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Retailers to Defend Bangladesh Stance in Congress

Lawyer for industry group details position in draft testimony.

WASHINGTON — The group of North American retailers led by Wal-Mart Stores Inc. and Gap Inc. that has come under fire from labor and human rights groups for refusing to join a legally binding Bangladesh fire and building safety accord is set to defend its own developing plan before the Senate Foreign Relations Committee on Thursday.

Johan Lubbe, an expert on international trade law, who is advising key North American industry groups, plans to defend the new plan, explain why many U.S. companies refuse to sign the legally binding international accord and stress the need for shared responsibility at the hearing, according to a draft of his testimony obtained by WWD. A link to the draft testimony was included in an internal memo on the letterhead of the Retail Industry Leaders Association, seeking feedback from its members about the testimony. The internal memo was signed by Stephanie Lester, vice president of international trade at RILA.

The Senate Foreign Relations Committee, chaired by Sen. Robert Menendez (D., N.J.), has scheduled a hearing on labor issues in Bangladesh for Thursday. The current witness list includes only Robert Blake, assistant secretary of state for South and Central Asian Affairs at the State Department. A committee spokesman said more witnesses will be added and that the hearing will include two panels of witnesses.

“It must be noted that the problems within Bangladesh are complex,” said Lubbe in the draft testimony.

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Lubbe is U.S. practice cochair for international employment law at the law firm Littler Mendelson, which recently laid out questions for the National Retail Federation about the jurisdictional, liability and enforceability components of the binding Bangladesh accord led by IndustriALL Global Union and 42 retailers and brands, mostly European, but including four North American companies.

Within the draft testimony obtained by WWD are comments in the margins recommending changes to the draft text, and as a result, the draft of the testimony may not represent Lubbe’s final comments in his testimony before the Senate panel.

Underscoring the anxiety about how their approach will be perceived, one person, who was given the draft to review, wrote a comment in the margins expressing concern that the unions and nongovernmental organizations might misinterpret two sentences in the testimony suggesting the associations are saying they are “unwilling to make any commitments in the name of flexibility.” Another took exception to using the phrase “strengthened the resolve,” noting that it sounds like “no one took it seriously before now…and that is really not the case.”

“A majority of U.S. retailers have stated they would not be able to sign the [IndustriALL-led] accord because of significant legal liability concerns,” Lubbe says in the draft. “While these companies have decided not to sign the accord, they do share IndustriALL’s goal to improve worker safety in Bangladesh and to make tangible progress on the ground. Many believe that the IndustriALL accord should not be viewed as the sole response and solution to the situation in Bangladesh.”

The new alliance includes retailers and brands that are members of the American Apparel & Footwear Association, NRF, RILA and Retail Council of Canada. The alliance is working with the Bipartisan Policy Center, cochaired by former Senate Majority Leader George J. Mitchell and former Sen. Olympia Snowe, to help facilitate the discussions and develop a program it hopes to be released in July. Wal-Mart and Gap are both members of RILA and NRF. RILA members include major retailers such as J.C. Penney Co. Inc., Target Corp. and Sears Holdings Corp., while Macy’s Inc., Saks Inc. and Neiman Marcus Inc. are NRF members.

Lubbe outlined the legal issue concerns that the North American alliance has with the IndustriALL-led accord, which was signed by three U.S. companies — PVH Corp., Abercrombie & Fitch Co. and Sean John — along with Canada’s Loblaw Cos., which owns the Joe Fresh brand.

“The accord requires a five-year commitment from participating retailers to conduct independent safety inspections of factories and pay up to $500,000 per year toward operational costs,” he said in the draft testimony. “As noted, many European retailers and brands signed onto the accord before it was released, while only two U.S. retailers signed. A majority of U.S. retailers have stated they would not be able to sign the accord because of significant legal liability concerns.”

