Article
AEPC's COMMON COMPLIANCE CODE (CCC)
Solution for Multiple Compliance Accreditations
- Dr. H.K. Sehgal
The ever-enlarging list of compliances has made man a exporters and exporting countries sit up and make a note of what is expected to be complied with – as desired by the international retailers – by anyone, who wishes to export any product/s; in our case, textiles and garments.
Some people think that the idea of common compliance code for textile and clothing industry was initiated in 2005 i.e. after export quotas were dismantled; but, to my mind, perhaps No. If it were so, then perhaps all legislations relating to labour should have started from 2005 only, which is not the case. The fact of matter is that it was during British times that the labour laws were enacted and enforced, which were revised from time to time. A slew of labour laws including Factories Act, 1948, Payment of Gratuity Act, Minimum Wages Act, Payment of Wages Act and the State Factories Act were all part of what has now been designed and designated as Compliance Code. It is fashionable to talk in terms of Compliance Code or Common Compliance Code (CCC), which were, in fact, nothing more and beyond what had already been enacted and enforced save environment. It is, however, a different story that we, as a nation... oops as a crowd as someone had rightly called us, have a strong tendency not to comply with the laws and specialize in finding loopholes and then feel proud of our this achievement.
It is, however, true that the issue of compliances did not come up earlier in as big a way, as it did come up later on, when quotas were replaced by what is known as Free Trade which supposedly came into force with effect from past midnight of 31 December, 2004.
However, all our labour related legislation did not include a new requirement i.e. environmental laws and that too was for the simple reason that environment had not caught the fancy of the international retailers, most Western retailers, but that addition, too, I trust, has been made and added in the list of requirements that our industry needs to meet with.
Why Compliance Code ?
As if to confirm what has been stated by me in preceding paragraphs, AEPC says, “With many garment exporting countries in Asia and elsewhere facing problems related to increased requirements for multiple compliance accreditations…… the chief concerns among buyers are environmental laws and regulation, labour reforms, wage differentiation and discrimination, overtime, flexible working hours, health and safety issues and working conditions.”
According to AEPC, the Compliance issues are generally classified under social, environmental and technical categories and that Compliance code is required for increasing national competitiveness in terms of social compliance, reducing burden on manufactures and increasing competitiveness of small scale manufacturers. The whole process starts with analysis of facility, requirement analysis of buyers, analysis of national and international laws and regulations, designing and creation of hierarchical structure of common code, mapping of structure with specific laws and regulations and development stage which includes detailed write-up of the common code, review and approval by independent panel made up of legal and industry experts.
Perhaps, if the Compliance issues, which have been classified by AEPC, under social, environmental and technical categories, had been clearly spelled out, it would have been quite enlightening. Since the Compliance issues have been classified, these must have listed and then classified. Perhaps, only one of the classified categories i.e. environment has been discussed, at much later stage, when the Note says, “The code will ensure compliance with environmental requirements like domestic sewage, chemicals, hazardous substance and waste handling, storage, material safety data sheets, workers awareness, chemical management for pregnant women and young workers. Personal protective equipment and use, ventilation and recycling practices…” The details of issues of other classifications have not been mentioned for the benefit of reader.
Endorsement of and consultation on CCC
Nonetheless, it is heartening to see AEPC's initiative on the latest avatar of Compliance – Common Compliance Code – which “is being endorsed by the International Labour Organisation (ILO) and the Ministry of Textiles.” “Other organisations being consulted are Fair Labor association, Worldwide Responsible Accredited Production (WRAP), Business Social Compliance Initiative (BSCI) and Ethical Trading Initiative (ETI), besides global brands like GAP, Next, H&M and Adidas besides Indian suppliers and accreditation consultants. As the AEPC's note says, “other organizations are being consulted”, it is not clear whether the consultation has been completed or the process of consultation is still on. And if completed, whether all of these organizations concur with AEPC on its new formulation. Be it as it may. We will presume, but not assume, that every organization might concur with the AEPC proposal without suggesting any amendments.
