Covid-19: It's time to show what responsible means

Hit by the pandemic and lockdowns, Western retail brands have been slow to take responsibility to protect workers in their supply chains in manufacturing countries like India. Can the shakeout be treated as a never-before opportunity to reform and redefine social protection floors for workers?

By: Sowmya Meenakshi

The fragile global supply chains that tether fashion retailers in the West to low-cost manufacturing bases such as India were a catastrophe waiting to happen. The coronavirus (Covid-19) pandemic has just blown the lid off.

Though ‘responsible’ terms are built into contracts, supplier declarations, and labour rights manifesto of global brands, the pandemic has exposed that supply chains, at heart, remain loaded in favour of retail brands, unmindful of workers security and rights, and sub-optimal for the entire industry.

To understand why exactly a worker in Tamil Nadu has to starve because a brand in Germany or the United Kingdom is out of business, one first needs to be aware of the murky terms on which this global supply chain is built.

In India, specifically the knitwear capital of Tirupur, factory owners (suppliers) say they are at the mercy of brands because they negotiate on ‘open terms’, i.e., based on ‘relationship and trust.’ This is completely different from, say, Bangladesh, where export deals are done on letter of credit (LC), basis, which is much more secure. ‘We too traded on LC basis about two decades ago, but over the years, competition has changed this. Opening an LC is costly, and brands started saying, why insist on LC, so we switched to ‘documents against purchase,’ and now, we operate on ‘open terms,’’ says Raja Shanmugam, President, Tirupur Exporters’ Association and a factory owner himself. This essentially means that brands call the shots, even in these difficult times. Suppliers, in turn, squeeze workers to protect their wafer-thin margins. 

The present tussle between brands and suppliers

Amid the pandemic and lockdowns, garment retailers in the Western world have lost a season. Europe, which accounts for ~36% of Tirupur’s exports, has 10-12 seasons a year (the US is another major destination, accounting for 34%). Shipments from Tirupur from December onward were for the summer season. Even if brands take delivery to use for the next year, some styles won’t be relevant. With shops shut, stocks are piling up in warehouses, brands are unable to take further deliveries, and containers are docking at ports. Some retailers are on the verge of collapse.

For suppliers in Tirupur, the first barrage of bad news from brands came in the first week of March. Stores were shuttering down, goods couldn’t be paid for. But after many requests, some have come forward to show their commitment.  

However, these represent only about 5% of the brands which do business with Tirupur, according to Shanmugam.

‘Swedish giant H&M has said it will take delivery of committed orders and won’t ask discounts. PVH Corp – owner of Calvin Klein and Tommy Hilfiger – has also committed, with some changes in terms. Marks & Spencer has said it will take delivery in a phased manner,’ he informs.

But there have been no concrete answers from the rest, most of which are smaller importers ‘who can decide only when offices open and an evaluation is done.’

Then, there are brands such as Primark that have circulated a first letter invoking force majeure. Primark represent 5-7% of the Tirupur cluster’s business (~Rs 25 billion annually).

However, this timely paper by Mark Anner, Director, Center for Global Workers’ Rights in Association with the Worker Rights Consortium, who surveyed the impact of Covid-19 on the supply chain in Bangladesh, quotes a legal expert: ‘… according to Article 7.1.1 of the Vienna Convention for International Commercial Contracts, force majeure claims should apply to the party with the most relevant contractual obligation, which in this case would be the Bangladeshi factories producing items, not the buyers that have agreed to pay for them.’ That, it could be reasonably assumed, would apply to manufacturing units in India, too.

Even if brands say they will make all payments … They can find any number of reasons on the basis of quality not to pay.

Raja Shanmugan, factory owner and President of Tirupur’s Exporter’s Association

But for factories in Tirupur, the legal route, which could take years, would be a last resort. Even so, recovery of payments is going to be an extended process, involving case-to-case negotiation with each brand.

There’s another twist. ‘Even if brands say they will make all payments, our goods worth ~Rs 65 billion are with them, under their control. They can find any number of reasons on the basis of quality, not to pay,’ says Shanmugam.

