Study of A Proposal (and its alternatives) to Amend the Textile Labelling and Advertising Regulations: Applying the Conference Board’s Optimal Policy Mix Framework

4. Decision Making Criteria and Options

Now that this report has outlined the various perspectives around the policy objectives (the end) and reviewed the policy initiatives that have been implemented in Canada and around the world (the means), it can now focus on the analysis of the means to achieve the end. This is the Optimal Policy Mix Framework.

This section reviews the criteria used for the analysis, as well as the options generated by stakeholders as part of the OPM process. As mentioned before, almost all stakeholders support the ultimate objective, which is to "find a means of addressing a serious issue of concern: the use and promotion of fair labour standards in respect of apparel sold in Canada." However, stakeholders could not agree on the means of achieving the objective. As a result, this section reports on stakeholder perspectives around the criteria used to assess each option, on the degree of importance being placed by stakeholders on each criterion, and on the perceived effectiveness of each option relative to the criteria. This section also reports on the ETAG proposal and each of its alternative, as captured during focus group sessions.

As mentioned before, none of the options considered emerged as the clear winner in terms of optimal policy choice. This suggests that a series of measures, or new alternative means may have to be considered if Canada is to achieve the ultimate objective. The concluding section of the report provides a context for examining the potential for a more optimal mix of policies based on the findings of the report.

4.1 Methodology

This report uses the OPM Framework, a methodology for considering policy objectives (ends) and policy instruments (means) in the development of policy around the use and promotion of fair labour standards in the production of apparel sold in Canada. It builds on work undertaken by The Conference Board of Canada over the last four years suggesting that good public policy making take a more considered approach to three iterative elements, or steps, preceded by scoping and followed by implementation.

The OPM Framework is intended to:

• Ensure consideration of the different means that can be used to address particular ends;
• Provide a tool to assist decision-makers (primarily public sector policy makers) in policy analysis, formation, planning, and assessment;
• Enhance appreciation for the breadth of policy instruments; and
• Further understanding of key considerations in the policy formation process.

Some key findings arising from previous OPM projects are that:

• The policy mix is becoming increasingly diverse with an increasing array of means to address different ends.
• The availability of voluntary initiatives helps foster choice in the development of optimal policy approaches.
• The selection of preferred policy approaches requires appropriate consideration of the breadth and depth of policy instruments and their compatibility with policy goals.
• Stakeholders are an important consideration across all elements of the OPM Framework and policy selection process.
• Ends should drive means and not vice versa.

This particular application of the OPM Framework addresses a range of policy tools—from disclosure regulation, represented by the ETAG proposal, through voluntary and non-regulatory initiatives, to information dissemination instruments as they apply to the promotion of fair labour standards. The objectives, alternatives, and selection criteria were developed by the Conference Board in collaboration with various stakeholders representing ETAG supporters, the Canadian Apparel Federation, the Retail Council of Canada, Industry Canada, HRDC and DFAIT.

The methodology consisted of :

• Initial interviews with stakeholders to gather their perspectives on the issue of concern and to validate the objectives and criteria to be used to evaluate the policy.
• Five focus group sessions with stakeholder groups to evaluate the proposals using criteria developed by the Conference Board and vetted by stakeholders during the interview process. Further refinements of the criteria and objective also occurred at this stage; and
• Writing of a report that interprets the feedback of stakeholders, reports on the importance of the various criteria, and evaluates the effectiveness of various proposals relative to the criteria.

Further information about the OPM can be found in the section entitled About the Optimal Policy Mix, after the conclusion of this report.

4.2 The Decision-making Criteria

The OPM forces stakeholders to explicitly assess the effectiveness of the policy options through the use of criteria. In the case of the use and promotion of fair labour standards, 23 criteria in 4 categories were considered. This section reviews the criteria categories and the importance ratings assigned to each of them by stakeholders. Summary tables of the results are presented in Appendix G.

4.2.1 The Identification Criteria

This set of criteria sought to evaluate the degree to which each policy option identified and followed the issue of fair labour practices in respect to apparel sold in Canada. Identification was seen as relatively important in this case, as is reflected in the stakeholder feedback (see Appendix G Box 1).

The first identification criterion, the ability to correctly identify sweatshops, had the broadest range of views. Those stakeholders rating sweatshop identification as low generally believed that the information about labour standards was less important than the information about the location of manufacturing. Those who ascribe to this perspective, also believe that once a manufacturing location information is known, local NGOs or agencies will use their resources to accurately determine if the location is using sweatshop practices. This information would therefore inform consumers indirectly.

