The shockwaves that echoed through Dhaka, Bangladesh, in April when the shoddily constructed Rana Plaza collapsed, taking with it the lives of more than 900 workers in garment factories housed in the building, have travelled far beyond the country’s borders. Their ripples have been felt as far away as the US and Europe, right through the walls of the boardrooms of the multinational companies for which the factory workers were toiling as part of their supply chain, raising questions about their corporate obligations.

The collapse occurred just months after a raging fire tore through the Tazreen garment factory in Bangladesh in November 2012, killing at least 117 workers and injuring many more. Its flames destroyed more than their lives and families. They also scorched the reputation of the world’s biggest discount retailer, US-based Wal-Mart Corp, one of the foreign companies for which the workers were making clothes, as well as Sears, another major US retailer.

Advertisement

The blaze came barely two months after a similar incident in which 315 workers were burnt to death at a garment factory in Karachi, Pakistan, owned by Ali Enterprises. The factory made clothing primarily for the German company KiK-Textilien und Non-Food. All three incidents pose searching questions about the responsibility and liability of global corporations for working conditions in their supply chains, and for the human rights of workers.

Human rights

Pressure from advocacy groups and legislative efforts in some Western countries are moving human rights higher up the agenda for corporations that play a vital role in international trade. That represents a significant development because the role that supply chains play in international trade cannot be ignored. According to a report released in February 2013 by the UN Conference on Trade and Development, 80% of world trade takes place in value chains controlled by transnational corporations. These value chains may be intra-firm or inter-firm, regional or global. And the developing country share of global value-added trade has increased from 20% in 1990 to 42% today.

However, some companies that fear damage to their reputation from suppliers’ human rights practices are beginning to question afresh the risk of investment in countries with weak regulation and perceived widespread corruption. Some US companies are privately discussing whether to pull out of Bangladesh, says Adam B Greene, vice-president of labour affairs and corporate responsibility with the private US Council for International Business. The Walt Disney Company has already made the decision generally not to source products directly from factories in Bangladesh.

“We have long understood that there are particular risks in Bangladesh and have had in place a very restrictive policy for licensees sourcing from Bangladesh for over a decade,” Disney stated in a press release after the company was incorrectly identified by some media outlets as sourcing from Tazreen. “We remain increasingly concerned about the environment in Bangladesh and the systemic challenges faced in helping to promote safe, inclusive and respectful workplaces.”

Furthermore, US imports from Bangladesh enjoy duty-free treatment under the Generalised System of Preferences exemption from World Trade Organisation rules. Under pressure from US trade unions, the government is considering limiting this privilege or withdrawing it altogether because of Bangladesh’s restrictions on workers’ rights to unionise. It is a proposal that has been discussed since 2007, but has gained fresh impetus.

The EU is considering similar measures, according to a statement in April by two senior EU officials, foreign affairs representative Catherine Ashton and trade commissioner Karel de Gucht.

Myanmar concerns

The US Special Representative for Myanmar, W Patrick Murphy, also urges US companies considering investing in Myanmar to exercise special caution, in view of the country’s history of economic mismanagement and domination by a small group of influential families. “We are trying to encourage the right kind of investment, responsible investment that addresses the challenges associated with corruption, lack of transparency, a very challenging land rights situation, worker rights and a whole panoply of human rights challenges,” says Mr Murphy.

On the other hand, Wal-Mart continues to pursue contractual relationships with suppliers in Bangladesh, despite placing Bangladesh in the company’s own highest-risk category in its 2012 Global Responsibility Report. The report notes that Bangladesh is characterised by “frequent worker unrest, due to the declaration of the increased minimum wage” in the garment industry. “There is increasing concern around the lack of fire-safety awareness and training on fire prevention measures, in addition to structural safety issues, in these factories. Egregious working hours, manipulation of records and undisclosed subcontracting affect countries in this region.”

Wal-Mart terminated relationships with 49 factories in Bangladesh in 2011 because of fire-safety concerns, and has worked to increase awareness of fire safety procedures in its suppliers. After the Tazreen fire, Wal-Mart announced beefed-up ethical standards for its suppliers, and a zero-tolerance policy for unauthorised subcontracting.

