Reblogged from Nikkei Asian Review, a business journal based in Tokyo, story published on Friday, 7 March 2014.
After Bangladesh tragedies, can the garment industry change its stripes?
JOSEPH ALLCHIN, Contributing writer
Deaths and discord have brought international condemnation upon Bangladesh’s $20 billion a year apparel industry — the world’s second largest. Now efforts are underway to solve some of the industry’s problems, though there are lingering doubts about the prospects for real change.
Already there have been a number of key developments this year. For the first time in Bangladesh’s history, a garment factory boss was formally charged for the deaths of workers. A $40 million fund involving global apparel brands and international labor groups was established for victims of last April’s Rana Plaza factory collapse. And the arduous job of inspecting garment factories has begun.
On Feb. 9, Delwar Hossain, owner of Tazreen Fashions, a garment factory on the outskirts of Dhaka, was charged over the deaths of more than 110 workers in a factory fire in November 2012. Managers allegedly prevented the workers from leaving the eight-story building after a fire alarm sounded.
The Tazreen case has helped to raise awareness, said Saydia Gulrukh, a labor activist who pursued legal action against Hossain. Responses to such disasters, she contends, should focus not only on compensation but also on possible criminal negligence. “Owners should be brought to justice (for) a corporate crime,” she said, noting this “has never been the main focus.”
The Tazreen tragedy did draw some international attention to the poor labor and safety standards in Bangladesh’s garment industry. Initially, though, authorities’ response to the fire was muted. “Despite all these demands for Hossain’s arrest, no action was taken” for a while, said Humayun Kabir, a former Bangladeshi ambassador to Washington. “There was an impression that (the owner) was being supported by some elements.”
It took an even larger-scale disaster, the Rana Plaza collapse five months later, to galvanize officials. More than 1,100 workers died when the complex in Savar, a subdistrict of the capital, caved in.
“The government now wants to show it is taking some action,” Kabir said.
The GSP factor
While Hossain has been indicted, no one has been charged in the Rana Plaza case so far. Still, the government is scurrying to implement reforms — largely motivated by the pursuit of trade benefits.
A framework known as the generalized system of preferences, or GSP, allows Bangladesh duty-free access to the European Union. Until last June, it also gave the South Asian country limited duty-free access to the U.S. American policymakers withdrew the privileges because they were dissatisfied with the Bangladeshi government’s handling of labor and human rights issues.
Washington’s move caused panic in Dhaka, not least because the EU suggested it could follow suit. Nearly two-thirds of Bangladesh’s garment exports go to European markets. With the U.S. set to review the GSP issue in May, Bangladeshi officials are eager to demonstrate they are serious about ameliorating labor conditions.
There has been some “incremental progress,” according to Nisha Biswal, the U.S. assistant secretary of state for South and Central Asia. In a written statement submitted Feb. 11 to the Senate Committee on Foreign Relations, Biswal said nearly 100 unions were registered in Bangladesh in 2013, compared to one in each of the two previous years. Biswal also reported that Bangladeshi courts have dropped almost all criminal cases against labor activists and allowed registrations of nongovernmental organizations focused on labor rights.
Khondaker Golam Moazzem, a garment sector expert at the Centre for Policy Dialogue, a Dhaka think tank, said Bangladesh has lost orders for medium-grade products as buyers return to previous sources where compliance standards are actually tougher — places like China and India.
On the other hand, Biswal said “Bangladesh still has not fulfilled the many commitments it made to improve working conditions.” While she said the government has completed more than 200 structural soundness inspections and 120 fire safety checks, it has been slow to recruit additional inspectors. “Gaps,” she added, “remain between national law and international standards.”
What about wages? Minimum monthly pay in the garment sector last year was raised 77%, from 3,000 taka ($38) to 5,300 taka. Yet the first increase in three years was far less generous than it looked, considering annual inflation of about 8-9%. On average, Bangladeshi apparel workers remain among the world’s lowest-paid. China’s garment workers average more than $250 per month, Vietnam’s take home $100 and Cambodia’s make around $95.
The corporate connection
Foreign manufacturers and brands that source from the country are also taking steps to improve conditions — though not all companies agree on the best approach, and some may not be as committed as they appear.
Some, including Swedish retailer Hennes & Mauritz (H&M), say they have raised their per-piece rates or are thinking about doing so. The idea is that if suppliers have more money coming in, they will be inclined to distribute more to workers. However, a number of companies, including U.S. clothing brand Gap, have balked at sending extra cash suppliers’ way.
In any case, brands have created two major initiatives aimed at boosting factory oversight and facilitating upgrades. These pacts are known as the Accord and the Alliance. The Accord, the larger of the two, has 150 signatories including H&M; U.S.-based PVH, which owns brands such as Tommy Hilfiger and Calvin Klein; British retailer Tesco; Italy’s Benetton Group; European multinational retailer C&A; and Spain’s Inditex, the company behind Zara.
