Worker Rights Consortium: The Tsunami Bearing Down on the World’s Supply Chain Workers

March 24, 2020

Other than the most unfortunate victims of the disease itself, there is no subset of the global
population likely to be hit harder by the impact of Covid-19 than workers in global supply chains.

The number of people who will be affected is enormous. There are more than 150 million workers
in the Global South producing goods for export to North America, Europe, and Japan and tens of
millions more in service jobs linked to global corporations in the North.

In apparel, textile, and footwear—a sector where workers will fare especially poorly—there are
50 million workers, many of them women who are their families’ primary wage earner. Very few
of these workers have ever been paid enough to accumulate any savings. In fact, chronically low
wages have left many in debt. The apparel sector will be among the most severely affected, and its
supply chains are the most transparent and best understood; however, to a substantial extent, the
points made herein are generalizable across sectors.

Drivers of the Crisis

Several critical factors are lining up to produce catastrophic results for apparel supply chain
workers and their families:

• Governments in the North, by shutting down much of their nations’ commerce in order to battle the pandemic, are jamming the brakes on global demand for apparel to a degree never previously experienced. The logical response of brands and retailers is to move as rapidly as possible to halt production in their supply chains.
• Global supply chains are designed to limit brands’ obligations to the contracted factories (referred to herein as “suppliers”) that make most of their products. For example, suppliers front the costs of production, including buying fabric and paying workers to sew the garments—brands do not pay for apparel until sixty or ninety days after it is delivered. As a result, when external events impose damaging costs in the supply chain, brands have the freedom and leverage to push the costs down the chain onto the suppliers. Brands are doing this now, by abruptly canceling orders to supplier factories across their production networks. In many cases, they are retroactively canceling, and refusing to pay for, orders the suppliers have already produced and are ready to deliver. These are orders on which suppliers have paid for fabric and labor, outlays they cannot recoup when brands refuse to pay. Many brands are citing force majeure to justify these actions, even though their contracts with suppliers do not appear to allow for cancellation on the basis of a global health crisis. In the end, it won’t matter what the contracts say; few suppliers can afford to sue a customer whose business they hope to someday recapture and even a supplier that wants to sue is unlikely to possess the money and time to do it successfully. Notably, many brands have self-proclaimed “responsible exit” policies that would theoretically preclude pulling orders without notice, regardless of contractual terms; however, like all such corporate social responsibility policies, these standards are voluntary, and the brands can ignore them at will.
• Most factory owners operate on thin margins and lack sufficient cash reserves and access to credit to survive the kind of economic shock the crisis, and the brands’ response, is producing; their best bet for survival will be to (1) shed workers fast and pay those workers as little in compensation as possible and (2) where they do have orders to complete, keep the necessary workers on the production lines, regardless of the health risks.
• While most exporting countries have some legal protections for workers who lose their jobs—partial wage continuation in case of temporary suspension, severance in case of termination, and in some cases unemployment insurance schemes—the governments do not fund the benefits; rather they put the obligation on the employer, and enforcement is minimal. When employers are left strapped for cash and in debt, due to buyers’ order cancellations, they have both the incentive and the means (due to this weak enforcement by governments) to forego payment. There are also millions of garment workers who are informally employed or classified as temporary workers (sometimes in violation of the law) and who, as a result, have little or no right to benefits.
• For obvious reasons, many workers would prefer not to go to work at present, but they cannot afford to forego work without compensation. Where workers choose not to work, out of fear of becoming infected (and bringing the infection home), the legal right to compensation is forfeited—unless governments are imposing ad hoc policies to mandate such compensation. At factories where there is still substantial production ongoing, most workers will come to work, despite health fears. While the information available at present is anecdotal, there are reasons to believe that many factory owners are failing to take meaningful steps to protect worker health, via social distancing and appropriate personal protective equipment. This endangers both workers and broader societal efforts to control the pandemic.
• Given the magnitude of the Covid-19-induced global crisis, public intervention is essential to prevent economic and social catastrophe, which is why governments in the North are preparing unprecedented levels of fiscal stimulus and financial rescue for domestic businesses. However, most major apparel exporting countries (China being an important exception) lack sufficient public resources to follow suit; these countries will be hard-pressed just to meet the immediate health costs of the pandemic and will not be able to pay months of wages to millions of garment workers and keep thousands of foundering businesses afloat. And, while supply chains are globalized, social support systems are not. There is no reason to imagine that Northern governments will be inclined to include workers in other countries in their economic rescue packages.

The Grim Consequences Facing Supply Chain Workers

These realities augur a grim outcome: millions of workers suspended or terminated with little or no compensation and others forced to go to work in unsafe factories because it is the only way to avoid destitution.

