Proceedings of the Standing Senate Committee on
Human Rights
Issue 18 - Evidence - June 8, 2015
OTTAWA, Monday, June 8, 2015
The Standing Senate Committee on Human Rights met this day at 4:01 p.m. to monitor issues relating to human rights and, inter alia, to review the machinery of government dealing with Canada's international and national human rights obligations (topic: Corporate Social Responsibility (CSR) and garment workers).
Senator Mobina S. B. Jaffer (Chair) in the chair.
[English]
The Chair: Honourable senators, welcome to the thirty-fourth meeting of the Second Session of the Forty-first Parliament of the Standing Senate Committee on Human Rights.
[Translation]
The Senate has tasked our committee with examining issues related to human rights, both in Canada and internationally. My name is Mobina Jaffer. I am chair of this committee, and I welcome all of you to this meeting.
[English]
Before I continue, I would like my colleagues to introduce themselves, starting with the deputy chair.
Senator Ataullahjan: Salma Ataullahjan from Ontario.
Senator Eaton: Nicky Eaton, Ontario.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
The Chair: Garment manufacturing is an important source of jobs in the developing world. The great flexibility and decentralization of that industry, together with its generalized recourse to subcontracting, complicate the implementation of adequate health and safety standards.
[Translation]
In many garment-exporting countries, such as Bangladesh, India and Vietnam, there are thousands of employees who are exposed to dangerous working conditions and other risks to their health and safety.
[English]
On April 24, 2013, the Rana Plaza, an eight-storey building containing five garment factories, located in the outskirts in the capital of Bangladesh, collapsed killing approximately 1,127 workers and injuring thousands. This was among a series of fatal accidents that took place in the garment manufacturing industry in Bangladesh. Among these was also the November 2012 fire, where over 100 people were killed. As senators know, soon after that fire I was in Bangladesh, and the stories I heard from people who were locked up in the building where the fire took place were really atrocious.
[Translation]
The private sector has certain human rights obligations, mainly in the workplace. In many places across the world, employees have won the right to work in safe and healthy conditions, to be paid a sufficient salary and have a reasonable schedule.
[English]
When workers' health and safety are not protected, when wages do not allow for a reasonable standard of living and when workers are intimidated for trying to unionize, a number of rights recognized in international human rights conventions, to which Bangladesh is a party, are engaged.
Unfortunately, although Bangladesh has ratified a number of international human rights conventions, such as the ILO's Labour Inspection Convention in 1972, the Rana Plaza collapse and other similar events demonstrate that there is significant room for improvement in implementation and that effective enforcement is still required.
Most importantly, the reason we are looking at this issue is that we are looking at the role that Canadian companies play in places like Bangladesh and the corporate social responsibility of Canadian companies.
To begin our hearing today, I would like to welcome, from Export Development Canada, Signi Schneider, Vice-President, Environment and Corporate Responsibility. I understand, Ms. Schneider, you have some remarks, and then our committee is anxious to question you about your knowledge on this matter.
[Translation]
Signi Schneider, Vice-President, Environment and Corporate Responsibility, Export Development Canada: Madam Chair, thank you for the opportunity to speak to you today.
What does EDC do? We are Canada's official export credit organization. As a crown corporation, we provide financing and insurance solutions to Canadian exporters and investors, as well as financing for foreign buyers of Canadian goods and services. In 2014, EDC helped over 7,400 exporters and investors in 200 countries. As a prudent financial institution, EDC is profitable and receives no government monies.
[English]
For those of you who are in the know about EDC, you'll know we have a variety of solutions available to Canadian exporters for risks that they have that need to be mitigated or needs they have that must be met: the risk of not getting paid; the need for financing for themselves or their buyer; the need for guarantees on their performance; and the risk of losing their investment abroad. We have a real range of products that we offer, everything from credit insurance, accounts receivable insurance, to our equity program and our project financing.
As mentioned, I'm the vice-president of corporate social responsibility at EDC, and I'm specifically going to talk about a few of our areas that apply under this circumstance.
The groups under me are responsible for environment impacts, looking at social impacts. Environment is the effect on the planet, and social effects on people, looking for the risk of corruption and bribery in the transactions that we finance or insure, so risk of corruption and bribery in the export contracts that are financed or insured or the investments abroad, and also relations with civil society.
I know that Duane McMullen, the director general of the trade department, has come over and spoken about a number of CSR initiatives, which EDC also supports through the promotion of them, including the OECD guidelines for multinational enterprises.
I'm going to talk specifically about how we look at individual transactions in relation to this committee. First of all, we have an Environmental and Social Risk Management Policy which requires us to screen all of the transactions for environmental and social impacts. For circumstances where there's a direct link between EDC financing or insurance and business activities on the ground, we call those projects. This would be, let's say, a build of a manufacturing plant, or an expansion of one, or an upgrade in that case, the build of a new mine, a smelter, that kind of thing.
When EDC finances or insures projects, we benchmark those projects against the IFC Performance Standards. This is a requirement of our Environmental and Social Risk Management Policy.
The IFC is the financing arm of the World Bank. They came up with a set of eight performance standards, and the performance standards are for their clients. It says to the client: If you're going to be getting IFC financing, you will need to develop your project — so let's say the manufacturing plant — up to international standards, regardless of which emerging market you're going to be operating in.
EDC has this as part of our Environmental and Social Risk Management Policy, but we also have it because we are a member of the Equator Principles. The Equator Principles is an association of financial institutions — banks — that do project financing and that have agreed that we will compete with others on the pricing and tenor of our loans, but we will not compete in terms of what we're asking from our clients in terms of environmental and social performance. We will have a minimum that we expect of everyone.
I'm happy to say that EDC sits on the steering committee of the Equator Principles. We're the first Canadian financial institution to sit on the steering committee.
We also have a human rights statement. That was developed in April of 2008, actually predating John Ruggie. As you know, John Ruggie is the United Nations Special Representative on business and human rights. EDC had been receiving a number of questions from civil society about how we manage the risk of human rights issues in the projects that we were financing or insuring, so we put together a human rights statement.
Since then, a great deal has happened on the human rights front. John Ruggie took his role with the UN. He came out with his "Protect, Respect and Remedy'' framework. States must protect human rights; companies have a responsibility to respect human rights; and there must be a remedy for individuals whose human rights have been impacted.
As well I can say, having worked on this for many years, that the human rights advisers, those civil society associations that were looking at the issues of human rights in businesses, and those consultants and organizations that were looking at environmental and social risk management policy — two groups that didn't talk to each other very much in those early days on the question of business and human rights — have now started speaking much more closely, and you have an integration of environmental and social review processes and the human rights processes, which the UN and others are expecting.
Under me are also a group that looks at the possibility of the risk of corruption or bribery in transactions and, as well, the group that handles our commitment to transparency. In terms of our commitment to transparency, unlike private sector banks, we actually disclose all of our financing transactions. If you're looking to see whether EDC has been involved with a company, you can go onto our website, EDC.ca, and you see all of our financing transactions there.
We also include an aggregation of our sector exposure and subsector exposure. I mention this because if you look at those disclosures, you will see that over the last number of years only about 2 per cent of EDC's volume is in the clothing and apparel sector. This is not a significant area for us.
In addition, the exposure that we do have on clothing and apparel, the manufacturing side, is in our accounts receivable insurance. This is a scenario where a Canadian garment manufacturer would be selling to distributors or stores around the world and would be worried about getting paid. So they would go on EDC.ca or come to one of our business developers and ask for an insurance policy for their range of buyers. This means they are less likely to be in a scenario where they are not paid.
I mention this because when Rana Plaza took place, we did take a look at what our exposure was both to Bangladesh and to the sector, and it was minimal. So we don't have significant experience in this area.
As a matter of course, when EDC does sell an accounts receivable insurance policy to a client, there is a declaration they must sign that relates to the environmental concerns of their exported product. In addition, all foreign buyers that are added on to these policies are reviewed not just for their creditworthiness but for track record issues related to health and safety, environmental and legal issues.
I do want to take a moment, though. If you look at our disclosure site, as mentioned, you'll note that we have not financed in a significant way in this sector, nor have we financed the build of a new manufacturing plant. That being said, I want to take you through a little bit of the process of how that would work, because I think it's important to understand.
If we were to finance the new build of a manufacturing facility already in the area of Bangladesh and the garment sector, we would consider that to have elevated risk. You have risk around safe and healthy working conditions, non-discrimination, equal opportunity and fair treatment of employees and, of course, the potential use of child or forced labour.
To mitigate these risks, we would say to the client, "In order for us to finance the build of your manufacturing facility, you're going to have to develop it to the IFC Performance Standards.'' Specifically the one we would be pointing to for them is IFC Performance Standard 2, Labor and Working Conditions.
This takes a number of international conventions from the United Nations and from the International Labour Organization and puts into practical terms how companies can manage the risks that come with that particular sector. This is freedom of association, protection of the right to organize, forced labour of minimum age and child labour, just to give a couple of examples.
Performance Standard 2 also applies to workers that would be employed by the Canadian company when they build that manufacturing plant — let's say in Cambodia — to workers that are working on the plant but are employed by a third party, and to all workers that are employed by the primary suppliers to them. It goes beyond just the direct workers of the Canadian company.
How does that work? So the Canadian company says to us, "We have a great possibility of increasing our sales in Europe and we feel that the best place for us to put a manufacturing plant is in Southeast Asia. Let's talk about you financing us, or part of the cost of this.''
Our response would be, "Could you give us a copy of your environmental and social impact assessment?'' We need that environmental and social impact assessment, or ESIA, to be done by an independent, third-party consultant to a high level of credibility.
Then we would look at the performance standards as written by the World Bank, which can include things as granular as, for example, if you're going to have workers accommodated in a work camp during the build of the manufacturing plant, this is the level of distance they have to have between their beds. It can get that granular.
We would look at what the IFC Performance Standards require and we would look at what's in their environmental and social impact assessment. We would do a gap analysis of where their plans to build this manufacturing plant fall short. We would negotiate an action plan with the Canadian company that's building the manufacturing plant, and the terms of that action plan would go into the loan documents as expected milestones.
In addition, because of course they need the money for building the manufacturing plant and they're going to be paying us back afterwards, we would also put in place a monitoring program of either our environmental and social risk assessors going to the manufacturing plant or a third-party consultant sending us regular reports as they build that manufacturing plant.
In addition, the latest version of the IFC Performance Standards — which are used by the World Bank, by all the project financing banks, such as Société Générale, Citibank, et cetera, used by all the expert credit agencies of OECD nations, and of course used by us; they now post John Ruggie, post all the work that's been done at the United Nations — have an additional requirement that if there are high-risk circumstances — and it's still being negotiated exactly what that means — but if there are high-risk circumstances, you should be looking for extra human rights due diligence to be done.
As a little bit of a summary, EDC has lots of exposure around the world but not a ton of exposure as it relates to this sector. We haven't had a chance to really work with companies and talk about their manufacturing facilities and help them bring them up to a high standard. But should we be doing that, the standard we would be using is the IFC Performance Standards, which take into account a great deal of the concerns we see coming forward.
[Translation]
I will now gladly answer your questions.
[English]
The Chair: I'd like to start off with one question, if I may. Do you make any special inquiries or any statements about the work of women and children, if women and children are working? Do you check that children under a certain age are not working in a place, especially in the global garment sector? Are there any national or international legal instruments, policies or standards that you use to address these challenges?
This committee, for example, with children's rights in Canada and outside, looks at the UN Convention on the Rights of the Child. We study that and then try to see how that works in our country or internationally.
Do you have certain things like the UN human rights conventions that you look at when you set up your statements and declarations? How do you go about assessing how you set up your statements?
Ms. Schneider: That's one of the brilliant things about the IFC Performance Standards. When the IFC revised them — the most recent revision was in 2012 — there was a fairly significant public consultation period. They try to take the international conventions and say, what this would actually mean if you're a bank looking to finance a project or to finance a company? That is very helpful.
Just as an example around women and children, there are sections within the performance standards that talk about how you work on the issue of vulnerable populations. Speaking outside of the garment industry — I don't have a lot of experience in that area — if you look at some other sectors, companies will do some really interesting work in order to meet the expectations in the performance standards. It's not unusual, for example, if a group has to be resettled. Let's say a community has to be resettled because the land is going to be used for the industrial project. It's not unusual, for example, to have anthropologists live within the community for a period of time and ask the community members to create maps of what the community might look like. One of the reasons that they do this is that the way that, let's say, the mayor of the local community sees how the community functions versus the way that some of the most vulnerable populations see the community and how it functions are very different. The intention is to find a place where all voices are being heard.
There has been a lot of work around public consultation in that sense. The international standards that are used within the IFC Performance Standards and in some very sector-specific areas do pull from the international conventions, and they'll often say, "Pulling off of ILO100, ILO110, these are the expectations that we as a financial institution have of you.'' But we don't take, as a matter of course, the international convention itself. We're more likely to look at the performance standard than the convention and interpret it that way.
The Chair: Have you seen any corporate social responsibility innovations in other sectors that could apply to the garment sector?
Ms. Schneider: That's a good question. Some really amazing things have been happening, and I mean that from the perspective of risk assessment. There are, of course, amazing things taking place in the area of social value, B Corp companies that are put together both for a social purpose and for profitability, for example.
As it relates to risk assessment, some of the emerging best practices are things like the fact that, when you have concerns around emissions levels coming out of a manufacturing plant or there's a concern around water contamination, local communities will nominate individuals to be trained up to be the ones who go and test the water, for example, or who learn to do the testing of emissions, where you have almost community policing or a collaborative effect when it comes to monitoring the environmental effects of the project, of the industrial activity, whatever it is.
We see some pretty interesting hiring regimes in place. A lot of companies have moved beyond your classic, "We put out a call. We get the best resumés,'' if you can even say that in some of these circumstances, "and we hire the best.'' They're moving to, "What vulnerable groups are within this community that could have a specific role to play within the development of this project?'' There are risks associated with a number of those initiatives, but some of the best companies that I've spoken to really have taken the principles behind these initiatives to heart and found creative ways to make them work for them.
