PHILLIPS-VAN HEUSEN: AN INDUSTRY "LEADER" UNVEILED

An Investigative Report into the

Closing of a Model Maquiladora Factory

in Guatemala

June 15, 1999

U.S./Labor Education in the Americas Project

People of Faith Network

United Students Against Sweatshops

PHILLIPS-VAN HEUSEN: AN INDUSTRY "LEADER" UNVEILED

EXECUTIVE SUMMARY

When the Phillips-Van Heusen Corporation (PVH) abruptly shut down its ten-year old maquila (apparel-for-export) factory in Guatemala on December 11, 1998, it stated that the reason for doing so was the loss of a major client. At the time, critics challenged this rationale, pointing out that the lost account represented less than 2% of PVH apparel sales. They questioned why PVH, a member of a White House-initiated Apparel Industry Partnership (AIP) which was formed to reduce sweatshops in the apparel sector, closed its model maquila factory in Guatemala and the only one with a collective bargaining agreement rather than cut back on production on contractors with questionable labor practices. PVH dismissed the criticisms and repeated, most recently in a May 18, 1999 letter to the U.S. Ambassador in Guatemala, that it closed the plant because of the loss of a "major" customer for its dress shirts, the type of shirt produced at its Guatemalan factory, Camisas Modernas.

Now, a special investigative report conducted over the past four months based on an examination of PVH documents and shipping records and on interviews with over two dozen workers has determined that PVH's rationale was a cover-up. PVH closed the factory and busted the only union with a collective bargaining agreement in Guatemala in order to shift production to poverty-wage sweatshops in Guatemala that are in flagrant violation of Guatemalan labor law as well as the AIP code of conduct.

Specifically, this investigation has found:

1. Monthly PVH production at its Guatemala contractors is now higher than it was when PVH closed its own plant.

o March 1999 shipments from Guatemala (the most recent available) were nearly 50% higher than those in the last month of Camisas Modernas's operation, with PVH shipments at one PVH contractor surging from 15 tons in December to 85 tons in March, an increase of over 500%..

o Workers at one PVH contractor report that the daily production of PVH shirts jumped from 250 dozen shirts to over 400 dozen shirts. At a second PVH contractor, workers say daily production of PVH shirts increased from 350 dozen to 500 dozen.

o PVH sweatshop contractors have hired former PVH supervisors and installed PVH production methods for the same types of shirts that were produced at PVH's own factory.

o PVH shipments from its Central American contractors increased in the first quarter of 1999 compared to the first quarter of 1998.

2. PVH Guatemalan contractors are sweatshops in every sense of the word:

o Workers at PVH sweatshop contractors toil an extra 11-12 hours per week to earn half or less of what PVH union workers earned.

o Workers at PVH sweatshop contractors are forced to work overtime, forced to work all-night shifts, denied access to medical care, are consistently not paid overtime or benefits in accordance with Guatemalan labor law, and work in factories with filthy and inadequate bathrooms, insufficient drinking water, no protective equipment, and poor ventilation.

3. PVH's dress shirt business is doing well enough: profits are up and sales of the type of shirts that were produced at the PVH plant in Guatemala are growing. According to PVH's 1998 Annual Report (Form 10-K), filed on April 28, 1999 with the Securities and Exchange Commission in Washington, DC:

"Our Apparel segment recorded an 11% operating income improvement over the prior year, led by the performance of our Dress Shirt group." Profits increased from $45 million in 1997 to $50 million in 1998 for the PVH apparel division, up 66% from 1996's figure of $30 million.

"Van Heusen and Geoffrey Beene again increased their share of the department store dress shirt market [PVH's core business]--to a combined 30% in 1998 compared with 26% in 1997 and 21% in 1996." Van Heusen and Geoffrey Beene dress shirts were mainstays of the PVH Guatemalan plant.

The Human Dimension: From a Living Wage to a Poverty Wage for PVH Workers

In closing its Camisas Modernas factory, PVH reaped an estimated $1 million in wage and benefits "savings" while abandoning its workers to poverty-wage sweatshop contractors (if to any job at all). Take the case of Maria Lopez (not her real name) whose personal experience reveals the real truths about the PVH closing:

When Maria Lopez worked at Camisas Modernas, she put in a regular 5-day, 44-hour work week. As a mother, she appreciated the time she could spend with her children. She earned $65 a week, fairly close to the $70-a-week the Guatemalan National Institute of Statistics says is needed for a worker to take care of his/her family. All of Maria's legal benefits were paid in accordance with the law. The factory was well-ventilated, had potable water, and a clean bathroom for every 15 workers. She had on-site medical care, an ergonomically-designed chair, and even a grievance procedure should a problem arise. Then, just before Christmas, PVH closed the factory without any advance notice, in violation of the collective bargaining agreement with the union.

