Corporate leaders: Your supply chain is your responsibility

On 24 April 2013 the Rana Plaza, a commercial building and garment factory in Dhaka, Bangladesh, collapsed, claiming some 1,130 lives and injuring thousands more. The shock was felt globally. How could this happen? Who was to blame? If the building was not fit for purpose, why was it being used? How could such a disaster be prevented from happening again?

The Rana Plaza produced garments for sale, mostly in OECD countries, including by well-known brands. The disaster was a jarring reminder of the need to strengthen the corporate responsibility of such firms over their entire global supply chains. Alas, Rana Plaza was not an isolated incident: from industrial fires to toxic gas leaks, not to mention mining disasters, the world has piled up an embarrassingly long list of industrial and other business disasters involving unnecessary loss of life over the past century. The textile industry and manufacturing in poor countries such as Bangladesh feature strongly on the list. A lack of corporate responsibility is to blame for many of the incidents. It should not be that way.

If there was a silver lining to Rana Plaza, it is the impressive mobilisation of stakeholders in the wake of the disaster to prevent such a tragedy from happening again. Representatives from industry set up the Bangladesh Accord on Fire and Building Safety, an association of 150 apparel corporations, as well as the Alliance for Bangladesh Worker Safety, which represents 26 retailers. Both initiatives are committed to inspecting and repairing garment factories to assure safe working conditions in Bangladesh.

The International Labor Organization (ILO) launched the Improving Working Conditions in the Ready-Made Garment Sector (RMGP) initiative in October of 2013, and the Better Work Bangladesh programme which likewise involves factory inspections as well as implements a standard approach to assessing supplier compliance and auditing.

These initiatives are co-ordinated on the national level by the National Tripartite Plan of Action on Fire Safety and Structural Integrity, which aims to extend inspections and repairs to the factories not already covered by the Alliance and Accord initiatives.

Importing countries have likewise been active, notably through their national contact points (NCP), whose job is to promote and mediate claims under the OECD Guidelines for Multinational Enterprises. The French NCP published a report earlier this year analysing the application of the guidelines to the textile and garment sector and has since been active in promoting the recommendations of the report among local industry, which include aligning local standards with international policy, such as the guidelines and formulation of risk response strategies to ongoing issues such as subcontracting, dealing with short and sporadic lead times for production, and so on.

The Belgian, Italian, Dutch and Canadian national contact points have also been busy analysing challenges in their textile and garment sector supply chains and promoting so-called due diligence to encourage firms to check out their suppliers to address some of these issues. Without such due diligence, events like Rana Plaza could happen again.

Indeed, the impacts of these initiatives are slowly starting to be seen. For example, the Accord initiative has already completed inspection of 550 factories and hopes to complete all 1,500 factories it sources from by September. In addition to factory inspections, the families of victims of the Rana Plaza incident are being compensated. A total of nearly US$15 million has been raised through donations to the Rana Plaza Arrangement, and another $1.3 million has been raised through The Prime Minister’s Relief and Welfare Fund.

But these are early days and much more needs to be done. More resources are needed, for a start. Otherwise, a lack of capacity in monitoring and enforcement could mean the inspections and other proposed initiatives will be inadequately implemented. Since industry-related initiatives only apply to first-tier factories (those which brands source from directly) there is a serious risk that smaller factories used for subcontracting–generally those with even poorer standards of safety–will escape inspection and regulation.

Meanwhile, compensation schemes have been criticised as being both insufficient and inefficient. Currently only half of all brands with ties to Rana Plaza have contributed to compensation funds. More could be done here.

The lessons of Bangladesh should also be extended to other garment-producing countries, with similar production risks and institutional weaknesses.

Such due diligence should not be confined to workplace health and safety issues. Rather itshould cover issues such as labour and living standards throughout multinational supply chains. A pilot project by the Fairwear Foundation among textile manufacturers in India found that on estimate, labour costs for the production of cotton T-shirts account for only 0.6% of the total price, compared to retail mark-ups, which account for 59%. Given the tiny proportion labour costs represent relative to total costs, competition and downward price pressures cannot continue to be used as justification for failure to provide a living wage, let alone safe working conditions.  

Nor does the oft-used argument that industry co-operation on fair wage policies would be a form of collusion or price fixing hold any water, especially given the relatively insignificant proportion of labour costs in a garment’s pricing.

True, businesses need to be competitive, countries need investment and consumers want well-priced clothing. But until there is clarity on the issue of price fixing, progress on living wage standards will be slowed. Experts in the field of competition law should provide answers to this issue and help resolve the debate.  

What can firms do in the meantime to safeguard against adversity in their supply chain? The OECD Guidelines for Multinational Enterprises recommend use of risk-based due diligence. This approach is fully aligned with the UN Guiding Principles on Business and Human Rights and complementary to ISO 26000 which, in addition to the Guidelines, have been endorsed by most G20 countries.

Under the due diligence framework, buyers and suppliers work together at every tier of the supply chain. This includes the bottom tiers of the textile and garment sectors, not least small companies which are hired for ad hoc rush jobs or sudden demand surges, but which are not part of the formal sourcing network. Often a single actor in a complex supply chain will not possess much leverage with regard to preventing or mitigating adverse impacts. However, a lack of leverage does not justify a lack of action. Rather actors are encouraged to collaborate with one another in order to increase collective leverage through contracting, collective buying agreements and so on.

The second annual Global Forum at the OECD in Paris (26-27 June 2014) is one opportunity for diverse stakeholder groups to review initiatives and ongoing challenges, learn from each other and devise new approaches. For instance, risk-based due diligence could be further strengthened by production of industry-specific guidance for the textile and garment sector. This is something which ministers and stakeholder groups should encourage at the Global Forum and beyond.

References

Labowitz, Sarah and Dorothée Baumann-Pauly (2014), Business as usual is not an option

Supply Chains and Sourcing after Rana Plaza, Center for Business and Human Rights, New York

Available at www.stern.nyu.edu/sites/default/files/assets/documents/con_047408.pdf

NCP France (2013), Report on Implementation of the OECD Guidelines in the Textile and Clothing Sector, French National Contact Point, December, available at www.tresor.economie.gouv.fr/File/398811

OECD (2011), “Multinational enterprises: Better guidelines for better lives”, in OECD Observer No 285, Q2, Paris. Available at www.oecdobserver.org/news/fullstory.php/aid/3553

See http://oe.cd/Bi and http://oe.cd/Bj

See also http://oe.cd/Bg

© OECD Observer No 299, Q2 2014




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