Public Sector Support for the Implementation of Corporate Social Responsibility (Csr) in Global Supply Chains: Conclusions from Practical Experience

PUBLIC SECTOR SUPPORT FOR THE IMPLEMENTATION OF CORPORATE SOCIAL RESPONSIBILITY (CSR) IN GLOBAL SUPPLY CHAINS: CONCLUSIONS FROM PRACTICAL EXPERIENCE

Study prepared for the CSR Practice Foreign Investment Advisory Service Investment Climate Department

Business for Social Responsibility PricewaterhouseCoopers (Denmark)

December, 2004 This report was prepared for the Corporate Social Responsibility Practice in the Investment Climate Department of the World Bank Group.

The report was prepared by Peder Michael Pruzan-Jørgensen and Helle Bank Jør- gensen, both of PricewaterhouseCoopers, and Aron Cramer of Business for Social Responsibility.

The report was financed by the Royal Danish Ministry of Foreign Affairs.

This report had originally been intended solely for the private use of the World Bank Group, in accordance with the terms of reference dated April 21, 2004. At the request of the World Bank Group, it has been made public. We do not accept or assume any liability or duty of care for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing Table of Contents

Executive Summary ...... 1 A Context ...... 1 B Summary of Recommendations ...... 3 C Implementing the Proposals ...... 5

1 Introduction ...... 9 The Basis of the Report ...... 9 Structure of the Report...... 10 1.1 Scope of work, definitions and methodology ...... 10 1.1.1 Definitions...... 10 1.1.2 Scope of work ...... 11 1.1.3 Research methodology ...... 12 1.1.4 Analytical Method ...... 13

2 Government’s Role ...... 15 2.1 Public governance challenge...... 15 2.2 Why should national governments act? ...... 16 2.2.1 Why should national governments act now? ...... 18

3 A Framework for Public Sector Engagement with Labour and Environmental Standards ...... 21 3.1 Essential Elements for the Creation of Successful Enabling Environments . . 21 3.2 Industry-focused collaborative framework ...... 22 3.2.1 Collaboration...... 23 3.2.2 The Elements of Collaborative Initiatives...... 24

4 Recommendations ...... 27 4.1 Standards ...... 28 4.1.1 Establishing Clear and Effective Standards ...... 28 ii Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains

4.1.2 Enforcement of Standards...... 31 4.1.2.1 Public-private collaboration on enforcement of standards ...... 31 4.2 Capacity Building ...... 34 4.2.1 Capacity Building: For Whom? ...... 34 4.2.2 Capacity Building Initiatives ...... 36 4.2.2.1 Supplier Training on Labour and Environmental Standards . . . . 36 4.2.2.2 Supplier Training on Human Resources ...... 36 4.2.2.3 Reorienting Inspectorates Towards Capacity Building...... 37 4.2.2.4 Create Local Expert Networks...... 37 4.2.2.5 Develop Centres of Excellence ...... 38 4.2.3 Mechanisms for Promoting Capacity Building...... 40 4.3 Incentives ...... 40 4.3.1 Targeted incentives ...... 40 4.3.2 “Green Production” and “Fair Labour” Zones ...... 43 4.4 Worker Empowerment...... 45 4.4.1 Educating Workers About Their Rights ...... 46 4.4.2 Removing Barriers to Worker Representation ...... 47 4.5 Enhancing dispute resolution mechanisms ...... 47

Annex A: References ...... 49 Annex B: List of organisations consulted ...... 51 Annex C: List of cases of good practice ...... 53 Executive Summary

he World Bank Group has commissioned ble in recent years. These change factors include the Tresearch on ways in which governments of following: developing countries can create more effective enabling environments for corporate social respon- • The phase-out of apparel quotas, which threaten sibility in global supply chains. to bring about fundamental changes in the geography of the apparel industry; This paper outlines practical recommendations on how the public sector in these countries can develop • Fatigue by both buyers and suppliers with current both policy and practical initiatives to promote the approaches, and a sense that progress available social and environmental performance of local sup- through these approaches has peaked; pliers that are part of global supply chains, while • A sense that the atomized models reflected also enhancing competitiveness. in individual company codes, and competing multistakeholder initiatives cannot continue indefinitely without losing opportunities for A CONTEXT improvement; We present this paper in the context of an environ- • Initial signs that both the political will and under- ment that is simultaneously static and dynamic. On lying architecture of collaboration are emerging, the one hand there is increasing recognition that the reflected in a series of collaborations between current “system” for achieving, primarily through parties that did not even communicate effectively the mechanism of private codes of conduct and five years ago; worksite monitoring, good labor and environmen- • A greater willingness on the part of national gov- tal practices in global supply chains is not working. ernments, international institutions, and bilateral It is not sustainable, nor does it maximize progress. donors to engage with these issues, and a will- On the other hand, there are still barriers to be over- ingness on the part of other actors to engage with come for this recognition to be turned into action for the public sector in developing countries; and change. • A growing sophistication in the understanding of The dynamism in the debate is borne of several fac- the policy, market, and social drivers for the tors, many of which are unrelated, and which debate. together present the opportunity to develop more— and more systematic—change than has been possi-

1 2 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains

It is also important to acknowledge the static nature likelier to bring sustainable improvements when of the elements of this debate. The factors that con- implemented within a comprehensive, public sec- tinue to hinder progress include the following: tor–governed framework. • Highly politicized debates in exporting countries, Governments have good reasons to invest in devel- in which labor and management in particular oping such frameworks. First, such efforts are likely often seek conflict first, and conciliation second; to deliver economic and social spin-offs that contribute positively to national competitiveness. Sec- • Lack of resources, especially on the part of ond, these frameworks provide a level playing field exporting-country governments, which do not for enterprises active in the country. Third, they view export sector workplaces as the highest pri- insert into the debate over supply chains an opportu- ority for social and environmental interventions; nity for governments to have greater influence over • Continuing cynicism on the part of suppliers, outcomes than they have to date, as “solutions” have who do not believe that investments in better often been presented from outside these economies. social and environmental conditions will bring Thus, this report presents recommendations that improved economic performance or greater identify ways in which the public sector can mobi- access to markets; lize not only its own resources, but also the • Concerns that China’s presence in the global resources, skills, and capacities of different actors in market risks rendering noncompetitive efforts in areas such as capacity building, training of workers, other countries to secure social and environmen- collaboration with other actors, and the strengthen- tal improvements; ing and diversification of inspection systems. • Ongoing holes in the system, owing to very This report proceeds on the assumption that contin- patchy enforcement by governments and uneven ued and enhanced efforts on the part of business, enforcement by companies seeking to ensure both by multinational buyers and local suppliers are good practices by their suppliers; and essential, and should in no way be seen as letting such actors “off the hook.” Furthermore, it proceeds • Lack of internationally accepted principles on on the assumption that one essential role for gov- environmental matters, as is the case with Inter- ernment is to create enabling environments that national Labour Organisation (ILO) core labor envision strong contributions from civil society standards. (nongovernmental organizations (NGOs) and trade The authors of this report believe that now is the unions in their respective roles), and also from time to capitalize on some of the emerging oppor- workers and communities. Such collaborative tunities, and that some of the barriers can be over- efforts are at the heart of the approach outlined here. come by catalyzing greater action by governments, In fact, the importance of all these actors underlines which have a pivotal role to play. the need for government efforts since it is only gov- Indeed, this report takes as an underlying premise ernment that can create or ensure an environment in the notion that codes of conduct to a large extent which the main pillars of an enabling environ- emerged as a corporate policy solution (though often ment—drivers, capacity, and tools—point each of triggered by public criticism) to a public governance these actors in a common direction. failure. In addition, the current code of conduct tra- Our recommendations arise from six months of jectory, which emphasizes individual solutions, has work involving desk research; outreach to numer- exhausted its potential for further progress, in no ous government officials; and contacts with buyers small part because it does not acknowledge the in the apparel and agriculture sectors, NGOs and important role governments play in creating the trade unions in the United States and the European enabling environment for the achievement of good Union, similar organizations in exporting countries, labor and environmental standards. and donor agencies, both bilateral and multilateral.1 Accordingly, although codes of conduct are a force for positive change in terms of labor and environ- 1 A full report of the parties with whom we consulted is in mental performance, current approaches are far appendix C. Executive Summary 3

We considered and analyzed the results of these ture collaborative governance, common standards consultations and the information generated by based on local laws and consistent with interna- other means. tionally agreed principles, and financial sustainability. We would note that the level of experimentation on the part of exporting-country governments remains As noted in the report, we believe that collabora- relatively low in quantity and quality, and thus tive, industry-focused and multistakeholder initia- some of the proposals made in this report are based tives such as those currently being developed or less on extensive, practical experiences and more implemented in the Central American garment on analytical perceptions of what may work well in industry, the South African wine industry, the different settings. Moreover, consultations have Kenyan horticulture industry, and the Cambodian shown that while there is an increasing sense among garment industry hold the greatest potential for various parties to the debate that governments improving labor and environmental standards in should be engaged more energetically, some actors global supply chains. still find it hard to appreciate the need for a new tra- In developing countries, the public sector can con- jectory that does not center on the performance of tribute to the development of these collaborative, the private sector alone. There also remains consid- industry-focused initiatives by endorsing or sup- erable skepticism about the degree to which export- porting other stakeholders’ efforts; facilitating the ing-country governments are genuinely prepared to creation of these frameworks through its convening compete on the basis of better social and environ- power; or establishing legal frameworks. mental performance. Our recommendations for public sector interven- In short, many seasoned observers continue to see tions fall into four main categories: standards, government as the problem rather than the solution. including refinement and enforcement; capacity We proceed on the assumption that this is not an building; incentives; and worker empowerment. immutable situation, and that it must be faced These are elaborated below. directly for progress to be made. We address some of these points below. While the individual proposals falling within these four categories have merit on their own, we suggest that, whenever possible, actions in each of these B SUMMARY OF RECOMMENDATIONS four categories be implemented through collaborative frameworks that are designed in as compre- The achievement of good, sustainable labor and hensive a manner as possible. environmental workplace practices in global supply chains requires a supportive enabling environment. The recommendations we make in the paper are The public sector has a key role as a principal over- included here: seer of the enabling environment. • We recommend that national governments work Developing-country governments are likely to be to ensure that their labor and environmental laws successful in improving social and environmental are consistent with internationally agreed princi- standards if they develop coherent strategies that ples, as this enables the achievement of good address all the critical elements of the enabling labor and environmental standards. In the field of framework: transparent and efficient legal and mar- labor standards, we propose that national gov- ket-based drivers, robust capacities, and useful ernments, as appropriate, benefit from the advi- tools and skills. sory services of the ILO, which is well suited to carry out such “consistency reviews.” In the area In our view, developing-country governments of environmental standards, we propose that should develop approaches that seek to mobilize the national governments, as appropriate, seek the skills, resources and capacities of multiple stake- advice of organizations such as the World Bank holders including suppliers, buyers, and civil soci- Group, the United Nations Environment Pro- ety, and engage them in collaborative efforts gramme (UNEP), and the United Nations Devel- focused on particular industries or particular agri- opment Programme (UNDP). cultural commodities. Such initiatives should fea- 4 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains

• We recommend that national governments, as determine the effectiveness of these measures to appropriate, seek to ensure that labor and envi- allow for decisions about how to invest the time ronmental provisions apply equally to all cate- and resources of the inspectorates in the future. gories of workers and all workplaces, without • Government should make an investment in the exemptions that create or invite lower standards. creation of local networks, pulling together the • We recommend that the public sector in devel- types of resources discussed in section 4.2.2.4. oping countries seek to engage, as appropriate, • Government should facilitate the development of multiple stakeholders representing workers and local centers of excellence through funding and businesses in distinct industries in efforts to incentives. ensure greater clarity of laws as well as guidelines on implementation. Such efforts could take • We recommend that governments explore the the form of a users’ guide on relevant legal relevance of using the diverse set of positive requirements, a management guide on imple- incentives available. Incentives such as reduced mentation that would help managers identify local fees and charges can be used to encourage what actions are necessary to implement the var- the adoption of labor and environmental man- ious provisions, and a workers’ guide on their agement practices that result in benefits to soci- rights under the law. The role of government ety that outweigh the costs of granting the could be to encourage such efforts as well as to incentives. Positive incentives should be used as play a facilitating and endorsing role to ensure an integrated element of an overall strategy that consistency with legal requirements. Such efforts promotes better workplace practices. Govern- may be carried out in connection with collabora- ments should also explore the relevance of link- tive initiatives; however, they may also yield ing access to government “benefits” such as soft results when carried out independently of wider lending facilities and participation in trade fairs efforts. to legal compliance. International financing institutions such as the World Bank Group, the Euro- • In order of priority, governments should focus pean Commission, and bilateral donors should their capacity-building efforts on suppliers, using use environmental and social criteria as part of a wide array of methods. Second, governments their lending and purchasing criteria—as this will should explore the new capacities needed within greatly reinforce the message of local govern- government to undertake the range of actions ments as well as put additional pressure on local proposed in this paper. A tertiary priority is the governments. need to build the capacity of workers, trade unions, and civil society organizations. • We recommend that governments explore negative incentives as a means of promoting legal • Governments should take steps to ensure that a compliance. The use of industry-wide penalties diverse roster of resources is available to support could be considered to encourage a greater learning by suppliers. Where gaps exist, govern- degree of self-regulation within industries. ment should invest in the creation of needed Transparency of performance should also be resources. considered; however, attention should be paid to • Governments should take a range of steps to shift ensuring that relevant target groups such as their focus toward greater reliance on capacity employees, potential employees, and competi- building. This can be accomplished through a tors have meaningful access to publicized data. number of means including diversification of the Linking these to other efforts, including the tar- skills present in labor and environmental inspec- geting of enforcement efforts and the coordina- torates, the creation of new incentives for the tion of public and private enforcement activities, staff of such inspectorates, and the creation of will enhance their effectiveness. new incentives for factories that would access • Governments should consider granting Export these resources. The effort may include the estab- Processing Zone (EPZ) status to collaborative lishment of training as a factor in determining export-oriented initiatives that aspire to high which factories will be subjected to formal environmental and labor standards. Additional inspections. Assessments should be conducted to Executive Summary 5

criteria should be defined—for instance, joint In other cases, there may be particular industries or inspections by employers and unions, as is the commodities that can be addressed in a relatively case in some Philippine EPZs. This may act as an comprehensive way. In recent years, the footwear incentive to facilitate the development of such and toy industries, which are relatively concen- initiatives. trated in terms of purchasing and the geography of production, have adopted increasingly harmonized • Governments should ensure that all workers in approaches. The cocoa industry, facing serious crit- export sectors have reasonable access to com- icism, also has developed a fairly comprehensive prehensible information about basic legal protec- model that could be linked to public policy. Mean- tions for workers, as well as clear and present while the Sustainable Agriculture Initiative, involv- environmental risks related to the workplace. ing several major food companies, has developed a • Governments should take steps to establish, model that could be integrated with policy solutions fund, and publicize alternative dispute resolution on a commodity basis. mechanisms that are easily accessible to workers. Finally, there are undoubtedly opportunistic efforts that could yield solid results. The increased attention that certain export markets (namely, China and C IMPLEMENTING THE PROPOSALS India) are likely to attract in the aftermath of the In many ways, implementation of these proposals phase-out of apparel quotas may create external represents more of a political challenge than a tech- pressures for governments to address more seri- nical one. ously the issues discussed in this paper. We would advocate for the Bank’s seeking to translate such There are, in our view, three distinct ways of pro- situations into action. ceeding to pursue the ideas presented in this paper. The Bank’s own role, regardless of the models for • National strategies: The Bank can seek to seeking to make progress, can take a variety of engage at a national level, to establish an overall forms, including the following: commitment to the creation of an enabling environment that is central to the country’s export • Promoting useful models: The Bank can serve strategy. as a “publicist” for the ideas in this paper, as well as other meritorious models. • Industry efforts: Alternatively, there is the option to engage at a national level in a certain • Facilitating coalitions: The Bank also can seek industry, or in the case of agriculture, a particu- to bring together interested parties—especially lar commodity. buyers, developed-country governments, and other donors—to promote the models described • Opportunistic efforts: Finally there is the here. option of pursuing opportunities that arise in particular situations. While this may appear to be • Resource support: Finally, the Bank can invest less appealing than the other options, because it in the further development of the models dis- seems to be less comprehensive and proactive it cussed in this paper. While there remains skepti- is likely that this is the only way to make progress cism concerning some of the concepts discussed in certain important markets—such as China. here, there is the potential to develop markets with some of the resources and tools suggested While each of these approaches has merits and herein. These markets simply will not mature drawbacks, chances are that no single model is without investment and piloting of this kind. likely to be sufficient. In some cases, there may be national economies and situations that will be We present several examples that illustrate the rec- amenable to a comprehensive approach that will ommendations we make below. We believe that the bring the greatest impact. Wherever that is possible, recommendations suggest possible ways forward we would welcome such an effort. The Bank’s own whether the specific examples are pursued or recent work in Vietnam and El Salvador suggests adapted for use in other circumstances. These that such efforts may be possible. examples are in no way exhaustive and are meant to be illustrative. They also lean toward collaborative, 6 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains cross-sectoral models, and do not rely solely on cates in the industry; and the supplier side in government-led efforts discussed below. some countries has already demonstrated its concern with improving workplace standards. We begin with the most comprehensive model, which, while most difficult to achieve, also holds • Philippines apparel industry: The World Bank the greatest promise. Group could extend its existing relationship with the Philippine government to include labor and The World Bank Group can and should promote the environmental standards in the garment industry concept of national development strategies that or another light manufacturing export industry. place corporate social responsibility (CSR) and This relationship could seek to test some of the supply chains at their center. This can be done in a ideas developed in this report with respect to fur- manner that builds on the work the Bank has done ther public-private enforcement of standards with other governments already, for example El including the development of local learning net- Salvador, Vietnam, Cambodia, and undoubtedly works, and/or centers of excellence. We would others. The Bank could work with governments on note that the Philippine public sector representa- a program that includes each of the following: stan- tives as well as the representatives of the employ- dards development and enforcement, capacity ers’ federation were highly receptive of the building, development of incentives, and worker proposals presented in this report. The expiration empowerment. We believe that the greatest oppor- of the quota regime suggests that the Philippine tunity to pursue such an agenda rests in countries government must find new ways to continue the that will be affected by the phase-out of apparel existing Worldwide Responsible Apparel Pro- quotas, and which retain the possibility of securing duction (WRAP) program in the garment indus- a reasonable future.2 We propose this concept try, and the Bank could provide the impetus for because it has the potential to shift the terms of the improving the effectiveness and credibility of the debate on this topic by developing a national suc- WRAP program. cess story that suggests a new development model that embraces the CSR agenda, and takes an inte- • Southern Africa agriculture: The World Bank grated approach to the several ideas outlined here. Group could seek to engage with the South African wine industry initiative to explore more In addition, there are several industry-specific situ- fully the lessons of and the opportunities for repli- ations that suggest the possibility for successful cation. The Wine Industry Ethical Trading Asso- action. ciation (WIETA) has many of the characteristics • Cut-flower industry: The World Bank Group of the collaborative initiatives we are promoting could engage the key stakeholders in the global in this paper, and it is worth considering how this cut-flower industry to develop a comprehensive model can be improved and replicated. In partic- approach to improving labor and environmental ular, the Bank could look more carefully into the standards in the industry. The cut-flower indus- current (admittedly vague) discussions, in various try is attractive as a “testing ground” for the ideas Southern African agricultural export sectors proposed in this report. The industry has already about replicating the WIETA initiative through- begun to address some of the challenges outlined out all of Southern Africa’s agricultural exports. here, and therefore possesses sufficient aware- The potential for regional integration in Southern ness of the issues. In addition, both the supplier Africa and other locations is an additional feature and the buyer sides of the marketplace are fairly of developing systematic approaches to the ques- concentrated in terms of market share; the buyer tions at hand. side has developed an international code of con- • China toy initiative: The World Bank Group duct as well as a label; there are several certifi- could engage the representatives of the international toy industry and relevant Chinese author- 2 Some observers have noted that there are countries that will ities to explore areas for cooperation in respect build their share of the global market no matter what; some that have virtually no chance of retaining significant market of improving labor and environmental standards share, and some that could go either way. We propose that in the Chinese toy industry. In cooperation with focus be on those that can go either way. the ILO, the World Bank could test the relevance Executive Summary 7

of the methodologies developed in the ILO Fac- is those UN-related agencies that touch on the tory Improvement Programme as applied to the agenda discussed here. Many are examining a sim- monitoring program run by the International ilar governance agenda, and have the credibility Confederation of Toy Industries (ICTI). This and technical skills needed to advance the concepts could potentially turn ICTI monitoring away presented here. The ILO and UNEP in particular from policing and toward training and capacity can make a valued and unique contribution, with building—thereby broadening the current initia- the ILO helping to shift labor inspectorates away tive beyond its heavy industry focus. We believe from a pure policing model, and UNEP helping to that it is essential to engage with China, given provide some of the capacity building we suggest. the country’s overwhelming impact on global As we noted at the outset of this section, there supply chains. Should this opportunity not be is growing support for the harmonization of pursued, other steps included in this report approaches to supply chain management. While should be considered seriously to accomplish this is a potentially positive development, it is also this engagement goal. possible that it will proceed along the lines of the In addition, we would propose that the WBG not top-down, compliance-driven model—the short- forgo completely its engagement with northern comings of which are increasingly evident. actors that have the potential to support the agenda It is important to capture the energy in the debate, outlined here. For instance, the WBG could use its while also ensuring that the mistakes of the “first convening power and capacities to influence north- generation” of efforts are not repeated. The Bank’s ern industry initiatives to reorient them away from status as a party not tied to a single model, and with their traditional compliance mindset and toward a the unique ability to engage the local actors—pri- greater embrace and engagement with the southern marily national governments that are often omitted policy agenda. This comes in recognition of the fact from the debate—is critical. The WBG could help that current models too often rely on compliance to ensure that harmonization actually occurs, and efforts that are unlikely to bring the medium- to that it strongly embraces the postcompliance model long-term impacts that are needed. that is suggested by this report. One initial point of influence that the World Bank Group could leverage in all of these engagements

1. Introduction

This report provides recommendations on the believe that the work of the World Bank Group’s kinds of public policy interventions required to cre- CSR Practice comes at a time that could well prove ate an enabling environment to achieve good labor critical to devising credible, effective, and sustain- and environmental conditions in global supply able solutions to the challenge of integrating more chains. It has been prepared in accordance with the fully social and environmental practices into global Terms of Reference dated April 21, 2004. supply chains. This report confirms that new approaches are We also believe that the World Bank Group is ide- needed to ensure that codes of conduct contribute ally positioned to link economic progress with more efficiently to the wider enjoyment of labor social and environmental concerns, and to engage rights and greater environmental protection. the party that has been most conspicuously absent from the debate: the governments of exporting There is, however, first and foremost a need to countries. Although this is an area that would ben- depart from the trajectory that has guided the efit from further research, anecdotal and analytical codes-of-conduct debate to date. We believe that evidence suggests that promotion of labor and there has been an imbalance in favor of the view of environmental standards can be seen as contribut- the debate as one centered solely on private mis- ing positively to the Bank’s overall strategy of deeds, instead of looking also at the public gover- poverty reduction. nance aspects. The debate has been framed mainly as a corporate governance challenge with the pub- The report seeks to bring to the attention of the lic sector as a subordinate element, instead of the World Bank Group the kind of analytical consider- more constructive view of the question as a public ations, practical examples, and policy recommen- policy governance challenge with the private sec- dations that will help the World Bank Group to tor as an integral part of the overall puzzle. offer successful advice to the governments of developing countries on how to improve their com- Although more and more key stakeholders in the petitiveness on the basis of good labor and envi- debate are recognizing that the current approach ronmental performance. has exhausted its potential, many are still finding it difficult to embrace approaches that depart from the old trajectory. This is witnessed in a number of recent reports on the subject that, while professing THE BASIS OF THE REPORT a comprehensive approach to the problem, devote While the report builds on much of the empirical only limited space to the role of the public sector in and analytical work commissioned by the World developing countries. While it is of course essen- Bank Group CSR Practice3 as well as the work of tial to attend to the private sector’s actions both in others, at the core of the report are the practical identifying problems and solutions, this over- experiences of governments in developing and reliance on the private sector has substantial limits.

