`Sanctions busting': schemes to skirt South Africa embargoes. Firm's default uncovers illegal operations in nearby Swaziland

Happiness Dhlamini was mystified by the strange task awaiting her when she began working for Garment Industries of Swaziland in 1986. ``The bosses would bring shirts already made and tell us to put the labels on,'' the young woman remembers. ``Sometimes they already had a label from Zululand [the South African homeland of KwaZulu], and we had to take it off, and sew one on that said `Made in Swaziland.'''

Critics charge that Garment Industries, the Swaziland branch of a South African subsidiary of Taiwan's Chia Ho Business Group, used Ms. Dhlamini and hundreds of other Swazis to help save its American export market after South African textiles were banned from the United States by the Comprehensive Anti-Apartheid Act of 1986 (CAAA). The scheme was described by Michael Warman, whose Eastbrook merchant bank took over the factory after Chia Ho defaulted on several million dollars in loans, and has been confirmed by Taiwanese and South African officials.

The scheme was one small part of a worldwide explosion of ``sanctions busting'' - secret corporate-trading tactics designed to defeat embargoes imposed by foreign nations in an effort to force South Africa to dismantle apartheid, its segregationist system.

Sanctions advocates say countless companies and billions of dollars are involved.

US Congressman Robert Wise (D) of West Virginia charged in congressional testimony earlier this summer that South Africa spends $2.3 billion a year evading just one anti-apartheid measure: an oil embargo nominally backed by every major petroleum-producing nation. A US bill that would virtually end US-South African trade - and includes a measure by Mr. Wise to punish oil firms that aid South Africa economically - was working its way through the House last week. A companion measure is in the Senate.

There are many small-scale schemes for evading sanctions active in Swaziland, a tiny kingdom of 800,000 people surrounded on three sides by South Africa. Officials wonder if they can stop the sanctions busters before they wreck the country's relations with European and North American trading partners.

False labeling ``takes away markets our genuine goods would have,'' says Chris Mkhonta, Swaziland's commerce and industry secretary. It also led European countries to threaten to include Swaziland in anti-South Africa sanctions.

Falsely labeled Swazi avocados have appeared in the Middle East, apples in Europe, and wine in Canada, Mr. Mkhonta says. The problem, he says, is that most such schemes attach forged ``certificates of origin,'' internationally recognized documents that say where a product was made, to goods that never touched Swaziland.

Garment Industries, however, used genuine documents from Mkhonta's ministry to export falsely labeled goods, according to Mr. Warman and workers employed by the former management. A study of the Swazi investment climate by a Washington consulting firm, Dimpex, says that US customs officials have been investigating the possibility that shirts shipped by Garment to the US as Swazi products were manufactured in South Africa.

The factory opened in mid-1986, while the US Congress was considering a ban on South African textile products. Its parent company had already exported to the US for several years from KwaZulu.

Convincing companies to leave South Africa is the purpose of anti-apartheid legislation. But Chia Ho subverted sanctions because the company took its South African goods along for the ride. Soon after Congress passed CAAA in September 1986, the company moved at least 140,000 shirts to Swaziland, says Krish Govendor, then a factory foreman.

After workers relabeled them, the company trucked its shirts back through South Africa to Durban and shipped them to Los Angeles, says Vasu Naidoo, the shipping clerk at the time. Using Swaziland to circumvent sanctions was very simple, Mr. Naidoo says, because officials routinely certified the goods as locally made without even visiting the factory.

A conflict with New York banks finally ended the scheme last July. Chia Ho had defaulted on several million dollars in loans from Eastbrook merchant bank and the giant Citibank. Eastbrook seized Garment Industries and sent former World Bank investment officer Michael Warman to run the factory.

Mr. Warman reorganized the factory as Injobo Ltd., a producer of genuine Swazi goods. But operating profitably is difficult, he says, because Garment Industry's ``extremely immoral, extremely unprofessional'' methods have become industry norms. His main export competition comes from companies still using false labels. Most operate from South Africa's black ``homelands,'' where low labor costs let them undercut goods truly made in Swaziland.

Chia Ho officials have since left southern Africa. Warman says they have fled to escape possible prosecution. Extensive efforts to locate Chia Ho officials for comment uncovered the following information: The company has been dissolved; there is no current listing in Taiwan for Chia Ho or its parent company; the South African court-appointed liquidator of the company's abandoned assets says those who operated the firm ``have absconded;'' the company's factory manager and Taiwanese investors have disappeared.

Pretoria actively discourages ``this illegal side of export operations,'' insists Ferdi Krick, South Africa's deputy trade representative in Swaziland.

Critics disagree. Zimbabwean businessman Eddie Cross, a leader in efforts by the Southern African Development Coordination Conference - a nine-nation group established to reduce their black-led nations' dependence on South Africa - charged that a secret office in the South African Foreign Ministry coordinates Pretoria's efforts to use neighboring countries to evade sanctions.

False labeling is only one of many methods, critics contend. Other companies try to claim Swazi origin for goods mostly made in South Africa but finished in Swaziland.

Textile industry sources described relabeling operations similar to Garment Industry's in Lesotho and on the Indian Ocean island of Mauritius. The US General Accounting Office said in April that customs officials are investigating 41 cases involving both covert imports of South African steel, textiles, or farm products and exports to South Africa of arms, ammunition, and aircraft.