The Chair: How does Export Development Canada deal with non-compliant companies?
Ms. Schneider: We get this question all the time. As I mentioned, we have an action plan in place. The EDC does a lot of financing and insurance that isn't under the IFC Performance Standards. We try to keep those same principles when we do corporate loans, for example, bilateral loans, or participate in loan syndications and insurance, et cetera, but we have a number of those things from the action plan in our loan document. People say, "Fantastic; then it's an event default. You just must call the loan.'' Our approach has always been to say, "Let's rectify the situation. Let's use our leverage to make the situation better versus walking.'' We generally try to do that unless we don't have cooperation from the company that we're doing the financing with.
One of the big things that we do in our early due diligence, when we're looking at transactions, is to look at the willingness of the company to actually work with us, especially when we're working in emerging markets. I'll use India as an example. The things that we're asking of companies when they build a project are far beyond what national law is asking for, and there can be significant push back from the companies because we also finance foreign companies who are pulling Canadian companies into their supply chain, for example. We'll often do a lot of pre-work to make sure that, on the things we're going to be asking of them, they'll follow through. All of this work in terms of the due diligence we expect, the independent consultants, is fairly expensive. If we don't see that we have the will from them, we generally won't engage. It's extremely difficult to mount a successful project, and we want the company to be wanting a successful project as much as we do.
Senator Ataullahjan: Thank you for your presentation here. As someone who visited the Rana Plaza after the collapse, as someone who is used to seeing difficult things, I was still horrified, more so by the fact that there were parents still standing there because the bodies of their children still had not been found. Following the story, I hear there are 135 victims of the Rana Plaza collapse whose DNA has not even been found. It's a difficult story that continues to generate interest.
In the wake of the collapse, we heard about ethical outsourcing, illegal subcontracting. The Canadian companies are involved, and if they think a factory that might be hiring might not be up to standard and not up to code, what can they do? You sign a contract with someone who will then subcontract it, and, unless you have boots on the ground, there's no way for you to know whether the work is being passed on to a factory that is safe.
Does the EDC have any offices on the ground to help and inform Canadian companies, especially in the new major exporting countries like Bangladesh and Vietnam?
Ms. Schneider: There are a couple of things that can be done. You asked whether or not EDC has offices on the ground. EDC does have a number of international offices but does have a significant partnership with the Trade Commissioner Service and, of course, all of the embassy staff for areas like this where we're looking for country context, et cetera.
Going to your question about what happens when Canadian companies are either subcontracting or joint venturing and how they can build more certainty that they're not just getting lip service from the company with whom they're working, I should be clear; there are some extremely difficult countries for companies to work in, where I would say to companies, "You have to have a very high level of confidence in your own processes, in your own audit systems and in your own compliance systems because you will want to have more certainty than you might want to have when you're functioning in other countries, for example.''
As to some things that I can think of that maybe could be pulled over to the area of clothing and apparel, garment manufacturing, I'll use the Voluntary Principles on Security and Human Rights as an example. The Voluntary Principles on Security and Human Rights started when a number of oil and gas companies came together and said, "We're in charge of security at our sites inside the parameters, but a number of us, because we have to go where the asset is, where the oil and gas is, are working in some very concerning countries or regions of countries that maybe just came out of conflict or still have low levels of conflict going on. Generally, we have to work with the militaries of those countries. We don't have a choice. We can take care of the security inside our perimeter but outside of that perimeter, it's expected that they're going to be present. They've let us know that the security guards we've hired can't get involved in their activities. Yet at the same time, they're often here because there's been an increase in activity in the region because we now have this oil and gas plant going in.''
The oil and gas companies really felt like their hands were tied. They had to work with foreign militaries whose human rights activities they couldn't control; and Colombia is an excellent example. The Colombian government said, "Listen, if you're going to be operating in Colombia, you need to know that our military is active.'' Of course, the Columbian military did have a track record of human rights issues.
The companies were concerned about how they would manage this interaction. The Voluntary Principles on Security and Human Rights were born. Voluntary Principles on Security and Human Rights have two parts. One is for companies in terms of how they hire private security forces for themselves and how they interact with public security forces. The other is for countries such as Colombia and things that take place, the level of due diligence that must be done by the company before they go and what kind of clauses can be written into the agreements between the Canadian company and the foreign military, for example.
In those circumstances, the Canadian, American or British company feels like they have no option but to interact with the foreign military; but they're very concerned about the foreign military's activities. So the Voluntary Principles on Security and Human Rights came up with agreements that could be struck between both sets of parties around what a responsible use of force would be and around the company doing higher levels of human rights training for the military. That seems like an example of where you may truly feel like you have no leverage with the other party. There have been successful initiatives that take away that power dynamic and make it so that there can be a more collaborative conversation about what is expected.
The other area I'll mention is corruption and bribery. The U.K. Bribery Act, which passed two years ago, requires companies to be responsible for actions taken on their behalf by third parties. This is not unusual in the case of agents working on behalf of companies, but the U.K. Bribery Act takes it even further. If a company working on your behalf bribes someone, then you are responsible under the U.K. Bribery Act. To pass that law, you can mount the defence that you have a good compliance system that included vetting of these third parties, training and clauses in your agreements. But there are two examples where the distortion between the entity that wants to do good and the entity that may not have the same expectations put on them is measured out a little bit.
Of course, in the area of manufacturing is the use of social audits. Third parties visit factories and use a set of criteria for a scoring system. They report back to the financial institution if we require it or to the Canadian company if they require it. Post-Rana Plaza there has been some debate about the strength of those third-party audits, certainly from a financial institution perspective. Use of audits is a very good way to get to the heart of performance issues. They're in a form that financial institutions understand, and we use them quite a bit with success.
Senator Ataullahjan: It has taken almost two years. You mentioned bribery and influence. The BBC ran a story where they said it has taken the government two years to lay charges. The feeling about government's willingness to bring those guilty to justice was that there might have been pressure from some politicians. What can one do in that scenario? You're auditing the foreign country. Your hands are tied. The police sat there and didn't do anything. Everyone knew the Rana Plaza was a death trap. Some of the workers did not want to go back in but they were told to go back in while the managers stayed outside. Everyone knew he was adding three other floors. It's a difficult situation to be in. What could you do in that? Really, your hands are tied too.
Ms. Schneider: EDC's mandate in part is to pull Canadian companies into emerging markets because of a need to diversify where we have the markets that Canada sells to. My counsel for companies would always be, "Look at your risk profile and your capacity to manage your own risk; and try not to have a mismatch. Certain countries and sectors are going to be inherently risky. You need the capacity to manage that risk. The risk assessment should be twofold: "What country am I going into in terms of where I'm setting up a partnership or building an investment; and what is my ability to manage that kind of risk?'' There are companies that can go into difficult countries and do it successfully. In many case these are also the companies on the cutting edge of progressive policies that have very strong bench strength as it relates to their environmental and social performance and also have extensive use of third parties or international initiatives that have some form of audit or assurance with a very strong need to tell the public about what they're doing in a show-me-don't-just-tell-me way, putting their third-party audits up on their sites.
In many cases, I have less concern around large international companies that have a lot of experience working. They often have compliance systems and practices and also a tone from the top around ethical behaviour that can suit them well. I'm more interested in Canadian companies moving from just exporting into the United States to other countries and having conversations with them about the risk that they're going into and whether or not they have their eyes wide open and are prepared adequately for that.
One thing we often see is that Canadian companies and other companies that are going into other countries for the first time have a plan about going in but they do not have a plan about exiting. Even from an ethical perspective, I will pose the questions to Canadian companies' management: What signals would you need to consider moving out of a country? What would signal to you that the risks you have taken on with this new investment or partner are too high? I then ask them to include that in their risk assessments before they make those decisions.
Senator Ataullahjan: We went to the Rana Plaza and went to another garment manufacturer down the road. They were the first responders. It was one of the most progressive companies I had seen. On every floor there was a manager. If anyone was unwell, they had a small medical facility on every floor. We came in unannounced. We turned up and asked to see. I was very impressed with that. To clarify, I'm not saying that all the factories in Bangladesh are like that. I saw one that was very progressive.
Senator Eaton: These performance standards are wonderful, and you ask people to assess the risks, environmental effects, bribery and corruption. If a company doesn't need the EDC, there is little you can do. Is that correct?
Ms. Schneider: Correct.
Senator Eaton: Is there any difference from your point of view between going into Vietnam or Bangladesh or China? Are some countries more prone to environmental social effects while other countries are more prone to bribery and corruption? Are there cultural differences? Of course, as you go into each country, they're sometimes at a different level of awareness in terms of child labour and how long a person can work every day. Do you apply universal standards across the board for every country? Why don't you start with this question: Do different countries have different red flags?
Ms. Schneider: Definitely different countries have different red flags. There are numerous indices that rank countries on things such as environmental laws and their ability to regulate based on those environmental laws. You do see some distinctions.
I have heard various stories from Canadian companies. I will use the IFC Performance Standards scenario, which says that you must meet the performance standards or national law, whichever is higher. If national law is higher in a particular area, then you need to match that.
My experience has been that sometimes when national law is not particularly mature or well enforced, in some cases, companies can make up that gap themselves quite well, because they're given the latitude under the regulatory regime.
Senator Eaton: If country A has working standards that say somebody can work 10 hours a day, but our standards are eight hours a day, is it up to the country's discretion, or do you tell the company, "Listen, you have to stick to eight hours a day before you go into overtime''? How do you make that happen?
Ms. Schneider: It would be more nuanced than that. The performance standard would say, "What are the working hours that are appropriate for this sector, and why are they such?'' For example, in fly-in, fly-out mining camps, you work more than eight hours a day in general, because they work 10 days on and 10 days off.
Regarding the long hours of work, the question at the heart of it would be this, for example: Will the long hours that the employees are working affect their health or safety? In high-risk industrial operations you may have lower than eight hours of work per day because it may require so much presence by the worker in order to deal with the issues, or you'll have hours of high intensity and hours of lower intensity.
So performance standards are more nuanced than that.
I want to come back to your questions about differences around countries. When we do see companies sometimes have a challenge putting into place projects that meet the IFC Performance Standards — I can think of one example that was interesting: In India, the government had regulations as it related — this was specifically around resettling individuals and families.
Senator Eaton: But the factory was being built, and you had to resettle people.
Ms. Schneider: It was India, so with almost anything that you build, you're going to have to resettle, just by virtue of the nature of the country.
In that case, the government had fairly significant resettlement policies in place, but those policies had a different approach to compensation and deciding who would be compensated than the IFC Performance Standards. Using these international standards is sometimes where we see the greatest challenge for a Canadian or international company. In some circumstances, the government of the day might not have a particular interest and is fine with the gap being filled by the company, and, in some cases, the government may feel like it's an imposition on their sovereignty, so we see that take place occasionally, and it goes into the risk assessment.
What was your second question?
Senator Eaton: You were going to talk to me about the differences between countries. If I go into one country, do you flag — you say bribery and corruption are huge. Anecdotally, we know that in some countries if you want deliveries on time or things picked up, everyone has to be paid along the way. In other countries, they might have a tougher time with social policy — simply working hours and conditions.
So I guess it's very difficult to have hard and fast rules, isn't it? If I go into a country, I'm going to have difficulty doing business if I don't grease a few palms along the way. Or am I going to be the one who says, "No, I am not greasing palms''? You know what I'm saying.
Ms. Schneider: There is a surprising amount of success with companies that go into countries and say from the start that they will not do bribes, because there are ways to organize your systems around that. I will give you an example from the area of health and safety. In one of the projects we were looking at, the big challenge was that every time they outfitted their workers with steel-toed boots, the workers were selling the boots every night. It doesn't take you long to figure out that you have to take the boots, and they have to be left in camp when people leave.
The circumstances differ from country to country, even really by project to project, by region, by how much industrial activity has been in the area and whether the local community has comfort with that and whether the local community has ever negotiated with a private sector company over what kind of relationship they're going to have. It very much does vary.
There are some good indices around corruption and bribery risks that can be used, such as the Corruption Perceptions Index by Transparency International. The World Bank has a set of governance indicators that include control of corruption and rule of law. Of course, both control of corruption and rule of law are important from the perspective of just mounting your project.
Probably what we would see is more often than differences between countries, you see differences between sectors; for example, some extractive projects are much more challenging to get up and running because of the sheer number of government touch points you have in terms of permitting and environmental management, et cetera. That can be different from the experience of a company putting together a manufacturing plant, especially if they're just adding on to or retrofitting a plant that exists.
So I would say there are more differences between sectors than between country contexts.
Senator Eaton: Do you do the negotiations with the country, or are you standing sort of behind the company once you've done your recces and performance checks?
Ms. Schneider: We're very indirect. What will happen is a Canadian company will say, "Great news. We just won a big contract. This is significant for us.'' And they'll say, "We need to buy three new machines in order to meet this contract, and I need to hire X amount of new staff.'' So we can do financing of them in that circumstance. We can finance their buyer once they have that export contract.
They can come to us and say, "We've won a concession to put up an oil and gas facility.'' We can finance it. They go into the countries. We follow.
From that perspective, a lot of our work is around the due diligence. We try to proactively talk with them as soon as they are thinking about going into a country, as much as they'll tell us that, because it's commercially confidential, to say, "Just letting you know that we've seen other companies go into that country, and these are the kinds of things that they've seen.'' Or: "Have you seen the latest initiative around this particular aspect of your sector? We can tell you from talking to civil society and the public that this is now the norm and the expectation, so don't think that your old activities will cut it any longer, because people are thinking you'll need to do X, Y or Z and going, say, beyond national law.''
Senator Hubley: I apologize for being late. Thank you for being here.
EDC has an information document for parliamentarians called A Trusted Partner in Trade for Canada. In it, under the section on EDC and corporate social responsibility, it mentioned that EDC consults regularly with NGOs and your international partners.
I'm wondering if you would share with us how often these consultations occur, both with your NGOs and your international partners. Also, are they a regular occurrence? Are they perhaps a reaction to specification challenges?