This suggests that there are still important barriers 3 Notably Fox, Ward, and Howard (2002); Jørgensen and oth- of perception that need to be overcome if the Bank ers (2003); Smith and Feldman (2003)[not found]; Berman, is to further advance its agenda. Nonetheless, we Webb, and others (2003); and Ward (2004).

9 10 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains developed countries as well as consultations under- The fourth section is the body of the report. The taken with more than 80 representatives of the pub- recommendations in the section fall into four main lic sector, international institutions, buyers, and categories, each of which contains specific propos- civil society. The organizations consulted for the als. Our report, therefore, does not follow the tra- report are listed in annex B, and 18 cases are pre- ditional pattern by which recommendations are sented in annex C. preceded by a comprehensive analysis. Rather, we have opted for an approach where the analysis These cases present a diverse mix of experiences in forms part of the recommendations. several developing and developed countries. Nonetheless, it is noteworthy that the majority of Annex A lists the literature cited in the report. them represent practical experiences of a relatively Annex B lists all the organizations we consulted in recent and thus limited nature, some only in their gathering evidence for this report.4 Annex C con- initial, formative stages. We believe this is reflec- tains a full description, presented using a common tive of the level of experimentation to date, and we template, of the 18 practical examples cited in the therefore caution readers to consider that the con- report. Throughout the text, references are made to clusions are often drawn from single or recent these examples, and readers are encouraged to experiences or projects. familiarize themselves with them. The examples are not an exhaustive list of useful initiatives, but In addition to the work undertaken for the purposes instead outline some of the more thought-provok- of this study, the report has benefited from consul- ing models, which can be applied or adapted in tations and work funded by the Swedish Ministry other circumstances. of Foreign Affairs and the Swedish International Development Agency on the role of bilateral donors in promoting better labor and environmental standards in global supply chains. This work 1.1 SCOPE OF WORK, DEFINITIONS, AND also has resulted in a public report released in the METHODOLOGY autumn of 2004. We would note that that report In this initial section, we seek to provide a founda- builds on the present report as well as the research tion for the report by defining key terms and undertaken. describing the methodology used to create this document. STRUCTURE OF THE REPORT The report is divided into five sections. 1.1.1 Definitions The current, first section provides a number of The following reflects the authors’ definitions of observations with regard to definitions, scope of key terms used throughout the paper. work, and methodology. CSR In the second section, we explore the reasons why In the Terms of Reference to this study and else- the public sector in developing countries in the first where, the World Bank Group uses the term “CSR place should be concerned with labor and environ- in global supply chains.” Throughout this report the mental standards in global supply chains. In many term or variations of the term “labor and environ- respects, we believe that addressing the “why” may mental standards in global supply chains” is used. be as critical to the success of the Bank’s efforts as There are several reasons for this. the “how,” the latter being the focus of the report. The World Bank Group’s efforts to assist govern- 4 This report was initially conceived as an internal report for ments of developing countries achieve higher labor the World Bank Group; hence consultations were undertaken and environmental standards consistent with eco- under the assumption that information would not be disclosed to the wider public. Given that the World Bank Group has nomic development should be based on an overall decided to publish the report, it was agreed that the names of framework. This framework is developed in the the individuals consulted would not be disclosed, nor would third section of the report. the report refer to individuals’ comments. Introduction 11

First, the scope of this work is limited to addressing ment, abuse, and disciplinary action; forced labor; labor and environmental conditions in the work- child labor; freedom of association; and collective places of suppliers in global supply chains; hence bargaining. the CSR concept is seen as too broad and potentially misleading. On several occasions, consultation Environmental Standards partners for this study expressed confusion about In a similar fashion, the concepts of environmental the use of CSR instead of the more precise term standards, environmental conditions, and work- labor and environmental standards.5 We also expe- place practices are used more or less interchange- rienced this in the first study that we undertook for ably. These phrases cover issues such as water use the World Bank Group.6 and quality, air quality, soil quality, and waste management. Second, and possibly more important, the concept of CSR in global supply chains is problematic in that it Suppliers in Global Supply Chains implicitly takes on a developed-country perspective The global supply chains of major multinational on the issues that are being addressed. It may be corporations are far-reaching, encompassing con- argued that the concern of multinational corpora- tractors, subcontractors, agents, family estates, and tions with labor and environmental conditions in homeworkers. The nature of supply chains varies their global supply chains is an expression of corpo- not only according to industries but also to firms. rate social responsibility. However, in the perspective of developing-country governments and suppli- In the case of the garments and textile sector, we ers the proper implementation of codes of conduct is generally use the term “suppliers in global supply first and foremost a question of compliance with chains” to refer to manufacturers of finished prod- national laws and regulations—noting that, in gen- ucts sold to foreign buyers. We have not focused eral, on many key issues codes refer to national laws our attention specifically on the work performed by and regulations—and also a question that bears subcontractors, homeworkers, or other entities. directly on the investment climate for the country. In the case of the agricultural sector, the term gen- Third, labeling the implementation of good labor erally refers to a broad spectrum of business enti- and environmental conditions as CSR may not be ties, including large agricultural estates, large the best way to incentivize developing-country gov- packaging facilities, growing cooperatives, small ernments—or their domestic suppliers—to act family agricultural estates, and other suppliers. It since the use of CSR risks defining the agenda as a is worth noting that there is substantial supplier developed-country challenge rather than as a devel- diversity in agriculture, owing in part to the dif- oping-country opportunity (and obligation). ferent ways certain commodity markets operate.

Labor Standards Throughout this report the concept of labor stan- 1.1.2 Scope of Work dards, labor conditions, and workplace practices are The scope of our work is defined by a number of used more or less interchangeably denoting suppli- parameters. ers’ workplace realities in global supply chains. As such, we refer to, among other things, workplace First, much of the focus of the work done for this health and safety; working hours; wages and bene- report has been on the formal export sector. Thus, fits; terms of employment; discrimination; harass- the report does not explicitly address either the conditions of the vast majority of workers in the economies being discussed, or the workplace con- 5 Ward (2004, p.17) notes that “domestic visions of what it means to be socially responsible may well be quite different ditions that are most in need of reform. It is note- from those of international buyers,” and continues, “When worthy that several consultation partners stressed buyer-imposed CSR norms that do not address these indige- the importance of ensuring that efforts to address nous dimensions of responsible business behaviour are labor and environmental standards in global supply referred to as CSR there is a risk of confusing or even under- chains do not divert resources from efforts to mining the local agenda.” improve workplace practices in the informal sector 6 Jørgensen and others (2003).

11 12 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains where working conditions tend to be the worst. tially provided the platform for the research under- Hence, as the World Bank Group takes these issues taken for this report. The research unfolded in sev- further, we would hope that programmatic work eral overlapping phases. includes linkages that can be made to ensure that Initially, we sought to develop these original pro- progress in the formal, exporting sector contributes posals further through consultations with a range of to the wider realization of labor rights and envi- stakeholders including buyers, international and ronmental protection in other parts of society. northern trade unions, academics, international Second, our work has focused on developing organizations such as the ILO and the European proposals that on the one hand focus on the partic- Commission, and international NGOs. These con- ular role of the public sector, and on the other, sultations were guided in part by a draft discussion departs from the traditional agenda pursued by gov- paper outlining the proposals and the basic policy ernments with respect to improving labor and envi- framework. Input was also sought from civil soci- ronmental standards. It is important to note that ety organizations from developing countries, with while the public sector in principle has a wide array less success. In parallel with these consultations, of instruments at its disposal to achieve the objec- we undertook extensive desk research to identify tive of creating an enabling environment for the examples of good practice. Although consultations realization of good labor and environmental work- with non–public sector representatives mainly took place practices, in effect this is often not the case place in the first phase of the research, we contin- owing to a lack of resources, capacities, or skills— ued to consult these representatives throughout the or to a lack of political and institutional consensus study. Similarly, desk research took place through- and will. Thus, the premise of our work has been out the study. that the public sector in developing countries needs In the second phase, we revised the discussion to develop new approaches that will not result in paper that, once approved by the World Bank new, demanding requirements on resources and Group, formed the basis for consultations with capacities but rather leverage the resources, capac- public sector representatives in developing coun- ities, and skills of other stakeholders. tries. In generating these proposals, we have chosen not In the third phase, we analyzed the information and to apply a set of quantitative criteria or measure- examples identified through consultations and desk ments, instead assessing options against our own research, and have used these as the basis for many understanding of successful models undertaken to of the recommendations in this report. date and options that we feel have untapped promise. We are confident that this report refer- As noted above, the report has also benefited greatly ences a meaningful sampling of such examples, from consultations, in particular with bilateral donor and at the same time note that the level of experi- agencies but also additional stakeholders such as mentation is unfortunately low and slow. NGOs, and other research undertaken on behalf of the Swedish International Development Agency and the Swedish Ministry of Foreign Affairs. 1.1.3 Research Methodology Consultations with all stakeholder groups con- With respect to our research methodology we sisted of in-person interviews, telephone inter- would like to make two points in addition to pro- views and written feedback. The vast majority of viding a brief outline of the research phases. the interviews were conducted individually. More than 80 people were consulted representing almost Research Phases an equivalent number of organizations. The first report we produced for the Bank, pub- lished in October 2003, identified a number of pro- Consultations with Public Sector Representatives posals for public sector roles in support of creating Consultations with public sector representatives an enabling environment.7 These proposals essen- were considered, for evident reasons, a core of the background work for the project. These consulta- 7 See Jørgensen and others (2003). tions served a threefold purpose: to seek their per- Introduction 13 spectives on the developed proposals, to seek their research process may have been preferable in prac- ideas for other proposals for action, and to uncover tice, this was not possible for two reasons. examples of good practice. First, we concluded that the policy framework and Representatives of the public sector were consulted proposals for public sector roles developed initially in the following developing countries: China, were necessary to the exploratory consultations India, Kenya, the Philippines, South Africa, and Sri with stakeholders, notably including public sector Lanka. Although the majority of those consulted representatives. Our experience underscored this represented labor interests, there were also repre- instinct, as numerous parties expressed their need sentatives of environmental and economic sectors and desire to “have something to respond to,” in of government. Those consulted were generally considering the question posed in this project. representatives of top management in their respec- Second, and more important, the empirical evi- tive organizations. dence is as yet too sparse to allow for such an approach. There are too few examples of good practice and most of them are too recent to allow 1.1.4 Analytical Method for policy recommendations to be shaped solely by Our methodological approach has essentially been empirical evidence. deductive, in that the proposals and the framework In sum, the majority of those consulted agreed to for public sector roles initially developed have the basic policy framework and the proposals ini- guided our research and analysis. tially developed, although few of those consulted We gathered information to identify examples of were able to reference a significant number of con- good practice, and used the consultations to inform crete examples of good practice that could provide and test the viability of the proposals initially an empirical foundation for their own observa- developed. During the course of the study, we tions. The examples included in this report show observed the difficulty in conducting an inductive that there are practical policy initiatives being approach based on empirical observations and implemented that have many of the characteristics quantitative analysis; however, while an inductive of what this report considers successful initiatives.

2. Government’s Role

s noted in the introduction, the debate on response to stakeholders’ calls for more responsi- Acodes of conduct has been framed as a dis- bility in global supply chains. This firm-level anal- cussion about the role and responsibilities of the ysis implicitly suggests that the risk and opportu- private sector, not least multinational corporations. nities, as well as the barriers and solutions This report takes a different approach in that we pertaining to improving labor and environmental argue from the outset that the debate on codes of standards at the supplier level, rest primarily with conduct should also be viewed through the prism the private sector itself. of public governance and engagement. This has been the guiding paradigm during the past In the following section we will explore further 10 years, resulting in the present individualized, ad why achieving good labor and environmental stan- hoc “system” of code development, implementa- dards in global supply chains is more of a public tion, and monitoring. Most stakeholders now tend responsibility than has been accepted in recent to agree that the substantial efforts put into this sys- years. This is central to the present discussion in tem have not maximized results, either for workers, part because the World Bank Group is more likely enterprises, or the national economies in which to persuade developing-country governments to supply chain operations occur. Still, most effort attend to a public governance responsibility and going into improving the social and economic opportunity than to a perceived (northern) private impact of codes of conduct focuses on how this sector risk. “system” can be improved.8 We also explore in greater detail why the public sec- Emphasizing individual enterprise performance tor, in pursuit of its own overall development objec- fails to address the root causes of the problem. tives, should be concerned with labor and environ- While this has been useful in engaging multina- mental standards in global supply chains. The World tional buyers, it has been considerably less suc- Bank Group would likely find it easier to get the cessful in leading to more lasting improvements. attention and commitment of governments to take on new responsibilities if the Bank can convincingly When the public sector in developing countries reason that benefits outweigh costs. fails to manage its share of the costs and benefits of business activities with respect to labor and environmental standards through standard policy interventions such as standard setting, enforcement, and 2.1 PUBLIC GOVERNANCE CHALLENGE capacity building, these responsibilities are trans- For obvious reasons stakeholders view the issue of codes of conduct through the prism of their own 8 The more recent northern industry-wide initiatives such as institutional perspectives; however, the adoption the toy industry initiative or the German retail industry ini- and implementation of codes of conduct by multi- tiative present a welcome change to overall the development national corporations is mainly viewed as a but they too are borne out of this paradigm.

15 16 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains ferred to the private sector, with critical stakehold- tor to assume its overall responsibility.10 It is thus ers acting as the principal intermediary. noteworthy that all our consultations revealed a deep skepticism about the public sector in devel- The emergence of codes of conduct should also be oping countries; this must be overcome through analyzed as a corporate policy solution to a public gradual confidence building measures. governance failure. This is clear when one thinks of CSR as “a process of managing the costs and bene- The analysis and recommendations in this report fits of business activities to internal and external are therefore based on the fundamental premise that stakeholders…. Setting the boundaries for how codes of conduct should not legitimize the failure of those costs and benefits are managed is partly public governance, and that the call for greater pub- a question of business policy and strategy and partly lic engagement should not be seen as a lessening of a question of public governance” (Ward 2004, p.3). the responsibilities of the private sector. Instead, we are seeking to identify ways for the public sector in In our view, this suggests that codes of conduct are developing countries to assume its public gover- unlikely to bring about required, sustainable nance responsibilities more fully, and for the pri- improvements in labor and environmental condi- vate sector to embrace this public engagement. tions unless such private sector efforts are implemented within a coherent public sector governed framework that (a) addresses the principal pillars of the enabling environment, and (b) in the long 2.2 WHY SHOULD NATIONAL run, returns a greater part of the responsibility of GOVERNMENTS ACT? managing the costs and benefits of business activ- The public sector in developing countries not only ity to the public sector in developing countries. The is well positioned to augment the impact of codes of present emphasis on the role of the firm restricts conduct; it also has good reasons to do so. In the progress that can be achieved, and risks fatigue addressing the role of the public sector in creating on the part of all participants in the debate. an enabling environment for the achievement of We must stress that we do not call for the abroga- good labor and environmental standards, the “why” tion of the responsibility of multinational corpora- is as important to the Bank’s efforts as the “how.” tions—or other parties such as NGOs, trade unions, There is no doubt that the belief that substandard and workers. On the contrary, there is much evi- workplace practices contribute to competitiveness dence that points to buyers’ sourcing practices as a through the provision of low labor costs is preva- key reason for many suppliers’ consistent failure to lent among many government officials. The fact comply with basic labor and environmental stan- that many firms still seek out locations for low-cost dards.9 Such sourcing practices not only put undue labor only serves to support this position.11 pressure on suppliers to contravene local legislation, but also they provide conflicting market sig- In our view, it is essential to demonstrate that gov- nals. This may have a negative impact on the ernments can and should address these issues in a development of an enabling environment for better labor and environmental standards. 10 For instance, the Ethical Trading Initiative undertook such However, as the provider of overall policy and reg- a temporary facilitating role when initiating the Social Com- ulatory frameworks, only the public sector has the pliance Initiative in the South African wine industry as well as in the Kenyan Horticulture Business Initiative; see cases legitimacy, authority, and capacity to draw 15 and 8. Such external actors may be crucial when engaging together all of the actors to enable them to con- multiple stakeholders who share a profound distrust of each tribute in an efficient and cohesive way that other. ensures an optimal use of available resources (see 11 As noted by some respondents in a World Bank survey gen- also Ward 2004). In some cases non-state actors erally calling for better government enforcement of labor may temporarily undertake a role as catalyst or laws: “As the system currently works, governments may per- facilitator preparing the ground for the public sec- ceive an advantage to lax enforcement because this allows them to attract foreign investment from both companies that do and do not care about these issues; relying on the compa- 9 See, for instance, Oxfam International (2004) and Insight nies that do care to enforce provisions on their own” (the Investment and Acona (2004). “Race to the Top” report, p.4). Government’s Role 17 manner consistent with their desire to attract invest- at work in Sri Lanka (see case 5). Similarly, an ment and provide employment. The World Bank initiative by a group of buyers in China, known Group has a unique ability to engage governments as the Impactt project, has come to the same con- on the basis of the link between economic develop- clusions, resulting in a scaling up of the initial ment and social and environmental performance. test project (see case 18). The social compliance Based on our research, we believe there are strong initiative by the Philippine Employers’ Confed- reasons why national governments should be con- eration rests on this assumption as well (see case cerned with creating an enabling environment for 13). The U.K. Department for International the implementation of codes of conduct.12 Development (DFID) also refers to this as a jus- tification for promoting workers’ rights in inter- The primary reasons why developing-country gov- national development cooperation. ernments should embrace this agenda are as follows: • Better workplace conditions improve the livelihoods of workers and their families and • Better labor and environmental standards communities improve the competitiveness of national firms Poor workplace conditions—both labor and First, increasingly, access to (some) developed- environmental—harm the physical and mental country markets requires compliance with basic health of workers, their families, and their com- labor and environmental standards. These munities, and may indirectly contribute to requirements are placed in a handful of formal poverty (DFID 2004; DANIDA 2004).13 This is trade agreements, and more frequently, through particularly true for workers in the informal sec- the contractual requirements of multinational tors—often linked to the apparel and agriculture buyers. These developments have, for example, industries—who most often are without any motivated the Cambodian and the Philippine kind of social coverage. governments to encourage domestic textile and garment suppliers to improve workplace social Second, improved business practices that en- and environmental standards (see case 3 and hance social and environmental conditions cases 11–14). They are also principal drivers of reduce the social costs to the public sector. similar initiatives in the South African wine • Good workplace conditions contribute to industry and the Central American garment social and political stability as well as the effi- industry, with the latter considering ways to ciency of the market make good working conditions a competitive advantage after the phase-out of apparel quotas A robust system of labor rights and standards (see cases 15 and 4). can also contribute to social and political development (DFID 2004), in that a set of standards Second, again increasingly, anecdotal evidence applied evenly and transparently provides an demonstrates a positive link between good labor example of good implementation of the rule of management and increased productivity, sug- law. In turn, labor market stability contributes to gesting that the competitiveness of individual efficient markets and increased foreign direct companies and even industries may improve as a investment. result of better labor and environmental workplace practices. The ILO Factory Improvement Programme has demonstrated such positive links 13 The relationship between labor standards and poverty is not a well-researched area with a firmly established consensus. While DFID argues that “the effective and well-judged imple- 12 In many respects business and government have an equal mentation of labor standards… can play an important part in interest in seeing good labor and environmental practices the reduction of global poverty and in achieving the Millen- take root. What in practice makes the business interest less nium Development Goals…” (DFID 2004, p.5), DANIDA, significant is the fact that many of the positive spin-offs of noting that the relationship between poverty and working improved labor and environmental standards are long-term in environment conditions is not well documented, argues that nature whereas business agendas, particularly among small “decent working environment conditions should be consid- and medium-sized enterprises (SMEs) in developing coun- ered as a poverty preventive measure, thereby contributing to tries, are inherently short-term. the goal of poverty reduction” (DANIDA 2004, p.5). 18 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains

