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Global Supply Chains

One of the most insidious aspects of the global CSR machine, ‘social standards certification,’ adds a veneer of legitimacy to a procurement system that, frankly, doesn’t even believe its own spin. It is hard to imagine a more gross, tragic, spectacular and senseless failure of this system than the recent garment factory fire in Karachi, Pakistan. On 12 September 2012 at least 259 people (over 300, according to local trade union estimates) lost their lives in one of the worst industrial accidents of our time.

And here’s the thing: this factory was certified according to the SA8000 standard by for-profit Italian auditing firm RINA just one month beforehand. According to the auditing report:

“… Fire extinguisher and fire safety buckets were available in sufficient quantity… Fire extinguishers were visible and accessible to all workers. Access to fire extinguishers and passages leading to exits was maintained free from any kind of obstruction. Primary exits and emergency exits are kept unlocked while employees are inside facility.. “

Yet, according to the Clean Clothes Campaign, “The factory was not legally registered with the Pakistan government and had failed to provide the majority of workers with employment contracts. The high death toll resulted from inadequate fire exits, blocked staircases and barred windows, preventing many workers from escaping the blaze.”

SA8000 is a ‘social accountability’ standard developed by New York-based certification firm Social Accountability International (SAI). It sets benchmarks in relation to “child labor, forced and compulsory labor, health and safety, freedom of association and right to collective bargaining, discrimination, disciplinary practices, working hours, remuneration.” SAI, a non-profit (but with significant industry funding) whose stated mission is “to advance the human rights of workers around the world,” have instigated an internal ‘investigation‘ into the incident. As far as we can gather, there are no plans to make the results of this investigation public.

So how did a factory, which was unregistered, which did not have proper hiring practices, and which violated OH&S standards so flagrantly get certified?

There are many problems with this system and here’s the first: it is built around notified inspections – Auditor: “We’ll come to the factory on Wednesday at 9am and we will be checking to make your fire exists are not obscured by piles of clothes.” Factory manager: *better move those piles of clothes* – and interviewing people about work conditions at their place of work where, let’s face it, people are unlikely to raise serious complaints for fear of losing their jobs.

Just make sure the place looks ok and folks keep quiet while the inspector’s hanging around, and you’ll get the certificate. Not every factory treats certification like this, but the point is that it’s a very easy system to take advantage of. Yet it’s held out as so much more. And because of that, it’s a morally and logically corrupt model, which in this context, as the Karachi fire so tragically demonstrates, it’s downright dangerous.

The factory was owned and operated by local manufacturing company Ali Enterprises. A chilling detail from the New York Times report on the fire: “Instead of letting the workers escape.., plant managers forced them to stay in order to save the company’s stock: piles of stonewashed jeans, destined for Europe. “

The jeans were being produced for export to German budget clothing retailer Kik, German newspaper Der Spiegel reported this week, to be sold in Germany for €15.99. Yet again, we see the high price of cheap clothing.

Here’s another problem with the certification system: it creates an additional layer of supply chain responsibility dissipation – upper level supply chain actors rely on the fact that supplier factories have been ‘certified’ to an official sounding standard to argue that their legal responsibility stops there. Buyer company *waving certification in the air*: “Not our fault, we had these other guys go in and write us this fancy note that says everything was in top shape!”

The garment supply chain is very different from the electronics supply chain I wrote about last week. For one thing, we consumers have power in this sector, through being informed (reading labels about where products are sourced, for example), through boycotts & substitutions (substituting Kik’s products with second-hand jeans or those of brands with a proven commitment to ethical sourcing), and also through exercising common sense. If you see never-worn jeans selling for less than €20 (or even €50!), that should set off alarm bells that should, at the very least, prompt you to make supply chain inquiries.

We’ll follow the investigations into what happened in Karachi and keep you updated as more details emerge. But what might we learn from it at this stage?

We must be skeptical about private certifications. This is particularly so where ‘audits’ are conducted on a ‘prior warning’ basis by for-profit firms operating under standards set, and accreditation given, by private standards bodies, no matter how ‘human rights friendly’ they appear. Certifications obtained through such a structure must not be used as get out of jail free card for buyer companies whose supply chains are implicated in human rights violations.

