Index

NEWSLETTER 13, NOVEMBER 2000 Using Codes of Conduct: Some background for the CCC strategy debate

Introduction

The Clean Clothes Campaign is at this moment in the middle of a major evaluation and strategizing process (see elsewhere in this newsletter), and the use of codes of conduct as one of our tools needs to be assessed. Obviously this is quite an exercise. Discussions on the subject of codes are hard going: codes mean different things to different people and often a common terminology is missing. Also, the number of organisations, companies and institutions involved in the 'code of conduct debate' continues to increase, as does the variety of topics discussed within this framework. At the same time, no matter how 'hot' the subject might seem to be, a recent study concerning code-implementation in Tirupur by the Indian NGO SAVE once again showed that none of the workers knew about codes or the labour rights they supposedly guarantee. The article on Thailand elsewhere in this newsletter shows the same picture.

In the article below we try to give an idea of why and how the CCC has been involved with codes of conduct, as a sort of starting point for a discussion that we hope will receive input from a lot of individuals and organisations working with and alongside us over the past years. We hope also for reactions of those of you who have not been active in this debate until now, hopeful this article can work as a sort of introduction and stimulate you to participate!

The need to be short unfortunately means that a lot of nuances are lost, and many important issues are not addressed. We therefore draw your attentions to a number of very interesting reports and articles that were recently published on this topic, see box I.

A little bit of history: why codes?

During the seventies and eighties TNCs increasingly started using subcontracting, licensing agreements and other non-ownership control mechanisms in organising their production. This started in the labour-intensive manufacturing industries such as the clothing industry but spread to other sectors as well. The most important element in the production process is no longer the product itself but its marketing. A well known example: Nike has maybe 5000 direct employees but 600,000 workers are somewhere involved in making shoes, clothes and other products. The subcontracting system allows international companies to distance themselves from the responsibility for their workers. These workers, partly in the informal or grey sector, work under extremely bad conditions and are in fact cut off from the traditional forms of organising themselves, bargaining or seeking legal redress. Even when they manage to form a union and create pressure, the local management is often not in a position to meet the demands; their bargaining power over the international buying company is too small. It is in this specific context that the codes of conduct we are talking about here were developed.

There was and is no lack of internationally accepted labour standards. The ILO, part of the UN system, has been developing them for years. Those standards are meant to be included in national labour law, and in fact most countries have quite good labour laws. The problem lies in the implementation. Why are labour laws not implemented? This is partly due to the respective national governments, but has also to do with the TNCs who have power that exceeds that of national governments and who have practices that prevent the laws from being implemented. Also, being international actors, they operate in a regulatory vacuum. Despite efforts at intergovernmental levels (such as the UN code of conduct) there is still no international obligation or enforcement system for TNCs.

Model codes and company codes

When the CCC started one of our main aims was to get international companies to accept responsibilities for labour conditions in global supply chains. In the early years we limited ourselves to action on specific cases and companies. In the middle of the nineties however the need was felt to set out a more systematic and structural approach, which would also force companies to address the forces underlying the violations and to prevent violations from occurring. Jointly with several Asian labour networks and organizations, and with the international trade union federations we outlined demands in "the model code for the apparel industry including sportswear" (see box II). Companies at the top of the production chain have to comply with a set of ILO standards and guarantee their implementation down the entire subcontracting chain. Enforcement of the code should be overseen by an independent body that should be especially created. In this body unions, NGOs and companies should be represented. The modelcode also outlined what a code should not do: it should never replace collective bargaining agreements or undercut national labour law.

Companies reacted to the publicity by developing their own codes, which typically exclude important standards, such as the right to organize and a living wage. They usually make no reference to the ILO, give no space to workers or workers' organisations and are often used more as a PR instrument than as an instrument to actually enforce labour standards. Evidence shows that company codes, like the labour laws, by and large are not implemented, although there are exceptions. When it comes to easily visible health and safety issues, especially in the first tier of subcontractors, limited improvements have been made. Company codes are sometimes used with negative effects, for example to undermine national labour laws or to prevent unions from organizing.

Company codes still provide a useful campaigning tool. The positive element in the company codes is that they bring back to the TNC level some responsibility for workers no matter in whose employment they are or in what part of the world they live. Major garment retailers and brand names can now be addressed for violating their own policies as well as for violating the standards set by the international community.

