Memorandum submitted by the Ethical Trading
Initiative (ETI)
1. ETHICAL TRADE
AND FAIR
TRADE
1.1 The distinction between Ethical Trade
and Fair Trade and their respective roles and contributions to
development are important.
1.2 Companies adopting ethical trading strategies
try to ensure that national laws and International Labour Organisation
(ILO) standards are respected in the production of all the products
within a defined area of their supply chain. Companies implement
codes of practice to articulate these standards and unlike Fair
Trade, they apply to the entire supply chain of the products scoped,
including sub-contracting and components. This can be vast, involving
tens of thousands of products, made by thousands of suppliers
in dozens of countries. Ethical Trade is particularly relevant
for large multinational companies that outsource the majority
of their production, and so do not have a direct contractual relationship
with the workers who make their products. This is one reason why
there are no consumer labels offering a guarantee to consumers
that all such standards are met by all suppliers to any one brand.
1.3 Fairtrade labelling applies to
products rather than companies. Products are labelled to certify
compliance to standards defined by the Fair Labelling Organisation
(FLO). These include measures designed to increase the benefits
of trade (and reduce the risks) to a defined group of (usually
primary) producers of the product. Typically, producers receive
a minimum price that covers the cost of "sustainable production"
and an extra premium that is invested in social or economic development
projects. Historically, Fairtrade has been particularly significant
for commodities such as tea, cocoa, and coffee, where serious
fluctuations in world commodity prices continue to affect producer
incomes and where small producers at the end of the supply chain
have little power to protect themselves from risk. However there
are now about 2,000 fairtrade labelled products in the UK and
the product range and the profile of the producers have both changed
markedly over the past five years.
2. LABOUR STANDARDS
AND PUBLIC
PROCUREMENT
"Do existing government guidelines on procurement
of ethical and fair trade products provide an enabling environment
for the development of this market and the opportunities for producers?"
2.1 Given the scale of spending on public
services, public procurement could make a significant contribution
to mainstreaming ethical trade principles in the UK. The UK government
buys £13 billion worth of goods and services each year. For
the wider public sector, this figure is £125 billion. That
dwarfs the spending power of ETI's combined corporate membership
which has a turnover of about the same figure. Some individual
procurement agencies have great purchasing power. For example,
the NHS in England alone purchases goods and services worth some
£15 billion/year and its Purchasing and Supply Agency (PASA)
influences some £6.2 billion of this.
2.2 ETI encourages public procurement bodies
to implement good practice in ethical trade and has engaged with
public procurement agencies intensively for the past two years.
London Underground became a member in December last year in order
to enhance its capacity to source uniforms and work wear responsibly.
It makes every sense to share lessons gained in the private sector
with public sector bodies and to combine strengths in buying power
for greater impact.
2.3 The UK government has made commitments
to promoting the core ILO conventions; to encouraging and enhancing
CSR at home and abroad; and to use public procurement to set an
example for business and the public.[67]
However, ETI's engagement with public procurement bodies leads
us to believe that in practice very little has been done in the
UK to promote labour standards in public procurement. There is
a widespread perception among those responsible for public procurement
that EU procurement law prevents them from doing more.
2.4 The principal government guidelines
on ethical purchasing are contained in the Office of Government
Commerce (OGC) note on "Social Issues In Purchasing"
published in February 2006. This document purports to "show
the full scope to take [social] issues into account within the
framework of the Government's procurement policy and the EU procurement
rules" (1.1 on page 2).
2.5 Far from exploring the full scope for
promoting ethical public procurement, these guidelines are so
cautious and negative in tone as to actively discourage meaningful
initiatives.
"Voluntary action" needs supporting
with commercial incentives and sanctions
2.6 Generally the OGC note suggests that
public bodies should work on a voluntary basis with contractors
towards observance of core labour values:
— "The Government's approach
is that effective implementation of labour standards is best achieved
through partnership and voluntary action of government, business
and civil society. Government purchasing practice can be part
of this approach by ensuring that suppliers are aware of the importance
of implementing and monitoring labour standards in their supply
chains and supporting them to do so ..." (Section 5.7 at
page 24).
— "Voluntary, post-award working
can also provide another opportunity for procurers to help support
... CSR ... a contracting authority might consider working with
suppliers to help ensure that they and their supply chains are
made aware of the ILO core labour standards and the social and
economic benefits to business (and to society more generally)
when they are properly implemented." (Section 7.10 at page
33).