In January, Maria reluctantly went to work for a PVH contractor, and found herself sewing the exact same type of shirts she had sewn at Camisas Modernas. But for the same 44-hour week, she only earned $20, a wage cut of 70%. Maria estimated that even if she started working Saturdays and longer days, increasing her time to 55 hours a week, she could only earn $32-$33 a week, less than half of what she earned for a 44-hour week at Camisas Modernas. In addition, benefits and overtime were not paid in accordance with the law, bathrooms were usually filthy (with only one stall per 60 plus workers), and drinking water ran out constantly. And mandatory overnight shifts were frequent.

The Bottom Line? PVH closed its unionized factory where 500 workers were paid a decent wage and Guatemalan labor law respected to concentrate production at poverty-wage sweat-shops. PVH is improving its bottom line--off the backs of workers earning as little as $3 a day.

The Workers Demand, and Ours:

That PVH reopen Camisas Modernas as a unionized factory, either under PVH's own management or in partnership with others, rehiring the PVH workers who lost their jobs in December and reinstating a collective bargaining agreement..

I. BACKGROUND

A. The Closing of Camisas Modernas

Phillips-Van Heusen (PVH) is the U.S.'s leading marketer of men's shirts, including Van Heusen, Geoffrey Beene, Bass and Izod dress shirts and sportswear. PVH was one of the first U.S. apparel companies to adopt a code of conduct for its overseas producers, and is an original member of the Apparel Industry Partnership, convened by the White House in an effort to end sweatshops in the apparel industry at home and abroad. PVH Chief Executive Office Bruce Klatsky is also a member of the board of directors of Human Rights Watch. PVH presents itself as an industry leader in its treatment of workers.

In 1997, after a six-year international campaign, PVH signed the only collective bargaining agreement in Guatemala's apparel-for-export industry and raised wages significantly, a move that brought the company not only an end to the campaign but strong affirmation from a broad range of U.S. and international trade union, religious and human rights organizations. The factory, Camisas Modernas, became a model for the maquiladora sector in Central America.

But on December 11, 1998, in violation of its collective bargaining agreement, PVH abruptly closed with no warning its Guatemalan factory. Workers arriving at the factory gates the day before the traditional Christmas holiday were met by security guards and lawyers who brusquely informed them that they no longer had jobs. The factory had been operating continuously in Guatemala since 1988.

PVH stated that the reason for the closing of Camisas Modernas (one of only three PVH-owned factories in the world) was that the company had lost a "major" customer (Mercantile department stores) and needed to cut back on its productive capacity. Critics rejected this explanation upon learning that Mercantile represented only $15 million out of PVH's annual apparel sales of $900 million, or about 1.5% of PVH annual clothing sales. PVH generally ignored the critics, refusing to answer a detailed set of questions from the General Secretary of the International, Textile, Garment and Leather Workers Federation, Neil Kearney, or to respond to workers request to examine PVH books to verify PVH's stated rationale. PVH later amplified its rationale for the closing by also citing a need for flexibility and the changing nature of the industry.

B. PVH in Guatemala

The Phillips-Van Heusen Corporation has operated in Guatemala throughout this decade, producing men's shirts at its own wholly-owned operation as well as at Korean and Guatemalan-owned contractors.

In 1989, workers objecting to inadequate wages, poor working conditions and abusive supervisors, first attempted to form a union at the PVH factory in Guatemala City but were met with illegal firings, harassment, and intimidation⁽¹⁾. In 1991, workers asked for international assistance in their campaign for a union. The union subsequently succeeded in obtaining its legal recognition in 1992, the first union legally-recognized in Guatemala's maquiladora sector in six years. The recognition was granted just days before the Guatemalan government had to testify before the U.S. Trade Representative in response to petitions that charged Guatemala with a failure to advance worker rights, citing the PVH case as a prime example. However, despite the Guatemalan government's action, the company refused to negotiate with the union.

In 1996, workers at Camisas Modernas initiated a new organizing campaign with international support to persuade PVH to negotiate a collective bargaining agreement. The campaign was successful when PVH agreed in March 1997 to abide by the findings of a special investigation by Human Rights Watch which found that the workers had met the legal requirements obligating management to negotiate in good faith.⁽²⁾ A contract was signed in August 1997, marking the only collective bargaining agreement in Guatemala's maquiladora sector. The contract provided for substantial wage increases, a grievance procedure and an end to discrimination against union members.

At the time, however, a leading Guatemalan maquiladora owner predicted that the factory would close the next year and that PVH production would be shifted to Guatemalan contractors. That prediction, or perhaps threat, was fulfilled in December 1998 when PVH abruptly closed its plant.