Ms. Schneider: Every year, we publish a corporate social responsibility report. In it, we include the number of interactions we've had with the public, both civil society members and beyond. In last year's report, we included one of the letters from an NGO that I would say is our biggest critic with whom we interact quite a bit.
We also have a number of international fora that we belong to. We sit on the environmental practitioners group. In fact, this year, EDC is chairing that group. That's all of the environmental practitioners from all the export credit agencies who get together and compare stories of how they're doing the environmental assessment, so that everyone's skills can be increased.
We also sit within the Equator Principles, as mentioned. We have a couple of other fora.
Almost all of those international groups or international meetings have a civil society interaction at some point in time, as they're going to review the common document that everyone uses. In the case of the export credit agencies and the OECD, we have the Common Approaches, which lays out the common approach to be used by expert credit agencies on environmental and social issues.
There are multiple meetings that have civil society or other groups coming forward to talk about where they would like to see the Common Approaches going. It's the same for the Equator Principles.
As it relates to the IFC Performance Standards, the IFC undertakes extensive consultation. To speak anecdotally — I'd have to check the number, and I will — but I feel like last year we had 26 letters from civil society organizations. I have two numbers in my head: One is 26 and the other is 45, so I'm going to go with the more conservative number. So, there are a significant number of letters that come in, which we respond to. Often it is questions about our processes. We do quite a bit on our website, but it's saying things like, "We saw you financed this company. Can you tell us more about that? What is the process behind that?''
We have very tight commercial confidentiality under our act, but we try to be very transparent with the processes we use when we do individual transactions.
Senator Hubley: This document also mentioned the four-year global community investment initiative that EDC and CARE Canada set up. Since that document was published in 2011, I'm assuming this incentive is now done?
Ms. Schneider: We renewed it. For those in the room who are not familiar, EDC struck up an innovative and creative partnership with CARE Canada. We lend four individuals, each of them for four months, to CARE to work on CARE projects around the world. It has a benefit to our staff who have an interest in international development, and it has a benefit to CARE, which gets individuals who have very strong business acumen. Often, they work on CARE projects like micro enterprise, small-business development or enterprise risk management, such as large-scale risk assessments for projects. It has been very successful.
We'll put in a bit of a plug in the sense that in two weeks' time, our report for last year will come out, and CARE always features in it and others. As well, this past year we were named by Corporate Knights, which reviews all Canadian companies who put information transparently on their websites through a particular reporting initiative that we're part of. They review companies that have fewer than 2,000 employees or less than $2 billion in revenues. They call it the Future 40 index, and it is looking for companies to proactively put this information out in the public. We were ranked number one, which was a big achievement.
Senator Marshall: Thank you for being here today. Could you talk a little more about the standards that you referred to earlier? Are the standards the same from country to country? I would think they vary depending on the type of project, so I'm trying to get a handle on how firm these standards are. Are they black and white, or are they grey as you move from country to country?
Ms. Schneider: They have a fairly high level of discretion. They're not black and white. They don't say you must do this or that. There are some black and white areas, for example emission standards. There are very straightforward descriptors for certain things. Let me make some comparisons.
Expectations around documents that companies expect are very straightforward. For example, in the latest version of the performance standards, you are expected to put in your environmental and social impact assessment, an assessment of your GHG emissions and how you looked at alternatives to bring down those GHG emissions. That's now a requirement.
If we talk about the example of worker accommodation, what would constitute appropriate worker accommodation? You may have circumstances where that can't be met and you can make the argument that you're not meeting the IFC Performance Standards for this reason; you still have a gap because of these extenuating circumstances. They are built so that companies can meet the performance standards in a way that works for them while still having a very high expectation.
I often liken it to a performance work plan that you set with your boss at the beginning of the year. Your boss says over the course of this year, I would like you to do these eight things. The expectation is that you do these things, but the deliverable is the important thing and as for how you get there, you can apply your own creativity.
Senator Marshall: How does EDC know? Do you rely on what your client is telling you? These are different projects in different countries. Do you rely on the client coming back and giving you the information, or is there a verification process? How do you know what they're telling you is accurate?
Ms. Schneider: I will use a mine as an example. It is a massive hole in the ground and has high potential for significant environmental and social impacts. When we know we're going to be financing or insuring a project, they are categorized into category A, B or C. Category C might be a telecom tower. They don't have a very significant footprint, but they can have issues with bird migration. You might have construction issues when it goes up.
An expansion in an underground mine would be in the A or B category. The build of a new mine would be in category A. If something is triaged as a category A, and it has the potential for significant impacts, then the requirement is that the environmental impact must be written by an independent consultant and the company has to retain another independent consultant to review the first independent consultant's work.
Senator Marshall: Who picks these groups that verify or go back over the information? Is it left up to the client, or do you have a list of what you consider reputable consultants?
Ms. Schneider: The lenders will generally get together and agree upon the terms of reference. The terms of reference for the consultant will generally mean that only a subset of the field of environmental consulting will make it into the running.
The number of environmental consultants in the world that do this kind of work is fairly small, and there is a healthy level of competition amongst them in terms of their overall credibility.
Senator Marshall: With these standards that you're talking about, would some standards exist in all countries and all types of projects, like the hiring? With every project that you're funding or putting resources into, there would be hiring standards for everyone?
Ms. Schneider: That's the beauty of the performance standards. Because they came out of the World Bank's financing arm, they were saying instead of doing an assessment of how strong the regulation is in this country for one of these 46 different things we're interested in, we're going to set a new bar. And that is the case regardless of what emerging market you're in. You have to meet that bar.
Senator Marshall: Everyone has to meet it, regardless of the country or industry.
How big a player is EDC? There are all sorts of governments and organizations in the world that are funding projects in all these countries.
How big a player are you? If you have these really good standards and all these good processes and procedures, if you are a big player then you're going to have an impact. How big a player are you? Are there any statistics that indicate you're a major player in so many countries and industries, or are you a minor player?
Ms. Schneider: I wouldn't say we're a minor player.
When I'm talking about projects, it is new industrial activities that are looking for financing around the world. There are some banks that are really significant players in this space, but usually banks do not want to finance something on their own. You almost always have a syndicate of lenders, of banks coming together. We're often in those, when there is a reason from a Canadian perspective to be involved.
I would say our reputation, as it relates to these performance standards, and our participation as a lender with high environmental and social requirements is very good. This is evidenced by us sitting on the steering committee of the Equator Principles Association with all of those private sector banks that you read about in the business pages. I would say we definitely hold our own.
Last year, EDC facilitated about $99 billion worth of business, but a significant portion was on the credit insurance side. Our financing numbers are not the majority of that. Project financing is a bit of a boutique financing instrument that takes place. We are often quite involved when it comes to extractive because we have so many extractive companies in Canada.
Senator Marshall: Did you get the dollar amount for the projects?
Ms. Schneider: I would have to get back to you on that.
Senator Marshall: In how many countries would you be providing financing or partial financing to companies you are into?
Ms. Schneider: There are about 200 different countries that the Canadian companies that we have supported are active in. We do a lot of corporate loans, general-purpose corporate loans. We are involved in them for companies that have multiple operations around the world.
Let's say you have a Canadian company, and they have six different sites that they're involved in around the world. We often do corporate loans in that sense.
We do project financing where we're financing a project being built in a country, and we only do about 10 of those a year. They're extremely labour-intensive because of these standards. That's not a reason for us not to do them.
Senator Marshall: Around 10 projects a year.
Ms. Schneider: Yes. A company generally has to be at a certain financial maturity to go out and seek that kind of financing.
Senator Marshall: Where's the activity? I realize that 10 projects could be 10 big projects. Where are the rest of your investments to?
Ms. Schneider: I will get you the correct numbers, but just to break it down, we did just under $100 billion worth of business last year in terms of facilitating that. About $60 billion of that was credits insurance, where Canadian companies were asking us to insure against their buyer non-payment.
Let's say $10 billion to $15 billion more was contract insurance and bonding. This is when a company has to put down certain financial guarantees that they're going to hit milestones on their contract, and it ties up their working capital.
I would say the balance would be in financing. Let's say $15 billion in corporate lending that we do, both to Canadian companies and to foreign companies that are pulling Canadian companies into their supply chain.
I'm going to say $10 billion in project financing, but I will get you the correct numbers. Proportionally, that's kind of where it sits, if that gives you a better sense.
Senator Marshall: You're lending all this money out. How much of it do you get back?
Ms. Schneider: We are a profitable organization that pays a dividend to our shareholder, which is the Government of Canada. We paid a dividend of $1.2 billion last year.
Senator Marshall: What would you get back? If you lend 90 per cent, you get back or 90 per cent or 85 per cent?
Ms. Schneider: I couldn't give you that number off the top of my head. One raison d'être of export credit agencies is to support private sector banks going into riskier areas. Often — for example, after the credit crisis of 2008 — you do see a retrenchment where barks are scared of the risk, and because of that you do have the equivalent effect on the Canadian economy. We often operate in riskier domains than the private sector banks do.
Senator Marshall: Which country is the biggest recipient of your financial assistance?
Ms. Schneider: I'd have to take a look at that. All of these loans are done on commercial terms. We have to meet the private sector or the OECD consensus of terms and arrangements.
Senator Marshall: You were saying earlier that the garment industry isn't a big player. What would be your biggest industry? Would it be electricity?
Ms. Schneider: Aerospace and extractive.
Senator Marshall: Aerospace?
Ms. Schneider: Yes.
Senator Marshall: That's interesting. You talk about the consultants and making sure that these companies are complying with the standards. Generally speaking, do you find that there is compliance?
Ms. Schneider: Yes. Generally, when we are financing these projects, we're often working with companies that can teach us something about how to do this as well.
Senator Marshall: In cases of non-compliance, would you withdraw your financing?
Ms. Schneider: Calling an event a default and withdrawing the financing is the last thing we want to do, because we want them to come back up to standard.
Senator Marshall: Thank you.
Senator Ngo: Thank you, Ms. Schneider. I would like to follow up on the questions raised by Senator Eaton. She mentioned that some countries have low standards, poor human rights records, try to ban unions, have no unions, use threats and so on.
Do you think it's appropriate for EDC to facilitate business with those countries?
Ms. Schneider: There's always the question of whether by doing business with a country you are legitimatizing activities. I leave those foreign-policy questions to the Department of Foreign Affairs, Trade and Development.
I can say that I have seen some really good projects in tough countries that have surprised me with their ability to do things well under difficult circumstances. There is a lot of creativity, as mentioned. Some people have decades of experience before getting involved in an investment in a tough country and apply all of their best learning from that period of time. Certainly it is a risk.
Senator Ngo: I'm not talking about risks. I'm talking about EDC facilitating business with those countries that you know have poor records for everything and us trying to do business with the people there working for low wages, substandard and so on. We keep doing business with those countries.
I don't know whether you raise questions with the government of a particular country. What do you do? Do you just continue on like that, or do you raise questions in order for them to change or raise standards?
You mentioned that in Bangladesh or India or Vietnam, you don't have any records. They have poor human rights records. They have no unions. What do you do with those countries?
Ms. Schneider: Generally, the circumstances under which you have poor human rights conditions, you also have bad conditions for business.
A number of years ago we came up with an index of countries based on their human rights risk. It had never been done before. This was before the explosion of consultants who work on business and human rights issues.
We used three different indicators because it was the best thing we had at the time. We used the World Bank's governance indicator around the rule of law. We used an indicator that came from the press freedom group out of the United States, which was around how transparent is what's taking place in that country. We then used a combination of Amnesty International plus an academic index that had been developed looking at human rights abuses in the country.
We took the countries' scores out of these external indices and came up with a ranking. For a bottom section of them, we put a special flag so that when an EDC client or potential client was coming to us to say, "We would like to export to this country. Will you insure or finance our export contract?'' or, "We're thinking of doing an investment,'' that there was an extra set of due diligence questions added if the circumstances warranted.
If it's a Canadian company that has won an export contract to sell socks to Bangladesh, there aren't significant human rights concerns that we would be talking to them about. If it's a Canadian company that's selling very specific software that possibly could have multiple purposes — it may be used, in one case, for making sure that when kids have Internet at school they're not coming upon sites that are inappropriate, but theoretically it could also be used by state agencies to keep stories that are critical of the government out of the public's hands — those are the scenarios where we'll ask a further set of questions of the clients about the risk assessments they've done before going into those countries.
Senator Ngo: Do you have conditions for those governments in order for them to improve their records? Do you raise your bar a bit higher? Do you say, "If you don't change or don't improve, we're not going to invest''? What do you do?
Ms. Schneider: As mentioned, we follow Canadian companies into the countries where they go. A significant portion of our business, for example, is credit insurance where the buyer in the foreign country won't even know that the Canadian company has taken out credit insurance against them. We don't interact with foreign governments, as we don't have that kind of relationship with them, unless, for example, they are the buyer of the service and we're financing that project, in which case they then might actually become a party to the contract and we'll have conversations along those lines.
Generally, if there was an effect in terms of how we do our work, because we're a financial institution, sometimes we disappoint Canadian companies because we do not finance or insure all the activities that they would like to have financed or insured. Sometimes we will say that country is just too risky on a multitude of fronts and we're not comfortable financing or insuring that export contract that they've won.
The Chair: Thank you very much. You can see we still have a lot of questions. Hopefully we will have you back in the future. I want to thank you for representing Export Development Canada here, and we look forward to working with you in the future.
Senators, we will go on to our second panel for today. From the Canadian Apparel Federation, we have Bob Kirke, Executive Director; and from Radical Design Limited, Barry Laxer, President.
We apologize for going on a little longer with the previous panel, but we will still take the hour. You can see we have a lot of interest in this issue. For those who are watching, we are doing sort of a preliminary study on the issue of corporate social responsibility. When we return for the next session, we will be looking at this extensively. I know both of you have presentations. I will ask you to make your presentations.
Bob Kirke, Executive Director, Canadian Apparel Federation: Thank you, Madam Chair and honourable senators. This was arranged very much at the last minute, so I don't have well-developed remarks. I'd be more than happy to answer your questions as we go forward.
