Five Years After Rana Plaza Disaster, Trade Officials Review Sustainability Compact Results

5 July 2018

Officials from governments, international agencies, and other stakeholder groups recently examined Bangladesh’s efforts to improve worker safety and labour rights, over five years after a devastating accident that killed or injured thousands of garment factory workers and fuelled a high-profile debate on the relationship between labour standards, sustainability, and trade. 

During a meeting in Brussels, Belgium, on 25 June, the EU and other officials urged Bangladesh to make further improvements, while welcoming the progress made to date. The discussion took place during the fourth high-level follow-up meeting of the Sustainability Compact, which is now an annual event.  

The Sustainability Compact was in response to a severe accident at a Bangladeshi factory five years ago, involving the collapse of the Rana Plaza building with thousands of people inside, many of them young women working in garment factories. The incident was the country’s worst industrial accident in its history. 

Those factories’ products were sourced by transnational intermediaries sold by high-profile international brands like Mango, El Corte Inglés, and Walmart. The accident thus sparked an international outcry over worker safety and labour rights, particularly in so-called export processing zones that impose lax rules in these areas. It also prompted government officials, trade unions, private companies, civil society groups, and intergovernmental agencies to examine in greater depth the possible policy tools and private sector practices that could be adopted to avoid another accident. 

The Sustainability Compact, which brought together the EU and Bangladeshi governments, as well as officials from the International Labour Organization (ILO), resulted from these discussions. The Compact has the goal of supporting efforts to revamp Bangladesh’s labour law, improve worker and building safety, and ensure “responsible business conduct.” (See Bridges Weekly, 11 July 2013

The US and Canadian governments subsequently joined the compact, otherwise known as the "Compact for Continuous Improvements in Labour Rights and Factory Safety in the Ready-Made Garment and Knitwear Industry in Bangladesh.” 

Implementation: continued progress, but much work remains

Officials in Brussels last month welcomed the progress made in implementing the Sustainability Compact, but many issued warnings that much more work remains to create a better working environment, particularly in the ready-made garments (RMG) and textiles sectors. 

EU Trade Commissioner Cecilia Malmström, for example, highlighted the importance of sustainable commitments to avert future tragedies. She also called for protecting labour rights, including for trade unions, in this context. 

“Organised labour is a cornerstone for a fair working environment,” she said during the event, which was also webcast live. “Restrictions in numerous sectors and workers interfere with trade union’s activities,” she added, noting that export processing zones need to be brought in line with ILO conventions as well.

She also noted the progress made so far under the Sustainability Compact, notably on working conditions, but said more needs to be done in terms of aligning Bangladesh’s labour legislation with international labour conventions and their implementation. She added that fair trade is a key value for European consumers, to the point where they are willing to pay greater product prices to support meeting sustainable development objectives in developing countries.

Meanwhile, Bangladesh’s top trade official noted that his country has made notable progress in recent years, particularly in light of safety concerns, while warning that prices must improve in these sectors in order to help defray costs. 

“We’ve modernised the (RMG) factories. We’ve ensured building and fire safety with an improved working environment in place,” Bangladeshi Commerce Minister Tofail Ahmed said, while noting that the owners of such facilities, having invested so much in improving them, are now struggling to recoup those costs in light of low apparel prices. 

Marcia Bloom Bernicat, the US Ambassador to Bangladesh, told the audience that building inspection and improvements are among the areas where positive developments have occurred, including under other initiatives. She cited, for example, the Accord on Fire and Building Safety in Bangladesh, in place through 2021. She also highlighted the legally binding Alliance for Bangladesh Worker Safety (Alliance), launched in 2013, which established a five-year commitment for companies from Macy’s to Costco to work towards safety improvements in garment factories based in Bangladesh. 

She warned, however, that progress across the board has been uneven, particularly when looking outside the Alliance and Accord’s purviews. She also noted some positive developments in the field of Bangladeshi labour law, including in relation to export processing zones, while cautioning that concerns remain over restrictions on freedom of association and the treatment of labour leaders.

Bangladesh’s expected LDC graduation 

The continued efforts to improve labour rights and worker safety in Bangladesh comes as the South Asian country prepares for a major economic transition: the graduation from least developed country (LDC) status, which is looking increasingly likely. Labour standards are key issues related to LDC graduation, and if Bangladesh is recommended for graduation in 2021, it will then graduate from being an LDC three years later. 

