Covid-19: limited accountability for fashion brands hitting suppliers with pandemic losses

Jennifer Venis, IBA Multimedia JournalistThursday 16 July 2020

As global fashion companies saw profits threatened by the Covid-19 pandemic, many pushed the impact of losses down to suppliers in countries like Bangladesh and Myanmar. Garment factories have seen their buyers cancel orders, request large discounts, refuse to pay for orders already produced, and extend payment terms, with devastating consequences for workers.

Christie Miedema is Campaign and Outreach Coordinator at the Clean Clothes Campaign, a global alliance working towards garment and sportswear industry worker empowerment. She says fashion companies ‘have been pushing risks down the supply chain for decades, and Covid-19 is no different’.

Some companies, including the Arcadia Group, have been using contractual loopholes to cancel orders. Many have otherwise unilaterally changed the terms of their supplier agreements, including extending payment terms without supplier consent.

A number of companies have written to suppliers offering new terms, according to letters seen by Global Insight. Such changes leave little room for disagreement from suppliers. For example, Arcadia told suppliers that if they do not accept its ‘proposal’ of a 30 per cent discount, ‘the order will be cancelled’.

Arcadia did not respond to Global Insight’s requests for comment.

Fashion companies have been pushing risks down the supply chain for decades, and Covid-19 is no different

Christie Miedema, Campaign and Outreach Coordinator at the Clean Clothes Campaign

Ben Vanpeperstraete is Garment Policy Adviser at the Traidcraft Exchange, a UK charity working to promote fairness in trade on behalf of people in the world’s poorest countries. He says ‘existing agreements are very asymmetric, with lots of liability for suppliers, and one-sided unilateral cancellation clauses and payment terms in favour of the buyers. And despite these agreements being enormously favourable towards the buyers, brands can still just get away with ignoring or amending these already favourable provisions’.

Els de Wind is Co-Chair of the IBA Global Employment Institute and Head of the International Employment team at Van Doorne. She points out that ‘Western companies should be making sure they can still use supply chains when things go back to normal’.

Scott Nova, Executive Director of the US-based labour rights monitor the Worker Rights Consortium, says garment factories have razor-thin profit margins because buyers do not pay for orders until months after completion. The consequences of these losses are therefore dire, with millions of workers dismissed by factories that have had to shut down or reduce operations, going unpaid or paid lower wages for months.

Fiona Gooch, Senior Private Sector Policy Advisor at the Traidcraft Exchange, says buyer companies must honour original contracts and pay for orders, or pay for liability, so that factories don’t collapse and workers don’t lose their jobs.

But the legal responsibility for holding companies accountable currently lies with suppliers. And Miedema asks ‘what factory owner would dare sue buyers if they would then lose contracts?’

Miedema believes the power imbalance in supplier-buyer relationships has exacerbated this crisis. She says suppliers know buyers could source garments elsewhere, because the industry is designed for flexibility and low prices. So suppliers must agree to buyers’ terms.

Gooch says this makes ‘private law completely inappropriate in this space’. She says the threat of lost custom for factories is overwhelming and eliminates the possibility of suppliers making use of their legal rights.

Vanpeperstraete adds, ‘suppliers would also have to face up to costs associated with transnational litigation, because most contracts have specified jurisdiction in the country where the buyer is headquartered.’

‘This crisis is the result of pre-pandemic industry failings and a race to the bottom that has made it impossible to protect workers,’ says Miedema. She argues that ‘due diligence should be set down in law so that countries can hold these companies accountable’.

At the international level, the European Commissioner for Justice has announced that the European Commission will introduce ‘mandatory corporate environmental and human rights due diligence’ across all sectors in 2021.

Vanpeperstraete points out that established guidance like the UN’s Guiding Principles on Business and Human Rights reflect a clear policy decision to limit corporate responsibility to do no harm, and it remains the state responsibility to fulfil rights. He says the Traidcraft Exchange is calling for legislation outlawing unfair trading practices at the core of the industry.

Els de Wind tells Global Insight that these companies must face more accountability than reputational damage and fines. She believes ‘legislation needs more teeth to tackle multinational companies’.

Elise Groulx-Diggs is Co-Chair of the IBA Business Human Rights Committee and a Washington, DC-based associate tenant at Doughty Street Chambers. She says ‘Covid-19 exposed issues that do not fit into conventional frameworks of national employment law, labour law and public health law. None of these problems exist in isolation. This needs to be addressed at every level, including the advancement of mandatory due diligence frameworks and bilateral investment treaties between supplier and buyer countries’.

In the meantime, Nova suggests that ‘suppliers acting collectively could be effective, especially across countries, because then they would have a lot of leverage. But buyer strategies have been to divide and conquer’.

The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) recently threatened to ban Edinburgh Woollen Mill (EWM) from placing orders with members in Bangladesh, alleging that EWM was taking ‘undue advantage’ of Covid-19 and requesting up to 70 per cent discounts from suppliers.

EWM was not available to comment but elsewhere told media that ‘when this global crisis hit, [it] had already paid for the majority of future stock’. Since then, it has ‘had productive discussions with individual suppliers about remaining stock’.

The BGMEA also raised awareness about the actions of other buyers, reaching Western media. Nova says ‘once this became a public issue, companies shifted. Consumers have power, and the only advantage that suppliers have is that brand reputation matters, and right now they can’t defend what they’re doing’.

After a surge of bad publicity, some companies like Primark took action to address cancellations. A Primark spokesperson told Global Insight that thanks to ‘other cost savings’, Primark had committed to paying for an additional £370m of orders – meaning all orders previously planned for handover by 17 April are accounted for.

‘The solution has to be collective and come from sectors, not individual companies. Individual decisions can’t help with systemic problems and that’s where reform is needed’, highlights Groulx-Diggs.

Picture credit: Sk Hasan Ali