The debate has moved from responsibility to enforcement. How should this be done and by whom? What is the role of the national government and the national supplier and what of the international company? What kind of international framework is needed? How can it create space for workers organizations at the local level and lead to worker empowerment? How can consumers be reliably informed?

Enforcement: explaining the terminology

In the modelcode ideas were outlined on how the code should be implemented, monitored and verified.
What do we mean by these terms?

Implementation refers to activities that should be undertaken by the (buying) company to make sure that the standards set in the code are being met. It includes making the code part of the contract between the supplier and the buying company, which in turn makes it part of the national legal framework. Another part of the implementation is adapting the buying practices so that the supplier is able to meet the standards outlined in the code. For example, when an order is negotiated, buyers should asses whether or not the supplier can comply with the maximum hours of work provision in the code, given the order size and delivery time that is negotiated. What is also important is that companies not only send a letter to the suppliers, but work towards more long-term relationships with the suppliers.

Monitoring is the term used for activities meant to keep a close watch over the implementation, to check if the code is consistently being complied with. Obviously, companies themselves have to put procedures into place that enable them to have that knowledge. It is not sufficient to just send the code and assume that that will be enough. They will have to train their employees, instruct their buyers, establish appropriate measures in cases of violation of the code including accompanying measures etc. This process is sometimes also called internal monitoring. Companies that came under fire for violating their own codes reacted by developing what is sometimes called external monitoring: hiring an external auditor, usually either an accounting firm or a quality control firm. These firms, with no experience or expertise in labour rights issues, rapidly developed special divisions and departments and "social auditing" has by now become a service industry in its own right. The campaigns have spent a lot of energy in discrediting this process, and with considerable results.

There are different types of monitoring: NGO's and trade unions also monitor compliance. At present, this type of monitoring is usually brought to the attention of the international company via urgent appeals and campaigns like ours. The code is then a tool at the local level to get attention and to get violations rectified. In some cases companies have agreed to monitoring by NGO's, with mixed results.

Independent Monitoring or Verification is the term for activities that ensure that both the monitoring and the implementation happen as intended. The above mentioned independent body would play a large role especially at this level. The original proposal in the CCC model code was that the independent monitoring or verification should be based on two tracks. The first track consists of checks to the supplier: checking records and payslips, pay unannounced visits, interview workers out of hearing of management, etc. It is the job of the independent body to ensure that this is done credibly and effective, and by whom this can be done. The second track has to link directly the workers themselves to the overseeing body, for example via a complaints mechanism for which local contact points of organisations trusted by workers should be set up. For the CCC, the direct involvement of organizations at the local level, and ultimately of the workers themselves, is crucial. The question is how to create space for workers to organize themselves and to remain organized, and to enlarge their scope of operation.

We had and have no definite answers to this, but felt it was important to test out the ideas of the model proposed. This is done through several monitoring projects, involving companies and CCC linked organizations (see box 2). Those projects include so-called 'pilots', work on the ground to test the ideas outlined above. For us pilots are essential because they involve directly local NGOs and trade unions in the areas where the actual production takes place.

Industry, of course, reacted by building their own systems, just as the development of model codes led to a counter-reaction in the form of company codes. Quite sophisticated company-led initiatives for setting up systems for enforcement started to grow in number and scope. Examples are SA 8000 and the Fair Labor Association. This leads to a lot of confusion, especially since the same companies (and sometimes also the same NGOs and trade unions) tend to join different initiatives. Levi Strauss for example is in the ETI and the FLA. Adding to the confusion is the tendency of industry to appropriate the language used by the NGOs and trade unions. For us for example it is very clear that monitoring or verification that is directly paid for by the company, that is the subject of the exercise, can never be called 'independent'. Yet it is exactly this system that is currently labelled independent verification under the FLA and SA 8000.

Some first lessons

To date no systematic evaluation of the different monitoring projects that the CCC is involved in has been done, though reports of the different pilots are shared and to a certain extent discussed within the international CCC network. But, the real work of drawing conclusions that go beyond the specific national context still remains. We hope to start a project specifically aimed at comparisons soon. It is essential to move beyond the regional level to the international one. Alongside these European projects similar work is being carried out in Central and South America, where local NGOs have been closely involved in monitoring and verification. What is listed below therefore are more points of interest that have come up, sometimes contradictory, drawn from different experiences.