Above all, that we need to demand transparency and accountability in the social certification industry. What is the relationship among Western companies (like Kik), overseas suppliers (like Ali Enterprises), auditors (like RINA) and standards developers (like SAI)? Who pays for their services? What are their terms of payment? What is involved in the accreditation process? How are site audits conducted? By whom are they conducted?

Can we really allow companies to rely on private, for-profit actors to independently and accurately report on local work conditions?

Who owns an iPhone? An iPad? A MacBook?  For many reasons, not least their beauty, their functionality, and an incredible marketing machine, Apple’s products are ubiquitous throughout the wealthy world.

But there’s a dark side to these shiny products, these objects of worship to their die-hard fans and reliance to the rest of us. I’d hazard a guess that many Apple consumers – switched on, plugged in and media savvy – have read reports of worker abuse and exploitation in the Apple supply chain. Of particular, recent concern are reports of advocacy organization China Labour Watch on the rising tide of unrest in Chinese factories of Taiwanese manufacturer Foxconn, on the iPhone 5 supply chain.[1] Whether you read the New York Times, the Guardian, the Sydney Morning Herald, Der Spiegel or countless other publications, reports of unacceptable labour conditions, suicides, protests and other and ‘disturbances’ at Apple-producing Foxconn factories have persisted for years.

With all this information out there, one has to assume the link between their iPhones and reports of some pretty serious human rights violations is well known among Apple consumers. Yet Apple’s revenue last year climbed to a whopping $108 billion, and in August of this year of this year Apple became the most valuable corporate entity of all time.

Speaking to DemocracyNow!, the founder and Executive Director of China Labour Watch Li Quiang called on US-based consumers of Apple products to “exert some influence on the Apple company so that Apple can try to improve some of the working conditions of those Foxconn factories in China.” It’s a fair call, but what exactly does this mean? Here’s an unsurprising irony: this post was written on a MacBook Air. If you’ve come across it through twitter, well, I tweeted the link from an iPhone. I don’t want to create any illusions: I am the consumer I’m talking about; you might be too.

What kind of influence can we consumers exert?

The prevailing wisdom about consumer-driven corporate social responsibility (CSR) campaigns is this: companies that make a profit from producing and selling branded consumer goods will respond to consumer pressure to eliminate supply chain labour exploitation. The stronger the association of the product with the brand, the higher the incentive to have ‘clean’ supply chains to avoid reputational damage. Therefore, consumers can raise supply chain labour standards through the power of the almighty dollar.

But Apple products, as we all know, are some of the world’s most heavily branded. And yet exploitation in its supply chain is regularly, widely reported. Why have we not turned our backs on the company? What gives? Let’s walk through some of the problems with the consumer action approach, as it applies to Apple.

If we don’t like the manufacturing ethics, so the story goes, we consumers can boycott products. We can take our precious dollars, euros and yens elsewhere; fight capitalism with capitalism. So why haven’t we boycotted Apple? A few words about consumer boycotts: they’re only viable if (a) we don’t depend on the products in question and/or (b) there’s an ethical alternative product of (near) equivalent quality.[2]

First point – we rely on computers, smartphones, tablets, and so on, for tasks ranging from the practical (getting our work done) to the personal (meeting potential partners on dating sites, peering into the lives of recently remembered high school classmates on facie) to the political (organizing protests, whistleblowing, voting and activism). I see some of you rolling your eyes but let’s be honest: while not having ready access to an internet connection might fall into the #firstworldproblems basket, it’s neither pragmatic nor desirable to ask folks to give up their dependence on electronics entirely.

Where we depend on a certain type of product, boycotts only work where we are able to substitute the boycotted product with an ethically sourced one. But what if there’s no ethically sourced electronics industry? Leaving aside questions of functionality, I’m yet to see any ethically sourced alternatives[3]. So while I could give up Apple products and move to Samsung, for example, that would only be worth it if Samsung had ethical sourcing guarantees.[4] Reports of child labour in Korean in factories producing Samsung products give us an insight into the problems with this approach.

Here we face the next problem: information. While we might have information about the working conditions at the factories of Apple and Samsung suppliers, that’s mainly because journalists have taken an interest in those companies. Are there journalists reporting on the labour conditions in the manufacturing centres of all of their competitors? No, there just aren’t.

