NRF Details Concerns Over Bangladesh Accord

On Friday, an international labor law expert laid out his questions about jurisdictional, liability and enforceability elements of the proposed accord.

North American retailers are standing firm in their resistance to the Accord on Fire and Building Safety in Bangladesh, even as pressure from investment groups for participation mounted and Secretary of State John Kerry heard from his Bangladeshi counterpart on the country’s moves to improve factory safety and workers’ rights.

This story first appeared in the May 20, 2013 issue of WWD.  Subscribe Today.

The National Retail Federation Friday turned to an expert on international labor law to explain its resistance to the accord. As officials continued to sort out the damage from the latest factory tragedy outside Phnom Penh, Cambodia, the NRF held a conference call with Johan Lubbe, U.S. practice cochair for international employment law at the law firm Littler Mendelson in which he laid out his questions about jurisdictional, liability and enforceability elements of the Bangladesh accord.

Lubbe said that the accord “unduly increases the role of corporate stakeholders” and takes on the burden of implementing and overseeing a national action plan that rightfully belongs to the Bangladesh government. It also calls for the appointment of a safety inspector that would “usurp the role of the Bangladesh government inspectors.”

In a rather academic presentation in stark contrast to the heated comments delivered earlier in the week by NRF president and chief executive officer Matthew Shay about the accord being pushed by IndustriALL, Lubbe noted that the pact “shifts a huge number of responsibilities on retailers” while leaving unaddressed questions about liability, enforceability and conflict resolution.

“The vagueness and uncertainty should be resolved at the drafting stage,” he said, and not through litigation and mediation once companies have committed to the accord. He cited the designation of a steering committee to oversee a national action plan, assigning a role to a nongovernmental organization he felt is more properly left to the Bangladesh government.

While a signatory’s liability is capped at $500,000, “the door could be open to substantial additional financial risks” for a retailer based on judicial interpretation, particularly if the store’s merchandise has been produced by a subcontractor with whom the U.S. company has no direct contract.

Lubbe cited the recent case in which PT Kizone, an Indonesian subcontractor for the Adidas Group, closed unexpectedly and went bankrupt in 2011, denying about 2,800 workers wages of about $1.8 million. Facing growing protests and the loss of outfitting rights for the University of Wisconsin and other schools, Adidas reached a settlement with an Indonesian labor group that said they would ask that a related suit, filed against Adidas by the University of Wisconsin in a Wisconsin county court, be dismissed. Financial terms of the settlement weren’t disclosed, but worker support groups called it “substantial” and hailed it as a victory.

The Wisconsin suit demonstrates the exposure of companies to substantial losses even in subcontracting relationships, according to Lubbe.

Furthermore, such actions put a brand’s reputation in jeopardy, the lawyer noted. The risks to brand equity were demonstrated last week when two investor groups — both with union affiliations, and one, the Interfaith Center on Corporate Responsibility, with ties to various church organizations — added their voices to the chorus of those seeking transparency in supply chains.

“We expect companies in our portfolios to ensure the integrity of their supply chains,” said the letter from the labor group. “We are dismayed by public statements from any company that states it is unaware that a factory produces its products. Companies must know which factories produce their goods in order to properly manage a complex global supply chain, including being effective at monitoring safety and other compliance risks at the facilities.”

The labor investment group said it welcomed the participation of companies such as H&M, PVH Corp. and Inditex in the accord but stopped short of pressuring nonparticipants to join. Instead, the group said it urged “companies with significant purchasing power in Bangladesh — companies such as Wal-Mart and Gap — to act swiftly and effectively” to “monitor and mitigate the risks in their supply chains.”

The NRF is one of six trade groups that have joined together to form the North American Bangladesh Worker Safety Working Group that last week unveiled the Safer Factories Initiative, which seeks to establish “a sustainable funding mechanism for training, upgrades of factory structures and ensuring the safety of new construction.”

The deadline for the Bangladesh accord passed on Wednesday with about three dozen European companies signing on versus just two from the U.S. Among the American companies, PVH was one of the first two firms to participate, while Abercrombie & Fitch Co. said it would join as the Wednesday deadline approached. A&F is an NRF member; PVH is not.

At the annual Macy’s Inc. meeting in Cincinnati Friday, Terry J. Lundgren, chairman, president and ceo of the company, said the company would sign an accord spearheaded by the NRF that would cover factory conditions in Bangladesh and other developing countries.

“It needs to be beyond Bangladesh,” he said.

