Pilot Interim Review

  November 1999

1. Introduction 

This interim report on the progress of the three ETI pilot projects in China, Zimbabwe and the Republic of South Africa [1] is based on interviews conducted during September 1999, documentary material prepared by working group members, and inspection reports. It aims to establish what can be learned from the pilots which can contribute to:

• good practice in monitoring and verification of codes of conduct,
• the development of the ETI's pilot programme,
• the review of ETI to be carried out by DFID.

The terms of reference for the review, agreed by the ETI Board in June 1999, set the following objectives. These will guide the structure and conclusions of this report.

• Identify lessons learnt and clarify whether they are helpful for all or most future monitoring processes, for specific countries or sectors, or the pilot under consideration.
• Propose changes to the design of future pilots to maximise learning a) about the auditable information that enables companies to assess suppliers' compliance with the Base Code and b) the involvement of all key stakeholders in the North and South. 
• Highlight the unique contribution of ETI to developing best practice on monitoring and verification.
• Recommend improvements to ETI's internal work methods to enable future pilots to operate effectively.
• Give a view on how ETI could cope with a rapid growth in pilots.
• Map bilateral pilots between ETI members - and their lessons for the above.[2]

After exploring feedback from the pilots, the report returns to these points in the Conclusions.

 

2. Progress and issues raised

Overall, the interim review found that the ETI has made a huge leap forward with the initiation of the pilots. Having agreed on a Code and consolidated itself as an institution, the ETI is now offering a framework for practical activity on the ground. Participation in the pilots is also furthering the development of ETI as an institution through building mutual trust, co-operation between stakeholders, and the prospect of practical advance in applying the Code. This is yielding lessons for the future and in some cases delivering immediate concrete gains for employees in supplier facilities.

• Much additional insight has been gained into how to initiate, prepare and structure pilots.
   
• Transposing the Code and testing supplier compliance has highlighted areas which require refinement, tighter definition and in some cases expansion: dealing with these will ease the task and raise the effectiveness of future pilots.
   
• Much detailed information on the methodology of inspection and monitoring has been obtained which can be systematised and made available to other participants.
   
• There is evidence which will help assess the pros and cons of particular methods of working, although some inspections had not been concluded at time of writing.
   
• Small but tangible improvements have been reported on the ground on issues of concern to employees. These include: making contracts of employment available to employees, enabling employees to understand the make-up of pay and deductions, and the style and form of communication between employers and workers. Conducting inspections using independent interviewers has also flushed out issues of great concern which can now be addressed - such as sexual harassment and housing conditions. The involvement of ETI is reported by employers as improving internal communications and management. One employer stated that the ETI inspection led them to review their education and training programmes.
   
• The ETI has triggered local discussion on ethical trade and its ramifications for suppliers and employees. In some cases, there is a strong reported desire by employees to participate - but with the proviso that this should not be seen as an external imposition by a Northern ('colonial') institution. In Zimbabwe and South Africa, there is pressure from other employers in pilot sectors to join the process.

Specifically on the pilots:

• the South Africa pilot highlighted the advantages of a multi-stakeholder approach in a political and economic setting in which the potential for partnership is strong, the supply chain transparent, and UK retailers key customers. It showed that an auditable standard can be developed from the Base Code, but highlighted issues of consistency in reporting and of local capacity for monitoring and verification. [see appendix]
   
• the Zimbabwe pilot demonstrated the potential for self-sustaining expansion of a locally-owned multi-stakeholder process, in which the ETI has served as a catalyst - raising questions about the long-term role of a North-based institution. Although the national political framework was seen as less conducive to success, experience with local government and officially-backed joint industrial relations arrangements was positive. Suppliers are economically and culturally highly-integrated into the world economy. The pilot raised a number of issues on the Code and monitoring technique, some of which were addressed by conducting two sets of inspections. [see appendix]
   
• the China pilot showed that ETI corporate members can swiftly press ahead with inspections using their own procedures and/or certification companies, and that the latter can offer benefits in terms of consistency of approach and reporting. However, securing a trade union and NGO element has proved difficult because of the political context. This raised the issue of how ETI should prepare pilots and in particular the need to develop effective routes for political access. Positively, ETI's ability to mobilise support for its approach across a range of stakeholders has enabled progress to be made in identifying and speaking with local partners which individual companies would have probably found impossible. [see appendix]

The pilots have also thrown a number of issues into sharp relief. Some are technical. Some are issues of ETI governance and management. And some are rooted in understandable but hopefully bridgeable differences of approach between ETI members. This report raises them in a positive spirit and in the hope that by addressing them now, delays in pilots can be avoided and the development of ETI accelerated.