And to make the obvious additional point: boycotts rely on large-scale collective action. Call me a cynic, but I can’t see many of us parting with our shiny Apple toys without any sense of certainty about how a boycott might hit Apple’s profits.

What else can consumers do? They can join and donate to organizations like China Labour Watch. They can write letters. They can blog. They can talk. But given the problems I’ve touched on above, it’s easy to see the limits of these approaches.

So back to Apple. Apple does disclose identified instances of exploitation in its supply chain in supplier responsibility progress reports. Apple’s Labour and Human Rights policy is publicly available. It works with Verite, a supply chain analytics organization, with the stated intention of improving supply chain conditions. Verite’s CEO, Dan Viederman, said in a recent interview that “Apple stands out quite positively compared to many other companies,” pointing specifically to the culture of disclosure. Viederman points to the notable difficulties in identifying and eliminating exploitation at all levels of complex supply chains. Yes, agreed, it’s hard. But this ignores two important things: the deliberate dissipation of responsibility through Apple’s decision to manufacture in China, known for its weak labour regulation and repressive conditions for union organizing; and the significant position of economic influence it occupies in its value chain. As the most successful company in history, Apple is better placed to make labour standards demands than, perhaps, any other company.

Where does this leave us? I’ve been having these conversations for a while now. And, in relation to electronics, the answer I hear most often, even from very conscious folk[5], is, “It’s tough,” or “I struggle with this question.” And as for direct, effective consumer action – I’d have to agree: the prospects are pretty grim. I’m not seeking to avoid my own responsibility here. Confronted with my next electronics purchase I’ll do my own ethical due diligence, and you should too. But these tools can’t be the end of the story.

Here’s the important part. The Apple-Foxconn supply chain should show us the limits of consumer action and CSR self-regulation, should force us to admit that they’re not the magic answer. Let this example be the catalyst we need to face up to the fact that, if we’re serious about eliminating supply chain labour exploitation, we need tools beyond rhetorical industry partnerships, feel-good labeling and ranty letters.

We mustn’t accept that it will always be this way, that labour exploitation and abuse are built into our gadgets. 

Where products are made offshore, in an environment of low regulation, we have to develop new ways to hold upper level supply chain actors to account. If companies headquartered in the US, in Australia, in the EU, are making profits through exploitation elsewhere they need to take responsibility for all levels of their supply chain[6]. So let these recent reports about the Apple supply chain ignite a conversation, not about how we can encourage, but how we can require, them to do so.[7]


[1] And a note, factories aren’t the only site of exploitation in the global electronics value chain. For example, minerals such as tantalum, essential in electronic products, are often sourced from conflict zones around the world. There are risks too beyond manufacture: especially where products are shipped vast distances. The long haul shipping industry is notorious for its abuse of seafarers .

[2] The ‘near’ qualification is there because at least some of us might sacrifice a little bit of functionality for some level of peace of mind in relation to supply chain fairness. Regularly eat ‘ethical’ chocolate? Drink ethical coffee? Then you know what I mean… And yes, we pay for the privilege.

[3] If you know of any – get in touch!

[4] If claims were made about ethical sourcing in advertising material, consumers who have been enticed to buy the product on the basis of that advertising might have a claims in a consumer tribunal. Organisations like the European Centre for Constitutional and Human Rights (ECCHR) in Berlin have successfully pursued consumer claims against companies for misleading statements in ‘ethical sourcing’ advertising (disclosure: I’m a visiting scholar at the ECCHR). Adding to that is that consumer claims consider the consumer of the product – not the worker who has been exploited – to be the ‘victim.’ So while it may draw attention to supply chain exploitation, consumer claims just don’t stack up as a way of procuring justice for those whose human rights are violated.

[5] the ones who buy ethically sourced food and clothes and whatever else is available (hippies, you might call us; ‘suckers!,’ you may taunt)

[6] Yes, even indirectly through a corporate or contractual structure through which you avoid strict legal liability.

[7] I’m convinced that the answer’s in a complex ecology of measures that includes CSR/consumer action elements. But what’s missing is some sort of transnational hard law system, vesting hard law rights and remedies in individual workers, and extending to upper level supply chain actors. That’s what I’ll be spending the next couple of years writing a PhD dissertation on. Stay tuned to this blog (or my twitter account) for ideas and updates!

