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Report Reveals Compliance Conditions in Bangladesh, China, Vietnam

Since the Rana Plaza factory collapse in Bangladesh brought the garment sector’s adverse working conditions to light, compliance has become less about ticking requisite boxes and more about maintaining responsible business practices—all the time.

Compliance is certainly having its moment this year: China’s new Food Safety Law has introduced harsher standards and punishments, the owners of Bangladesh’s Rana Plaza and Tazreen factories have been charged with murder and the UK’s Modern Slavery Act has called for greater transparency in global supply chains. Outsourced manufacturing naturally lends itself to blind spots, but a low 17 percent of companies say they have good visibility into their tier three and four suppliers.

But as quality control and compliance company, AsiaInspection (AI), put it in its fourth quarter barometer on corporate social responsibility in the sector, “It’s becoming harder to hide.”

Here’s a look at current compliance conditions in sourcing’s major markets.

Southeast Asia Sees Rapid Growth in Inspections Despite Slowing in China

China’s exports declined 6.1% in August over the previous year, according to the country’s Customs Administration, and the country is struggling to cope with slowing export demand, especially since August’s sudden yuan devaluation.

The number of inspections AI performed in China showed a 3.2% year-on-year increase—the slowest growth in the company’s history with the country—while inspections in Southeast Asia grew 104 percent.

“Interestingly, China itself has been making strategic investments outside of its own market into other Asian countries which offer more competitive labor costs,” the report noted. “Recently, the country invested approximately $4.5 billion into two industrial parks in Bangladesh despite the fact that Bangladesh often lacks the most basic infrastructure and suffers from frequent disruptions to manufacturing.”

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Compliance Improves in Bangladesh, Though Work Remains to be Done

Efforts to improve compliance conditions in Bangladesh have been plenty this year and the country’s ethical score grew 2.8% to 6.7 out of 10 in the last 12 months and inspections there have increased 68 percent.

However, AI said 41.6% of the factories it audited in Asia showed major non-compliances and nearly 26 percent of them were at “serious ethical risk.”

Even so, Bangladesh has said it now meets the criteria to have its Generalized System of Preferences (GSP) trade program with the U.S. reinstated (Obama suspended the country’s duty free privileges under the program after the Rana Plaza collapse in 2013).

The Bangladesh government has also proposed a new law, the Textile Industries Establishment Act 2015, which would curb illegally operating facilities and heavy fines and even imprisonment for non-compliance.

Another organization working to improve the country’s compliance, the Alliance for Bangladesh Worker Safety, said in its second annual report that it has inspected very nearly all of its 662 member factories, but less than 1 percent have taken corrective actions and passed post-remediation inspections because many facilities simply can’t afford it.

The U.S. Agency for International Development (USAID) is stepping in to provide up to $22 million in funding to small- and medium-sized suppliers to help finance factory upgrades.

Vietnam Continues Strong Growth

China may still be the largest supplier of textiles and apparel to the U.S., but Vietnam is steadily gaining ground. The country’s apparel exports to the U.S. grew 20.3% year-on-year in August to $1.1 billion—July was the first month Vietnam’s exports to the U.S. exceeded the $1 billion mark.

Product inspections in Vietnam, according to AI, increased 168 percent.

“With the long-awaited free trade agreement finally reached between the EU and Vietnam, this developing economy is due for further expansion and is rapidly becoming the new dominant force for apparel,” the report noted. The pending Trans-Pacific Partnership (TPP) is expected to further fuel Vietnam’s growth in the apparel sector.

India Sees Modest Growth in Textile Sector Despite Persistent Problems

India’s rupee depreciated to a two-year low this year, making Indian exports more competitive, but because most of the country’s cotton went to China, where its own currency was devalued, Chinese buyers will likely renegotiate prices weighing on the rupee related benefit Indian exporters might have otherwise realized. India also failed to meet its export target for the 2015 fiscal year.

That aside, AI said product inspections in the country grew 40 percent and product quality displayed a 5 percent increase, likely owed to the country’s eagerness to innovate in the textile sector to increase its competitiveness in the global market.