A Floor Under Foreign Factories?

But company plans to self-regulate are still rough

The global economic crisis has turned up the heat on companies that use cheap overseas labor. Nike Inc. announced in mid-October that it would lift wages for its entry-level factory workers in Indonesia by 22% to offset that country's devalued currency. Other companies have been thrashing out ways to address such problems without being undercut by rivals.

Now, nearly a year behind schedule, a long-divided Presidential task force on sweatshops is finally poised to agree on a factory monitoring system. The task force was spurred into action by a rival effort by the American Apparel Manufacturers Assn. (AAMA). Both programs set guidelines for companies to police their factories and suppliers.

Neither plan addresses the central issue of what wage levels should be in poor countries. And participants say only the code that can attract the most companies will survive. So the AAMA's less stringent version may prevail if the task force falters at the last moment.

Still, the efforts, plus another launched earlier this year by the Council on Economic Priorities, a New York public-interest group, represent a potentially major step toward global labor standards. The International Labor Organization has had workplace standards on the books for decades. But they have done little, since governments don't enforce them. The new efforts, by contrast, are attempts by companies to self-regulate in the face of negative publicity about sweatshops. If they succeed, a floor of basic working conditions could begin to evolve around the globe.

The new programs are off to a shaky start, however. Back in 1996, the Presidential task force--with 18 garment makers and labor and human-rights groups--set out a new code of conduct for factories that would set minimum working hours and health and safety conditions. Ever since, the group has been battling over a monitoring system to ensure compliance.

NO GUARANTEE. This summer, the task force deadlocked over minimum wage levels and unionization rights, but a rump of four human-rights groups and Nike, Liz Claiborne, Phillips Van Heusen, and Reebok continued to meet. The group, with White House prodding, held an 11-hour meeting on Oct. 19 and planned to wrap up a final agreement in principle on Oct. 23.

The plan is to establish the Fair Labor Assn. (FLA), a private entity to be controlled 50-50 by corporate and human-rights or labor representatives. The FLA would accredit auditors, such as accounting firms, to certify companies as complying with the code of conduct. It would inspect about a fifth of a company's factories for certification, and perhaps 5% a year after it's certified. Audits would be confidential, though auditors must work with local human-rights or labor groups.

Critics, though, say the plan will achieve little unless it addresses wages and unionization rights. The 1996 code requires companies to pay the local minimum wage or the prevailing industry wage and to recognize employee rights to form unions. But the Union of Needletrades, Industrial & Textile Employees and a human-rights group want a study of apparel workers' basic needs, on the assumption that many earn less than a "living wage." The FLA, they say, should apply the results to the code. Dissidents also want companies in countries such as China to pull out if unionization efforts are thwarted, as currently occurs. The task force refused, though members say the FLA still can examine wages absent a formal requirement to do so.

BIGGER TARGETS. Corporate task force members fear that few other companies would sign on to the dissidents' stiff monitoring plan. As proof, they point to the AAMA, whose members, including Sara Lee, Jockey International, and VF, make 85% of the $100 billion of wholesale clothes sold in the U.S. annually. That group has approved a similar code of conduct, only less strict. It requires companies to pay only the existing minimum wage, not the prevailing industry one, which often is higher.

What's more, the AAMA effort began in part to avoid involvement with the union members of the White House group, says AAMA President Larry K. Martin. The AAMA plans to set up an independent association and intends to approach human-rights groups and universities about joining. It also has worked with Elliot Schrage, a Columbia University business professor who's active in antisweatshop activities. But "I doubt if we'll have unions involved, since we're management folks," says Martin.

The two efforts pose a dilemma for companies that want to deal with sweatshops. Human-rights groups are sure to continue efforts to expose bad factories. Companies that sign on to either plan could allay some criticism. But they also may become bigger targets if their factories don't pass muster or are certified but critics find violations anyway. These "strict standards create risk for any company that joins, but we think the risk is even greater for those that [don't] address these problems," says Roberta S. Karp, Liz Claiborne Inc.'s general counsel and task force co-chair.

Both groups hope to win over companies to their antisweatshop codes. Already, Wal-Mart Stores Inc., which has been accused of selling clothes made in sweatshops, has expressed interest in the AAMA plan, a spokesperson says. Indeed, as the Asian crises batter developing countries, sweatshop abuses are likely to grow--and companies will want more than ever to curb them.

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