Both pacts have pledged to inspect factories that supply signatories, as well as provide for the hiring of inspectors. The Accord, which intends to encourage brands to assist with factory renovations, has a goal of inspecting 1,600 facilities by September.
Even so, workers’ groups are concerned big brands may skirt their obligations.
One worry stems from preemptive factory inspections launched by brands themselves. A representative of a company that supplies Accord and Alliance members, speaking on condition of anonymity, said some brands have swooped in to perform early checks. This gives them a chance to distance themselves from factories that would be unlikely to pass compliance tests — before they are obliged to assist with upgrades.
“Accord policy says (brands) cannot pull out of a factory or reduce order volume over the next two years,” said Babul Akhter, head of the Bangladesh Garment and Industrial Workers Federation. The federation is an affiliate of IndustriALL, the global union organization spearheading the pact.
“We see H&M and other brands pulling out of shared buildings, or multiuse facilities,” Akhter said. “They say, ‘We are concerned about workers’ safety, therefore we are pulling out.’ But these factories will still do subcontracting … so pulling out doesn’t ensure safety.”
The use of veiled sources is a way for brands to “escape responsibility for the consequences of hyper low-cost production,” suggested Scott Nova, executive director of the Workers’ Rights Consortium, a U.S.-based monitoring group that was involved in the Accord’s development. “That’s why the Accord imposes those obligations.”
Most big American brands, barring PVH, refused to sign the Accord due to its demands for legal liability and transparency. Instead, they created the Alliance, which has little or no union involvement. The big players in this group include Gap, Sears, Walmart and VF Corporation, which owns brands such as The North Face and Wrangler.
The Alliance does call on signatories to provide soft loans to Bangladeshi producers who need help upgrading their factories. But troublingly, producers for Alliance members have reported difficulty getting financing. One local producer for Gap said that when he requested help for a factory upgrade, the company responded that its suppliers should be “financially strong entities that do not require soft loans” and suggested it may reassess the relationship. A Gap representative, contacted by the Nikkei Asian Review, declined to comment.
Walmart meanwhile insists its suppliers are already fully compliant. “No one has called on us, no one has asked for (a loan),” Jay Jorgensen, the company’s chief compliance officer, said in January. “What that says is at least the factories Walmart is in, they are among the better factories, the more capitalized.”
The Alliance’s own website states: “Improving Bangladesh factories and helping workers displaced by factory safety issues will require significant investment on the part of all stakeholders.”
Nova sounds unconvinced. “You can’t expect brands and retailers who spend most of their time squeezing suppliers to suddenly hand out large sums of money to help those same suppliers fix their factories,” he said. “It’s no surprise they are failing to provide that financial support.”
The costs of compliance
For Bangladesh’s myriad smaller garment makers, the added costs and challenges of compliance raise fears that they could lose orders while bigger players proceed apace. Clients might even take their business outside Bangladesh.
Reswan Selim, owner of Sofitex Sweaters, which supplies Accord signatories, noted the short-term, nickel-and-diming nature of the industry. “Customers,” he said. “change suppliers for 10 cents.”
Still, many observers believe big brands have little alternative but to keep placing orders in the country. The volumes that Bangladesh’s 4 million garment workers produce cannot be offshored easily.
Khondaker Golam Moazzem, a garment sector expert at the Centre for Policy Dialogue, a Dhaka think tank, said Bangladesh has lost orders for medium-grade products as buyers return to previous sources where compliance standards are actually tougher — places like China and India.
But when it comes to low-end production, “nobody has developed such a bulk capacity” as Bangladesh, Moazzem said. “It’s very difficult for buyers to think of moving.”
A separate, positive development for the industry is the agreement by international brands involved with Rana Plaza factories to contribute to the fund for collapse victims. The International Labor Organization will oversee the $40 million Rana Plaza Donors Trust Fund. On Feb. 23, Spanish brands Mango and El Corte Ingles, which sourced from the complex, were among the first to pay in.
As a pool of “voluntary donations,” the fund carries no liabilities. This was a key concern for foreign brands that fear payments to victims could be seen as an admission of responsibility, inviting lawsuits.
The competitiveness question
For Bangladesh’s entire garment industry, the push for compliance comes at a difficult time. Pakistan obtained GSP status from the EU in January. Indian producers have gained an edge from the weakening rupee.
“Bangladesh’s future will depend on how it maintains its competitiveness with rising costs,” Moazzem said. “There is a huge scope for improving efficiency and productivity.”
Regardless of the pressures, there is at least growing acknowledgement that Bangladesh’s most important export industry cannot simply rest on the shoulders of its beleaguered workers. The sector’s future may well depend on whether good faith prevails among all parties involved.