Perspectives in Responsible Sourcing

"China Blues" - Documentary Focuses on Working Conditions

I recently saw the award-winning documentary film "China Blues," by director Micha Peled. Currently being screened in San Francisco, the film, originally released in 2005, is again raising questions about ethical trade. The documentary chronicles the journey of young Jasmine, who takes a job as a thread cutter at a jeans factory in Shaxi, Canton. We meet her dorm mates, who help her adjust to life at the factory and teach her the ropes, such as where to find tea that will help you stay awake for 2AM overtime, and not to forget your ID card or risk being fined.

The film seeks to portray the typical experience of the migrant worker in China, as Jasmine represents the many who have left the family farm to seek manufacturing employment in large urban centers. Of course, the real heart of the story is the working conditions themselves.

"We never miss a deadline even if our workers keep working all night." – Lifeng factory salesperson.

As the story progresses, some of the typical challenges of workplace conditions being to present themselves. The food is bland. The work hours are long and there never seems enough time for rest. Running low on the money her father gave her, Jasmine finds out her first month of pay is late. The tensions over pay even lead to a brief work stoppage.

But we are not led to despise Mr. Lam, the factory owner. Instead, we are shown first hand the intense pressure Lam receives from his international buyers. He comes off as a victim to the thin margins and tough competition that has come to be known as the reality of the apparel business.

For those of us in the world of responsible sourcing, also to be noted is the much-quoted interview with Dr. Liu Kaiming of the Institute of Contemporary Observation. An NGO and a social compliance monitor as well, Liu claims that inspectors from multinationals rarely find problems. (Assuming he is not including his own work on behalf of international brands, I must disagree on behalf of social compliance professionals. I think all monitors would universally agree that most apparel facilities in China will have some kind of non-compliance, some abuse, some issue or finding and the vast majority have many such issues!) Liu also accuses retailers of playing an "elaborate game" with suppliers, because, according to him, retailers do not really want to improve conditions, only reassure consumers.

Peled films workers demonstrating how they used to clip their eyes open with clothespins to stay awake during overtime. The image is followed by this text, "A factory that allowed its workers adequate rest and paid minimum wage would not be able to compete. The major brands demand such low prices that factories must violate international labor standards." Peled’s message is clear: brands need to change the way they get their products. And consumers need to make brands listen.

For the general public, this film seems to have a clear impact, providing what to some is surprising insight into the world of apparel manufacturing. Reviews are filled with shocked commentaries from those unfamiliar with working conditions in China, or even in US apparel shops in the heart of San Francisco for that matter. In a recent interview, Peled indicates that buying jeans made in the US would be a good alternative to supporting exploitative practices. Obviously, he is not aware of the labor conditions and challenges for workers in the sweatshop centers in his own backyard. Apparel factory owners in L.A., San Francisco, and New York pioneered time card falsification, coaching of employees, and other methods Peled highlights in his film. What is the best alternative, then? For myself, I look for companies that approach labor conditions through a wide range of efforts, including monitoring, training, and stakeholder engagement, for where one has its weakness, another has its strength.

Finally, since I started assessing factories in China in 1997, there are obviously few surprises for me in this film. So what do I take as the most compelling message from this film? Retailers and brands need to get their buyers on board with their social compliance program. This may include performance incentives for buyers, a concept currently being explored by a number of brands. Also, suppliers need to be encouraged to look at their business from a new perspective. Is hiring a second shift a better choice than regularly working the same workers until 2AM with one rest day per month? Many of these choices don’t even make business sense. Factory owners like Mr. Lam, the retired police chief in Shaxi, (someone with no prior business expertise - a common lot for many China entrepreneurs), simply need some Business 101 to help them make some core improvements to their business practices.

All that said, do I recommend this film? Absolutely: A winner of the Amnesty International Human Rights Award, this film is a must see. Whether you have already seen China factories first hand or not, there is something for you in this film.

For some recent reviews and interviews with Micha Peled:

http://dailycal.org/sharticle.php?id=22645

http://www.marinij.com/lifestyles/ci_5023532

http://www.greencine.com/article?action=view&articleID=394

http://www.contracostatimes.com/mld/cctimes/news/local/states/california/alameda_county/montclair/16444238.htm

2006 Year in Review for C-TPAT

This past year has seen a number of significant developments related to the Customs-Trade Partnership Against Terrorism, and supply chain security in general. Below is a brief chronology of significant events.