Steering Committee
AEPC has created a Steering Committee, consisting of experts with a long array of functions and responsibilities like preparation of advisories, creating structure for programme and implementation; help design institutional infrastructure that leads towards sustainable solutions, supervision of programme implementation, developing appropriate communication, strategies for advocacy and out-reach of DISHA; Strengthening the social and environmengtal compliance mechanism in the supply chain; creation of institutional infrastructure that drives tangible and measurable social change; to outline programmes, road-maps which include strategies, structure, recruitment, programme, design, assessment, evaluation, reporting and funding; an analyze and give recommendations to the issues relating to social standards brought by the industry and international stake-holders; to facilitate arbitration and conflicts that arise in industry related social compliance programme; to implement the projects sanctioned by the Government and by other bodies in furtherance of best practices.
DISHA
AEPC's Executive Committee has approved the establishment of DISHA (Driving the Industry towards Sustainable Human capital Advancement), an initiative to be driven by the Steering Committee, which will oversee the conceptualization, strategy and programme direction of DISHA and would, in turn, seek the guidance from the Ministry of Textiles. The Executive Committee has also approved DISHA as an institutional mechanism for labour and compliance issues.
More Trade Finance Needed
for Developing Countries
- Pascal Lamy
Director General, WTO
 Director-General Pascal Lamy, in his keynote address to the Global Commodities Finance Conference in Geneva on 9 June 2010, warned that lower-income developing countries, particularly in Sub Saharan Africa, continue to face “strong constraints” in trade finance despite the return of liquidity to the bulk of trade markets. He said that concluding the Doha Round would significantly reduce “current distortions in the global commodities markets, particularly those that impact on developing countries”.
Trade finance is the oil that keeps the wheels of global trade running; hence our active interest and ongoing participation in global initiatives to address the impact of the global financial crisis on the availability and cost of trade finance. The fact is that around 80 per cent of world trade is financed by some form of credit.
It is well known that in the midst of the financial crisis the supply of trade finance had fallen short of demand, both in volume and value, in a context of liquidity shortage and re-assessment of counterparty risk, hence raising fears that this would deepen the collapse of trade and hence the recession. We have received reports that the financing of some important commodity trade deals in developing countries, in particular in Africa, had been difficult to syndicate.
Since the second half of 2009, though, the global trade finance market situation has eased up. According to trade finance experts which last met on 18 May 2010 at the WTO, liquidity has returned to the bulk of trade markets. Despite this overall positive assessment, experience differs widely across regions, with emerging markets leading the recovery. And although liquidity is less of an issue, the problem remains one of aversion to risk, particularly in smaller players in smaller markets
While our experts tell us that there is a large appetite for risk and ample liquidity to finance trade from China, India, Brazil and Korea, at the lower end of the market, there continues to be strong constraints. This is particularly true for Sub Saharan Africa where some financing capacity seems to have been lost. At this stage it is not possible to determine whether this is permanent or temporary. The explanation given by global commercial banks is that the cost of collecting information on counterparty risk is high and that coupled with the low profitability of small operations in the region, trade financing remains unattractive, particularly on the import side.
Given the commodity dependence of these countries, this remains a serious matter for concern: financing commodity exports and not imports would be a short-sighted strategy. Import financing is also allowing for essential inputs to make future exports, be it commodity-based, competitive. Should you wish to be regarded as long-term partners for their development, you might wish to remain involved in the financing of substantially all trade of low-income countries, and keep your lines of credit open, not just for the most profitable commodity deals, where I guess competition for offering financing will tighten when commodity prices start to go back up again.
