Can COVID-19 provide an incentive for companies to create better supply chains?

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Nearly 30 years of uninterrupted, double-digit growth and full integration into the global economy has earned China the title of the ‘world’s workshop’. It is an accurate description: China is the world’s second largest economy, has the second largest manufacturing base and is home to the world’s largest consumer market. But the arrival of a novel virus in the Chinese industrial city of Wuhan last December created the biggest peacetime public health emergency in living memory – one which is likely to lead to worst economic downturn since the Great Depression.

As it spread, first to Europe, and then across the globe, the coronavirus brought the world’s supply chains to a grinding halt, resulting in the closure of the millions of businesses dependent on China for everything from raw materials to markets.

No one ever imagined what would happen if the Chinese production engine, on which the world has relied for decades, started sputtering, but COVID-19 stalled it for weeks.

Today, with the world coming out of lockdown, we are on the verge of a global recession, with the OECD estimating a worst-case scenario of world growth halving from 2.9 per cent to 1.5 per cent this year. The International Labour Organization (ILO) meanwhile predicts that more than 436 million enterprises worldwide face high risks of serious disruption, while 25 million people could lose their jobs.

Now is the time to look closer than ever at how to improve the conditions for workers in global supply chains. For decades, companies have relied on China’s solid infrastructure, labour flexibility and low labour costs to introduce cost reduction strategies that has seen the dominant production model pivot to one of lean manufacturing, offshoring and outsourcing.

Workers face destitution

The cost of this blind pursuit of profit has been paid for by the workers, particularly those in the lower levels of these chains. Daily, they undergo serious violations of their rights. Many supply chains end or begin in the informal economy where workers are outside the law and where even child labour is no exception. Subcontracting practices increase exponentially, and the chain becomes longer and more complex, creating a total lack of transparency.

The coronavirus has only underscored these structural failings. Temporary company closures have meant no or reduced salaries for workers, at best, and job losses in the worst-case scenario. While most employees in the majority of European countries can fall back on at least some level social security, in countries with weak or no social protection systems, workers are dismissed without pay, leading many to face hunger and destitution.

The garment sector in countries like Bangladesh, Cambodia, Vietnam, Pakistan and Myanmar has been in a state of crisis since the beginning of March, with cancelled orders from clothing brands leading to temporary closures of factories.

In Cambodia, for example, garment factories employ more than 800,000 people, mainly women, and up to 100,000 had already lost their jobs by the end of April. Although the government and factory owners have been paying those who were made redundant 60 per cent of the minimum wage (about €106) since April, this scheme cannot go on forever, as companies will not continue to pay out without production gains.

In Indonesia, trade unions are working on an unemployment scheme within their social protection system. Such a scheme is intended to absorb this type of risk, as well as the loss of employment that digitalisation and climate change will cause in the future.

Since 2016, the ILO has begun a process of improving working conditions in global supply chains, which should eventually lead to a new ILO instrument for decent work in supply chains. But are employers are resisting enforceable measures: they argue that the responsibility for exploitation does not lie with the companies, but at the feet of the governments that are too weak to implement the enforcement of existing legislation. Additionally, negotiations are taking place within the United Nations, the European Commission and within national governments to draw up a legally-binding global instrument on business and human rights that will hold companies to account for exploitation in their supply chains, and other corporate abuses.

Restructuring supply chains

Other measures do exist: the Bangladesh Accord on Fire and Building Safety, for example, signed in May 2013 following the Rana Plaza disaster which resulted in the deaths of over 1,100 garment workers, was launched by trade unions and fashion brands to protect workers from abuse and ensure factory safety. Meanwhile, the ILO’s Better Work programme has been working to improve working conditions and promote respect of workers’ rights in countries such as Indonesia, Vietnam, Cambodia and Myanmar.

Various trade union initiatives are also making a significant contribution to improving decent work in supply chains by, amongst other things, concluding global framework agreements (GFAs). One of the most notable GFAs was signed between H&M, IndustriALL and the Swedish trade union IF Metall in 2015, protecting the interests of 1.6 million garment workers across H&M’s supply chain. In Indonesia, the protocol on freedom of association in the clothing sector, introduced in 2010, calls on various brands, suppliers and trade unions to respect freedom of association in companies. And there is also a capacity-strengthening programme focused on trade unions working in multinational companies in Asia, facilitated by the Belgian trade union ACV-CSC with KSBSI Indonesia, CLC Cambodia, and unions in Myanmar, Vietnam and the Philippines.

There is a growing awareness about the need to restructure supply chains, even from the multinationals that benefit from the current system.

The combination of rising labour costs, trade tensions, pressure from organisations to make supply chains more sustainable, the ‘degrowth’ discussions, and now the COVID-19 crisis, is slowly encouraging companies to diversify their production base and suppliers. Some companies are working to build shorter chains with fewer suppliers; others are considering to bring production closer to their main markets or headquarters; while others are experimenting with other production models, such as recycling and the reuse of materials.

At the same time, we must be aware that these global chains create jobs in the Global South and that workers there will lose their income in case of extreme changes in these chains. Hopefully governments and international institutions, under pressure from trade unions and civil society, will use this crisis period to commit to a legal framework that will enforce and guarantee respect for workers, communities and the environment in the supply chains of the future. Failure to do so means that we will risk the opportunity to ensure that human rights, trade union rights and environmental protections – implemented through mandatory human rights due diligence – will be central pillars in the world of work after COVID.