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

1. Introduction

The Ethical Trading Action Group (ETAG) is a coalition of church, labour, and non-government organizations (NGOs) concerned about "sweatshop" labour practices, or ethical sourcing, in the manufacture of apparel. Members of ETAG represent a broad coalition of stakeholders, including religious groups, the Canadian Autoworkers Union, the Canadian Labour Congress, Oxfam Canada, the Maquila Solidarity Network, and the United Steelworkers of America.

ETAG has made a proposal to amend the Textile Labelling and Advertising Regulations of the Textile Labelling Act (TLA) that would basically require mandatory disclosure of manufacturing sites on labels of apparel sold in Canada. The details of the disclosure are unclear and vary depending on which ETAG stakeholder you talk to. At a minimum, ETAG stakeholders are looking for disclosure of the location of the final assembly site for each garment. Some ETAG supporters are looking for more detailed information, including the location of shops responsible for cutting, sewing, finishing, assembly, pressing, laundering, and shipping (if this is not being done at the final assembly site).

Current regulations require only the disclosure of one legal entity: the entity "by or for whom" the consumer textile product was manufactured or made. The identity of this entity, or dealer, may be disclosed by providing the name and full postal address under which the dealer normally conducts business or, for a dealer in Canada, an identification number obtained by applying to the Competition Bureau. This identification number, commonly referred to as a CA Number, can be used to look up the full dealer name and postal address without charge on a database maintained by the Bureau on its web site. Each entity or dealer registers for a CA Number by completing an application form and filing it, along with an administrative fee, with the Competition Bureau. The Bureau then uses this information to investigate complaints of violation of the Textile Labelling and Advertising Regulations of the TLA. In effect, the CA Number identifies the legal entity responsible for a garment.

ETAG feels that public knowledge of the exact locations of manufacturing facilities would lead companies to self-regulate. Concerned members of the public, particularly ETAG supporters, could investigate those manufacturing locations and publicize any labour practices that are of concern to them. The expectation is that concerned consumers would somehow access and use the information resulting from investigations of manufacturing locations as they shop for apparel. The proposal stems from the conviction that Canadian consumers want products made under decent, legal, and humane working conditions, defined by most ETAG supporters as full compliance to International Labour Organization (ILO) standards. There is also recognition that there is strong opposition to sanctions-based approaches to labour standards compliance.

The issue is a timely one. On December 19, 2002, stories appeared in the media based on a news release claiming that major Canadian retailers support sweatshops as part of their sourcing policies. The two retailers quickly responded by describing the rigorous codes and associated processes they use to ensure their suppliers don’t support these types of practices and to verify that the suppliers within their supply chains follow the codes rigorously.¹ The news release noted that without readily available information about manufacturing locations it was difficult for interest groups to verify retailers’ and manufacturers’ claims. It is this type of information that the ETAG proposal seeks to make public.

The issue is not new. At the turn of the century, many industrialized countries supported industrial policies that would not meet today’s ILO standards. Over time, the rules and practices in those countries changed, and labour standards have become more acceptable. The problem is that many countries around the world have yet to fully adopt the types of labour standards being promoted by the ILO, either because they disagree with one or more of the standard items or because they feel their current economic situations call for lower standards. With the advent of global apparel trading and what has been called the great garment war², many of the participants in the Canadian apparel industry have had to start sourcing products from countries where average wages are extremely low and where working conditions differ significantly from those in Canada. As a result, the industry has become exposed to claims that it is supporting substandard labour practices, such as child labour.

The stakes are high. If Canada and the developed world insist on labour standards that are too high, less developed economies will be unable to participate in global trade in apparel. If they are too low, workers get exploited and countries with dismal records go unpunished. In contributing to the solution or in taking a leadership position, Canada needs to balance the needs of the Canadian apparel industry with those of the global apparel industry and those of developing countries that are manufacturing apparel for the industry.

1.1 Objectives of the Report

This report was commissioned by the Competition Bureau in order to effectively assess amendments proposed by ETAG to the Textile Labelling and Advertising Regulations of the TLA that would require mandatory disclosure of manufacturing sites on labels of apparel sold in Canada.

The purpose of the resulting project is to determine what policy alternatives would achieve the objectives of the ETAG proposal and what are the implications for consumers, government, domestic industry, trade, and trade agreements if the ETAG proposal or any of its alternatives are implemented. In addition, the report addresses several related issues of concern to the Competition Bureau, including:

• The mechanics and implications (including resource implications) of amending the TLA and/or regulations and adjusting the current CA Number system;
• The steps and costs for industry to comply, including the ability of manufacturers and importers to pass on added costs to downstream commercial customers;
• Any benefits and possible costs to consumers;
• The cost, resource, and process implications for government to implement disclosure requirements, monitor compliance, and take action if non-compliance is detected;
• The possibility of pressure on government to apply similar measures to other industries (e.g., footwear, toys, others) whose products may also be made under sweatshop conditions;
• The impact on competitiveness and growth on all sectors of the domestic textile and apparel industries, including future investment;
• The impact on competition in the marketplace, including advertising practices, consumer choice, and prices; and
• Any linkages for action on other Corporate Social Responsibility (CSR) fronts (health, safety, human rights, consumer protection).