Related to this is the question of why suppliers should work to improve their labor and environmental practices when this is viewed as bringing Box 1: Perception Matters higher costs with negligible or unclear benefits. An example of the importance of perceptions While this study focuses on the role of the public sec- comes from the Philippines, where the ILO- tor, that role is directly related to the suppliers oper- sponsored—and partly ILO-governed—pro- ating in their countries. Governments are uniquely ject WISE contributed significantly to a pos- positioned to influence suppliers, since the former’s itive change in perception among Philippine role in creating a “level playing field” can help to businesses about the relationship between reduce the market distortions that cause many sup- good labor practices and productivity; this pliers to seek to avoid scrutiny and costs. As noted is widely considered one of the key reasons in our first study, there were mixed opinions among why Philippine business appears receptive to all stakeholder groups about the business case for multinational companies’ call for better improving labor and environmental standards (Jør- workplace practices. gensen and others 2003). Where governments apply laws and regulations evenly, the incentives to avoid compliance diminish substantially. itiveness, and between labor standards and trade, the broad range of parties consulted in the development of this paper readily supported the notion 2.2.1 Why Should National Governments that there is a link between good workplace prac- Act Now? tices and increased productivity (see box 2).14 The listed drivers for public sector engagement The second dimension of the economic rationale, as with labor and environmental standards are hardly witnessed by the emergence of codes of conduct, new to developing-country governments. This relates to the fact that good labor and environmental raises the question of why national governments practices increasingly are becoming a prerequisite would or should turn to these issues now when they for exporting to developed-country markets. have been low priorities for many years. Although it is hard to establish the volume of exports subject to social and environmental sourcing crite- In our view, there appear to be two principal ria, anecdotal evidence suggests that it is large and drivers, one relating to market forces and one relat- increasing.15 This comes both from the contractual ing to the increasing interest by a wide range of arrangements between buyers and their suppliers, stakeholders. and formal trade agreements between nations. Stronger Market Drivers While a further assessment of the impact of trade First, it appears that the economic rationale for agreements is outside the scope of this study, it improving labor and environmental standards is seems evident that the inclusion of labor rights pro- gaining strength. There are two dimensions of the economic rationale. 14 This represents a marked change of opinion among con- As noted above there is increasing anecdotal evi- sultation partners in comparison with the results gathered in dence that good labor and environmental manage- our first report, where opinions where much more mixed, and ment translate into greater productivity and often deeply skeptical about this link. competitiveness. For instance, the ILO Factory 15 For instance, the Ethical Trading Initiative’s corporate Improvement Programme and the ILO WISE- members bring together over £100 billion in annual turnover, and its membership is increasing. Also, the emergence of new methodology has consistently revealed a positive industry initiatives—encompassing national (German retail correlation between good labor management, and sector initiative) or global industries (international toy indus- productivity and quality. (See box 1) try initiative, the European retail sector initiative, and initiatives in the information and communications technology Despite the absence of hard evidence at the level of industries likely to emerge in 2004 and 2005)—suggests that national economies or industries demonstrating a social and environmental criteria increasingly are becoming positive link between labor standards and compet- an important aspect of international trade. Government’s Role 19

established, it is noteworthy that the agreement “creates a right for a country that is party to the Box 2: Core Labor Standards and agreement to challenge an alleged failure by Competitiveness—The Evidence another party to protect its citizens’ labour rights. If the failure is confirmed, the charging party may The U.K. Department for International withdraw trade benefits from the delinquent party Development’s policy paper on labor stan- or take other appropriate measures until the delin- dards and poverty reduction (DFID 2004) quent party comes into compliance with its labour explores at some length existing hard commitments, normally by improving the enforce- research on the relationship between labor ments of its labour laws” (Polaski 2004). Also, standards and competitiveness. The explo- social and environmental criteria are part of the ration presents a mixed picture of available Central America Free Trade Agreement, although hard research—some research identifies a with less emphasis than in the U.S.-Jordan free marked correlation between higher labor trade agreement. standards and higher labor costs, others none; some research yields strong evidence With respect to apparel production, the impact of that freedom of association and collective the phase-out of apparel quotas is not yet clear in bargaining allow workers to negotiate higher terms of its impact on labor and environmental wages and better working conditions, others practices. Concern in markets that may prove the see only insignificant differences in develop- most vulnerable to consolidation in the industry ing countries. Most studies, however, seem may yet lead to efforts to ensure greater attention to agree that higher labor standards do not to labor and environmental protections. These may result in less foreign direct investment, sug- come in an effort to strengthen the compliance gesting that increased labor costs are offset component in the package of materials provided by by positive effects via greater social stability. suppliers, along with the traditional elements of price, quality, and delivery time. The paper suggests that additional research, which is needed, also has to distinguish Availability of Resources between sorts of standards, adding that the A growing number of stakeholders—including impact of reducing discrimination against suppliers, business federations, multinational cor- women is unlikely to be the same as that of porations, trade unions, civil society organizations, outlawing forced labor or allowing free col- donors, and international finance institutions—are lective bargaining. becoming more actively involved in promoting good labor and environmental practices. This has led to the private drivers for good practice, embod- visions in trade agreements combined with various ied most often in contractual agreements. forms of incentives (negative and positive) could This widespread creation of a “compliance com- become one of the principal drivers of improved munity” in the past 10 years has created a new col- workplace conditions in global supply chains. lection of resources and competencies, many of There is widespread agreement that the U.S.-Cam- which are available to the public sector in devel- bodia Textile Agreement has generated an impres- oping countries. This too may be viewed as an sive record of progress for workers in Cambodia important new driver that could cause or incen- (Polaski 2004, see case 3). Although the impact of tivize the public sector to engage more proactively the U.S.-Jordan Free Trade Agreement is yet to be with labor and environmental workplace practices.

3. A Framework for Public Sector Engagement with Labor and Environmental Standards

he achievement of good labor and environ- various forms—including legal, commercial, Tmental conditions in global supply chains and social—and they may take both positive and must be founded in a supportive, enabling envi- negative forms. A prime example is the impend- ronment in which business can work continuously ing phase-out of apparel quotas, which is driving to improve workplace practices in collaboration many governments to pursue strategies allowing with stakeholders. The public sector has a key role them to compete on the basis of good labor prac- as the principal overseer of the enabling environ- tices. Market-based drivers also have been par- ment. ticularly strong in pushing many of the In the following section, we provide an outline of initiatives referenced in this report, such as the the overall framework that we believe should South African wine industry (all producers inform the policy and practical recommendations export to the same market and are thus subject to of the World Bank Group with respect to improv- identical market pressures) and the Philippine ing labor and environmental standards in global garment industry (access to quotas has been supply chains through better public sector gover- linked to participation in a WRAP-based social nance. As such, this framework is part of the rec- compliance initiative); see cases 15 and 14. See ommendations that we are presenting to the World also box 3. Bank Group. • Capacity: It also is essential that there be relevant human capacities and institutions such as inspectorates, ministerial departments, and busi- 3.1 ESSENTIAL ELEMENTS FOR THE ness federations to pursue the social, environ- CREATION OF SUCCESSFUL mental, and economic goals inherent in this agenda. For example, the failure or inability of ENABLING ENVIRONMENTS states to enforce labor standards, despite the Based on the work of the World Bank Group with presence of legal, social, and to some degree respect to enabling environments (Ward 2004), commercial drivers of strong labor practices consultations with stakeholders, and those practi- remains a factor that undermines the enabling cal examples surveyed for this study, we believe environment. Recent progress in Cambodia, for that any work to promote enabling environments example, presents progress toward an alternate should address some or all of the following three scenario in which trade agreements have pro- critical elements: vided a strong driver, and the ILO has worked to ensure that local capacity exists to make • Maximum Use of Drivers: An enabling envi- progress toward the social goals. ronment is considerably easier to create if business and others are pushed to act through • Tools: A successful enabling environment also the presence of drivers. Drivers can take relies on the presence of tools to be used in

21 22 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains

focused on particular industries engaging multiple stakeholders in collaborative efforts.16 Box 3: Importance of Market Drivers In our view, the inherent limits of the present sys- In the nascent Export Success in Central tem of codes of conduct to bring about sustainable America (ESCA) initiative there are strong social and economic change, despite substantial market-based drivers. In this case, the access efforts by numerous stakeholders, is based on the to the large unified North American market absence of a systematic, collaborative framework. and the unique political pressures arising from the negotiations over the Central Amer- ican Free Trade Agreement (CAFTA) have helped to engage the attention of all stake- 3.2 INDUSTRY-FOCUSED holders. Similarly, the Homeworkers Code COLLABORATIVE FRAMEWORK of Practice in the Australian retail and textile- We believe that strategies based on industry- garment manufacturing industry has bene- focused collaboration among multiple stakeholders fited from strong market drivers, first and and within a coherent framework represent a novel foremost intensive NGO campaigns and sec- departure from governments’ traditional approach ond, the need to come in line with Australian to promoting labor and environmental standards. law (see case 1). The Kenyan cut-flower Moreover, these arrangements also hold the great- industry, through the Kenyan Flower Coun- est promise for creating supportive, enabling envi- cil, has developed a social compliance initia- ronments that ultimately will result in improved tive largely in response to the coordinated labor and environmental standards in global supply demand from the Dutch auction houses that chains. source 60 percent of Kenya’s exports. While several of the recommendations that we present in this report have merit on their own, we generally believe that the impact of each proposal will be substantially greater if implemented within a achieving social and environmental goals. Tools coherent, industry-focused strategy that seeks to that have been identified in our research, as well engage multiple stakeholders in collaborative as work performed by others on the Bank’s efforts. Thus, collaborative initiatives can be used behalf include labels, certificates, guidelines, to achieve the full range of options presented later and management systems. One example cited in in this paper including (a) efforts to set, extend, and the text of the report comes from the skilled enforce standards; (b) capacity building; (c) worker trades in the Netherlands, where both drivers education and engagement; and (d) development and institutions were in place to ensure good performance. However, there was a lack of tools available to enable performance; the situation 16 As indicated above, many of the practical examples that was remedied only when guidelines for the prac- follow should illustrate the relevance of these key assump- tical application of broad principles were put in tions. We also would note that we do not consider these place (see case 10). assumptions to be necessary in 100 percent of the efforts we propose, and there will continue to be relevant interventions Successful strategies should address the critical that fall outside the scope of these assumptions. For instance, elements within a coherent framework. While local the extension of labor laws to all sectors of society to ensure widespread realization of labor rights is not industry specific. governments may be effective in building institu- Similarly, as has been the case in both the South African wine tions such as robust and credible enforcement industry and the Kenyan horticulture sector, external (north- agencies, these efforts are more effective when ern) actors can undertake crucial roles in bringing forward a they are coupled with strong and transparent mar- locally governed process (see cases 15 and 9). There are also ket drivers as well as the practical skills and incen- examples where non-state actors have been the key driver tives required to shape business behavior. We also behind initiatives to achieve higher social and environmental standards, with the public sector in an engaging role—for believe, as outlined further below, that such instance, the social compliance initiatives of the Philippine approaches are most effective when they are Employers Confederation (see case 14). A Framework for Public Sector Engagement with Labor and Environmental Standards 23 and implementation of economic incentives for good practices. Before turning to these, below we outline the basic characteristics of such industry- Box 4: HomeWorkers in Australia focused collaborative frameworks. In Australia, the issue of homeworking has been addressed through collaborative efforts. The government facilitated an agreement 3.2.1 Collaboration among retailers, trade unions, suppliers, and The collaboration we are calling for is not simply the others to develop a code of conduct that can politically driven desire by some to see more trans- lead to certification that no home workers parency on the part of the business sector.17 Rather, have been mistreated in the production of it is practical collaboration within a coherent frame- goods. Retailers engaged in this process can work that allows each sector of society to bring its obtain a “No Sweat Shop” label certifying this own unique attributes to bear in ensuring that the practice. This example illustrates a compre- issues in question can be addressed successfully and hensive, collaborative industry-based ap- result in long-term, sustainable solutions. proach; the value of developing a clear set of standards that can be understood effectively There are several reasons for this, including the fol- by workers, suppliers, buyers, and others; and lowing: a way of addressing a gap in standards. • The need to shift away from the ad hoc nature of efforts to date. As we have noted in several places, the present approach is unlikely to yield sustainable results—suggesting a need for tive. Moreover, the present shift from auditing developing coherent, collaborative approaches. and policing toward capacity building and train- Collaboration would also seem to be a prerequi- ing will require more concerted and cooperative site for governments to ensure that efforts are efforts to be successful. However, in the supportive of governments’ overall develop- absence of coherent, collaborative frameworks, mental objectives (see box 4). individualized monitoring risks merely being replaced by individualized capacity building, • Leveraging and wiser use of resources. Govern- resulting in the same suboptimal use of ments will not be able to fully align private, vol- resources. untary initiatives to public policy goals unless such efforts are brought within an overall • Ensuring that complementary competencies are framework. Also, there is widespread agree- present. While the public sector is the overall ment among particular businesses (and among “organizer” of the enabling environment, it does many other stakeholders) that the present indi- not on its own possess the competencies and vidualized supplier auditing represents a subop- skills required to bring about change. Thus, col- timization of resources. This is the rationale laboration allows each party to apply its exper- behind the growing number of industry-wide tise and support implementation. For instance, initiatives such as the German retail sector ini- the development of workplace codes in the tiative and the international toy industry initia- skilled trades in the Netherlands was a result of a collaborative effort in a traditional tripartite set-up recognizing that both business and unions 17 By this we refer principally to many civil society organi- had relevant expertise to bring to the table. zations’ push to ensure that supplier auditing to a greater extent relies on participatory techniques involving local com- • Ensuring broad-based support and credibility. munities, NGOs, and trade unions. While this has significant The emergence of codes of conduct should also merit in its own right as present auditing techniques are not be seen through the prism of public governance yielding the desired results, we do not see greater trans- failure to ensure credible and robust enforce- parency in auditing as being sufficient to deliver sustainable, effective, and credible solutions to the real challenges. ment of standards. At the same time civil society Rather, as noted elsewhere, to deliver sustainable solutions a remains highly skeptical of purely private, vol- departure from the present trajectory of auditing is required. untary efforts to ensure better standards. 24 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains

In addition to the above, collaboration also appears participate on an equal footing is seen as essen- to be a prerequisite for achieving the critical mass tial. In addition, such governance structures may of financial and human resources required to act as a precursor for facilitating institutional ensure the more widespread realization of labor dialogue among the tripartite bodies of the labor rights and better environmental protection. Thus, market. For instance, the project advisory com- in our view this is why many of the initiatives to mittee in the Cambodian initiative has been date have failed to contribute to a wider respect of instrumental in providing a neutral ground for labor rights and environmental protection. They rapprochement between the Cambodian trade have been too narrow in scope and scale. unions and employers’ federations. This, in turn, has created the basis for the development of an institutionalized labor market conflict resolution 3.2.2 The Elements of Collaborative mechanism that in time should become a perma- Initiatives nent institution in the Cambodian labor market. • Common standards: Collaboration should be This report cites a number of collaborative initia- structured on an agreed set of environmental and tives. Based on these practical examples, we labor performance principles, based on national believe that collaborative frameworks could be laws and regulations, consistent with interna- based on the following organizing principles: tional principles—notably core labor standards. • Industry focus: As noted above, collaborative That said, we believe that there are reasons to be initiatives are likely to yield the best results cautious in promoting labor standards that are when focused on particular industries. Industry markedly “above” the national law, unless there is in many respects a highly organizing and are material differences between national law defining determinant of the social, political, and and international principles. The initiatives in the economic structures of society. In practice, the Cambodian textile industry and the South critical elements of the enabling environment African wine industry are both considered suc- are likely to be different between industries; for cessful partly because they do not seek to achieve instance, market-based drivers tend to be indus- labor standards that are dramatically above what try specific. More important, however, the criti- is required by local law. As an observer close to cal stakeholders are usually organized along the initiative reported, “Another key issue has industrial lines. This applies to labor unions and been that the code of conduct is based squarely employers’ federations and also to some NGOs on the law; producers see this as a compliance that are focused on particular industries. In addi- initiative that in addition may bring skills, capac- tion, the connection between the buyer and the ity, and market access; unions see this as a com- supplier sides follows industrial lines. pliance initiative and not as a process for promoting new union rights/ambitions. If the • Shared governance: The governance of collab- code aspired to go beyond the law this may have orative frameworks should involve participants been different.” that reflect the broad concerns and interests of the key constituents affected, including con- • Financial sustainability: While significant stituencies without institutional representation public funding or external funding (or both) may such as migrant workers and women workers. be necessary to undertake the initial phases of Collaboration thus has to extend beyond the initiatives described here, the long-term finan- mere inclusion of multiple stakeholders to cial sustainability of such initiatives would have include multistakeholder governance. In some to be secured by the financial commitment of the cases tripartite governance will suffice, and in involved parties through market mechanisms or others additional stakeholders will need to be some limited form of public funding (or both). It brought into the picture. Collaborative gover- is an important premise of the proposals pre- nance is crucial to the resolution of disputes sented that they should not require significant among the involved parties. For instance, in the public funding as a prerequisite for successful executive committee of the South African wine implementation. In addition, committed collab- industry initiative, the fact that all constituents oration would seem to require an element of A Framework for Public Sector Engagement with Labor and Environmental Standards 25

financial risk on the part of the private sector work to contribute to local capacity to develop, (see box 5).18 implement, and govern collaborative initiatives.20 In addition to the above characteristics of collabo- The Bank is well positioned to promote collabora- rative initiatives, we would like to stress the impor- tive frameworks through its ability to convene tance of local ownership.19 While many of the governments with other actors, and by providing drivers, capacities, and tools in recent years have seed capital to develop and adapt collaborative come from developed economies, they are not efforts in critical local markets. Indeed, most of the long-term substitutes for the integration of public successful multistakeholder initiatives (such as the sector initiatives in developing countries. More- Ethical Trade Initiative (ETI), FLA, and SAI in this over, we recommend that the northern industry- field have been supported by a multilateral or pub- wide initiatives seek to interact more profoundly lic sector agency. In addition, it appears that “the and strategically with local governments as well as stars are aligning” in support of such initiatives, as most parties in this debate—buyers, suppliers, trade unions, and NGOs—are now calling for institutional change. This means that even if such par- Box 5: National versus Regional Approaches ties are reaching the same conclusion for different The Export Success in Central America reasons, as seems likely, they are indeed far more (ESCA) initiative is of interest because it is receptive to the notion that without systematic representative of the collaborative model out- change, their discrete initiatives are likely to be lined above, and because it takes a regional handicapped. approach that mirrors a relatively unified In summary, the collaborative framework is essen- sourcing market. If successful, ESCA could tial because it seeks to provide precisely what has potentially be replicated in other nations or been missing from the debate to date: This is a regions, although the region’s access to the coordinated and systematic approach. In addition, large North American market and the politi- the examples cited here and elsewhere in the report cal pressures arising from the negotiations demonstrate that it is possible to engineer such over the Central American Free Trade Agree- approaches with broad participation and good ment (CAFTA) that have helped to engage results. Such broad-based initiatives will not be the attention of all stakeholders may not be appropriate for all situations, and they may be more equally present in other locations. However, time intensive. However, they hold the promise of such conditions may not be unique. For greater results, and for that reason we suggest that instance, in Eastern Africa, Kenya and the more discrete options presented below be con- Uganda are acutely aware of the problem of sidered for inclusion in collaborative frameworks ensuring similar standards to avoid the relo- wherever possible. cation of industries or workers. Some Kenyan consultation partners suggested that regional approaches to some issues might work better in the East Africa region than through 20 It is noteworthy that even now northern institutions are national approaches. largely driving many of the most prominent industry initiatives pertaining to codes of conduct. For instance, the social compliance initiative in the German retail sector supported by the German government’s development cooperation arm, 18 Financial risk is not necessarily in the form of a donation BMZ (along with GTZ), has only a superficial cooperation of financial capital; it can also be in the form of in-kind con- with southern governments. Similarly, many of the U.S.- tributions such as participation in training activities and test based multistakeholder initiatives such as the WRC, FLA, implementation of new techniques. and SAI have limited formal cooperation with southern gov- 19 The WIETA-initiative in the South African wine industry ernments. The Worldwide Responsible Apparel Production is an interesting example of how a northern actor has served (WRAP) program is the exception to the rule in that the orga- to incubate an initiative where it is arguably more meaning- nization has sought to develop cooperative relations to a ful—in the exporting countries where collaboration is needed number of developing-country governments. most acutely.

4. Recommendations

overnments can engage more fully in pro- incentives to see the implementation of codes Gmoting compliance with labor and environ- shared by all relevant institutions to reduce the mental principles by pursuing activities falling into resources they must devote to these issues. four basic categories: (a) setting and enforcing Accordingly, governments can achieve im- standards more effectively, (b) building the capac- provements by engaging in steps including (a) ity of private actors to make a maximum contribu- wider application of human resources and envi- tion toward these goals, (c) empowering workers ronmental management practices to achieve the and trade unions to play a more active role in this substantive goals embodied in this work, (b) the debate, and (d) providing targeted incentives, pos- development of local centers of excellence, and itive and negative, for enterprises to embrace the (c) the sharing of technical and management social and environmental aspects of their busi- skills. nesses more fully. • Worker empowerment: It is clear that workers The four categories are presented in greater detail are not fully able to vindicate their rights in most below, and address the following points: developing-country environments. There are • Standards: Setting and enforcing standards are legal, political, and developmental barriers to important elements of the drivers, institutions, worker empowerment that can be reduced and tools that create better enabling environ- through a variety of means including (a) the pro- ments. Recognizing that there are gaps in both vision of more and better information about the de jure and de facto application of standards, workers’ rights; (b) the removal of barriers to the local governments have three primary contribu- exercise of freedom of association, allowing tions they can make with respect to standards: workers to protect their own rights through (a) clarification of existing standards in a man- unions; and (c) greater attention to the distinct ner consistent with international standards, needs of certain categories of workers in the where available; (b) extension of existing laws agriculture and apparel industries (such as and regulations to cover areas such as export migrants, women, and seasonal and temporary processing zones where they are not currently workers) who are less able to avail themselves of applied; and (c) collaboration with the private existing protections. and independent sectors in the enforcement of • Economic incentives: This category of action is standards. the most controversial of the items presented in • Capacity building: Too often, suppliers lack our report. Some observers do not believe that the basic management skills to ensure good incentives are appropriate because they are labor and environmental practices. It is also the based on a model that provides rewards to pri- case that governments, NGOs, trade unions, and vate actors for following the law. Others, how- workers have substantial and distinct ability to ever, see economic incentives as a temporary participate in the establishment and implemen- way to encourage business to take on responsi- tation of codes. Local governments have strong bilities that they have not been addressing, or

27 28 Implementation Mechanisms for Codes of Conduct

believe that capital and aid should be conditioned on social and environmental performance. While mindful of the complications Box 6: How the Legal Framework Enables presented by incentives, we include considera- the Achievement of Good Labor Stan-dards tion of options that have support from some quarters, including (a) the conditionality of Our consultations revealed that the com- export-related financial opportunities such as mitment of the private sector to the initia- export credits, loan capital, and insurance based tives in the Cambodian textile and the on the achievement of certain social and envi- South African wine industries may be ronmental practices; and (b) the creation of spe- partly ascribed to the fact that both initia- cial export zones available only to companies tives set out to achieve standards that are in that commit to achieving and maintaining high line with local law; in both countries local social and environmental standards. law is materially consistent with ILO standards. One observer noted that this in turn means that both the private sector and the unions see the initiative as a compliance 4.1 STANDARDS initiative. This dynamic also appears to The challenge with respect to standards has two have played a role in the Kenyan horticul- distinct but related dimensions: establishment of ture sector where the code of conduct standards and enforcement of standards. Both are defined by the Kenyan Flower Council important on their own, and they reinforce each operates with two compliance levels (see other. Both are at the heart of the enabling envi- case 15). The first level aspires to labor ronment for achieving good labor and environ- standards consistent with the core labor mental practices. standards of the ILO and environmental standards in line with local law. The second level operates with environmental 4.1.1 Establishing Clear and Effective standards that exceed legal requirements. Standards In Australia, the Homeworkers Code of Practice is also based on local law and in Clear and enforceable standards in content and in terms of standards performance, does not application consistent with internationally agreed require manufacturers or retailers to go principles are a critical element of the enabling beyond the law. environment. The public sector in developing countries should attend to the consistency, applicability, and clarity of national laws to ensure that the legal framework enables achieving good labor and environmental standards (see box 6). • Our research indicates that a legal framework consistent with internationally agreed principles enables efforts to achieve good labor and envi- Consistency with Internationally Agreed ronmental performance. First, the achievement Principles of good workplace practices becomes a legal National laws pertaining to labor and environment compliance issue. Second, efforts to achieve should be consistent with internationally agreed good workplace practices are driven by a local principles. There are several reasons for this: rather than a foreign agenda. Third, the two principal drivers of change—incentives and • Consistency is an objective in itself. Unless laws sanctions—become mutually reinforcing. are consistent with internationally agreed principles, there is a risk that efforts to achieve good Our research has revealed that in light of new labor and environmental practices in line with sourcing patterns some governments are conscious the requirements of multinational corporations about the need to ensure that their national laws are could be undercut by the legal framework. consistent with internationally agreed principles. Recommendations 29

