10 Feb 2017
EU Hails OECD Support While Promoting Sustainable Trade in Shoes and Clothes
On 6 December 2016, the EU and the Organisation for Economic Cooperation and Development (OECD) co-hosted a meeting in Phnom Penh addressing sustainability and the protection of human rights in the garment and footwear supply chain. The meeting brought together representatives from several importing nations, as well as industry, trade groups, international organisations and civil society.
As Hong Kong traders are likely aware, the garment and footwear industry is one of the world’s largest consumer goods sectors. Textiles and clothing is a diverse sector that plays an important role in the European manufacturing industry: according to data from 2013, there were 185,000 European companies in the industry employing 1.7 million people and generating a turnover of EUR 166 billion. Likewise, in 2012, the footwear sector included around 21,000 enterprises, generated EUR 24 billion in turnover, and produced EUR 6.2 billion in added value (which is around 0.5% of total EU manufacturing). The industry is said to directly employ 280,000 people.
Since the 1990s, manufacturing in this section has shifted predominantly to Asian and Latin American nations. Mainland China is the leading exporter in these sectors, while the EU is the leading importer, followed by the United States. Notably, garment exports account for a large portion of overall exports in Southeast Asian countries, in particular Bangladesh, Cambodia and Sri Lanka.
The OECD has observed that the garment and footwear industry can have adverse environmental and human impacts. These stem both from inequitable labour practices such as forced labour, low wages, excessive working hours, discrimination, restrictions on collective bargaining, as well as environmentally irresponsible manufacturing processes, particularly with respect to cotton fibre, leather production and textile finishing.
Observers argue that these effects have intensified over the last decade, as production has placed a greater emphasis on “fast-fashion” – a system designed to respond to rapidly changing trends through the design and production of a wide array of collections with minimal lead times.
The primary focus of the event concerned strategies for the implementation of the OECD’s Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector (the Guidance). The Guidance aims to create a common framework for conducting supply chain due diligence in the garment and footwear sectors that conforms with the OECD’s Guidelines for Multinational Enterprises (GME) – a comprehensive set of government-backed recommendations for conducting responsible business. In particular, the Guidance suggests methods that companies can use when conducting risk-based due diligence to identify, assess and manage or prevent harmful human or environmental impacts in their supply chains.
This comprehensive approach is designed to combat the difficulties facing due diligence in the garment and footwear sectors. In particular, these sectors are known to suffer from “assessment fatigue,” as repeated on-site supplier assessments create added burdens without increasing the value of the data collected. The OECD believes that an industry-wide framework for due diligence would help companies increase both oversight and efficiency. The Guidance is currently in draft form, and the OECD plans to publish a final version in 2017.
The Guidance suggests a due diligence process, whereby all companies operating at any step in the garment and footwear supply chain should:
- identify and understand adverse impacts by mapping and classifying the severity of risks inherent in each part of the production and supply process;
- mitigate or prevent the supply chain risks identified, including by engaging and helping suppliers, local stakeholders and others to mitigate adverse impacts; and
- account and report publicly on due diligence systems and measures taken to mitigate risk.
The Guidance also provides specific due diligence advice for various business models along the supply chain, as well as guidance targeting specific areas of human and environmental concern.
Hong Kong’s textile and footwear exporters will likely know that such EU level action in the textile and footwear industry is part of the EU’s current responsible trade policy strategy, known as “Trade for all”. By means of this strategy, the EU is aiming to ensure that trade-driven growth should benefit the economy of developing countries, while at the same time focusing on fair social and environmental practices.