Garments – with guilt

The rag trade has been very busy giving itself a bad reputation over the last few months internationally. Horrific, not-so-accidental ‘accidents,’ more properly termed callous disasters, have marred the industry in Bangladesh, Cambodia and Viet Nam.

Probably on par with the charge that Sri Lanka’s disaster avoidance managers failed to warn the south western coastal fisher folk of the recent catastrophic storm, which devastated the small scale fishery industry, compounded by the fact that the political head, in a rare and commendable admittance of accountability, has gone record saying that if any negligence is proved, he will put his head on the line!

These rag trade disasters in South and South East Asia have been publicised by the international media, which has attributed the reason as being that classic definition of globalised business, provided by Narayan Murthy, doyen of Infosys of Bangalore India, who has been recently mobilised out of retirement to take over as CEO of the company he co-founded, which has been consistently unable reach its growth targets in the last few years.

Murthy defined globalisation, speaking at an India Economic Summit, as procuring raw material from the cheapest source, manufacturing at the least cost location and selling at the highest price. Applying this very practical and pragmatic definition to the rag trade, garment manufacturers have flooded to new emerging economies, like Bangladesh, Cambodia and Viet Nam. Myanmar, the location of a recent East Asian Economic Summit, will be tomorrow’s place of choice.

Bangladesh

Bangladesh has gotten itself a huge opportunity through the garment industry locating there – a major pillar in Bangladesh’s emerging economy. The rag trade or garment industry employs roughly four million people. The industry is worth some US$ 20 billion.

The European Union has relaxed its trade rules to allow the poorest countries to import fabric to be stitched into garments that are sold duty free in the EU. Currently only China exports more garments than Bangladesh.

Global brands in the rag trade thrive in Bangladesh in which the average worker earns the equivalent of 24 cents an hour according to the Workers Rights Consortium. The monthly minimum wage in Bangladesh is said to be 3,000 Taka (US$ 38), less than a fifth of the going rate in China.

The lack of environmental protection in Bangladesh has been described by analysts as a license to pollute. Even the Pope Francis I has, reportedly, described it as ‘virtual slave labour’. Many of the Bangladeshi factories have mushroomed and sprung up in a mad rush to cash in on what Murthy aptly describes as ‘manufacturing at the cheapest location,’ in buildings built or refurbished in a hurry, not at all fit or suitable for the purpose, without proper regulatory approvals.

Sheikh Hasina, the Prime Minister of Bangladesh, has stated that 90% of Bangladesh’s buildings did not comply with any building code. Analysts describe his statement as an understatement.

The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) is a powerful lobby. Its 4,000 members account for four out of every five dollars earned from exports by Bangladesh. It’s also said to be highly politicised.

At least 25 Bangladeshi Members of Parliament are said to have investments in garment factories. Bangladeshi manufacturers of Western retailers outsourced their work to a myriad manufacturers, in order to comply with strict time-bound orders, mainly of the ‘fly by night’ variety, with no track record in the industry, to get their garments assembled, fixing zippers and buttons on garments partly completed by another factory.

Sri Lankan garment sector entrepreneurs were in very early, when Bangladesh was given preferential trade terms by Europe, the US and other markets, and Sri Lanka was losing such concessional trade access. One declared that he could get his factory swept for a plate of rice, whereas at home he would have to issue a letter of appointment and pay EPF and ETF to get that task done!

Rana Plaza

Rana Plaza, a now infamous location, which collapsed and caught fire in April 2013, killing almost 1,100 people, had developed cracks but the factory owners had ordered the workers back to work. This was the worst industrial disaster in South Asia since the Bhopal chemical plant disaster in India in 1984, which claimed 2,260 lives.

A financial institution located in the same building, BRAC Credit, had, more responsibly and sensibly, vacated its office immediately, on the management being informed of the structural damage, securing its staff and sensitive financial documents.

It is reported that two or more floors had been added on to the building illegally, without planning approval. It is reported that only five of the buildings eight storeys had planning approval. Each floor was the size of a football pitch. Heavy capacity generators had been installed in the upper floors, to cope with Bangladesh’s endemic power cuts, to keep the sewing machines working, when the building had not been designed to take such heavy stress.