The report runs through the issues broadly in the order in which they present themselves in the conduct of a pilot: each section may therefore highlight positive developments as well as pose questions for the future.

 

3. Preparatory phase 

One strong component in the feedback from all participants was that better preparation was needed, and would be needed for future pilots. [3] Specifically:

• Baseline study on the sector, the social and legal framework, collective bargaining, and identification of key employment priorities. This should also include a contextual briefing which would highlight, for example, favourable and unfavourable periods for monitoring and cultural issues. In general a longer lead time needs to be allowed for, so that pilots can run more effectively once underway.
   
• The baseline study also needed to assess how the ETI would be seen by key actors locally - including official organisations. Would the ETI be an opportunity or a threat to local interests, and how might the ETI fit in with local policies, such as public investment in Export Processing Zones?
   
• Gap analysis between Base Code and local laws, agreed provisions or codes.
   
• Stakeholder analysis to identify capacity, partners and relationships - and their capacity and readiness to participate. This would particularly apply to NGOs and trade unions, and cover participation in North and South.
   
• Identification and assessment of individuals who might participate and have direct contact with suppliers (for example, academics or social auditors).
   
• A sign off of the first stage and agreement on the next stages and approaches from ETI to give pilot chairs confidence to proceed.
   
• Relationship building with key stakeholders, using appropriate methods for each group and with materials which send a consistent message about ETI and highlight the gains from participation.
   
• Tap into experience of other pilots by enabling new participants to meet people already engaged in the process. 

Feedback suggested that participants wanted greater, and more systematic, help from UK official institutions. In China, for example, it was ascertained that local official support for ETI could probably have been found. One contribution from the UK Government would be to identify and approach local officials. This would represent a genuine efficiency gain which ETI could offer the corporate sector. [4]

 

4. Base Code

Experience with the Base Code varied enormously. There are also differences within ETI on how to proceed locally with the Code. Some NGO and corporate participants observed that simply confronting suppliers with the Code might have prevented activities even starting: they emphasised setting a local process in train, trust-building, and consolidating relationships. There is also unresolved trade union scepticism about the value of corporate codes, both at ITS level and locally in some instances.

Working with the Code requires or implies a number of stages - some of which were followed through in the pilots.

1. Transposing the Base Code into a nationally-specific standard, and gaining acceptance of the Code locally both in spirit and in detail.
2. Translating this standard into an auditable standard, and then operationalising this into an inspection procedure: this latter step is dealt with under 'Technique' below.
3. Making the Base Code and/or local variant available to all local stakeholders, including suppliers and their employees, in local languages.

In none of the cases was the Base Code or local variant translated into local languages, and many employees - and some managers and supervisors - were not able to scrutinise it directly. 

4.1 Issues raised on the Base Code

The application of the Base Code to a national jurisdiction or a sector raised a number of problems, some of which raise a generic difficulty and still await solution. In addition, there were technical issues associated with deriving an auditable standard. 

The generic difficulty is what should be done in light of local problems which are so intractable as to make it unrealistic for the requirements of the Base Code to be met? [5] Such issues might lie in the political situation (freedom of association), in local social conditions (AIDS orphans fostered onto commercial farms), or in economic questions (where hyperinflation leads to more payment-in-kind in order to avoid the devaluation of money wages, creating problems for ascertaining whether a living wage is being paid). 

Some of these issues may be amenable to technical solutions that enhance the Base Code. For example, there already several methodologies for defining what is a 'living wage', and these could possibly be brought in as Guidance Notes to the Base Code. [6]

In other cases, ETI might need to agree the priorities for any given sector or country following a baseline study and/or gap analysis. Such an agreement would probably need to be at a high level to ensure that any decision is authoritative, legitimate and does not give rise to the impression that the application of the Base Code is driven by ad hoc considerations or expediency. This might also provide an opportunity to bring in other actors, such as DFID, who might be able to contribute to resolving problems.

This exercise might also shape the conduct of monitoring. For example, if a baseline study reveals that child labour is not felt to be a problem in a jurisdiction, but that health and safety is, then auditing resources might be concentrated on the problem issue - above and beyond an irreducible minimum for less problematic areas.