C. Previous Problems with PVH Contractors in Guatemala

In September 1996, the U.S./Guatemala Labor Education Project (now the U.S./Labor Education in the Americas Project) released a report summarizing the results of interviews conducted at PVH contracting operations in San Pedro Sacatepequez, a small town outside of Guatemala City, heralded as a model "maquila village."⁽³⁾ US/GLEP found otherwise. Workers reported wide-spread violations, including illegal employment of minors, failure to pay the legal minimum wage, failure to enroll workers in the national health program as required by law, forced overtime, failure to provided legally-required vacation pay and annual bonuses, and extensive homework.⁽⁴⁾

Less than 24 hours after US/GLEP sent PVH a confidential advance copy of the report, the Guatemalan Labor Ministry and U.S. embassy personnel had rushed to San Pedro Sacatepequez for damage control. Contractors promised to clean up their act but at the same time intimidated sources for the report who fled to Mexico in fear of their lives. (This report does not contain interviews with workers in San Pedro because villagers are too scared to talk to outsiders asking questions about PVH contracting operations, which are continuing.)

II. PVH GUATEMALAN CONTRACTORS IN 1999

A. Research Methodology

In January, interviewers began questioning workers at PVH contractors in Guatemala. Over the course of the next several months, additional interviews were gathered by a U.S. delegation composed of the People of Faith Network, the Union of Needletrades, Industrial and Textile Employees (UNITE), the United Students Against Sweatshops (USAS), and the U.S./Labor Education in the Americas Project (US/LEAP). Some of those interviewed were Camisas Modernas workers who were able to compare first-hand the conditions between the PVH plant and those of PVH contractors. ⁽⁵⁾ Most interviews were conducted by Guatemalans, off-factory premises, during lunch breaks or after quitting time.

Workers from the following plants were interviewed: the Corporacion Mercantil del Caribe (CMC), located at Kilometer 16, Carreta a San Juan (Calzada San Juan); Cardiz, located at 10a Avenida 25-63, Zone 13, Guatemala City; Bluca, located at 7 Calle 28-37 Zona 4 Mixco, Finca El Naranjo, and Camisas Miltas Alpas near Antigua.⁽⁶⁾ Factory-by-factory summaries are contained in an attached appendix.

B. Summary of Findings:

1. Poverty-level Wages

A living wage: The Guatemalan National Institute of Statistics estimates that a worker needs to earn an average of $10-a-day for each day of the week (i.e. $70 a week) to provide basic food, health, shelter and other care for his/her family.

The law: The legal minimum wage is Q21.68 (about $3)⁽⁷⁾ per day for workers in the maquiladora sector. Workers who work 44 hours or more in a week are required to pay a "7th day" of wages, equivalent to the average daily wage earned during the payroll period. Typically, workers in the maquiladora sector earn a base minimum equivalent to the legal minimum plus a piece or production rate based on speed and quality of work.

Camisas Modernas: Since the collective bargaining agreement was signed, most workers earned about $9 a day when working a 44-hour week.

Findings at PVH contractors: Most workers at PVH contractors interviewed earned about $4.70 a day as operators, and no more than $3.50 a day as assistants, with overtime, less than half of the wage needed to escape poverty and about half or less of what Camisas Modernas workers earned.

"The salary is too low. One week I earned Q176 [about $25], even with overtime and working Saturday."

-- Cardiz worker

2. Long Hours

The law: The legal work week is 44 hours.

Camisas Modernas: Since the collective bargaining agreement was signed, workers worked 9 hours Monday through Thursday and 8 hours on Friday, for a regular 44-hour week.

Findings at PVH contractors: While some workers kept their hours to the 44-hour week, most described having to work much longer hours to meet their production quota, working from7 a.m. to 6 p.m. or later Monday through Friday, with a long-half day on Saturday of 7 a.m. to 1 p.m. or 2 p.m., for work weeks of 56-57 hours, excluding overnights.

3. Overtime: Forced and Unpaid

The law: Overtime must be voluntary and compensated at the rate of time-and-a-half for anything over 44 hours a week or 8 hours during the day, based on the average earnings per hour of the payroll period (including piece rate pay).

Camisas Modernas: Overtime was voluntary and compensated at the legal rate since the collective bargaining agreement was signed.

Findings at PVH contractors: One of the most consistent complaints of workers was the failure to pay overtime and the necessity of having to work overtime. Workers are required to stay extra hours to meet production goals in order to earn anything more than the legal minimum wage. Consistent failure to meet high production goals not only results in lower wages but dismissal. At one factory, Bluca, workers were recently told by management that overtime is voluntary but production goals are set too high to be completed during regular work hours.

"On some occasions I've needed to leave after working eight hours but they haven't let me. Management has told me that extra hours are obligatory. I've also seen that the overtime is not compensated, because the salary is the same, overtime or not. . . . . Other workers are treated just as badly as I am. People must work overtime no matter how far away they live or no matter where the busses leave them off at night or what time the busses stop running. In my case, for example, the last bus leaves at 7:00 P.M. and I must walk very far from the bus stop to my home."

