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Bangladesh Facing Strong Headwinds

The bloom is off in Bangladesh. A string of bad news that started with last summer’s deadly labor unrest and picked up after the Tazreen Fashions fire has dogged a country that was on track to become an RMG powerhouse.

U.S. Ambassador to Bangladesh Dan W. Mozena warned recently that investment might move to Vietnam and Cambodia if the political situation in Bangladesh does not improve. Mozena pointed out that dialogue would be necessary to resolve political uncertainty and prevent hartals, or strikes, which have been crippling the economy in recent months. Many of the hartals are for better safety conditions, worker representation, and higher wages.

Manufacturers are struggling with the frequent strikes and have been forced to direct more money to safety and worker pay. This is good for workers, but stepped up government inspections have put pressure on the bottom tier of manufacturers, and production prices have been rising over the past few weeks.

Wages are still paltry, but they have gone up twice in the past year. Industry heavyweights such as H&M have made strong commitments to support better conditions for workers. Unfortunately, the rhetoric from the Corporate Ethics office hasn’t been backed up by bigger budgets in the Sourcing department, and manufacturers are getting squeezed in the middle.

Bangladesh may lose its trade benefits under the Generalized System of Preferences, which gives preferential status to its exports to the United States. U.S. lawmakers recently grilled government officials from Bangladesh and a garment worker who survived the fire to determine the extent of worker rights abuses and the government’s commitment to combatting them. The GSP is designed to support economic growth in developing countries, but it has provisions requiring respect for worker rights, including collective bargaining and minimum safety standards.

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One idea on the table is the Bangladesh Fire and Building Safety Agreement. The agreement is a joint effort between industry and government, and it would establish in-factory enforcement, create a process for worker complaints and reporting of health and safety concerns, set up third-party inspections with public results, enshrine the rights of unions, and develop contracts between buyers and worker representatives. PVH Corp. and Tchibo, a German retailer, have signed the agreement, but at least two more major companies have to sign for it to take effect.

On top of efforts from the Bangladesh Garment Manufacturers and Exporters Association, Wal-Mart recently agreed to donate a $1.6 million to fund the creation of an Environment, Health, and Safety Academy in Bangladesh. They will be supported by a U.S. NGO, the Institute of Sustainable Communities, and by Sida, the Swedish International Development Cooperation Agency.

Labor organizations have criticized Wal-Mart’s moves.

Scott Nova, executive director of the Worker’s Rights Consortium, said Wal-Mart’s pledge was a pittance, considering the hundreds of thousands of dollars needed per factory for retrofitting and repairs in order to make them minimally safe. He also dismissed the idea that this is a new move for Wal-Mart, pointing out that the company has claimed for years to be operating an adequate safety and training program in the country. The issue isn’t training, he said, but the physical condition of the buildings.

“No amount of education and training can enable workers to escape a burning building that does not have proper fire exits.”

Bangladesh still enjoys privileged status when compared to its closest competitor, Pakistan. The security situation in Pakistan has deteriorated to the point where many firms are not wiling to send inspectors in to monitor quality and cost control. Some factory owners have decamped for Bangladesh, moving capital and equipment to the more stable nation.

Pakistan and Bangladesh both suffer from energy shortages and port congestion, but Bangladesh has moved proactively to increase the energy supply and enlarge the port at Dhaka. Bangladesh and Pakistan both enjoy preferential trading status with the European Union, though worker safety issues continuously put that status in jeopardy.

Bangladeshi exports are still strong – it’s the second largest apparel exporter after China – but buyers and foreign investors are increasingly wary to move resources to a country with such strong unrest and a negative reputation for worker safety. On top of that, costs are rising.