In the meanwhile, with the lockdown extended until 3 May in India (with some graded relaxations), and orders worth Rs 100 billion stuck since December (including ~Rs 25 billion each produced/under production in March/April), the industry in Tirupur is choked of liquidity to pay its workers.

With brands in trouble and factories out of cash, the moot question is: who will protect the workers right now?

Fixing responsibility in the immediate event

Mark Anner’s paper points out, ‘All parties are feeling the extreme burden caused by Covid-19.’… but, ‘It is incumbent on the parties with the greatest ability to procure loans and benefit from government bailouts to share those benefits down the supply chains.’

That neatly sums up the core principle that should decide questions of ‘who should bear the burden?’ during the present crisis.

In this regard, organisations working to protect workers’ rights in the garment supply chain, such as the the Fair Wear Foundation, have come up with specific guidance and suggestions. Many of these underscore the commitments of brands under various international covenants, and call upon them to walk the talk in this hour of crisis.

A few key action points suggested by them could broadly be summed up under three headings:

What brands can do

Fair Wear Foundation urges member brands to

  • Not cancel orders that are ready or near-ready to be shipped, or for which pay for which fabric is already bought and/or cut
  • Continue making responsible purchasing practices and support suppliers as much as possible
  •  Maintain an open line of communication with suppliers at all times

The international consensus on responsible business conduct – as penned in the UN Guiding Principles on Business and Human Rights, and the OECD Due Diligence Guidance on Responsible Supply Chains in the Garment and Footwear Sector, among others – require firms to assess the potential negative impact of any business decision, and further, mitigate and prevent such impact. Cancelling or delaying payments and not taking responsibility for the workers affected down the line, would fly in the face of such responsible conduct. 

What brands can do in partnership with suppliers

Fair Wear notes that most workers in manufacturing countries do not have health insurance or paid sick leave. This, it anticipates, will lead to workers forcing themselves to work even with mild flu-like symptoms, once the lockdown is lifted, or work excessive overtime to catch up for working days lost due to lockdown.

Hence, it nudges brands and employers to:

  • Pay workers their full regular wage during work stoppages, and the wage according to the standard stipulated in the labour contract for piece rate workers
  • Pay legal compensation for workers fired and all legal dues such as wages, benefits and severance pay if a factory must close or sudden bankruptcy occurs.
  • Assess the possibility of financial support to suppliers to pay wages, in the event the supplier is forced to close or is struggling to pay, especially if the particular brand takes up a high percentage of that factory’s production capacity, or owns the factory
  • Provide paid sick leave according to legal requirements if workers contract the virus and request workers at risk or with symptoms to stay home on paid leave
  • Take extra measures to ensure ventilation, adequate spacing between workstations, hygienic work floors and toilets, appropriate hand-washing facilities, breaks and facemasks, and provide information to workers on how to prevent infection, once factories reopen

How international financial institutions can help

Donors, international financial institutions, and multilateral development banks could work with the International Labour Organization (ILO) and the World Health Organization to quickly set up a multi-billion dollar fund to disburse salaries to workers in countries where they have lost jobs in the garment sector, or face lack of employment, to overcome the problem of some brands being unable to step in due their financial situation, suggests UK-based Traidcraft Exchange.

The idea is also to use such a package to enforce more robust national social protection systems post crisis in recipient countries. While the immediate aid and package could be treated as a seed fund, a long term finance mechanism needs to be developed, ‘which includes a contributory mechanism as outlined in relevant ILO Conventions, supplemented by a finance system which includes international buyers once sourcing resumes,’ the note says. The package must also include:

  • Ratification and implementation of the ILO Core Conventions
  • Strengthening of national and occupational health and safety systems, and
  • Development and extension of social protection coverage for all workers – including home-based and migrant workers – in case of sickness, employment injury, unemployment, suspended employment and insolvency

How independent organisations can play a supporting role

It turns out, in numerous ways. Says Suhasini Singh, Country Representative – India, Fair Wear Foundation, ‘We are currently surveying member suppliers to assess the situation on ground on cancellation or postponement of orders from our member brands. The findings would be taken into account in their annual performance check.’