--- CMC worker

4. Mandatory overnights

The law: Mandatory overnights are illegal. All overtime is voluntary and workers are not allowed to work consecutive day and night shifts.

Camisas Modernas: No overnights were required since the collective bargaining agreement was signed.

Findings at PVH contractors: In two factories, Cardiz and CMC, workers reported mandatory overnights during rush periods. For example, workers at Cardiz reported that earlier this year they had been required to work overnight shifts a couple times a week, working first a regular shift from 7 a.m. to 4 p.m., then resuming work at 7 p.m. and working until 5 a.m. or 6 a.m. before doing another day shift from 7 a.m. to 4 p.m.

5. Illegal denial of health care and benefits

The law: Employers are required to deduct payments from salaries for IGSS, the Guatemalan national health and social security system. Employees are to be given IGSS identification cards which are required in order to visit IGSS hospitals and doctors.

Camisas Modernas: In addition to complying with the law with respect to IGSS, the plant had a doctor on the premises and a clinic.

Findings at PVH contractors: A recurrent complaint from workers interviewed is that employers make the deduction but then refuse to issue IGSS identification cards for months or even years. Those who decide to use other health care providers not only have to pay for the care, but their paychecks are docked for lost time. And those who have been given IGSS cards are refused permission to go to IGSS.

"Management deducts Q20 [equivalent to about $3] from my salary [every two weeks] to pay for IGSS, but I've worked at CMC for several years and they've never given me an IGSS card even though I've asked for it several times. Without the card, I can't go for a consultation or register at IGSS. They always say that I've got to wait until there's a big enough group so that they can send the application with all the names. Management seems to prefer that we not know that we're entitled to this benefit. Besides this, management denies us the permission slips that we need to go to IGSS. One day I asked for permission so that I could get my IGSS card but my supervisor refused. Worse, he told me that if I went without permission at noon they would dock my pay for the entire day plus the 7th-day bonus [i.e. the equivalent of two days pay]."

-- CMC worker

"When we ask for a certificate to be able to go to IGSS they refuse to provide it. They say they don't have any. Many people are sick and have to continue working without medical care."

-- Cardiz worker

"A worker who suffered a work-related injury says it took her nearly two days to persuade management to let her go to IGSS. IGSS then told her to take off work for several weeks. Upon her return, she was assigned to a new, lower-paying job. The worker believes she's being punished for having used the medical services to which she is legally-entitled."

-- Cardiz worker interview summary

6. Legal Benefits Denied

The law: Workers are entitled to a Christmas bonus and a "14th month" bonus equivalent to a month's salary, severance pay equivalent to one month's wages for each year worked, and a two week vacation with pay.

Camisas Modernas: All legal benefits were provided after the collective bargaining agreement was signed.

Findings at PVH contractors: Workers at all three contractors reported that severance pay was not provided in accordance with the law, that Christmas bonuses were not paid in full or paid late, and that the 14th month bonus was usually paid at half the legal rate. Workers at Cardiz report that last year's Christmas bonus was paid late and paid only after a work stoppage in February.

"Since I started working at CMC [over three years] they've never given me vacation. And we've had to hold work stoppages to force them to let us take off on the official holidays."

-- CMC worker

"We've always had problems getting them to pay us Bono 14 [14^th month bonus]."

-- CMC worker

7. Minors

The law: Youth under the age of 16 are prohibited from working in the maquiladora sector, unless they have the permission of both their parents and the Labor Minister.

Camisas Modernas: No minors were employed.

Findings at PVH contractors: Employment of minors was cited at two factories but whether or not they had the requisite permission is not known. But based on the fact that workers reported that efforts were made to hide minors when "foreigners" visited, it's probable that the minors were employed in violation of the law.

"There are about 800 of us working in this factory. All age groups are present, including minors under 16 years of age. The majority are women. On my line there was a young woman who quit who was underage. They only paid her Q300 [about $40, in severance]."

-- CMC worker

"Six underage workers who worked in packing and ironing quit because of the conditions."

-- CMC worker

8. Health and Safety Violations

Guatemala's health and safety regulations are minimal for employers, but workers frequently cited health concerns when interviewed.

"There's no purified water to drink. The company has put in a filter, but the workers don't trust it because some have become ill after drinking the water."

-- Bluca worker

"We're forced to drink unsanitary water from the faucets [Guatemalan tap water is generally unsafe to drink], because they only buy one five-gallon jug of filtered water for every 35 workers per day, which is just not enough, so we have to refill them from the faucet when we're thirsty."

---- CMC worker

"We're not allowed to leave the premises during work hours, which means we're forced to buy lunch from the concession stand inside the plant. The food is very expensive, Q8 or Q9 [more than one-third of the daily minimum wage], and the quantity is insufficient. The concession seems to be owned by the factory itself; it's their business. The hygienic conditions are poor -- some people have gotten ill from eating this food. The bathrooms are bad. The toilets are filthy and there's no water to flush them with."

