Center for Business and Human Rights | Labowitz and Baumann-Pauley Respond to UNI Global Union and IndustriALL

TISCH HALL 
40 WEST FOURTH STREET, SUITE 400 
NEW YORK, NY 10012-1118 
STERN.NYU.EDU/BHR 
SARAH LABOWITZ AND DOROTHÉE BAUMANN-PAULY 
Center for Business and Human Rights 
NYU Stern School of Business
 
 
June 3, 2014
 
Richard P. Appelbaum
 
MacArthur Chair in Sociology and Global & International Studies
University of California at Santa Barbara
 
Dear Professor Appelbaum,
 
We are writing to respond to your May 22 letter to Professor Michael Posner about the NYU Stern report1 on the apparel supply chain and workers’ rights in Bangladesh that we co-authored. We welcome your feedback to our report, and are encouraged by the wide interest in these issues within the academic community. At the same time, we believe that a number of your comments and characterizations are factually inaccurate or inconsistent with the report’s content.
 
Three areas in particular illustrate these inaccuracies and inconsistencies: 1) your characterization of our report as downplaying or obscuring the role and responsibility of global brands in ensuring factory safety in their supplier factories; 2) your assertion that subcontracting facilities present a lower risk of factory safety and labor rights violations than those factories that maintain direct relationships with foreign buyers; and 3) your mischaracterization of our assessment of the Accord and Alliance.
 
First, you write that “the report’s authors focus their criticism of business practices in Bangladesh’s apparel industry not primarily on Western brands, but on the local factory owners and buying agents who are these companies’ suppliers” and that the report “obscures the central role of brand practices.” This is not accurate.
 
A significant portion of our report is focused on problems inherent in the structure of the business model of Western brands and their suppliers. Our original research in this area makes clear the link between business practices, weak respect for workers’ rights, and significant factory safety risks. These practices originate from business decisions made by brands, retailers, and their suppliers; they are maintained because they benefit these industry participants, albeit at considerable risk to worker safety and rights. The report is a critique of a supply chain “driven by the pursuit of the lowest nominal costs” in which “global brands and national-level suppliers in Bangladesh benefit from an indirect sourcing model that relies on the routine practice of subcontracting, often through agents and in a manner that is not transparent to buyers and regulators.”
 
We criticize global brands for their lack of candor about the true scope of their supply chains, arguing, “Brands should prioritize transparency, rather than continuing empty rhetoric about policies against ‘unauthorized’ subcontracting.” We urge global brands and retailers to make long-term business commitments to Bangladesh. And we recommend that all of the brands doing business in Bangladesh contribute to a joint fund with independent oversight that will underwrite the costs of factory repairs and remediation.
 
Second, we do not understand your apparent dismissal of our concerns about worker safety issues in the thousands of subcontracting factories that have been the engine of Bangladesh’s low-cost, high-volume garment sector, and a major contributing factor to poor working conditions. As our report makes clear, these factories operate on razor thin margins and are removed from oversight for factory safety or labor rights. They operate in the shadows, greatly increasing risks for workers. While the prevalence of non-transparent subcontracting has been widely reported in the news media and by civil society, including in the tragedies at Tazreen and Rana Plaza, our report provides a new level of understanding about the drivers and modalities of the practice.
 
You assert that “All of the major disasters that have occurred in the region’s garment factories in recent years occurred in factories that were known by major brands to have produced their goods and had been repeatedly subject to labor rights audits conducted for some of these same buyers.” We don’t agree with this. Reporting by the news media and civil society confirms our report’s findings – that the garment factories in the most high profile factory disasters did a mix of subcontracting and direct work, often through agents, with limited transparency and oversight.
 
The Wall Street Journal’s coverage following the Rana Plaza collapse summarizes the role of indirect sourcing at the factories in the Rana Plaza complex, using Benetton as an example: “At first, [Benetton] denied having any relationship at all with New Wave Style. That initial confusion exposes the complexities of a global supply chain in which retailers assemble sprawling networks of contractors and middlemen…The tangled networks also make it difficult to assess blame when something goes wrong.”2
 
Tazreen and Rana Plaza are stark illustrations of the consequences of a system in which brands maintain a sincere or willful ignorance of where their garments are produced. The fact that these facilities had been subject to audits at some point in time does not answer or refute our report’s overall finding about the prevalence and risks of non-transparent subcontracting. The financial and production incentives that drive manufacturing for major brands into unknown facilities are very powerful. We squarely criticize this lack of transparency in the report and make recommendations for strengthening sourcing relationships and increasing oversight at all levels of the supply chain.
 
Your assertion that the Accord’s “requirements apply to any factory that produces the goods of any signatory brand – regardless of layers of subcontracting involved” is not playing out in practice. The factory lists for both the Accord and the Alliance encompass 1,894 factories out of the 5,000 – 6,000 factories and facilities we estimate are producing for the export garment sector. It is not credible that these lists include all of the layers of subcontractors producing for Accord and Alliance brands. Moreover, there are few incentives for first -tier suppliers to come forward with their actual list of subcontractors, or for workers or unions to identify their employers. The brands’ zero-tolerance policies for “unauthorized” subcontracting drive the practice further underground. These are serious shortcomings that we identify in the report and call on both the Accord and the Alliance to address.
 
