Study of A Proposal (and its alternatives) to Amend the Textile Labelling and Advertising Regulations: Applying the Conference Board’s Optimal Policy Mix Framework

Appendix B: A Historical Perspective on Improving Working Conditions

With other concerned groups, ETAG views the working conditions for apparel workers in some countries as unacceptable. Child labour, pregnancy tests, abysmal wages and earnings, unacceptable work volumes, physical working conditions, and questionable management practices—sometimes sanctioned by foreign governments—offend Canadian sensibilities.

This Appendix looks at selected issues that impact the ETAG proposal or its objective: addressing the use and promotion of fair labour standards in respect of apparel sold in Canada. It reviews a number of the issues raised by stakeholders and provides an analysis of their cause, effects, and impacts on the apparel industry in general.

The Definition of a Sweatshop

At the heart of the issue is finding a way to define what constitutes a sweatshop and what are acceptable practices in countries that produce apparel. Until a universal determination can be made of what constitutes a sweatshop, there will be an uneven application of guidelines, particularly in countries with limited resources or willingness to enforce their own standards (which may be quite different from international standards).

Because labour laws vary, what may be deemed a sweatshop in one country may not be deemed one in another. Home workers are also frequently used in some countries. Home-based contractors are often left to decide for themselves how they will work—and under what conditions—since they operate in their own premises. Suppose a home worker works in sweatshop conditions, yet works willingly, to support a family. Is the worker truly working in a sweatshop?

Sweatshops are most often described as a workplace in which workers are employed for long hours at low wages and under unhealthy or oppressive conditions. The U.S. General Accounting Office has developed a working definition of a sweatshop as "an employer that violates more than one federal or state labour, industrial homework, occupational safety and health, workers' compensation, or industry registration law." Sweatshops are generally considered to offer wage rates that are well below a basic standard of living and wages that do not reflect the work performed. They often feature long hours of difficult work performed in inhuman conditions.

The term sweatshop was derived from the English word sweater. It was used in the 1850s to describe an employer or middleman who paid very low wages for long, monotonous work. The word sweatshop described a subcontracting system in which the middlemen earned profits from the margin between the amount they received for a contract and the amount they paid to the workers. The margin was said to be "sweated" from the workers because they received minimal wages for excessive hours of worked in unsanitary conditions. In the 1880s, this type of work, or ‘sweating’ became widespread in the United States when a large number of migrant workers from eastern and southern Europe were available for very low wages. Not long afterward, with the industrialization of the many countries in Asia and Latin America, this phenomenon emerged there also. This is the phenomenon that Birnbaum describes in the book used as a resource for the report.

Sweatshop conditions are thought to be prevalent in situations where certain "lower" socio-economic conditions exists:

• a large unskilled and unorganized workforce (which may include children) is readily available;
• the workforce is desperate for work;
• questionable management practices that take advantage of this workforce are used; and
• the state or governing body is ignorant of the situation, is incapable of rectifying it, or is lacking in resources or willingness to intervene.

Poverty and weak economies are the root causes of sweatshops, largely because workers and/or their governments feel they have to accept whatever conditions they are given and the alternatives are considered less appetizing. Arbitrary employment practices are also a driving factor in workers accepting their working conditions: the fear of losing their only income-generating opportunity is a great motivating factor in maintaining their silence and bearing their work load. In some cultures, people we consider to be children are encouraged to marry and have children at a very young age. In time of dire need, it is not difficult for those in such cultures to imagine children as key economic resources, who can assist their families by working in factories. This particularly appalling reality is offensive to all Canadians and is at the heart of stakeholder concerns.

Stakeholders from developed countries often forget that at the turn of the century, and during the Depression, similar conditions existed in most countries. By the middle of the 20th century, legislation had been able to eradicate or control sweatshops in most developed countries.

According to the Encyclopaedia Britannica, four main factors have contributed to the control of sweatshops in the 20th century:

• growth of social idealism;
• pressure of the trade unions;
• extension of the franchise and the growth of labour practices; and
• greater economies of factory production and increased interest in human relations in industry.

Today, there are claims of sweatshop conditions in developed countries, despite considerable efforts by governments to ensure minimum labour standards. These usually exist in the illegal underground economy and remain hidden in slums. Sweatshop practices tend to be more prevalent in underdeveloped countries in Asia, Africa, and Latin America. When the Canadian apparel industry uses suppliers operating in those countries, they not only contribute jobs to the local economy, they are also seen to support, knowingly or unknowingly, operations that use working conditions that are worse than those that would be acceptable in Canada.