-- Cardiz worker

9. Right to organize and freedom of speech denied

The law: Employers must respect freedom of association and the right to organize and cannot fire or discriminate against workers who seek to exercise these rights.

Camisas Modernas: After a six-year struggle and the intervention of Human Rights Watch, PVH ended its discrimination against union members and signed a collective bargaining agreement in August, 1997.

Findings at PVH contractors: Workers interviewed at two plants reported that workers who protested the failure of the employer to provide legally-required benefits were fired. In addition, workers reported threats by supervisors and owners to fire workers who engaged in union activity. For example, when workers organized a work stoppage at Cardiz to demand payment of the overdue Christmas bonus in February, the owner showed up at the factory and reportedly threatened to fire all the workers. Several workers were indeed fired shortly after the work stoppage, including one of the two women who had served as spokespersons on this issue.

"In 1997 we held a work stoppage to force them to pay us this bonus, but they fired several of the work stoppage organizers.

-- CMC worker

"Jaime Monroy was a supervisor at Camisas Modernas but he now works at Cardiz. He always gives threatening messages to the ex-Camisas Modernas workers who now work at Cardiz. He tells us that our names are going to appear in a black list and that we'll never find work anywhere else due to our participation in the Camisas Modernas union, and that only in Cardiz will we find work. During the week of January 20 to 25, they sent a circular around the plant which said that we shouldn't pay any attention to the Stecamosa [the PVH union] workers, that they were just rabble rousers and that Carlos Arias [the owner] would never negotiate with them."

-- ex-Camisas Modernas worker now at Cardiz

"What's happening now is that they're watching over us closely, and we suspect that the company has hired people just for that role. They called all the workers off the line to the office during the week of [April] 12th to the 17th to tell us that management had gone to the General Labor Inspection in order to file complaints against the workers for bad production quality and for supposedly robbing clothing. The idea being that if we wanted to complain to Labor Inspection, it would be useless since they wouldn't listen to us."

-- CMC worker

*Illegal under Guatemalan labor law

C. A Cover-Up in the Works?

PVH, like many U.S. apparel companies, has a code of conduct setting minimum standards for its suppliers. Based on past experience, PVH will respond to this report with declarations that its inspectors or perhaps those from an accounting firm (or those from the government's notoriously corrupt labor inspection office) have visited these factories and not found the violations reported by the workers in these interviews. Critics of in-house monitoring procedures argue that companies and their accounting firms cannot police themselves and their contractors. Even if one accepts the dubious premise that the fox has the integrity to guard the chicken house, the chickens still don't trust the fox. Workers are not going to voice complaints to company monitors.

In addition, contractors can and do take steps to cover-up abuses. Take the following story from the Bluca plant:

"Workers reported that they were forced to clean the machines one day during the week of November 15-20, 1998, and management contracted people to clean the factory, and for one time only they placed toilet paper in the bathrooms. Management knew that some North Americans were coming to visit. Besides the above-mentioned preparations, management also hid the underage workers in a storage room, and paid some workers a bonus so that they'd speak well of the factory. After the visit, everything returned to normal."

But perhaps something more sinister is in the works. Workers at two of the contractors reported that earlier this year they were required to sign statements saying that they agreed with the wage system and hours maintained by the factory. At least one worker attributed the request to sign the statements as coming from PVH. Workers would of course have no choice other than to sign such documents; failure to do so could easily result in dismissal.

"One worker stated that two months ago a meeting was called where the workers were told to sign a document stipulating that they were in agreement with the schedule change. The supervisors said that this recommendation was made by Van Heusen."

-- Bluca worker interview

"Workers were told to sign two pieces of paper in January apparently saying that they agreed to work for piece rates and they agreed to accept the rates."

-- CMC worker interview

There are also reports that suggest PVH or its contractors have learned of this investigation: overnight shifts at Cardiz reportedly ended a couple of months ago, "official" (but not actual) hours have been reduced at Bluca, and new payment systems have been instituted at Bluca and CMC, though there is no evidence that wages were raised, just reported differently.

III. PVH PRODUCTION TRENDS IN GUATEMALA AND CENTRAL AMERICA

When PVH closed Camisas Modernas, it stated as the chief reason the loss of a "major" customer and a need to cutback productive capacity. In truth, the "major" customer accounted for only 1.5% of PVH apparel sales. PVH's stated rationale is even more misleading given that Camisas Modernas was never a major source of PVH production. Most PVH production in Central America has been from about a dozen contractors, who pay far less and provide far fewer benefits. Camisas Modernas represented about 15% of PVH production in Guatemala and only 7% of PVH production in Central America (and even less of PVH's global production).