I want to introduce our involvement in the issues that are before you. I am one of those few people who were in Parliament a number of times during 2002 and 2003 as Canada changed the rules on least developed countries. That essentially was a process where Canada eliminated quotas and duties on imported garments from countries like Bangladesh. A number of companies moved into Bangladesh as a result of those changes, but, again, I do have the honour or the ignobility that I was here in 2002 talking to you about all of this, and at some point I may have mentioned that there may be some challenges along the way as we implemented that tariff concession.
First of all, the apparel industry in Canada, in part because of changes in tariff policy, moved to other countries. We were already importing from a number of countries, primarily China. The least developed country initiative, which was passed in 2002, accelerated growth of countries like Bangladesh and more recently Cambodia. Again, we've had a lot of exposure to these issues and of course most recently with respect to Rana Plaza, which happened a couple years ago. Again, if you look at the tariff policies, particularly in Europe and in Canada and a few other developed countries, there is an issue that countries in the developed world contributed to a bit of a stampede, if you will, into Bangladesh, where some of the standards were not followed. So a lot of the industry has begun to learn some lessons. Many knew those lessons before Rana Plaza, but of course it drew the issue into considerable relief.
Our association, the Canadian Apparel Federation, was involved in the beginnings of what has become the Alliance for Bangladesh Worker Safety. There is a separate group, primarily European-based firms, under the Accord on Fire and Building Safety in Bangladesh. There are two, and I saw from testimony a few weeks ago that there was some confusion about that. I'd be happy to speak about those.
I think the bottom line is that in respect to Bangladesh, some progress is being made on the ground, both through those two organizations and through the International Labour Organization, which is beginning the development of a program called Better Work in that country. I'd be happy to also speak about that. In regard to other areas, I appeared before the Standing Senate Committee on Foreign Affairs and International Trade about the excellent work that Better Work does in Jordan and other countries.
The bottom line is that I'd be more than happy to answer any questions you may have. I can go into the nitty-gritty of the Least Developed Country Tariff, but at this stage I'll hand it over to the other witness.
The Chair: Thank you.
Mr. Laxer, from Radical Design Limited, we look forward to your remarks.
Barry Laxer, President, Radical Design Ltd: My name is Barry Laxer. I have been the operator and owner of a garment manufacturing company in Bangladesh since approximately 2003. I was a Canadian garment manufacturer in Montreal and Toronto prior to that. My first exposure to social compliance goes back to when we had our factory in Toronto in the 1990s and our U.S. brand customers started sending in teams of auditors really to verify payrolls, seeing if there were any snags they could find over time that wasn't paid — simple things that we didn't really take all that seriously. And to be honest, I didn't take social compliance as seriously when we were in Canada. Back in that time, we actually thought it was funny sometimes when they asked us if we had any forced labour or people working who were under 14 years old. We realized that was standard questioning for other parts of the world.
Around 2002, we had a lot of price pressure to move our production out of Canada. We happened on Bangladesh mostly because we were doing most of our exports into the United States; and because of the free trade between Canada and Bangladesh and because of our ability to use Bangladesh fabric and still export our garments under NAFTA using Tariff Preference Levels, or TPLs, we started doing that and found the cost of fabric in Bangladesh was cheaper than making it here. We looked at other countries, but Bangladesh was the cheapest, and we had several contacts there, so we went there primarily to source garments.
Regarding social compliance in Bangladesh, right away I started seeing countless factories where men and women were working 20 hours a day for monthly salaries of about $23 a month. Many really looked no older than children, although I'm not an authority on that. Coercing workers, verbally abusing and beating them, were common forms of factory discipline.
Because we had owned our own factories and facilities in Canada and we were seasoned garment and textile makers, we decided that we really could not, for many reasons, produce in the local factories, as well as more real issues such as quality and delivery. We decided that we would start our own garment manufacturing in Dhaka. At that time we engaged a Worldwide Responsible Accredited Production, or WRAP, compliance auditor to come to consult with us on compliance. As we were putting together a factory, we wanted to do it the right way. Our customers continued to be major brands, and we began to learn the real nuts and bolts of the national laws for garment factories and how to blend those rules with international standards of health and safety and working conditions. At the time, Bangladesh had real laws about labour and salaries, and their rules as to health and safety and working conditions were much fuzzier.
We signed on to the WRAP program around 2003 or 2004. We were certified in about a year, and we also got certified by customers that had their own compliance departments.
At the time, compliance meant that we agreed to pay the national minimum wage, regardless of how low it was. We agreed not to request that the workers work more than eight hours a day, to allow them to work up to 10 hours a day. We paid them double time for the extra two hours. We ensured the fire standards for buildings at the time, which meant building extra fire escapes and fire doors in the three-storey building that we occupied.
We had to determine medically that our workers were of working age, even though 90 per cent of them have no birth records and most of them don't know how old they are. Even to this day, they have no birth certificates. Their age is determined by a doctor, and that becomes their new official birth certificate. We gave them IDs. We published lists of workers' rights, management rights, as described in the Bangladesh labour code. As well, we allowed the workers to form a workers' committee to address grievances with management.
In addition, at the time, even though they were earning the legal wage, their general appearance was very thin, often sickly, so we decided to provide meals twice a day at their break times. As well, we decided to hire a full-time nurse and doctor who were free to see them at break times and provide them with medicine when necessary. That was all at company expense.
As well, we provided a list of behaviours and actions which were subject to termination or dismissal and those for which they would be given written notice before termination. We also agreed to pay employees 90 days' wages, plus the balance of the month owed, if we didn't follow the termination requirements — all part of the labour code.
We opened a second factory in 2008, a larger one, where we went from being fabric makers and garment producers to fabric makers and fabric dyers. We changed the nature of the business to more performance sports fabrics. We bought land and built buildings, and that plant ran until several months ago, when we closed it because our two primary customers in the U.S. pulled out of Bangladesh. They gave us notice over a year prior. They didn't want to be part of Bangladesh after all the bad press it had been getting.
I need to point out that my experience in Bangladesh isn't typical of most Bangladesh garment factories. Because I was a North American and I had been a North American manufacturer previously, I was familiar with and had direct contact with my American customers. I understood their pricing, their terms, their ways of doing business. For the most part, being a long-time manufacturer, I guess I had a bit of credibility with my customers because I was more familiar to them. It added up to my being able to secure better-than-usual pricing than Bangladesh garment makers get.
As such, I was able to afford the costs that come along with being a truly compliant and responsible manufacturer. It was the partnership and trust that I had with my clients that enabled our factory to pay better wages and secure a better working environment for our employees. I was allowed to make a profit, and therefore I was able to distribute some of the surplus back into the factory.
Unfortunately, that is not the case with the vast majority of Bangladesh garment makers — and hence one of the roots of a very complicated problem. Garment making is actually a very transparent industry when you want it to be. Most clothing, if you understand the industry, is very simple to understand. A shirt or a pair of pants requires a certain amount of material made out of a certain fibre. It's generally always commodity-based. You can physically measure it. It's made using a manufacturing process that's standardized. There are standard operations, standard minutes for every operation. It's easy to take a garment and break it down, and to know which machines make that garment and if there are enough of the right machines in any given factory to actually produce what the factory purports to be making.
Within small margins, most buyers should have the tools to understand the real cost of their products, whether they're made in Bangladesh or China or Canada. Unfortunately, there are poor countries, such as Bangladesh, where workers work for starvation wages and owners can't afford decent conditions because of prices, because international buyers come there to sort of magically produce what really isn't producible if you break the garment down. After a while, the magic opportunities become the norm. Magic prices, which really shouldn't make sense, become the expectation, and the limits to keep on reducing those prices keep getting tested.
Companies that demand that their suppliers be socially compliant, in the truest meaning, must partner with their suppliers in order for them to be able to afford to, and that comes at a cost. Unfortunately, there are a lot of blind eyes turned because companies want to sell $1.99 underwear and $4.99 T-shirts and $50.99 jeans, and prices become the benchmark, even though it's not always thought out whether this is really a possibility.
If workers in any country are really to earn enough to eat what we consider nutritionally and to have a reasonable and safe place to sleep and working conditions that are safe and sturdy, it comes at a cost, and until apparel purveyors really are ready to look closely at what they're trying to get and what they want to sell it at — I say sort of to walk the walk and not just talk the talk — it doesn't really take much to do the math and see that so much product that's coming here just doesn't make sense.
The Chair: Last time that I was in Bangladesh, one of the things I learned is that one of the challenges for Bangladesh is to compete to be the garment sector so that it doesn't go to other countries, China and other places. There is this competition as well, isn't there?
Mr. Laxer: There is always competition, but it has to come at a cost. If we're so concerned that people are working safely and healthily, we at some point have to decide, as this part of the world's consumers, that we want to support it because, at some level, things just aren't really possible. Bangladesh certainly has all of the manpower to be a large garment producer or any kind of producer, but people still need to live in somewhat reasonable conditions while they're producing consumer goods for us if we want that. We can also just choose to believe that we're back in the 1800s and that the whole world is our marketplace and that we can shop and choose wherever we want. But, if we're going to talk about compliance and social responsibility, we have to do it knowing that some of the things that we want may not be quite as affordable as we would like them to be and have gotten used to them being. Just because Bangladesh may not be the cheapest in the world or because there may be some other country that has worse labour laws or worse living conditions that can take over from it, we have to make choices as consumers.
The Chair: I often hear those who believe that profits for garment manufacturers and human rights for garment workers in developing countries are mutually exclusive.
Mr. Laxer: That wasn't true in my case.
The Chair: Generally. I'm not pointing a finger.
Mr. Laxer: They're not. Certainly, from my experience, it is possible to run a safe, reasonably well-paying, lawful garment factory in Bangladesh and make a profit. I did it. I know other people who do it. There are conditions in Bangladesh other than just labour and working conditions that contribute to factories not making money, but business is business. Sometimes it may not be possible to be the cheapest, and, if you're a buyer, sometimes you have to participate more in the manufacturing and sourcing process because, lots of times, a lot of the surplus gets eaten up by traders, middlemen, merchants, agents that manipulate, that control factories or that control retail outlets or brands, and there is a lot of surplus that should go to the factories that sometimes gets diverted to third places.
The Chair: I'm sorry to hear from you that you closed your factory when major customers pulled out. For me, first of all, having spent some time there speaking to the workers, that's many families going hungry. I'm sure you thought about that, so I'm not putting any guilt on you. But what does that mean for your company?
Mr. Laxer: The company is still in business. The factory still exists. We have a lot of demand to produce product. For the last seven or eight years, we didn't produce cotton garments in Bangladesh. We produced polyester, which is not characteristic of the country. In general, most Bangladeshi garment makers don't like to import their raw materials. They're afraid of buying something from another country where you're buying on a letter of credit and what you're getting is unknown. Also, when they export a product where the yarn originates in Bangladesh, they get an export subsidy, so, in what I happen to do, there is huge demand for product. It has just been a personal choice of mine.
The Chair: Did you move to another country?
Mr. Laxer: I live in Montreal.
The Chair: To Montreal. Best place to be. Thank you very much.
Senator Ataullahjan: Thank you for being here. I have a long, drawn out kind of question, just to follow up on what has been happening.
A little while after the collapse of the Rana Plaza, the then president of the Bangladesh Garment Manufacturers and Exporters Association indicated that there was a shortage of the workers that he had of 25 per cent because there had been some issue with them protesting. It was a very callous attitude. He said, "If they don't like it, they can go work somewhere else.''
Did you engage with them at any point?
Mr. Laxer: With the BKMEA?
Senator Ataullahjan: The president of the Bangladesh Garment Manufacturers and Exporters.
Mr. Laxer: There are two agencies.
Senator Ataullahjan: I'm talking about the one that Mr. Islam was the president of.
Mr. Laxer: No. In my end of the industry, which is the knit goods end of the industry, we're governed by the Bangladesh Knitwear Manufacturers and Exporters Association, and it's a different president.
The Chair: We're seeing a demand for cheaper clothing throughout the world, what they call the "fast fashion.'' Before, retailers would bring out clothing that would last almost a season. Now, we're seeing a trend where there are new clothes coming out every few days.
Mr. Laxer: There has to be.
Senator Ataullahjan: It has been dubbed "the race to the bottom.'' People just want cheap, cheap clothing. Retailers want the cheap clothing also, but they will have third-party inspectors because that distances them from where the clothing is being made.
Mr. Laxer: Yes, and it's a big problem. There has to be fast fashion because if stores can't turn their inventories every 40 or 60 days, what are they going to sell? It doesn't do them much good to have the same variety all the time. It's what sort of makes them profitable and turns the economy.
As far as third-party inspectors go, it's a big problem because everyone has their own agenda. Unless you're inspecting your product yourself, it doesn't necessarily mean that somebody in another country with a whole other set of criteria, professional and personal, may not be inspecting your product the way you would do it yourself.
Senator Ataullahjan: It absolves you of responsibility because you're not asking the questions because you might not like the answers.
Mr. Laxer: Right.
Senator Ataullahjan: You briefly touched on the social responsibility of consumers. There has been a backlash against certain retailers since the Rana Plaza collapse happened. They are holding the retailers responsible. What can we do to make these factories have more social responsibility? The consumer plays a huge role. How do we bring that awareness to them?
Mr. Laxer: The actual sources of garments have to play a bigger part in where their garments are sourced. One of the tragedies of Rana Plaza, other than the obvious loss of life, was that some of the people whose garments were being made there didn't know it because they were working through a third-party source. You might even make a trip to Dhaka and be shown a beautiful factory, but when it's time for production, that factory may be busy or may not want to do the production or maybe they were never going to do it. You don't know because you're relying on other people to be your eyes and ears, and they don't always have the same interests as you have.
I happened to have an experience with Rana Plaza because I had a customer working with me who was also working with Rana Plaza. They got very bad media attention because of it. They told me, because I did a lot of production with them, "Barry, that's just not a product for you. That has to be a dollar item and it cannot go in your factory.'' They knew what they were doing, and they took the risk. Unfortunately for them, it didn't work out.