Is this a priori "bad"? Customs and practices vary from country to country. The issue of minimum working age is a case in point. Many families in many countries live in abject poverty. They send children younger than 16 years of age to work to earn the money to buy food, shelter, and other necessities. These young workers add to the family income, do not require child care, and have less opportunity to become involved in delinquent activities. In other words, the minimum working age of 16 prvelent in Canada may not necessarily apply in all countries.

The issue of minimum working wage is another case in point. Birnbaum talks about the wages for apparel workers in many developing countries being in the range of dollars per day. In the example, Brirnbaum lists daily wage rates for sewers in Italy in early 2000 as $133.20, whereas those in Bangladesh are $1.20 per day. In one example, he calculates the impacts to the retail cost of a shirt of doubling worker wages or cutting them in half. In either case, wages make up less than 2.3 per cent of the final price of a garment. This makes raising the wages offered to local apparel workers an appealing solution to the problem of low family incomes, which drives families to transform their children into wage labourers.

If raising local wages might help a great deal, lowering them would do very little good. Birnbaum shows that setting the wage rate at zero reduces the price of a garment by only 6.9 per cent.²⁴ Yet, despite the meagre wages of the apparel industry, countries such as Bangladesh, Pakistan, Sri Lanka, and Tunisia have made it the centrepiece of their export development plans.

A complete examination of developments in the global apparel industry is beyond the scope of this report. However, the material in this section illustrates some of the complex issues that drive the sweatshop phenomenon. Clearly, the root causes of sweatshops and of unfair labour practices are complex and go far beyond the practices of the Canadian apparel industry. They encompass other apparel industries around the world, government policies in the developing world, cultural issues, and basic economic factors that Canadian policy makers ignore at their peril.

The Global Apparel Market

The apparel industry is extremely price sensitive. Birnbaum confirms that the difference of a few cents can make or break a deal. He characterises as short-sighted this practice, with its strict focus on direct costs. It makes sense that that overall costs, including macro costs and indirect costs, such as the cost of appropriate labour standards, need to be factored into purchasing decisions. However, current conditions don’t support this view—and when it comes to investing in the workforce and in working conditions, many industry players focus on direct costs, thinking that even the smallest increment of costs can have the effect of pricing them out of the market.

The connection between cause and effect can be complex in the apparel market. Restrictions on importers who purchase from undiscerning manufacturers may not be felt by the manufacturer, i.e., the organization that is abusing workers. The Canadian market is small in relation to the global market for apparel and the threat of the loss of Canadian clients may not lead manufacturers to change their practices. They may simply turn to buyers who are willing to overlook some business practices. It is also possible that unscrupulous manufacturers will willingly send their goods to other countries, through middlemen, to circumvent quotas, as well as to disguise the fact that one or more of their garments are made under questionable conditions. And, at the end of the day, some may simply find it safer to produce apparel without regard to labour standards and to rely on subterfuge to sell the products into Canada than to produce the apparel in a more costly, albeit ethical, means.

With so many suppliers chasing so few purchasers and competition based on the highest quality at the lowest possible cost there is never a shortage of producers willing to make garments for less. The situation is exacerbated when governments in the developing world look to the apparel industry as the main engine of export growth.

The fact that competition is driving down the price of labour speaks to the industry’s willingness and ability to address the issue of labour standards. Most industry stakeholders are very much aware of the issue and report working diligently to weed poor performers out of their supply chains. Some also have programs in place to work with suppliers found in default of manufacturing codes of conduct. They are often left feeling frustrated by the behaviours of some industry players, typically those in the developing countries themselves who appear willing to overlook these issues and buy from factories whose conditions we would find unacceptable.

Likewise, the Canadian apparel manufacturer or retailer who insists on proper working conditions for employees may soon find that by doing this he is pricing himself out of some markets. The market for garments is so competitive that even a small price difference in marketing flyers becomes a barrier. As suppliers to a relatively small country, Canadian apparel importers are often small customers of manufacturing plants in the countries in which they source apparel. They report that this sometimes leads to difficulties in finding facilities that are willing to work with them to provide even minimum working standards for local employees. Indeed, it may be culturally more acceptable to the ruling class of some countries to continue to exploit workers. Again, it is a matter of economics and culture. The temptation of local factory owners to simply pocket the additional resources being offered may be too great. In some cases, retailers have been told to source elsewhere by suppliers unable or unwilling to make the necessary improvements. Unfortunately, such factories continue to exist partly because of the existence of buyers willing to focus on factors such as the FOB price (Freight on Board), not working conditions.