On the other hand, stakeholders who believed this criterion to be highly important see the need for a more direct relationship between the information provided and the ability of consumers to be informed about fair labour practices. These stakeholders believe in the need for information about labour practices in use at the manufacturing locations, not necessarily information about the location.

The range of perspectives about the importance of this criterion appears therefore to be the result of a basic disagreement as to whether the policy options should directly identify sweatshops or identify them indirectly by way of their locations.

The second criterion in this group concerns the quality of the information. It asks whether the information given will be of sufficient quality to inform consumers on the use of fair labour practices at manufacturing locations. In this instance, the range is much smaller, since stakeholders believe the information needs to be accurate and complete in order to be useful. Those who rate this criterion as medium in importance would be satisfied with incomplete information about location only because incomplete information is better than no information. Those who rate the criterion as high would prefer complete and accurate information about labour practices at manufacturing locations, not incomplete information about location only. All believe that the information needs to be accurate and backed up by penalties for willingly providing erroneous information.

The third criterion in this group concerns the geographic dispersion of the information. At issue is whether or not the information provided should focus on particular areas of the world and/or whether the location of the sweatshops has any bearing on the policy decision. Almost all stakeholders agree that this is less important to this policy decision. In effect, stakeholders are saying that consumers want to have information about fair labour practices whether these practices are in Canada or anywhere else in the world. In other words, the policy option should apply wherever fair labour practices are required—and this is anywhere in the world.

The fourth and final criterion concerns the ability to respond. This criterion speaks to the response of the apparel industry when sweatshop conditions are uncovered. This criterion is rated as medium in importance by some stakeholders, largely because they believe that those using some manufacturing locations have no incentive to improve working conditions, even when requested to do so by their Canadian customers. As such, the only way to avoid unfair labour practices would be to avoid use of the particular locations. Examples of this abound. In some countries, the political leadership is seen to be so corrupt as to remove any possibility of responsible behaviour, including fair labour practices (example, Burma). In such countries, stakeholders believe that no trade may be better than trade that supports such a regime. In other countries, the culture or political system supports or condones practices that Canadians see as unfair. In such cases, the local beliefs and conditions limit the effectiveness of the Canadian policy option chosen and reduce the importance of this criterion in the policy choice .

Those that rate this criterion as high believe the Canadian apparel industry must not only do the right thing with respect to fair labour practices, it must also work with the locations that employ unfair practices to improve them. These stakeholders perhaps also believe that the Canadian apparel industry should choose not to work in countries deemed to employ unfair labour practices—at any price. Once the decision has been made to source in a particular country, however, the Canadian apparel industry should also be willing to work, for the long term, toward improving the labour practices there. As a result, they rate the ability to respond criterion as highly important to the policy option decision.

As demonstrated by Appendix G, Box 2, none of the policy options considered by stakeholders were highly effective at maximizing the information criteria. The ETAG proposal sought to provide only part of the information, relying on others to complete the information about the use of fair labour standards. The contract-based proposals did an effective job only for large clients, such as universities and cities, but did little to inform consumers in general. The codes of conduct and certification initiatives were viewed as effective at providing information, but the quality of the information that would be provided was seen as suspect by some stakeholders. What was required under those proposals was a way to verify the information provided, particularly adherence to published standards. The industry stakeholders felt it sufficient to rely on their own auditors and world industry experts, whereas other stakeholders wanted their own representatives to be the ones verifying and characterizing the practices and adherence to standards. Bilateral trade agreements were seen as good tools, albeit blunt ones that are limited in scope (negotiation time) and ability to effect change. Indeed, many stakeholders questioned the effectiveness of trade remedies as a tool to address labour standards. Finally, the reporting proposal would be very effective at providing information, but only for a subset of the industry. Timelines were also seen as an issue for periodic reporting.

4.2.2 The Technical Criteria

Technical criteria are those that relate to the structure and practices of the industry, in as much as they affect the policy option decision or the policy objectives. This is a particularly important aspect of the apparel industry because of the practices described earlier and the propensity of many countries to compete viciously on price to attract investments in what they see as the number one target for industrialization. As a result, all of the criteria are relatively important to both the objective and the policy choice. (see Appendix G, Box 3).