Recently, because I told you I closed my factory, I was asked to make a presentation at one of the very large apparel retailers in Canada. I haven't done business in Canada in a very long time as my business has always been in the United States. Because of the nature of the garments we make and the desire of many people to do production in Bangladesh, I went with a sample bag and showed them what we were doing. They thought it was terrific and liked the product but were surprised that the product was made in Bangladesh.
I had a funny question put to me by one of the sourcing people: How can you manage to make this and meet our prices and be compliant? I was shocked that a customer would ask how I could afford to do business with them. I'm talking about a large retailer that makes a lot of public advertisements about how they are compliance-driven and how they're a part of the world's major compliance organizations. But there is a gap between whoever the person is in charge of compliance and social responsibility for that company and the person sitting in the buying office who knows that the level of factories generally meeting compliance can't meet the price level of the products they need to put in their stores; and that just happened right here a month or two ago.
Senator Ataullahjan: Recently, the owner of the Rana Plaza was charged with murder. In Bangladesh, if he is found guilty, it can carry the death penalty. What has been the reaction in your industry to these charges? Do you think this will affect where and with whom companies do business?
Mr. Laxer: Yes, and it is having an impact. Since Rana Plaza, there has been a very noticeable shift in the awareness of garment buyers as to the health and safety abilities and facilities of those they're making garments with. The Accord is extremely structurally health and safety driven. They sort of replaced WRAP as the main and the sought-after third-party compliance organization agent in Bangladesh.
Mr. Kirke: What's happened here is that many people looked at business and factories in Rana Plaza. One company I know looked at it. When they send someone over to Bangladesh or wherever, they take a photo gallery. They go through the whole factory and take photos and archive the visit. They didn't go to Rana Plaza. They used another factory somewhere else. When the factory collapsed —
The Chair: Can you clarify what you mean by "They didn't go to Rana Plaza?''
Mr. Kirke: They didn't use the factory.
The Chair: As a photo gallery.
Mr. Kirke: They had the archive and looked at everything as Rana Plaza had multiple factories. They chose for any number of reasons to go somewhere else; but it looked good, and they thought it was quite reasonable. Of course, Rana Plaza had extra floors put on top, and a whole series of corruption enabled that to happen — hence, the recent indictment against the owner.
The result was that two separate bodies, the Accord on Fire and Building Safety in Bangladesh and the Alliance for Bangladesh Worker Safety, both are looking at building integrity, which no one was looking at before. They were looking around and said it looks pretty good, et cetera. That is a significant difference. Fire safety as well has ramped up because that has been the more prevalent risk day-to-day in the factories of Bangladesh.
The lesson, if there is one, is that the risks are different in different countries. In Vietnam and Cambodia, it's not the same as in Bangladesh. You mentioned fast fashion; well for H&M and Zara and other retailers enabled by tariff changes in the EU and Canada, the result was a massive shift in sourcing to those countries, in particular Bangladesh.
We have remedied some of those circumstances. As the other witness said, there is a lot of subcontracting to secondary and tertiary factories. It would be wrong to say that it hasn't improved in some measure, and there are some positives there.
Mr. Laxer: It has improved in a way. The compliance agencies are actually looking realistically at structure, so there are big improvements in the quality of construction and in the training of evacuation and fire safety. Particular to Rana Plaza, three extra stories had been built onto it that shouldn't have been there. It has been tradition in Bangladesh to get building permits and make plans and then to save money and not follow the plans. Buildings are built with maybe a little too much detail in Canada and the United States, where industrial buildings tend to be built with steel beams for their structure. In Bangladesh, they're done in columns with steel rods. Based on the load bearing, it will take so many steel rods within a certain column to bear the proposed load on the floor, and then they cheat. Instead of putting in 14 at an inch, they will put in 7 at half an inch and hope that it works.
Similarly, when getting permits for buildings, it used to be that all you needed was a permit, and permits were buyable. For instance, you might have a building or a structure that should have had four stories, and you could buy a permit for another three stories without anybody examining it or testing its ability to withstand stress. Now that does not exist, because now there's third-party auditing. Also, because of what's happened and the attention it has brought, governments are more aware of the types of buildings being used.
Senator Ataullahjan: I'm sorry that you had to close down your factories, because I'm a great believer in supporting the women who worked there. On the ground when I did go visit one factory, there were a lot of young women earning a livelihood. I wish we could just improve conditions for them and still continue to employ these people.
Mr. Laxer: Of course you do, and everyone there needs a job. The thing that we haven't addressed — that I haven't addressed — in terms of compliance is, yes, they need to earn a living. The living situation in Bangladesh is very meagre. The actual government laws were changed recently, I think. I think they recently raised their minimum wage in the sew industry to 5,500 or 5,900 takas, which would be about $90-odd Canadian.
But no one ever really addresses living wages. The working wage in Bangladesh has probably gone up three or four times in the last 12 years, but the cost of living has probably gone up 10 times.
Something that always bothered me and still does in social compliance is that we never really address the actual cost of living in a country. We address health and safety, which we've learned through Bangladesh and Rana Plaza is something that absolutely needs to be addressed and must be paid a lot of attention.
The second part, and what is equally important, is that people aren't starving to death and that they're working in buildings that have enough toilets and an extra staircase. That is important, but until we're really ready to take a real look at the idea that if you were living in Bangladesh, what would you need to eat two meals a day that included one carrot and half a cup of milk and sleep in a room where there weren't 15 other people sleeping that was built out of corrugated tin, what would you need to earn? And I don't know that anybody has the information.
What has always interested me in social compliance is the fact that we've always sort of imposed a lot of Western standards in the areas that we didn't consider price hiking, whereas with wages, we sort of closed a blind eye and say, "We just follow the law of the land.'' But the law of the land never included any of the social measures that we imposed; we arbitrarily chose which things to impose that had less bearing on price than other things.
It's something that needs to be more carefully examined if we want to look and call ourselves socially compliant.
Senator Eaton: Thank you. It's fascinating.
We're doing this report, and we have to come out hopefully with recommendations — things that would help the international textile workers.
I'm sure you remember a few years ago a campaign put on by Harry Winston in New York — blood diamonds. Obviously, we can't go into countries like Bangladesh, Cambodia and China and say, "You have to fix your hourly wage.'' We don't have a say there.
But how about educating the public and giving people who sell clothes made outside of Canada a sort of form of stamp of approval?
Mr. Laxer: Absolutely.
Senator Eaton: Has that been thought of or tried?
Mr. Laxer: I've been discussing that with the Better Work guys. Better Work is an IFC-ILO program. We talked about creating a stamp and giving appropriate exposure to educate people what organizations are looking at and what we would consider moral working conditions.
Senator Eaton: Yes, because as a consumer, I go into one of our large retailers and there are white T-shirts. One has a badge saying "fair labour,'' and the other one doesn't have a badge. Maybe there will be $1 or $1.50 difference, but maybe I would be more compelled as a consumer to pick the one with the "fair labour'' stamp.
Mr. Laxer: Absolutely. If you're educated as to what the differences can be, and if you're educated — I'm not really familiar with fair labour — but —
Senator Eaton: I'm not, either. It's just a name I made up.
Mr. Laxer: — at some point, an organization could get the exposure and educate the public and give people the choice, for the people that are so conscious.
Senator Eaton: Is there an international textile or garment industry association?
Mr. Laxer: Not that I know of, but it's possible there is.
Mr. Kirke: There is the International Apparel Federation, but it doesn't have a very strong profile. In reality, there are a lot of brands. The thing that's a little different was hinted at: Your previous witness was speaking about the extractive industries; when you put in a mine, there is a mine there. It's a big entity. Clothing is being manufactured in hundreds of thousands of factories all over the world. So there is a complexity and diversity in the industry that makes it hard to act in unison.
It's also fair to say that there have been different times when different industries have tried that, and it hasn't been as successful as all that. Maybe it's changed and it would be —
Senator Eaton: Why hasn't it been successful? Is this pre-Rana Plaza?
Mr. Kirke: Yes. Has anybody in this room purchased clothing where there was something like that? There is nothing preventing people from doing it, except Competition Bureau guidelines about fair and reasonable labour. There are some companies like Patagonia, on the outerwear side, that are very clear about the social responsibility in their production, right down to the fibre, colouring and chemicals, but that is the exception to the rule.
Senator Eaton: So it would take high-profile companies like Hudson's Bay, for instance, to say, "We will not carry garments any longer that are not fair labour'' or whatever the stamp is.
Mr. Kirke: In the case of Hudson's Bay Company, they are a participant in the Alliance for Bangladesh Worker Safety, so they are taking steps in that direction. Whether they would attach a label that says that is something different.
Senator Eaton: How effective are the steps they're all taking?
Mr. Kirke: As Barry said, these are significant steps. They are looking at the two primary factors in Bangladesh: fire safety and structural integrity. So they are good. Are they perfect? Well, this is Bangladesh. They are a significant step forward, for sure.
Senator Eaton: What you're saying is that, basically, there is nothing we can do.
Mr. Laxer: There is. If you want to dedicate —
Senator Eaton: But Mr. Kirke is saying that he hasn't laid out anything positive he could recommend we do. It's very, "Well, you know . . .''
Mr. Laxer: It's something that's new, and a lot of these things are becoming more prevalent, at least to Western consumers and particularly to European consumers. But there has to be funding for an organization or a brand, really, that promotes itself internationally, large scale and in your face with "If you buy our brand, here is our website. You can see what a factory must be to carry our brand.'' Then you have the choice to buy a brand that might be fair-trade-based rather than fast-fashion-based.
Mr. Kirke: That's exactly the complexity of it. Looking at the retailers, if you were going to say fast fashion and who is really to blame, you might look at H&M because that's what it is. It's fast, cheap, in, out, gone. H&M is probably the single most committed corporate partner to the Better Work program that Barry mentioned. They are far ahead of anyone else in transparency in terms of identifying their factories, in starting to look at water usage, which is probably the greatest environmental impact of the textile industry. So the challenge is that someone will say H&M is the devil. Better Work would say they are our leading supporter.
Senator Eaton: If Obama fast-tracks the TPP — and we certainly want to participate in the TPP — is that something we can put in and negotiate with?
Mr. Kirke: Bangladesh is not a Pacific country, so it's not part of it. You'll have Vietnam. That's the kicker in the TPP, in terms of garment sourcing. I don't think you would see any labour provisions of the nature that you're speaking about. You'll see limits on state-owned enterprises, things of that nature, which have a labour component for sure.
Senator Eaton: It's funny how they want to interfere in our country in terms of management systems, but we can't interfere in their textile factories.
Mr. Kirke: I would say we're not getting too much out of TPP, but that's just me.
Senator Hubley: Thank you for your presentations. Welcome to both of you. It's very interesting. We've heard a lot about the industry and what its responsibilities are, but do you think that the Canadian government has any responsibility or role in regulating the clothing imports where the health and safety of workers may not be respected?
Mr. Kirke: The least developed country initiative is sometimes referred to as a free trade agreement. It's not a free trade agreement. It's a unilateral tariff preference granted to those countries.
When it was put in place, the Canadian government had the countries sign a memorandum of understanding detailing customs compliance provisions. It had no provisions whatsoever regarding labour. In reality, it's very hard in those kinds of agreements. The EU does have, under the GSP program, some kind of an ability to invoke labour provisions, but it doesn't work very well. And I can say that after the Rana Plaza collapse, the Canadian government renewed the Least Developed Country Tariff without any changes, without any effort to insert labour provisions. So it's very clear that the Canadian government is not going to do this. That's the first thing.
The second thing is that in a free trade agreement, we have those provisions and we can act on those provisions, and they do have teeth. I believe countries that have signed agreements with us recently will start seeing some of those things in the near future. But it still comes down to the fact that we're in Bangladesh. We import a billion dollars of garments from Bangladesh. It is the lifeblood of their economy. We don't really want to disrupt it, so we have to figure out, with very little leverage, if there are ways that we can improve the circumstances on the ground.
The Canadian government decided at the end of 2013 to invest in the International Labour Organization in support of a tripartite agreement in Bangladesh on fire and building safety. It's not tied to the trade preference, but it's parallel to it. They are supporting the ILO to inspect the secondary and tertiary factories and things like that. That's what the Canadian government has done. I don't see them changing course. It would be almost impossible for them to do at this stage, and I hope they would take that lesson and apply it to new countries. We're talking about Bangladesh today. In a few years we will be talking about Myanmar, which was granted tariff-free access to the Canadian market in March. I think you'll see that Myanmar will be the fastest-growing Asian exporter of garments, and one would hope with fewer consequences than in Bangladesh.
Mr. Laxer: And also Africa.
The Chair: I have one question, if I may. Earlier on you were speaking about the Accord and the Alliance. What are your impressions of the Accord and the Alliance and their differences?
Mr. Laxer: Alliance tends to be more of a social compliance monitor, and Accord tends to be more of a structural and health and safety monitoring agency, in a nutshell. Right now, Accord is more in demand because structural issues, health and safety and fire issues are more in the forefront, but that's the real difference between them. You'll find more demand from buyers right now for Accord certification.
From my personal experience, because I met with Accord two or three weeks ago, they are very serious about their criteria for building safety. They're no nonsense, and you have to comply. There are no halfway measures. There is none of this partnership stuff that a lot of the agencies used to do: If you join and if you pay, we will make sure that over the next year or two you're compliant. Either your building is safe to walk into and has all the necessary things or it doesn't. That's where I find Accord to be very strong and very good at what they're doing.
The Chair: Mr. Kirke, did you want to add anything?
Mr. Kirke: I'm not sure I would draw the distinction as sharply. The former Canadian high commissioner to Bangladesh was on the panel of advisers to the Alliance, and I can say that they have inspected facilities. They are sharing their inspection methodology with the Accord and vice versa.
Six or nine months ago there was some disagreement between them because the factories were getting inspected twice and so on. In the end, they basically aligned their inspections. I don't see such a difference between them.
Mr. Laxer: It's a perceived difference on the ground.