This report would have been relatively simple if the objective was merely to discuss the issue of disclosure of manufacturing locations. The Conference Board could simply have looked at what other countries are doing in this regard and at the benefits and risks of copying them for the competitiveness of the apparel industry in Canada. But stakeholders told the Conference Board that the disclosure proposal reflected a concern about the use and promotion of fair labour standards in the apparel industry. This is not such a simple issue.

The Conference Board found that fair labour standards is a vague phrase whose definition varies from stakeholder to stakeholder. Some stakeholders see it as encompassing all aspects of work, including what they would consider a living wage. Other stakeholders are content to limit it to what is legally required in the jurisdiction of manufacture. Since some jurisdictions don’t have minimum wage laws or enforce minimum labour standards, such standards may be substantially lower than those in use in Canada or supported internationally by the ILO.

The Conference Board also found that the media often tends to oversimplify the issue of fair labour standards by focusing on child labour, perhaps because this is the most abhorrent aspect of the unacceptable labour practices in use in certain countries. Indeed, there is broad consensus about child labour in Canada, and large, socially minded corporations prefer not to source from a country that condones such practices and do not wish to be seen to support them in any way. Yet, this is what the media focuses on—while, in reality, many stakeholders have a much broader view of fair labour standards, including fair wages, hours of work, collective bargaining and freedom of association. It is not clear from the material collected by the Conference Board that a significant proportion of Canadian consumers of apparel would wholeheartedly support all of the aspects of fair labour standards that many stakeholders support.

1.2 Limitations of the Report

Obviously, the scope of the issue is very broad. In the time allotted, there was no way for the report to accurately capture and verify all of the perspectives of shareholders relative to the issues it covered. Instead, this report interprets the perspectives of stakeholders, based on discussions that took place and on the conclusions reached by groups of stakeholders with the Conference Board around the ETAG proposal and its alternatives.

Some stakeholders might disagree with our interpretations of their perspectives. Indeed, words may be inadequate to accurately capture the full richness of the feedback received during the process that led to the creation of this report. The authors would like to apologize in advance for any errors and omissions contained herein, which are ultimately the responsibility of the authors, not of the Conference Board of Canada. Where errors in interpretation do exist, we strongly encourage stakeholder groups to make their views known to government, either as part of future consultations in this policy area or in response to particular sections of the report.

The Conference Board makes no claims as to the accuracy of its interpretation. The work is meant to help the Competition Bureau respond to the ETAG proposal, not to provide a definitive policy review. This report was not written to recommend a course of action based on stakeholder consensus. In fact, there is no stakeholder consensus around the main issues it raises, except at the broadest of levels, and the Conference Board does not think broad consensus is possible without considerable flexibility on the part of all stakeholders.

To effectively inform the Bureau on the issue of disclosure of manufacturing location and to address the stated objective, which is to promote the use of fair labour standards in the apparel industry, the Conference Board conducted extensive literature searches, interviewed more than 30 stakeholders directly, and held five focus group sessions to discuss emerging alternatives. This report provides our analysis of the desired policy objective, criteria, and alternatives that relate to the broader issue of fair labour standards, as discussed during interviews and focus group sessions with stakeholders. It also provides our interpretation of the information necessary for the Competition Bureau to effectively evaluate the ETAG proposal relative to a broader objective that enjoys the support of most stakeholders. The report reflects the use of the Optimal Policy Mix (OPM) framework, which was developed by the Conference Board in 1998 to deal effectively with similarly divergent stakeholder perspectives in environmental policy making.³

The Conference Board believes that the OPM framework provides the rigour needed to better understand stakeholder main and secondary objectives. The OPM framework also provided an effective process through which to address the complex and sometimes divergent concerns of stakeholders. The Conference Board believes the OPM process effectively:

• Clarified the policy objective;
• Helped us in the design and review evaluation criteria; and
• Led to the suggestion of a number of possible alternative policy mixes, which spurred progress to the ultimate objective, by providing consumers with timely information about the labour practices used by retailers and manufacturers of apparel sold in the Canadian market.

1.3 The Report Structure

This report first provides an interpretation of the various objectives of stakeholders and compares the objectives to the emerging policy objective, referred to in the report as the ultimate objective. The report focuses on the immediate objective of the ETAG proposal—disclosure of manufacturing location information—but only so far as it contributes to the ultimate objective. It then provides a summary assessment of the strengths and weaknesses of the ETAG proposal, including historical and stakeholder perspectives around the issue of improving working conditions in facilities that produce apparel, particularly those that might be using deficient labour practices (what many call sweatshops). The report glances at the issues and risks related to the objective and describes efforts aimed at improving labour practices in Canada and around the world. The report then describes the criteria it uses and provides the assessments of stakeholders on the effectiveness of six proposals (the ETAG proposal and five alternatives) that emerged during the OPM process. The report concludes by suggesting how the best components of each proposal (those that we deem to be most effective) could be combined as part of an optimal policy mix, aimed at achieving the ultimate policy objective. This final exercise—speculating on the OPM—goes beyond the consultative process followed for the report and is meant to provide new ideas to be used in future policy consultations with, and for assessment by, stakeholders, not as final recommendations to government.

 

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¹ For example, please see the social responsibility pages provided by The Hudson's Bay Company at http://www.hbc.com/hbc/socialresponsibility/intro.asp.

² Refer to Global Guide to Winning the Great Garment War, David Birnbaum, Third Horizon Press, Hong Kong, March 2000.

³ See The Optimal Policy Mix: Matching Ends and Means in Environmental Policy Making (Ottawa: The Conference Board of Canada, June 2000).