One further difficulty reported back were omissions or deficiencies in the Base Code, leading it to miss areas of concern to employees and, in terms of risk assessment, to retailers. For example: 

1. The Base Code is too thin on women's issues, and that the transposition of the Base Code into a corporate code needed to avoid being 'gender blind'. Although it prohibits sexual harassment and includes a non-discrimination clause, the Base Code does not contain provisions on pregnancy, nursing mothers or childcare. [7]
    
2. The Code needs more detail on company housing - with insufficient guidance on how code requirements should be translated into an auditable standard. In particular the Code makes no comment on a) tenure, b) employee's (and visitors' and relatives') rights of access, and c) limitations on family members living in provided housing to work elsewhere. How 'basic needs' were to be interpreted also remains open. Some points could be dealt with by Guidance Notes on the Code.
    
3. Health and safety was identified as needing more guidance and specification.
    
4. The Base Code did not embrace a range of issues relevant to the specific circumstances of migrant workers.

 

5. Relationship with suppliers 

Commitment by suppliers is a precondition for the success of the ETI. In its most direct form, as evidenced in studies on codes of conduct, supplier compliance may simply be a precondition for further business, embodied in contractual arrangements between the two parties. [8] The ETI Principles also require that persistent serious breaches of the code should lead to a termination of business with a supplier.

In practice, this approach is highly qualified by the fact that relationships between buyers and suppliers are unlikely to function well on an adversarial basis and that retailers are loathe to undermine trust or feel that they overstepping previously accepted boundaries by encroaching into the employment relationship.

In some cases in the pilots, suppliers were sceptical about involvement and resented what they felt was 'policing'. By contrast, there were examples of suppliers that wanted to engage with the ETI. In Zimbabwe this offers the prospect of rapid and large-scale efforts to implement of minimum standards. Sectoral initiatives - which offer economies of scale and defuse issues of competition between suppliers - would seem to be the optimal approach.. 

In general there was a feeling that participation in a programme of social auditing had to be won through persuasion - not simply required. This flows with the direction of longer term relationships in which forward-thinking suppliers recognise that what they are selling is not just a commodity, but also the labour process which produces it. At the same time, there were concerns that insufficient emphasis may have been placed on inspecting against defined standards, and that false expectations could be created if suppliers did not realise that they might need to take corrective action. [9]

Some issues emerged from the pilot: 

• Materials could be prepared for suppliers explaining what the ETI is, what retailers have committed themselves to, and what benefits participation might hold out. [10] These could be translated and a standardised terminology agreed. 
• Official support could help - raising the issue of what level the ETI should work at when it embarks on a national programme. [11]
• If possible, initial contacts on social auditing issues should be by a senior employee with perceived status in the supplier's eyes (with possible cultural biases).
• There should be co-ordination between ETI members and ETI secretariat about when inspections are being conducted. 
• Inspections should not usually take more than one day on site - but is this enough? [12] ETI needs to develop assessments of auditor time requirements on site.

The issue of third parties participating in inspections and the conduct of independent verification raised a number of problems. Some pilot participants felt that suppliers would be sceptical about outside parties entering their premises. In one case, in-house monitoring by the supplier was advocated. (See 'Verification' below).

 

6. 'Local ownership'

From a developmental perspective, there is much to be said for a high degree of local ownership - but this raises the need for clear communication. As well as being clear in stating its objectives to suppliers and other local stakeholders, ETI language may have to tread a careful path between being heavy-handed on the one hand but overly concessionary on the other.

It was also noted that there may be trade-offs between a locally-owned process and a more straightforward retailer audit. This raises the issue of how agendas are attuned between ETI members, and whether experience shows that a less direct approach might in fact yield longer term benefits. 'Local ownership' should also not obscure the fact that local actors may be in an adversarial relationship, and there may be serious questions for the ETI about who is the dominant partner in any local initiative.

There may be special circumstances which favour a sectoral approach with a strong measure of local ownership. For example, an 'enclave economy', such as arguably horticulture in Zimbabwe, may have a considerable interest in building a positive external profile for their industry. The question for ETI in such circumstances will be:

• what is the role of the London end of the operation - how much can be devolved?
• how strong is the local process - to ensure that NGO and TU interests are properly represented, and that the retailers are confident that there is no collusion?
• who pays?

The ETI is also operating in an environment characterised by a proliferation of initiatives: although it does have a unique contribution to make, this has to be communicated on the ground where there may be scepticism about codes of conduct. Local trade unions and NGOs may have other priorities.

Employee expectations, or those of other local stakeholders, need to be carefully handled and possibly specifically addressed in ETI material. High expectations of rapid improvements may be nourished by local trade union or NGOs which have been oversold the ETI proposition. Or they may originate with employers who believe that consolidating relationships with UK retailers will guarantee their business.

ETI should be in a position to say to employees that 'serious breaches' - however defined - will be rectified quickly, and that ETI corporate members will deliver on this.