March 2001 Insights Issue #36

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Richer or poorer? Achievements and challenges of ethical trade

Ethical trade as an approach to supply chain management has mushroomed in recent years. Northern companies are becoming increasingly concerned with the 'ethics' of their operations and the risks to reputation and productivity posed by bad employment practices in global supply chains. But can voluntary private sector codes really improve employment conditions in supply chains?

In this issue of Insights, we bring together not only current research but some stakeholder perspectives on the opportunities and challenges facing ethical trade. Ethical trade is one dimension of corporate social responsibility, bringing social issues into the mainstream of commercial supply chain management through the use of codes of conduct. It is sometimes confused with fair-trade which addresses terms of trading for smaller producers, and fosters greater responsibility in supply chain relations.

Ethical trade, on the other hand, focuses on workplace issues, requiring that suppliers in particular meet minimum employment, worker welfare and aspects of human rights standards.

Similar management systems are well established for product safety and environmental issues. Here, we focus on the social dimensions of ethical trade and its codes of conduct yet the separation of social and environmental standards is increasingly artificial in global sourcing agreements.

A plethora of codes are on offer. The most numerous are in-house codes such as Nike's or Gap's. 233 company codes were counted in 1999 and the figure is rising. Suppliers have to comply with and pay for a multitude of similar but different codes. Harmonising codes or establishing equivalence is on the agenda but has not yet halted the problem of 'code overload'.

At a broader level, industry-specific codes have also been developed. The US Apparel Industry Partnership/Fair Labour Agreement adopted by a number of leading US merchandising companies is a good example. Industry standards are not new, as ISO and EMAS environmental management systems show. Building on ISO principles, Social Accountability International (formerly CEPAA) has developed SA8000. This is an independent social standard that can be used as an auditable code throughout the private sector, as Kohl Kaufman explains. SA8000 was developed in collaboration with business and civil society stakeholders, while AIP/FLA also involved the US government.

Ethical trade is partly a response to consumer and campaigning group pressure in a globalised economy. Alliances of companies, NGOs, trade unions and other civil society actors are a feature of some approaches to ethical trade. Developing codes of conduct through a multi-stakeholder approach is a striking aspect of ethical trade, bringing together companies, NGOs, trade unions and some government departments. An example of this collaborative approach is the Ethical Trading Initiative (ETI) in the UK. The ETI's baseline code of conduct that corporate members from various industries must comply with as a minimum standard is more than just a code, as Rees' article shows. ETI aims to provide a learning environment and sponsors pilot projects in developing countries to test different methods of monitoring and verification.

Codes of conduct need to be assessed in terms of content, implementation and impact. A number of professional auditing companies have moved into this area, some accredited to audit specific codes such as FLA or SA8000. Suppliers audited against a specific code undergo an inspection, and where non-compliance is found, have to take remedial action or risk failing the audit.

Social auditing is a complex process, however, and it can be difficult to spot work place abuse, such as sexual harassment or forced overtime. Workers have little confidence in a process that appears to be linked with management, and fear that reporting issues could risk their jobs. Advocates of the multi-stakeholder approach argue that effective monitoring and verification of codes must involve local NGOs and trade unions in which workers have trust. Participatory social auditing, also a means of raising awareness and of facilitating behavioural change, can help reveal serious management problems, as Auret's article shows. But in many developing countries local organisations lack the capacity to participate: developing sustainable local systems of monitoring and verification remains an important challenge.

Do the advantages of multi-stakeholder approaches outweigh immediate constraints? Ethical trade is a largely northern driven process, reflecting Western ethical thinking and priorities. Southern-based initiatives, however, are expanding, raising the possibility of local ownership of codes. Collaboration poses challenges, as articles in this issue show. Kleinbooi reveals some of the problems experienced by the South African ETI pilot project's collaboration with local stakeholders. Stronger relationships and better understanding are essential between southern and northern workers, producers, trade unions, and NGOs for codes to work globally.

The COLEACP harmonised framework, explains Blowfield, challenges the view that multi-stakeholder initiatives are more demanding than industry ones. But how can both northern and southern priorities be met by ethical trade? Can the competing interests of NGOs, trade unions and business, as discussed by Jenkins and Pearson, be overcome? A thread linking many articles is how to establish north-south partnerships and between business and civil society. But there is still scepticism as to the extent of the benefits that ethical trade might bring. Will increasing southern capacity to participate, as the ETI has done in its pilot projects, help? Will building trust, confidence and dialogue achieve the objectives of ethical trade, north and south?

Implementing codes has made clear the limitations of their scope. As Barrientos et al and Tate show, women and homeworkers are often poorly served by codes, as are ethnic minorities, smallholders and children. Child labour is often more complex, however, than codes make it appear. Codes need to address the conditions of all workers within the supply chain, including the least visible: partnerships must include all groups to address these limitations.

The role of government is hotly contested. Can a system whose credibility depends on under-resourced civil society actors, often excluding democratically-elected representatives, maintain genuine credibility in the long run? If the boundaries between private sector and public sector roles are not defined, the list of private sector responsibilities will become unmanageable. Private sector initiatives are not a substitute for more comprehensive national or international development policies.

What are the consequences of codes? Do they encourage downsizing or reinforce the trend to source from large suppliers where compliance is more easily monitored? There is a risk that the gains of some will be at the expense of others.

Ethical trade has successfully begun forging partnerships to find solutions. While it might be wrong to assume that ethical trade can change the world, handled wisely it could make a world of difference for some. Yet it is not a panacea for development. Issues that remain unchallenged by ethical trade include:

• The exclusion of companies producing for domestic markets - often bigger employers.

• Underlying causes of poverty and social marginalisation.

Stephanie Barrientos
Institute of Development Studies
University of Sussex
Falmer BN1 9RE
UK
T +44 (0)1273 606261
stephanieb@ids.ac.uk

Mick Blowfield
Natural resources Institute
University of Greenwich
Central Avenue
Chatham Maritime
Kent ME4 4TB
UK
T: +44 (0) 1634 880088
F: +44 (0) 1634 880066/77
m.e.blowfield@gre.ac.uk