For instance, in 2003 the ILO prepared a compara- African wine industry initiative, WIETA, the gov- tive analysis of current labor legislation in each of erning body also includes representatives of the countries engaged in CAFTA negotiations, migrant and temporary workers. Similarly, the ini- with a particular focus on the core labor standards tiative run by the Kenyan Flower Council in the referred to in the ILO Declaration on Fundamental Kenyan horticultural sector seeks to ensure that Principles and Rights at Work.21 labor standards and environmental provisions apply equally to all workers irrespective of the workers’ Recommendation: We recommend that national legal status. governments work to ensure that their labor and environmental laws are consistent with interna- Recommendation: We recommend that national tionally agreed principles, as this enables the governments, as appropriate, seek to ensure that achievement of good labor and environmental labor and environmental provisions apply standards. In the field of labor standards, we pro- equally to all categories of workers and all work- pose that national governments, as appropriate, places, without exemptions that create or invite benefit from the advisory services of the ILO, lower standards. which is well suited to carry out such “consistency reviews.” In the area of environmental standards, we propose that national govern- Clarity of Laws ments, as appropriate, seek the advice of organi- Standards must be clear and enforceable to allow zations such as the World Bank Group, UNEP, all stakeholders to work on a common platform and UNDP. toward agreed goals. Empirical research gathered for this report, as well as the authors’ more general experience makes clear, however, that there is sub- Ensuring Applicability of Existing Standards stantial confusion about the meaning of existing In many developing countries, basic labor law is standards, as applied.22 Examples range from the enforced, if at all, with an emphasis on the formal meaning of wage and overtime laws to the appli- sector, and in some cases only applies to certain cation of principles on freedom of association and parts of the work force, leaving a very large part of collective bargaining, and to the specific require- the work force with minimal legal protection, ments of environment, health, and safety issues. including workers who are part of global supply There are several additional reasons why clarifica- chains. These gaps present problems for three rea- tion of standards should be pursued: (See box 7). sons in addition to the obvious point that they leave • Lack of clarity is particularly damaging given many workers unprotected. that many buyers’ suppliers are small and First, this lack of legal coverage reinforces the view medium-sized enterprises (SMEs) and many that codes are somehow an external imposition that workers in agriculture and apparel are unfamil- is inconsistent with local practice since codes often iar with formal industrial work settings. require suppliers to ensure compliance throughout • There is sometimes (undue) advantage gained their own supply chains. Second, these gaps mean by various parties that are able to claim that the that two sets of rules apply: one for companies in a expectations expressed in applicable laws are purely local economy, and another for those partic- unclear. ipating in global supply chains. This creates market distortions and a two-track system for those seeking • Clarification of standards would contribute to to enforce applicable provisions. And third, these greater consistency in the requirements expres- gaps run contrary to clear international consensus. sed by multinational companies to their suppliers. This would limit confusion and inefficiency Some of the collaborative initiatives referenced in this report are seeking to address this issue through nonlegal mechanisms. For example, in the South 22 Our first report to the World Bank Group also identified lack of clarity as one barrier to more efficient implementation of codes of conduct at the supplier level. Buyers consulted 21 ILO (2003). during the preparation of this report restated this message. 30 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains

Box 7: Clarification of Legal Requirements Box 8: Industry Sector Labor Codes and Guides [Guidelines?] The initiatives in the Kenyan flower industry, the South African wine industry, and the The Dutch employers’ organization in the Cambodian textile industry have all placed skilled trades has developed detailed, user- great emphasis on developing highly specific friendly guidelines on workplace manage- implementation guidelines directed at man- ment issues. The guidelines are structured by agement and middle management. In Cam- an industrial process identifying solutions to bodia, guides were also developed for work- potential problems. On each issue the guide- ers to allow them to familiarize themselves line offers advice on how to achieve perfor- with their rights and obligations. Similar mance beyond legal compliance. The guide- worker guides are also being considered in lines have been developed with the relevant the South African wine industry initiative. trade unions and representatives of government; however, the employers’ organization In all of these initiatives, the role of govern- is responsible for continuously updating the ment has varied—suggesting that this role codes. The codes have been developed at a changes based on the situation. For instance, cost of 15,000 (see case 10). in Cambodia the government was an active part of the process, whereas in the Kenyan flower industry initiative it played a very minor role. In South Africa the government was represented on the governance board of where they can identify the problems, outline the the initiative. requirements, and determine how to address them. The industry-specific, multistakeholder approach has also proven to yield results in developed economies as witnessed by the experiences in the and contribute to greater transparency in the skilled trades in the Netherlands. The model used in implementation process. the Netherlands could easily be replicated as good The research undertaken for this report shows that practice in other countries, including developing in several locations stakeholders have sought to countries (see case 10). address not only what is required, but also how it is done in practice. In these locations, efforts have thus Recommendation: We recommend that the generally sought to bring greater clarity to the mean- public sector in developing countries seek to ing of the law, and to guide the supplier to adjust its engage, as appropriate, multiple stakeholders work practices in meeting these requirements. representing workers and businesses in distinct The experiences also suggest that clarification is industries in efforts to ensure greater clarity of likely to be more successful when addressed at the laws as well as guidelines on implementation. industry level rather than at the sector or economy- Such efforts would take the form of a users’ wide level as labor and environmental issues tend to guide on relevant legal requirements, a man- be industry specific (see box 8).23 These experiences agement guide on implementation that would also suggest that multistakeholder approaches rather help managers identify what actions are neces- than government-only attention to these issues sary to implement the various provisions, and a should be pursued.24 Such an approach engages workers’ guide on their rights under the law. stakeholders in confidence-building processes The role of government could be to encourage such efforts as well as to play a facilitating and endorsing role to ensure consistency with legal 23 There may be issues that are more suitably addressed at the national level. requirements. Such efforts may be carried out in connection with collaborative initiatives; how- 24 This was also confirmed in interviews with representatives of labor inspection agencies in the Philippines, India, and Sri ever, they may also yield results when carried Lanka. out independently of wider efforts. Recommendations 31

4.1.2 Enforcement of Standards • Tacit cooperation: In several places it seems as if the public sector tacitly recognizes private mon- Enforcement of standards is a key challenge to itoring as an effective substitute for public governments trying to create an enabling environ- enforcement. This is the case in the South African ment for the achievement of good labor and envi- wine industry, where the ongoing WIETA moni- ronmental standards in global supply chains. Poor toring in the exporting part of the industry effec- enforcement is the key aspect of the public gover- tively has allowed the public inspectorates to nance failure with respect to labor and environ- focus their resources on those producing for the mental standards. This is a belief that has been domestic market. The Ministry of Labour is rep- deeply internalized by those consulted for this resented at the governing body of WIETA, report, with the result that many are extremely thereby explicitly endorsing the initiative as well skeptical that the situation will change. as the standards aspired to and the monitoring The present enforcement capacity in many devel- methodology employed. Even though the Min- oping countries suggests that a system of credible istry of Labour has not stated that the private, and robust enforcement must rely on other means independent monitoring formally substitutes for of enforcement than the traditional policing under- public inspections, such a move is being consid- taken by the public inspectorates.25 ered. Similarly, the industry-led and -governed Kenya Flower Council that conducts frequent The absence of robust and credible public enforce- monitoring of growers according to and beyond ment is therefore the principal reason for the rise in legal standards has effectively allowed the public private monitoring by multinational corporations labor and environmental inspectorates to reduce in recent years. However, as has been stated sev- their monitoring. There is no formal agreement to eral times, while private monitoring and auditing this. Interviews with public inspectorates in other conducted by multinational companies may, in countries revealed that private monitoring in principle, be seen as a complementary resource to practice often substitutes for public inspections or the public labor and environmental inspection sys- as a minimum informs the comprehensiveness of tems, in practice the current “system” misallocates the inspections performed.26 and duplicates resources without producing a cor- responding benefit in social, environmental, or • Formal cooperation: In Cambodia there is economic terms. a high degree of formal cooperation in that ILO-driven monitoring has replaced public The research undertaken for this report suggests inspections. In the Philippines, the government- that public-private collaboration on enforcement endorsed and -mandated WRAP program, presents some opportunities for achieving better which relies on private auditors, also formally and more comprehensive enforcement. The exam- replaces public inspections in the garment indus- ples identified are very different, each providing try. The nascent Central American initiative, different learning experiences. Hence, we have ESCA, also seems to embark on a highly insti- illustrated at some length the most important char- tutionalized mechanism for private-public coop- acteristics of these initiatives. eration. 4.1.2.1 Public-Private Collaboration on • Self-evaluation: Whereas all of the above are Standards Enforcement highly industry-focused initiatives, the Philip- The public-private collaboration initiatives studied here shared the following important traits: 26 For instance, in India companies chosen for inspections are identified randomly by a computer system; however, once inspectors visit companies that have been subjected to private monitoring they adjust the scope of their inspection accord- 25 In countries such as Cambodia, the Philippines, and Viet- ingly. In addition, in situations where insurance companies nam there are fewer than 300 labor inspectors, suggesting undertake monitoring activities as part of risk assessment, the that even major increases are unlikely to have any significant public inspectorates adjust their own inspections accordingly impact on the enforcement capacity. In addition, labor (instead of testing equipment they only check documentation inspectors often are poorly remunerated, making them easy that the equipment has been tested by an independent third targets for corruptive practices. party). 32 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains

pine government has ventured an approach that applied widely across industries and companies of seeks to rely on self-evaluation as a means of different sizes. Nonetheless, we believe that there ensuring wider enforcement of labor standards. are models to be tried that build on or combine the The recently adopted Labour Standards experiences of existing examples of good practice. Enforcement Framework requires companies We note that these models can be implemented in with 200 or more employees to carry out self- isolation or combined to achieve wider impact. evaluations. Evaluations are to be carried out There are four basic models: self-evaluation, assur- once a year by a joint team of workers and man- ance, accreditation, and certification. agement on the basis of guidelines developed by We believe that the “assurance model” holds con- the government. Instances of unreported non- siderable promise for effectively combining public compliance detected during random labor and private enforcement capacities. The present inspections will result in significant sanctions. model in the South African wine industry provides Similar approaches are being tested in the Indian a good template even if the private monitoring has state of Haryana.27 In the area of environmental not yet been formally recognized as an effective standards, the U.S. Toxic Release Inventory and replacement for public inspections. The initiative similar pollutant release and transfer registers in Cambodia could also provide this kind of learn- (PRTRs) in other northern countries use self- ing; however, the initiative is presently too finan- evaluation as a means of enforcement. These cially dependent on donor support to become a real registers also use different incentives to ensure model. The multistakeholder initiative in the “honest” reporting and are noteworthy in that Kenyan horticulture industry, HEBI, could be they ensure a high degree of transparency. interesting once it moves toward securing govern- • Accreditation: During several consultations ment approval (accreditation) of trained auditors. with public sector representatives, it was sug- The “assurance model” could be combined with gested that the public sector could accredit a “accreditation” to lend additional credibility to pri- third party to conduct labor inspections. This vate monitoring, thus reassuring the buyer and pos- was not considered politically impossible. How- sibly reducing individual buyer monitoring. ever, with the notable and unique exception of Self-evaluation: We recommend that govern- the initiatives in Cambodia and the Philippines ments consider self-evaluation as a means of (the WRAP program), accreditation was not tak- enforcement in larger companies. Self-evaluations ing place in practice. The multistakeholder Hor- should be carried out by a joint team comprising ticultural Ethical Business Initiative (HEBI), in workers and management to ensure credible and the Kenyan horticulture industry, apparently has balanced assessments. This in turn means that self- a goal of training auditors within a third-party evaluation as a model can only be pursued mean- framework so that they can be accredited; this, ingfully in industries where worker representation however, is a longer-term ambition as the public is sufficiently strong to balance the power of sector currently is only involved as an observer. employers. Where local worker representation is These experiences suggest that the public sector can weak, it may be possible to engage representatives pursue several different approaches to public-pri- of relevant local trade unions. The government vate enforcement. Each approach has its merits should maintain the right to carry out random spot depending on the industrial setting and the proposed inspections. The government can use various sets objectives.28 However, the evidence also suggests of incentives to stimulate sound evaluations, rang- that there is a lack of generic models that may be ing from the threat of significantly greater sanctions when noncompliance is detected during spot- 27 We were unable to identify additional information on this inspections to the use of positive incentives, such initiative, which was mentioned during an interview with a as offering consulting services to improve labor representative of Factories and Boilers in Karnataka, India. standards and workplace processes. Companies 28 For instance, it is important to distinguish between efforts that voluntarily disclose noncompliance should be aimed at improving the competitiveness of local industries given a grace period of 6–12 months to correct the and those aimed at serving a social objective such as improv- situation. Schemes of self-evaluation can be coming the general enforcement of standards. bined with public registers such as the U.S. Toxic Recommendations 33

Release Inventory to allow local communities, build. This model should apply to industries where civil society, and business organizations to engage there are industry-wide monitoring schemes that, more effectively on workplace issues, exert greater in addition to using sound methodologies and pressure on poor performing businesses, and so trained auditors, ensure balanced representation of on.29 all concerned constituencies. Thus, the industry- led monitoring initiative in the Kenyan flower Using self-evaluation as an enforcement model industry would not pass this test as workers and will allow public sector inspection agencies to civil society are not represented either at the gov- focus their scarce resources on industries or com- ernance or implementation levels. panies where the scope for improvements is more significant.30 It may also act as a model for facili- Assurance as an enforcement model would allow tating cooperation between workers and manage- the public sector inspection agencies to focus their ment on these workplace issues. Self-evaluation, in scarce resources on industries or companies where the short term, is unlikely to bring the assurance labor standards need the most improvement. It multinational corporations require to manage their would also allow the government to effectively cap- own inspections, but it could allow for these italize on ongoing private monitoring efforts and inspections to focus more on training (capacity “legalize” the present tacit consent. In addition, building) rather than on policing. such schemes may encourage other industries to develop identical efforts as well as spur nonpartici- Assurance: We recommend that governments pating companies to join these industry-wide define specific criteria related to such areas as initiatives. This model can thus only be effectively auditing methodology, auditor training, and inde- implemented in locations where industry-wide, col- pendence of auditors to allow the public sector to laborative initiatives already exist. The model can formally recognise private, collaborative, and be incorporated into a framework that uses self- industry-wide monitoring as a substitute for public evaluation as a means of enforcement. inspections. This would allow governments to formally approve private monitoring efforts that are Accreditation: We recommend that governments based on robust methodologies and sound practices consider accreditation of third-party organizations such as the monitoring efforts in the South African to carry out labor and environmental inspections wine industry. The action would be one step short based on agreed standards and methodologies. of accreditation as the government should continue The present work within the International Social to carry out calibration visits and other activities and Environmental Accreditation and Labelling that ensure that agreed standards are upheld. Pri- (ISEAL) alliance and the Social Accountability in vate monitoring results should be made available Sustainable Agriculture project could serve as a to the public sector; as agreed in the initiative, such basis for the development of appropriate standards, results could also be made available to buyers on methodologies, and accreditation guidelines. With request. Instances of noncompliance should be respect to labor standards, the ILO could play an accompanied with grace periods of 6–12 months advisory role, drawing on its experiences with the depending on the issue. Repeated instances of non- WISE and WIND methodologies, which seek to compliance should result in penalties. As is the combine workplace improvements with productiv- case in the Cambodian textile industry initiative, ity improvements. Although accreditation may con- repeated instances of noncompliance could also tribute to a process that raises performance stan- result in public disclosure to allow peer pressure to dards, removes inconsistencies, and allows for a greater exchange of experiences and learning between the public and private sectors, it is unlikely 29 Another challenge would be to ensure the public’s access to result in more extensive enforcement unless it is to data since PRTRs publish data on the Internet. The Danish combined with a legal framework such as assurance Environmental Protection Agency showed great interest when presented with this idea. or self-evaluation schemes. These legal frameworks 30 This is the basic set-up in the Philippine enforcement could recognize inspections performed by accred- framework where “policing” inspections focus on medium- ited auditors as effectively replacing public inspec- sized companies, and “training” inspections focus on small tions, provided that private inspection reports are enterprises. made available to the public inspection agencies. 34 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains

The use of private accredited auditors could be more on capacity building, recognizing that suppli- encouraged by various incentives such as a grace ers often lack the required skills and know-how to period for reported noncompliance, a financial sub- sustain good labor and environmental practices. This sidy to cover some of the expenses, preferential was an essential and nearly unanimous result of the treatment, and lower insurance premiums. Accred- broad consultations conducted for the 2003 paper. itation, if based on standards and methodologies Government has a strong incentive to engage in consistent with international good practice, could capacity building: when enterprises are better able also contribute to reducing the frequency of indi- to achieve social and environmental goals, the costs vidual buyer audits. both of enforcement and mitigation of harm Certification: The natural extension of accredita- decline. An additional incentive is found in the tion is certification. We recommend that govern- strong international support network for governments define a list of certificates—such as ISO ments engaging in these activities, such as that from 14001, OSHA 18001, and SA8000—that would NGOs, buyers, trade unions, and donor agencies. exempt certified companies from inspections or Thus, no one government needs to assume the costs result in less comprehensive inspections. This has of such activities by itself. It is also widely believed become part of the new Danish labor enforcement that poor social and environmental practices and regime that as a key element introduces “cus- poor general management practices are closely con- tomised inspections,” which in practice means that nected, suggesting that by addressing labor and companies with robust labor or environmental man- environmental standards, local businesses may har- agement systems are subjected to less frequent and ness long-term economic benefits and vice versa. 34 less comprehensive inspections.31 Providing addi- In this section, we make a range of recommenda- tional incentives such as lower environmental fees tions about how governments can achieve the com- and preferential treatment in public procurement mon goals of competitiveness and good practice by could encourage certification.32 Although the building the skills of suppliers, and secondarily, the strength of certification in developing countries fre- institutions that support greater capacity on the part quently is met with skepticism, it appears to help of suppliers to manage labor and environmental inform the public sector in devising its strategies for issues well. Government’s role, with respect to enforcement.33 capacity building, is multifaceted and includes allocating funding, providing technical expertise, reworking the legal enforcement process, and cre- 4.2 CAPACITY BUILDING ating incentives by reducing the mandatory over- Increasingly, buyers and suppliers are urging code- sight of firms engaged in capacity building. of-conduct efforts to focus less on monitoring and

31 Companies are grouped into different categories reflecting 4.2.1 Capacity Building: For Whom? their level of performance. This in turn impacts the penalties There are four primary targets for government-sup- that can be levied: good performing companies will rarely receive a direct penalty but will be given a grace period to ported capacity building, listed in order of priority: correct the situation, while poorly performing companies will suppliers, public sector staff supporting supplier receive immediate penalties. The new Danish law also capacity building, other supporting institutions, and requires companies to finance inspections themselves. workers and their representatives. 32 In the state of Karnataka, India, ISO 14001-certified companies are exempted from certain environmental emission charges. In 2003 the region of Umbria, Italy adopted a law stating that SA8000-certified companies will receive prefer- 34 For example, overly long work hours result in part from ential treatment in public procurement; this decision, how- poor production planning; worker mistreatment occurs in an ever, is currently being reviewed by the European environment where human resources training is completely Commission in anticipation that it is in violation of European absent; occupational hazards can often be addressed through Union procurement rules. readily available safety information that is otherwise ignored; 33 The buyers consulted for the purposes of the report and managers often are unaware of the efficiencies that can expressed profound skepticism of the quality of certification be made available by basic resource management, so that in many developing countries. material inputs—and therefore costs—can be reduced. Recommendations 35