To their credit, some governments in garment exporting countries have urged or required factories to close for brief periods—two weeks, in most cases—while maintaining the better part of workers’ wages. The degree of compliance is not yet clear, though at least some factories are complying. It is vital to recognize, however, that most governments, and many factory owners, will likely be financially unable to maintain this approach when two weeks turn into two months or longer.

The precipitous drop in demand is real and many brands are facing huge financial challenges; the brands’ drive to hold onto cash and minimize inventory is a rational response by companies to defend their businesses from a crisis none anticipated. Urgent circumstances, however, do not eliminate the obligation to act responsibly. Power relations in the garment industry have tempted brands to respond to the crisis in a manner that will visit disproportionate damage on suppliers and workers. It is important to bear in mind that global brands and retailers have benefited for years from producing in countries with weak regulations and social protections and are better equipped financially to weather the present storm than most of their suppliers.

Averting Disaster through Brand Accountability and a Collective International Response

Averting a catastrophic outcome for supply chain workers requires concerted efforts to (1) hold brands and retailers accountable to their own labor standards, which include commitments to “responsible exit” and to ensure that suppliers pay legally mandated benefits to suspended and terminated workers and (2) mobilize a collective response by international financial institutions and intergovernmental bodies to maintain workers’ income during the crisis.

Strong advocacy for brands to take an equitable approach to burden-sharing, rather than sloughing all costs onto suppliers, will limit the damage to workers and businesses in the supply chain, even if the impact is modest and only smooths the roughest edges of brands’ response. Canceling orders already in production, with no effort to determine whether suppliers even have the wherewithal to survive the financial damage, as some brands are doing, is not responsible behavior. It can and should be challenged. If they choose to exert it, brands also have substantial leverage to press suppliers to pay legally mandated benefits—which some larger and better-resourced companies have the ability to do, even in the face of sudden and retroactive order cancellations. Wherever suppliers have the capacity to pay workers, it is vital they be pressed to do so.

Even assuming some success in eliciting more equitable burden-sharing from brands, public resources, brought to bear through a collective international effort, will be essential to provide adequate income support for workers in countries that lack the resources to do it alone. Everyone is scrambling for lifeboats amidst the rising tide of crisis; it is imperative to make sure there are enough to go around. Wealthy countries are about to mobilize trillions of dollars to stanch the domestic economic damage from Covid-19. If international financial commitments can be secured that are equivalent to a tiny fraction of those amounts, this will be enough to provide vital assistance across manufacturing supply chains—keeping tens of millions of workers, hundreds of millions of their family members, and tens of thousands of businesses afloat.

Such support, which will likely have to flow through national governments in apparel exporting countries, should be contingent on:
• a commitment from recipient governments to move, after the crisis abates, to establish far more robust social insurance systems to protect the income of garment workers in the context of mass job loss; and
• enforceable commitments from brands, to take effect after market conditions stabilize, to help fund those systems through the payment of a premium on their apparel orders.

It will, of course, be vital for unions and labor rights groups not only to advocate for, but to play a central role in shaping, such a program.

Achieving these goals depends on vigorous public advocacy by the global labor movement and its allies in the days, weeks, and months ahead. The themes underlying this advocacy are straightforward:
• Brands should treat their suppliers and the workers who make their products with fairness and decency as this crisis unfolds.
• Supply chains do not stop at national borders; the ethos that we must watch out for each other during this unprecedented calamity should not stop at the border either.
• Failing to protect workers in supply chains will risk mass unrest, complicate efforts to fight the pandemic, and make it far harder to restart global production when the crisis abates.

It is also vital for labor rights organizations to monitor large-scale suspensions and terminations of employment across the supply chain, documenting in detail those cases where workers are not paid compensation due by law. There will be opportunities, even if they are after the fact, to help workers secure payment, and the arrears may be mammoth. This will be especially important if a broad international effort to shore up workers’ income fails to reach fruition or proves too limited in scope. On the other hand, if a strong international effort is launched, ensuring the money gets to workers will also require careful tracking and documentation.

Exposing a Failed Supply Chain Model

This advocacy effort will also serve as a vital educational opportunity. The flaws in the supply chain model that are leaving tens of millions of workers unprotected from the economic ravages of the pandemic are the same flaws workers, unions, and labor rights groups have been raising alarms about for years:
• Prices paid to factories that do not reflect the true cost of labor, including decent wages that allow workers to save and the cost to suppliers of maintaining reserves that enable them to pay benefits due to workers upon termination;
• A power imbalance between buyers and suppliers so severe that it allows the former to push costs and burdens onto suppliers while claiming a disproportionate share of the gains; and
• A lack of brand accountability through legally mandated human rights due diligence and reliance, instead, on voluntary brand labor standards that cannot be enforced by workers and unions.

Advancing understanding of how supply chain structures have exacerbated the present economic catastrophe will increase the chances that the supply chains that emerge when the Covid-19 crisis abates will be more equitable, rational, and resilient.

Source: Worker Rights Consortium