Western buyers don't reward compliance: Jamal

Tanim Ahmedbdnews24.com
Published : 11 Nov 2013, 04:52 AM
Updated : 11 Nov 2013, 03:15 PM

Arshad Jamal, Chairman of Tusuka, BGMEA director and wage board negotiator spoke to Tanim Ahmed of bdnews24.com over the wage issue, the future of the industry and much else. Excerpts:

TA: The garment factory owners had proposed Tk 4,250 as their last offer. It appears that they might end up accepting the workers’ demand of Tk 5,300. But that is still significantly less than what it would cost you to fill up your car’s fuel tank once. Does this reflect a certain mindset?

AJ: Minimum wage is indeed a matter of mindset. I personally believe that higher minimum wages will make all take the whole industry more seriously. Especially after this Rana Plaza incident, which has given us a hard lesson — that once you are in this business, you do it properly. Otherwise you get out of it. It is a question of the country’s reputation, comparative advantage and involves confidence of the buyers.

Wage is more of a rights issue. The primary concept of minimum wage is to reduce human rights violations, in terms of paying the minimum, particularly for those marginalised entry level unskilled workers who are essentially desperate economic migrants.

What we must realise, and what many economists also say, is that after about two decades of near six percent growth Bangladesh is on the verge of moving on to secondary industries from primary industries. At this stage, wages should be at such a level that it may have a spill-over effect on the economy.

The fact is, however, that out of the 3,574 factories, almost 70 percent are small and medium enterprises who will really suffer with a high wage increase.

Arshad Jamal

TA: The owners keep saying they don’t have the ability to pay this much. We have heard it in 2006, then in 2010 and now in 2013. There is a tussle between the factory owners and the workers whenever there is a question of raising wages. Why is that?

AJ:  After a 115 percent wage hike in 2010, this increase is beyond the imagination of the small and medium factories. We understood that there would be a wage hike after the Rana Plaza collapse but not such a huge one. And since that disaster every factory, even the smallest ones, is trying to reorganise and revamp safety provisions like exit-entrance, electrical systems, etc. Compliance comes with a cost, not that it was not there before, but now it will be many times over, especially when people are giving more emphasis on compliance issues.

There has also been political unrest over the last several months which will have a long term effect. It is not like business will resume as soon as the turmoil is over. The impact will last till July next year because people plan 8-12 months ahead in this industry.

On top of this, with consumption consistently low for some time, there has been little pressure on the foreign exchange reserve because of a low import bill. The reserve will, therefore, gradually increase unless there is a turnaround in the economy. That means that the taka will remain fairly stable against the dollar if it does not appreciate further. In contrast the Indian rupee, given their elections, will remain at its current level for almost a year. That means a gap of almost 28 percent in terms of exchange rate.

In 2010, after new wages were negotiated the European Union declared GSP facilities on Jan 1 2011. The taka had been devalued steadily through the year. So the immediate thrust of wage increase was offset by these two major development. At the same time the market was shifting away from China. Because there was a major wage hike there and Chinese labour was shifting from garment industry to other sectors like the automobile and technology industries.

This time, however, there won’t be any of these factors. This time the growth won’t be there. I mean it will be, but not at the previous levels compared to our current installed capacity and the natural growth rate of the industry.

There will be a significant jerk as we try to absorb the shock of a wage increase. However, everybody has to be responsible enough and work towards a solution. As far as I can tell, BGMEA has been playing responsibly and would just about agree to Tk 5,300 minimum wage, but with conditions.

What we are trying to do is manage the damage. We are requesting the government to consider reduction of the TDS (tax deduction at source) which has grown 225 percent in the last three years. In 2009, it was 0.25 percent and it was gone up to 0.80 percent. The government seems to believe that the garment industry retains an average profit of 10 percent, which is grossly exaggerated. In this type of volume driven business the profit is normally 3-5 percent. Net profit is around three percent or so. But we are paying TDS on the quoted price of our products which makes it significantly higher in real terms. There will be a few other conditions too, like steady power and gas supply and so on.

TA: Factory owners say often that if they had not set up these factories, then all the garment workers would have been housemaids. But then if the government had not provided all the incentives, the factory owners may have been tailors. It may sound rather offensive but do you believe that there has been a change in the owners’ perception?

AJ: Industrial relations are dependent on both behaviour and confidence. If these two pillars are considered then I would say we have gone through a substantial change. No matter what people say, there has been a tremendous positive development. Even if we consider 2006, when the workers had essentially asked that the owners change their attitude. There were instances of abuse at different levels even then. But now, we have come a long way from that and it is steadily improving.

Let me say this as a reference, today factory owners know and believe that employing children is unethical and they should not do it. It is not merely because there is a law against it or that the company has to be compliant but because the owners actually believe it is not right to do so. That was not the case in 1993 when the issue first came to the fore.

Similarly, other compliance issues like locked gates during work are being considered very seriously , specially after the Tazreen fire and Rana Plaza incidents. Even small companies, with little knowledge of compliance, are trying really hard to improve safety standards. Even they understand that sweatshops are not going to cut it anymore.