In this section we emphasize building supplier nomies. This requires a different set of skills from capacity. While it is important that the public sector those traditionally played by inspectorates, and and other institutions develop, we believe that their will likely require some training in a variety of primary role in this topic is to support the further ways, including training methodologies, under- development of supplier capacity. Furthermore, we standing of the intersection of social, environmen- address the question of worker empowerment sep- tal, and economic factors, and also an appreciation arately, in section 4.4. of the causes of potential labor and environmental violations. But, as noted above, this is somewhat circular: we are proposing that public sector capac- Suppliers ity be developed so that it can aid in the develop- The purpose of building supplier capacity is ment of suppliers’ capacity to address issues them- straightforward: to enable suppliers to perform at a selves. higher level on labor and environmental issues, while also improving the efficiency and competi- Supporting Infrastructure tiveness of their enterprises. It has become com- Government also can play a constructive role by monplace among many buyers to say that a fourth supporting the creation of a network of institutions element has been added to their traditional criteria enabling code implementation. Such institutions of price, quality, and delivery: compliance. One of include academia, technical experts, industry orga- the primary means of accomplishing this is helping nizations, and employers’ federations. As efforts to suppliers make the transition to become enterprises apply codes of conduct move into a second decade, that manage successfully based on economic, it is becoming clearer that more sophisticated train- social, and environmental criteria. Many suppliers ing and educational efforts are needed. Many sup- themselves acknowledge that they have not had the pliers have had the benefit of broad awareness-rais- opportunity to develop the competencies in human ing initiatives. What is needed now is more resources, environmental health and safety, and technical expertise on production planning, human production planning and engineering that lead to resources management, environmental health and the compliance levels their customers are seeking. safety, use of chemicals, labor-management dia- Too often, efforts to ensure good environmental logue, and the like. As noted below, a major effort and labor performance have focused on the symp- to develop fledgling industries is not without toms of poor performance when efforts to build precedent. In both the United States and Europe, new and stronger skills among suppliers are like- major educational institutions were created to help lier to attack the causes of these problems. farmers adopt more modern techniques, and similar initiatives in developing economies could be Direct capacity building for suppliers is therefore engines of both economic growth and better social needed, and in addition, there is a need to build the and environmental performance. Other specialized capacity of other institutions so that they can aid institutions also are important to this discussion. suppliers. For example, witness the contributions made by the Hong Kong Productivity Council, a private net- Public Sector work of technical experts, in helping Hong Kong One of the underlying premises of this paper is that (China)–owned factories in the rest of China government officials can use a wider array of address excessive overtime through production instruments and actions to promote the competi- planning assistance (see case 18). tiveness and social-environmental performance of suppliers. It is also the case that some additional Workers and Their Representatives skills are needed to accomplish these goals. It is widely acknowledged that workers and trade One critical element of capacity building is the unions have been marginalized until recently in the reorientation of labor and environmental inspec- code-of-conduct debate. Indeed, many trade unions torates away from pure top-down enforcement and do not support the widespread development of toward an educational function such as that played codes of conduct. However, with the focus of this increasingly by inspectorates in developed eco- paper on the role of the public sector in creating an 36 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains environment in which labor standards and envi- could be much more widely shared with labor ronmental protection can be a greater part of global inspectorates across the world. supply chains, there is a clear opportunity to enhance the role of workers and trade unions 4.2.2.2 Supplier Training on Human Resources linked to supply chains, in part through strength- Many observers of supply chain issues have noted ening their capacity. As this is central to the topics that the vast majority of the efforts to date have discussed in the paper, we include a separate sec- focused from the “outside in,” seeking to mandate tion focused on worker empowerment, and capac- performance on social and environmental issues, ity building for workers and their representatives. rather than looking at the question from the “inside out,” by providing basic human resource manage- Recommendation: In order of priority, government training that is likely to lead to better work- ments should focus their capacity-building ing conditions. This approach has the evident ben- efforts on suppliers, using a wide array of meth- efit of bringing about production improvements ods. Second, governments should explore the that enhance commercial performance as well. new capacities needed within government to Several of the examples we cite in this paper have undertake the range of actions proposed in this a supplier training element. This reflects the broad paper. A tertiary priority is the need to build the desire to enhance the understanding of labor and capacity of workers, trade unions, and civil soci- environmental issues, and also the link to produc- ety organizations. tivity improvements. Training for suppliers should be delivered by a wide range of parties, including the following: 4.2.2 Capacity-Building Initiatives • Government agencies: There is a valuable The following sections outline specific recommen- opportunity to use the resource represented by dations that governments can pursue. labor, environment, and agriculture ministries and inspectorates to build the skills of exporters 4.2.2.1 Supplier Training on Labor and on labor and environmental issues. Environmental Standards • Buyers: Buyers already have begun in many In many cases there is an information gap that pre- cases to shift the resources they devote to vents suppliers from pursuing the environmental promoting CSR in their supply chains away and labor policies discussed in this paper. This cor- from monitoring and toward educational efforts. responds to a clear and demonstrated need in the This trend should be encouraged. One way to do marketplace. In addition to the information gap, this is to create some incentives for those sup- there is a perception gap in that most suppliers still plier firms participating in such activities, or to perceive improvement of labor and environmental use such efforts as part of the public-private practices as being inconsistent with productivity enforcement collaboration schemes suggested and profitability. This was one of the key findings above. While this trend is positive, buyers and of the ILO’s research in support of its Factory local governments should make sure that a Improvement Programme (FIP). The research— system of uncoordinated, individualized ad hoc and the evaluation of the implemented program— monitoring is not simply being replaced with suggested that this perception is one of the key bar- a system of uncoordinated, ad hoc capacity riers preventing sustained efforts from improving building.35 workplace practices. This only serves to under- score the importance of ensuring that supplier • Technical experts: Many issues, notably on training on labor and environmental issues—and environmental practices and health and safety other capacity-building efforts—address the twin objectives of compliance and competitiveness. To address this issue, which we believe to be a mis- 35 Buyers consulted for this study emphasized that while the conception, the experiences from the ILO’s FIP in bottom-up approach was required to deliver sustainable per- Sri Lanka, which builds on the WISE methodology formance, it was also an extremely resource-consuming pro- employed successfully in other Asian countries, cess that individual buyers were ill-equipped to undertake. Recommendations 37

issues, as well as human resources and produc- Accomplishing this goal will require the develop- tion planning, require technical expertise. These ment of new skills by staff in labor and environ- are sometimes unavailable in local markets, or mental inspectorates, as well as integration of other beyond the financial reach of individual suppli- government agencies not traditionally engaged in ers. Government can seek ways to make such such work, such as Ministries of Trade and Com- resources more widely available to individual merce. It will also require a change not only in suppliers, or more likely, groups of suppliers. technical skills, but also in the mindset of institu- This concept also fits into the centers of excel- tions more familiar with mandating than with lence concept presented below. enabling and teaching. • Academic experts: As noted below, many gov- In adopting any or all of these efforts, it is worth ernments have historically supported the devel- including an assessment of the impact of this opment of academic centers that promote capacity building. The approach used by the ILO’s learning within industry. The development of FIP in Sri Lanka is instructive here. That program professional development and educational cen- included key performance indicators that measured ters was at the core of the creation and modern- both the compliance benefits and the production ization of agriculture in the United States and improvements that resulted from the program. Europe, and this model can and should be applied also to the need to develop and modern- Recommendation: Governments should take a ize the export industries discussed here. range of steps to shift their focus toward greater reliance on capacity building. This can be Recommendation: Governments should take accomplished through a number of means steps to ensure that a diverse roster of resources including diversification of the skills present in is available to support learning by suppliers. labor and environmental inspectorates, the cre- Where gaps exist, government should invest in ation of new incentives for the staff of such the creation of needed resources. inspectorates, and the creation of new incentives for factories that would access these resources. The effort may include the establishment of 4.2.2.3 Reorienting Inspectorates toward training as a factor in determining which facto- Capacity Building ries will be subjected to formal inspections. We believe there is a strong opportunity for devel- Assessments should be conducted to determine oping-country labor inspectorates to make a transi- the effectiveness of these measures to allow for tion similar to that which developed nations and decisions about how to invest the time and many multinational buyers have made, away from resources of the inspectorates in the future. a reliance on the enforcement function and toward a teaching function that enables suppliers to assume a greater share of the responsibility for per- 4.2.2.4 Creating Local Expert Networks formance. We do not believe that government can or should This approach holds the potential to make better use assume the entire responsibility of building sup- of the scarce resources made available for enforce- plier capacity. One additional way of supporting ment. We believe that this proposal does not repre- suppliers in their expertise development is to cre- sent an either-or approach but rather a model that is ate a network of experts in key sourcing locations mutually reinforcing. It has been, for example, at to provide technical and educational assistance to the heart of the Cambodian initiative in the garment suppliers. This is fully consistent with the govern- industry, where capacity building for suppliers (and ment’s role as facilitator, and contributes to the cre- also workers) was viewed as an essential element of ation of a decentralized system of support. the enhanced monitoring framework developed. In our consultations for this paper, we heard repeat- This developmental approach to enforcement is at edly from buyers and others that there is a paucity the heart of the new Philippine legal framework for of expertise available in the most critical markets, labor standards enforcement. with China being cited several times as being a 38 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains place where capacity building is strongly desired, A strong case could be made, particularly in agri- but without requisite experts to provide such ser- culture, for mobilizing the local community in vices. There is, therefore, a clear need for govern- efforts to sustain good labor and environmental ment to seed the development of wider networks of management practices. The concept of facilitating independent expertise to support supplier develop- local or community-based networks is adapted ment. Again, the experiences of the ILO Factory from an initiative in Ireland, where the local Improvement Programme and the use of WISE authorities have run a community-based environ- methodology in the Philippines, Cambodia, and mental health and safety scheme to improve health, Bangladesh suggest that the tools required exist. safety, and welfare in smaller communities (see case 7). The objective is to raise awareness of Governments also can help to establish low-cost health and safety issues by encouraging key orga- environmental health and safety networks to stim- nizations involved with the local business commu- ulate and facilitate learning, provide simple ser- nity to assume greater responsibility for the health vices via local experts, and pool company and safety of their working populations. The aim is resources for training activities. These networks would be run by experts in environmental health to facilitate their involvement in obtaining sustain- and safety, labor relations, and/or human able improvements in workplace health, safety, resources, and would be accessible to a small num- and welfare. ber of companies (say, 10–15) of equal size, indus- The first step involves identifying and mobilizing trial profile, and experience. relevant local partners, identifying needs and con- While external funding (donors or the public sec- cerns, and engaging organizations such as busi- tor) would be required to set up such networks, the nesses, fire brigades, police, and civil society orga- cost of running the networks could be covered by nizations. The second step is to create awareness of the participating companies. They would con- issues related to environmental health and safety. tribute an annual fee to cover overhead as well as This can be done through appropriate communica- pay a fee for extra services provided. The experi- tions media in the local environment (for instance, ences of the Employers Confederation of the an effective mix of radio programs, posters, adver- Philippines suggest, however, that there may be a tisements, fliers, and information stands). The third financial barrier that prevents such services from step involves targeting inspections by multi-skilled reaching the markets where they are most needed. teams, providing seminars and workshops on envi- This often means neglected small and medium- ronmental health and safety issues, and organizing sized companies (see case 13). Multinational com- similar information days. Such approaches can be panies also could consider establishing such net- found in the Kenyan horticulture multistakeholder works themselves or providing additional re- initiative, HEBI, which seeks to develop more par- sources to networks.36 Industry-wide buyers’ ini- ticipatory monitoring techniques that also involve tiatives, such as the German AVE initiative, would the local community. be particularly well placed to establish such networks. Indeed, it has been surprising to see that Recommendation: Government should make an neither local governments nor donors have actively investment in the creation of local networks, pursued the idea to develop third-party capacity to pulling together the types of resources discussed assist in the process of code implementation in this section. through building suppliers’ capacity.37

36 Again we would refer to the initiative by the Employers 4.2.2.5 Developing Centers of Excellence Confederation of the Philippines, which has tested such busi- One further approach to fostering capacity building ness networks in which a larger company assists its small is to establish “centers of excellence” that combine suppliers to embrace a rights-based approach to workplace attention to social and environmental issues, with improvements (see case 13). the management and technical skills that allow for 37 The involvement of the German bilateral donor agency, more productive and competitive industries to BMZ, in the German retailers initiative (AVE Social Com- pliance Initiative), has been limited to sponsoring awareness- develop. As noted previously, many multinational raising activities. companies claim that it is generally difficult in Recommendations 39 many countries to identify local service providers These centers of excellence could include the fol- that can provide such management services. lowing features: Such centers could be set up as complementary • Engagement of a variety of industry sectors capacity-building efforts to industry-wide moni- (such as light manufacturing, heavy manufac- toring or wider collaborative frameworks.38 This turing, and agriculture) to facilitate learning and would allow services and skills offerings to be built skills transfer across industries. around the needs identified in the monitoring to • Operation and governance by a combination ensure a match between supply and demand of ser- involving academic or technical institutions, vices. It would be critical to ensure that such cen- business federations, technically skilled NGOs, ters offer services that meet the demands of the trade unions, and other service providers. market.39 Both of the ILO-run programs in the garment industries of Cambodia and Bangladesh have • Services could include the management of envi- a built-in component that seeks to develop produc- ronmental health and safety and human resources tion and quality management advisor services as well as productivity, production, and quality around the labor monitoring. management. Services could be delivered through training workshops, problem-solving Building on these models can be accomplished by resources such as “hotlines,” a center for stake- developing centers of excellence that would create holder dialogue, and the provision of basic edu- ongoing resources for employers and employees. cational, health, or other services to workers. The century-old model of agricultural educational centers in Europe and the United States is in fact In the short term, donor and public sector funding instructive as a means of creating the skills needed would be crucial to sustain the financial viability of to transition an economy from one form of activity such centers. Donors can also play an important to another. In other words, just as agricultural role in developing the initial necessary service extension colleges were considered essential to the delivery capacity of such centers, developing the development of a modern U.S. agricultural indus- organizational set-up, and raising awareness try in the late 19th century, so too could centers of among local businesses of the benefits accruing excellence help SMEs selling in the global market- from use of services. In the medium-term, these place develop the skills needed to make the best centers—operated either by private, market-driven use of their commercial relationships. actors or semi-public institutions—must become financially self-sustainable. The industry-led compliance initiative in the Kenya cut-flower industry, the Kenyan Flower Initially, services could be subsidized such that cus- Council, incorporates aspects of this in its work tomers are charged a discounted rate. In the medium program. There, monitors seek not only to audit term or after repeated use of services, customers performance, but also to facilitate the transfer of could be charged the full market costs of such ser- new techniques and lessons learned. The limited vices. The costs could also be adjusted according to time available to these monitors, along with a lack customer size—effectively benefiting SMEs. of skills, means that this aspect is underprioritized Multinational buyers, along with other multina- during audits, however. tional companies, also have a role to play in knowledge and skill transfer. They can help their suppli- 38 Most public sector consultation partners found the concept ers and other participants in supply chains to of centers of excellence attractive, although several were develop the basic management tools, specific unsure about the capacity of government or the private sec- human resources, and environmental management tor to initiate and finance such centers. systems that have become commonplace in com- 39 Bilateral donors consulted emphasized the importance of panies based in more developed economies. ensuring that such centers were built around clearly identified market demands—and not just supplier needs. As evidenced by the experience of the Employers Confederation of the Recommendation: Government should facili- Philippines (see case 13), needs do not necessarily translate tate the development of local centers of excel- into demands as the latter require a financial capacity not lence through funding and incentives. always present in small and medium-sized companies. 40 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains

4.2.3 Mechanisms for Promoting found little support for incentives that either would Capacity Building erode government revenues, or provide positive incentives simply to encourage companies to abide In sum, governments can enable capacity building by applicable laws. In addition, there are lingering in a variety of ways. questions about whether incentives achieve their The first is by changing policy, or changing imple- intended purpose separately, and only achieve mentation strategies. This arises most clearly with desired impact as an element within a comprehen- the reorientation of inspectorates toward a greater sive strategy. reliance on teaching, as opposed to pure policing. The second is through funding, as governments 4.3.1 Targeted Incentives have the opportunity to invest in capacity building that may in the long run produce more successful Governments possess a wide array of incentive- results than existing models do. Every government based mechanisms to stimulate investment that around the world invests in educational efforts and contributes to good workplace practices. These fall trade promotion, and there is no reason why the into two categories: positive incentives and nega- two cannot be linked. tive incentives. Third, governments also can facilitate capacity Positive Incentives building through incentives. While this category is Positive incentives such as tax breaks, lower envi- addressed separately below, we believe that gov- ronmental charges, lower insurance premiums, and ernments can put in place incentives that will lead other options can be used to encourage firms to suppliers to embrace capacity building, possibly as meet or exceed compliance baselines. These mea- a way to offset the risks of enforcement actions. sures will enjoy the most favorable reaction when Given the sporadic levels of enforcement, this is an the benefits outweigh costs, and when they are effort that could perhaps be linked to coordinated focused on a result beyond honoring companies for enforcement, as discussed above. meeting their legal obligations. Fourth, it may be that simply making existing For instance, in the Indian state of Karnataka, firms resources known to target audiences (that is, encour- implementing ISO 14001 or similar environmental aging exporters’ associations to take advantage of management systems are eligible for lower environ- existing educational and technical assistance pro- mental charges. The Danish labor inspection frame- grams) could have a catalytic role—though the work exempts from comprehensive (and costly) impact would be more modest than that of other inspections companies that are OSHA (Occupa- delivery devices. tional and Safety and Health Act) 18001 certified or have implemented a workplace management system of an equivalent nature.41 Similar schemes are in 4.3 INCENTIVES place elsewhere throughout the industrialized world. Governments have several potential mechanisms at In the Philippines, as part of an overall incentive their disposal to promote investment in manage- package to stimulate growth among micro-enter- ment and workplace practices that improve com- prises and small companies, such firms are petitiveness as well as labor and environmental per- exempted from enforcement of the minimum wage formance. law, as long as employees covered by the act receive the same benefits given to employees in These and other examples show how incentives can other enterprises, including social security and shape business behavior. Still, in the course of con- healthcare benefits.42 sidering options for this paper, we and many of those with whom we consulted raised a number of ques- 41 As the Danish labor inspection framework requires com- tions about the use of incentives.40 We generally panies to pay for the costs associated with labor inspections, the incentive to adopt good labor management practices is 40 Some public sector representatives expressed great enthu- further strengthened. siasm for the use of incentives of all kinds, including tax 42 The overall incentive package also includes exemption from exemptions and deductions. income taxes as well as lower local taxes, charges, and fees. Recommendations 41

Incentives such as awards and other forms of public endorsement can also be used to stimulate good performance. While we question the impact such Box 9: Conditionality initiatives may have on the wider enjoyment of In the Netherlands, access to export credits is labor rights and environmental protection, some linked to “soft” compliance with Organisa- consultation partners felt that awards could con- tion for Economic Co-operation and Devel- tribute to the adoption of progressive workplace opment (OECD) Guidelines on Multina- practices. tional Corporations. In Denmark, the Danish export credit fund recently signed on to the For instance, in the Philippines a presidential Equator Principles. Access to the Danish award has been used to encourage companies to International Development Agency’s [AU: improve workplace practices. This award was I’m not entirely sure whether this should be instituted in connection with the ILO-driven “Agency” or “Assistance”; there are refer- WISE program—which received nationwide ences to both. Please change globally if nec- attention (see case 12)—suggesting that the essary.](DANIDA) mixed credit facility is impact of such incentives may be augmented conditioned on compliance with a number of when they are part of a combined strategy. Simi- labor and environmental criteria. There are larly, the Company of the Year Award (COYA) in numerous similar examples. Kenya instituted by the Kenyan Institute of Man- agement has presumably had significant impact on workplace practices in manufacturing industries.43 The award comes with a small cash prize, and cov- Governments also could require firms (that is, their ers issues beyond workplace practices and other managers) to undergo mandatory training on labor CSR aspects. and environmental management at accredited institutions as a condition of maintaining their license Additional positive incentives based on the condi- to operate. Such a requirement is common practice tionality of benefits, capital, or participation in in many fields—such as law in the United States.44 public trade promotion efforts also draw great support, and provide an additional mechanism to con- A variant would be to require companies to be sider. These work by making compliance with given training at accredited institutions—the num- labor and environmental standards an “entry point” ber of hours would correspond to the number of for certain government benefits. The incentives can employees or turnover statistics or both. The num- include linking access to public procurement or ber of hours can be reduced or the types of training participation in trade fairs. changed if the company has implemented a labor or environmental management system such as For instance, a number of northern governments, OSHA 18001, ISO 14001, or any equivalent. including bilateral donors, link access to export credits and similar financial schemes to compli- Government procurement policies also can play a ance with labor and environmental standards (see role in encouraging positive behavior, and in fact is box 9). One recent example comes from the Inter- one of the most direct steps the public sector can national Finance Corporation’s (IFC) conditioning take. The recent announcement that the United loans for the creation of a free-trade zone along the Nations system would apply the principles of the border between the Dominican Republic and Haiti UN Global Compact to its own procurement efforts that adheres to core labor standards. This was is one example of the ways—if applied by national highlighted by representatives of the trade union governments—in which the public sector can cre- movement as a prime example of an important step ate positive incentives. Given the vast volume of forward. purchasing by public sector agencies, this is a step that has potential for substantial impact.

43 Thus, the Kenyan Human Rights Commission has spoken 44 Firms should fund their own participation. The penalty for very favorably of the award, which is believed to have con- not participating could be the equivalent of the training fee tributed significantly to the adoption of better workplace plus a fixed amount that in principle would outweigh the pos- practices in manufacturing industries. sible advantage of attending to work instead. 42 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains

Recommendation: We recommend that governments explore the relevance of using the diverse Box 10: U.S. Toxic Release Inventory set of positive incentives available. Incentives Companies may become eligible for a num- such as reduced local fees and charges can be ber of incentives if they meet nine disclosure used to encourage the adoption of labor and envi- criteria. Incentives include (a) no gravity- ronmental management practices that result in based penalties, (b) reduction of gravity- benefits to society that outweigh the costs of based penalties by 75 percent, (c) no recom- granting the incentives. Positive incentives mendation for criminal prosecution, and (d) should be used as an integrated element of an no routine requests for audit reports. Exam- overall strategy that promotes better workplace ples of the nine disclosing criteria include practices. Governments should also explore the systematic, voluntary, prompt, and indepen- relevance of linking access to government “ben- dent discovery and disclosure; speedy cor- efits” such as soft lending facilities and partici- rection; and preventive measures. Repeat pation in trade fairs to legal compliance. violations are ineligible and certain types of International financing institutions such as the violations are ineligible. World Bank Group, the European Commission, and bilateral donors should use environmental and social criteria as part of their lending and meet relevant targets set in the area of workplace purchasing criteria—as this will greatly rein- practices. force the message of local governments as well as put additional pressure on local governments. Governments in Japan and the Republic of Korea have set up health and safety funds partly financed by both government and industry, to address those Negative Incentives industries that need to reduce levels of workplace Negative incentives such as levying penalties, fees, accidents. The accumulated funds are used to and other surcharges can be used in addition to pos- finance investments in industry aimed at improv- itive incentives. There is a fine line between char- ing workplace practices. Since complying and non- acterizing an effort as basic enforcement versus complying companies are taxed equally by this “negative incentives,” but the main point is to pro- system, business federations have a great incentive mote certain forms of behavior through means dif- to encourage noncomplying companies to improve ferent from checking performance and fining com- performance. panies for sub-par actions. Increased transparency has become an essential For instance, the Philippine labor enforcement element of the debate over CSR and supply chains framework levies very high fines on companies in recent years, as exemplified by the disclosure of that, having declared themselves to be in compli- multinational companies’ perceived complicity in ance, are not. This approach uses incentives through human rights abuses in the conflicts in West and the availability of self-review, and seeks enforce- Central Africa.45 While governments do not play ment through fines for misstatements. Negative the same role as NGOs and trade unions that have incentives are also used in systems in which certain raised many public concerns, there is a legitimate positive or preventive steps are used to ameliorate role for government in using appropriate measures penalties for poor performance. An example of this to enhance transparency with the goal of improv- approach comes from the U.S. Toxic Release ing performance. Inventory, through which companies can be eligible for reduced fines and other incentives if they Public disclosure of performance based on certain disclose instances of noncompliance (see box 10). well-defined criteria could be considered by gov-

