International Business Pages (NCM April 2020)

INTERNATIONAL BUSINESS PAGES Ahlstrom-Munksjö fights the COVID-19 pandemic by expanding the production of face mask materials to its plants in Italy and Finland Ahlstrom-Munksjö increases capacity across its entire protective medical fabrics product portfolio to support the healthcare industry. The exponential spread of the COVID-19 virus around the world has caused an exceptional situation, creating strong demand for healthcare goods in general, and specifically for protective medical products that are made from the company’s fabrics. It is also expanding manufacturing of fabrics production lines normally used for producing other fiber-based materials and providing support with its in-dept knowledge of fiber-based solutions.

In the beginning of March, the company expanded the production of face mask materials to a fine fiber line normally used for industrial filtration materials at the Turin plant, Italy. The technology is unique, generating good protection and breathability for medical use, and approved as a surgical mask.

The advantage of this technology compared to the commonly available electrostatically charged material is its durability. Protection efficiency of electrostatically charged materials is lost overtime when humidity gets in contact with the filter media, whereas protection efficiency of a mechanical filter media remains intact over time.

First orders were received in the middle of March, and Ahlstrom-Munksjö is now targeting to ramp up fabrics production for more than 20 million face masks per month.

In April, Ahlstrom-Munksjö is expanding the production of face mask materials to a line normally used for industrial filtration materials at the Tampere plant in Finland. Currently the material

In response to the exponential spread of the COVID-19 virus in Northern Italy at the end of February, a team at Ahlstrom-Munksjö’s Turin plant started to evaluate what they could do to support the safety and wellbeing of employees and local communities.

“Thanks to our long experience in fiber-based solutions and our intensive collaboration with local partners, we successfully commercialized a protective face mask material to be used in the fight against the COVID-19 pandemic. We achieved this only in a couple of weeks. Our seamless cooperation makes me extremely proud of the team, and it feels great to be part of such an important work,” says Giuseppe Costa, Vice President EMEA and Asia Filtration. is well suited for lighter fabric face masks in civil activities. Droplets test shows that the media has efficiency above 90% at 3 microns and above 85% at 1 micron, which is close to a surgical face mask requirement. Development continues to meet the requirements of material for surgical masks for medical use. Considering the ongoing production, the Tampere plant can deliver fabrics for around 10 million face masks per month on a short notice.

Positive impact from community engagement Ahlstrom-Munksjö aims to build longterm relationships with local communities where its production sites are located. The company can contribute to the well-being of its employees and support local supply chains. Over time, effective community engagement opens up possibilities for productive collaborations and partnerships.

The fine fiber project is a good examNCM-APRIL 2020 80

ple of excellent community engagement as it has deepened AhlstromMunksjö’s collaboration with the universities of Turin, Milan and Bologna.

The collaboration has resulted in Ahlstrom-Munksjö providing materials and testing capacity at its Turin plant for all local authorities' requests, which strive to ensure the quality of third-party masks. Turin plant has also donated fine fiber fabrics to the local communities. “As we are a big company in an area where there are many small villages, we wanted to contribute to the communities and donate some fine fiber fabrics for two town halls, so that local small manufacturers were able to produce face mask for their employees or for the people working in hospitals,” tells Giuseppe Costa.

Contact details: Giuseppe Costa (Vice President) Filtration EMEA & Asia, Email: giuseppe.costa@ahlstrom-munksjo.com Otto Kivi -Sales Manager Filtration EMEA Email: otto.kivi@ahlstrom-munksjo.com

INTERNATIONAL BUSINESS PAGES TEXPROCIL Suggestions to the Govt.

The Cotton Textiles Export Promotion Council's Committee of Administration also met over Video Conferencing on 7th April to take stock of the prevailing situation and deliberate on the urgent steps required to mitigate the hardships arising out of the Lock Down.

Suggestions on support for the Exporters to face the situation arising out of lockdown on account of COVID-19 are: 1. Permit shipping line offices to function Pan India between 9 to 3 pm at least so that essential documents like Bill of Lading can be obtained and send to customers so that they can clear goods arriving at Ports.