Mr. Kirke: In reality, everything is positive at this stage. Years ago, the WRAP program that Barry mentioned was good. It has obviously been eclipsed by these entities, and it's better than it was before.
The Chair: There's always a challenge when we look at these issues and we think it's so easy to say if countries don't comply with human rights, if companies in countries don't comply with human rights, maybe we should boycott the goods and the countries that do not enforce health and safety standards on garment workers that work in these countries. Would their welfare improve due to better working conditions or would they be laid off? Is this issue a lack of political will for enforcement or lack of resources?
I'm hesitant to say this, but if there are no garment factories there, many women in those places that have semi-empowerment will have nothing. I'm struggling with what should happen. As we move forward in this study, we are very lucky to have both of you here today. One of my colleagues has another question for you.
What should our study look like? What should we be looking at? We can only talk about Canadian companies and what Canadian companies should be doing around corporate social responsibility. We have two of you who have a lot of knowledge on this, and we would like to pick your brains.
Mr. Kirke: If I could just address your comment. There is a reason the Canadian government extended tariff-free access to Bangladesh in 2002. At the end of 2004, all import quotas on garments were being eliminated. I think there was a general perception that if we didn't give Bangladesh a leg up, they would collapse as a manufacturing centre. Of course, at that stage, China had recently joined the WTO, and it was on a roll, had low wages. It had everything going for it.
Prime Minister Chrétien decided that's what he wanted to do because we thought that Bangladesh would go bankrupt. The Europeans, the same thing. The European initiative was called "Everything But Arms''; ours was the LDC. The Americans never did an equivalent program.
Having said that, that's what saved the industry in Bangladesh and allowed it to grow. Did it grow in ways that we don't always like? Yes. Nonetheless, we're looking at 2018-19, when Bangladesh will graduate from the least-developed-country tranche, which was just unimaginable in 2002. In 16 or 17 years, it has gone from the lowest of the low, the worst of the 47 poorest countries in the world, and it will go up in terms of income, health, life expectancy, and so much so that it will lose that tariff preference at some point — 2019, 2020, whatever.
That's a pretty remarkable thing, and it is because those people have those jobs that they wouldn't have had otherwise, and it is those women that previously were living in rural areas, and no matter how bad it is, it's better than that.
It's a very difficult thing to balance. You don't want to give carte blanche to companies to misuse their role in society, but at the same time, you have to step back and say that Bangladesh didn't go into the toilet. It's doing better than ever before economically, in health, in education, and it has the potential to keep going that way provided that some of these initiatives take hold and they build a stable, sustainable industry.
The Chair: Mr. Laxer, did you want to add anything?
Mr. Laxer: I'm not sure that I agree with all of that, having been there for so long.
The Chair: You give your point of view, please.
Mr. Laxer: There is more income coming into Bangladesh. Unfortunately, it's distributed among half a per cent of the country. It's a country of 160 million people, we think, because there hasn't been a census in — I don't know how long — 20 years. It still has 80 per cent illiteracy, if not more. Generally, there is still no access to health care for most people.
Bob said correctly that making an embargo or nationally sanctioning them would certainly not be a solution, because they certainly are better, somehow or other, than they probably were 15 years ago. There are — I don't remember the number — 3 million people involved in the textile and garment industry there, which is 90 per cent of their GNP. Cutting it off to punish them isn't necessarily the solution, either.
Having been there for so long, I don't know that I have the solution other than educating the public about the way things are and giving consumers a choice to be educated as to where their products are coming from and possibly to put pressure on factories to want to up their basic level of managing and paying their workers and the conditions under which they produce their products so that perhaps they would be motivated to do better.
Senator Ataullahjan: Mr. Kirke, you made a statement that really disturbed me. You said Burma or Myanmar will be the next big country where manufacturing is concerned.
Looking at the history of their country, where it's so closed off and with horrific human rights abuses, in Bangladesh, at least, when there was the crisis with Rana Plaza collapsing and the fire, the government responded. Just look at what's happening in that part of the world with the Rohingya Muslims, where nobody is taking any responsibility.
What guarantees will be in place that workers' rights will be upheld?
Mr. Kirke: Our tariff preference program has no labour component. As of March of this year, they don't even have a customs compliance component, meaning — it's a little more complicated. I don't want to go into that.
We really have no conditions on it, but that doesn't mean to say we can't work with the partners that the Europeans are working with to start now before the biggest problems emerge.
In Myanmar, I don't think there are the same issues on, say, buildings. There are lower buildings and so on. Having said that, it should work now.
I think the one thing we can absolutely agree on is that Canada has played quite a strong role in the Better Work program through the ILO. When you look at that, between the ILO and the International Finance Corporation, this is the model, and it has unprecedented buy-in from major brands, especially in North America. H&M is involved, Levi Strauss, Gap, everyone.
If there's a way to start now with supporting the ILO to do that work in Burma and Myanmar, that would be a very positive recommendation that your committee could bring forward.
The Chair: Thank you very much to both of you. We have certainly learned a lot from you. I think we could ask you more questions, so we'll have to bring you back.
For our third panel for this afternoon, I would like to welcome, from Fairtrade Canada, Shannon Brown, Director of Business Development and Commercial Relations; and Sofia Molina, Category Specialist for Coffee. From Maquila Solidarity Network, by video conference, we have Bob Jeffcott, Co-founder and Policy Analyst. And from the Solidarity Center, we have Shawna Bader-Blau, Executive Director.
I welcome you all, and I apologize keeping you waiting. There was so much interest and many questions from senators earlier on. You absolutely have a full hour for your presentations as well.
We will start with Shannon Brown.
Shannon Brown, Director, Business Development and Commercial Relations, Fairtrade Canada: Thank you, Madam Chair, for providing me with the opportunity to address you all on this topic.
My name is Shannon Brown, and I've been working with Canadian businesses for over eight years. Sofia Molina, beside me, and our colleagues at Fairtrade Canada and I have helped businesses of all sizes to ensure that their sourcing partners meet rigorous but achievable, internationally agreed upon standards that cover three pillars of sustainability: economic, social and environmental.
Fairtrade Canada is the Canadian member of Fairtrade International, a global network of non-profit organizations in producing and consumer countries dedicated to improving working and trading conditions for the world's most disadvantaged farmers and workers. In fact, developing-country farmers and workers own our system. They own 50 per cent of the seats at our general assembly, so everything we do has to go through the producers from developing countries.
We run a voluntary product certification represented by the Fairtrade mark on consumer products. This mark is the world's most widely recognized ethical label.
Canadian consumers have never been more enthusiastic about Fairtrade or so ready to boycott brands that are found to have failed to take adequate precautions in their supply chains. We help businesses identify risks and provide a proven model to not only reduce these risks but also ensure that supply chains are actually contributing to the empowerment of farmers and workers whom we depend upon to supply our goods, now and in the future.
The Rana Plaza tragedy shook Canadians to the core. It forced all of us to confront our own responsibility for our shopping dollars and the kind of world we are voting for with our purchases. Fair trade is born out of sometimes desperate situations. Millions of men, women and, sadly, children labour in tough and hazardous conditions in order to produce the food we put in our mouths and the clothes we put on our backs.
But there is a joy in speaking to a farmer whose life and community have improved because of fair trade. Similarly, Canadian communities and institutions are brimming with volunteers of all ages who experience joy in promoting fair trade products in their schools, churches and office buildings.
I've come to you today with three recommendations. I encourage us all to be a bit more ambitious than perhaps the spirit of the last session. I think there's so much we can do. There are so many solutions at hand, and I'm so glad that we're ending with this session.
The first recommendation is to use the learnings of our system's 25-year history and multi-stakeholder approach. All proposed solutions and regulations must include supply chain transparency, rigorous standards and third-party verification.
Further, Fairtrade has been doing ground-breaking work in both workers' rights and living wage, and we are happy to share our learnings. Fundamentally, we hold that labour practices will improve if workers participate in the governance of the workplace, discussing not only wages and work conditions but also production and productivity problems and solutions.
In 2016, Fairtrade will be launching our textile standard which will be based on these and other fair trade principles and will cover the entire supply chain. We would be happy to partner with the Canadian government in bringing this opportunity to Canadian businesses.
Our second recommendation is that we must focus on the entire supply chain, which includes the cotton farmers. These farmers are at the very end of the supply chain and are most squeezed by the fast-fashion price demands. These farmers are also the most vulnerable. About 100 million rural households are directly engaged in cotton production, 90 per cent of them in developing countries. Cotton is failing to provide a sustainable, safe or profitable livelihood for the millions of small-scale farmers, predominantly in Asia and Africa, who are responsible for growing seed cotton, and child labour is prevalent. Fairtrade certified cotton is currently available from 60,000 farmers in developing countries who invest their fair trade premium in business and community projects, further strengthening their positions.
Finally, my recommendation is that the Government of Canada lead by example with procurement. Follow in the footsteps of the EU and revisit the federal government's public procurement standards. Other Canadian institutions are already doing so. For example, McGill University changed their procurement practices so that all coffee, tea, sugar and cocoa products at McGill are Fairtrade certified. We have nine other campuses across Canada and countless more in progress. We also have fair trade cities, towns and now schools. For example, St. Kateri Catholic school in Fort McMurray is currently buying its school uniforms made from fair trade cotton.
Fairtrade Canada can help the Canadian government set realistic procurement targets, learning from countries like France. The City of Paris dresses one third of its uniformed agents with fair trade cotton uniforms. There are countless other examples, I assure you, and this is very doable.
I thank you once more for your careful consideration to these matters and look forward to pursuing this dialogue further on how the federal government can ensure more ethical supply chains for Canadians and establish more leadership in ethical purchasing.
The Chair: Thank you, Ms. Brown. We will now hear from Mr. Jeffcott, who is joining us by video conference.
Bob Jeffcott, Co-founder and Policy Analyst, Maquila Solidarity Network (MSN): Thank you very much, Madam Chair, for allowing me to make a presentation today. I'm one of the founders of the Maquila Solidarity Network, which has been doing work on global supply chains for the past 20 years or more, actually. We're also part of the global network of the Clean Clothes Campaign, and they asked me to say some words on their behalf as well.
Before I do, I wanted to give you good news that we received earlier today, which is that the US$30 million target for the Rana Plaza Donors Trust Fund has been reached. Another donor gave enough money to reach that today, and it's not just coincidental that it happened at the time of the G7 meetings. European governments have played a major role in urging their retailers and brands to contribute to the trust fund. This means that now the last disbursement of funds can go to the victims and survivors of Rana Plaza, which is tremendous news. Though I have to say it's a bit disturbing it took over two years for that to be accomplished.
I'd like to make some general observations, and hopefully not go on too long, about some of the problems in global supply chains, particularly the garment sector.
The first one is that in the globalized garment industry, the abuses of workers' rights are endemic to the industry. Some abuses are more common in some countries than in others. For instance, in China, hours of work violations are almost universal in supplier factories. That's not to say anything about the question of freedom of association in China. For that reason, it's not a question of just choosing a good factory over a bad factory. You have to deal with some of these systemic issues that are generalized in the global garment industry and more prominent in particular countries.
The second point we'd like to make is that self-regulation and the private sector social auditing model have failed to fill the regulatory gap left by governments that are either unwilling or unable to enforce their labour standards regulations. I should point to one study that was produced by the Clean Clothes Campaign in 2005 called Looking for a quick fix: How weak social auditing is keeping workers in sweatshops. We can talk in more detail about their findings, but basically the private sector social auditing model has failed both to detect and to remediate problems in garment factories around the world.
The third point that I'd like to make is that factory or brand certification schemes that currently exist in the garment industry have not delivered on their promises. I'm certainly hopeful that Fairtrade is able to deal with some of these problems that are particular to the garment industry, but other initiatives have not been very successful.
As one example, in 2012, a less known factory tragedy occurred in Pakistan, the Ali Enterprises factory fire that killed 300 workers. Shortly before, that factory had been SA8000 certified, which was one of the more rigorous standards. Certifications and private sector auditing cannot be necessarily depended upon to solve the problem.
In terms of some of the areas where there have been advances, we'd have to say most of the advances have been at the policy level and less so at the factory level. After years of campaigning, the leading apparel brands are acknowledging that they share responsibility for conditions in their supply chains. When we started this work, most companies would say, "We don't own the factory; we aren't responsible for the problems.'' That has changed to some degree.
Another positive thing that has changed is that a growing number of brands and retailers are voluntarily disclosing their factory lists. We now know of 12 major companies that have done so. In Canada, there are very few. The Hudson's Bay Company has disclosed a partial list of their factories. Mountain Equipment Co-op did disclose their supplier list years ago, but we can't tell whether it has been kept up to date.
I think that one of the more positive developments — and this was talked about just a few minutes ago — is the ethical licensing and purchasing policies adopted by public institutions, particularly universities and some municipal governments. The interesting thing about this is that they are extremely transparent. Factory locations are disclosed. In fact, even the audit reports are disclosed to the public in many cases, and there are complaint processes for workers and other third parties to file complaints, and they can find out what the corrective action plan is after the investigations take place.
If there are some emerging trends, we'd have to say that the Rana Plaza example led to something that is unique, which is the signing of the Accord on Fire and Building Safety in Bangladesh, which we are one of the witness signatories to. Legally binding agreements that are signed between trade union organizations and companies is a trend that we see growing right now. We think the Canadian government should be supporting these kinds of initiatives.
In addition to the Bangladesh Accord, another example is the Indonesian Protocol on Freedom of Association, which was the result of the Play Fair at the Olympics campaign. Another development that's happening right now is living wage initiatives in which the global unions, some multi-stakeholder initiatives, and companies are beginning to look at how to achieve a living wage in supplier factories, what steps need to be taken.
As a result of all of this, we see an increasing role and increasing connections and contacts between the global unions and other labour organizations, such as the Solidarity Center and the brands. At least dialogue is taking place, and brands are beginning to make commitments on freedom of association.
Where do Canadian companies stand in this situation? Unfortunately, we would have to say that most companies are still at the factory audit stage. They're generally very weak on transparency of supply chains or audit reports.
