Bloomberg News

Wal-Mart to Gap Bangladesh Factory Safety Pact Seen Lacking

July 10, 2013

Wal-Mart to Gap Bangladesh Factory Safety Pact Seen Lacking

A worker uses a dial linking machine on the production line of the Vintage Apparels Ltd. garment factory in Dhaka, Bangladesh. Photographer: Jeff Holt/Bloomberg

A new plan by Gap Inc. (GPS:US), Wal-Mart Stores Inc. (WMT:US) and other North American retailers to improve factory safety in Bangladesh was criticized for falling short of a pact reached by mostly European retailers.

A $42 million fund will be set up to implement the five-year plan, which requires factories to be inspected within a year and the results made public, the North American companies said yesterday in an e-mailed statement. The Alliance for Bangladesh Worker Safety said it will set safety standards by October and refuse to buy from factories deemed unsafe.

In the North American pact, individual retailers can voluntarily pledge capital beyond the $42 million so factories can make safety renovations. By contrast, the plan joined by Hennes & Mauritz AB (HMB) and Inditex SA (ITX), Europe’s two largest clothing retailers, obligates companies to ensure their factories have the capital to make necessary repairs.

“It’s disappointing that Wal-Mart, Gap and other U.S. retailers have chosen to go their own way with a plan that appears to lack meaningful transparency and accountability,” New York City Comptroller John C. Liu said in an e-mailed statement. What’s worse, “their plan risks diluting the effectiveness of a stronger, global effort to improve worker safety,” said Liu, who oversees city pension funds that owned 5.1 million Wal-Mart shares as of April 11.

Factory Collapse

The 17 North American retailers, which also include Target Corp. (TGT:US), J.C. Penney Co. (JCP:US) and Canadian Tire Corp. (CTC), have been working with industry associations and the nonprofit Bipartisan Policy Center to craft an alternative to a European plan for improving factory safety in Bangladesh. Both initiatives were started in the wake of the collapse of the Rana Plaza factory in April, which killed more than 1,100 people in the worst industrial accident in the country’s history.

Jay Jorgensen, Wal-Mart’s global chief compliance officer, rebutted criticism that the North American agreement fell short of the European pact.

“I’m in no way critical of the work that the European retailers are putting in -- what they’re doing is strong,” he said in a telephone interview. “But I disagree with assertions that we’re not as strong. We are.”

The accord signed by H&M and Inditex pledged at least $60 million over five years to monitor safety in Bangladesh plants. In the North American agreement, each retailer’s financial contribution will correspond with the size of its operations in the country. Retailers with the most production will pay $1 million a year for five years. About 10 percent of the funds will help workers displaced by factory improvements or closings.

Low-Interest Loans

Individual retailers, including Gap, also have committed more than $100 million for low-interest loans to ensure repairs occur quickly, Debbie Mesloh, a spokeswoman for the San Francisco-based chain, said in an interview.

The retailers said they will select a non-governmental organization in the next 30 days to implement the program. Under the accord signed by the Europeans, a third party conducts factory audits. In the North American pact, retailers use an approved inspector while a third party conducts spot checks of remediation efforts and inspections.

“We all share a deep sense of collective responsibility to prevent the horrific loss of human life we’ve witnessed in Bangladesh from ever recurring,” former U.S. Senator Olympia Snowe, who co-chaired the group’s talks, said in the statement. The agreement is “a substantive and timely step forward in protecting Bangladeshi workers.”

Progress Reports

The North American group’s board, which will be appointed in the coming weeks, will release semi-annual progress reports. Snowe and former U.S. Senator George Mitchell will provide reviews of the program for at least the first two years.

Factory workers and managers will be required to undergo mandatory training. An anonymous hotline administered by a third party will be established by November, and worker committees to share safety concerns will be created at each factory, the companies said.

In a joint statement yesterday, labor-rights groups including the International Labor Rights Forum and the National Garment Workers Federation of Bangladesh described the North American agreement as a “sham,” developed and controlled by the companies with few enforceable obligations.

Unlike the accord signed by the European companies, the North American agreement doesn’t involve unions in oversight or planning, which could make enforcement more difficult, said Matthew Amengual, assistant professor at the Massachusetts Institute of Technology who studies labor regulation and enforcement in developing nations.

Weaker Enforcement

“The Alliance appears to be much weaker,” he said in a telephone interview. “The Alliance has a lot of the features of private regulatory regimes that research has shown over the last 10 years is not very effective.”

Mesloh said the group has been in talks with labor groups including a local labor union in Bangladesh and the International Labor Organization. The North American alliance also hopes to work with the members of the accord, she said.

Bangladesh exported $21.52 billion in garments for the year ended June 30, according to the Bangladesh Export Promotion Bureau, a government run-agency. That compares with $18 billion in the previous year. The nation exports 60 percent of its apparel to Europe and 23 percent to the U.S., the bureau said this week.

The Worker Rights Consortium, a Washington-based labor-rights monitoring group, has previously said it would take billions of dollars to make Bangladesh factories safe.

To contact the reporter on this story: Lindsey Rupp in New York at lrupp2@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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Companies Mentioned

  • GPS
    (Gap Inc/The)
    • $43.23 USD
    • -0.67
    • -1.55%
  • WMT
    (Wal-Mart Stores Inc)
    • $76.31 USD
    • -0.53
    • -0.69%
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