F. Implementation of Apparel Industry Codes of Conduct

Fundamentally, a code of conduct relies on its credibility; the extent to which it is taken seriously by industry, unions, consumers and government. ⁷⁷

Implementation is a crucial determinant of a code's credibility. This section will describe the various ways that companies attempt to ensure that their stated policy on child labor is adhered to in the facilities that produce their apparel overseas. It will begin with a general discussion of the challenges that companies face in implementing a code of conduct or policy with provisions on labor standards. Next, it will review the various elements of code implementation that are employed by the importers of garments who responded to the survey. These elements include efforts by manufacturers and retailers to streamline their supplier base, efforts to increase transparency of implementation, active inspection and monitoring programs, the use of certification of compliance or contractual language with suppliers and inspection, and research on prospective contractors. The section will conclude with a discussion of the various ways that the respondents have handled or plan to handle violations of their child labor policies.

1. Implementation Challenges

a. Organization of production

The challenges of implementing a child labor policy for a given company in the apparel industry differ greatly and depend on how production is organized. Generally, the closer the relationship between the importer and the company actually producing the items, the greater the ability to influence labor conditions, including prohibitions on child labor, in the production facilities. Conversely, the longer the chain of production, and the more levels of contractors, subcontractors and buying agents used, the more complex and challenging is the implementation. If, however, there is commitment to effective implementation, this can be accomplished under any organization of production.

To illustrate, a manufacturing company that produces most of its imports in wholly-owned facilities abroad has more control over production conditions and can more easily implement its child labor policy than can a firm whose production takes place in the facilities of hundreds or even thousands of contractors and subcontractors. Some of the manufacturers surveyed have different policies for wholly owned plants and contractors. A manufacturer or retailer with an ongoing relationship with a contractor and that accounts for a large percentage if not all of that contractor's orders can more easily ensure its child labor policy is being respected by that contractor than can a manufacturer or retailer that only uses that contractor for an occasional order.

Retailers are often - but not always - more removed from the production process than are manufacturers. However, the large retailers, because of the enormous bargaining power they wield over suppliers, also have the ability to require vendor compliance with any child labor standard they develop. In addition, retailers that directly contract out the manufacture of private-label merchandise overseas can directly influence the labor conditions in the contractors' facilities.

Often, entities all along the garment production chain - retailers, domestic-based manufacturers, buying agents and foreign manufacturers - each have their own policy regarding child labor in overseas production. For example, members of the apparel export industry of Guatemala have developed a code of conduct intended to apply to all exporters in the country.⁷⁸ Apparel manufacturers' associations in Honduras and El Salvador are also developing their own codes of conduct. On the one hand, the development of many different codes - with differing standards on child labor - may be confusing and complicate implementation. On the other hand, the proliferation of codes creates growing opportunities for cooperation among the various actors along the supply chain in developing and implementing standards on child labor and other working condition issues.

b. Streamlining of supplier base

As discussed earlier, U.S. manufacturers and retailers often procure apparel products from hundreds, even thousands, of suppliers all over the world. These suppliers may also subcontract parts of the production to other manufacturers or sewing shops. The sheer numbers of contractors used - as well as the use of subcontractors - present definite challenges to companies with codes of conduct or policies banning the use of child labor in the production of the apparel they sell. Many companies that responded to the survey indicated that they expect subcontractors to comply with their policies, but often did not specify how this was to be achieved.

Some of the companies that responded to the survey have sought to tighten their control over the production process through streamlining their supplier base - limiting or even eliminating the use of subcontractors, reducing the number of contractors they use, and in some cases, establishing long-term relationships with their suppliers. While, at times, these efforts have come about as a result of the development and implementation of codes of conduct, some companies indicated that they are part of their normal business decisions and make the most sense from a quality and efficiency standpoint.

• Two manufacturers (Kellwood and VF Corporation) specifically stated that they do not allow any subcontracting because they want to control production as much as possible.