• February: The proposed purchase of the P&O operated US port terminals to Dubai Ports World causes strong media and public reaction. Congress debates the security implications of this transaction, eventually leading to DPW withdrawing the offer.
• March: CBP releases the Supply Chain Security Best Practices Catalog.
• April: Security Guidelines are issued for air carriers, air freight consolidators, NVOCCs and US marine or port terminal operators.
• August/October: CBP requires all current C-TPAT partners to update their supply chain security profiles onto the newly operational C-TPAT portal. Members who fail to do so risk losing their partner status.
• September: The Container Security Initiative reaches 50 foreign seaports.
• October: President Bush signs the HR 4954 – THE SAFE PORT ACT codifying C-TPAT, the tier system, the benefits awarded to partners and the validation process. It goes on to require that validated members undergo revalidation every four years. Notably, this bill also allows for the creation of a one year pilot project for third party validation inspections in China.
• December: Minimum Security Criteria is issued for US Customs Brokers.

Looking ahead to 2007:

While 2006 certainly proved to be a year with considerable advances for supply chain security, 2007 promises to deliver more significant developments. Already, in January the House of Representatives voted on and passed a new Cargo Security Bill, based on the recommendations from the 9/11 commission. This new bill will require that all cargo transported by passenger aircraft undergo scanning by the end of 2007. Furthermore, it also calls for ocean containers to be screened for radiation at selected foreign ports before they are loaded onto vessels. The bill requires this pre-screening at a number of large volume container ports within three years, and universally within five years. It remains to be seen whether this bill will be passed by the Senate, especially as the container screening provision is considered by many industry experts as causing too much of a drag on the movement of goods, and one that may ultimately not increase security appreciably.

Furthermore, in July 2007, the European Union will begin accepting applications for companies to become Authorised Economic Partners (AEO), similar to C-TPAT partner status open to US importers and transportation service providers. This will pave the way for the roll-out of the AEO program by January 2008.  Ultimately, both CBP and their EU counterparts are seeking to establish mutually recognized programs, whereby membership benefits, namely expedited customs clearance, will be extended to each others’ partners. Both programs share many similar requirements of their members, and promise related benefits. According to an article recently published on the website of the International Federation of Customs Brokers Associations (IFCBA), CBP will move “very quickly” towards recognizing supply chain security programs in a half-dozen countries, including New Zealand, Jordan, Canada, Australia and Sweden, that meet U.S. standards, [Todd] Owen (executive director of cargo and conveyance security, CBP) said during the agency’s Trade Symposium last month. These countries already have strong security partnership programs in place and have gained the confidence of U.S. officials.”

Lastly, 2007 will surely see an increase in the number of C-TPAT partner Validations, as CBP has been tasked with clearing up any backlogs by the end of the year. To date, CBP has conducted validations for roughly 66% of certified members, leaving roughly one third to complete. Moreover, thus far the government of the People’s Republic of China has prohibited US Customs agents from conducting site visits within its territories. The SAFE PORT ACT now orders CBP to explore the possibility of using third party monitoring firms to conduct Validation site visits in the PRC. There should be developments in this direction within the next few months.

All in all, it appears that 2006 brought significant and at times dramatic developments for the field of supply chain security. If the recent legislative events are anything to go by, 2007 should also be a year to watch. We will be following these events closely; check back soon!

Sources:

“CBP readies C-TPAT for mutual recognition, 3rd party validators”. International Federation of Customs Brokers Associations (IFCBA). Posted by Administrator on 2007/1/4 16:09:58. http://www.ifcba.org/modules/news/article.php?storyid=301

UN Norms: Dead or Alive?

So you thought the UN Norms were DOA?  Well, late last year, two lawyers, one from Australia and one from the UK, dredged up the UN’s attempt to create a global code of conduct for corporations and wrote an analysis on their use going forward.  Their paper is called The UN Human Rights Norms for Corporations: The Private Implications of Public International Law.

Overall, the authors conclude that discarding the Norms would be a mistake as their content provides a good basis for international human rights standards as applied to corporations.  They further suggest that the Norms might even be a basis for an international legal treaty in the long-run.  However, while they recognize that the Norms adopt a fairly standard international human rights format, they point to five main differences.  The authors don’t seem to think that the differences should pose an obstacle to the Norms’ acceptance, but I wonder if that’s true.

The differences (very generally paraphrased) are as follows: (1) the Norms are addressed to corporations, whereas other international human rights treaties are addressed to governments; (2) the Norms cover a number of different areas of law (eg, environment and consumer protection) which are normally addressed separately; (3) the Norms raise the new issue of a “sphere of influence” for corporations; (4) there is no clear delineation of duties for governments and corporations; and (5) the scope of application is wider than most codes in that it applies down the supply chain and to non-state actors.