A neighbour, who lives 100 metres away, said that the building was put up on a pond which was not properly filled and that his walls and floors shuddered and shook when the garment factories ran their generators. Bangladeshi authorities have suspended seven inspectors it accuses of negligence for renewing the licenses of garment factories.

Rana Plaza had never in fact been visited by the inspectors; there were five factories located there, one of the factories Ether Tex had been operating without any license from the Factory Inspection Department since 2008, while the others were licensed for 2013. How they obtained these licenses, where there were unauthorised floors added, generators installed on the upper floors without clearance and safety fire escapes routes blocked by combustible raw material and packaging, is what is being investigated. An official disclosed that there had been no inspection of the Rana Plaza factories; the inspectors had approved them without moving from their desks!

Though the rag trade has boomed in Bangladesh of late, the regulatory framework has been static. It is a recipe for disaster. The rescue operation was a fiasco in itself. The area was not initially cordoned off. Bystanders besieged the site. Some entered the wreckage. At one point the bystanders pelted the volunteers with stones for making slow progress. The police had to use teargas to control the riot. Foreign governments and UN agencies offered help. But this was not acted upon. As a result essential lifting equipment and sniffer dogs were not used.

Cambodia

Within days of the Rana Plaza disaster in Bangladesh, in Cambodia, in a sneaker factory, a floor piled with raw material collapsed, killing three people. Japan’s Asics Corporation confirmed that the factory is one its suppliers.

The Cambodian factory, Wing Star Shoes, was a joint venture between an Asics subsidiary and a Taiwanese partner. Asics had been facing chronic problems of delays and poor quality products at its factories located in China. This new factory in Cambodia had been built in an attempt to strengthen quality control.

The collapse took place when a mezzanine floor used for storage had been overstocked and could not cope with the weight. The mezzanine floors were added recently and the fact whether it is authorised in the building plan is being investigated.

Recipe for disaster

Where government regulation is weak, international Brands such as Wal-Mart and Giordano have tried to impose their own regulation. But this has caused confusion among factory owners, as each brand has its own auditing standard. Factory owners have to relocate fire extinguishers, stores, alarm systems, first aid rooms, fire escapes, etc. to different locations, for example, to satisfy various buyers’ safety audits!

After the Bangladeshi recent disaster, some, mostly European, retailers including H&M, Inditex and Carrefour signed an accord calling for more stringent safety controls in Bangladesh’s 5,000 garment factories. Their pact holds brands legally accountable for ensuring factories are safe or having funds to undertake essential renovations.

However, big US retailers like Wal Mart and Gap pulled out of the agreement, saying that they did not want to be accountable in US civil tort courts, if they had been found to violate the agreement.

Wal-Mart claims that it can force change without binding agreements, by being more transparent on its sourcing. Publishing a list of suppliers ‘encourages other retailers to adopt our standards and benefit from our in depth inspection process,’ a spokesperson for Wal-Mart says.

The Head of Ethical Sourcing of Wal-Mart has gone on record saying that if factories have structural damage or life-threatening conditions, ‘we will immediately ask them to cease production, inform the factory buyers and the government, and insist that the workers do not go back to the facility’. However factories on Wal-Mart banned list have appeared on lists of approved factories of other retailers!

Over-regulation and under-regulation

Analysts have written learned tomes on the dangers of over-regulation and under-regulation. In Sri Lanka for example, the heavy hand of the State regulator, is claimed to be the main inhibiting factor in the progress of three sectors, land, sports and employment generation, among others.

The productivity of the agricultural land is impeded by ‘one thousand and one’ rules and a thousand officials whose main task seems to be to make the life of the agriculturist difficult. Agricultural extension services are past history. So also in sports, voluntary managers of sports association are impeded by a sports law, which gives full powers to the public officers regulating the sector but no accountability mechanism to hold them responsible for their misdemeanours or inaction exists.

