The issue of the minimum wage is inflaming employment relations in Haiti, as garment factory owners and workers unions argue about the optimum rate amid fears the country's textile exports may become uncompetitive if the bar is set too high.

Garments constitute 90% of Haiti's exports, earning $800m (£485) a year, the biggest source of foreign exchange after diaspora remittances. The sector employs 31,000 people, a significant if small contribution to the organised jobs market in a poor, predominantly young workforce beset by unemployment rates of more than 40%.

Ironically, the dispute was triggered by attempts to formally raise the minimum wage.

On 10 December, a few hundred people took to the streets of the Haitian capital, Port au Prince, in protest against a scheduled increase in the minimum wage on 1 January. It might have been another demonstration against President Michel Martelly's government, except for what came next. Furious at the marginal pay rise – from 200 to 225 Haitian gourdes (£2.76 to £3.11) for an eight-hour day – some protesters vandalised garment factories in the main industrial park, prompting the owners to close them to close for a few days on the grounds of security concerns. The private sector's Association des Industries d'Haiti (ADIH) warned the closure and an increased reputation of instability risked grave damage to the garment sector.

The 12% increase in minimum wage was recommended by the Conseil Superieur des Salaires, Haiti's high wage council, a recently constituted body mandated by law and comprising the government, private sector and trades unions.

But the increase is considered derisory by the more militant and vocal of Haiti's 17 textile sector unions. Yannick Etienne, of Batay Ouvriye, the workers' rights organisation, described it as a "miserable" wage. Some of the unions are asking for a 150% increase to 500 gourdes per day.

The demand has been dismissed as absurd and irresponsible by factory owners, government officials, Haitian economists and foreign observers. Haiti's minimum wage, they say, is already four times that of textile workers in Bangladesh.

In an attempt to explain their opposition to too high a minimum wage, garment factory owners recently wrote an open letter exhorting workers to "keep Haiti competitive" in the race against "big rivals" – Bangladesh, Cambodia and Vietnam.

Martelly's administration uses the slogan "Ayiti pare pou biznis" (Haiti ready for business) to push Haiti's readiness to trade but activists deride it as a race to the bottom.

The apparel industry says it is a struggle to sell Haiti as a garment hub because energy costs are high and workers less skilled and productive compared with rival locations in Asia.

"I'm amazed we still have a garment industry at all in Haiti. We are already so much less competitive than other countries," said a businessman speaking on condition of anonymity.

Haiti's enviable advantage lies in a unique US gift called the Hemispheric Opportunity through Partnership Encouragement (Hope) Act (pdf), which was signed into law in 2008 and provides duty-free apparel and textiles products quotas.

The duty-free quota is generous. In the year starting 20 December 2012, Haiti was allowed to export 306,742,329 sq metres equivalent (SME) to the US regardless of the fabric's origin, so long as 50% of the garment was assembled in Haiti. From 20 December 2013, the annual duty-free quota rose to 322,629,971 SME.

But Haiti found it hard even to meet last year's quota, exporting just 259m SME to the US up to October. Critics say this comes down to Haiti's inability to rise to the challenge of scoring an open goal.

Henri-Claude Müller-Poitevien, of the Haitian presidential commission to implement the Hope Act, says time is running out for Haiti, as is the act, which expires in September 2020. Haiti needs "to improve pricing and provide quality – [such as] embellishments, embroidery and accessories because Bangladeshi labour is cheaper than Haitian," he warned.

But there are no easy answers. The cost of living is high in Haiti with the consumer price index increasing 124% in the past decade, according to economists. Yet the minimum wage has barely gone up three-fold in the same period. According to some estimates, the typical Haitian family spends half its budget on food, but this is a great deal more expensive now than in 2003.

To that extent, it may be compassionate common sense to align basic pay with a living wage. But that would mean fewer orders, even for the low end of the apparel sector, such as T-shirts. Some observers say it may be better to lower the cost of living rather than raise the minimum wage unsustainably. But they know this may be easier said than done.