The first criterion relates to the level of change, innovation, and turnover. Change is the order of the day in the apparel industry. All stakeholders wish the supply chains were more stable than they are, and a number of industry stakeholders report they are working to reduce the number of suppliers and consolidate supply chains. However, this is very difficult for apparel. It is subject to seasonal variations and has perhaps as many permutations of the supply chains as there are types of apparel. This is particularly true in Canada where winter apparel is substantially different and may have to be sourced differently from summer apparel. To further aggravate the situation, changes to the existing system of quotas, or to rules of origin, may force a manufacturer to change supplier from year to year. For example, a reduction in quota may mean a manufacturer can no longer profitably source from certain countries, for example if competitors fill the country quota before you have had a chance to place your order. The supply chains therefore may have to be changed in response to quota changes or even to rules of origin changes, which, in turn, affect how the quota is applied. Birnbaum provides an incredible illustration of how such changes might affect the supply chain for a single product.²⁰ Taking this example and multiplying it by thousands of items gives an idea of the complexity of supply chain management in apparel and provides a compelling reason for many stakeholders to characterize this criterion as very important to the policy choice. Those stakeholders who describe the importance as medium usually refer to specific examples where the supply chain is simpler, either because of product specialization or because of direct sourcing. In such cases, the supply chains are more stable and less subject to turnover.

Seasonal variations also introduce another dimension to the need to source substantially different apparel well in advance of the selling season. They also increase the danger of inventory obsolescence. For example, spring clothes reach stores in late winter. Although there are perhaps as many permutations as there are categories of apparel, this means that some apparel may have to be sourced weeks or even months ahead of the selling season (in mid-winter, for example). Discounting is also a common practice, and Birnbaum describes a situation where clothes from certain parts of the world need to get discounted much more readily than others, perhaps because styles have changed between the time the goods were ordered and the time they have reached the shelves.

This speaks to the second criterion, the structure of the industry. Stakeholders talk about large and small firms having different processes and levels of resources to manage supply chains (and the labour practices used within them). The supply chains of large retailers and manufacturers may include structures that source apparel directly from manufacturers or through importing and/or buying agents. There are no real standard industry practices. Some small retailers and manufacturers, particularly niche players, may similarly source apparel directly (example, Roots, Mountain Equipment Co-op). However the majority of small industry players deal exclusively through importing and/or buying agents. As a result, it is almost impossible to accurately characterize a type of supply chain and reliably associate it with a type of apparel or apparel industry participant.

One can only imagine the variety and number of permutations of the supply chains used by individual retailers and manufacturers. As a result, this second criterion was characterized as important by all stakeholders, as was the third criterion, existence of appropriate information. Under conditions of quota changes, seasonal changes, the number of types of apparel, the use of intermediaries or avoidance of their use, direct sourcing or avoidance of direct sourcing, rules of origin, etc., it is no wonder that ETAG stakeholders would like better information about location of manufacturing. It is difficult for anyone, including industry stakeholders, to accurately describe, never mind report on, what is happening within their own supply chains in terms of sourcing. The additional dimension of fair labour standards must be seen as an even more difficult task, even for those already spending resources to ensure adherence to their own corporate supply chain codes of conducts.

The fourth criterion, availability of alternative suppliers, received a wide range of ratings, from low to high. To some, starting a new supply chain is hard, particularly given the descriptions of supply chains outlined above. Indeed, the suggestions that there are many suppliers that can do the job is seen as simplistic. Some ETAG stakeholders believe all supply decisions are made on price and that is why Canadian apparel industry players often change their supply chains. Such stakeholders rate this criterion as highly important. Industry stakeholders report supply chain decisions are much more complex and include a mix of price, quality, and on-time delivery.

Many large retailers also include production standards, including labour standards in the supply chain equation. Getting a handle on these practices is not a trivial task. It requires a number of trips to the manufacturing location and a number of test orders to make sure an effective relationship is set up based on all of the aspects of supply chain management. Birnbaum would support this broader view and states that decisions that focus entirely on price, such as direct cost, miss significant supply chain costs such as macro costs and indirect costs that, in many countries, are several times bigger than direct costs. From this perspective, the availability of alternative suppliers is of relatively lower importance. While it is true that there are many suppliers, it is the few good suppliers that the Canadian apparel industry values and seeks to establish relationships with.

