The Flanarant: Olympics signals new scrutiny in apparel sourcing
The outpouring of rage that followed the revelation that Olympic opening ceremony uniforms for US athletes were made in China highlights a 'New Accountability' in apparel sourcing, Mike Flanagan believes. In the future, buyers and sellers will have to accept the increasing influence of outsiders on how they do business.
Many Americans - especially American politicians - have been up in arms over a decision by the US Olympic Committee (USOC) to buy Ralph Lauren-branded, but Chinese-manufactured, costumes for their team's parade at the London 2012 opening ceremony.
The often theatrical reaction differs markedly from a related Olympic sourcing controversy in 2002. And it tells us a great deal about how Western public attitudes to sourcing have created a 'New Accountability' over the past decade - and the likely consequences this will have for the next ten.
The Ralph Lauren squabble deserves a Gold for outrage...
America's anti-China lobby started the outrage with the Democrats' Leader in the Senate saying: "I think they should take all the uniforms, put them in a big pile and burn them, and start all over again."
China's government-controlled press has been just as outraged at the inability of American politicians to understand the principles of free trade. But its media has been totally devoid of stories about anyone in China sourcing Olympic uniforms (or any other clothes in any significant numbers) from far-cheaper factories in Vietnam, Cambodia or Vietnam.
Some American free trade supporters profess outrage at politicians involving themselves in private contracts between USOC and Ralph Lauren. Others say it's these "outraged" politicians who voted for laws allowing freer imports of clothes. And American Apparel, which manufactures almost entirely in the US, claims outrage that some Olympic replica garments made in China have already sold out, but could have been instantly replenished if they were made in the US.
Me? I'm annoyed at the arrogance and political ignorance of these free-trade supporters I usually agree with - on both sides of the Atlantic.
...but it comes as high unemployment seems endemic...
Virtually all rich-country Olympic outfits have been made overseas for at least the past decade. But a lot has changed in that time.
Now, US unemployment has been stuck at over 8% for more than three years; back in 2002 it was below 6%, had been 4% a few months earlier and was on its way back down again.
Throughout Europe, even in Germany, there are fewer jobs than a decade ago. Everyone who's bitter about the way unemployment seems to be a permanent feature of life these days realises offshored industries like apparel manufacture aren't the only culprit - but they all agree that offshoring bears a big part of the blame.
So it's not surprising that outraged politicians - on both sides of the Atlantic - want to make importing more difficult.
It's all very well reminding people how offshore manufacturing brings domestic prices down. But clothes account for just 3.5% of US consumer spending (and a lot less in most other developed countries). And while US apparel prices were just 4% lower in 2008 than in 2002, they have been flat or rising pretty much ever since.
If we want to see continuing relaxation in import restrictions, we've got to make a much better case than a small, now-forgotten, fall in clothing prices. Until we can do this, politicians will stay hostile to new trade concessions, or trade deal "renewals".
...and Western trade laws are now democratically accountable...
What critics of "outraged" politicians forget is that the current raft of pro-trade arrangements throughout the West is the product of an extraordinary period of bureaucratic unaccountability.
In Europe, until recently, high-minded officials in Brussels negotiated deals with other countries and a committee of national ministers practically always rubber-stamped them.
In 2002, America introduced its Trade Promotion Authority Act limiting the ability of Congress to modify trade deals the President had agreed. That Act expired in 2007, so politicians are now able to inflict thousands of tiny changes on any trade agreement a country's diplomats might negotiate.
Almost simultaneously, the EU's Lisbon Treaty gave the European Parliament the ability to inflict a similar fate on trade agreements.
Trade pacts on both sides of the Atlantic are now subject to the democratic process like any other legislation: free trade advocates need to adjust to the new reality of winning public acceptance for their ideas.
...so their cost gets scrutinised...
Trade concessions invariably reduce import duty, cutting tax revenue while government spending is under huge pressure. The EU's duty-free access to Bangladeshi garments made from Chinese fabric costs European taxpayers over EUR1bn (US$1.2bn) a year, for example. No supporter of the programme has presented the case for this whopping subsidy to the people paying for it.
...and the verdict is rarely positive
So I predict that until there are real signs of falling unemployment - or free trade advocates learn to sell their ideas - the climate on imports will get frostier.
US legislators will struggle to ratify the deals The Philippines is calling for, the proposed Trans Pacific Partnership (TPP), or any scheme for duty-free access from the poorest garment producing countries like Cambodia or Bangladesh.
Europe's negotiators might sign a draft Free Trade Agreement with India this autumn, but it'll be a very long time before the European Parliament ratifies it - if it ever does. The Parliament has still not ratified a package of apparel and textile duty concessions European officials offered Pakistan two years ago. So it is likely to be just as hostile to any other lowering of trade barriers.
Many people see the Ralph Lauren controversy as just a dose of politicians' hypocrisy. But I see it as a cry of rage that will stunt importers' businesses until either the prospect for jobs changes, or free trade advocates learn to sell their case in the democratic arena a lot better.
It's not just legislators scrutinising sourcing...