According to corporations, the decision by the UN Sub-Committee on Human Rights (which drafted the Norms) to direct these standards to corporations rather than governments is a big deal.  Other international labor and human rights treaties, such as the ILO Conventions, are clearly addressed to governments, which makes it clear that governments have the ultimate responsibility in these areas.  The Norms’ orientation ties into the problem that there are no clear duties for governments versus businesses established in the Norms.  As a result, a main objection the business community had to the Norms is that corporations would be required to adopt functions meant to be carried out by governments.  (It should be pointed out, however, that many businesses have no qualms about this functional blurring when the results benefit them – eg, water privatization in South America and electricity privatization in the U.S.)  Businesses were equally concerned about being held accountable for actors and processes within a nebulously-defined sphere of influence.  Exactly how far did this influence extend, they asked?  And what level of responsibility would be assigned at what stage of the supply chain?  Furthermore, it seemed that their responsibility was supposed to cover a large number of areas, from labor and environment to consumer protection.  They felt the burden the Norms placed on them was too large.

The authors of the report argue (and again, this is broad paraphrasing) that corporations already have obligations regarding labor and the environment under domestic legislation, so the fact that the Norms ask them to take responsibility in these areas should not be a new idea.  Furthermore, the Norms do make it clear that the main responsibility for enforcement rests with governments, not with corporations.  The authors also point out that many laws are worded in such a way that explicit obligations on the part of the relevant parties are not clear, that these boundaries (such as a sphere of influence) are meant to be delineated through practice at the state level.  In particular, human rights are by their nature universal and therefore imprecise.  Likewise, the definition of responsibility applies in domestic law just as it does in international law, so again, this concept of obligation should not be anything new.  As to the point about covering multiple areas of law, the authors point to an artificial division in human rights between, for example, labor rights and human rights, which clearly overlap.

The authors are right to criticize corporations for being too reticent in accepting their responsibility regarding the rights enumerated in the UN Norms.  However, I think they are too dismissive of the corporations’ concerns.  For example, in an area where image is everything (or an awful lot anyway), it makes a big difference that an international human rights document is geared toward corporations rather than governments.  While the goal of drawing attention to the role multinationals must play in addressing these problems is admirable, the approach is a bit too “in your face” to be successful, at least in the current environment.  With regard to the wide range of areas covered by the Norms, I think this concern is the least problematic in the sense that I can’t see how it would impact corporations differently if the issues were separated into different treaties or agreements (would it?).  The inclusion of new areas of responsibility would surely be of greater concern.

The last three issues, regarding sphere of influence, delineation of responsibility and scope of application, all get to the balance of responsibilities between corporations and governments.  This is absolutely a legitimate concern, not only on the part of corporations, but from everyone’s perspective.  I think few people would disagree that corporations need to take more responsibility for their actions in the human rights arena.  However, I can see two problems with leaving the responsibility aspect too vague.  First, although the authors point out that often vague domestic laws are hammered out in practice, international laws usually do not have the weight of domestic laws.  As a result, who is to say that anything would be done in the first place?  Clarified standards would allow outside parties to hold corporations to particular obligations.  Second, if something were to be done, and corporations and governments found a balance, would this balance be right?  We see in our audits how much power corporations have in determining market conditions in some countries.  For example, local Chinese authorities routinely flout overtime laws to meet the demands of global retailers.  Do we really want corporations to have so much power that they determine, for instance, infrastructure development or government policy in some places?  Both scenarios point to a definite need for clarification on the role of corporations versus governments in upholding their human rights obligations. 

So while the UN Norms might be a good start for discussing the role of corporations and governments in promoting human rights, it seems like a good idea to have further discussions and, if possible, clarification on the areas raised by corporations.  Indeed, it seems potentially problematic to move forward without this clarification.

What's Ahead in 2007?

I don’t have a crystal ball, of course, but I’ve been talking with a number of brands, retailers, investors and other stakeholder groups in our industry and I propose there are three emerging trends that will move to center stage in 2007: (i) supplier ownership, (ii) collaboration; (iii) convergence.

SUPPLIER OWNERSHIP

More and more companies are looking to engage suppliers in creating sustainable improvements that will positively impact the lives and conditions of workers. To do so, brands and buyers are promoting the adoption of management systems that will help suppliers run more efficiently as well as manage social compliance issues in a planned and organized manner.