2. Courier services to be allowed to operate domestic and internationally to handle such documentation.

3. At least 15% of total staff should be allowed to attend office daily with issuance of priority pass for movements for such companies.

4. To extend 3% Interest Equalization Scheme beyond March 31, 2020 for one year till March 31, 2021. Include Cotton Yarn under the scheme.

5. To allow cancellation of Forward contracts without any penalty/charges.

6. To grant a minimum one year moratorium on all term loans and interest including interest on working capital (Cash Credit/Packing Credit / PCFC ) to be repaid over the next 36 months . This will not have any adverse impact on the Profit & Loss Accounts of the banks.

7. All L/C payments maturing from March 22, 2020 to May 31, 2020 to be converted into Term Loans payable monthly over a period of 24 months.

8. Repo rate reduction announced by RBI to be immediately passed on to all the Working Capital/Term Loans.

9. To extend 3% Interest Subvention of 3% on all export credits for all products for 12 months.

10. Additional 25% FB Working Capital for 12 months to be reduced monthly over a period of the next 12 months.

Banks should be advised to do this at the General Manager (GM) level instead of going through the complete

The idea of constructing face mask material in Turin was based on previous years' experience and the manufacturing capability in place today. The team picked up its knowledge in fine fibers from past years and combined this experience with its current business orientation, which is liquid filtration in long-life filter media for gasoline and oil, as well as air filtration for gas turbines. In both product segments, Ahlstrom-Munksjö holds a leading position. The technology used is unique and the machine is capable of also producing other products with very fine fibers. It allows constructing different polymers with mechanical protection thanks to a very fine pore distribution that is better than what is currently available on the market.

Fine fiber protective web in nano range. These two different magnifications show how the web can work mechanically and partly electrostatically.

Collaboration between AhlstromMunksjö and local partners enabled converting and assembling of fabrics into face masks only in few days. The final product is made of fine fiber filter media which protects the people and a prefilter which gives softness and ergonomic property. The fine fiber The final face mask made of fine filter media is produced in the fiber.

Turin plant and the prefilter at the company’s Brignoud plant in France.

First orders were received in the middle of March and the team is now targeting to ramp up the fabrics production significantly. The production supplements Ahlstrom-Munksjö’s existing product offering in the Medical business and brings very much needed additional production capacity to the market. approval procedure which is time consuming.

11. Allow additional 90 days for export payments to be received even against discounted LCs/CAD documents.

12. Increase working capital limits by 25% without collateral.

13. Packing Credit period for existing loans and export bill realisation be extended by six months.

NCM-APRIL 2020 81

14. To extend complete waiver of Employer’s contribution of EPF/ESI for 3 months. There will be no strain on the Government.

15. MNREGA benefits should be restricted to Non-ESI and Non-EPF workers. This is needed to encourage labourers to go back to the factories when the lockdown opens.

16. 50% salaries /wages to be borne by the Govt for the lock down period.

INTERNATIONAL BUSINESS PAGES BGMEA to provide PPE to healthcare professionals In the wake of Covid-19 pandemic, The Bangladesh Garment Manufacturers and Exporters Association (BGMEA), has come forward to provide PPE suits to healthcare personnel including doctors, nurses and hospital workers in Bangladesh. In the current situation law enforcement agencies and many other institutions are also wanting PPEs. Currently BGMEA is making at least 20,000 PPEs for donation. What we are making is a substitute of level-1 PPE. Corona patient treating doctors and staff need level 3/4. Our product is not certified. It is just 100% waterproof and the design is close to a professional PPE. Our suits will mostly be worn by support workers and doctors who are right now scared to attend their jobs because of what is happening in the world. They expect protection for all activities, not only when treating patients with Corona symptoms.

We are helping with whatever we have right now as our frontier health workers have no protection. Our fabrication and garments already have an approval from the Director General of Health Services (DGHS), Ministry of Health.

They have certified them as Level-1 Substitutes. Currently many of our members are donating fabrics. We are also planning to fund buying some fabrics. The fabric mills who are also our members are selling the fabric below cost in a sign of solidarity. We will be distributing the PPEs to DGHS along with other Government and Semi-Government organizations. We are also working in a coalition with other organizations and NGOs as all our goals are the same.