In this environment, it may be difficult for a prospective buyer/importer to locate manufacturers in some countries who maintain minimum labour standards. Often, the buyer/importer has to work with manufacturers, many of whom are less sophisticated, to specify the minimum standards to which they must comply. The importer must then monitor the manufacturers, to ensure the continued adherence to the set standards. This continued vigilance costs a great deal of time and money, and only the largest-volume market players can usually afford it. Small-volume apparel dealers who cannot afford to enforce these standards and who must rely on local agents or importers run the risk of unwittingly supporting unfair labour standards.

Dishonest Agents and Middlemen

Small importers and retailers rely on agents and middlemen for apparel purchases and imports. This further complicates supply chain monitoring because such firms have to rely on the good faith and practices of others, often located in other countries, for information on fair labour practices. Often, these agents or middlemen represent several manufacturers, with multiple locations. The ability to hide or transfer production between plants at a moment’s notice makes verification particularly problematic and increases the difficulties of policing based on agreed standards and practices.

Working Conditions in the Apparel Industry

As recently as December 19, 2002, stories appeared in the media based on a news release claiming that major Canadian retailers support sweatshops as part of their sourcing policies. Both retailers quickly responded by describing the rigorous codes and associated processes they use to ensure their suppliers don’t support these types of practices and to verify that the suppliers within their supply chains follow the codes rigorously.

From the retailer/importer/manufacturer’s perspective, several factors contribute to the burden of the worker. Purchasers of apparel in some countries contribute to the issue when they are willing to turn a blind eye to substandard practices in order to source cheaper clothing. Such practices taint the industry and support behaviours and practices that many Canadians find offensive. If Canadians are the only ones willing to support better standards or to put standards in place, change is unlikely to happen.

In addition, stakeholders report that in many countries, local laws may not be applied, bribes may be the norm, and local management may resist change. Birnbaum calls these types of costs in the apparel industry "macro" costs, and adds them to indirect costs and direct costs to come up with a total cost of sourcing from a particular country.²⁵ A country whose macro cost and indirect cost are high simply cannot afford to pay its workers a fair wage and remain price competitive in the global market for apparel. Other macro costs related to infrastructure issues are telecommunication, transportation, corruption, education, and training. Indirect costs relate to the availability of value-added services at local factories where garments are made, such as skilled workers, value services, pattern making, trim, timeliness, and quality control. Birnbaum goes on to explain why working conditions in some countries are so poor—these countries have to compensate for their inefficiencies, their higher macro and indirect costs, by keeping direct costs low. After all, the apparel industries have to accept the world price for apparel. In this case, the factory controls only direct costs, those of wages and equipment, and other local costs such as heat and hydro.

All stakeholders agree that the participants in the apparel industry are doing business in a highly competitive environment with hundred of thousands of suppliers and tens of thousands of retailers. All stakeholders also agree that Canadian consumers demand high-quality apparel at reasonable prices. That is the nature of the industry, as described in books and commentaries by industry watchers. Birnbaum describes the industry in 2000 "as the worst year in its (the apparel industry’s) century-long history," with the number of suppliers "rising geometrically."

These conditions are extremely challenging and tend to create the kind of low labour standards that Canadians are concerned about. This is an operating reality that will not be solved by Canadians alone. As long as countries are willing to condone unfair labour practices in the name of industrial development, Canadians and their apparel manufacturers will simply have to be vigilant and avoid situations that they find unacceptable.

The Need for Change in the Apparel Industry

Whether or not these issues are resolved through voluntary initiatives or government regulations, there is a need for considerable change to the current conditions in the industry. Some say the dismantling of the system of apparel quotas in 2005 will help, partly because it will allow the market to reward those with fair labour practices with contracts, which will swell the ranks of the group that uses the practices. At the same time, the pressure may be unbearable for countries with high macro and indirect costs, or those unable to adjust quickly enough to market demand. Failure to change will result in being cut out of the most important global supply chains.

As we have mentioned repeatedly, the issues surrounding labour standards in the apparel industry are not new, and ongoing calls for practice improvement worldwide are being led by developed countries that have already embraced the desired changes in their own apparel sectors.

The fact that the industry is being used to address widespread and endemic unemployment, particularly in developing countries, merely serves to complicate the issue of labour standards. Indeed, stakeholders suggest that some foreign governments may in fact believe that any job, even a sweatshop job, is better for their citizens than living on the street in abject poverty. This leads them to contribute to the problem by turning a blind eye to issues or by encouraging practices that Canadians would find objectionable. When we look to the perspective of our trading partners on the issue, many believe that a more balanced solution is required.

 

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²⁴ Please see Birnbaum, Page 167

²⁵ Chapter 1 of Birnbaum's book explains the concept of full value cost analysis (FVCA), which seeks to estimate the final cost of apparel (FOB the destination country). Chapters 2, 2, 4, 5, and 6 of the book review the underlying concepts that in his view, drive the current global market for apparel.