Fair Wear has also been lobbying with the local government in each state to include migrant workers in their relief programmes.

‘We have opened up our complaint helplines for the factory management as well. As workers may not have enough money to call us, we have been proactively reaching out to worker representatives/union leaders to check on their situation and register complaints. Since the lockdown, we have received group complaints regarding at least three factories where all temporary workers (almost 60%) were laid off with no settlements or promise to take them back.’

Fair Wear also emphasises the role of brands, local NGOs and unions working together with suppliers to provide support to workers, especially where the law is weak, and offers to facilitate such collaboration, if needed.

Will anything change for workers when they return?

That is the question which brands, suppliers, governments, and trade unions, must be asking themselves right now.

It may be recalled that, India submitted itself to the World Bank and International Monetary Fund’s condition of liberalising its economy in 1991, in return for a bailout from its balance of payments crisis – a decision which, willy nilly, has led to the situation workers and factories find themselves in today. Three decades later, it has taken COVID-19 to make the world realise that such a ‘race to the bottom’ is simply not sustainable. Now, we’re talking of the same institutions giving conditional bailouts that impose social security obligations on recipient countries to protect workers – which is well and good, but has come about at a huge cost.

For, no matter that we’re hearing the right noises on an overhaul of social protection floors for workers in the face of Covid-19, a lot will eventually depend on how seriously brands and suppliers use the present crisis as an opportunity to change the way they do business, forever.

And the signs are not too encouraging. It is learnt that the industry in Tirupur has already represented to the Indian government that even if the lockdown has been extended, factories must be allowed to re-open for samples, failing which they could stand to lose another season. But they do not seem to have given much thought as to whether the hundreds of thousands of workers who have lost wages due to the lockdown, are likely to be paid them it at all, and if those left out of the safety net so far, will now be included.

That said, the structure of the Tirupur cluster makes implementation of many of the above outlined suggestions far more complicated than it sounds. Some 70-75% of Tirupur’s workforce in the garment sector are employed on piece rate, according to trade unions. None of the labour contractors are registered, so there are no official records of contract workers, who again, are in a majority. Over one-third of workers are estimated to be inter-state migrants – again, no records. No one really knows the proportion of home-based workers. Moreover, contract and piece rate workers, have, all these years, been illegally denied any entitlements on the pretext that they are able to earn much more than the notified minimum wages. ‘We are able to give workers the opportunity to earn Rs 8,000-20,000 per month, which is far more than the minimum wages. What more do they want?’ asks Shanmugam.

To be fair, all this is again the outcome of an unethical and unsustainable business model helmed by the brands. After all, isn’t it incredulous that brands – with all their outward commitment to responsible purchasing agreements – are unaware of gross violations on the ground?

What has gone wrong? Suppliers do not have the incentive to genuinely improve labour standards, as they are constantly pitted against those able to price their products more competitively – in India, for instance, there’s a constant refrain that it is losing out to Bangladesh, which has far lower labour costs, and Vietnam. And brands are not able to see beyond profit margins – so even as they ‘speak’ of responsible purchasing, they ‘act’ quite the opposite.

Published some 12 years ago, but still relevant, this paper rightly argues that ‘incentives must go beyond delivering good labour standards audit results (which, as we have seen, have not delivered the required results and which can easily be manipulated) to reward behaviours which deliver demonstrable benefits for workers.’

It is the nuts and bolts of such a signalling system that has to be worked out between all stakeholders.

Suggests Shanmugam, ‘Call for a tripartite meeting, where brands, factory owners, and trade unions/workers can sit together and each of us bring to the table our respective obligations. Let us transparently put forth our issues and suggestions. Such a meeting has never happened in Tirupur.’

That, certainly, could be a start.

See Fair Wear’s full Covid-19 dossier, including guidance for brands and garment-producing countries, here.