U.S. retailers aren’t signing a new safety agreement for Bangladesh. Here’s why.

May 16, 2013

There's a heated ongoing debate about how to improve safety standards in Bangladesh after last month's factory collapse that killed 1,127 people. And, so far, U.S. and European companies have taken very different approaches to the question.


The rubble of a factory that collapsed in Bangladesh on April 24 (A.M. Ahad/Associated Press)

Nearly all of the major U.S. clothing chains — including Wal-Mart, Target, Gap Inc., and J.C. Penney — declined to sign on to an international safety pact that would require them to pay for inspections and upgrades in Bangladeshi garment factories. The retailers worried that the agreement would give labor groups and others the ability to sue them in U.S. courts.

By contrast, more than a dozen European retailers have joined the accord. The list includes H&M, the biggest garment buyer in Bangladesh, as well as Benetton, Tesco, Marks & Spencer, Inditex, El Corte Inglés, and Carrefour, the world’s second largest retailer.* Roughly 60 percent of garments produced in Bangladesh go to European retailers.

Wal-Mart had been under particular pressure to join the accord, because the company is one of the biggest buyers of clothes from Bangladesh and, as the largest retailer in the world, has broad influence over the industry. Labor groups set a May 15 deadline to sign up for the accord.

But Wal-Mart said Tuesday that it wouldn't sign the agreement "at this time," because the agreement “introduces requirements, including governance and dispute resolution mechanisms, on supply chain matters that are appropriately left to retailers, suppliers and government, and are unnecessary to achieve fire and safety goals.” Instead, the retailer would conduct its own inspections at its Bangladesh facilities.

The accord that’s currently on the table could cost retailers some $3 billion over the next five years, says Scott Nova, executive director of the Workers Rights Consortium, which is backing the agreement. “In the context of the broader industry, that's a relatively small amount,” Nova says. “Bangladesh will export one hundred billion dollars worth of apparel in the next five years.”*

Most U.S. companies, however, have balked at the language in the accord. Some say it would would expose them to excessive legal liability — particularly in America’s litigious courts. Written by labor groups, the agreement would require retailers who source clothing from Bangladesh to commit to pay for inspections, building upgrades, and training — all enforced by binding arbitration.

Gap Inc. said this week it was “ready to sign the accord” provided that the language on arbitration was removed. If that change was made, then any company that violated the terms of the agreement would simply be expelled from the plan rather than face legal liability.

Meanwhile, the largest U.S. retailing association, the National Retail Federation, has said it would prefer to develop an alternative to the current proposal. “It is a one-size-fits-all approach without any recognition as to how the industry operates around the world,” said NRF president Matthew Shay. He cited the arbitration provisions and argued that there was little accountability as to how the funds would be spent.

So far, the only major U.S. companies to sign up have been Abercrombie & Fitch and PVH Corp, which includes Calvin Klein.

Supporters of the accord say that the U.S. retailers are simply trying to avoid paying extra for safer buildings. “It’s a smokescreen,” says Nova. “The agreement doesn’t create any additional legal liability. Companies only have to meet the terms of the agreement.”

Other experts say it's not clear whether arbitration would be as unworkable as many retailers fear — a lot depends on the details. “You have major British companies like Marks & Spencer and Tesco signing up, respected companies from a legal system that isn’t all that different from our own,” says Janice Bellace, a professor of legal studies and business ethics at Wharton. “It’s not clear why the U.S. companies think their situation is so different.”

On the whole, U.S. retailers are facing growing pressure to improve their safety standards abroad. Last week, the International Labor Rights Forum and United Students Against Sweatshops launched a “Gap Deathtraps” Web site with photos of the factory collapse, urging Gap to sign the retailing accord.

Gap has not been linked to Rana Plaza, the factory in question, although it does have contracts with 78 of Bangladesh’s 6,500 factories. In a recent statement, Gap reiterated that it has invested $1 million in fire safety and was ready to commit up to $22 million for further improvements in the context of a broader agreement.

Walmart, meanwhile, said it had “committed to rigorous inspections of 100 percent of factories that supply private label or goods directly to the company within six months.” The company contrasted this to the labor-backed agreement, which would commit to inspections for at least 65 percent of garment factories.

Other U.S. companies, such as Target, have said they'd prefer to join the North American Bangladesh Worker Safety Working Group, which would set its own "broad set of proposals" to  improve safety standards.

The split among retailers could undermine the effectiveness of any new push for building and fire safety, says Bellace. That’s because many garment shops in Bangladesh are small and face heavy pressure to keep their costs down. Without a single, clear agreement among global retailers, she said, “it’s unrealistic to think that these factories will be able to comply with the safety standards.”

And even if all of the major retailers can come to a single agreement, there will still be plenty of questions about enforcement, says Layna Mosley, a political scientist at University of North Carolina, Chapel Hill.

One key issue, Mosley says, is whether local labor groups will be empowered to speak out against safety standards. The government of Bangladesh has proposed reforms to make it easier for workers to join unions, but it is still uncertain whether this will pass the parliament.

* The full list of signatories as of Thursday: H&M, Inditex, C&A, PVH, Tchibo, Tesco, Marks & Spencer, Primark, El Corte Ingles, jbc, Mango, Carrefour, KiK, Helly Hansen, G-Star, Aldi, New Look, Mothercare, Loblaws, Sansbury's, Benetton, N Brown Group, Stockmann, WEEurope, Esprit, Rewe, Next, Lidl, Hess Natur, Switcher, and Abercrombie & Fitch.

* Correction: This should say Bangladesh is expected to export about $100 billion worth of garments over the next five years, rather than "hundreds of billions."

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