The fifth criterion involves government administrative capacity. Here, again, there was a variety of views, ranging from highly important to not important at all. This is the result of differing perspectives on the degree of government involvement desirable to address the ultimate objective. Stakeholder that focus on and define the ETAG proposal as simply disclosure of manufacturing location information see government involvement as unnecessary and therefore this criterion has a relatively low importance. Those who instead focus on the ramifications of the proposal in terms of government accountability, competitive behaviour, trade initiatives, accurate information, and verification tend to rate this criterion as very important. Thus, as was the case under the information, there is a basic disagreement as to whether the government should be directly involved or whether it will stand on the sidelines, simply forcing the identification of location, then relying on others to address the issue of fair labour standards.

The final criterion concerns impact mitigation. All stakeholders rated this criterion highly important. This speaks highly of the commitment of all stakeholders to the use and promotion of fair labour practices in the Canadian apparel industry. Industry stakeholders are aware of industry practices and are concerned about the perspectives some stakeholders have of their industry as bad corporate citizens. Indeed, many industry and ETAG stakeholders reported on the efforts they are making to ensure that manufacturers used by the Canadian apparel industry adhere to standards that are acceptable to Canadian consumers, once those are effectively defined.

At the same time, stakeholders are worried about the limitation of their individual efforts or the efforts of Canada as a country at addressing the situation. Some manufacturing locations clearly do not follow acceptable standards. Hopefully Canadians do not use those locations as sources of apparel. Nevertheless, industry stakeholders from time to time uncover unacceptable behaviours, or other stakeholders bring unacceptable practices they have found to the attention of the applicable Canadian retailer and/or manufacturer. At that point, industry stakeholders suggest they are willing to work with such locations to ensure that fair labour standards are implemented. But there are limits. For example, no Canadian retailer is willing to work with locations that routinely employ child labour, and often this may be grounds for immediate cancellation of sourcing contracts. Even for less serious offences the manufacturing location has to be willing and able to change its practices. Some are not, even after multiple attempts at addressing the situation and are abandoned. All this to say that all stakeholders look for ways to mitigate bad situations before or during contracts, or by terminating relationships. As a result, impact mitigation is a highly important criterion for the policy choice.

As demonstrated in Appendix G, Box 4, none of the policy options considered by stakeholders received high effectiveness ratings for maximizing technical criteria. The ETAG proposal sought principally to provide more supply chain information that relate to three of the technical criteria, underlining how difficult it is to currently follow developments in apparel supply chains. However, it was not very effective at protecting the proprietary supply chain information of industry participants and assumed that government would have little involvement in the process. The contract-based proposals only did an effective job for large clients, such as universities and cities, but did little to mitigate the situation for the industry or for consumers, being focused only on a limited number of apparel categories. The codes of conducts and certification initiatives were seen as effective at providing structure and labour practice information. But the quality of the information depended on an acceptable level of verification, and stakeholders disagreed on how to do this for the Canadian apparel industry. Bilateral trade agreements were seen as good tools but ones that were unable to effectively and quickly respond to the changing environment. Finally, the reporting proposal would be very effective at providing supply chain and fair labour standard information but not necessarily on a timely basis.

4.2.3 The Socio-political Criteria

Socio-political issues are at the centre of the issue of labour standards in the apparel industry. They relate to the human impact of the use and promotion of fair labour standards in the apparel industry, from the cultural factors in Canada that are driving our desire to do something about the issue to human factors in the countries that produce apparel. The stakeholders that participated in the analysis saw socio-political criteria as relatively important—and somewhat contentious. The importance ratings that stakeholders suggested relative to socio-political criteria are found in Appendix G, Box 5.

The first criterion concerns employee dislocation. Here, stakeholders were deeply divided. In one sense, none of the proposals really address the issue of employees who lose their jobs (or don’t get a job in the first place) because an employer is not willing or able to adhere to labour practices and standards acceptable to Canadians. Nowhere is this more apparent than the issue of child labour. Indeed, what is the impact of our beliefs on a culture or a country that uses children as young as nine or 10 as key economic resources for families? At some point, our willingness to promote fair labour standards starts by not dealing with apparel manufacturers whose beliefs and practices differ too much from our standards. Is this not the price of our ethical standards? In that sense, the importance of this criterion relative to fundamental issues, such as child labour, is very low and other means such as foreign aid and education have to be used to address the dislocation of child workers. The fact that foreign aid, changing local cultural practices, and charity are not the primary responsibilities for stakeholders from the Canadian apparel sector is reflected in the ratings.

