Nearly all U.S. clothing chains, citing the fear of litigation, declined to sign an international pact ahead of a Wednesday deadline, potentially weakening what had been hailed as the best hope for bringing about major reforms in low-wage factories in Bangladesh.
Companies including Wal-Mart, Gap, Target and J.C. Penney had been pressed by labor groups to sign the document in the wake of last month’s factory collapse in Bangladesh that killed at least 1,127 people. More than a dozen European retailers did so. But U.S. companies feared the agreement would give labor groups and others the basis to sue them in court.
Wal-Mart had been under particular pressure 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. Instead, the retailer said this week that it would conduct its own inspections at its Bangladesh facilities.
Wal-Mart reiterated Wednesday that it would not sign the accord at this time, because it “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.”
The accord that’s on the table would likely cost retailers about $3 billion over the next five years, said Scott Nova, executive director of the Workers Rights Consortium, which supports the accord. Labor groups had set May 15 as the deadline to sign up.
“In the context of the broader industry, that's a relatively small amount,” Nova said. “Bangladesh will export hundreds of billion of dollars worth of apparel in the next five years.”
So far, European retailers have said they are willing to pay that price. H&M, the largest buyer of clothes from Bangladesh, has agreed to the deal. So have Carrefour, the world’s second-largest retailer, Benetton, Marks & Spencer and El Corte Inglés. All told, 60 percent of garments produced in Bangladesh go to European retailers.
Most U.S. companies, however, balked at the language in the accord. Some said 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 said this week it was “ready to sign the accord,” provided that the language on arbitration is removed. If that change were made, then any company that violated the terms of the agreement would simply be expelled from the plan rather than face legal liability.
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,” NRF president Matthew Shay said.
So far, the only major U.S. company to sign up has been PVH, which includes Calvin Klein.
Supporters of the accord say that the U.S. companies are simply trying to dodge an extra cost.
“It’s a smokescreen,” Nova said. “The agreement doesn’t create any additional legal liability. Companies only have to meet the terms of the agreement.”
Other experts are similarly puzzled by the worries over arbitration.
“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,” said Janice Bellace, a professor of legal studies and business ethics at theWharton School of the University of Pennsylvania. “It’s not clear why the U.S. companies think it will be so different.”
U.S. retailers are facing pressure to improve their safety standards. 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 agreement.
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.
Wal-Mart, 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 J.C. Penney, are waiting to see the results of the alternative proposal put forward by the National Retail Federation.
The split among retailers could undermine the effectiveness of any new safety standards, Bellace, of Wharton, said. That’s because many garment shops in Bangladesh are small and face heavy pressure to keep 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.”
Even if all of the major retailers can come to a single agreement, there will still be plenty of questions about enforcement, said Layna Mosley, a political scientist at the University of North Carolina at Chapel Hill.
One key question, she said, 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 unclear whether they will pass the legislature.