We have never suggested that there are not serious safety and labor rights issues in first-tier suppliers. Initial inspections under the Accord and the Alliance confirm a range of significant problems in these factories. But there also is little doubt that the widespread practice of non-transparent subcontracting increases risks for workers. As a recent report by the International Federation for Human Rights and Bangladesh Odhikar concludes, “Sometimes sub-contracting practices are such that global brands do not know which factories are at the start of the production chain and whether or not these respect the rights of their employees. Generally speaking, it is in the factories at the very start of the supply chain where the risks for human rights violations are the greatest.” 3 We cannot agree with your statement that “it is utterly at odds with the facts” that “subcontracting factories are more dangerous than those producing directly for brands.”
 
We are very concerned about the rights of workers in subcontracting and unregistered facilities. We believe you share our concern for these workers and urge you to push the Accord, the Alliance, the ILO, and the government of Bangladesh to devote resources and develop policies that prioritize bringing these factories out of the shadows and into a stronger and more transparent system of sourcing and oversight.
 
Finally, the majority of your letter addresses our assessment of the Accord and the Alliance and your assertion that the Accord is fundamentally different than the Alliance. We respectfully disagree. As we conclude in the brief section devoted to the Accord and the Alliance in our report, while there are differences between the two initiatives, their similarities outweigh their differences, and in key aspects neither agreement is sufficient.
 
As noted above, neither agreement adequately addresses the indirect sourcing practices of their members’ supply chains. But most importantly, neither the Accord nor the Alliance has developed a clear or adequate strategy for financing factory repairs that will be identified in the inspections that are now underway.
 
The question of who will pay to remediate the shortcomings in fire and building safety identified in inspections is already the subject of debate. You assert that “the Accord includes a clear mandate for signatory companies to provide needed financial assistance to factories for the cost of repairs.” We understand that this is the strongly held belief of many who negotiated the Accord and have advocated for its adoption by companies and universities. Yet we are not aware of a single company in the Accord (or the Alliance) that has made a similar public statement or commitment.
 
The language that was ultimately agreed upon in the text of the Accord is ambiguous about who pays, leaving it to a negotiation between factory owners and buyers. Accord staff have acknowledged this ambiguity in public comments, which we quote in the report. A recent story in The Guardian quotes Jenny Holdcroft, policy director for IndustriALL, as saying, “This was always going to be a topic of negotiation. Brands don’t want to commit to paying so that rich factory owners who have just pocketed the profits and not been spending on their factories for years continue to do so.”
 
The ambiguity in the Accord has resulted in understandable confusion and frustration among factory owners. As reported in The Guardian, the Accord is “facing the threat of legal action as factory owners demand compensation for the cost of closures and repair work. With some repair programs expected to 3 take months, factory owners say they cannot shoulder the costs of paying staff while factories are closed, alongside the expense of some major works needed to ensure buildings are safe.”
 
Our analysis concludes that the negotiation of “commercial terms” that you cite in the text of the Accord will ultimately mean that in most cases, factory owners – not brands – will be under considerable pressure to pay the costs of repairs and lost wages if they want to maintain existing business. Factory owners have articulated this concern, but no clear answer is forthcoming.
 
To be sure, our report is critical of the current landscape, including the sourcing and production practices of global and national companies, government regulatory policies and enforcement, foreign funding priorities, and private governance initiatives. We understand how difficult it is to make lasting improvements in the supply chain, and acknowledge the efforts of many good people working to make progress in a challenging environment. Our objective is to contribute to these efforts by pointing out important gaps and ambiguities at an early stage. These issues require further attention and action in order to achieve the shared goal of a garment sector in Bangladesh that is sustainable for companies and for workers.
 
Going forward, we encourage you and the other co-signatories of your letter to convey your questions and comments about our report directly to us. We are eager to engage with you and others in the academic community interested in advancing human rights in global business operations. Our report is the first major human rights report published by a business school, which we think represents an important innovation in business education. We look forward to continuing to bring this new perspective to the effort to improve working conditions in global supply chains.
 
Sincerely,
Sarah Labowitz
Co-director and Research Scholar Center for Business and Human Rights NYU Stern School of Business

Dorothée Baumann-Pauly Research Director
Center for Business and Human Rights NYU Stern School of Business
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1 Available at: http://www.stern.nyu.edu/sites/default/files/assets/documents/con_04740…

2 Syed Zain Al-Mahmood, Christina Passariello, Preetika Rana, “The Global Garment Trail: From Bangladesh to a Mall Near You,” Wall Street Journal, May 3, 2013, http://online.wsj.com/news/articles/SB100014241278873247666045784608338….

3 “One Year After the Rana Plaza Catastrophe : Slow Progress and Insufficient Compensation,” International Federation for Human Rights and Bangladesh Odhikar, April 24, 2014, http://www.fidh.org/en/globalisation-human-rights/15179-one-year-after-….
 
4 Sarah Butler, “Bangladesh factory owners threaten inspection agencies with legal action,” the Guardian, May 26, 2014, http://www.theguardian.com/world/2014/may/26/bangladesh-clothing-factor….
 
5 Ibid.
 
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