TA: When the prices of raw materials increase, or when power becomes expensive or when capital machinery become costlier, the owners don’t cite their inability. But only when it comes to negotiating wages, they complain about inability to pay up. Is it a perception among owners that wages come out of their pocket while the rest is investment.

AJ: Let me put it simply. You see Bangladesh is a very poor country. We are acknowledged to be among the most disproportionately affected countries in WTO.

But we are constantly abused by the buyers in terms of price. We face losses and hurdles from all around. The general strikes cause losses, power prices increase constantly, we don’t get gas connections. There is congestion in the port. The main highway connecting us to the port was supposed to become a 4-lane highway but that has not happened for years. We do not seem to receive the least bit of support from around us. BGMEA frantically tries to act as a trade association, sometimes as a regulator, sometimes as a lobbyist. As a result, the association ends up spread too thin.

Where we suffer the most is we have not been able to come out of ‘middlemanship’. Just like we have failed in backward linkage, so have we failed in forward linkage. We mainly conduct our business through buying houses, agents, importers and private licensees. These parties keep extorting us systematically.

We cannot negotiate with the buyers, nor do we get much of a privilege at home. One example. The garment sector, woven and knit together, account for only about 12 percent of national gas consumption. But not a single factory has been given a gas connection in the last four years. The garment industry fetches 80 percent of Bangladesh’s foreign exchange, can’t we at least expect that much?

The wages are the only place where these vulnerabilities and weaknesses are ventilated. That is when we say we cannot pay this much. This is not because we think we are paying out of our own pockets but because this is the only place where we can negotiate. We don’t have any control over the other factors.

We confront all kinds of abuses and injustices. It is in that context that we come up and say ‘we do not have the ability to pay so much’.

TA: You have just mentioned that BGMEA acts in different roles and sometimes as a trade association. Every member of the association gets to vote and choose their representatives. You are one of the directors and you have been voted in. But your counterpart on the wage board from the workers’ side cannot rightfully make that claim because there is no trade union in the factories. There is no elected representation of the garment factory workers. Why are the owners so much against trade unions?

AJ: We want the workers to have a common platform. Just like we can claim BGMEA to be a relatively politically neutral body so would we like a similar workers’ platform. We would very much like to see a rational, responsible and politically neutral workers’ platform or association or union, whatever you may call it. BGMEA is all for such a platform.

However, we do have our own system of grievance management, which works reasonably well. Even yesterday and today there was trouble brewing in certain areas and we addressed that through our own mechanism.

Only a few days ago the BGMEA president told the American ambassador that there was sharp reaction in eight factories recently where the workers wanted to form trade unions. He personally told the envoy that our experience with trade unions is not at all good.

No matter where you go, even in the professional associations like that of doctors or journalists, partisan politics takes over. Thus our initial reaction will only be averse. But BGMEA has already agreed in multiple forums that if it is a rational, politically neutral and constructive trade union, which will enhance our industry then we are all for it. But we don’t want an union of thugs .

TA:  The United States often cites rights issues and threaten to move away from Bangladesh and they do. Sometimes American businesses move to China, sometimes to African countries. But do those countries have better labour standards?

AJ: Not at all. This is complete political manoeuvring. Now that the wages are increasing so much, has there been any American retailer that said, ‘We are going to respond rationally and proportionately and increase the prices too?’ No, not a single one. I think this is entirely a sort of political pressure that they seek to exert.

TA:  The factory owners are under constant pressure to increase the wages and improve labour standards. On the other hand, the retailers abroad are keen to sell cheap clothes to such an extent that jeans are sometimes cheaper in London than in a similar store in Dhaka, which only means that they push for rock-bottom prices. Has there been any such commitment from any of your buyers that if you raise the workers’ wages, they would agree to, say, two cents more per pair of jeans?

AJ: No. There has been no such commitment or indication from any of the buyers officially. But we are formally approaching them through BGMEA and their associations requesting them about their response as regards adjusting the prices, because there will be a significant rise in costs.

TA: Then there is not really a solid incentive from the buyers for being an ‘ethical employer’? There is no such thing as ‘ethical buying’?

AJ: Very insignificant. Although some buyers claim ‘green factory’ or ‘compliant factories’ will get some incentive, they actually do that only to showcase themselves and for the ability to claim green buying in front of the quarters that watch over them, or to make such a claim in front of their shareholders and look good.

In reality, however, it is entirely a different scenario. Consider Wal Mart for instance. The company imports 11 times more than its officially stated installed capacity of compliant machines and factories, which they label as green, yellow, orange and so on. They merely keep their eyes closed regarding where the other items are being produced.

The incentive is really very insignificant if you are compliant or ensure labour standards.

TA: The Bangladeshi garment exporters pay a high tariff, almost a billion dollars every year, to the US at around 15-22 percent. Then why are the garment factory owners so worried over losing GSP facilities there? It hardly matters. How does losing GSP facilities in US affect you as an exporter?

AJ: It matters in terms of perception. Although it has no meaningful impact in the apparel sector, overall this decision also affects the EU GSP facilities. And the perceived value of Bangladeshi garments is affected. Our prices are susceptible to such decisions. This decision is, in my opinion, an over-reaction and will hurt us in the long term.