At another level, the majority of Canadian stakeholders care about the conditions that result when a manufacturer or retailer stops dealing with a particular location. They care about the relationships they have built up over time and about the expense of having to set up new relationships. This level of caring explains why manufacturing locations found not to be in compliance with codes of conducts are given several chances to improve and to meet the standards. Stakeholders rate the importance of employee dislocations as medium.

However, if that location is not able to provide the required elements of price, quality, and on time delivery, it cannot be relied upon by Canadians, who expect these things when they buy apparel from Canadian retailers. This is where stakeholders disagree on principle. A subset of stakeholders believe on moral grounds that we need to support employees in developing countries, even when the particular manufacturing locations fail to meet our standards and even after they have lost the contract due to an unwillingness or an inability to adhere to the required standards. Such stakeholders believe we must "work with them" to improve standards. This is what some might call charity work. Such stakeholders regard the employee dislocation criterion as highly important.

The second criterion, government responsibility for self determination, resulted in a similar range of views. Many stakeholders agree that as a country we need to exert political pressure on all governments to adopt the types of minimum standards that we as Canadians view as "right" and as "fair," including labour standards. However, it is only when we speak about our own domestic practices that we really have complete control on this issue. Governments in other countries can and have in the past chosen to ignore our pleas. Our choice is then to not deal with those who fundamentally refuse to believe in what we think is right.

This was reflected in the stakeholder perspectives on this criterion. Domestically, there was broad consensus that it was a highly important criterion: Canada should demand, and encourage, fair labour practices globally. In other jurisdictions, however, the degree of importance of this criterion depended on whether stakeholders thought it feasible and desirable to impose the use of Canadian standards over those in other jurisdictions. Stakeholders who believed that our standards were the right ones and that we should impose them in other jurisdictions tended to also rate the criterion as highly important. Stakeholders who believed our responsibility stopped at adhering to local government standards, as long as those standards were deemed not to be too far removed from our own requirements, tended to rate the global aspects of this criterion as low.

The third criterion associated with public/stakeholder pressure similarly reflected a range of views. Industry stakeholders believed that there are a few issues, such as the wish to eradicate slave and child labour, on which everyone agrees. For such issues, all stakeholders rate the criterion as highly important. Moreover, all stakeholders viewed strong stakeholder pressure as a prerequisite if Canada is to make progress on the issue. For other labour standards-related issues, such as a minimum living wage and freedom of association, there were strong disagreements among stakeholders, with industry stakeholders seeing these issues as of secondary importance and labour stakeholders referring to them as highly important. One of the stakeholders characterized the stakeholder pressure as "concentrated" within specific groups, as opposed to generally driven by consumers. From this, one might conclude that the only pressure being applied came from labour groups and other interest groups concerned about labour standards.

This is supported by our review of the available material. For example, Birnbaum mentions the issue of working conditions in this book and describes working conditions that are considered unacceptable in the industry.²¹ He also characterizes examples of such behaviours as the exception rather than the rule, suggesting that many stakeholders make selective use of the available information to support their own agendas.

Careful reading of the surveys and other material being characterized as examples of strong stakeholder pressure from consumer groups also appear to be centred on relatively high-profile issues, such as child labour, and on ILO standards. Yet, it is the full and complete adherence to ILO standards that is broadly thought to represent the desired direction for fair labour standards in the apparel industry. In the end, this criterion is either very important, or it is only important to a subset of stakeholders relative to this policy choice—depending on their perspective.

The fourth criterion concerns the level of political will. As with stakeholder pressure, all stakeholders agree that the political will needs to be there if Canada is to make a serious effort at addressing the issue of the use and promotion of fair labour standards. Industry stakeholders see the importance of this criterion as medium because they believe they are already addressing the issue by means of their codes of conducts and the efforts they make at enforcing them. In that context, the level of political will is of relatively lower importance. ETAG stakeholders see this criterion as much more important.

Whether they rate the importance of this criterion as important or not, most stakeholders suggest that they are worried about the current lack of political will relative to this issue. Stakeholders characterize the current efforts of governments as reactions to particular stakeholder groups, not as effective progress towards the use and promotion of fair labour standards.