Now, the most recent shipping records (which have a 2-3 month time lag) confirm what workers have been saying since PVH closed Camisas Modernas: monthly PVH production at Guatemalan contractors has begun to increase since the closing, severely undercutting PVH's statements that it closed Camisas Modernas because of the loss of a customer.

A. Analysis of Shipping Records

o PVH shipments from Guatemala in March 1999 were 170 metric tons, a 47% increase over December 1998 when PVH closed Camisas Modernas and a 47% increase over March 1998, a year earlier. (The March increase came after a drop in January and February shipments, a monthly pattern which follows that of 1998 in which shipments during the first two months of the year fall but increase again in March.)

o Shipments from PVH Guatemalan contractor Cardiz jumped from 15 tons in December to 22 tons in February to 85 tons in March, more than a 500% increase. The increase more than offset the lost production at Camisas Modernas, which normally did 15-30 tons monthly. Cardiz is owned by long-time PVH contractor Carlos Arias Maselli who predicted in August 1997 at the time the collective bargaining agreement was signed that PVH would close the union factory the next year and shift production to contractors like himself. His prediction appears accurate.

o Overall PVH shipments from Central American contractors increased in the first quarter of 1999 compared to the first quarter of 1998, from 703 metric tons to 711 metric tons.

The Bottom Line: Clearly, PVH had the option of cutting back on using any number of poverty-wage, non-union contractors in the region in response to the loss of a relatively small account but instead used the excuse of Mercantile to shut down the one factory in Guatemala that had a collective bargaining agreement, paid a decent wage and met AIP conditions.

B. Reports from Guatemalan workers on PVH production increases

Even before the new shipping records confirmed these trends, workers at Guatemalan PVH contractors were reporting increased PVH production:

"Carlos Arias assembled the workers on December 15, 1998 to tell them that thanks to the closing of Camisas Modernas (due to its having a union), Cardiz was going to have a lot of work, that the "owner" of PVH had visited Cardiz to study the work system there and had been impressed, and decided to transfer Camisas Modernas production to Cardiz. When the workers returned from Christmas vacation on January 4, 1999, they did indeed find a lot of work waiting for them."

-- Cardiz worker interviews, February 1999

"Over the last several weeks we've been working at a run, the schedule being from 7:00 AM to 7:00 PM, and they give us only half an hour for lunch (they just changed the schedule, because three weeks ago we were getting an hour for lunch), and the reason is that Van Heusen just put an order in for 15,000 shirts.

"With the new production system, I've seen that production has increased. Before the change we were producing 3,000 shirts a day, and now we're producing 5,000 shirts a day."

--- CMC worker (April, 1999)

IV. PVH AND THE LOSS OF MERCANTILE: AN ANALYSIS OF PVH'S 10-K

In addition to the shipping records and recent increases in production out of Guatemala and Central America, other numbers challenge PVH's stated reason for closing Camisas Modernas, from it's own Annual Report. The following excerpts are from PVH's Annual Report, Form 10-K, filed with the Securities and Exchange Commission on April 28, 1999 (emphases added).

1. Sales of the main type of apparel that was produced at Camisas Modernas increased in 1998.

.... Van Heusen and Geoffrey Beene again increased their share of the department store dress shirt market [PVH's core business]--to a combined 30% in 1998 compared with 26% in 1997 and 21% in 1996." (p. 14)

2. Profits on apparel, especially dress shirts, increased in 1998. Operating income surged from $30 million in 1996 to $45 million in 1997 to $50 million in 1998 in the apparel section.

"Our Apparel segment recorded an 11% operating income improvement over the prior year, led by the performance of our Dress Shirt group." (p. 14)

3. Total apparel sales in 1998 were the same as 1996: $896.8 million in 1998 compared to $897.4 million in 1996. There was a small up-tic in 1997 of $911.0 million. These numbers don't suggest the sort of sharp drop in business that would necessitate a closing of one­third of PVH's factories.

4. The relatively small drop of 1.5% that did occur in overall apparel sales in 1998 from 1997 was due to the planned closing of some of its own retail stores.

"The current year sales decline resulted principally from our planned strategic initiatives to close underperforming retail outlet stores and to divest our private label sweater manufacturing business." (p 15.)

There is no mention of the closing of Camisas Modernas or loss of the Mercantile account in the 10-K. Presumably, the closing one-third of one's production facilities because of the loss of a major account should warrant at least an honorable mention to the SEC.

5. In any case the difficulties in their apparel sector are in the sportswear division, not the dress wear division.

"[Gross] margin improvement was driven by our Dress Shirt business, which benefitted significantly from its manufacturing reconfiguration enabling it to reduce product costs through our worldwide sourcing network. Offsetting a substantial portion of this benefit was weaker sportswear gross margins, particularly at Gant and Izod." (P. 15).

6. PVH's fourth quarter problems, which were reported to some, stemmed from a warm fall and impacted sportswear more than dress shirts.