• Several respondents (Dillard Department Stores, Fruit of the Loom, The Gap, Liz Claiborne, Nordstrom, Phillips-Van Heusen, Salant, Sara Lee, Sears, Spiegel and Talbots) indicated that they do not permit contractors to subcontract any production without their prior approval.
  • Fruit of the Loom stated that, while it avoids contractors who engage in subcontracting, occasionally it must permit subcontracting because a contractor might not have the right type of equipment to perform a particular operation. In those cases where Fruit of the Loom allows subcontracting, it noted that before granting approval, the subcontractor is expected to agree in writing to Fruit of the Loom's code of conduct.
  • Some companies (Sara Lee and Talbots) reported that they prohibit the use of any subcontracting facility that they have not first inspected.
  • Liz Claiborne stated that it discourages subcontracting since it creates special problems with regard to the application of Liz Claiborne's code.
  • Some respondents (Phillips-Van Heusen and Nordstrom) stated that they submit subcontractors to the same audit and inspection procedures as contractors.

• Some respondents (Fruit of the Loom, JCPenney, and Kmart) indicated that it is the responsibility of the contractor or supplier to verify or take the necessary steps to ensure that their subcontractors are in compliance with their policy.

• Nike stated that it does not currently require its subcontractors to agree to its code of conduct, but intends to in the future.Some companies are reducing the number of suppliers they use:

• Kmart Corporation, Liz Claiborne and Salant reported a reduction in the number of vendors they use in order to gain better control over production.
• Levi Strauss reported that, in an effort to be more efficient and to rationalize their sourcing, they have gone from about 700 contractors before introducing their code of conduct to a current level of 450 contractors. As Levi Strauss explains, "The Company is rationalizing its supplier base, with development of business partnerships based on terms of engagement, service, financial stability, community support and long-term mutual profitability, not simply low cost, as the key objective."⁷⁹

Certain respondents stated that they encourage the development of long-term, strategic alliances with vendors:

• Kmart Corporation ('Kmart') indicated that it encourages strategic vendor alliances with established companies that produce high-quality goods and comply with all laws.

• Oxford Industries ('Oxford') said that it generally tries to establish longer-term relationships with its contractors because such relationships usually result in higher quality, more reliable delivery dates and better value for its customers. Oxford stated, however, that it is not unusual for a contractor to be used only for one program or season because of its inability to meet expectations for quality, delivery or price.

• VF Corporation noted that it usually uses buyer agents and plants that have already established a reputation with VF Corporation.

c. Impact of textile import restrictions

Some companies raised the issue of apparel import quotas, which limit the amount of merchandise that can be shipped into the United States, and the effects these quotas have on their choice of contractors.

• Levi Strauss stated that quotas limit its ability to freely choose foreign contractors with whom to do business, as individual foreign producers "own" and control certain allocations of quota. According to Levi Strauss, this system results in a limited choice of apparel contractors with which it can do business. Because of this limited choice, Levi Strauss stressed the importance of establishing partnerships with contractors and their communities.

• Nike said that it sources apparel products from numerous factories in several countries in order to avail itself of open quota. Nike indicated that because it must produce where quota is available, production is often limited to a short period of time at any one facility.

2. Transparency

An important issue regarding the implementation of corporate codes is their transparency, or the extent to which foreign contractors and subcontractors, workers, the public, nongovernmental organizations and governments are aware of their existence and meaning. Contractors, subcontractors, workers, and other interested parties who are familiar with codes can enhance their implementation and effectiveness. Transparency reinforces the message of codes and leads to more credible implementation. When transparency is lacking, interested parties cannot benefit fully from a code of conduct.

There are several concrete ways by which U.S. companies add transparency to the implementation of their codes of conduct:

• Some U.S. corporations hold training sessions with foreign suppliers (contractors or subcontractors) to make them aware of their code of conduct and implementation expectations. Some companies require foreign suppliers to sign a statement indicating that they have received the code of conduct and understand its meaning and implementation expectations, including possible penalties for lack of implementation.

• Some companies also train their own employees or buying agents on their code of conduct to ensure that individuals at all stages of the purchasing process are aware of its provisions.

• A small number of U.S. corporations require that the contents of their code of conduct be posted in production facilities at a location that is accessible to workers (e.g., a lunch room or entrance to locker room). In some cases, the U.S. company translates the code into the local language.
• A small number of companies solicit input from outside groups in developing and implementing their code.

a. Education/Communication

Most of the respondents with child labor policies indicated that they have distributed copies of their policies to all suppliers, but few stated that they had communicated their existence to a wider audience or engaged in efforts to train those who are responsible for implementation. Many respondents stated that they did not know whether workers were aware of the existence of their codes. The following is an overview of the respondents who indicated that they had actively engaged in communicating their policies to contractors, plant managers, employees, and workers:

• Fruit of the Loom, The Gap, Spiegel, and Warnaco indicated that they go over their codes of conduct with facility managers to ensure these individuals understand them.