Analysts note that this result would likely affect Bangladesh’s involvement in trade preference schemes, such as its current duty-free, quota-free (DFQF) market access to the European Union. The EU accounted for the bulk of Bangladesh exports of knitwear at US$15.3 billion in 2016, as well as for woven apparel at US$15.4 billion that same year. 

The EU still grants DFQF market access to recently graduated LDCs under its Everything but Arms (EBA) scheme for an additional period of three years, which in Bangladesh’s case would be through 2027. The EBA involves full single market access, aside from weapons, as reflected in its title. 

Graduation from LDC status could mean that Bangladesh could later become part of the EU’s Generalised System of Preference Plus (GSP +) programme, designed for “vulnerable lower and lower middle income countries,” which is conditional on a series of requirements. 

This includes compliance with 27 international conventions, 15 of which are related to human rights, such as the ILO’s labour related conventions. The GSP+ is not full DFQF access, but instead liberalises access for two-thirds of the bloc’s tariff lines. 

In 2017, the EU wrote to Bangladeshi government officials urging the latter to demonstrate “concrete” and “lasting” measures to ensure the respect of fundamental human and labour rights while referring to future EBA participation, according to excerpts of the letter reported in the Daily Star. 

Meanwhile, Bangladesh no longer has access to a separate preference scheme administered by the United States, also known as the Generalized System of Preferences. Bangladesh was suspended from the scheme five years ago, following the Rana Plaza disaster. According to the Office of the US Trade Representative, in 2016 the top import categories from Bangladesh to the US were woven and knit apparel, among other textile products. 

Looking at the US overall, the Pew Research Center notes that the highest average import duties are found in apparel at 18.7 percent for knitted clothing and 15.8 percent for non-knitted apparel, “the two highest average rates out of 98 broad import categories.” 

Bangladesh also pays the highest average duty as a percentage of total exports to the US, according to the Washington-based research group, which compared these to hundreds of other countries and jurisdictions. 

Figure 1: Bangladeshi export destinations of knitwear apparel, 2016

Figure 1: Bangladesh export destinations of knitwear apparel, 2016

Region colour code

Figure 2: Bangladesh export destinations of woven apparel, 2016

Figure 2: Bangladesh export destinations of woven apparel, 2016

Source: "The Atlas of Economic Complexity," Center for International Development at Harvard University, http://www.atlas.cid.harvard.edu

Upgrading standards in value chains

The discussions over worker safety and labour rights in Bangladesh has also fuelled a renewed interest in the role of voluntary sustainability standards in spurring social and economic change. 

Such standards are not set by country governments, and instead come from either the private sector, who use them to address competitiveness concerns and protect brands, or civil society organisations, who develop them to address consumer concerns over sustainability. 

Statistics show that global value chains currently account for more than two-thirds of today’s international trade flows. Companies therefore use these standards both to demonstrate their commitment to sustainability objectives, along with to get a better foothold in these value chains themselves. 

While the dispersion of production on a global scale has enabled producers in developing countries to supply global buyers in Western economies, analysts say that it has also created a complex web of outsourcing and sub-contracting arrangements where accountability and transparency in labour conditions are often muddled at best. This is particularly true in cost-driven value chains, where low labour cost is one of the critical factors shaping global buyers’ sourcing decisions. 

Facing falling prices in consumer markets, cost pressures are passed on to suppliers in developing countries, who are incentivised to squeeze labour costs to remain competitive, rather than upgrading into higher value products, processes, and tasks. Experts say that voluntary sustainability standards can be instrumental in improving labour conditions, subject to key conditions being met, such as sharing costs of this “social upgrading” between buyers and consumers, or making sure that there are adequate mechanisms for monitoring and ensuring transparency and accountability. 

For producers in developing countries, experts say that compliance with voluntary sustainability standards is critical for meeting the Sustainable Development Goals (SDGs), including SDG 8 on decent work and SDG 12 on sustainable consumption and production patterns, along with better targeting niche markets.

Exporting to these high-value markets gives developing country producers the chance to compete in a different environment, as opposed to the cost-driven, low-value added tasks in GVCs where many have participated in historically. 

Experts say that improving work conditions, safety, and labour rights protections could also lead to important developments in other areas, encouraging companies to take steps to invest in skills development and organisational strategies that would then yield competitiveness and productivity advantages. For a number of markets, some sustainability standards are, in practice, mandatory to supply global buyers. 

ICTSD reporting; “Improve labour rights to retain GSP benefit,” THE DAILY STAR, 7 June 2017; “EU finds ‘fantastic’ progress under Sustainability compact,” THE DAILY STAR, 9 May 2017.

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