PPE suits are not natively made by our garment producers. The medical grade and WHO standard fabric has to be imported and also mainly from China.

Moreover, on the production side if we

are to make PPE suits for medical use the factories have to be retooled with seam sealing machines along with some other specialized machinery. Sterile factory environment also has to be maintained and necessary certification and training need to be conducted. This will require at least 6 months or more for any Bangladeshi factory.

We are alternatively sourcing fabric from China which currently has a lead time of 15-20 days because of severe delays in air freight routes. As soon as we can get the certified fabric we will be switching to certified and imported fabrics for our PPE. Our ultimate goal is to export PPEs to the rest of the world and we want to do it very fast. We are already in a discussion with a coalition of ILO, WHO, WFP, UNICEF and other organizations who we have sought help from for assistance to expedite the process of converting our production capabilities available in Bangladesh to produce PPEs. They will assist us with supply chain and technical knowledge sharing. This effort is already ongoing. With their assistance it will take the industry between six months to one year have the proper know how’s and machines and materials to produce export grade PPE.

Joint Statement on Responsible Purchasing Practices amid the COVID-19 Crisis During this unprecedented time of global outbreak of the COVID-19, responsible business has become more important than ever for the whole world to survive and recover from the crisis. Especially, responsible purchasing practices of brand companies, retailers and traders of the global textile and apparel supply chains, will bring enormous impacts on the fundamental rights of millions of workers and the livelihood of their families in the supplier end. It is time for global businesses to uphold and honor their commitment to labor rights, social responsibility and sustainable supply chains.

With this in mind, we, the undersigned nine textile and garment business associations of the STAR Network (Sustainable Textile of Asian Region) from six producing and export countries, hereby call on global brand companies, retailers and traders to: 1. Carefully consider all potential impacts on workers, small businesses in the supply chain when taking significant purchasing decisions; 2. Honor the terms of purchasing contracts, fulfil obligations therein, and not re-negotiate price or payment terms; 3. Take delivery or shipment, and proceed with payment as agreed upon for goods already produced and currently in production with materials ready, and not cancel orders which are already in production; NCM-APRIL 2020 82

INTERNATIONAL BUSINESS PAGES 4. Offer fair compensation to suppliers (100% FOB) if production or delivery has to be suspended or stopped, or offer salaries directly to workers of suppliers;

-

Pakistan Textile Exporters Association (PTEA)

-

Towel Manufacturers Association of Pakistan (TMA)

-

Vietnam Textile and Garment Association (VITAS)

Members of the STAR Network (Sustainable Textile of Asian Region)

5. Put no responsibility on suppliers for delay of delivery or shipment and claim no compensation for such delays;

BGMEA urges to disburse wages ensuring workers safety

6. Put no further improper pressure on suppliers by additional costs, rush orders or unnecessary visits and audits;

The world is facing an unprecedented crisis due to the massive outbreak of COVID-19. This global crisis has huge implication in the Bangladesh RMG industry which is an export-oriented sector. As most of the fashion brands have closed their outlets, they are also cancelling and postponing their orders.

7. Make all efforts and engage with local stakeholders for a better understanding of the local situation and contexts;

All these have created a massive problem for the factories as they need to arrange payments for the workers and also pay for the raw material that has been purchased. It is to be noted that the soft loan facilities declared by government will hopefully help factories with their wages next month, but in the meantime the factories have been requested to pay the salaries of March on their own. Considering the Coronavirus outbreak situation in the country BGMEA has advised and requested its members to keep the factories closed till 14 April and pay the salary upon opening within 16th April.

8. Always resort to dialogue and collaborative settlement to ensure mutually acceptable solutions to disputes; 9. Support business partners on supply chain as much as possible, and aim at long-term strategy of business continuity, supply chain unity and social sustainability.

We appreciate the understanding, collaboration and support of our business partners and other stakeholders, and we are ready to work and walk with all responsible buyers globally to get through this crisis, towards a shared bright future.