There are also wide disagreement as to the level of importance to be given to the fifth socio-political criterion, reputation/image. Industry stakeholders suggest that the impact on the reputation and image of labour standards issues is generally medium to low, particularly relative to other factors affecting reputation such as quality/value/price of the apparel they offer, which tends to be more important for the majority of consumers. Saying that the importance of the criterion is relatively low is not meant in any way to suggest that the issue is not important, and the industry is quick to point out that they make considerable efforts to ensure that fair labour standards are used within their supply chains. What industry stakeholders do say is that isolated examples of unfair labour practices do not tend to harm their reputations as long as they are rectified as soon as the stakeholders become aware of them. However, the importance of this criterion would tend to rise with the frequency and severity of the issues uncovered. In such cases, the criterion becomes highly important. In other words, being associated with a particularly bad case of unfair labour practices or being repeatedly associated with particular unfair behaviours would have much more impact than infrequent occurrences.

The importance of the sixth criterion, drivers and motivators, are rated as medium to highly important by stakeholders. Here, all stakeholders agree that the motivations have to be right to effectively address the use and promotion of fair labour standards in the apparel industry. Industry stakeholders report that it is company culture and ethics that motivate them. In other words, fair labour standards are right. They stop short of being able to characterize leadership in this area as a competitive advantage, however. Industry stakeholders relate several examples of industry participants that have tried to characterize themselves and invest in "ethical" branding. Few have succeeded.

Industry stakeholders suggest instead that customers and management expect them to use and promote fair labour practices. Some companies even have a reputation for doing this at the expense of profits, for example Levi Strauss.²² However, this type of reputation is characterized as the exception and is not generally thought to generate competitive advantage. Rather, not doing so is believed to generate competitive disadvantage. This again suggests that the importance of this criterion is relatively high.

Socio-political criteria are at the heart of these issues, where stakeholders and the apparel industry are being asked to make choices, sometimes difficult choices, based on the impacts of those choices on shareholders, consumers, and employees, including those employed in the supply chains. In spite of the broad range of ratings in the socio-political criteria, these are generally rated higher in importance than other criteria. The range reflects the difficulties and the differing perspectives that drive stakeholders as much as they reflect the complexity of the issue of fair labour standards. Do you avoid bad practices or do you lead better ones? Do you brand yourself as a leader or do you instead seek to avoid unacceptable situations? Stakeholders often changed their perspective depending on the issue being addressed, reflecting the context within which supply chain decisions are made every day.

Not surprisingly, the stakeholders’ assessments of the effectiveness of each alternative proposal reflects deep convictions relative to the criteria. Appendix G, Box 6 provides the result of the effectiveness assessment of each proposal by socio-political criteria. It is apparent that none of the proposals was able to handle all the socio-political criteria very well. It also demonstrates that there was a wide range of views with respect to effectiveness among stakeholders.

Nevertheless, the proposals based on codes tended to do better, if only because it is difficult to force a recalcitrant stakeholder (industry, government, or interest group) into doing what is right in every case. The voluntary codes work best because they are voluntary. Socially minded companies gravitate to socially responsible codes and work diligently to abide by them. Industry minded social groups support socially responsible codes even if they don’t immediately achieve all of their goals. Economically minded governments balance the needs for action against the undesirable impacts on the economy. It is the company culture, the practicalities of the situation, more than the codes themselves, that drive the effectiveness of proposals in terms of the socio-political criteria. You cannot easily enforce socio-political aspects of a policy that runs counter to the desire of market participants, those of the local community, and those of the global community. The old adage—you can lead a horse to water, but can’t make him drink—appears to hold in this case.

This is not to say that the ETAG proposal is not effective in this area. The ETAG proposal is seen as particularly useful in providing information to support political will and public stakeholder pressure by making it easier to find and highlight unfair labour practices. Industry stakeholders suggest that they are already well aware of the public pressure relative to high priority areas, such as forced labour and child labour. In fact, many were making inroads in the area of socially responsible labour standards in third world countries well before the advent of that stakeholder pressure. Companies such as Levis and Mountain Equipment Co-op provide long-standing examples of deeply socially minded companies. This aspect of the policy decision will need to be based on the Competition Bureau’s assessment of whether additional promotion of the issue is warranted and whether the various proposals contribute to the ultimate objective in this respect.

4.2.4 The Economic Criteria

Issues of economics are at the heart of many business decisions in the apparel industry, and it should come as no surprise that they are also important criteria in the issue of the use and promotion of fair labour standards. They relate to the economic impacts of apparel markets in both producing and consuming countries and of wages in producing countries. The stakeholders that participated in the analysis saw economic criteria as important and unevenly distributed. The importance ratings that stakeholders suggested relative to socio-political criteria are found in Appendix G, Box 7.