On the side of public backed institutions, which have done a good job at supporting trade finance during the recent period, particularly in regions that had suffered from the retreat of global commercial financial institutions, we should avoid to wind down the G-20 trade support package too rapidly. Clearly, credit risk support will still be needed for some time to go but official support and emergency financing will not remain forever. It will therefore be up to you to allow for greater exposure to places such as Africa, Central America, Central Asia, and other areas where access to trade finance remains a problem where prices have not returned to affordable levels.
While trade finance for commodities trade is crucial for ensuring that trade flows, the environment within which this takes place is equally critical. This is why for the past nine years, WTO members have been working hard to revamp the rules that regulate multilateral trade and to better level the playing field. As you know, commodities trade suffers from distortions that can be traced back to the colonial times and as such are structured in favour of rich countries at the cost of developing ones. A good example is the fact that there is still an imbalance in the WTO rules between the stringency of the rules for imports, and their laxity for exports. Or that tariffs escalate as products undergo a transformation and value added, an old feature of the colonial rule which would at last disappear if we were to conclude the Doha Round.
Concluding the Doha Round would address not only tariffs, but also subsidies and non-tariff barriers, thus significantly reducing the current distortions in global commodities markets, particularly those that impact on developing countries' trade performance, including in sectors like cotton or fisheries to name a few.
Whether the WTO, in the future, should step further in commodities trade rules than the already mandated negotiations is for WTO members to decide. We will provide them, and you all, with food for thought on this issue at the end of July, when we will be launching in Shanghai our 2010 World Trade Report which we have devoted to trade in natural resources.
Let me conclude in saying that the timely conclusion of the Doha Round, coupled with improved conditions in the trade finance market, will go a long way in ensuring a timely exit from the current crisis. And as we are already seeing, the recovery we are witnessing is to a large extent commodity driven. Everyone of us, therefore, has a stake in making this a sustained recovery.
The global economy is recovering, but risks ahead, Says WTO
 The half-yearly review report on trade and trade-related developments for the period from 1 November 2009 to mid-May 2010 reveals that while the global economy is recovering, but there are risks ahead. It says despite the severity of the global financial crisis and its widespread impact on economies around the world, governments have largely resisted resorted to trade barriers. However, there are still instances of trade restrictive measures taken during the period under review. There also appears to be an increasing trend in the use of export restrictions affecting mainly food products and raw materials.
In a few cases, some governments have taken trade facilitating actions. Given the current economic environment and the risks ahead, governments should remain vigilant to preserve the level of trade openness and act to remove the most trade restrictive measures taken over previous periods.
The major points made in the report are :
Fewer new restrictions, but they are accumulating; priority to exiting restricting measures
The monitoring of trade and trade-related measures implemented during the period under review reveals that some governments continue to have recourse to new trade restrictions. However, it also confirms the overall pattern of a declining trend in terms of instances of new measures and their coverage of trade. Although this declining trend is to be welcomed, careful attention has to be given to the growing risk of a potential accumulation of trade-restricting measures implemented since the outbreak of the global financial crisis. This risk is compounded by a relatively slow pace of removal of previously adopted restrictive measures. Exiting current restricting measures should be a priority.
The factual information collected by the WTO Secretariat on new trade and trade-related measures implemented between 1 November 2009 and mid-May 2010 shows a number of instances of countries taking measures that have the potential to directly or indirectly restrict trade. The most common measures identified during this period were the initiation of new trade remedy investigations.
On the other hand, some governments implemented, during this period, measures to facilitate trade, in particular by reducing or temporarily exempting import tariffs, and by terminating a few trade-restrictive actions started in previous periods. However, based on a simple count, measures that have the potential to restrict trade outnumber those that facilitate trade by a factor of 3:2.
There also appears to be an increasing trend in the use of export restrictions, affecting in particular food products and commodities. The most frequent measures used in this area include increases of export duties (in some cases the introduction of new duties), export prohibitions, and export quotas. The increase in export restrictions seems to be happening worldwide. A few countries also took measures to reduce export restrictions. However, export restricting measures outnumber export facilitating measures by a factor of 5:2.