This joint statement is made by (in alphabetical order): -

Bangladesh Garment Manufacturers and Exporters Association (BGMEA)

-

Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA)

-

China National Textile and Apparel Council (CNTAC)

-

Garment Manufacturers Association in Cambodia (GMAC)

-

Myanmar Garment Manufacturers Association (MGMA)

-

Pakistan Hosiery Manufacturers and Exporters Association (PHMA)

With so many obstacles and crisis the factories are making strides to keep the hope up and do needful to provide the salary of March 2020 within the earliest possible time. BGMEA have provided clear instructions to its member factories to disburse the wage of March within 16 April 2020 the latest. But the most appreciable thing is, many of our respected member factories have started to distribute the salary already, much earlier than requested timeline of 16 April.

What’s even more encouraging is that the factories are maintaining highest standards of social distancing, safety and hygiene during the salary distribution.

Already around 278 BGMEA member factories have disbursed the wages to its workers within Dhaka Zone till today and it is hoped that all the factories will be able to clear wages of the workers within the timeline advised by BGMEA.

Garment buyers urged to fulfil purchase contracts in bid to save 750,000 jobs Garment workers in a Phnom Penh factory. Buyers who are not honouring their orders are creating job losses. KT/Siv Channa The Cambodia Manufacturers Association (GMAC) has reiterated an appeal to all buyers who source their goods from its members to work with the body to overcome the critical situation caused by the global COVID-19 outbreak, in an open letter issued late last week.

The letter urged all buyers to fulfill their purchase contracts by taking delivery and paying for goods already produced and currently in production as is their obligation.

“This will save 750,000 jobs (globally) and enable factories to pay their workers and ensure the livelihoods of millions of Cambodians,” GMAC said.

The letter also stated that the global pandemic has brought chaos to every corner of people’s lives and businesses, with all parties in the global apparel supply chain suffering.

NCM-APRIL 2020 83

INTERNATIONAL BUSINESS PAGES “Our manufacturers operate on razorthin margins and have less ability to shoulder this burden compared to our purchasers, who still need to put food on the table,” GMAC added.

The government has announced a host of measures to alleviate the plight of garment workers whose wages have been affected because of production suspensions. In the plan, garment workers whose factories have closed will receive 60 percent of the minimum wage. Two-thirds of that is the responsibility of the factory owners, with the remaining 20 percent being provided by the government.

While China’s supply chains have reportedly resumed, ensuring the flow of 60 percent of the raw materials used in Cambodia’s textile industry, clothing manufacturers are still facing even greater problems because of the declining supply orders from distributors and retailers in Europe and the United States, the main market destinations for the Kingdom’s garment industry.

“Scores of clothing brands and retailers have cancelled orders without assuming financial responsibility even when workers had finished making their products,” Human Rights Watch (HRW) claimed in a statement.

“Many supplier factories in Asia are strapped for cash and unable to pay workers’ wages and other compensation because of the brands’ actions,” the statement continued, adding that the COVID-19 pandemic has caused both the sales of clothing brands and retailers to plummet.

According to the HRW, many have closed their retail stores to check the spread of the virus. While navigating this crisis, some brands and retailers have taken advantage of unfair purchasing practices. “Brands should take steps to minimise the devastating economic consequences for garment workers in their global supply chains and for their families who depend on this income to survive,” said Aruna Kashyap, senior counsel in the women’s rights division of HRW.

Garment workers in a Phnom Penh factory. Buyers who are not honouring their orders are creating job losses. Through an open letter posted late last week, GMAC urged all buyers to fulfill their purchase contracts by taking delivery and paying for goods already produced and currently in production as is their obligation.

Thus far, HRW said the H&M Group, Inditex (Zara and other brands), and Target USA have taken steps in the right direction, which these and likely other companies have committed to take delivery of goods already produced or in production and pay for them as previously agreed upon. “More brands should take similar steps to ensure fair treatment of workers, including payment of wages and other compensation, and minimise job loss,” HRW said.

At present, around 90 of Cambodia’s garment factories have suspended their operations, resulting in 60,000 job losses, according to the Ministry of Labour and Vocational Training. Bangladeshi factories have reportedly lost an estimated $138 million so far due to cancelled or suspended orders from international brands, while an estimated one million workers have already been laid off or temporarily suspended. In Myanmar, 20,000 workers have already lost their jobs and one industry expert estimated that as many as 70,000 garment workers could lose jobs within a week.