Still, at the time of going to press, Wal-Mart had given no indication whether it would provide compensation to victims and survivors of the Tazreen fire. In contrast, the German company KiK has made an initial payment of $1m for victims of the Ali Enterprises fire through a partnership with the Pakistan Institute of Labour Education and Research. And UK-based Primark, for which one of the companies in the collapsed Rana Plaza building was a supplier, agreed in days to pay compensation to victims, working through an unnamed non-governmental organisation. 

Written in statute

Meanwhile, US policymakers have taken steps to put pressure on multinationals – including foreign corporations – to improve their human rights records. They have enacted ground-breaking legislation and regulations, including the California Transparency in Supply Chains Act (CTSCA), which requires businesses to provide information about efforts to eradicate human trafficking from their supply chains.

Further to this, US president Barack Obama issued an executive order in September 2012 barring all federal contractors and their subcontractors, anywhere in the world, from permitting human trafficking in their supply chains.

Another decree, the Conflict Minerals rule, requires companies to disclose their use of minerals from the Democratic Republic of Congo and neighbouring countries, with the aim of curbing violence funded by trade in those minerals. This has been adopted by the US Securities and Exchange Commission.

Europe’s responsibilities

Public companies incorporated in the UK will also have to account for “social, community and human rights issues” relevant to their business when draft regulations under the Companies Act are implemented, says Rae Lindsay, a partner at Clifford Chance law firm and board member of the Institute for Human Rights and Business. If adopted, the regulations could go into effect in October this year.

The European Commission has acted as well. In April it proposed amendments to accounting legislation on non-financial disclosure that would also require companies with 500 or more employees to disclose information on environmental and social matters, including respect for human rights, says Ms Lindsay.

However, Mr Greene of the US Council for International Business insists that all the blame for human rights violations should not be placed on the shoulders of foreign investors. He says host countries themselves bear some of the responsibility when they tolerate corruption, and poor work and living standards in their own borders.

The UN Working Group on Business and Human Rights reports that executives surveyed in December 2012 commented on the difficulty of operating in situations where human rights are not part of local law nor applied in practice, as well as a lack of understanding of a company’s responsibilities in situations where government institutions are lacking.

“In a perfect world, companies look for effective implementation of the law, independent courts, no arbitrary government actions, peace and stability, a protective regulatory environment and growth potential. These things also help support the human rights environment,” says Mr Greene.

In contrast, Pakistan’s then prime minister, Raja Pervez Ashraf, personally recommended the withdrawal of murder charges against the owners of Ali Enterprises, the garment factory where more than 300 workers were burned to death, the New York Times reports.

Guiding principles

Still, the detrimental impact on corporate brands associated with human rights violations has led some multinationals to act. To comply with the CTSCA law, many have posted on their websites human rights policies that their suppliers should follow. These policies are frequently based on the Guiding Principles on Business and Human Rights adopted by the UN Human Rights Council in 2011.

Developed by Harvard professor of international affairs John Ruggie, the principles call on countries to protect the rights of their own citizens, including requiring foreign companies with operations in their jurisdictions to do so. Corporations are required to avoid infringing human rights and to try to prevent or mitigate impacts directly linked to their operations. Another commonly used standard is the Guidelines for Multinational Enterprises from the Organisation for Economic Co-operation and Development.

A few leading corporations have gone further in setting new standards. Apple is one. Shocked by reports in 2011 of suicides, child labour and poor work conditions in manufacturing plants owned by one of Apple’s Chinese suppliers, Foxconn, Apple joined the Fair Labour Association (FLA), an international organisation that promotes a strict workplace code of conduct and carries out independent assessments of member company compliance.

At Apple’s request, the FLA investigated workplace conditions at Foxconn, and secured Foxconn’s commitment to reduce work hours, protect pay, and improve health and safety conditions. Apple also stepped up its supervision of contractors, cracked down on excessive work hours and expanded educational opportunities for workers.

The FLA’s president and CEO, Auret van Heerden, says the organisation has fielded a growing volume of requests for information. Since the fires in Pakistan and Bangladesh, many companies have for the first time turned to the FLA to help design programmes to empower workers and factory managers to prevent fires, he says.

In the garment industry, a number of global companies have intensified their focus on human rights in their supply chains, including Gap and Levi Strauss & Co. Industry associations have also rushed to develop human rights codes based on globally accepted principles that bind their members.

One thing seems certain. As long as consumers, the ultimate arbiters, turn away from products made with forced or underpaid labour, human rights will continue to grow as a problem for companies with global supply chains. And no industry will be exempt.