He also said the IndustriALL-led accord creates legal and enforceable obligations that are “vague and uncertain,” and are left to arbitration to resolve disputes. The accord also shifts some of the Bangladesh government’s “regulatory functions, such as inspections, onto retailers,” he said.

“While the U.S. retailers are prepared to contribute in a variety of ways to improving worker and building safety standards in Bangladesh, the primary regulatory and enforcement function of such standards remains under the auspices of the Bangladeshi government,” Lubbe argues in the draft testimony.

A third concern is that the international accord “unduly shifts the responsibility on signatory retailers to maintain the employment relationship of subcontractors, thereby forcing joint-employer status on the retailers.” In the event of a factory closure, retailers would be jointly liable not only for paying wages to laid-off workers, but also costs for structural repairs and finding employees alternative jobs if they are laid off, Lubbe claims.

U.S. retailers are also concerned that in arbitration, if a factory claims the price paid by retailers should be higher to fund the safety upgrades, it will force retailers to accept higher prices for garments, Lubbe said in the draft.

Lubbe outlined the objectives of the new Wal-Mart and Gap-led alliance unveiled last week. He plans to tell the Senate panel that the action plan would build on “extensive work already being conducted on the ground today,” including worker training and empowerment, standards for fire and building safety assessments, the sharing of factory inspection and training information, and governance and funding.

He said some companies have said their own efforts in Bangladesh will be wrapped into the unified effort and highlighted Wal-Mart’s recent announcement that it will begin conducing detailed safety inspections at all 279 factories it uses in Bangladesh, will begin posting a list on its Web site of “failed factories” in Bangladesh, and will contribute $600,000 towards Labor Voices, a project that empowers workers.

Addressing the trade preferences granted to Bangladesh by the U.S. and the European Union that have been put in jeopardy in the wake of the Rana Plaza building collapse in April that claimed 1,129 lives and a fire at Tazreen Fashions in November that killed 112 garment workers, Lubbe said in the draft testimony that the impact of revoking benefits under the Generalized System of Preferences is “unclear.”

The European market accounts for 60 percent of Bangladesh’s apparel exports, while the U.S. market represents about 30 percent, he said. The European GSP program, which is under review following the tragedies, provides duty-free benefits for Bangladesh’s apparel imports to the EU, while the U.S. program does not.

“The potential impact of revising the GSP program is yet unclear,” Lubbe said. “It could lead to companies deciding to stop sourcing in Bangladesh.”

Lubbe also outlined concerns about recommendations to move the apparel industry in Bangladesh to newly constructed zones.

“Since the country is mostly swampland, there is not a lot of usable stable land which can be used for industrial development purposes,” he said. “While there is some more usable land further outside of Dhaka and Chittagong, the access to key infrastructure such as electricity and water is very sporadic and unreliable. Companies who decide to build outside Dhaka and Chittagong face significantly higher operating costs as they need to typically build their own power and water facilities. This is a key reason as to why most manufacturing facilities are built in Dhaka and Chittagong.”

He said one of the biggest issues facing the industry is the “enforcement of current building codes in Bangladesh” and he called on the Bangladeshi government to step up its enforcement of codes and certificate requirements. Lubbe also noted that many of Bangladesh’s key factory owners are also Bangladeshi politicians, adding there are concerns that will slow down or prevent necessary reforms to address worker and factory safety.

Meanwhile, 20 percent of respondents to a Harris Interactive poll said they will be “less likely” to purchase apparel made in Bangladesh in the wake of the Rana Plaza building collapse.

In the poll of 2,052 adults, conducted May 14 to 16, a surprising 10 percent of people said they would be more likely to buy clothes with Made in Bangladesh labels.

About half of the people who were aware of the tragedy said they would be “no more or less likely” to buy clothes made in Bangladesh. Women are more likely than men — 42 percent versus 34 percent — to stop buying apparel made in Bangladesh.

The poll also found that 56 percent of Americans do not look to see where apparel is made before making their purchases, while 44 percent do look at the labels.