OEKO-TEX®: no certification fee for face masks Zurich, April 20, 2020 - With immediate effect, the OEKO-TEX® Association will waive the license fee for STANDARD 100 certification of mouth and nose masks.

With the current demand and expert recommendations to wear mouth and nose coverings in public, OEKO-TEX® wants to support continued safety of the population. "We need to stay together in this extraordinary situation: now and for our future," said General Secretary Georg Dieners. "The crisis challenges many manufacturers who are confronted with a logistically difficult task.”

This industry support follows the process modifications for certificate renewals during the Corona pandemic. This adjustment offers an important service for producers of face masks while ensuring continued sustainability and public safety from harmful substances during the corona crisis.

NCM-APRIL 2020 84

INTERNATIONAL BUSINESS PAGES Abandoned?

The Impact of Covid-19 on Workers & Businesses at the Bottom of Global Garment Supply Chains Mark Anner, Ph.D., Director, Center for Global Workers’ Rights in Association with the Worker Rights Consortium

A Research Brief by the Center for Global Worers´Rights (CGWR) draws from responses from an online survey of Bangladesh employers, administered between March 21 and March 25, 2020, to document these trends. It reveals the devastating impact order cancellations have had on businesses and on workers.

Crucially, it illustrates the extreme fragility of a system based on decades of buyers squeezing down on prices paid to suppliers: factory closures, unpaid workers with no savings to survive the hard times ahead, and a government with such a low tax revenue that it has very limited ability to provide meaningful support to workers and the industry.

Executive Summary The global Covid-19 pandemic has had a devastating impact on global garment supply chains, and the situation will get far worse before it gets better. As clothing outlets have been shut by lockdowns in developed market economies, sinking demand for apparel, brands and retailers have moved quickly to cancel or postpone production orders – refusing, in many cases, to pay for clothing their supplier factories have already produced. The result has been the partial or complete shutdown of thousands of factories in producing countries. As a result, millions of factory workers have been sent home, often without legally-mandated pay or severance.

This Research Brief draws from responses from an online survey of Bangladesh employers, administered between March 21 and March 25, 2020, to document these trends. It reveals the devastating impact order cancellations have had on businesses and on workers. Crucially, it illustrates the extreme fragility of a system based on decades of buyers squeezing down on prices paid to suppliers: factory closures, unpaid workers with no savings to survive the hard times ahead, and a government with such a low tax revenue that it has very limited ability to

provide meaningful support to workers and the industry.

1. Since the coronavirus pandemic took hold, more than half of Bangladesh suppliers have had the bulk of their in-process, or already completed, production canceled (45.8% of suppliers report that ‘a lot’ to ‘most’ of their nearly completed or entirely completed orders have been canceled by their buyers; 5.9% had all of these orders canceled). This is despite the fact that buyers have a contractual obligation to pay for these orders. But many are making dubious use of general force majeure clauses to justify their violations of the terms of the contract.

suspended from work) as a result of order cancellations and the failure of buyers to pay for these cancellations. Suppliers in the survey reported that 98.1% of buyers refused to contribute to the cost of paying the partial wages to furloughed workers that the law requires. 72.4% of furloughed workers were sent home without pay.

97.3% of buyers refused to contribute to severance pay expenses of dismissed workers, also a legal entitlement in Bangladesh. 80.4% of dismissed workers were sent home without their severance pay. This is despite the fact that many brands have “responsible exit” policies, in which they commit to support factories in mitigating potential adverse impacts to workers should they decide to exit.

2. When orders were canceled, 72.1% of buyers refused to pay for raw materials (fabric, etc.) already purchased by the supplier, and 91.3% of buyers refused to pay for the cutmake-trim cost (production cost) of the supplier. As a result of order cancellations and lack of payment, 58% of factories surveyed report having to shutdown most or all of their operations.

4. The survey findings presented in this report depict the most comprehensive evidence to date on the depth of the crisis in Bangladesh.

The essential dynamics presented here are evident in garment exporting countries worldwide.