Responding to a WWD question regarding the risk to North American stores’ reputations by their refusal to participate in the IndustriALL accord, Bill Thorne, NRF senior vice president, said, “We’re committed to the objective of getting this situation resolved in terms of real results, fast results and sustainable results.”

In April, 1,127 people died when Rana Plaza, a production complex in Savar, Bangladesh, collapsed. Last week, the collapse of a shoe factory outside Phnom Penh served as another reminder of the risks to life and limb faced by workers making apparel and shoes for consumers in the Western Hemisphere. The final death toll remained uncertain at the weekend, with government officials and sources now confirming two deaths as of Friday afternoon.

The factory, owned by Wing Star Shoes Co. Ltd., was making shoes for Japan’s Asics and possibly for other brands as well.

It appears that one of the dead workers, Sim Srey Touch, might have been under the age of 16. Government officials deny this allegation, stating that the woman in question was 22 years old, contradicting accounts family members and neighbors had given to local sources.

Local factory management in Cambodia couldn’t be reached for comment as listed phone numbers appear to have been disconnected. An official at the Garment Manufacturers Association in Cambodia, of which Wing Star Shoes is a part, couldn’t be reached for comment.

Moeun Tola, head of the labor program at the Community Legal Education Center, said that preliminary interviews with workers affiliated with the factory suggested that Sim may not have been the only underage worker there.

Moeun said that it is not unusual for the families of young Cambodian girls to pay the local village chief around 5,000 Cambodian riels, or $1.25 at current exchange, for forged documents that enable them to work.

Government officials said that the ceiling that gave way had been supporting an illegally constructed mezzanine level that was used as a storage area. Mam Narai, a director at the provincial Ministry of Land Management, Urban Planning and Construction, told the Phnom Penh Post that the mezzanine, which had been constructed off a thin piece of concrete, had not received planning approval and that it was insufficient to hold the weight that had been placed on it.

At a press conference on Friday, factory management apologized for the incident and said that it would offer compensation to workers who had been injured or killed and pay their medical expenses. The compensation that Wing Star Shoes was offering wasn’t disclosed, but local media said that $6,000 was being offered to the families of the deceased and $1,000 to those injured.

Labor activists noted that the factory had been constructed more than a year ago and that government officials had plenty of time to inspect the premises. “By law, every single factory is supposed to be inspected once a month, so why didn’t they find out anything [beforehand]?” said Moeun. “It’s only just after the collapse that the authorities say it’s been constructed without permission.”

“It’s a disgrace that anything remotely like this could happen.…In Cambodia there are only 500 factories to monitor,” said David Welsh, Cambodia director for the Solidarity Center, an AFL-CIO affiliate.

According to a spokeswoman from Japanese manufacturer Asics, which sources from Wing Star Shoes, the Cambodian footwear manufacturer is the subsidiary of an Asics subsidiary.

“We want to pass on our deepest condolences to everyone involved,” Asics said. “Safety is of paramount importance for Asics. While the factory is not operated by Asics, we will be offering support to those affected and have launched our own full investigation into the cause of the incident.”

The Wing Star Shoes factory has a record of alleged labor rights violations. A report of the factory provided by the Clean Clothes Campaign said that between 10 and 20 workers fainted on a daily basis at the factory, which the organization said did not have proper sanitation or treatment facilities. Mass faintings have long plagued garment manufacturing plants in Cambodia.

Separately, on Friday the Clean Clothes Campaign and the Community Legal Education Center issued a report accusing a second Cambodian shoe factory, New Star Shoes Co. Ltd., of employing more than 1,000 underage workers.

New Star management could not be reached for comment. It is still unclear whether New Star, the object of the report, and Wing Star, the company that owns the factory that collapsed Thursday, are affiliated with one another, but sources suggest there is a link between them. The report claimed that New Star is also an Asics supplier, but Asics could not be reached for comment.

In Washington Friday, Kerry met with Bangladesh Foreign Minister Dipu Moni, who outlined steps taken in her country to address safety and fire issues and initiatives on workers’ rights, including granting the right to form unions without the approval of factory owners and the consideration of an increase in minimum wage.

Moni was part of an effort by her nation to keep its trade benefits under the Generalized System of Preferences, a status jeopardized by the recent factory tragedies in Bangladesh.

Officials from the U.S. Trade Representative’s office have said the next step in the GSP review process will be disclosed at the end of June.

“We want to see Bangladesh continue to move forward, as it is working on a number of different issues of labor and labor standards,” Kerry said.

Moni commented that “we’re looking forward to more cooperation in all areas of our common concern, both bilaterally and also at the multinational level.” He described the relationship between the two countries as “at its best now.”