By Roel Nieuwenkamp, Chair of the OECD Working Party for Responsible Business Conduct
April 24th of this year marked the one year anniversary of the tragic collapse of the Rana Plaza factory which claimed over 1,130 lives and inspired shock and sorrow globally. The Rana Plaza disaster was a jarring reminder of the fact that responsibility over global supply chains needs to be strengthened.
Stakeholders worldwide from industry to labour organizations to civil society mobilized to respond to this need. The breadth of initiatives launched to tackle these issues in the past year is impressive. Private industry collaborated to form 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 retailors. Both initiatives are committed to inspecting and repairing garment factories to assure safe working conditions in Bangladesh. On a multilateral level the International Labour Organization launched the Improving Working Conditions in the Ready-Made Garment Sector (RMGP) initiative, and the Better Work Program which likewise involves factory inspections as well as implements a standard approach to assessing supplier compliance and auditing. These initiatives are coordinated on a national level by the National Tripartite Plan of Action on Fire Safety and Structural integrity which aims to extend inspections and repair to the factories not already covered by the Alliance and Accord initiatives.
Importing countries have likewise been active in this regard through their National Contact Points (national entities tasked with promoting and mediating claims under the OECD Guidelines for Multinational Enterprises).  The French National Contact Point 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 amongst local industry. The Belgian, Italian, Dutch and Canadian NCPs have likewise been active in analysing challenges in their textile and garment sector supply chains and promoting due diligence to tackle some of these issues.
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 slowly being compensated. A total of nearly 15 million USD has raised for compensation through donations to the Rana Plaza Arrangement, and another 1.3 million USD has been raised through The Prime Minister’s Relief and Welfare Fund.
Despite this progress much more needs to be done. Firstly a lack of capacity and resources for monitoring and enforcement means that the proposed initiatives may not be adequately implemented. Since industry related initiatives only apply to first tier factories (factories brands source from directly) there remain risks that smaller factories used for subcontracting, generally those with the poorest standards, may escape adequate inspection and regulation. Secondly current compensation schemes have been criticized as being insufficient and inefficient. Currently only half of all brands with ties to Rana Plaza have contributed to compensation funds.
Thirdly, such initiatives need to extend beyond Bangladesh to other garment producing nations with similar production risks and institutional weaknesses.
Finally, when discussing supply chain due diligence in the textile and garment sector it is important to go beyond workplace health and safety issues. Workers should be paid a living wage for their labour and multinational brands and retailors should encourage this. Brands and retailors can help promote living wage standards by conducting due diligence on adverse impacts in their supply chains to assure that fair labour standards are being respected.
Based on a pilot project of production of cotton t-shirts in India Fairwear Foundation, found that labour costs for such a garment account for only 0.6% of its 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 be used as justification for failure to provide a living wage.
Another frequent excuse for a lack of collaboration on living wage standards is the liability implications for enterprises under competition law, the argument being that industry cooperation on fair wage policies may be found to be a form of collusion on price fixing. The relatively insignificant proportion that labour costs comprise in terms of garment pricing seems to render this argument unwarranted. However, until there is clarity on this issue it will continue to hinder progress on achieving agreement on living wage standards. Experts in the field of competition law should come together to provide answers to this issue and help resolve the debate.
The Guidelines and Supply Chain Due Diligence
Although serious challenges and risks still exist in the Bangladesh textile sector relevant actors should cooperate to overcome these risks rather than attempting to avoid them all together by pulling out their operations or investments. Millions of Bangladeshi workers’ livelihoods depend on this sector. Disengagement should only be considered as an option of last resort.
The OECD Guidelines for Multinational Enterprises recommend use of risk-based due diligence to avoid adverse impacts throughout a supply chain. 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 to assure lack of adverse impacts at every tier of the supply chain. As noted some of the most serious issues in the garment and textiles sector exist in the bottom tiers of the textile and garment supply chains, amongst small companies which are hired for ad hoc rush jobs and are not part of formal sourcing networks. Although such practices are widespread and hard to regulate in these instances buyers are still expected to take action. Often a single actor in a complex supply chain will not possess much leverage with regard to preventing or mitigation 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 year ahead
Much has been accomplished since the Rana Plaza tragedy one year ago but much more remains to be done. Workplace safety initiatives need to be adequately monitored to assure they are being effectively implemented and compensation schemes need to be strengthened. Such initiatives need to reach beyond Bangladesh to other garment producing nations. Additionally matters beyond work place safety, most prominently living wage issues, need to be given adequate attention.
For addressing problems of this magnitude collective action has been and will continue to be important. The second annual Global Forum will take place June 26-27, 2014. It will be an opportunity to bring together diverse stakeholder groups to review the existing initiatives and ongoing challenges present in this sector. An informational meeting amongst senior ministers will take place during the forum which will also take stock of these issues. I encourage ministers to take an active role in reaching out to MNEs about the need for stronger engagement in this sector. MNEs can effectively engage through application of the OECD Guidelines, which provide an effective model for applying risk-based due diligence systems to avoid adverse impacts throughout supply chains and for cooperation with different actors in a supply chain to achieve this goal. This utility of this framework could further strengthened by production of industry specific guidance for application of principles of the Guidelines to the textile and garment sector, something national ministers and stakeholder groups should encourage.
 National Contact Points are good offices set up by national adherents to the OECD MNE Guidelines. They are responsible for Industry will need to approach these issues seriously as scrutiny regarding responsible business conduct standards in the financial sector continues to intensify.