An interesting concept in place in Japan and the 45 See the various reports by a UN panel of experts issued as Republic of Korea, and also under consideration part of the United Nations’ involvement in the conflicts in in the Philippines, is the use of industry-wide Liberia, Sierra Leone, Angola, and the Democratic Republic sanctions when industries substantially fail to of the Congo. Recommendations 43 ernments to stimulate companies to honor their databases, through the SEDEX project in the United legal obligations by mobilizing peer pressure, pub- Kingdom; the Fair Labor Association and the Fair lic scrutiny, and so on. For instance, in the garment Factory Clearinghouse in the United States; and the sector initiative in Cambodia, poorly performing AVE and FCD industry-led initiatives in Germany companies are given two chances to correct and France, respectively. These databases can be instances of noncompliance after which their mon- used not only to share information about factory itoring reports are publicly disclosed, and these performance, but also as a useful tool for focusing same monitoring reports are then shared among enforcement resources where the greatest potential government, manufacturers, NGOs, and trade for impact exists. This helps to reduce the redundant unions. Given that the overall performance of the monitoring and verification that currently marks the industry impacts future export opportunities for apparel industry in particular. individual companies, public disclosure can leverage and engage substantial peer pressure. Recommendation: We recommend that govern- Similarly, the Danish labor inspection agency pub- ments explore negative incentives as means of licizes the workplace performance of all compa- promoting legal compliance. The use of indus- nies on the Internet, placing each company in one try-wide penalties could be considered to of three categories (see box 11). encourage a greater degree of self-regulation within industries. Transparency of performance should also be considered; however, attention should be paid to ensuring that relevant target Box 11: “Smiling” Workplace Practices groups such as employees, potential employees, The new Danish labor inspection framework and competitors have meaningful access to pub- classifies companies’ performance into three licized data. Linking these to other efforts, categories, each represented by a colored including the targeting of enforcement efforts “smiley.” A red smiley suggests that the and the coordination of public and private company performs poorly and has been enforcement activities, will enhance their effec- requested to solicit workplace improvement tiveness. services. A yellow smiley suggests that the company has been asked to make certain corrections to the working environment. A 4.3.2 “Green Production” and “Fair Labor” green smiley suggests that the company is Zones maintaining good standards. The result is An additional option, also linked to incentives, is made public on the Labour Agency’s website the establishment of manufacturing or processing once a company has been screened. zones based explicitly on strong environmental performance and fair labor practices. As buyers and consumers of the products made in The principle of public disclosure is at the heart of free trade and export processing zones are increas- the U.S. Toxic Release Inventory and similar ingly seeking assurances of good social and envi- schemes. In general, transparency can be an effec- ronmental practices, there may be an opportunity tive tool to stimulate changes; however, illiteracy to create zones that can serve as best practice cen- and the lack of access to mass media tools such as ters.46 This model would, in theory, also appeal to the Internet in many developing countries effectively limit the potential of such initiatives unless 46 other means of publication are used. In the last 15 years in particular, there has been an increase in free trade zones and export processing zones as a favored It is also worth noting that the use of databases to mechanism for promotion exports, especially in the apparel, achieve greater transparency can also serve the pur- textiles, and consumer electronics sectors. Many critics have claimed that these zones have been locations where general pose of rationalizing the costs of enforcement. labor and environmental laws do not apply, and also that the There has been substantial movement in the last culture of such zones interferes with respect for workers’ couple years toward the development of shared rights, and reflect poor environmental practices. 44 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains exporters and governments seeking new ways to cess, such as the “Supply Chain City” concept achieve and demonstrate that their products are the being modeled in south China (featured in box result of processes reflecting good environmental 12).48 This consolidation is a “double-edged and labor conditions. Incentives to be used could sword,” presenting the opportunity to promote include gradually phased-out tax breaks that are good practices more effectively while at the same combined with a pay-back scheme if companies time risking the possibility that SMEs grow ever fail to uphold good labor and environmental stan- less able to compete as greater sophistication and dards; the availability of workplace improvement investments are needed to become part of global services at a reduced cost as well as relevant supply chains. In considering this approach, multi- worker education programs; and credible and nationals have also considered demonstrating sup- robust multistakeholder monitoring based on high port for fair labor or green production zones that standards backed by third-party verification. cross industry sector lines. The advantages of such a model also include the ability to achieve economies of scale in terms of compliance. Companies in the zones could pool Box 12: Supply Chain City resources; buyers of products in the zones could achieve desired assurance with less expense; and A recent article in The Wall Street Journal suppliers in the zones could pool resources to noted the creation of a “Supply Chain City” achieve both compliance and better productivity in Dongguan, China, in which numerous pro- while likely lowering the enforcement costs for cesses from product design to manufacturing governments. This could also serve national gov- are brought together in one location. Here ernments by providing a basis for attracting inward lies a potential model workplace for the investment on the basis of sustainable and support- embrace of leading-edge labor and environ- able business practices. mental practices. This site is being designed for 4,000 workers, and was seen as a model Such zones could represent a next and more sus- that could “radically alter apparel production tainable phase in the development of the concept of in the future.” free trade zones, delivering improvements in productivity, knowledge, and technology transfer; One interesting element of this model, for increased inward investment, and improved labor our purposes, is that this factory setting and environmental conditions. This would present brings jobs that rely not only on inexpensive a model that could usefully synthesize commercial labor, but also on greater-value-added com- and social concerns, and could also provide an ponents such as design and technologically environment in which the public-private partner- advanced manufacturing. As such, this pro- ships described in this paper could be tested and duction model presents a clear opportunity refined for broader application. The phase-out of for government to create incentives for social apparel quotas may represent an opportunity to and environmental elements of production, consolidate production organized around princi- especially if more buyers can be enticed to ples of responsible business.47 consolidate production as a result. We are also aware that several multinationals have begun to express interest in developing models that Should fair labor or green production zones be consolidate various aspects of the production pro- developed? Caution would be required to avoid having these zones become isolated enclaves, or 47 This has been the case in Cambodia and also is part of the having the standards in other workplaces decline as backdrop for the ESCA initiative in Central America. The attention shifts to these locations. The companies authors acknowledge that substantial social and economic dis- and other stakeholders should consider how posi- location may occur in sourcing countries that lose jobs. This is a serious issue that needs to be addressed. At the same time, it also appears that consolidation of production may create 48 This thinking seems inspired by the national competitive- some opportunities for further improving labor and environ- ness thinking of the 1990s propelled by Michael E. Porter’s mental practices, and that is the main focus of this paper. theorizing on clusters of competitiveness. Recommendations 45 tive linkages could be established to communities bringing of existing laws into conformance with and local economies outside the zone.49 core labor standards, and ensuring that labor-management interaction is smooth and stays within the bounds of core labor standards. Only government Recommendation: Governments should con- can play the part of a neutral party tied neither to sider granting EPZ status to collaborative management nor labor; the challenge, therefore, is export-oriented initiatives that aspire to high finding new ways to serve in that capacity.50 environmental and labor standards. Additional criteria should be defined—for instance, joint Worker education and empowerment is a good in inspections by employers and unions, as is the itself, and at the same time, worker empowerment case in some Philippine EPZs. This may act as can and should be an aspect of each of the other an incentive to facilitate the development of three categories addressed in this paper. We note such initiatives. ideas and examples in this section that are specific to progress on worker empowerment. However, we also propose that worker empowerment be integrated into the other concepts we promote and 4.4 WORKER EMPOWERMENT illustrate here. Workers in global supply chains have too often For example, both the WIETA program in South been shut out of efforts to ensure good labor and Africa and the comprehensive approach being environmental practices that affect them directly. implemented in Cambodia encompass worker In many cases, governments have been reluctant to involvement, and serve to promote worker ensure protection of core labor standards, have empowerment. The Philippine legal enforcement failed to protect the right to organize, and busi- framework that mandates joint employer- nesses have often acted in a similar manner. employee self-assessment in companies with more It is now evident that engaging workers more than 200 employees is a model system, which if directly in the process of ensuring good labor and implemented widely and effectively could be quite environmental practices is essential to sustainable useful. Each of the collaborative structures dis- progress. Better labor and environmental perfor- cussed in this paper has the potential to be mance is enhanced through more educated workers strengthened by engaging workers and trade better able to vindicate their rights, more effective unions. trade unions with free access to workers, and bet- The initiatives discussed here need to consider the ter labor-management dialogue. makeup of the work forces in question. The agri- In the long run, many now express the view that culture and apparel industries generally are com- worker engagement, and engagement with unions, posed of a highly diverse work force that includes could be as effective or more effective in raising a large cohort of workers from sectors of the labor standards than codes themselves. In the nearer term, market that often receive less complete protection there also are opportunities for improvements to be than others—namely migrant workers, women, attained through sustained efforts to empower work- and seasonal or temporary workers. Many of these ers. There is a strong need, therefore, to find ways to groups face distinct challenges in understanding ensure that workers understand labor and environ- and exercising their rights. In addition to the ben- mental laws designed to protect them, and are able efit of having governments ensure that laws apply to play a more vibrant role in pursuing these goals. to all classes of workers, there is a need to develop educational and other programs that target under- This is a role for governments to play, through the clarification and enforcement of existing laws, 50 The question of worker empowerment is perhaps one of the most politicized topics addressed in this paper. Governments 49 This point was strongly emphasized by several consulta- have, therefore, an important role to play in demonstrating tion partners. In Kenya, there are some efforts being made in their ability to act as an “honest broker” enabling workers, this direction; however, so-called green zones with free trade unions, and business to interact within the bounds of access to efficient sewage systems have been unable to fairly administered national legal frameworks consistent with attract the anticipated critical mass of investments. core labor standards. 46 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains privileged workers. In addition to addressing the more rational and effective approach is likely to specific classifications of workers in the apparel result from having governments post applicable and agricultural industries, it is essential that the legal standards in language understandable by educational levels of workers in these industries be the average worker. addressed, so that efforts and materials are appro- • Supporting educational efforts by local orga- priate and effective. nizations: While government can and should Please note that in this section of the paper there are take new steps to educate workers on their few examples of good practice from which to draw. rights, it also could help to ensure that commu- This is reflective of the secondary importance nity groups and NGOs have the opportunity to many governments and businesses have placed on engage in efforts to educate workers. this topic, and in some cases the direct opposition • Promoting general educational programs for to progress in this area. It also reflects the sheer workers: Programs such as the (soon to be challenge of reaching out to any significant num- defunct) Global Alliance for Workers and Com- ber of workers in cost-effective ways, further munities have successfully provided educational underlining the crucial role to be played by trade resources for workers in global supply chains. unions in promoting such efforts. These programs, which focus more on general educational efforts than on the provision of information specifically about workplace conditions, 4.4.1 Educating Workers about also hold the promise for improving conditions Their Rights in workplaces. The ILO WIND methodology may also be used to increase awareness among There is a substantial need for workers to become agricultural workers of issues in the workplace. more familiar with their rights at work, as well as the environmental health and safety issues that can arise in apparel and agricultural manufacturing. Recommendation: Governments should ensure that all workers in export sectors have reason- Government can support such efforts in a variety of able access to comprehensible information ways, including the following: about basic legal protections for workers, as well • Mandating provision of basic legal informa- as clear and present environmental risks related tion to workers: In some economies, notably in to the workplace. the OECD countries, it is required that workers be made aware of information concerning basic As stated above, incentives also can be created for legal protections, and this is something that businesses to engage in educational efforts aimed could be extended to countries that are main at building workers’ understanding of their rights, exporters of apparel and agriculture. The advan- and as noted below, trade unions have a central role tage of having this work done by the government to play. is that the information would be made available Note also that there is a direct link here to the clar- at a lower cost, and the message would be con- ification advocated in the section above on stan- sistent, clear, and accurate. When early efforts to dards. Without clarification of existing legal develop codes of conduct emerged, buyers requirements, it is difficult to envision effective rushed to translate their codes into local lan- educational efforts that are needed to empower guages for the purpose of placing posters on workers further. There also is a link to collaborative their suppliers’ factories walls. There is substan- enforcement methods, which can and should tial evidence that this activity did not serve the involve workers, as illustrated by the Cambodian ultimate purpose of educating workers, in part and Philippine examples. Finally, there also is a link because of the sometimes inconsistent, some- to the changing role of labor and environmental times confusing messages sent by having inspections, which could include these government numerous standards posted in a single work- workers in any shift toward more of an educational place. Given that these codes rely to a very sub- role, as opposed to a pure policing mindset. stantial degree on applicable legal standards, a Recommendations 47

4.4.2 Removing Barriers to 4.5 ENHANCING DISPUTE RESOLUTION Worker Representation MECHANISMS In many countries that are major exporters of Governments also can help to empower workers by apparel and agricultural products, there are de jure creating more easily accessible means through and de facto limitations on unions’ abilities to oper- which workers can express concerns about work- ate. Governments can achieve the objectives place practices. described in this paper by providing more space for workers to choose freely whether to participate in In the last 10 years, an entire new global industry independent trade unions, and this holds the poten- has been created to produce a monitoring “police tial for decentralizing the monitoring of workplace force” that roams the world to identify and help conditions by engaging workers more directly. As remedy labor and environmental issues. Too often noted earlier, this would also seem to be a prereq- overlooked has been a set of dispute resolution uisite for the further development of effective, mechanisms that can play a useful role in deterring credible, and balanced self-assessment models that and mediating issues. As noted by one international involve joint employer-employee inspections and trade union leader interviewed for the project, labor assessments. intensive industries are often rife with disputes— especially where, as in the apparel industry, incen- The inability of trade unions to operate in a manner tive-based compensation is the norm. that allows workers to exercise their right to freedom of association and collective bargaining dis- This person suggested, and we agree, that explo- torts and limits the effectiveness both of local laws ration of mediation services be considered. Nations and of codes of conduct. These organizations are in North America and Europe have long used such also likely to play a key role in delivering required services as a relatively nonbureaucratic way to pre- training and information to workers, including the vent and address disputes, and it is possible that development of simple and popular tools that will such concepts could be developed outside these help workers address environmental health and regions as well. This union leader suggested that safety issues in the workplace. shifting some labor disputes to this type of forum also would make freedom of association easier to In many locations—including, notably, EPZs— implement, as his view is that employers become unions often have difficulty gaining access to less wary of unions once alternative dispute reso- workers. Government could take steps to ensure lution mechanisms become available. that security provisions established for the legitimate purpose of managing trade restrictions are not The experiences from the Cambodian garment applied for inappropriate purposes. industry provide useful and instructive learning lessons, even if the quota-based system may not Many observers—including workers—have also continue after phase-out at the end of 2004. The noted that trade unions have not always acted as ILO representative who is responsible for the pro- independent organizations seeking to represent gram noted in consultations for this report that the workers. Some in the international trade union development of a dispute resolution mechanism in movement have indeed acknowledged this pri- the industry in the long run may end up being the vately. Government, possibly acting in concert most important contribution of the ILO project to with international institutions, can help to profes- labor standards in the industry. In addition to hav- sionalize the actions of trade unions, and help to ing solved certain conflicts, the mechanism has remove inappropriate political and other barriers to effectively turned out to be a confidence-building the effective functioning of unions as the represen- measure that eventually may allow for less antag- tatives of workers. onistic and more constructive relations between the labor market parties. Governments also can streamline the bureaucracy devoted to addressing workplace conditions by creating special adjudicating bodies for particular 48 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains types of workplace issues, such as workplace injuries or wage disputes. Such efforts, when coupled with raising the awareness of workers about the resources’ availability, and relative ease of access, can serve a useful purpose. APPENDIX A References

Berman, Jonathan, Tobias Webb, and others. 2003. “Race to the Top: Attracting and Enabling Global Sustainable Business.” World Bank, Washington D.C. DANIDA. 2004. Guidelines for Integration of Working Environment Concerns into Dan- ish Development Assistance. Copenhagen, Denmark: Danish International Development Agency. DFID. 2004. Labour Standards and Poverty Reduction. London: Department for Interna- tional Development. Fox, Tom, Halina Ward, and Bruce Howard. 2002. “Public Sector Roles in Strengthening Corporate Social Responsibility: A Baseline Study.” Washington D.C.: World Bank. ILO. 2003. “Fundamental Principles and Rights at Work: A Labour Law Study—Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua.” International Labour Office, Geneva. Jørgensen, Helle Bank, Peder Michael Pruzan-Jørgensen, Margaret Jungk, and Aron Cramer. 2003. Strengthening Implementation of Corporate Social Responsibility in Global Supply Chains. Washington D.C.: World Bank and International Finance Corporation. Ministry of Foreign Affairs and others[AU: Please cite all authors; do not use “et al.”]. 2004. “How Donor Agencies Are Supporting and Enabling Corporate Social Responsibil- ity.” A summary document prepared for the conference on Development Cooperation and Corporate Social Responsibility—Exploring the Role of Development Cooperation Agen- cies. Stockholm, March 22–23. [Reference not cited] Oxfam International. 2004. Trading Away Our Rights—Women Working in Global Sup- ply Chains. Oxford. Polaski, Sandra. 2004. “Cambodia Blazes a New Path to Economic Growth and Job Cre- ation.” Carnegie Papers No. 51, October, Washington, D.C. Ward, Halina. 2004. Public Sector Roles in Strengthening Corporate Social Responsibil- ity: Taking Stock. Washington D.C.: World Bank and International Finance Corporat ion.

APPENDIX B List of Organizations Consulted

Public sector Buyer Donor Civil society China Ann Taylor* 1 Asia Monitor Resource Centre* 2 City University of Hong Kong* 1 Disney* 1 Gap* 2 Guangzhou Occupational Health and Occupational Rehabilitation Resource Center* 1 HK Christian Industrial Committee* 2 IPS (subsidiary of Limited Brands)* 1 Li & Fung* 1 May Company* 1 Narrowgate* 2 Nike* 1 Participatory Development Appraisal Network* 1

India Karnataka State Pollution Control Board 1 Karnataka Factories and Boilers Department 1

Kenya Kenya Human Rights Commission 1 Kenya Investment Promotion Agency 1 Kenya Tea Development Agency 1

Philippines Occupational Safety and Health Center 1 Employers Confederation of the Philippines 1 Bureau of Working Conditions, Department of Labor and Employment 1

South Africa Department of Economic Development and Tourism 1 WIETA 1

Sri Lanka Export Development Board 1 Department of Labour 1 Ministry of Labour 1 Board of Investment 1 Central Environmental Authority 1

51 52 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains

Public sector Buyer Donor Civil society United States Fair Labor Association 1 Maquila Solidarity Center 1 Clean Clothes Campaign 1 Solidarity Center, AFL-CIO 1 USLEAP 1 Workers Rights Consortium 1

Europe ICFTU 1 ILO 6 DFID 3 DANIDA 3 SIDA 2 GTZ—Programme Office for Social and Ecological Standards 2 BMZ—Public Sector Cooperation 1 European Commission DG Development 1 European Commission: Occupational Health and Safety Agency 1 LO/FTF Council (Danish Trade Union’s international development arm) 2 Environmental Protection Agency 1 Oxfam International 1 Natural Resources Institute 2 Hennes & Mauritz* 1 Karstadt Quelle* 1 IKEA* 1 Marks & Spencer* 1 Adidas* 1 Chiquita* 1 *Consulted in a group larger than two persons. [AU: Ideally, we should add a list of definitions for all the acronyms and abbreviations we have in the table.] APPENDIX C List of Cases of Good Practice

Case 1: Australia—Homeworkers Code of Practice Case 2: Bangladesh—Collaborative ILO initiative in the garment sector Case 3: Cambodia—Collaborative ILO initiative in the garment sector Case 4: Central America—Export Success in Central America Partnership Case 5: Asia—ILO Factory Improvement Programme Case 6. India—Fair Wear Foundation’s Tirupur Committee Case 7: Ireland—A community-based approach to health and safety Case 8: Kenya—Horticulture Ethical Business Initiative (HEBI) Case 9: Kenya—Kenya Flower Council Case 10: The Netherlands—Industry sector codes and guides Case 11: Philippines—Private sector self-assessment of labor standards compliance Case 12: Philippines—Workplace and productivity improvement in small enterprises Case 13: Building capacity in the Employers Confederation of the Philippines Case 14: Philippines—Manufacturers and exporters re-accreditation program (WRAP) Case 15: South Africa—Collaborative initiative in the South African wine industry Case 16: Global—Pollutant release and transfer register (PRTR) Case 17: Denmark—New labor inspection regime Case 18: China—Increasing productivity and reducing overtime

53 54 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains

In addition, the Australian Competition and Consumer CASE 1: AUSTRALIA— Commission (ACCC) has exempted the Code from the HOMEWORKERS CODE OF PRACTICE Trade Practices Act for five years. The ACCC was sat- isfied that the arrangements under the code are likely to The Homeworkers Code of Practice was initially devel- result in a benefit to the public, which is sufficient to out- oped in 1997 by the Australian Textile, Clothing and weigh any likely anticompetitive detriment resulting Footwear Union (TCF) together with representatives of from the code’s implementation. The decision provides the retail and manufacturing industries. The code is a immunity from court action to companies that are sig- voluntary self-regulatory system that monitors the pro- natories to the code, have become accredited under the duction chain from retailer to outworker, to ensure legal code, or enact the provisions of the Code. wages and conditions. The code covers retailers, suppliers, manufacturers, and homeworkers in Australia only. Manufacturers can choose to become accredited, which Financial Aspects allows them to use a “No Sweat Shop” label. Companies that wish to become accredited pay an The code has two main parts. The first part concerns annual fee of AUD 2,200. The parties themselves under- retailers that commit, for instance, to provide the TCF took the development of the code. with their full list of clothing suppliers; on request, the union can access details of retailers’ individual contracts Incentives for Participation including turnaround times for orders, the number of Retailers’ and manufacturers’ principal incentive is to garments in the contract, a sample of the garment, and in ensure legal compliance, avoid bad publicity (such as some cases the price paid for the contract. Also, retailers intensive NGO campaigns on the plight of homework- commit to end contracts with suppliers where exploita- ers in Australia), and possibly promote “ethical prod- tion is proven. ucts.” In October 2002, the Australian Retailers The second part concerns all suppliers, including ware- Association signed a national ethical agreement with the houses, fashion houses, and manufacturers. Accredita- TCFUA. Individual retailers must sign the agreement to tion to use the “No Sweat Shop” label is an option for indicate their commitment and intent to follow the code. suppliers. Compliance with the code is primarily based on review of relevant documentation including contracts Impact with individual homeworkers. Individual contracts are More than 30 retailers have signed up to the code and 11 benchmarked against a defined standard (an agreed companies are accredited indicating a successful out- manual standard defining garment sewing time). In come. More important, however, the code is believed to addition, the TCF may carry out on-site inspections at have improved wages and working conditions for workers’ homes and suppliers’ businesses. Manufactur- numerous homeworkers as well as drawn more attention ers of any kind can become accredited, provided that to the conditions of immigrants in Australian society. they seek to respect and enforce the code throughout their supply chain in Australia (including home-based workers)—and comply with other criteria. Assessment The code appears to have been successful. It enjoys the A committee with equal representation of employers and widespread support of all key institutions as well as trade union representatives governs the initiative. companies. The strength of the initiative must also be understood in the light of its being based on local laws, Government Role long-agreed standards between unions and federations, The government has actively helped facilitate this pro- and close bonds between buyers and suppliers (same cess. The Ethical Clothing Trades Council, the principal market, regulations, consumer proximity, and so on). advisor to government on issues relating to working con- The initiative is also interesting in that it has developed ditions in the clothing industry, acted as the principal agreed standards on labor input required to work on par- catalyst; however government strongly encouraged the ticular garments, the time required, and so on. This initiative. replaces to some extent on-site inspections. Appendix C 55