The first criterion concerns the level of risk. Stakeholders were quick to point out that the economics are completely different at the global and local levels. Globally the level of risk arising from this issue is quite low because there are many providers and many choices in sourcing apparel. Locally, particularly outside the developed economies, the stakes are quite high:

• If the developed world insists on standards that are too high, less developed economies will be unable to participate in global trade in apparel.
• If the standards are too low, workers get exploited and countries with dismal records go unpunished.

In effect, however, all of the economic risks are borne by the local communities whose working conditions are not considered "fair." None of the economic risks of this issue accrue to those already employing the required standards.

The importance of the second economic criterion, the potential for trade action is both more consistent and higher. This is because many of the proposals change the status quo. The disclosure proposal will require industry to open the books, so to speak, on their global supply chains. To access the Canadian market, international companies will have to open up their global supply chains to competitors, interest groups, unions, etc. If this is seen to be too painful, and industry stakeholders suggest it is extremely damaging, there will be trade action from companies in developed economies. Even the proposals for codes of conduct and for linking trade initiatives with discussions of labour standards will be perceived as shutting out certain less developed supplier countries from trade in apparel. Stakeholders therefore rate the importance of this criterion as medium to high, with industry stakeholders adding it is very important.

The economics of market structure are also seen as highly important. First, many of the challenges described by Birnbaum are economic in nature and relate to price and costs associated with sourcing apparel from all over the world and bringing it to market profitably. Second, the inherent disadvantages of certain countries, far away from the largest and most profitable markets for apparel and burdened by substandard infrastructures, drive some of the very behaviours that lead to unfair labour standards. Third, the market is already in a state of flux with the planned abolition of quotas by 2005. Some countries have the resources to make the necessary investment to improve performance and compete effectively in the newly liberalized global apparel market. Others will not be able to compete. These issues raise important concerns that need to be addressed by the various proposals.

However, it is under the fourth criterion, economic benefits and cost of solutions that the largest discrepancies occur. Here it quickly becomes apparent that some stakeholders believe the economic impacts of some solutions are most important for the producer communities and less so for the other communities. Local workers are most directly affected by the fairness of labour standards and by the response of the apparel industry to those standards. This is a particularly important aspect of the issue that all stakeholders recognize.

Manufacturers and retailers are also affected by labour standards, but there are differences of opinion. Some stakeholders see the criterion as highly important because the various proposals to address labour standards tend to single out the apparel industry. Others add that the impact of the full disclosure of supply chain locations under the ETAG proposal will be severe because it takes away a key competitive tool by making too much proprietary information publicly available. These stakeholders believe Canadian apparel retailers and manufacturers will become isolated, with serious economic impacts on both the export and domestic markets. Finally, a group of stakeholders believe the costs and benefits of the solutions will be relatively minor for the industry stakeholders, compared to their effects on workers and local communities. As a result, these stakeholders rate the importance of this economic criterion as medium.

The economic impact on consumers will be very important if the policy option selected leads to a structural change in the Canadian market. Examples of structural change could be U.S. retailers exiting the market because of the need to disclosure global supply chains or the requirement to belong to a fair labour practices certification program if it has an important impact on consumers. Similarly, restrictions that would significantly increase the quantity of apparel sourced in developed countries, because of very stringent labour standards requirements, or that would cut the availability of low-cost producers of apparel to Canadian retailers and manufacturers would have significant economic impacts. Barring structural changes such as these stakeholders believe the economic impact will be medium at best since the labour components of cost, which would tend to rise as fair labour standards are implemented, are relatively small. All stakeholders add that the importance of this criterion might change significantly depending on the policy choice of government. As such, it will be important to review potential impacts once a decision has been made, with a view of mitigating the impact on consumers.

The final stakeholder to be subject to economic impacts is the government. Here, again, the benefits and costs to government depend to a large extent on the policy decision. Some proposals assume the government will take a limited role in voluntary initiatives. Although this assumption may not be realistic, it causes these stakeholders to rate the importance of this criterion for government as low. However, as the government’s role is increased, so is the importance level. For example, if trade sanctions arise out of the selected policy option, the importance of this criterion will also rise. If the selected policy option results in a need for government intervention, new laws, and the like—as was the case in Australia—then the importance of this criterion rises. If there is litigation, either from Canadian apparel industry players worried about the expropriation of proprietary information or from foreign countries worried by the interference of Canadian policy in their affairs, the importance of this criterion would rise. As a result, a subset of stakeholder considers the importance of this economic criterion to governments to be very high.