Job creation is stifled by a set of rules which creates an employment for life situation, which, in today’s environment, even the State cannot provide. Emerging sectors also give some superb examples.

At a beach resort in Sri Lanka, in a newly-emerging region, there exists a wattle and daub thatched hut with the joyful name ‘Roti Hut,’ a beach ‘tourist’ restaurant, with a claim underneath in bold letters ‘Approved by the Ceylon Tourist Board’. The fact that the regulatory institution referred to is the stuff of history does not take away from the delicious and fiery green ‘kochchi’ chili roti the venerable institution serves (it’s so strong that it is said to makes a bald man’s hair grow again on his head again) although a public health inspector or sanitary inspector or environment or coast conservation official will probably die of a heart attack if he ever starts to inspect the institution!

Or this may be a political statement – referring to a constitutional era of the past, which the entrepreneur, said to be a failed refugee returnee from Switzerland, who was trained in culinary skills in Geneva’s restaurant trade, yearns for! The regulatory lacunae are probably due to the Bangladeshi situation of the regulator in the leisure industry and related areas, not having the cadres, the resources or the efficiency or the commitment to do their tasks properly.

Enlightened self-regulation

This brings me to the point that what is best is enlightened self-regulation. The farsightedness of the Sri Lanka rag trade, in launching a campaign to brand Sri Lanka as a location that manufactures ‘Garments without Guilt,’ is in fact a laudable case in point.

Probably due to the long history of over-regulation in the employment sector and labour officers and factory inspectors who cut their teeth in the exploitation in the plantation sector and its evils of indentured labour, many moons ago, Sri Lanka has over the years built a reputation for having high labour standards.

The fact that some of these regulatory features in all probability inhibited job creation in the industrial, manufacturing and trading sectors is a fact. The fact that outsourcing has become a huge enterprise in itself is also an issue. But the culture of exploiting labour in unsafe conditions, such as we have seen in Bangladesh, Cambodia and Viet-Nam, is not part of our ethos.

Recently a news report stated that a factory operating a furnace had to be allowed to use foreign labour, as locals were not willing to work in such a hazardous environment! Even in the so-called Free Trade Zones – catering to the ‘robber barons’ – the labour standards in the area of services and facilities provided were in some cases of a higher standard than outside.

Although unionisation was frowned upon, worker associations were given a voice. When the rag trade was expanded rapidly under the 200 factories program, we were firmly rooted in a strong labour regulatory and compliance culture. Although factories were compelled to outsource orders when time was the essence for the supply. But even ‘fly by nights’ who setup short-term outsourcing units were governed by a ‘compliance’ mindset which inhibited them from using jerry-built buildings, unsafe storage and keeping emergency exits locked up, etc.

In Bangladesh, the world’s retailers do not want to abandon the cheapest place in the world to manufacture clothes. So they are getting together to impose conditions on factory owners. But there is no unity of purpose and this weakens the initiative. The US retailers are petrified of the civil damage tort jurisdiction of the US Judiciary.

The owner of Rana Plaza was politically highly-connected, which probably gave him the idea that he was above the law. Sohel Rana was a strongman of the youth wing of the ruling Awami League. A scenario we are very familiar with in South Asia. Finally he was arrested as a fugitive on Bangladesh border with India, running away like the proverbial rat from the sinking ship! He has now been charged with criminal negligence.

The State should really promote enlightened self-regulation by the sector itself. Provide an independent adjudicator who would objectively inquire and determine disputes and also hold the official State regulator responsible for abuses of power and/or inaction, when necessary.

Sri Lanka’s garment manufacturers have done well in this regard. Other emerging and expanding sectors like software outsourcing, micro finance and leisure should follow suit. Otherwise, guilt will remain an integral part of enterprises, looking for jurisdictions where regulation is weak and ineffective, the least cost manufacturing locations, systems and methods, with the tragic consequences we have seen at Rana Plaza.

(The writer is a lawyer, who has over 30 years experience as a CEO in both government and private sectors. He retired from the office of Secretary, Ministry of Finance and currently is the Managing Director of the Sri Lanka Business Development Centre.)