— "Promote the benefits of
CSR to your existing supplier base and work on a voluntary basis
with your contractors towards the take up of core labour standards
as expounded by the ILO." (Annex A, Summary of Actions
for Key Social Issues, Section 2, Core Labour Standards, 7th bullet
point at page 35).
2.7 It is ETI's experience that buyers are
most likely to be effective in improving their suppliers, employment
practices if they offer reward for ethical behaviour and sanction
those suppliers that consistently abuse workers' fundamental rights.
Examples of rewards are renewed or longer contracts, or more preferable
terms. The ultimate sanction, which should only be used as a last
resort, is ceasing to trade. The lack of any incentive or reward
is a fundamental defect in the government's preferred approach.
Making performance conditions subject to contract
2.8 A key issue is how far procurement agencies
can go in order to make observance of labour standards a condition
of contract. ETI's experience is that pubic procurement agency
staff, do not feel enabled to do this because they believe OGC
guidelines prevent them. However this is inconsistent with the
way the EU Directive is applied in other member states.
2.9 The call for tender can set out the
public procurement authority's requirements for the manner in
which the contract is performed. The relevant aspects of the EU
Directive are:
— Article 26—"Contracting
authorities may lay down special conditions relating to the performance
of a contract, provided that these are compatible with Community
law and are indicated in the contract notice or in the specifications.
The conditions governing the performance of a contract may, in
particular, concern social and environmental considerations."
— Recital 33 of the Directive spells
out—"Contract performance conditions are compatible
with this Directive provided they are not directly or indirectly
discriminatory and are indicated in the contract notice or in
the contract documents ... For instance, mention may be made,
amongst other things, of the requirements—applicable during
the performance of the contract— ... to comply with the
provisions of the basic International Labour Organisation Conventions,
assuming that such provisions have not been implemented in national
law..."
2.10 Other European countries, such as Belgium[68]
and France,[69]
rely on these provisions to introduce a performance condition
requiring suppliers to comply with the ILO core conventions in
the country of production. This requirement applies to service,
works and supply contracts and extends down the supply chain to
the original production.
2.11 However the OGC Social Note is less
encouraging. Section 7.3 (at page 29) concludes—"When
considering the inclusion of such clauses in a contract, however,
care must be taken to ensure they are non-discriminatory, and
that value for money is being maintained ..." and section
7.4 (also on page 29) begins—"Contract conditions
should be relevant to the subject of the contract and should not
undermine the performance of the contract and achievement of value
for money for the taxpayer."
2.12 While the Social Note does not prohibit
the use of contract performance conditions to require compliance
with the core conventions, it falls a long way short of being
either encouraging or contributing to an enabling environment.
Government guidelines should be more encouraging of public procurement
bodies to adopt performance standards on implementation of ethical
principles in contractual agreements. More coherent guidance could
be provided on how public procurement agencies might set about
doing this.
More practical tools and guidance
2.13 ETI's experience is that even when
companies have the above measures in place, they and their suppliers
require practical tools, training and guidance on "how to
do it". There now exists a wealth of learning in this area
and the UK has a strong infrastructure for sharing good practice
on ethical trade within and between industries. This could and
should be exploited to provide a more enabling environment to
officers responsible for procurement in the public sector.
3. ROLE OF
BUSINESS IN
SUPPORTING ETHICAL
PRODUCTION
What is the role of supermarkets, retailers and
business in supporting ethical and fair trade production?
Scope of business role and responsibilities
3.1 It is the responsibility of business
to take every reasonable step to ensure that their suppliers are
employing their workers in fair and decent conditions. ETI advocates
the implementation of codes of labour practice as a condition
of doing business. Credible implementation includes the following:
— Corporate Board level commitment
and oversight.
— Communicating the code throughout
the supply chain including sub-contractors.
— Making available all financial and
human resources needed to implement the code.
— Providing all necessary training
for suppliers and staff.
— Monitoring suppliers compliance to
code conditions and seeking improvements where necessary.
— Verification of supplier compliance.
— Building partnerships with trade
unions, NGOs and governments in initiatives to develop local and
sustainable solutions.
— Sharing good practice with others.
— Reporting openly on progress made.
— Establishing confidential means for
workers to report code violations.
— Making workers aware of code provisions
and their rights.
— Integrating code provisions into
core business decision-making.