CASE 2: BANGLADESH— Financial Aspects COLLABORATIVE ILO INITIATIVE Financially, the ILO is the key contributor. The IN THE GARMENT SECTOR BGMEA has not honored its obligation to contribute. Participating companies are not required to pay a gen- The ILO has set up a project that aims to improve the eral fee or an audit fee. working conditions in the Bangladeshi garment sector by means of conducting voluntary, independent workplace improvement monitoring. Incentives for Participation There are no particular incentives developed to ensure The project, “A Partnership Approach to Improving participation of factories other than their benefiting from Labour Relations and Working Conditions in the the services provided by the program. Many of the sup- Bangladeshi Garment Industry,” builds directly on the pliers are likely to be familiar with the ILO’s IPEC pro- experiences of the IPEC program. That program gram and the resulting benefits. Buyers have been addressed the need to remove child laborers in the indus- somewhat successful in encouraging their suppliers to try and was generally considered successful in doing so. participate in the program, one weakness being that buy- The new project addresses working conditions in gen- ers maintain short-term supplier relations. eral, including core labor standards. Project implementation was originally planned for 2001–04; however, serious delays (which continue) pushed it back to 2002. Impact The impact is less than anticipated owing to the diffi- The project was initiated on the request of the employ- culties of engaging with the BGMEA. Furthermore, the ers’ federation, the BGMEA, that organizes almost all project has only been effectively running for a short garment manufacturers in Bangladesh, in view of the time. Nonetheless, the ILO believes that the project has increasing social and environmental requirements of had some positive impact at the level of the involved fac- industry buyers. In addition, the post-MFA scenario also tories, although the sustainability of improvements acted as a driver as the industry is widely perceived to be made is hard to establish. unable to compete with Chinese manufacturers. Workplace improvement monitoring is at the heart of the Assessment project. As in the IPEC program, 12 teams of monitors comprising one ILO expert, one BGMEA representative, As a model for workplace improvements and better and one Ministry of Labour representative carry out fre- competitiveness, the ILO believes that the program is quent monitoring visits. All monitors have received good. In principle, the initiative has several things going extensive training in the ILO’s WISE methodology. Two for it including a homogeneous, well-organized indus- hundred BGMEA companies participate in the project. try, same market drivers, and positive experiences from The ILO originally hoped to secure the participation of the IPEC program. 600 out of the 2,400 companies in the industry; however, As an exit strategy, the ILO has considered turning the the target is now set at 400 companies. monitoring teams into an agency or other not-for-profit association. Government Role The project is governed by a tripartite steering committee that includes labor unions, the BGMEA, and the gov- CASE 3: CAMBODIA— ernment. The employers’ federation has, however, not COLLABORATIVE ILO INITIATIVE IN allowed the committee to meet. THE GARMENT SECTOR The public sector is also represented at the operational In 1999, the Governments of the Kingdom of Cambodia level (monitoring teams) and strategic level (steering and the United States entered into a Trade Agreement on committee). Textile and Apparel. The agreement set an export quota for garments from Cambodia to the United States while seeking to improve working conditions and respect for basic workers’ in the Cambodian garment sector by pro- 56 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains moting compliance with—and effective enforcement Incentives for Participation of—Cambodia’s Labour Code as well as internationally While participation is voluntary in principle, a govern- recognized core labor standards. ment decree has indicated that participation is a require- The agreement offers a possible 18 percent annual ment to become eligible to use allocated export quotas increase in Cambodia’s export entitlements to the or buy export quotas through official bidding. Other United States provided that the Government of Cambo- incentives are free advice and training, increasing export dia supports the implementation of an ILO program to opportunities with buyers, and the risk of being named improve working conditions in the Cambodian apparel and shamed. and textile sector, including internationally recognized core labor standards, through the application of Cambo- Impact dian labor law. The impact of the project is widely held to be very pos- The program achieves the overall objective by (a) estab- itive. Monitoring reports demonstrate improved compli- lishing and operating an independent system to monitor ance in factories, and exports have increased. In working conditions in factories, (b) providing assistance addition, the labor market parties have developed more in drafting new laws and regulations, (c) increasing the fruitful relations. This has in turn allowed the program awareness of workers and employers of their rights and to develop a dispute resolution mechanism that allows obligations, and (d) increasing the capacity of the employers’ and workers’ representatives to address employers, workers, and their respective organiza- labor issues in a joint forum. The mechanism may be tions—as well as government officials. viewed as the most important contribution of the project Local staff trained by the ILO, using a fairly traditional as it has made possible more constructive cooperation and control-based methodology, carries out monitoring. between the hitherto antagonistic labor market parties. Increasingly, however, the ILO is introducing value- The program has also acted as an important lever in added monitoring by using the WISE factory productiv- maintaining the commitment of multinational compa- ity improvement methodology. Supplier audits are made nies to doing business with garment suppliers in Cam- publicly available after the third audit, that is, suppliers bodia; some of these have committed to source in are given two chances before audits results are dis- Cambodia also after the expiration of the multifiber closed. agreement. Despite buyers’ positive attitudes, many are Cambodian labor law that is largely consistent with ILO still conducting their private audits. fundamental principles at work constitute the legal basis for the program. Various guides and checklists have Assessment been developed. Prior to running the program, the ILO The key challenge of the initiative is to become finan- conducted a labor law review to see through corrections cially self-sustainable as it is currently financed solely of the most important elements. by external funding. The ILO is addressing this; however, no solution has yet surfaced. Another challenge is Government Role to establish a more formal cooperation with buyers, not A tripartite project committee including government least the GAP, the key buyer, which accounts for 40 per- oversees and governs the program, which is run by the cent of Cambodian textile exports. A third challenge is ILO on a daily basis. By virtue of the initiative’s con- the post-MFA scenario that effectively will remove the nection to a trade agreement, the government has played quota incentive. The ILO hopes that in the meantime it a key role in setting it up. has been able to convince suppliers of the positive link between labor conditions and productivity. As a model the program holds potential for replication; however, Financial Aspects this requires greater attention to the financial sustain- The total annual costs are estimated a US$1 million, ability of the initiative as well as the effect of the quota funded by the U.S. government and various donors incentive. through the ILO. The costs may increase as the focus turns more toward workplace improvement monitoring. Appendix C 57

CASE 4: CENTRAL AMERICA— Incentives for Participation EXPORT SUCCESS IN CENTRAL AMERICA As consumer pressure for ethically manufactured products increases and multinational brands demand higher PARTNERSHIP standards of labor compliance throughout their supply The Export Success in Central America (ESCA) chains, Central American manufacturers have a strate- partnership is a proposed multistakeholder (private-pub- gic incentive to establish a reputation for high labor lic-NGO) partnership to enhance the export competitive- standards. Additionally, participating in ESCA pro- ness of the textile and apparel sector in Central America vides manufacturers with a means to reduce labor (Guatemala, Honduras, El Salvador, Nicaragua, as well turnover and eliminate the redundancies of multiple as Mexico) by ensuring sustainable compliance with audit processes. By supporting the project, govern- international core labor standards and national labor ments will be able to tap into market-driven resources laws. to augment their labor enforcement efforts. The partnership plans to carry out training exercises and build capacity for workers, managers, and community Impact development; create an internationally credible moni- Primary outcomes for the ESCA project are improving toring and reporting system; remediate problems labor standards, leveraging these improved labor stan- through a continuous improvement approach; and dards for the regions’ competitive advantage in the establish high labor standards based on internationally international labor market, lowering production costs recognized principles for Central America. by reducing labor turnover and increasing worker productivity, reducing the current audit inefficiencies that Government Role result from the multiplicity of uncoordinated audits facing apparel production firms, and complementing and Central American legislators and government officials reinforcing the efforts of Central American govern- in the ministries of economy and labor as well as U.S. ments’ ministries of labor to enforce labor rights. embassies and government officials are included as part of the multistakeholder consultation process that drives ESCA. Assessment ESCA is a promising initiative that seems to enjoy the Currently the region’s ministries of labor lack the widespread support of a number of key local and inter- capacity to ensure full compliance with labor standards. national institutions. It connects the buyers and the sup- In the short term, ESCA will build an independent, pliers as well as all key stakeholder groups. The absence credible, transparent monitoring and reporting system, of the ILO is noteworthy. It is currently a little difficult which will enable ministries to primarily focus their to assess the long-term financial viability of the project limited resources on problem firms. Over time, the pro- as well as the processes required to ensure a transition ject planners anticipate that monitoring responsibilities from project phase to implementation phase. will gradually shift toward government inspectors.

Financial Aspects CASE 5: ASIA— The ESCA partnership is projected as a three-year pro- ILO FACTORY IMPROVEMENT ject with an approximate cost of US$15–$20 million. Potential funders include the U.S. Agency for Interna- PROGRAMME tional Development (USAID), the Inter-American The ILO Factory Improvement Programme (FIP) seeks Development Bank’s Multilateral Investment Fund, the to build processes that support the realization of the World Bank, and the Central American Bank for Eco- twin objectives of compliance and competitiveness at nomic Integration. The U.S. retail apparel industry will the level of suppliers by promoting a systems approach provide in-kind and financial resources and Central to management. The project objective is to build capac- American manufacturers may contribute matching ity at the industry and national levels to train and exe- funds and in-kind resources. A range of local and inter- cute factory improvement projects with relevant national NGOs may provide technical assistance as well. suppliers. 58 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains

The program was initiated following a study in 2000 by Impact the ILO that surveyed 20 multinational companies in The project is generally believed to have been success- the apparel, retail, and footwear sectors and 74 of their ful in achieving better labor standards as well as greater suppliers in countries including China, Sri Lanka, productivity. In Sri Lanka key performance indicators Guatemala, Honduras, Mexico, Cambodia, and Thai- were monitored in each module, providing quantitative land. The study found that it was essential to establish feedback on the impact of the project. a linkage between market (productivity and quality) and labor issues. End-of-line defects fell from about 13 percent on average across the participating factories to about 8 percent The program was tested in Sri Lanka. Eight relatively during the course of the program. Absenteeism fell large apparel factories were chosen for a six-month from almost 8 percent to 5 percent. Turnover fell from training and factory-level consulting and improvement 9 percent in participating factories to about 7 percent. program. Short training sessions for each module were followed by factory visits and consulting in the specific The project cannot yet be assessed against the objective needs of individual factories. International experts with of developing capacity at the industry level to offer FIP the support of local teams conducted the training mod- services. A full cost-benefit analysis is yet to be carried ules. The program builds on aspects of the ILO method- out. ology, WISE, that combines workplace monitoring with workplace improvement techniques building the Assessment capacity of suppliers to achieve greater productivity through better labor management. The program is interesting as it provides substantial evidence to support the widespread perception among The success of the program in Sri Lanka led to propos- many stakeholders that productivity and good labor als for its implementation in Vietnam and India in late management go hand in hand. Experience has shown, 2004. however, that the accrued benefits to suppliers may be fragile. Unless there is commitment from factory man- Government Role agement to maintain new management systems, changes and improvements can be temporary. This The program receives the endorsement of government, suggests a need for continuous support for suppliers. which remains largely on the sideline. The ILO and consultants working with relevant representatives of The program has not addressed the key aspect of finan- trade unions and employers’ federations effectively cial sustainability that may become an issue once train- implement the project. ing capacity has been developed at the industry level. Thus, it remains unknown whether suppliers will or can In India the proposed government partner is the buy the services of, say, industry federations, national National Cleaner Production Center of the National technical institutions, and the like. Productivity Council, a quasi-government agency. The proposal is to train center staff members who will in turn train representatives from industry. In Vietnam the direct counterpart is the Vietnam Chamber of Com- CASE 6: INDIA— merce and Industry. FAIR WEAR FOUNDATION’S TIRUPUR COMMITTEE Financial Aspects Tirupur is the largest knitwear production center in India The FIP has been funded by the U.S. Departments of and produces an estimated 76 percent of the country’s State and Labor for multiple countries beginning with knitwear exports and about 4 percent of its total export Sri Lanka in July 2002. trade. Living and working conditions are widely recognized as poor and inadequate with low wages based on Incentives for Participation a piece-rate system and long working hours being the norm. Productivity is low and the fragmented nature of There are no particular incentives for suppliers to par- production coupled with the high number of small units ticipate other than receiving potentially valuable train- gives rise to many health and safety issues. Labor con- ing without cost other than time required to participate tractors are commonly used by factories to provide in the activities. Appendix C 59 workers for a specific order. There is also a strict hierar- retariat for the first year of operation as the Indian repre- chy of jobs and many of the skilled knitting machine sentative of the Fair Wear Foundation. Owing to mistrust attendants, tailors, and cutters prefer to hire themselves between unions and employers’ organizations, the pro- out on a daily basis for the highest wage, and are paid at ject plans initially to have an intermediary representative rates that are considerably higher than those of unskilled of unions attend committee meetings and also have sep- labor. The majority of the workers are male, unlike in arate meetings with unions to gather their views. other apparel production centers in south India. In response to multiple stakeholders’ call for action to Financial Aspects deal with this situation, the Dutch multistakeholder ini- The Fair Wear Foundation has proposed to cover the tiative the Fair Wear Foundation in 2003 acted as a cat- operational costs for the first year of operation (travel, alyst for a series of meetings with trade unions, conference room, distribution of minutes, and so on). It employer’s representatives, NGOs, and other stakehold- is hoped that after that the costs will be borne by the par- ers. As a result of these meetings, a decision was made ticipating organizations as part of their regular activities. to set up a common forum, a committee, for both The exact cost is not known. employers and employees. The goal of this platform is to improve labor conditions and also to bring under one Incentives for Participation forum the various social compliance activities in Tirupur. There is no specific incentives developed; however, individual companies are not expected initially to con- The proposed activities of the committee are as follows: tribute to the project. • Advise international code implementation initiatives, such as certification institutes and social compliance Impact departments of international brands; It is not possible to assess the impact at this stage of the • Collaborate with buyers on improving labor stan- project implementation. dards; and • Act as liaison with local bodies that can be helpful in Assessment the implementation of international standards (such The tense situation between unions and the employers’ as the unions that are party to the Tirupur Wage Set- federation may prove to be an insurmountable barrier; tlement and the Labour Inspectorate). however, the Committee may also turn out to be a forum The committee also proposes to organize trainings for where union members and employers can meet and dis- workers and management on compliance issues, worker cuss their concerns, thus providing a platform for build- rights, and health and safety based on demand from par- ing confidence. It is hard to establish the potential of this ticipating members. Potential providers of training initiative; still, it is remarkable in that it apparently is the include the ILO and Global Alliance. It is hoped that if only multistakeholder initiative in India. the Tirupur Committee is successful, similar commit- tees can be established in other apparel production centers in India. CASE 7: IRELAND— A COMMUNITY-BASED APPROACH TO Government Role HEALTH AND SAFETY The proposal is to set up a committee consisting of rep- In 2000, the National Health and Safety Authority in Ire- resentatives of employers, trade unions (local, state, cen- land ventured a new community- and multistakeholder- tral, and Indian representatives of international trade based approach to raising awareness of health and safety unions), and the Textiles Committee to act as chair at issues in the rural areas of the country. The initiative was meetings. The Textiles Committee is a government developed in response to statistics showing that acci- agency under the Ministry of Textiles that provides test- dents (nonfatal as well as fatal ones) were proportionally ing, quality inspection, certification, market research, higher in the countryside than in the larger cities. and human resource development services to the Indian Research also showed that the awareness of health and apparel industry. SAVE, an Indian NGO, will act as sec- safety issues was relatively low in these areas. The ini- 60 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains tial campaign in 2000 focused on five towns with popu- Impact lations ranging from 10,000 to 13,000. In 2001, another No formal benchmarking was undertaken prior to the seven towns of similar size were included. campaign. Nonetheless, the Authority believes that the The objective of the initiative was to raise the awareness campaign has contributed greatly to raising local com- of health and safety issues by encouraging key organi- munities’ awareness of health and safety issues—and zations involved with the local community to assume that this awareness is sustainable over a longer period of greater responsibility for the health and safety of their time. working populations. It also aimed at facilitating these organizations’ involvement in obtaining sustainable Assessment improvements in their workplace health, safety, and welfare. Thus, the initiative sought to engage multiple The initiative is interesting in its approach to engaging local stakeholders in collaborative efforts to attend to local communities—and not just the workplaces—in common problems. matters of health and safety. This greater awareness may in turn help to empower workers and local organi- The project evolved in four stages. In the first stage, the zations to address occupational health and safety issues key business contacts were identified. These included in the workplace. However, the initiative is fairly chambers of commerce, training and technical institu- demanding in terms of financial resources in the first tions, trade unions, local firefighters, and law enforce- stages and the impacts are intangible and long term. ment and education bodies. All were asked to contribute This may make it difficult to secure the attention of the to defining the scope of the subsequent initiatives as well public sector in developing countries. as volunteer time and resources. The second stage focused on raising awareness by means of advertising, use of fliers, radio programs, and the like. The third stage CASE 8: KENYA—HORTICULTURE involved targeted inspections by multiskilled teams to organize various information stands and workshops. The ETHICAL BUSINESS INITIATIVE (HEBI) fourth and final stage was an evaluation. The Kenyan Horticulture Ethical Business Initiative (HEBI) was formed in November 2002 as a result of a Government Role series of consultations with a wide range of stakeholders, including producers, in the horticulture sector in response The National Health and Safety Authority drove the to the proliferation of codes of conduct in the industry program; however, the Authority actively sought the and not least perceived poor social auditing. The U.K.- involvement of local stakeholders in the first stage of based Ethical Trading Initiative (ETI) facilitated these the program. Indeed, a key objective of the program consultations with funding from the U.K. donor agency, was to ensure the continued involvement of other stake- Department for International Development (DFID). The holders in efforts to raise awareness of heath and safety initiative is still in its formative stages. issues. The objective of HEBI is to develop a national base code Financial Aspects of conduct addressing social issues and a comprehensive framework for (participatory) multistakeholder social The financial costs were all covered by the public sec- auditing, including detailed guidelines. In addition, tor; however, a number of stakeholders volunteered time HEBI aspires to train a large pool of social auditors and and resources. Following the initiative, a number of to facilitate the formation of an independent association larger, local enterprises developed information material of social auditors. The ultimate objective is to develop at their expense. HEBI into a national system supported by government. It appears that the ambition is to develop standards and Incentives for Participation regular auditing that would effectively replace public Participation was purely voluntary; however, peer pres- labor inspections. sure from local business communities and local com- The HEBI base code should be completed by the end of munity leaders stimulated the involvement of the private 2004. On a pilot basis, HEBI has acted as a framework sector in the initiative. Also, the initiative sought to for the training of 20 social auditors who have tested var- make health and safety a community issue. ious approaches to participatory social auditing. Appendix C 61

Government Role Assessment The initiative is governed by a steering committee that The initiative appears promising, but it is too early to in turn is responsible to a board of directors with repre- know how successful it will become. The starting point sentatives of all key constituents. The board includes the is good not least because the industry already accepts the Kenya Human Rights Commission (Chair), Kenya basic idea that social and environmental performance is Flower Council, Fresh Produce Exporters Association of critical to exports. The fact that the buyer side is coming Kenya, Kenya Women Workers Organisation, the together around a code of conduct also means that the Home Grown, and Karen Roses. buyer side is likely to support the initiative. Currently, however, some of the unions that have decided to sup- The government is currently an observer; however, port the initiative are perceived to be fairly antibusiness HEBI expects to engage government representatives and nonprogressive. The financial situation may also more proactively with the ultimate aim of having gov- prove critical—as may the ability to give value added to ernment approval of the base code and auditing method- producers that are already organized in the Kenya ologies. Flower Council and are widely perceived to be uphold- ing reasonable standards (see case 9). Financial Aspects The initiative is largely dependent on its donor (DFID), but a process has been started to identify ways to become CASE 9: KENYA— financially self-sustainable. It should be noted that pro- KENYA FLOWER COUNCIL ducers that are part of the Kenya Flower Council finance their own social audits. The Kenya Flower Council (KFC) was set up in 1997 by a group of large flower exporters in response to media Incentives for Participation pressure to improve environmental and labor standards in the industry. The objective of the council is to The greater part of the Kenya flower industry organized improve conditions while maintaining the industry’s in the Kenya Flower Council is already accepting social international competitiveness. The council’s member- auditing on the basis of a code of practice consistent with ship base consists of large and medium-sized flower ILO core labor standards. In addition, the international growers. Today the KFC represents more than 65 per- flower industry led by the Dutch flower industry and cent of Kenyan flower exports. European retailers is pushing social and environmental requirements; for instance, most products reaching The council has developed a code of practice. The code Dutch auction houses are certified according to a social- has two levels: the silver standard, which is consistent environmental standard, the Milieu Programma Sierteelt with ILO standards and Kenyan law, and the gold stan- (MPS), that secure exporters higher prices on their prod- dard, which upholds higher environmental standards. ucts. The Dutch Flower Council plans to introduce a Members must submit to audits every six months. They globally recognized label (FFP) to certify that flowers are given a grace period of one to two years to reach have been produced according to the flower industry’s compliance with one of the two code levels. Once certi- International Code of Conduct consistent with ILO core fied, producers can mark their products with the KFC labor standards. Behind the initiative is the Dutch flower “environmental friendly” logo. Every year, a random companies, which represent 60 percent of the global selection of members is audited by Bureau Veritas to flower market. The label will be introduced in late 2004. ensure the credibility of the program. The council has set up a partnership agreement with one Impact of the earliest and most well-known inspection-based certification programs in the flower industry, the Milieu The initiative has not yet had any measurable impact on Programma Sierteelt (MPS). The program was set up in labor and environmental conditions in the flower indus- 1993 in an effort to reduce the environmental impact of try. It has managed to train some auditors as well as pos- the flower industry. Initially, it was set up as a Dutch- sibly improve the auditing techniques within the only initiative, but today it certifies 85 percent of all industry. flowers sold by Dutch auction houses. MPS-certified products achieve higher prices in the Dutch market. 62 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains

MPS has also developed a social chapter. Combined, Assessment KFC and MPS “certify” 85 percent of Kenyan flower This is one of the few industry-led initiatives that appears exports. to have achieved high standards. It also demonstrates the importance of connecting supply and demand: the buyer- Government Role side was involved in the initiative and the buyers pay a Kenya Flower Council is an industry-led initiative. Its premium on products certified according to the stan- daily affairs are run by the KFC secretariat, whose activ- dards. The government may have played a supporting ities in turn are overseen by a board of eight directors. and pushing role in that the industry is the largest foreign Although KFC consults with other stakeholders, those exchange earner in Kenya after coffee. stakeholders are not represented on the board. The Ministry of Agriculture and the Horticulture Crops Development Authority played an important role in the CASE 10: THE NETHERLANDS— initial formative phase. Today the public sector provides INDUSTRY SECTOR LABOR CODES various kinds of nonspecified support and advice. AND GUIDELINES The Dutch Central Industry Board for Skilled Trade Financial Aspects (HBA), which represents entrepreneurs and employees KFC members pay a nondisclosed membership fee, and in the skilled trades, has developed sector codes for each DFID continues to provide some funding for the initia- specific trade. The objective of developing sector codes tive. is to reduce the number of workplace-related accidents in the skilled trades where the accident rate is relatively Incentives for Participation high and there is a lack of knowledge of occupational health and safety issues. The industry was faced with severe criticism for poor labor and environmental practices, making participation A sector code is a brief reference booklet in which a attractive. Meanwhile, the buyer side increasingly series of points for attention are listed in the areas of addressed social and environmental issues in the supply quality, hygiene, energy, occupational safety and chain and was involved in the formative phases of the health, and the environment for a particular industry. initiative.[AU: I’m not sure this adds to our understand- The points are arranged by industrial process. A sym- ing of incentives] Members can use the logo (label) of bol indicates to which of the four levels of performance the KFC. Members also benefit from exchange of tech- each point relates: a legal requirement, an industry stan- nology and know-how, adding a business dimension to dard, a recommendation, or a situation to avoid. the program. Finally, the KFC label (along with the MPS The sector code allows the user to check performance label) allows producers to achieve higher prices at the against various performance levels. The booklet also Dutch auctions. offers a checklist of processes, which can be improved. The guidelines are formulated in the form of operating Impact instructions that are divided into the four levels of performance. The user decides how to proceed. In doing so In terms of membership and “volume-coverage,” the ini- he or she may solicit advice from various sources includ- tiative has been successful. It is harder to establish the ing the industry organization and external consultants. impact on labor and environmental standards although The codes are easy to read and easy to use. the general perception among stakeholders is that things have improved. Nonetheless, the set-up of the Kenyan Horticulture Ethical Business Initiative (HEBI, see case Government Role 8) suggests that some stakeholders remain skeptical of The entire sector code, including checklists and guide- the auditing techniques employed by KFC. On the other lines, is developed in consultations with relevant hand, the recently established partnership agreement stakeholders including unions, business federations, with MPS indicates that the standards upheld are con- companies, and the public sector. The board is responsi- sistent with internationally agreed principles. ble for ensuring the continuous updating of the code. The public sector, labor inspectorate, and technical institu- Appendix C 63 tions play a supportive and advisory role to provide The framework represents a new approach to the expertise and to ensure legal compliance. improvement of labor conditions in the country’s enterprises as it seeks to combine voluntary and regulatory Financial Aspects approaches. The framework is only now being implemented. The total development costs are about 15,000 per code—the cost to the user is some 450. The framework shall ensure compliance with labor standards through self-assessment, inspection, and advisory Incentives for Participation services, each of which will have its own target group. Self-assessment will be encouraged in establishments The cost of participation (use of codes) is minimal for with more than 200 workers or unionized labor; inspec- users and enterprises whereas the benefits are potentially tion will be undertaken in workplaces with 10–199 high. Some skilled trades have made training in sector workers, and the advisory services will be undertaken in codes mandatory. micro-enterprises with fewer than 10 workers. All enterprises with more than 200 workers are required Impact by law to carry out self-assessment of the workplace The program’s impact is considered significant although environment. Assessments are carried out once a year by the success rate has been inconsistent in the various a joint team of representatives of labor and management industries: in some trades the penetration is measured at on the basis of checklists provided by the government. 75 percent whereas in others it is 5 percent. According Workers can complain to the government if they dis- to labor inspection services the codes have had a mea- agree with the assessment submitted by management. surable impact in reducing particular types of accidents The Bureau of Working Conditions will carry out ran- in the workplace. dom spot visits to check workplace conditions. The self-assessment approach is to the benefit of both Assessment the public sector and the private sector. Poor workplace The identified success criteria were an integrated conditions are most frequently widespread in small and approach, easy rapid implementation, light administra- medium-sized enterprises. The new approach allows the tive load, close fit with culture in the sector, and rela- public sector to focus on enterprises where conditions tively low costs. The evaluation of the initiative suggests are poorest. At the same time management and workers that it in principle can be transferred to any one sector— could be expected to develop a better working relation- and not only the skilled trades. The prerequisites for suc- ship on these issues as well as find means for addressing cessful implementation are as follows: both labor issues and productivity issues. • Business processes are sufficiently standardized. The advisory services with the micro-enterprises include • A central body is prepared to coordinate. the development of a corrective action plan. Micro- enterprises are given a grace period of one year to cor- • The central body has competence to follow legislative rect the problems. In addition, micro-enterprises can developments. avail themselves of certain additional advisory services. • Sufficient numbers of businesses are prepared to The framework uses financial incentives, such as lower determine and maintain the standardization and labor taxes, to encourage compliance efforts. implementation process in mutual consultation. • Sector-specific training is developed. Government Role The public sector occupies the central role. The initiative has been enacted as law. Consultations take place CASE 11: PHILIPPINES—PRIVATE SECTOR via traditional tripartite consultation mechanisms. SELF-ASSESSMENT OF LABOR STANDARDS COMPLIANCE Financial Aspects In 2002, the Department of Labour and Employment The costs of self-assessment are borne by the enterprises adopted a new framework for labor standards enforce- and the participating unions and worker representatives. ment, the Labour Standards Enforcement Framework. 64 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains

Incentives for Participation The direct beneficiaries are the labor inspectorates and technical staff of the DOLE at the national and regional Companies qualifying for self-assessment are encour- offices, and other personnel and training staff from the aged to make an honest assessment by means of threat cooperating government, private, and labor organiza- of significant penalties for misrepresentation. tions that end up comprising the implementing teams and core of trainers for the project. These individuals are Impact trained to propagate the concept and benefits of WISE The program’s implementation is recent, hence it is too to as wide a clientele group as possible. The ultimate tar- early to provide any data on project output. get group, however, are the small and medium-sized entrepreneurs and workers. Assessment The program demonstrates that the public sector in the Government Role Philippines is thinking in terms of private sector volun- The program was a flagship project of the DOLE with tarism as a means to achieve social compliance and it the Bureau of Working Conditions as the lead imple- indicates that it indeed could be worthwhile to look at menting agency. As noted above, it was funded by models of public-private collaboration on inspections as UNDP (during 1994–97) with technical assistance from well as joint worker-management inspections. It remains the ILO. Initially four pilot areas were involved, and unclear to what extent workers have the power to actu- nationwide replication and institutionalization in the ally go against management on particular issues. It would DOLE and partner agencies have been ongoing. Partner also seem that for this approach to be replicated there has agencies included the range of employer and employee to be a fairly well-functioning tripartite system in place. representative organizations, as well as technical and advisory organisations.

CASE 12: PHILIPPINES—WORKPLACE Financial Aspects AND PRODUCTIVITY IMPROVEMENT IN It has not been possible to retrieve data on the total costs. SMALL ENTERPRISES Donor funding played an important role. Project WISE is a low-cost program for improving productivity and working conditions in small (and medium- Incentives for Participation sized) enterprises. It works to link productivity and Participation in the program is free and voluntary. Enter- product quality to better and safer workplace conditions. prises can choose to participate if they like. The positive The program was initially implemented through the track record of the WISE methodology acts as a strong Department of Labour and Employment (DOLE) sys- incentive for companies to participate. tem with assistance from UNDP and the ILO during 1994–97 in a handful of Philippine regions and in the Impact following years sought expansion to the rest of the country. The program is generally acknowledged as having The project has tangible and intangible outputs. The tan- contributed greatly to a widespread acceptance that gible benefits are low-cost workplace improvements and workplace improvements can lead to productivity productivity increases. The intangible benefits include increases. most notably the development of stronger and more positive linkages between the labor inspectorate and enter- The program builds on the WISE methodology origi- prise workers and management, which provide an nally developed by the ILO in the 1980s and subse- enabling environment for continuous improvements. quently refined. The methodology is generally considered efficient in improving workplace conditions Assessment while simultaneously increasing productivity. The ILO uses the methodology in the garment sector labor stan- The project is generally considered successful by all par- dards compliance programs in Cambodia and ticipating agencies including the DOLE, the ILO, as well Bangladesh as well, among other places. as employers’ federations and trade unions. The WISE methodology represents the kind of value added that Appendix C 65 small and medium-sized enterprises skeptical of work- Assessment place improvements would be looking for. The principal Learning Network Sponsored by the Employers Con- barrier to ensuring nationwide replication appears to federation of the Philippines concern financial and institutional resources in the DOLE system; however, both trade unions and employ- Currently ECOP is considering launching a network- ers’ federations are promoting the program via their own based program to build the capacity of suppliers in channels (see case 13). global supply chains to improve productivity through a rights-based workplace improvement process. The tech- nique is based on WISE methodology. CASE 13: BUILDING CAPACITY IN THE The idea is to encourage larger companies to use this EMPLOYERS CONFEDERATION OF THE methodology in their supply chains to strengthen the PHILIPPINES capacity of their suppliers. The confederation plans to facilitate such processes through the Employer Institute From January to November 2003, the Employers Con- for Productivity and Competitiveness it has recently set federation of the Philippines (ECOP) implemented a up. There are no particular incentives in the program small program to increase its capacity to help member except for the “enlightenment” it provides to the partic- companies to apply fundamental principles and rights at ipating firms. work. This program, called the Social Compliance Pro- gramme, aimed to strengthen the competitiveness of Two pilot projects have been successfully carried out, these companies and was implemented with the assis- one of which involved Toyota. ECOP intends to work tance of the ILO and Verité[any more info to add?]. with multinational corporations to implement the program on a larger scale. The capacity of ECOP was strengthened through the training of 12 consultants specializing in rights-based workplace improvement techniques for small and CASE 14: PHILIPPINES— medium-sized enterprises. In addition, the project resulted in the development of various tools and guide- MANUFACTURERS AND EXPORTERS lines such as factory diagnostic tools and management RE-ACCREDITATION PROGRAM (WRAP) action plans. The program as well as the project output In April 1999, a number of Philippine business organi- built on the experience drawn from project WISE, which sations in the garment industry signed a memorandum was run by the ILO in cooperation with the labor market of cooperation with the American Apparel Manufactur- parties, including ECOP. ing Association with the objective to help ensure that In addition to building the capacity of ECOP, the pro- the Philippine garment export industry establishes law- gram also sought to complement the newly adopted gov- ful, humane, and ethical conditions in line with the prin- ernmental labor enforcement framework that stresses a ciples of WRAP. The program was later overtaken by developmental approach to SME inspection. The gov- the Department of Trade and Industry’s Garment and ernment, however, does not have the capacity to assist Textile Export Board (DTI-GTEB), which made par- SMEs and larger companies to develop their capacity to ticipation in the program a condition for receiving cer- manage labor issues, hence the ECOP program is seen tain export quotas. This was motivated by the as filling an important gap. government’s perception that in the face of the 2005 post-MFA environment, the Philippine garment and The consultants have not yet been put to work as SMEs textile industry would have to become socially and are finding it difficult to fund the consultants’ services. environmentally compliant to ensure an export market. Consequently ECOP is now holding discussions with The program is called the re-accreditation program, the the DOLE to see if a government subsidy can be name suggesting that all exporters of a certain size arranged. The confederation is also holding talks with would be required to become accredited to ensure their the Garment and Textile Export Board, which is ulti- export quotas. This initiative should be viewed as a pre- mately responsible for the WRAP-based social compli- competitive measure recognizing the vulnerability of ance program in the garment industry. The Employers the Philippine garment and textile industry in the free Confederation of the Philippines hopes to make avail- garment market. able its consultants to this program. 66 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains

Two professional service providers, Intertek Testing tiative that involves multiple stakeholders to the South Services and SGV, provided third-party monitoring ser- African wine industry that are committed to the promo- vices using the WRAP standard and guidelines. tion of good labor and environmental workplace practices. The objective of the initiative is to improve the Government Role working conditions of employees in the wine industry by means of standard setting, capacity building, and moni- The program was initially supervised by a monitoring toring. It was established in late 2002. committee composed of a number of Philippine business associations, the local American Chamber of Com- The initiative arose out of a pilot project run by the Eth- merce, and the Philippine Department of Trade and ical Trading Initiative (ETI) that was set up in response Industry (represented by DTI-GTEB). The committee to the industry’s need to ensure social and environmen- supervised the administration, selection, and accredita- tal compliance to remain competitive suppliers to the tion of independent monitors for the program. Monitor- retail market in the United Kingdom. The pilot project ing would be financed by exports and other available was the real catalyst without which the initiative would funds. Once participation in the scheme was linked to not have been established. The traditional tripartite export quotas, the committee was replaced by the structure was not strong enough to see the project Department of Trade and Industry via GTEB. through, hence the formative process relied to a large extent on the enthusiasm and commitment of individu- Financial Aspects als. The absence of traditional institutional interests may also have contributed positively to the relatively smooth Suppliers have to submit to independent monitoring formative process. audits performed according to the WRAP standard by independent monitors (Intertek Testing Services and The initiative has developed a base code on the basis of SGV). The Garment and Textile Export Board will South African law and the ETI code. In addition, guides shoulder the initial plant audit; however, the supplier to the code have been developed for different con- will have to shoulder any subsequent audits. stituencies. A corps of independent auditors performs audits on the basis of the code. Suppliers request and pay for the audits themselves; spot-audits are being consid- Impact ered. The association educates members and workers in It has not been possible to assess the impact of the ini- the code, and unions educate workers concerning the tiative. A number of high-profile cases of noncompli- code. Some minor training services are offered as well. ance among participating companies suggest that the impact has been less anticipated. Government Role An executive committee governs the initiative with rep- Assessment resentatives of all major constituencies to the wine The initiative is interesting in that is demonstrates that industry including producers, unions, NGOs, and gov- industry on its own can agree to the necessity of work- ernment. The public sector is represented by the Depart- ing with social and environmental issues as a competi- ment of Labour. The nongovernmental organizations tive measure. It also shows that government recognizes represent the interests of temporary and migrant work- the urgency of attending to this issue and to go as far as ers and other workers not formally represented by the linking it to export quotas. The future of the program is trade unions. Members of the executive committee were uncertain, although it is likely that it will disappear once originally elected through a self-elective process that did the quota regime ceases to exist. not involve formal institutions, but today more formal elective structures have been established by each con- stituency. A small secretariat runs the daily operations CASE 15: SOUTH AFRICA— of the initiative. COLLABORATIVE INITIATIVE IN THE SOUTH AFRICAN WINE INDUSTRY Financial Aspects The association is partly financed by small membership The Wine Industry Ethical Trading Association fees (producers). In addition, much of WIETA’s fund- (WIETA) is a not-for-profit, voluntary collaborative ini- Appendix C 67 ing will come from the Common Customs Tariff (CCT) ment of key players such as big, influential producers; rebate afforded to a percentage of South African wine constructive unions; some external funding; and engage- exported to Europe and the United Kingdom. United ment of buyers. The base code is not expected to deviate Kingdom retailers who benefit from this rebate have too much from local law; however, it may gradually agreed that this saving be returned to South Africa to move beyond it as suppliers see the merit of improving fund various developmental initiatives in the wine standards on their own. industry. Suppliers pay for their own audits.

Incentives for Participation CASE 16: GLOBAL—POLLUTANT RELEASE There are no particular incentives offered to producers AND TRANSFER REGISTER (PRTR) other than the opportunity of receiving assistance to A pollutant release and transfer register (PRTR) is a become compliant with South African law, and the ben- mandatory, publicly accessible database that compiles efit of being associated with a “progressive” initiative detailed data on chemicals that industrial and other facil- that increasingly enjoys the support and encouragement ities release on-site or transfer off-site. A PRTR gives of major customers. It is anticipated that buyers eventu- concerned parties as well as the wider public full access ally will cease doing regular private audits. to information about the release of chemicals and other types of hazardous waste from individual facilities. Impact The first PRTR, the U.S. Toxic Release Inventory (TRI), The impact of the initiative has so far been positive, was established in 1986 as a response to the incident in resulting in improved working conditions among the Bhopal, India in 1984, where emission of methyl iso- participating members. The initiative has had a concrete cyanate killed thousands of people. In 1992, the UN Earth impact in that the labor inspection authority has ceased Summit in Brazil called for the establishment of PRTRs; to conduct inspections at WIETA members’ facilities. A in 1996, a Council Recommendation of the OECD called formal relationship between the labor inspection author- on member countries to do likewise; and in 1998, the UN ity and WIETA has been considered but may be a bit Economic Commission for Europe adopted the Aarhus premature. This means that inspections in the wine Convention that includes an open protocol on the devel- industry increasingly are focused on producers to the opment of PRTRs. Signatories to the Aarhus Convention local market where working conditions generally are the are required to implement a PRTR. poorest. Since then PRTRs have been set up in several countries An recent and very interesting development is that a sup- including the United States (1986), Mexico (1997), plier of cork to the wine industry has been accredited as Canada (1993), Australia (1998), and Japan (2001). adhering to the base code—suggesting that the initiative Most recently in February 2004 the European Union may have ramifications going beyond the industry itself launched he European Pollutant Emission Register. to include parts of its value chain. This may also mean These PRTRs have many similarities although there are that efforts to achieve higher labor and environmental differences in terms of what types of pollutants are cov- standards should be focused on industries at the top of ered, how reporting takes place, and so on. For instance, the value chain with many local subcontractors. in comparison with the U.S. register the European Union register includes emissions of greenhouse gases but Assessment excludes pollutant releases that have an impact on soil and groundwater. One of the key challenges is to increase the membership to include producers for the local markets since working The overall objective of PRTRs is to empower citizens conditions tend to be the poorest in this part of the indus- and others, through information, to hold companies and try. Also, in the long run the initiative should become local governments accountable in terms of how toxic financially self-sustainable not rely on the CCT rebate, chemicals and other emissions are managed. In addition, although this may prove difficult. PRTRs allow companies to benchmark their performance across the country or region, and scientists, insur- The initiative has the potential of replication. Some of the ance companies, local authorities, and policymakers are fundamental preconditions are the engagement of all provided with additional, credible information to sup- stakeholders concerned; balance of interests; the involve- port their activities. 68 Public Sector Support for the Implementation of Corporate Social Responsibility (CSR) in Global Supply Chains

Reporting to a PRTR is mandatory. Individual facilities are substantially noncompliant will be required to compile data on the amounts of specific chemical sub- solicit the services of authorized service providers. stances they release to the air, water, and land on-site as Such a request is legally binding and may result in well as their off-site transfers, and report this informa- extensive use of third-party advisors until the work- tion annually to the government. The data are then com- place practices are satisfactory. piled in the register allowing producers, their Companies that have obtained a working environment associations, policymakers, and the public to track the certificate are exempted from the screening process. performance of individual facilities, pinpoint develop- There are two ways of obtaining this working environment strategies, and improve quality of life. The U.S. ment certificate. The first is accredited inspection, which TRI compiles data from approximately 20,000 facilities is mainly for small and medium-sized enterprises where reporting on 650 pollutants whereas the European Union it would not be appropriate to implement comprehensive register compiles data from a little under 10,000 facili- management systems. A number of criteria have been ties reporting on 50 pollutants. established and companies are subjected to formal inspections every third year. Accreditation is given by Assessment the labor inspection agency. Alternatively, companies The establishment of PRTRs appears to be a powerful can get a certificate through an “accredited certification” and successful transparency tool. In addition to giving process, which is for companies that have implemented the public access to information about emissions in their comprehensive management systems such as OSHA neighborhoods and other places, PRTRs have presum- 18001 or the equivalent. This requires annual inspec- ably also contributed to improved business performance. tions by the certifying organization. It appears that there are no “labor PRTRs” in develop- An additional element of the new regime is greater pub- ment; however it is our assessment—corroborated by an lic transparency. The regime classifies companies’ per- interview with the Danish Environmental Protection formance into three categories, each represented by a Agency—that PRTRs may include data compilation on colored ”smiley.” A red smiley suggests that the com- labor issues. It should be noted that there are challenges pany has a poor performance and has been requested to in terms of defining issues (labor violations) and ensur- solicit workplace improvement services. A yellow smi- ing credible reporting. The protocol to the Aarhus Con- ley suggests that the company has been asked to make vention may provide more guidance on what criteria certain corrections to the working environment. Finally, should be addressed. a green smiley suggests that the company is maintaining good standards. The result is made public on the Labour Agency’s website once the company has been screened CASE 17: DENMARK—NEW LABOR or has obtained a certificate. INSPECTION REGIME Government Role In 2004 the Danish Parliament adopted a new frame- The National Labour Inspection Agency runs the pro- work for achieving higher standards in the workplace. gram. The framework is based on the principle of “something for something,” which implies that businesses that make an extra effort to improve their workplace environment Financial Aspects should be rewarded for this, whereas businesses that fail On the basis of the “something for something” principle, to uphold proper standards will be penalized and forced poorly performing companies are not only required to to correct the situation. pay for public inspections, they are also required to The new framework sets out to screen the working solicit third-party advisory services to improve their environment in all companies in Denmark within the working environments. next seven years. Thereafter, companies will on average be screened every third year. Companies that con- Incentives for Participation tinue to maintain unsatisfactory conditions will be The framework is strongly incentive based, encouraging subjected to a more thorough inspection that they companies to invest in better workplace practices. The themselves will be required to finance. Companies that “smiley scheme” also encourages companies to improve Appendix C 69 performance, which may be a competitive parameter for down without compensating workers through higher attracting qualified labor. wages, as substantially lower income resulting from less overtime would force workers to find (overtime) jobs Impact elsewhere. The fewer hours to higher wages ratio had to be financed through productivity increases and reduced The framework has only recently been adopted, hence it end-of-line faults. is not possible evaluate its impact. Nine garment factories participated in the project. Assessment The management and workers of these factories were beneficiaries of various training modules including The relevance to developing countries lies primarily in communication, production management, and labor the possibility of obtaining a certificate; hence third- management. The first stage of the project, completed in party accreditation effectively replaces public inspec- 2002, resulted in the following: tions. In terms of developing third-party professional capacity in developing countries to address workplace • Inverse relation between productivity and hours— practices, which in many cases is largely absent, a legal when hours went up, productivity fell. requirement to use such services may help stimulate • Productivity increased by between 23 percent and 78 demand. percent in all factories. • Hours were reduced to near or below legal limits in all factories. The most successful factories have been CASE 18: CHINA—INCREASING able to reduce hours by between 20 percent and 37 PRODUCTIVITY AND REDUCING percent. OVERTIME • Wages increased in four out of five factories. The following is a summary of the well-known project The project showed that with relatively modest inputs it in China on reducing overtime and increasing produc- is possible to improve working conditions and increase tivity undertaken by Impactt Limited and the Hong productivity. It also demonstrated clearly the inverse Kong (China) Productivity Council in cooperation with relationship between bad workplace practices and good other Chinese institutions as well as a group of multina- worker performance. The project also indicated that tional corporations and their garment suppliers. results are more likely to materialize when programs are negotiated between the concerned parties rather than The project set out to identify ways of reducing over- being imposed by one party. time, a chronic problem in the Chinese garment industry, while maintaining appropriate wage levels and The program is currently being scaled up to include a increasing productivity in the participating suppliers. higher number of participating factories—and it would The project was based on the fundamental assumption be worthwhile to consider wider replication not only in that the high levels of overtime could not be brought China but also in other countries.