Companies & Industries

U.S. acts on Bangladesh garment industry

But will it help?

A series of tragedies culminating in May in a catastrophic factory collapse in Bangladesh has now resulted in trade action from the United States, the world’s biggest apparel market. The Office of the United States Trade Representative [USTR] on June 24 announced the suspension of trade privileges with Bangladesh. But this suspension is unlikely to hurt any apparel retailer actually operating in the United States—including Loblaw’s Joe Fresh. Apparel from Bangladesh imported into the U.S. already faces a duty charge and is excluded from the action. That means some 95% of the total Bangladeshi exports to the U.S., or about US$4.9 billion annually, will suffer no impact at all.

The USTR’s Ambassador Michael Froman said in a statement, “Our GSP [Generalized System of Preferences] statute requires certain basic standards for worker rights and worker safety as a condition of eligibility. Over the past few years, the U.S. Government has worked closely with the government of Bangladesh to encourage the reforms needed to meet those basic standards. Despite our close engagement and our clear, repeated expressions of concern, the U.S. Government has not seen sufficient progress towards those reforms.”

The move comes after the deadly April 27 Rana Plaza building collapse in Dhaka, Bangladesh that killed over 1,200 people. The disaster led to widespread calls for reform of the garment industry. In Bangladesh, workers, mostly women, work long hours for minimum wages that labour advocacy groups say keep those workers trapped in poverty and with few or no rights to organize to improve conditions. But as Canadian Business has discussed in the past, making changes that will actually improve conditions is extremely difficult.

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Advocates for change have welcomed the U.S. announcement. The American Federation of Labour and Congress of Industrial Organizations released a statement attributed to president Richard Trumka that said, “The decision to suspend trade benefits sends an important message to our trading partners:  Countries that benefit from preferential trade programs must comply with their terms. Countries that tolerate dangerous—and even deadly—working conditions and deny basic workers’ rights, especially the right to freedom of association, will risk losing preferential access to the U.S. market. “

In Canada, the Maquila Solidarity Network expressed similar support. Said Kevin Thomas, “Bangladesh should have seen this coming. They’ve had years to fix labour rights problems in their factories and they have continually failed to do so.”

If the oddly structured American trade action seems counterproductive to the stated goal of changing the behavior of the Bangladesh garment industry and the brands that source from it, few seem concerned.

According to Thomas, “It may not have a huge economic impact but it certainly has a huge symbolic impact and demonstrates that there’s some real serious international concern about Bangladesh.”

Canada’s imports from Bangladesh are dominated to an even higher degree than America’s by apparel imports at 98% for a total of $1.1 billion annually.

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The suspension applies to a range of minor exports like tobacco, fish and human hair. Thomas speculates that the Bangladeshi government may be spooked because it could set a precedent for action by the EU, the second largest market, where he says consumers are “very sensitive” about these issues and “preferences are largely centered on apparel items.”

Loblaw declined to comment after reviewing the details of the U.S. announcement, with a spokesperson noting that “apparel is not eligible for tariff cuts.”

Montreal-based Gildan Activewear, which does most of its sales in America, similarly said the U.S. action would have no impact on its business. Peter Iliopoulos, SVP of public and corporate affairs, said that while Gildan has a small manufacturing facility in Bangladesh, it’s responsible for less than 5% of production, all of which goes to Europe. Iliopoulos says Gildan is more concerned with ensuring manufacturers in Bangladesh are pressured into raising standards via the removal of duty free status in Canada. This was the plea Iliopoulos made on May 28 when he appeared before the Standing Committee on Foreign Affairs and International Development  to discuss corporate governance and the garment industry. (He was met with stiff resistance from a number of other participants, including Diane Brisebois, head of the Retail Council of Canada, and some Conservative Party MPs.)

Bangladesh currently qualifies in Canada for a zero tariff treatment under the Least Developed Country classification. However, Gildan argues that Bangladesh’s now dominant position in the North American apparel market (No. 2 in Canada and No. 3 in the U.S.) suggests it no longer needs the advantage of duty-free status.

Of course, there may be some degree of self-interest in this seemingly selfless request insofar as the bulk of Gildan’s operations are in Central America and the Caribbean, unlike some of its competitors who may source more from Bangladesh. Pressed on this, Iliopoulos said, “We have a high standard in the area of corporate social responsibility. We believe that we’re the leaders in that industry and regardless of where we’re operating we focus on ensuring that the highest standards are implemented be it in Honduras or Bangladesh.”

It remains unclear whether the Canadian government will follow suit with the U.S. Neither the Department of Foreign Affairs, Trade and Development nor the Department of Finance have reacted to the American move. Neither department responded to inquiries about any future action that may be taken. However, there is currently nothing listed on the legislative agenda in Parliament related to trade with Bangladesh.

Following the May 28 hearings (held following a motion by the NDP), the parliamentary committee has not filed a report with the federal government and the government has not tabled any official response.

It remains to be seen whether or not, or how quickly, the U.S. trade action will spur change in Bangladesh. Presently, reports indicate conditions in the country remain poor (although a hike in the minimum wage was approved in June) with thousands of buildings continuing to go uninspected for lack of inspectors and what is by all accounts endemic levels of corruption.

On July 8, Europe-based labour  advocacy organization Clean Clothes Campaign announced that the Accord on Fire and Building Safety in Bangladesh, which was in May originally signed by a small number of brands (including Loblaw), has now been officially implemented. The accord lays out legally binding commitments for what are now over 70 brands, suppliers, trade unions and NGOs, according to the CCC. Among other features the accord provides for independent safety inspections, safety training and the bolstering of labour rights.

In addition to signing the accord, Loblaw has provided aid to victims in Rana. Gildan has not signed the accord. Citing its small in-country footprint, a Gildan spokesperson said via e-mail, “Given that we own and operate our manufacturing facility in Bangladesh, which represents a very small portion of our total production capacity, we can directly implement our strict internal code of conduct and international labour standards. We are confident that all the actions we have undertaken to date in order to ensure the health and safety of our employees go above the Fire and Building Safety agreement.”