3.2 The scale of activity by companies in
implementing these commitments is large and growing. For example
in 2005, ETI members' codes covered the working conditions of
three million workers, employed by over 25,000 employers. Tens
of thousands of improvement actions were reported in almost 10,000
workplaces.
Role of business in relation to government and trade
unions
3.3 While promotion of workers' rights is
an important corporate responsibility, companies cannot and, in
ETI's view, should not implement codes without reference to trade
unions, and governments. Sustainable change actively involves
governments in enforcing the law, suppliers in observing it and
free trade unions in collective bargaining. Voluntary codes should
be implemented in a manner that respects the role of these institutions
and wherever possible, builds their capacity to be effective.
Impact of companies on promoting ethical production
3.4 The key questions are "What Impact
is this activity having on improving workers lives?" and
"what business roles appear to be more effective or detrimental
than others?" In October last year ETI and the University
of Sussex (Institute of Development Studies) published the most
authoritative study yet undertaken into these questions.[70]
3.5 In summary, the three year study found
that positive impact on workers was concentrated on improvements
in workplace safety and health, reduced working hours, ensuring
payment of minimum wages and statutory benefits such as insurance
and pensions and less employment of children and young workers.
In general such benefits fell to permanent and regular workers.
Retailers and brands have made a huge contribution to raising
the awareness of their suppliers of the requirements of national
labour laws and what compliance with them involves.
3.6 This study is not an attempt to provide
a statistically valid survey of how standards are being observed
and it would be misleading to present the positive impacts in
the sample studied as trends for the workers in the industries
studies. Indeed, we do not believe this to be the case. Low wages,
long working hours, discrimination and anti-trade union culture
are characteristics of many of the markets from which UK companies
source. However, the study shows that companies can have a positive
impact on workers conditions if they behave in certain ways and
that initiatives such as ETI can drive this change.
What company behaviours promote ethical trade?
3.7 Researchers identified that positive
change was driven by such factors as:
— high levels of corporate commitment;
— frequent and consistent communications
with suppliers;
— regular assessment of supplier sites
backed up by comprehensive feedback and support to suppliers;
— training for workers and their managers
and supervisors on workers rights; and
— multiple channels for the feedback
of abuses of the code.
3.8 In contrast, downward pressure on prices
and lead times given to suppliers to meet orders appears to have
the opposite effect. Suppliers everywhere complain that their
ability to improve working conditions is impeded by these two
factors. Direct and stable relationships between buying companies
and suppliers increase the chance of positive improvements. Conversely,
complex chains with many linkages, in which buying companies have
limited influence, present the most challenges. In these circumstances
companies can still be effective if they work together in alliances
with each other, government, trade unions, NGOs and suppliers.
3.9 The report contains over 100 recommendations
for retailers, suppliers, governments, trade unions, NGOs and
ETI. With respect to the role of business in promoting ethical
trade, the study concludes that retailers and brands should:
— Make ethical trade more central
to core business practice: Review core business practices
(such as lead times) and take steps to ensure they do not undermine
suppliers' ability to implement the code. Provide incentives to
suppliers (eg, preferential supplier status), and target consumers
on the basis of companies performance on ethical trade.
— Work collaboratively to maximise
potential: Collaborate on code implementation activities such
as supplier audits, training and communications.
— Extend the reach of codes to all
workers: Develop a strategic approach to areas where code
implementation has been weak (eg, trade union rights) and ensure
all their suppliers understand that codes apply to all groups
of workers.
— Shift the focus to sourcing countries:
Allocate more resources in supplier countries—hire staff
at a local level to implement programmes of awareness raising
and training for wokers and suppliers in collaboration with local
organisations. Encourage and support suppliers to form national
level initiatives working with government and trade unions to
drive up standards.
February 2007
67 White Paper "Securing the future-delivering
UK sustainable development strategy" March 2005. pp 53-56. Back
68
The legislation in Belgium transposing the Procurement Directive
enables contracting authorities to include a performance condition
that requires suppliers to comply with the core conventions of
the ILO in the country of production. This condition can apply
to contracts for services, works and goods and requires suppliers
to take responsibility for their supply chains. Back
69
The Finance Ministry guidance on Article 14 of Code des marche
spublic indicates that contract performance conditions can
require that goods are produced in circumstances which comply
with internationally recognised conventions and that the tender
must show how the supplier will ensure compliance. Back
70
Summary report, main report and 8 supporting volumes available
: http://www.ethicaltrade.org/Z/lib/2006/09/ impact-report/index.shtml Back
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