Worker education on labour rights (whether laid out in the code or in the local labour law) is crucial, especially where there are no trade unions, either because they are banned by law or effectively banned in practice. It is precisely in this context that codes are meant to apply. But also where trade unions are allowed to function, workers still need to be informed and aware: if you do not know your rights you cannot complain. Tools for this, such as cartoon books, have been developed as a result of pilots in Guatemala and Bangladesh.

Labour related NGO's and trade unions have to be involved at the local level in order to have good quality monitoring and credible independent verification. Dependable worker interviews for example can only be done by a local organisation trusted by the workers. Quite an obvious conclusion, which was in fact was already included also in the model code. However, the difference is that we are now gathering proof and companies, who were part of drawing up the terms of reference for the pilot projects are beginning to accept the conclusion.

Local NGOs in some cases did not want to go inside the factory and talk to management, feeling it would compromise their independence and their position. They preferred the use of a social audit firm as the 'go between', leaving them free to do the interviews with the workers and retain their trust. This is why in the Swedish pilot the decision was made to have the outside audit done by an NGO and the inside audit by a social audit firm. Checking the inside of the factory especially on "visible" elements (fire exits, dormitories) can be done by professional social audit firms, but works only if they are briefed before about the findings of the worker interviews. Even well briefed social auditors paying unannounced visits can be fooled easily and will always have the problem that they are only very temporarily there. We recently heard about factories constructing special toilets for unannounced inspections: these toilets are not to be used by the workers because they have to remain clean. Unless workers are themselves involved in the monitoring system somehow these problems will continue to exist. Finding the right mix of organisations and people, and the right way to include their knowledge and information requires a lot of capacity that is at present generally not available.

Organisations at the local level, whether unions, NGO's or indeed industry; need to have much more capacity, knowledge and a sense of 'ownership' of the code and its provisions before they can really participate in it, whether in a pilot project or in any other form. This will take a lot of time and effort, more then was planned for in most cases.

One of the crucial questions is who pays for the costs associated with the implementation of codes, the so-called true cost. The costs of independent verification, though often debated, generally are presumed to be much lower than the costs associated with implementation. Who should pay? These costs generally cannot be met by the supplier, they need to get paid more for their products and often other incentives are necessary as well. Buying companies have to make policy changes to allow for suppliers to meet the standards, and obviously the price quoted should be adapted in many cases. A lot depends however on the amount of leverage the buyer actually possesses, and this proves difficult to determine. Buyers for example often cannot get access to the books of their suppliers, which makes it difficult to know whether the supplier can handle the order without violating the code. It is very clear for us and indeed a demand in the modelcode that cancelling contracts (cut and run) can only be done as a final resort, but when is that, and who is to determine this? Again, direct involvement of trade unions local level organizations that have good contact with the workers seems to be the only way out at the short term. For the long term we will have to continue challenging the entire subcontracting system.

Transparency about any project or scheme is essential, if only for the international debate and to enable us to really learn from these experiences. There is a lot of suspicion on all sides concerning these processes, which can and should be countered by being as open as possible, for example by disclosing all pilot reports. Unfortunately, this has to date not been the case especially with the European pilots. One of the real problems is that participants tend to draw different conclusions: what is written above is very much the learning from the NGOs and unions involved, no doubt the companies involved would tell a very different story.

The relationship between the code and national labour legislation is a very important one that should be addressed at all levels. There are some cases where codes have been used to undermine national legislation, so in the communication about the code, whether to supplier management or to workers, it has to be very clear that the provision that should be followed is the one that is higher, whether it is the law or the code.

In the current political climate of diminishing governmental influence and increasing scope for TNCs, the existence of non-governmental codes of conduct is sometimes considered yet another mechanism to further the dominance of TNCs in areas of society that used to be primarily controlled by the state. The fear exists that codes would replace governmental regulation. Taking into account the fact that the majority of codes are company-controlled, that is developed, controlled and administered by a company, this is logical. At the same time, the traditional state has proved itself unable to control TNC behaviour. Involving civil society in monitoring and verification can lead to an emerging form of 'civil regulation' that can in turn set the stage for more public regulation. Codes in that sense can be one tool in providing the necessary countervailing power, if (and only if) they directly involve civil society in implementing, monitoring and verifying mechanisms.

Legislation enforcing compliance with codes of conduct is essential, but seemed until recently a far way off and difficult to develop concrete campaigning strategies on. Many of us feel however that it is essential for the campaigns to start working much more strongly in this area, and several recent initiatives by CCC linked organizations and other international campaigns are trying to do just that.