• Liz Claiborne stated that its Chairman periodically meets with key suppliers to emphasize the company's expectations with respect to workers' rights.

• Kellwood reported that it periodically brings foreign contractors to the U.S. to receive training, including on Kellwood's code.

• Levi Strauss also conducts educational seminars for groups of contractors.

A few respondents indicated that they have special programs to inform their own managers and/or other employees about their code or policy.

• Federated Department Stores, Levi Strauss, Nike and Oxford all stated that they train their employees on compliance requirements.
  • Federated Department Stores ('Federated') has its corporate counsel, corporate quality control and overseas offices' managerial staff conduct training.
  • Oxford, which places responsibility on its own employees to ensure compliance with its policy, reported that its managers receive training in compliance with applicable labor laws, and that its corporate human resources department and attorneys answer questions and interpret the laws.
  • Levi Strauss said that it continuously educates its employees - including merchandisers, contract managers, general managers in the sourcing countries, and other personnel at every level of the organization - on its code.
  A few respondents have special training for buyers or internal auditing staff:

• Wal-Mart buyers are required to attend special internal educational seminars on how to work more closely with manufacturers to ensure their compliance.

• Levi Strauss conducts annual global training programs for its Terms of Engagement audit managers. In June 1996, for example, Levi Strauss conducted a five-day training program in the Dominican Republic for Terms of Engagement auditors and sourcing managers from around the world.

• Liz Claiborne reported that it has intensified training for sourcing/manufacturing personnel in spotting labor abuses

• Phillips-Van Heusen is providing training to employees who are on its auditing teams. The company also indicated that it issues regular communications and newsletters to its off-shore offices, quality and sourcing personnel on developments and issues concerning workers' rights, including child labor.

Only a very few respondents indicated that they have tried to ensure that production workers in overseas facilities know about their code or policy by specifically requiring that copies of such a statement be posted. Only three companies stated that they unconditionally require contractors to post their code:

• The Gap requires that its code, which has been translated into 39 languages, be posted in each contractor facility.

• Liz Claiborne, which has translated its Standards of Engagement into more than ten different languages, requires all contractors to post the Standards in the local language in common areas, such as cafeterias or locker rooms, of every facility where Liz Claiborne products are made.

• Phillips-Van Heusen stated that it insists that every facility post its "PVH Shared Commitment" poster, which contains guidelines and standards on worker's rights. The poster is printed in English and Spanish, and is sent to Asia with instructions for it to be translated into local languages.
  
  Nike and Sara Lee stated that their codes are posted at some facilities:

• Nike indicated that its code is posted in all its footwear contractors' factories in two or three languages, but this is not necessarily the case for its apparel contractors. Nike stated that its footwear contractors produce exclusively for Nike, while its apparel contractors often produce for many other companies. Nike often uses any one apparel contractor for only a short period of time.

• Sara Lee indicated that it posts notices of employees' rights at its wholly owned facilities in English and the host language.

Some companies include information on the posting of who to contact in the case of problems or questions regarding implementation of the code:

• Liz Claiborne's Standards direct individuals who have a problem or complaint to get in touch with Liz Claiborne country managers.

• The Gap indicated that at the bottom of its poster, it provides the phone number of a buying agent or sourcing-compliance personnel.

• Sara Lee's posters in its wholly owned facilities include information on whom to see with complaints.

Finally, a few companies have made an effort to communicate information on their codes of conduct and monitoring programs to the general public, including their shareholders:

• Levi Strauss and The Gap have sections on their codes of conduct in their annual reports to shareholders.

b. Transparency of Implementation Process

Many consumer and other non-governmental organizations have stressed the need for transparency in the process of implementing codes of conduct. Some groups have called on companies to make public the findings of their factory investigations, which are discussed in the monitoring section below.⁸⁰

Some companies have actively solicited input from international organizations, NGOs, government agencies and academics in developing and implementing their codes of conduct:

• Levi Strauss stated that it solicited a wide range of ideas from such groups in developing its Terms of Engagement and Country Guidelines and continues to do so in their implementation. Levi Strauss' questionnaire response said: "By working with various parties, we have improved our ability to verify facts, craft new solutions, and strengthen implementation of our standards." The company also stated that when evaluating a prospective business partner for potential adherence to its code, it relies on advice from outside organizations and community leaders, as well as interviews with workers both on-site and away from the contractor's facilities.