The global economy is recovering, but risks ahead The global economic recovery has been evolving better than expected in the last six months, but the recovery is still subject to significant downsize risks. In many parts of the world the strength of the rebound is moderate. World GDP is expected to grow by 4.2 per cent in 2010 (compared with a decline of 0.5 per cent in 2009), mainly driven by good performance in emerging developing countries. Merchandise trade is forecast to expand by 9.5 per cent in 2010 after the unprecedented decline of 12.2 per cent a year earlier. In advanced economies, unemployment is projected to stay close to 9 per cent through 2011 and then to decline only slowly. Trade has an important role to play in firmly anchoring the economic recovery, and offers a sustainable, non-debt creating source of growth and development.
Even if the global economy is on a recovery path, the financial crisis and the global economic downturn that followed have had far-reaching effects, especially on developing countries. Economic growth in the world's low income economies has held up much better that during previous recessions.
However, the overall impact of the crisis on poor countries should not be underestimated. The IMF and World Bank reported that the global economic crisis has slowed the pace of poverty reduction in developing countries. The IMF estimates that by the end of 2010, 64 million more people will have fallen into extreme poverty than without the crisis.
More open trade can support the nascent economic recovery. Significant risks for the trading system remain as long as unemployment continues at peak levels and government fiscal positions tighten. Keeping trade open has been and remains crucial in providing opportunities for countries to emerge from the global crisis, in particular at times when public deficits are growing for many. These opportunities can only be seized fully through a prompt and successful conclusion of the Doha Development Agenda. Until the Round is concluded successfully, there also remains a large amount of room in which protectionist pressures can continue to agitate. Implementing a coordinated programme of trade liberalization and facilitation on a global scale, including reducing the gaps between applied and bound levels of trade restriction and distortion will substantially strengthen the capacity of the multilateral trading system to help governments resist these pressures. Based on a WTO Secretariat estimate for 22 countries (developed and developing) and on the draft DDA modalities on the table, the trade-weighted average bound tariff would be cut by half (from 8.5 to 4.1 per cent).
Pending a successful conclusion of the DDA negotiations, it is important that governments recommit to refrain from raising trade barriers as a means of overcoming the effects of the global crisis, and to roll-back those trade restricting measures already put in place during previous periods.
As many stimulus programmes end, governments should remain vigilant
Even if thus far resort to protectionist measures has been relatively muted, governments must remain vigilant. Economic conditions around the world, in particular persistent high levels of unemployment and mounting pressure on government finances, may continue to feed into protectionist pressures. The expected end of the government stimulus measures may add to those pressures. It is noteworthy that in some cases, governments have been confronted with strong calls to resist protectionist actions. These calls seem to have played their part in the restraint that most governments have shown in restricting trade.
Many government stimulus measures are still in place, but newer specific programmes are becoming less frequent than immediately after the start of the crisis. Given the sheer size of these packages, stimulus measures taken to rescue sectors of systemic importance (such as banking) or to preserve jobs (as in the automobile industry) or to stimulate demand (such as consumption tax reductions or "buy national" provisions in government procurement legislation) may be more significant in terms of their potential impact on trade and free competition than traditional trade restrictions. However, any detailed economic analysis of these measures should consider the extraordinary situation in the global economy and the exceptional responses judged necessary by governments, while avoiding counter-productive distortions of trade.
Special analysis shows selected sector's trade performance and sectoral policies
The sectoral analysis in the last section of this report illustrates the situation in three particularly sensitive areas (car industry, iron and steel sector, and textiles and clothing), where the global crisis seems to have been felt much harder and where governments implemented a number of trade and trade-related measures to help these sectors overcome the crisis. The analysis shows that these sectors were confronted with adjustment problems long before the crisis and that important challenges are still in front of them. They are characterized by high employment, overcapacity and were already the focus for trade restrictions. However, trade-restricting measures in the textiles and clothing sector have been limited.
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