A question that arises for us many times is do some of the companies even know where their products are being made? I say that because they use a whole list of intermediaries that actually do place the orders in the factories for them. If they don't know, they should know. Canadians should know as well.
Some of the leading Canadian brands are now also acknowledging their share of responsibility for conditions in their supplier factories, but there are still others who are not. Many companies point to WRAP factory certifications as proof that they're sweat-free factories. We can talk about that later, but WRAP actually has the lowest standards and the least transparency of any of these certification programs. Then again, there was a mixed response on Rana Plaza. We see one Canadian company — Loblaws — step up to the plate. More recently, the Hudson's Bay Company did make a contribution to the trust fund even though it had no relationship to the Rana Plaza building.
Lastly, on the role the Canadian government could be playing, I would agree that first it should learn from and apply some of the lessons from the policies of the public institutions that have adopted ethical licensing and procurement policies in terms of transparency, in terms of complaints processes and in terms of allowing for workers to have a voice in these processes.
The Canadian government should be transparent about its own procurement, where the products are made, including the factories. It should be requiring companies to be transparent as well.
I will say two more things. One is that we believe the Canadian government should link duty-free access to the Canadian market, particularly about apparel products, to labour standards commitments and performance. And maybe we'll hear a little more about that in terms of what the U.S. government has done related to Bangladesh.
Lastly, it should support some of these positive initiatives, such as the Bangladesh Accord and the trust fund. Unfortunately, the Canadian government did not speak out in urging Canadian companies to donate to the trust fund, whereas seven European countries did.
The Chair: Thank you very much for your presentation. Now we will now hear from Shawna Bader-Blau, Executive Director, Solidarity Center.
Shawna Bader-Blau, Executive Director, Solidarity Center: Thank you very much. It's great to be here today. On behalf of the Solidarity Center, I want to thank you, Madam Chair and this committee, for the invitation to speak on this important issue.
The Solidarity Center is the largest U.S.-based organization working exclusively to promote, protect and defend worker rights in more than 60 countries around the world. In the last five years we've worked hand in hand with workers in the export garment sector in 15 countries, including Bangladesh, Cambodia, the Dominican Republic, Guatemala, Haiti, Honduras, Peru, Sri Lanka and Swaziland, and so today I will be telling you stories that we hear directly from workers, and I will be speaking on behalf of our programs around the world.
We appreciate the committee's continued focus on garment worker human rights, and I'm really excited that this panel brings the voice of workers to your committee.
I want to build on the presentations that have already been given and give three concrete examples and do three things in this presentation. I'd like to provide some concrete examples from our work on the ground that underscores the ineffectiveness of traditional corporate social responsibility and social audit compliance programs, including at Canadian companies.
I'd like to offer suggestions for ways the Canadian government can defend the human rights of workers, and I'm so excited that you are working on a report that can specifically include some of these ideas.
And I'd like to provide some ideas on what the apparel industry can do to do better by worker human rights.
If we take nothing else away from this meeting today, it should be that, especially in a globalized economy, businesses do impact human rights and they are responsible for that impact. The truth is that so far none of the major international brands in the global garment industry — not one of them — has yet to fully own this truth. The improvements in Bangladesh around building safety are real and are commendable, but they're just the tip of the iceberg and a very impartial success to date.
We know from 100 years of human experience in advancing human rights that when it comes to the advancement of rights at work there is ultimately no substitute for direct worker voice, including the fundamental right to freely associate, form unions and collectively bargain with employers to improve working conditions, especially in countries where local employers hold enormous power and local governments have no political will or capacity to enforce rights. Without a union, individuals who complain can be threatened, fired or even killed into silence. We see this all the time. Multinational corporations have a direct impact on these outcomes, for better or for worse, depending on how they operate across their supply chains.
It's a truth that in Bangladesh, where the Solidarity Center works with approximately 60,000 garment workers a year, the majority women under age 26, in export apparel, I can tell you that the lessons from Rana Plaza and other deadly workplace fire incidents as well have not really been learned. We interviewed many workers that survived that building collapse and the families of folks who lost relatives, and those survivors told us directly that when they walked into the building that day they saw the cracks in the building, they saw other businesses closing in that building that day, and they asked not to go to work but were directly told by their managers, "If you don't come in today you're losing a month's salary,'' and for a 25-year-old low-wage Bangladeshi garment worker who supports an entire family, that is too big a risk. So workers went into that building that day and died. Without a union to stand up and defend their rights to avoid indecent, harmful work and protect them from this retaliation, they went back into that building and died.
Despite that very obvious truth, factories in Bangladesh are still engaging in a massive push back against thousands of garment workers, young women who are standing up demanding rights at work. The number of union organizers in Bangladesh today — and I'm talking about 20-year-old young women who are subjected to harassment, threats, physical and sexual violence by their employers because they are making these demands — is actually on the increase over the last two years, not the decrease. And the number of union registrations being denied by the government has doubled over the last year. The brand sourcing from Bangladesh is virtually silent on this phenomenon of ongoing worker repression in Bangladeshi factories.
I think the senator earlier in the previous panel asked about jobs for women and empowerment. Absolutely, decent work empowers women in countries, particularly in countries where they're not new entrants to the work force and there aren't other sources of jobs. But like my colleague Shannon said, I think we need to be much more ambitious. Any job in 21st century, 2015, is not a good job when you face daily threats of harassment and violence and lack of overtime and decent pay. That's not a good job, and we can do better than that, and the brands should do better than that.
I want to talk about an example of a Canadian brand, Gildan, based here in Montreal. Gildan operates factories in the Dominican Republic, Haiti and Honduras, and this is much closer to home here in the Americas.
Despite all its corporate social responsibility program, it actually has a history of union busting, extremely low wages and hardball tactics with workers simply trying to make a living wage. As recently as 2013 and 2014, Gildan factories fired as many as 45 workers who had been trying to form unions in Honduran factories.
Here is the good news, and here is the role you can play. Just last week, Honduran garment workers formed unions in three Gildan factories. Instead of busting these unions and getting these workers fired, Gildan has so far been engaging them and encouraging the unionization of these factories. I think this committee could right now reach out to Gildan and encourage them along this path.
The same can be true in Haiti, where as recently as last year, major brands, including Fruit of the Loom, Hanes and Gildan, were found not to be paying the very low minimum wages they were required to pay in Haiti. As the panellist said in the previous panel, often the minimum wages are way below any living wage. Haitian government workers go to work to get the free lunch provided there because all the money they make affords them transportation back and forth to the factories. Minimum wages are low in Haiti, even in the government factories, but Gildan was not even paying these.
They did make an agreement last year to join with Fruit of the Loom and Hanes and promised to supply minimum wages. So far they are doing better. They are up around 53 per cent compliance. They should be encouraged to do more. I think the Senate could talk to this Canadian company right now and encourage them in Haiti and Honduras to continue doing the right thing.
The Chair: Just so you know, they will be here next week, so we will give them your message.
Ms. Bader-Blau: Great. I can supply a lot of detail if you'd like.
I'd make two last points. What can Canadian and other governments do? I would say that governments can do a lot, and the Government of Canada is well positioned to do a lot more. I think we are leaving way too many tools on the table when we're talking about the promotion of human rights, and I would strongly urge us to look differently at trade. With trade tools like the Generalised Scheme of Preferences, or GSP, simple preference programs or the bigger free trade agreements like the TPP, we should be insisting on improvements of human rights standards before entering into these agreements.
In the case of Canada's GSP, as you heard from the previous panel, Canada has totally taken human and worker rights off the table in its GSP program. I'm not someone who typically will praise the diplomatic efforts around worker rights of the American government. I'm a huge critic. But in one case I will give you a positive example of how the U.S. government has used the GSP tool of the United States positively, in a way that I think Canada could also do to great effect.
In 2013, the United States government actually suspended GSP to Bangladesh because of the egregious worker and human rights conditions, particularly in the export apparel sector after Rana Plaza. That has forced the government of Bangladesh to deal at a very high diplomatic level with the problem of worker rights in its factories, in a way they never had before, and this engagement has in fact created space for organizations like Better Work, like the ILO, to make gains in these factories.
We are seeing massive push back, as I mentioned earlier, against union organizers in these factories, but the fact that we're getting union registrations at all has a lot to do with the suspension of GSP, and conditions can improve by using these kinds of trade tools. I would urge the Canadian Senate to urge the Canadian government to rethink its GSP program.
I won't share the detail, but our program the African Growth and Opportunity Act also recently suspended this preference program to Swaziland for similar abuses.
Finally, on the Canadian brands — and I know you're going to talk to Gildan and others — I think the single most important thing Canadian and other global brands can do is to progress beyond failed and unaccountable corporate social responsibility or CSR schemes and support the human rights of their workers. As a start, they can fully embrace the UN Guiding Principles on Business and Human Rights as a floor and aggressively move to prioritize their implementation across the supply chain. I'd be happy to talk about that further.
Treat human rights with the level of priority you treat pricing and quality control. Global corporations have figured out how to make sure across their supply chains that quality is maintained. How about worker rights? We can be more ambitious in 2015. At a very minimum right now, global brands in this industry, where worker and human rights are really exploited, can immediately commit in the short term to tell the factories across their supply chain that they will not tolerate the abuse of union organizers, especially these young women who are trying to stand up for their rights for the first time in a place like Bangladesh.
Thank you, and I look forward to the discussion.
The Chair: Thank you very much for all three presentations.
Senator Ataullahjan: Thank you for your presentations.
Shannon, you said we should have third-party verification. Can you tell me exactly what you mean by that?
Ms. Brown: In my experience, industry-led initiatives sometimes don't meet the needs that you really want to achieve. I think it's really important. Working in Fairtrade for the last eight years, I've seen the value of having a rigorous ISO certification body — in our case it's FLO-Cert — fully independent, to go in and certify according to objective standards.
In our case, there is no chance that a factory will pass because the auditor is worried that they won't get that business. It's very important that there is some distance there, and I think our system represents best in class when it comes to having that full independence.
Senator Ataullahjan: Shawna, you mentioned that worker unions are having a hard time being formed. Do you think that if we have workers' unions worldwide and in Bangladesh, they will be able to realize change? I've seen pictures where they are intimidating and in certain cases beating demonstrators who are demonstrating just for their wages. Will unions be more effective?
Ms. Bader-Blau: I think that 100 years of advancement in human rights of workers around the world is a testament to the fact that the best monitors of working conditions and standards are workers themselves. Any third-party monitoring system will come in and out and most of the time not be there, but who is there every day are workers. What is the way for workers to actually engage around health and safety, wages and fair working conditions? That's a collective bargaining agreement, and some kind of ongoing ability to talk to the employer without fear of retaliation for raising problems with health and safety, overtime payment, child labour and other problems, forced labour that is seen by workers in these factories.
I know from direct experience, from working in many countries around the world that I mentioned earlier, that when we are able to achieve a basic standard of a collective bargaining agreement in a factory or in any kind of plant, we see real improvements. We see production stay in those factories. They become more regular, standard, decent work conditions. Employers and workers can work together to improve conditions so that workers stay. There is not as high a turnover, and wages and working conditions can slowly improve.
We've also seen the ability to eradicate some of the worst forms of labour exploitation, like child labour, extreme chemical poisoning, and other health and safety standards, because workers are empowered without fear of retaliation for raising their hands and saying, "Why is that 14-year-old working here? That's illegal.'' And the employer won't fire them. They will actually remove the child and put the child back in school, et cetera. So we've seen real improvement, and particularly in the poorest countries.
If you take the case of Honduras — I was talking about Gildan earlier — these three factories I mentioned, employing 9,000 Hondurans, they are 60 per cent women. These are some of the only full-time, stable jobs in that very difficult environment of Honduras. So the ability to raise standards in those factories will affect not just those 9,000 mostly female workers but also their entire families.
We know from a development perspective that women reinvest in their communities, and raising the pay and living and working standards for women has endless benefits for local communities and for health and education outcomes for children. This is an opportunity for a company like Gildan to have a major development impact in Honduras, and we see this around the world can work.
The Chair: Ms. Brown or Mr. Jeffcott, do you want to respond to that question?
Ms. Brown: I'd just like to add that Fairtrade completely agrees. We have a new workers' rights strategy, where we are trying to go even further in our work with, for example, tea and flower plantations. We realized that it wasn't enough to say that people have freedom of association, which is something that was always part of our criteria, but now they have to actively demonstrate that the freedom is there by giving materials to the workers, having posters up saying, "You will not be fired for forming a union.'' The improvement that we've seen in the 70 countries that we work in has been phenomenal, so we completely agree with that.
Mr. Jeffcott: I would say that one thing that's interesting is that when we look at the ethical procurement or licensing policies that public institutions have signed, most of the complaints have been about freedom of association violations, and in countries like Honduras and other countries in Central America, any time workers try to organize, the organizers are fired. All of them are fired. We had a case just recently in Honduras where there was a whole series of firings. In a factory where there was a union, every time a union executive was elected, the entire executive was fired. But these policies — and the government of Canada could have one like it — actually enabled the reinstatement of the workers. The investigation by the Worker Rights Consortium and, in this case, also the Fair Labour Association found that they were guilty of freedom of association violations. The corrective action plan was for the reinstatement of the workers and the acceptance of the union.
This has happening in a number of cases — in Fruit of the Loom factories as well in Honduras — and now we're talking about Gildan factories. There really is potential for public institutions to play a role not just to make use of factories that have perfect conditions but to help leverage improvements, which usually are about respect for workers' rights.
Senator Ataullahjan: Fairtrade, when you're in Europe, every supermarket you go to, whether you're buying chocolate, coffee or tea, you have, very clearly, that it's a Fairtrade product written on it. Why hasn't that caught on in North America or in Canada?
Ms. Brown: That's a great question. All of the data that we have — and I'd be happy to share that data with the committee — show that Canadian consumers do want to hold corporations to account. So there is no question that the appetite is there, and we are seeing in our trends more and more companies coming on board all the time and more and more retailers getting into the idea of Fairtrade. We're talking about ambition. We've seen huge supply chains convert completely to Fairtrade. Just, for example, in terms of scale, all of the Cadbury Dairy Milk bars in Canada, all of the pure milk chocolate bars, are Fairtrade certified, all of the sugar, all of the cocoa. It is growing and catching on.