"Operating earnings in 1998 were negatively impacted by a Fall season which began slowly and never fully recovered. The much-publicized unseasonable warm weather was a key factor in the slow start of Fall....this not only slowed retail sales, particularly in the sportswear area, but also increased considerably the cost of gross margin support to our wholesale customers." (p. 14)

Appendix #1

A. Corporacion Mercantil del Caribe, S.A. (CMC).

Ownership: Mr. Long Han Chong

Size: 1,000 workers

PVH Relationship:

Current PVH labels: Van Heusen, Geoffrey Beene, Aden Signer

Since CM closing: Shortly after Camisas Modernas closed, workers say that CMC significantly increased its PVH production, going from 3,000 shirts per day to 5,000 shirts per day. Workers interviewed say that while the Van Heusen and Geoffrey Beene labels have always been sewn at the factory, in recent months these two labels have represented the majority of the factory's work. Hired Roxana de Nelson., a production supervisor from Camisas Modernas.

Wages: Operators earn an average of $33 to $36 per week with overtime, $21 without; assistants earn between $23.55 to $33 a week with overtime

Hours: Regular work hours are from 7 a.m. to 6 p.m. Monday through Friday and 7 a.m. to 2 p.m. on Saturday. But workers interviewed say it is common for workers to stay until 8 p.m. to meet production.

Overtime: Overtime is mandatory and is not paid in accordance with the law, according to workers interviewed.

Overnights: Required of packing and cutting sections, according to workers interviewed.

Minors: Workers interviewed report that minors less than 17 years of age are employed.

Payment of legal benefits:

Severance pay Not paid in accordance with the law. Severance pay reportedly is limited to two weeks salary, regardless of how long a worker is employed, in violation of Guatemalan law that requires employers to pay a month of severance for every year employed. Workers say that supervisors keep a book listing all mistakes ever made by a worker and that these "mistakes" are then deducted from severance pay.

Annual bonuses Not paid in accordance with the law. Annual bonuses are underpaid, reportedly at less than half of what is required by law

Christmas bonus Not paid in accordance with the law.

Health and Safety:

Drinking water One large water jug is allotted to 35 workers. This supply usually runs out and the jug is refilled with tap water.

Bathrooms Eleven. Described as very dirty.

Ventilation Four ventilators were recently installed but workers say the heat is still stifling.

Protective gear Not provided.

On-site medical care There is no doctor, no nurse and no first-aid station.

Hospital visits Workers who have to go to the hospital or doctor lose two days pay.

Social Security cards Workers say that $2.50 to $3.00 is deducted each two-week pay period for IGSS (the Guatemalan national health and social security system) but they are not given IGSS identification cards which are needed in order to use the system.

Other

Physical abuse There are reports of occasional hitting of workers.

Local transport costs: Some workers commute up to four hours a day, paying $1.66 a day or the equivalent of 25% to 30% of daily earnings.

Cash payments Workers say they are paid in cash.

Other costs Workers must pay for their own tools: $3 for scissors and $6 for bobbins.

Illegal firings Workers report that a woman was fired three months ago when a supervisor, looking at her, asked if she was pregnant and she didn't deny it.

B. Cardiz, S.A.

Ownership: Carlos Arias Maselli

Size: 800-1,000 workers

PVH Relationship:

Current PVH labels: Van Heusen

Since CM closing: Dress shirts increased from 350 dozen per day to 600 dozen per day, workers say. Former PVH supervisors reportedly hired.

Wages: Workers say operators earn between $29 and $47 per week with overtime, as little as $20 without; assistants reportedly earn between $18 and $36 per week with overtime.

Hours: Regular work hours are from 7 a.m. to 6 p.m. Monday through Friday and 7 a.m. until 1 p.m. or 2 p.m. on Saturday. Workers have 30 minutes for lunch and two 15-minute breaks during the day but one worker interviewed said it was common to work through breaks in order to make the production quota.

Overtime: Overtime is mandatory and is not paid in accordance with the law, according to workers interviewed.

Overnights: Workers (except for those with seniority) were required to work overnight shifts once or twice per week earlier this, said those interviewed. Overnight shifts mean working 30 hours in a 48 hour period. The women have a 2-3 hour dinner break the first day and a 2-3 hour break early the next morning. They lie on the floor beside their sewing machines to catch a few hours of sleep before the regular shift beginning at 7:00 a.m. Hours for an overnight shift were reported as follows:

o 9 hours from 7:00 a.m. to 4:00 p.m.

o 10 hours from 7:00 p.m. to 5:00 or 6:00 a.m.

o 11 hours from 7:00 a.m. to 6:00 p.m. the following day.

Minors: None reported

Payment of legal benefits:

Severance pay Not paid in accordance with law. Fired workers are told to come back in three months in order to collect severance pay, but workers interviewed report that such benefits are never paid. Some workers commented that it's better not to try to collect because one could spend a year waiting outside the factory without getting anything.