Yesterday, US President Barack Obama gave a rhetorically galvanising speech about ending modern slavery at a Clinton Global Initiative function, announcing a suite of new measures aimed at stamping out serious exploitation around the globe. Speaking directly to victims and survivors of exploitation and trafficking, he had these words: “We see you. We hear you. We insist on your dignity.” Full transcript of his remarks here.

The speech was generally well received, and set out the path to some very promising changes. One such change is a sharpening of focus on victim support, which is fundamental to law enforcement measures aimed at bringing traffickers and exploiters to justice. Another is the US taking fuller responsibility for labour violations that occur in federal contractual relationships. This is important stuff.

Now of course, I’m behind the US throwing its legal and economic power at eliminating all forms of labour exploitation, but there are still a few gaping holes in the US approach. For example, the sex industry is – and will remain – largely criminalised in the US, and a recent New York Times Piece by Noy Thrupkaew explains why this is a counterproductive and ‘misguided moral crusade.’ And another disappointment: the continued reliance on transnational enterprises “holding themselves to higher standards.” (emphasis added)

I acknowledge the value in partnerships with business, with creating a community of corporate activists who will strive to make sure their supply chains are exploitation free. But haven’t we tried this before? And doesn’t this serious community of corporate activists turn out to be relatively small, in the end? Where the self-regulatory approach manifestly fails – let’s take persistent, credible reports of labour violations in Apple’s Foxconn supply chain – shouldn’t the rest of the global community, and in particular the US government, be doing something to force the issue of supply chain accountability? As in crystallising a system of hard law, actionable rights and remedies for workers and penalties for corporate actors at the apex of exploitative supply chains?

These are some initial impressions. I’ll try to get to a detailed analysis of the new initiatives at some point but in the meantime, I would be grateful, as ever, for your thoughts.

The current right-wing government in the Netherlands is not particularly unfriendly to business. Yet it continues many of the former (center-left) policies with regard to corporate social responsibility. It recently proposed a new law to enforce labour-related notification obligations for companies who receive government subsidies.

Since two years companies who receive subsidies, credits, credit insurance or participate in government-sponsored trade missions are obliged to explicitly endorse the OECD-guidelines and have a ‘duty of care’ with regard to child labour and forced labour. This duty extends to the companies own activities abroad, and the activities of the ‘first essential supplier’. Failure to conform may result in the withdrawal of government support. The newly proposed law adds an obligation to notify the government in case of ‘facts and circumstances that indicate child or forced labour’, and the possibility of administrative sanctions in case of non-compliance. The maximum penalty is set at € 74.000,-

The law is yet to be discussed in parliament, but the legislative memorandum highlights some interesting issues

Relevance of ILO Standards

The Dutch proposal is in line with the Atlantic division on whether  the included labour standards align with ILO standards (the European approach) or the use of idiosyncratic definition (as applied in the American Generalized System of Preferences, Free Trade Agreements etc.) The norms and definitions in ILO Conventions 28, 105, 138 and 182 form the basis to determine whether child or forced labour has indeed occurred. But some countries have not ratified these instruments. The definition of what constitutes ‘heavy labour’, which is important to determine the applicable age limits, may differ from one jurisdiction to the other. For countries who have ratified and have reported their age requirements to the ILO, these domestic standards will be applied. For non-ratifying countries, the highest standard of protection is assumed.

Competitiveness

The Council of State, which advises the government on all legislative proposals, mentions in passing the potential adverse economic effects on Dutch companies. As Dutch companies operating abroad are deprived of the possibility to go for the cheapest option, if the cheapness is caused by child or forced labour, other corporations from other countries may gain from this. The government stated in response that not doing anything about child and forced labour may result in reputational damages that are much more costly, and that pro-active policies may actually lead to a competitive advantage as customers will value it.

The supply chain

It may be unclear who the ‘first essential supplier’ is. This may not be clear at the outset, it may change over time, or the company may put of a smoke screen by means of a straw man. The company is therefore obliged to report in its subsidy application who the first essential supplier is, or at the earliest possible moment in case of uncertainty or change. A violation of this provision may result in forgery and can thus be remedied by criminal sanctions. In addition, supply chains are longer than the first supplier. Child labour or forced labour practices beyond the first supplier are not regulated because it is deemed impossible for the company at the end of the supply chain to trace labour rights violations throughout the chain.

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