More ‘business as usual’ in Bangladesh?

On the morning of April 24, 2013, Rana Plaza, an eight-story building in Bangladesh that housed five garment factories, collapsed. When the search and recovery operation concluded on May 13, the final death toll stood at 1,129 workers, making it one of the worst industrial workplace disasters in history.

Media coverage of this event added fuel to a longstanding campaign by local and international unions and NGOs to address what was, well before this latest tragedy, a crisis in building and fire safety in Bangladesh.

As a result of this publicity and activist pressure, over 70 companies, mostly European apparel brands and retailers, have signed a factory safety agreement called the Accord on Building and Fire Safety in Bangladesh (pdf). These include H&M (largest global buyer from Bangladesh), Carrefour and Tesco (the second and third-largest retailers in the world), and Inditex (world’s largest fashion retailer and owner of the Zara brand). The Accord also has the support of two global union federations, several leading labor rights groups, and the International Labour Organization.

Notably absent from these signatories, however, are the American buyers sourcing apparel from Bangladesh. Although a few U.S. companies signed on —specifically, Philips Van Heusen, American Eagle, Abercrombie & Fitch, and Sean John Apparel—most of the country’s leading retailers have not. Instead, earlier this month they announced an alternative program, the Bangladesh Worker Safety Initiative (pdf).

Why did America’s largest retailers, including Wal-Mart, Gap, J.C. Penney, and Macy’s, decline to join a program that enjoys broad support and buy-in from multiple stakeholders, opting instead to propose their own alternative initiative?  I argue that the answer becomes clear if we look more closely at the content of each plan.

To be sure, there are similarities: Both require that suppliers undergo factory safety inspections. Both require that these inspections yield remediation plans to address whatever hazards are identified.  And both require that buyers terminate contracts with suppliers that fail to cooperate.

But the key difference between the programs is that unlike the Accord, the U.S. plan does not obligate participating companies to pay for whatever repairs or renovations are needed to bring factories up to code. Instead, the Bangladesh Worker Safety Initiative requests that its members contribute to a voluntary fund that will provide affordable financing to contractors, so that they can access the capital needed to make repairs.

Factory inspections, remediation plans, compliance monitoring: For readers who have followed the anti-sweatshop movement and the apparel industry’s response to it over the last couple decades, all this will sound pretty familiar.

Indeed, the Worker Safety Initiative looks a lot like old wine in new bottles – an updated version of the existing corporate social responsibility model that has been around since the activist campaigns of the 1990s. Under this model, brands and retailers develop codes of conduct and then audit factories to ensure supplier compliance. Among those who have studied the effectiveness of compliance auditing, the consensus is that it has not succeeded in securing workers’ rights (pdf) or improving labor standards (pdf) in supply chains.

To be fair, retailers and brands now acknowledge that their auditing instruments failed to adequately address workplace safety issues. They also acknowledge that actually fixing the problems that more rigorous safety inspections identify will be expensive, which is why they have proposed the voluntary fund. But the Workplace Safety Initiative is based on the same principle that underlies the code of conduct auditing model. Ultimately, problems in contract factories are just that—the contractor’s problem.

This position is increasingly unconvincing in light of a growing body of research demonstrating that the business practices of lead firms at the top of global supply chains—the Apples, Nikes, and Walmarts of the world—create factory-level problems.  True, these companies do not own most of the factories producing the goods that are sold in their stores or under their label. However, the terms of their contracts with suppliers set the conditions of work for millions of people worldwide.

Buyers want highly flexible, cost competitive sourcing networks, and many of the costs this strategy creates are borne by suppliers, who, in turn, frequently offload them to workers. Inadequate lead times generate excessive overtime, as factory managers struggle to meet unrealistic production schedules. Constant competition for mostly short-term contracts gives suppliers little incentive or ability to make the kind of longer-term investments necessary to yield safer and more productive workplaces. And stagnant or falling prices lead contractors to squeeze labor costs, resulting in wage and hour violations.

In a paper that is forthcoming in Comparative Labor Law and Policy Journal, Mark Anner, Jeremy Blasi and I examine the relationship between the prices that brands and retailers are paying their suppliers, and labor rights performance in those apparel-exporting countries.  We find that the unit price of apparel entering the U.S. fell by 48 percent in real dollar terms between 1989 to 2010, and that during the second half of that period (after 2001), the decline in the unit price of imports tracks an appreciable deterioration in workers’ associational rights in exporting countries. We conclude that because the sourcing strategies of brands and retailers are a principle root cause of substandard conditions in global supply chains, any effective solution to this problem requires the regulation of buyer practices. What’s needed, we argue, are buyer responsibility agreements that contractually commit brands and retailers to providing suppliers with fair prices, stable contracts, and reasonable lead times.

The Accord on Building and Fire Safety is an important step in this direction. It includes three critical provisions that are missing from the U.S. retailers’ proposal. First, all participating companies must make commitments of at least two years, at current production volume levels, to their supplier factories. Second, they have to pay their suppliers prices sufficient to enable them to make repairs and renovations. Third, the obligation to finance safety upgrades is a legally binding commitment; the Accord outlines a dispute resolution mechanism that provides for the possibility of binding arbitration.

Some U.S. retail industry representatives have argued that the Accord would expose North American companies to excessive legal liability, particularly to class action lawsuits. This claim has been disputed by legal experts, however, who argue that the only liability companies would have is to fulfill the terms of the Accord.

In a New York Times article reporting on retailers’ liability concerns, a Wal-Mart spokesperson was quoted as saying that the Accord “introduces requirements, including governance and dispute resolution mechanisms, on supply chain matters that are appropriately left to retailers, suppliers and government.” It is revealing that those who are most directly affected by “supply chain matters”—workers themselves—are not mentioned among the stakeholders to whom these concerns are “appropriately left.”

Indeed, another of the salient differences between the two plans is the role of workers’ representatives.  Although the U.S. plan calls on suppliers “to actively support the democratic election and successful operation of Worker Participation Committees (WPC) at each factory,” the program lacks any formal governance role for worker representatives and organized labor is not a signatory to the agreement.

Some observers of the Rana Plaza collapse and its aftermath will point out, correctly, that the Bangladesh government bears much of the blame for failing to protect garment workers. It is worth reflecting on the political economy of this state failure: The apparel industry generates 80% of the country’s exports and about 45% of its non-agricultural employment. Not surprisingly, garment manufacturers exercise undue political influence in Bangladesh, including over the factory inspectors who are supposed to ensure workplace safety.

But the power of local apparel manufacturers ultimately rests on the foreign clients that are keeping them in business. So far, there is little to suggest that European and U.S. buyers are taking their orders elsewhere. The month following the Rana Plaza tragedy, Bangladesh’s garment exports increased 15%. Reflecting on this robust performance, the head of the government’s Export Promotion Bureau observed that, in spite of the recent disasters, the industry continues to expand because “most Western retailers still find our prices competitive.” If, instead, brands and retailers make clear that they are no longer willing to do business as usual, it could be the beginning of meaningful change.

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