Annual bonuses: Not paid in accordance with the law, say workers interviewed.

Christmas bonus Paid this year only after workers protested.

Health and Safety

Drinking water Jugs of purified water are provided but workers are suspicious that the water may just be tap water.

Bathrooms Twelve bathrooms, locked. Described as unhygienic.

Ventilation Described as insufficient.

Protective gear Not provided.

On-site medical care Not provided.

Hospital visits Permission to go to the hospital is routinely denied, workers say.

Social Security cards While IGSS is deducted from a worker's pay from the first day, the IGSS identification card is provided only after a worker has been employed for three months.

Right to organize: Workers interviewed said (a) those who have tried to organize a union have always been fired and (b) supervisors have recently been cautioning workers against forming or even speaking about a union or making other demands. Workers say they were fired recently for questioning non-payment of benefits in February, 1999.

Other

Physical abuse None reported

Punitive deductions: If a worker arrives five minutes late, s/he is docked an hour's pay or his/her bonus status, worth $4.34 to $9.56 per week. Time taken to get drinking water or go to the bathroom is deducted.

Local transport costs: Bus service provided at cost of about $3 per week.

Food costs: Workers who buy lunch at the factory concession pay about $1.25 per day, between a third and a quarter of what workers make.

C. Bluca, S.A.

Ownership: Se Hyena Oh and See Han Ann

Size: 500 workers

PVH Relationship:

Current PVH labels: Van Heusen, Manhattan, and John Henry

After PVH closing: In February, management convened a meeting of the workers wh o were told to sign a document stipulating that they were in agreement with a new schedule change. The supervisors said that this recommendation was made by Van Heusen.

Wages: Operators earn an average of $33 to $36 per week; assistants earn between $25 to $29 a week, say workers.

Hours: Regular work hours are from 7:00 a.m. to 5:00 p.m. Monday through Friday and 7 a.m to noon on Saturday. However, workers interviewed say it has been common for workers to stay until 8 p.m. to meet production.

Overtime: Overtime is mandatory and is not paid in accordance with the law, according to workers interviewed.

Minors: Workers interviewed report that minors less than 17 years of age are employed.

Payment of legal benefits:

Severance pay Not paid in accordance with the law. Most workers don't get severance because most workers quit. According to interviewees, when the company wants a worker to quit, they give her or him increasingly difficult work and treat them poorly.

Annual bonuses Not paid in accordance with the law. Annual bonuses are underpaid, reportedly at about half of what is required by law

Christmas bonus Not paid in accordance with the law, according to workers interviewed.

Health and Safety:

Bathrooms Described as inadequate.

Hospital visits Not permitted to go to IGSS; workers are penalized if they take a day to go to private doctor by being docked the equivalent of two days wages (about $12).

Social Security cards Routinely denied

Other

Physical abuse There are several reports of occasional physical abuse.

Local transport: Inadequate: only one bus, and it can't transport all the workers. The factory is located in a remote and dangerous neighborhood.

Punitive fines Docked an hour's pay for being five minutes late.

Dining area Only a small area in the factory so most workers must eat in the street.

Ventilation Poor.

1. ¹Petersen, Kurt, The Maquiladora Revolution in Guatemala, Orville H. Schell, Jr Center for International Human Rights at Yale Law School, 1992

2. ²Corporations and Human Rights: Freedom of Association in a Maquila in Guatemala, Human Rights Watch, Vol 9. No. 3, March 1997; Wall Street Journal, February 24, 1997 and March 18, 1997.

3. ³ Findings of an Investigation of Phillips-Van Heusen Contractors in San Pedro Sacatepequez, Guatemala, September 3, 1996, U.S./Guatemala Labor Education Project.

4. ⁴New York Times, October 21, 1996.

5. Information contained in this report with respect to conditions, wages, hours, and alleged violations is based almost solely on interviews with workers, who described with consistency wages, hours, and basic conditions. Over two dozen workers were interviewed for this report.

6. While workers at Camisas Miltas Alpas reported similar conditions: mandatory overtime, poverty-level wages, minors, etc, interviews from workers at this plant are not incorporated into this report because workers said that the factory had had a temporary suspension of Van Heusen label work. Workers said that they had normally worked on Van Heusen labels, but had stopped working on Van Heusen in January. They expect to resume Van Heusen label work sometime in June. While the plant is currently sewing Manhattan and John Henry shirts, production for which PVH took responsibility earlier this year when it obtained the license to market these labels previously owned by Supreme, this report has not attempted to profile conditions at all contractors producing John Henry and Manhattan for PVH.

7. The exchange rate used throughout this report is Q6.9 (quetzales) per $1 US.

8. Using exchange rate of Q6.9 per US $1.

9. Excludes breaks for lunch and rest; excludes periodic overnight work at CMC and Cardiz.