade “did not close to go to El Salvador,” one official said. Without AID, he said, “they would have gone to the Far East.”

Charles S. Ramat, president of Marcade Group, said he would not comment on the issue. “I really have no interest in this whole topic,” he said.

The union’s charges have promoted California Rep. George E. Brown Jr. (D-Colton) to call for a General Accounting Office investigation. “This is obviously a special interest on labor’s part, but the further I get into it, the more disturbed I am,” he said. “It hurts American workers, but it is also increasing the social disparities in those countries down there. You have these young women working at indecently low wages.”

The questions about the program have already had one small effect: Rosa Martinez is no more. The Salvadoran foundation stopped using the advertisement, reportedly after U.S. officials suggested that its low-wage appeal was a little too blunt.

Instead, the Salvadorans now use a more subtle pitch. “If you’re thinking of setting up an apparel operation anywhere in the world, you owe it to your company, and yourself, to look at El Salvador,” it says. “You’ll be pleasantly surprised at what you’ll find.”