3. More than one million garment workers in Bangladesh already have been fired or furloughed (temporarily

All parties are feeling the extreme burden caused by Covid-19. However, not all parties are equally situated to find

NCM-APRIL 2020 76

Recommendations

INTERNATIONAL BUSINESS PAGES the liquidity needed to cover their expenses. As shops, outlets, and malls are ordered shut, retailers and brands are taking an enormous hit to their bottom line and cash reserves. However, the hit on supplier factories, who generally operate on paper-thin margins and have far less access to capital than their customers, is that much more extreme. And the burden on workers – who very rarely earn enough to accumulate any savings and who still need to put food on the table and possibly cover unforeseen health expenses – is enormous.

1. It is incumbent on the parties with the greatest ability to procure loans and benefit from government bailouts to share those benefits down the supply chains. In this regard, we call upon all buyers to respect the terms of their purchasing contracts and pay suppliers for orders already in production or completed.

2. Suppliers, for their part, must ensure that payments received from these buyers are used to cover all legallymandated wages and benefits, including severance payments to dismissed workers.

3. The government of Bangladesh must continue to mobilize all the resources at its disposal to subsidize suppliers and provide wage support to all workers during the crisis.

4. Going forward, buyers should learn from this crisis to revise purchasing practices to ensure proper social and environmental sustainability. These changes include order stability that allows for proper planning, timely payments of orders, and full respect for workers’ rights. It also includes a costing model that covers all the costs of social compliance: living wages, benefits, severance pay, building safety, etc. One way to cover some of these expenses is an additional charge levied on freight on board (FOB) prices.

5. Given present realities, adequate

protection for the vast numbers of garment workers affected by the crisis, in Bangladesh and across the global supply chain, will require the mobilization of international financial resources. The cost of maintaining income for the world’s garment workers represents a small fraction of the trillions in financial stimulus and rescue now being brought to bear on behalf of businesses and workers in wealthy countries.

Apart from the tremendous human tragedy left in its wake, the coronavirus pandemic will have profound economic repercussions for workers everywhere.

The effects of the global economy’s collapse will worsen before they ameliorate and will continue to be felt for years to come. The International Labour Organization predicts that 25 million jobs will be lost worldwide as a result of Covid-19.2 Workers in global supply chains are particularly vulnerable to termination and economic destitution.

As governments in wealthier countries order lockdowns to control the pandemic, demand for apparel is plummeting, leading many brands and retailers to halt production. As a result, factories around the world are shuttering, rendering millions of garment workers in Bangladesh and beyond jobless.

These are workers who, prior to their termination, were making extremely inadequate wages and for whom saving up for a safety net was never an option.

While anecdotal accounts in the media have already begun to paint a disheartening picture of the effects of Covid-19 on the global garment workforce, this research brief provides strong empirical evidence exposing the breadth and depth of the problem in Bangladesh’ s garment sector.

The next section discusses the methods employed in this study. This is followed by a section outlining the three phases of the Covid-19 crisis for the garment sector in Bangladesh, after which the profound impact of the criNCM-APRIL 2020 77

sis upon garment workers is examined.

The government’ s response to Covid19 in Bangladesh follows, before concluding with a set of recommendations.

Methods and Data This report draws on a survey of Bangladesh suppliers conducted online between March 21 and March 25, 2020.

There are approximately 2,000 suppliers in Bangladesh and 4,000 factories (many suppliers own multiple factories).

Of these, 316 suppliers completed the survey. This puts the sample size within the approximate confines of a 95% confidence level and a 5% confidence interval.

Of the respondents, 15 are owners of small factories (250 or fewer workers), 104 are owners with mediumsized factories (between 251 and 750 workers), and 197 have 751 or more workers.

Most of the buyers of these suppliers (67.7%) are European; 15.8% are American, 4.8% are Asian, and the remainder are “other” or a mix of American, European, and Asian firms.

Three Phases of the Crisis The current crisis facing the garment sector in Bangladesh developed in three phases. First, there was the crisis of ‘raw materials’ procurement. Second, there was the crisis of buyer late payments. Third, there has been the crisis of buyer cancellations of in-process orders. The culmination of these three phases has been devastating on businesses and over 1 million workers. The survey covers these three phases.