Now let's contrast that with other, less publicised, Olympics sourcing controversies.
Back at the 2002 Salt Lake City Winter Olympics, it was really too one-sided to be called a controversy. When it emerged that the uniforms for torchbearers in the pre-Games relay had been made in Burma, no-one knew who to complain to.
Protesters first complained to the International Olympic Committee in Switzerland, which said grievances should be sent to the Salt Lake Organising Committee (SLOC). SLOC immediately responded by saying - and I'm not making this up - the uniforms were not made in Burma, but in a different country called Myanmar. What's more, SLOC added, Gap was making there as well - which Gap energetically denied, since in most of the garment industry even then, "Burma" was shorthand for forcible slave labour.
Not a peep, though, about the potential job loss from offshoring. The argument fizzled out, but sparked the labour movement into lobbying the Olympic system.
So in 2011, the London Organising Committee for the 2012 Olympic Games (LOCOG) launched, after widespread consultation, its Sustainable Sourcing Code. This covers a huge range of sensitive issues, and it's a pretty good starting point for anyone needing an ethical sourcing checklist.
...but implementation is a lot trickier than rule-writing...
The code requires suppliers to use factories complying with the Ethical Trading Initiative (ETI) Base Code. Among other things, this stipulates "living wages", which it defines as "enough to meet basic needs and provide some discretionary income".
In early July 2012, the UK's Daily Mail ran a "what dreadful wages" story about the Shou Yeng garment factory in Cambodia that Adidas used for some Olympic sportswear. Pointing out that the basic wage there was the Cambodian minimum of $61 a month, the story prompted LOCOG to start an inquiry.
There is some dispute over what wages Shou Yeng workers actually receive: Adidas claims $130 a month, or more than twice the Cambodian minimum wage, while the paper claims slightly less, but insists worker have to do two hours' overtime a day to bring their pay to that level.
$130 a month is way above what any Cambodian trade union is negotiating for. But the Asian Floor Wage campaign claimed in February this year that, to provide a living wage, the Cambodian garment industry pay should rise to $260 a month, which is the basis for the LOCOG investigation.
LOCOG has now appointed an independent outsider to investigate, though it's not clear what it can do if it sides with the complainants. Adidas is convinced Shou Yeng's paying decent wages, and there's no sign of much public support for the protesters' definition of a living wage. This protest, unlike the Ralph Lauren one, will fizzle out.
...especially on something as indefinable as a living wage...
But the underlying debate won't. The only reason Americans or Europeans use Asian manufacturing centres is because their wages are low. Whether Shou Yeng pays $60 or $260 a month, a tabloid newspaper will be able to create a "slave wages" story. And as long as it makes sense to manufacture overseas, activist groups will keep on using every weapon they can to push Asian wages up - including emotive newspaper articles, and imaginative interpretations of industry codes.
In the past decade, many buyers have moved on from paying legal minimums to seeing workers get a reasonable standard of living. Even the Olympic movement - which a decade ago didn't know where Burma was or that Gap refused to source there - now seems to accept some responsibility for ensuring reasonable wages.
But the day buyers and workers' advocates agree on what that means in dollars and cents will, in my view, be the day buyers and advocates stop doing their job properly.
...but on environmental sustainability it's a completely different story...
Now Adidas' reaction to this is very different from its reaction to a similar, but much better choreographed, controversy a year ago when Greenpeace campaigned against toxic discharges from Adidas, Nike and Puma suppliers in China.
Within a few months, now joined by C&A, H&M, G-Star and Li Ning, the group had committed to a joint roadmap to zero discharge of hazardous chemicals (ZDHC) in their supply chains by 2020.
Similarly, companies accounting for 30% of the world's garment buying have now launched, through the Sustainable Apparel Coalition (SAC), a first draft of a common tool for evaluating a garment's impact on the environment.
Though businesses might have reservations about some aspects of the tool, SAC is committed to a process of regular review.
Probably, every serious Western buying organisation in ten year's time will routinely submit its sourcing process to the SAC tool or the ZDHC roadmap - and LOCOG-style codes will be almost universal among even the tiniest buyers.
So over the next decade...
In the past decade we've seen a 'New Accountability' emerge in garment sourcing, which I believe will be with us for the next ten. Among its key principles:
- Nothing is a private transaction between buyers and sellers any more. Over the past ten years all sorts of groups once considered outsiders are now given an influence over how goods are bought and sold.
- There is surprising agreement about the policies the garment industry should adopt to monitor and minimise environmental damage. But practically none on how much workers should be paid - and I doubt there ever will.
- There has been a spectacular reversal in public tolerance of freer trade throughout the world.
- Large Western importers make a far less convincing case in public - in spite of lobbying budgets that dwarf the average activist group's funds - than their opponents.
Unless the apparel industry learns how to sell its ideas to a sceptical public, it'll spend the next decade getting its freedom whittled away by people who are far poorer but a lot more nimble.
The central principle of the New Accountability seems to be that, in public debate, poor nimble poverty seems to beat well-funded corporates every time.
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