Melissa Murphy

Understanding the reality of ethical trading
By Melissa Murphy

Fairtrade and corporate social responsibility are the latest buzzwords used by companies committed to wiping out Third World debt.

But are these strategies getting to the root of the problems or creating new ones? A growing number of organisations are now working together to create ethical trading, designed to tackle the roots of a problem. The aim is to provide a lasting solution, not just a quick fix.

What is ethical trading?
Ethical trade aims to improve the lives of workers and their families in global supply chains. Ethical trade or ethical sourcing means that a company takes responsibility for the labour and human rights practices within its entire supply chain.

Why do we need ethical trading?
Ethical trade became a growing issue during the 1990s because companies with global supply chains, were coming under increasing pressure to ensure decent working conditions for the people producing the goods they sell. A number of campaigns raised consumers’ awareness of poor working conditions in developing countries, which were producing goods for leading companies for the western world.

Many of these companies responded by adopting a code of practice setting out minimum labour standards for their suppliers to comply with. However, they soon found that they lacked the credibility and experience to change these labour practices. In 1998, the Ethical Trading Initiative (ETI) was set up in the UK to bring together relevant non-governmental organisations (NGOs) and international trade unions to work with companies to identify and promote good practice in labour standards.

Ethical trading does not rely on consumer support and is designed to help companies get to the root of the obstacles in improving labour standards in their supply systems. And these problems still need addressing as much as ever. The International Labour Organisation’s (ILO) latest global report estimates that there are 12.3 million women, men and children worldwide who are subjected to forced labour and contemporary forms of slavery.

In a recent speech, Rt Hon Hilary Benn, Secretary of State for International Development said: “The momentum for ethical trade is building. People in this country and abroad are increasingly demanding that the goods they buy come from reputable sources – sources which exploit neither people nor the environment. We can see this in the rapid growth of UK sales of Fairtrade goods, which increased to £140 million in 2004 alone.”

What is the aim of ethical trading?
The ETI has put together a Base Code of Practice which all members agree to adopt. However, the ETI acknowledges that the implementation of the code is impossible overnight. “Because their supply chains are large and often very complicated, we don’t expect them to be perfect overnight,” says Julia Hawkins, ETI spokesperson.

The ETI Base Code of Practice:

• Employment is freely chosen
• Freedom of association and the right to collective bargaining are respected
• Working conditions are safe and hygienic
• Child labour shall not be used
• Living wages are paid
• Working hours are not excessive
• No discrimination is practised
• Regular employment is provided
• No harsh or inhumane treatment is allowed

What are the obstacles?
When a company adopts the ETI Base Code, audits of their suppliers are conducted. These audits often identify labour issues that appear to have a simple solution. But these solutions can easily create new problems. Unless companies dig down to the roots of the problem, a quick-fix solution will treat the symptom but not the cause. So what are the real issues facing companies who want to introduce ethical trading?

These two situations reveal common myths about ethical trading:

Myth 1: Banning excessive overtime helps workers
Excessive working hours is widespread in developing countries, particularly in China. In China, the legal limit of working hours is 168 per month plus 36 hours overtime. However, it is common for overtime to reach an extra 100 hours per month. Banning excessive overtime is a simple solution but in practice the issue is far more complex. It is hard to reduce overtime in a way that doesn’t decrease workers take-home pay.

Firstly, a company has to establish the facts, many suppliers use double-books so a company may have to dig deep to even uncover the fact that excessive overtime exists.

Secondly, many families rely on the income from overtime and banning it will increase poverty in these workers lives. Many
workers volunteer for overtime but if a company digs deeper they often find that normal hourly rates are low, production targets are high, there is little training leading to more mistakes and reworking. These standard low wages could be the real reason behind the ‘wanting’ to work overtime. Companies have to help suppliers to increase efficiency and encourage them to increase normal wages while reducing overtime hours.

Finally, a company’s purchasing practices could be one of the causes. The Western market is increasingly competitive with consumers waiting until the last minute of sales to splash out. This means that suppliers are increasingly asked to share a burden of the costs. It is also difficult to predict demand for products. This could mean that a company gives a supplier short lead times giving them no other option but to use overtime or casual workers.

The ETI suggests that companies look at the management practices of their suppliers. Could they do the same work in less time if they improved their organisation? Ultimately, a company may need to alter their own practices by giving better product prices and developing long-term relationships with their suppliers.

Myth 2: Normal cultural practices don’t put workers at risk
Many companies accept the cultural norms of the supplier’s country and do not enquire whether they have an impact on workers’ lives. For example, in Kenya many suppliers of cut flowers have entirely female workforces with male supervisors.