I first caught the vision of supplier ownership in 2004 when I was preparing to speak to a group of factory managers at a CSCC conference in Hong Kong. The topic was on how to manage compliance to a range of different codes of conduct. It occurred to me that the most organized factories usually had appointed a social compliance manager to handle all of the buyer assessments. This manager was in charge of providing the monitor with access to the production area, to the workers, to records required to assess compliance with local laws, etc. These suppliers didn’t feel as victimized or inconvenienced by the assessment process because they were already prepared for it. Being prepared and taking on ownership of their own compliance practices was an effective way for factories to overcome some of the challenges they faced when confronting the compliance process. Ownership could empower suppliers and help them see social compliance as a means for improving their own business practices rather than an inconvenient exercise that should be avoided or managed only through deception.

Now three years later, the concept of supplier ownership is gaining momentum in the world of responsible sourcing. Companies with mature monitoring programs such as Levi Strauss, Reebok, Nike, and Timberland are experimenting with aspects of supplier ownership. The hope is that suppliers will become partners in the process of improving labor conditions and undertake new management systems aimed at ensuring not only social compliance but also production efficiency, with well-managed production processes that will reduce work hours and improve worker well being. Study after study seems to show that well-managed businesses can work fewer hours, produce more, and with well-rested and well-paid workers, by changing only the level of efficiency in production management. Companies are encouraging their suppliers to put aside the cooked books and get down to the business of business – running more efficiently and in compliance with local laws. In the end, it is cheaper and easier to do things right than spend the time and resources to hide behind fake records and coaching or bribing employees to lie.

COLLABORATION

Brand and retailer initiatives continue to emerge with the goal of fostering collaborative approaches to responsible sourcing. Following in the footsteps of the Fair Labor Association and the Ethical Trading Initiative, there is also the Business Social Compliance Initiative in Europe, l'Initiative Clause Sociale in France, and CSC9000t in China. Some initiatives focus around sharing assessment results and working together to promote improvements in like-supply chains, such as the Fair Factories Clearinghouse in the US, and SEDEX in Europe. These programs see the most success when they have members with similar product-types who actually have a chance of using the same suppliers (this lack of like-supply chains is probably the biggest limitation for the FFC right now.) However, more and more stakeholder initiatives are emerging that are sector-specific, including the Electronics Industry Code of Conduct program, the Council for Responsible Jewelry Practices, and the Framework for Responsible Mining. These initiatives make collaboration the foundation of their efforts. These follow other sector-specific programs such as ICTI (toys) and WRAP (previously apparel, though WRAP is now seeking to re-make itself as a multi-sector initiative.) We will continue to see the emergence of focused initiatives such as these in 2007 and beyond.

CONVERGENCE

As brands and retailers increasingly sign-up to these initiatives, we can hope for a converging of some of the many standards and programs into a few. The ETI, once thought of as a UK-based initiative, now boasts an increasing number of non-UK members, including the U.S.-based Gap, Inc. Many members of the ETI have chosen to adopt the ETI Base Code as the code of conduct used in their supply chains, in order to use an existing multi-stakeholder code that promotes the use of a common industry code. In fact, the Body Shop forewent their previously developed code to adopt the ETI code and promote the concept of a universal code of conduct. The Gap recently announced their intention to do the same. As positive as these developments look for convergence and a universal code, there is some competition for the ETI. Last week, the Financial Times reported the first detailed disclosure of a new initiative aimed at consolidating responsible sourcing codes and monitoring efforts under one umbrella. Ironically, however, rather than adopting another existing initiative, such as ETI, the retailer group, comprised of heavyweights such as Wal-mart, Carrefour, Metro and Tesco (already an ETI member) have opted to develop yet another new initiative, the Global Social Compliance Program. According to the FT article, this has been done so far without any stakeholder consultation, though the group assures us they would like a stakeholder advisory board to ensure the credibility of the effort. Wal-Mart makes mention of this project in their last ethical sourcing report, but provides no true specifics. The FT article cites the CIES food organization as the lead in the GSCP, who promises to make more details public within a month or so. This initiative will likely continue to make headlines throughout 2007.

CBP announces 2007 Supply Chain Security Training

On the Official C-TPAT website, U.S. Customs and Border Protection has announced "the 2007 Supply Chain Security Training for C-TPAT certified partners. The training will be held on April 4th through April 6th in New Orleans, Louisiana. Registration will begin on January 15th for C-TPAT certified partners and there are a limited number of spaces".

Please monitor the Customs and Border Protection website for further details regarding registration.