The remaining two criteria, consumer contact/industry visibility and transparency of compliance are considered to be relatively important. In all scenarios, stakeholders believe efforts by the industry will tend to increase consumer information and raise the profile of the industry with respect to labour standards. At the same time, these efforts naturally increase the transparency of their compliance and so make the transparency criterion highly important. This, in and of itself, will also tend to increase the contribution of the Canadian apparel industry to this global issue and, in the process, further increase the importance of both the visibility and transparency criterion.

As demonstrated in Appendix G, Box 8, none of the policy options were considered by stakeholders to be highly effective at maximizing economic criteria, and stakeholders’ views differed considerably, depending on whether they represented ETAG stakeholders, industry stakeholders, or government stakeholders. This is demonstrated by the range of effectiveness ratings given to various proposals by stakeholders, from low to high. The ratings on some proposals were highly contentious relative to the level of risk and potential for trade action, depending on whether stakeholders believed national treatment or voluntary action could prevent trade actions from taking place.

The stakeholders could not agree on a proposal that would be particularly effective at addressing the level of risk, particularly in the local communities affected by actions to improve labour standards. ETAG stakeholders thought the ETAG proposal was highly effective, whereas industry stakeholders thought disclosure would instead cause the industry to retrench to apparel producers in more developed areas as a way of reducing the likelihood that unfair practices are being used covertly by certain manufacturers. Industry stakeholders favoured solutions where retailers or manufacturers had to make efforts in the area of labour standards enforcement through codes of acceptable standard and frequent monitoring, or effective manufacturing plant certification processes. Such initiatives were driven by a desire to improve conditions, not the threat of being discovered. ETAG stakeholders believed these voluntary initiatives to be largely public relation exercises with no real intent for improvement. To say that stakeholders disagreed on the effectiveness of the various proposals would be a serious understatement of perspectives.

Most of the perspective around the consumer contact/industry visibility and compliance criteria were less contentious, although the differences in effectiveness ratings centred around the issue of verification. Thus, where stakeholder verification of compliance was effective, proposals were thought to be highly effective. Without verification, the effectiveness of many of the proposals dropped considerably.

Most stakeholders believed that the effectiveness of many of the proposals, including the ETAG proposal (in the absence of public disclosure of supply chain information), would rise with an acceptable independent third-party process for verification of labour standards. However, stakeholders could not agree on what this would mean in real life. ETAG stakeholders often believed that their representatives should be verifying compliance with fair labour standards. Industry stakeholders believed that auditing firms, governments, or industry experts should be the primary verification instruments. In general, the discussions around these economic criteria and the perspectives of stakeholders reflect the alternate objectives of stakeholders outlined in chapter 2 of the report.

Not surprisingly, the ETAG proposal, albeit indirectly, was seen to be most effective at protecting the economic interests of consumers, workers, and local communities. Similarly, the codes of conduct and certification initiatives were seen to be most effective at maximizing the economic interests of retailers and manufacturers.

There was general agreement that the procurement and trade initiatives were too slow and not particularly effective at addressing the issue of labour standards because of their limited scope. Thus, procurement initiatives only addressed the issue for items purchased by universities and cities that enforce the requirements. Stakeholders also agreed on the uncertainty around the degree of enforcement that is possible or even likely in procurement agreements. In addition, such initiatives would only be effective for a subset of apparel. The practices for other apparel would only be indirectly affected, if at all.

Labour standard agreements in parallel with trade initiatives were thought to be effective only after an agreement has been reached with particular countries—and then only if they are enforced. So far, only a few such agreements (for example, with Costa Rica ) have been implemented.

Finally, the reporting proposal was seen to be largely ineffective because one would need continuous and frequent reporting in order to inform consumers on practices and contribute to the promotion of fair labour standards. Stakeholders generally believed doing such reports continuously would be expensive and cumbersome, and provide information that would likely be out of date by the time it is published.

 

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²⁰ Birnbaum Case Study XIV, Brassiere, pages 41-42.

²¹ Birnbaum, pages 152-158.

²² Birnbaum, page 152.