Groups Divided on Bangladesh Safety Overhauls

By ANNE D'INNOCENZIO | May 20, 2013

The nation’s largest retail industry organization fired back Friday, outlining reasons why a legally binding global pact to make Bangladesh clothing factories safer would expose merchants to undue legal exposure. The move came as U.S. retailers face increasing pressure from a large coalition of religious groups and investors to work together to develop a plan.

More than 30 international brands, including Swedish retailer H&M, Italian clothing maker Benetton, and French retailer Carrefour, have signed on to the 5-year, legally binding contract that requires them to help pay for fire safety and building improvements in Bangladesh. But only two U.S. companies have committed so far: PVH Corp., the New York-based parent company of Tommy Hilfiger, and Abercrombie & Fitch of New Albany, Ohio.

“It is a very complex set of issues and there is no simple solution,” said Bill Thorne, a spokesman for the retail trade group, in a media call with reporters Friday. “There is not one answer.” The National Retail Federation is leading a coalition of North American retail and apparel groups to develop an alternative broader proposal that would go beyond Bangladesh.

As part of the global pact, companies would be required to pay up to $500,000 annually to run the program. They would also be required to underwrite repairs to make the factories they use safe. A board made up of labor and retail representatives would oversee dispute resolutions that would be enforceable in the courts of the country where the company is based.

Based on the number of companies now participating, the plan will cover more than 1,000 of the 5,000 garment factories in Bangladesh, according to IndustriALL Global Union, a Geneva based-labor union that was involved in the negotiations.

The widening divide among foreign retailers and U.S. merchants on how to best resolve the issue of making clothing factories safer in Bangladesh comes as public pressure builds following a building collapse on April 24 that killed more than 1,110 workers there. The tragedy, the deadliest incident in the history of the garment industry, came just months after a fire in another garment factory in Bangladesh in November killed 112 workers.

On Wednesday, as more European retailers were signing on to meet a deadline that evening, the National Retail Federation, which has 9,000 members, issued a scathing statement, saying the plan was a “one-size-fits-all” approach promoted by special interests. It also said the global agreement seeks major funding by private businesses without providing accountability for how the money is spent.

On Friday, the retail trade group made available for the media an international labor lawyer who rebuked the global pact and said that it is too vague for retailers to sign. At the heart of the criticism: the contract would expose retailers to legal liability for the failure of factories to comply with the set standards even though merchants don’t own the facilities.

“The vagueness and uncertainty should be resolved in the drafting stage, instead of leaving it to the arbitration process,” said Johan Lubbe, lawyer with Littler Mendelson, an international law firm. He noted that the environment is more litigious in the U.S. than in Europe.

Wal-Mart Stores Inc., the world’s largest retailer, said this week it didn’t plan to sign on to the legally binding pact and announced its own steps that it believes meet or exceed the contract. The Bentonville, Arkansas, company said it will conduct in-depth inspections at all of the 279 factories it uses in Bangladesh and will make the inspection information public, starting on June 1.

Gap Inc. has maintained that it couldn’t join the pact unless a provision was made that it felt would free it from unlimited legal liability.

Terry Lundgren, CEO of Macy’s Inc., which sources about 5 percent of its goods from Bangladesh, said that he believes that there are “lots of holes” in the global pact. He is backing the alternative plan being pushed by the U.S. retail trade groups.

On Thursday, the Interfaith Center on Corporate Responsibility and other stakeholders representing $1.2 trillion in investment assets, issued a public statement calling on major retailers to sign the legally binding agreement.

Another group of investors, which include the AFL-CIO and New York City Pension Funds representing a combined $1.35 trillion in assets, plans to send a letter to Wal-Mart and Gap urging them to be more proactive in ensuring compliance. Scott Zdrazil, director of corporate governance for Amalgamated Bank, which is leading the second group, says it’s not endorsing a particular plan.

“Proper risk oversight requires first that a company know its supply chain,” according to the letter made available by the group led by Zdrazil. “We are dismayed by public statements from any company that states it is unaware that a factory produces its products.”

Meanwhile, a group of eight Democratic senators led by Sen. Sherrod Brown, D-Ohio, has written this week to major retailers including J.C. Penney, Wal-Mart, Children’s Place and Target Corp., urging them to reconsider signing the global pact drafted by IndustriALL, and other labor groups.

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