On the sultry patio, a cauldron of red-brown dye bubbled in the sun like a wicked alchemical brew. Along the walls, in the shade, men and women sorted through piles of pale sisal. Their hands, hard with calluses, pulled needles and rope through rough fiber plaiting.

These employes of a small international development project were making mats for faraway living rooms in the United States and Europe. At least that was the idea, until reality started creeping into the Third World from the first. For the past few months, sisal goods have been stacking up, ceiling high, in this small house on the Rue Roussier, near the waterfront.

The troubles at this sisal workshop have little to do with the typical local impediments to development -- ineptness, corruption or neglect -- that have given Haiti the reputation as "a cemetery of development projects."

To the foreign organizers, the workshop experience illustrates how the new development emphasis on "trade not aid" runs up against what the poor nations see as the perennial imbalance in the terms of trade, locking them in underdevelopment.

It is an example, they say, of how rich nations finance development projects but at the same time create obstacles that make it almost impossible for the projects to survive.

In this case, a cheap-labor manufacturing process has been priced out of the market by the high profit-taking of middlemen and retailers in Europe and the United States.

The story of the sisal workshop began three years ago when a small international group of development workers picked a project that would use local materials and intensive labor rather than machines.

It had to be simple and economically workable so that the Haitians could do without outside experts and financing as soon as possible. This was in keeping with the new development bible which balks at the "permanent insemination syndrome," explained Belgian economist Gerrit Desloovere, who manages the project.

With $30,000 from private American and European aid groups, the developers bought a house and a truck that hauls the unspun sisal in from the arid northeast.

Men and women were trained in plaiting, weaving, dying and sewing. Now the workshop provides jobs to 400 people who work at this hemisphere's lowest minimum wage of $2.20 per day.

By the time an average size 30-pound carpet is ready, Desloovere said, the cost of sisal, labor, dye and transport is about $45. "That is absolute rock bottom. Then we take 10 percent profit for reinvestment and the piece goes abroad."

With orders for the appealing, multicolored carpets coming in from the United States, the Netherlands and West Germany, more staff was hired and trained. Then, suddenly, the demand stopped.Desloovere said he was told, "You're too expensive. You're out of the market."

The Rev. Quirinius Muth, a Catholic priest attached to the project, went abroad to investigate. The importers, it turned out, added 100 percent to the carpet price. Wholesalers doubled this again. Then it was doubled once more by the retailers. By the time it faced the shoppers in New York and Amsterdam, Muth explained, their carpet was far more expensive than the machine-made one from Africa or Taiwan.

Back in the heat of Port-au-Prince, Muth and his colleagues recently weighed alternatives. They do not want to close down the workshop because 400 families depend on it. There was no real way to cut costs without digging into the meager salaries.

To bypass one or more stages of the marketing, they say, would involve setting up their own system of import and storage abroad. This would lead them to large-scale investments well beyond their production capacity.

The impasse, these development workers say, taught them where some of the main troubles lie between the industrialized and the Third World. "With one hand the rich countries send money to the poor," said Muth. "With the other hand they squeeze them. This is what the United Nations conferences and the North-South dialogue are all about, in a nutshell."

On the patio along Rue Roussier, the sisal workers have no idea why the stacks of mats and carpets are reaching the ceilings. Roger Destin, 52, the oldest employe, said he likes his job although his legs cannot cope so well with the long hours of standing at the high tables. But he has six children at home, he said.

In a separate section, the women pulled foot-long needles through the rough plaited mats. They laughed at Annette, 22, new on the job, who complained about her bleeding hands.

One of the older women held up her own hands. They were hard with calluses as thick as those on her bare feet. "It takes three months before your hands stop hurting," she told Annette. "Then you have no feeling left in them. But they get very good at this job."