Crisis Phase One: Raw Materials On December 31, 2019, the government of China alerted the World Health Organization (WHO) to a health emergency in Wuhan City in the Hubei province. Just over three weeks later, the government placed Wuhan’s 11 million inhabitants on lockdown. Other cities in the province followed suit soon afterwards. For garment global supply chains, this impacted not only Chinese exports of final products, but it dramatically impacted Chinese raw materials

INTERNATIONAL BUSINESS PAGES (notably fabric) needed by exporters elsewhere, from Bangladesh and Cambodia to Honduras.

According to our survey findings, 93% of Bangladesh suppliers reported delays in raw material shipments from China. Of these, 53.4% indicated that buyers subsequently penalized them for the resulting delays in their shipments. In addition to the delays in receiving raw material, 38.3% reported that the price of their raw material increased by ‘a lot,’ and 47.7% reported prices increased ‘some’ as a result of the crisis in China. When asked if buyers adjusted their prices in response to a large increase in raw material prices, 91.9% said no. [See Figure 1.]

Figure 1:

Figure 2:

Did Buyers Adjust Prices to Help Cover Cost of Raw Material Increase?

Have Buyers Delayed their Payments to You for Completed Orders?

Yes, adequately

2.96%

Yes, by 1-10 days

10.87%

Yes, but only a little

5.19%

Yes, 11 or more days

68.84%

No

91.85%

No

20.29%

Table 1 Since the Outbreak of the Coronavirus, Have You Had In-Process Orders (e.g., Orders That Are Near Completion or Ready to be Shipped) Cancelled Prior to Shipment?

Number of Factories

Percent (%)

Some (up to 25%)

132

47.0

Crisis Phase Two: Delayed Payments

A lot (26% to 50%)

64

23.3

Most (over 50%)

61

23.7

As the Covid-19 pandemic began to hit the bottom line of buyers, suppliers reported increased delays in payments.

Our survey confirms these reports.

10.9% of suppliers said they experienced delays of 1 to 10 days in payments, relative to contractually stipulated terms, and 68.8% said they experienced delays of more than 10 days.

[See Figure 2.] Indeed, according to Mostafiz Uddin, some buyers were pushing back payments by 30 days or more.

All

16

5.9

Crisis Phase Three: Cancellation of Orders in Progress By mid-March 2020, an even deeper crisis began to hit the industry. Buyers began to abruptly cancel (or put on hold) not only future orders, but orders already in process. Some of these orders were entirely finished and ready to be shipped, but the buyers refused to accept order shipments or honor their contractual obligations to pay for these orders. At the time of the survey, 23.4% of suppliers indicated that “a lot” of in-process orders had been canceled, 22.3% had “most” of their inprocess orders canceled, and 5.9% had all of their inprocess orders canceled. [See Table 1.]

According to press reports, Primark – which last year posted operating prof-

Figure 3a

Figure 3b

When buyers have cancelled orders, have they agreed to pay for raw material (fabric, etc.) that you already purchased?

When buyers have canceled orders, have they agreed to pay for production (cut-make) costs?

No

72%

No

91%

Yes

13%

Yes

3%

Some cases

15%

Some cases

6%

Figure 4: Buyer Order Cancellations Impact on Operations No major impact for the moment

19.9%

Partial cut in employment

22.2%

Most operations are shutdown

53.4%

Factory closure

4.5% Figure 5:

Impact of Crises on Incomes of Workers Yes

No

Some income for furloughed workers

27.56%

72.44%

Severance pay for dismissed workers

19.60%

80.40%

its of $1.07 billion – is one example of a buyer that canceled all its orders with its suppliers. This includes “orders already in production at factories” (emphasis mine).

NCM-APRIL 2020 78

Many buyers are evoking the force majeure clause in their contracts to justify the breaking of their binding obligation to pay for orders in production. But, for fashion law expert Alan

INTERNATIONAL BUSINESS PAGES Behr, this appears to be an unjustified use of the force majeure clause since most force majeure clauses do not specify pandemics as a reason for failure to pay. More importantly, according to Article 7.1.1 of the Vienna Convention for International Commercial Contracts, force majeure claims should apply to the party with the most relevant contractual obligation, which in this case would be the Bangladeshi factories producing items, not the buyers that have agreed to pay for them.