The ETI believes that while sensitivity is required, oppressive practices should be challenged. While it may be accepted practice to have a female workforce overseen only by men, it can cause women to be put at risk. For example, low pay makes women more vulnerable to sexual harassment from supervisors. It could be hard to resist sexual advances when promotions and other opportunities depend on them agreeing. If a company demands last-minute changes or short lead times to produce goods, this could lead to overtime and late hours worked. This in turn means women have to travel home late at night and when this happens at short notice, they don’t have time to make safe plans for travel.

In this example, not challenging the lack of women in senior positions can put women at risk. The ETI is encouraging companies to ensure appropriate training is in place for women and managers. It also encourages companies to ensure their suppliers have appropriate complaints structures in place and practical measures such as women having separate toilets.

What is the difference between Fairtrade and ethical trading?
There has been a lot of attention on Fairtrade recently, highlighted by campaigns such as ‘Make Poverty History’ which encourage nations to trade their way out of poverty. But what is the difference between Fairtrade and ethical trading, is
Fairtrade just a sticking plaster masking the real problems? Julia Hawkins, ETI spokesperson doesn’t think so: “Fairtrade and ethical trade are complementary, they can and should exist together. The real difference is that Fairtrade is about giving a fairer deal to small-scale producers who grow commodities like coffee, cocoa and sugar. Ethical trade is about making sure workers throughout the whole of a company’s supply chain have decent working conditions.”

Summary of difference between ethical trade and Fairtrade

ETHICAL TRADE	FAIRTRADE
Aims to improve labour practices for workers in the entire global supply chain	Aims to improve trading relationship between small producers in developing countries and buyers
Assesses labour standards in whole supply chains, mainly focused on the employer – worker relationship	Ensures producers are paid a fair price covering cost of production
Does not require consumer awareness and support	Includes a price premium which relies on consumer awareness and support
Has no label guaranteeing social value	Has a label which guarantees social standards for specific products

Who is involved?
Current companies, trade unions and non-governmental organisations who are members of the ETI are:

Companies:

• Asda
• BBC Worldwide
• Bewley’s
• Chiquita International Brands
• DCC Corporate Clothing
• Debenhams Retail
• Dewhirst Group
• Ethical Tea Partnership
• Flamingo Holdings
• Fyffes Group
• Gap Inc
• Greencell
• Inditex
• Levi Strauss & Co
• Lingarden
• Madison Hosiery
• Marks and Spencer
• Monsoon
• Mothercare
• New Look Retailers
• Next
• Pentland Group
• Premier Foods
• Quantum Clothing
• Ringtons
• Rohan Designs
• Rombouts GB
• Sainsbury’s Supermarkets
• Somerfield Stores
• Tesco
• The Body Shop International
• The Boots Group
• The Co-operative group (CWS)
• Union Coffee Roasters
• WH Smith
• WIBEDCO
• William Lamb Footwear

Trade Unions:

• International Confederation of Free Trade Unions
• International Textile, Garment and Leather Workers’ Federation
• International Union of Foodworkers
• Trades Union Congress

Non-governmental organisations:

• Africa Now
• Anti-Slavery International
• CAFOD
• CARE International UK
• Central American Women’s Network
• Christian Aid
• Fairtrade Foundation
• Home Workers Worldwide
• National Group on Homeworking
• Oxfam
• Quaker Peace and Social Witness
• Save the Children
• Traidcraft Exchange
• Twin Trading
• War on Want
• Women Working Worldwide

What can I do to help?
“I think the best thing consumers can do is to be more enquiring as consumers,” says Julia Hawkins, spokesperson for the ETI. But that doesn’t mean we should boycott the companies we think are the ‘bad boys’.

“Boycotting can actually make workers worse off,” explains Julia. “If a factory loses orders as a result of a consumer boycott, they may end up making people redundant. And in countries where the state doesn’t provide adequate support for the unemployed, one person being laid off from work can mean a whole family is thrown into poverty.”

The ETI recommends that consumers ask companies if they have a code of practice like the ETI Base Code and whether it has a system for checking its suppliers’ compliance with the code. You could also ask the company how it ensures its purchasing practices, such as delivery terms and pricing, aren’t affecting the labour standards it claims to uphold.

Consumers being wise about ethical trading practices will surely only reinforce one message to all companies: they can no longer turn a blind eye to the labour standards in their supply chains.

Find out more
Visit the ETI website at www.ethicaltrade.org or the Make Poverty History campaign at www.makepovertyhistory.org