We are a not-for-profit organization, funded entirely by the licence fees of the companies that use the certification mark. We certify those companies. We help them with marketing, but we are a fairly small organization. Certainly in Europe the governments have been funding those programs and funding the public education. It isn't something that we do currently with the Canadian government, but there is a lot of room for partnership there to grow it even further.
Senator Ataullahjan: You mentioned Cadbury's chocolates. They obviously pay for the packaging. Can't they have Fairtrade written on it larger so that the consumer can see? It is there, but I am someone who eats Cadbury's regularly. I have to kind of look for it, whereas in Europe you see it. It's written large. You can see it, and that's one way of educating the consumer. So I'll look for it next time. Thank you.
Senator Eaton: I see Fairtrade coffee all the time at the back of my Catholic church.
Tell me, how did you spread your Fairtrade brand to cotton farmers specifically? How do you approach countries like Bangladesh? You heard from our former panellists that the next wave of textile factories will probably be in places like Burma or China. Where do you start with countries that don't believe in freedom of association necessarily, who probably don't have labour laws in the sense that we know them? How do you start?
Ms. Brown: Another fabulous question. We started with seed cotton because our real expertise was always in agricultural production, and that just made a lot of sense.
But we have seen, over our 25-year history, that a lot of the principles that improve the lives of farmers and workers in agricultural sectors also can apply to certain hired labour or industrial situations if they're done in a very thoughtful way. For years now, we've been in consultations with other partners and stakeholders, trying to determine the scale and scope of our standards.
Senator Eaton: When you talk about partners and stakeholders, it would be helpful to the committee if you could take a country, for instance, and tell us who your partners and stakeholders were and how you worked down to the farmer.
Ms. Brown: We have organizations in 25 different countries, and we work with NGOs in all of those countries. We work with the private sector in those countries, and we also work with three networks of producers.
Senator Eaton: Give us a country.
Ms. Brown: Okay.
Sofia Molina, Category Specialist for Coffee, Fairtrade Canada: Canada or the United States. My name is Sofia. I work with Fair Trade Canada. I am originally from Honduras, so it's good to hear all of this conversation. I'm currently working in the coffee category, which is traditionally the biggest and the first one that entered the fair trade movement as being a certified product, and I used to work as well in the cotton category for Fairtrade Canada.
Senator Eaton: I think we're interested in this committee specifically in textile workers, so it would be cotton.
Ms. Molina: Let's say cotton. How do we work for certification? First, we work in the growing countries, and then we work in importing countries.
For example, in India, where there is a big cotton producer community and organizations, our stakeholders there would be the cotton cooperatives, organized producers, and they would also be NGOs working on the ground and also the larger producer network organization.
Senator Eaton: What kind of NGOs would you find in the field working with cotton cooperatives?
Ms. Brown: For example, the Canadian Co-operative Association is one of our partners. Oxfam is one of our partners. There are NGOs, both on the ground and at the policy level, that we approach. It's difficult to answer the question specifically because, in Canada, we don't set the standards. They're set at a global level. So Canada participates. The United States participates. Everyone participates. We probably have dealt with your organization at the international level, just not at the Canadian level specifically. We've tried to say, what can we do to make the most rigorous standards that cover all the subcontractors, that cover every stage of the production, that will ensure not only a living wage but also no child labour and that will ensure that all the ILO conferences are followed? The challenge is going to be to bring this to market in Canada because there are other certification schemes with weaker requirements, and we're trying to push the bar higher and say, "This is what we can achieve.'' That's always challenging.
Senator Eaton: I'm not trying to challenge you. I think what you're doing is wonderful; I'm just trying to understand. Do you not find it challenging, in certain countries, to say that there will be no child labour, nobody under the age of 18, for instance? Is that not a problem?
Ms. Brown: Yes, we have higher-risk countries for sure, but we still work in most of those countries because we will go where the problem is.
Senator Eaton: Are your standards culturally appropriate to each country?
Ms. Brown: No. We follow the UN protocols on the worst forms of child labour, so we have realistic expectations around child labour that say that a child has to be able to go to school. They can work on their family farms if it's not hazardous and doesn't interfere with their schooling and education, but our standards are the same across the board when it comes to human rights.
But your question, which was extremely good, was about countries like China, where you don't necessarily have the same ability to have freedom of association. Our textile working group standard has not yet determined whether or not we would be able to engage with those countries. It's something we have to do as we set the standard.
Senator Eaton: You go country by country.
Ms. Brown: Yes.
Senator Eaton: Have you gone into countries like Vietnam, Bangladesh, Burma and Cambodia?
Ms. Brown: Yes, we work with Bangladesh.
Ms. Molina: I would have to say right now that the first stage of the work with industry was cotton since 2004. The second stage would be to work with the entire garment industry, which is a very complex industry. At that stage, yes, there are studies per region. One of the challenges is to be able to come up with a document that can be applied that is realistic for each region's realities.
Ms. Brown: I hope we're not confusing you. It is very complicated. The living wage is different across each region. Human rights are the same across the board.
Senator Eaton: That clarifies a lot. Eventually, I would be able to buy a cotton T-shirt with "Fairtrade'' on it?
Ms. Brown: Provided we can convince Canadian companies to engage with us. That's our challenge. There's a race to the bottom when it comes to pricing, but there's also a race to the bottom when it comes to ethical certifications; and Fairtrade Canada is losing ground because we hold people to very high standards. We know they're achievable. We have seen in Europe that there's a 95 per cent recognition of the mark, and huge companies are engaged. Every second banana in the U.K. is Fairtrade certified. In Canada, we're not there yet. We need consumers in Canada to hold the businesses to high standards so that we, Fairtrade Canada, can succeed in bringing this to market.
Senator Hubley: Welcome and thank you so much for your presentations. I'd like to go back to the child worker again. We've heard testimony that these young people may be the sole or primary breadwinner in a family. When that child is perhaps no longer eligible to work there and is sent back to school, which is a wonderful thing for the child, what happens to the rest of the family?
Ms. Brown: That's a great question. Our work in child labour is actually an entire program. It goes beyond the standards. We are trying to work with communities in the developing world to identify the root causes of child labour. We're doing this with children in working groups in many different regions. We're trying to identify what is in the communities to cause these kinds of cultural infrastructures where the children are forced to work. We also are developing systematic solutions to empower the families so that that's not the case.
Of course, this is a huge problem that goes way beyond what Fairtrade can accomplish. If we do an audit of a producer group and we identify child labour, we have very strict protocols on how to handle the situation. It's not like they lose their certification and we're out. We have to work with that community, with that producer group, rehabilitate that child and make sure that all of the needs of the community are taken care of. It's an extremely complex situation, but we have an international expert who's actually Canadian working at Fairtrade International on our whole child labour program and doing very innovative work.
Ms. Bader-Blau: The International Labour Organization has come up with some figures about the number of children who are no longer employed but used to be employed. It's something like 30 million over the last decade or so. The good news about this reduction is that because of comprehensive approaches taken to creating decent work for adults, in the process it has not led to unemployment in other areas. We still have a lot of intractable child labour around the world.
We had an engagement in Liberia that was very instructive. We met with people from the Bridgestone/Firestone who were sourcing rubber from Liberia, where they have a major plantation. We met some workers and found a lot of child labour on this plantation. It was because the quotas for tapping rubber out of trees were incredibly high. Each individual employee had to bring in their children and spouses in order to meet the quotas.
In the post-civil-war Liberia where you get the beginnings of the development of a more democratic political system, workers were allowed to form a union for the first time on that plantation. Through collective bargaining with the plantation, they've been able to eradicate child labour on that plantation. They've reduced production quotas and added good standards. Now, the company is actually putting money directly into schools for the children on the plantation. It shows how by creating decent work for adults and with some corporate accountability, you can get the eradication of child labour and improved working standards for adults together.
Senator Hubley: That's a great story.
The Chair: I have a number of questions. I'd like to know, and you don't need to provide it now, if you have any data on how much it would cost if working conditions were improved to an appropriate standard. How much of a price increase would consumers tolerate for clothing? This is one of the things that we come across. People say that consumers want cheap clothing, so that's what they're doing. Obviously, there needs to be awareness raised for consumers.
How do we strike that balance? I'll start with you, Mr. Jeffcott.
Mr. Jeffcott: First, the amount of money that actually goes for labour costs is minor compared to the total cost of the product. The labour costs end up being focused on by employers and brands because they are something that they actually have some control over. They can reduce the labour costs, whereas transportation costs, electrical costs and other costs are more out of their control.
Most people when they talk about how much it would be per garment are really talking about pennies. In some cases, it's hard to say about anything in general, but in particular for products like T-shirts, it would be about 4 cents more. It's really not that much more money. For companies it's significant because they're not buying just one T-shirt but many of them; and they're competing with other companies that are competing with them on the question of price. For consumers, the costs of individual products would not be significantly different.
Ms. Brown: There was a great education campaign that I saw on the Internet just a couple days ago. They had a vending machine and people could opt to purchase a T-shirt for 2 euros. When you go to buy it, they show you how it was made and ask if you still want to still buy it; and nobody wanted to buy it. They had another option that asked if you wanted to donate your $2; and everybody chose to donate. I would argue, use that $2 and reward a company that's going to do a T-shirt under the right conditions.
We've seen that consumers are willing to pay a little bit more. I couldn't tell you what it would be, but consumers are willing to absorb some of those costs because they really care.
The Chair: Now I want to pick all of your brains. We are going to do further work. This committee is very committed — and I think I speak for all members — to this issue. If we were looking at this issue of garment workers within the umbrella of Canadian companies because that's the only place, or the Canadian government, what should we be looking at? I would appreciate if you could provide input on how we should frame our study. We'll start with you, Ms. Brown.
Ms. Brown: I did bring a copy of what Germany is doing. They had the same reaction after Rana Plaza. They realized that they really needed to do something as a country. What they are doing is very interesting, so I would suggest the committee take a look at their work.
I would suggest, like I said, that you focus on government procurement and that you have even more rigorous standards for government procurement, such as Fairtrade textiles when we launch in 2016. It's a way to show best in class and push the bar higher. I'll refer to my colleague about how to engage with Canadian businesses because I think you've got some innovative ideas.
Ms. Bader-Blau: I think those are good ideas. If we're talking about corporations, I would definitely have the Government of Canada play a much more significant role in the global arena vis-à-vis global corporations and the whole architecture for trade. Part of the reason why we have to have these individual certifications by country is because the global economy is lacking regulation when it comes to rights.
The innovation of the UN Guiding Principles on Business and Human Rights is a really good one, because it sets the floor standard that governments have a duty to protect human rights, businesses have the duty to respect human rights, and citizens should have access to remedy. Then they have some guiding principles within that for corporations, governments and NGOs as to how to apply that in real life. I would look at those principles as a starting point.
I would also definitely just completely shed the focus on social auditing and corporate social responsibility as a solution. I think we've moved beyond that. The fact is these factories like Rana Plaza and Ali Enterprises in Pakistan before it were audited a tonne of times by a tonne of brands against their CSR codes of conduct and still there were the massive fire and the building collapse killing between the two more than 1,500 people making clothes. That shows that those are failed methodologies for addressing these problems.
Governments need to get much deeper into using our diplomatic tools to hold ourselves accountable to worker safety standards and rights — and other governments we're engaging with, using our full diplomatic tools, including trade tools. Instead of massive trade arrangements around the world that are actually loosening, making it easier and with less regulation, such as we are understanding that the TPP does, we should be looking at tighter regulation of global commerce and industry around human rights.
The Chair: Mr. Jeffcott?
Mr. Jeffcott: First of all, I agree with Shawna on this question of the failure of private sector auditing. If the Canadian government begins to take policies or develop programs about procurement policies, they should not rely on private sector auditing firms as the third parties.
The more successful initiatives have been ones like the Worker Rights Consortium in the U.S. and the Fair Wear Foundation in the Netherlands where they actually have very transparent systems. The auditors are not private sector firms; they're usually local NGOs or staff of the institution itself.
If you look at the accord in Bangladesh, the inspection teams were under an independent program with a Canadian who actually headed it.
The other thing that would be extremely important is that the Canadian government, aside from its own procurement policy, should be developing policies to require more transparency from Canadian companies. Years ago, we put forward a proposal that called for factory disclosure regulations that would require Canadian companies to provide information to the public on the names and addresses of all the factories that they used. At that time, we were told that was proprietary information. Now we have a number of individual companies, including big ones like Nike, Levi Strauss, Adidas and others who are disclosing their locations.
Canadian companies have to catch up with some competitors in the U.S. and Europe on the issue of transparency, and the government can help by encouraging that.
The Chair: One last question from the deputy chair.
Senator Ataullahjan: My question is for you, Shannon. You know how Rana Plaza has always brought attention to the state of garment workers. What would the ramifications be if the owner of Rana Plaza is charged with murder? Do you think this would be a turning point in the garment industry worldwide and especially in Bangladesh?
Ms. Brown: I don't know if the owner being accused is going to do it. We have to take accountability as shoppers, and our retailers have to take accountability. There is accountability in countries of origin, yes, but they're at the bottom of this infrastructure where we're demanding clothes for less than it costs to produce them.
The shock that this still happens in the world is really making Canadians, both businesses in terms of risk and generally in terms of just the moral outrage — I think that is the impetus more than the fact that this factory owner is charged.
Senator Ataullahjan: We have seen that. The Canadian public was outraged when they heard about it. Thank you.
The Chair: Thank you very much for your presentations.
Ms. Molina: Sorry, I would like to add to your first question about what we can do. From the consumer point of view, it's very important to take advantage of this movement of ethical consumerism and the interest of the public in knowing where our products are coming from. The government can also support initiatives that do that.
The Chair: Thank you very much for all four of your presentations. As you can see, this is just the beginning, so we look forward to working with you in the future. Thank you very much.
(The committee adjourned.)