Press reports show that, as of March 22, 2020, buyers had canceled $1.44 billion worth of Bangladesh garment exports. The survey results show that in the majority of cases (72.1% of cases), when in-process orders have been canceled, buyers have refused to pay for the cost of raw material (fabric, etc.) that was already purchased by the suppliers. Buyers also refused to pay the suppliers’ cut and make production costs in 91.3% of the cases.

[See Figures 3a and 3b.] The impact of these abrupt cancellations of in-process orders has been severe; 53.4% of suppliers report shutting down most of their operations and 4.5% of suppliers report having already closed their facilities. [See Figure 4.]

Impact of the Three Crises on Workers The impact of these developments on workers has been devastating. At least 1.2 million workers had already been affected by the order cancellations. The question now is what sort of support, if any, workers can be expected to receive. For suppliers who abruptly lost buyer in-process contracts with no compensation, 72.4% said they were unable to provide their workers with some income when furloughed (sent home temporarily), and 80.4% said they were unable to provide severance pay when order cancellations resulted in worker dismissals. [See Figure 5.]

When asked if buyers agreed to assist suppliers with the cost of furloughing workers as a result of buyer in-process order cancellations, 98.1% of suppliers indicated no such support was

Figure 6a:

Figure 6b:

Buyers Helping with Worker Furlough Costs

Buyers Helping with Worker Severance Costs

Yes

2%

Yes

3%

No

98%

No

97%

provided. When asked if buyers agreed to assist suppliers with severance pay costs when workers were dismissed as a result of buyer in-process order cancellations, 97.3% of suppliers responded that buyers provided no such support. [See Figures 6a and 6b.]

As noted by Kalpona Akter, executive director of the Bangladesh Center for Workers Solidarity, “Garment workers live hand to mouth. If workers lose their jobs, they will lose their monthly wages that put food on the table for them and their families.” She adds, “If workers are laid off, brands should ensure immediate payments to factories so that workers receive their full legally-owed severance.” As Covid-19 starts to gain a foothold in Bangladesh, workers and their families also will be burdened with considerable health care expenses, making the payment of wages and severance all the more urgent.

Covid-19 in Bangladesh and the Government Lockdown On March 25, 2020, the situation reached an entirely new level when the government announced a countrywide lockdown. The lockdown includes a ban on passenger travel via waterways, rail, and domestic flights. Public transportation on roads also has been suspended. However, it appears that, given the importance of garment exports to the economy, at this writing, garment export production is permitted. The challenge for those factories still receiving orders will be providing transportation to workers while fully ensuring that they are kept safe with appropriate social distancing and other measures.

Conclusions The global apparel industry is undoubtedly in its greatest crisis in over a generation. Store closures in Europe, the NCM-APRIL 2020 79

United States, and beyond has shut much of the industry down. While online shopping is an option, given rising unemployment, declining incomes, and remote working, shopping for new clothes is either not an option or not a priority. Thus, the crisis of brands and retailers is real and profound. However, the way the brands and retailers are managing the crisis is envisaging damage far more dire on suppliers and their millions of workers. Decades of low prices have left many suppliers with minimal capital and now mounting debts. Years of low wages with no savings and little hope sustained government support will leave workers in dire situations. And chronic low tax revenues from buyers have left exporting country governments with weak social safety nets to assist workers in this time of crisis.

The responsible approach is for brands and retailers to find ways to access lines of credits or other forms of government support to cover their obligations to supplier factories so that they can cover their expenses and pay their workers in order to avoid sending millions of workers home with no ability to put food on the table let alone cover medical expenses.

Going forward it is necessary to rethink how the industry does business.

Purchasing practices must be reformed for social and environmental sustainability. This includes stable orders, timely payments, and pricing mechanisms that cover the total cost of sustainable production, from living wages and proper benefits to tax revenues that allow governments to build proper social safety nets. And it includes allowing worker participation to be an integral part of this process through full respect for the right to form unions and bargain collectively.