• Liz Claiborne and The Gap have worked with U.S.-based and local NGOs to develop ways to increase transparency in the implementation of their codes, mainly through NGO monitoring, which is discussed below. Liz Claiborne also indicated that it has consulted with NGOs during its investigation of alleged violations of its code.

• Sears indicated that in Bangladesh, at the suggestion of an NGO, it has sent a letter to a local garment workers' union directing them to notify Sears if any problems arise regarding its policy.

3. Monitoring

Monitoring is critical to the success of a code of conduct: it gives the code credibility in the eyes of consumers and other interested parties. Yet, most of the policies we have examined do not contain detailed provisions for monitoring and implementation, and many companies do not have a formal monitoring system in place.

a. Monitoring of Codes of Conduct in the Apparel Industry

The companies surveyed indicated that they utilize a variety of means to monitor that their codes of conduct or policies on child labor are respected by their suppliers. Figure II-4 illustrates the structure of monitoring relationships in the apparel industry.

Few companies have a formal system for monitoring compliance with their codes of conduct. Monitoring is usually part of a larger process that includes issues such as quality control and delivery coordination. For this reason, it is not always clear to what extent site visits focus on the code implementation. A few companies check employment records and other documents relating to the workforce during their site visits, but very few companies indicated that they interview workers as part of monitoring.

Some companies monitor their codes more actively than do others. Active monitoring may consist of site visits and inspections by company staff, buyer agents or other parties, to verify that suppliers are actually implementing the importing company's policy on child labor. Companies also may use contractual monitoring, whereby they rely on the guarantees made by suppliers, usually through contractual agreements or certification, that they are respecting a company's policy and not using any child labor in production. This may be seen as "self-certification" by contractors or suppliers. Most of the companies that responded to the survey utilize a combination of active and contractual monitoring. Some companies, however, rely exclusively on contractual provisions without any significant active monitoring.

i. Models of Active Monitoring

There are four active monitoring models that are being used by U.S. corporations with respect to their codes of conduct: (i) internal audits by company personnel (who may or may not be trained in monitoring compliance with labor standards), (ii) external monitoring conducted by buying agents or suppliers, (iii) outside audits conducted by independent firms hired by the company, and (iv) NGO monitoring, conducted by human rights, consumer and/or labor groups. These models may be used in various combinations. (Table II-4 shows the type(s) of monitoring used by the companies that indicated they have a system of active monitoring.)

Internal Monitoring: A number of companies have developed internal monitoring systems to implement their codes of conduct. These systems use local or regional company personnel or employees from U.S. corporate offices to monitor labor practices. Internal monitoring may be used by companies that are reluctant to grant access to their facilities, procedures and business practices to outside monitors.⁸¹ It is most common among large companies that are vertically integrated, i.e., those in which the corporation owns or directly controls all steps of the production process.⁸² Internal monitoring is less common for companies, particularly retailers, that do not own or control the factories that make the products they sell. Some retailers internally monitor only those plants producing private-label merchandise which they import directly. U.S. retailers and manufacturers who use hundreds or thousands of foreign contractors may find it a logistical or financial hardship to monitor all of the facilities from which they source.

External Monitoring: Some U.S. companies rely on their buying agents to monitor compliance with their corporate code. This procedure avoids the financial and logistical burden of performing monitoring functions, but also removes the U.S. corporation from the direct line of control in implementing its policy.

Outside Audits: The central reason for monitoring the implementation of a corporate code of conduct is generating credibility. Corporations that conduct internal monitoring or depend on monitoring by buying agents or contractors are sometimes seen as having a vested interest in not finding anything wrong in their production systems.

^*No response received

^**Designated as business confidential therefore information reportable.

^aInternal Monitoring: Companies use existing personnel or bring in employees who work for the company in other locations to monitor labor practices, on a regular basis.

^bExternal Monitoring: Companies rely on buying agents to monitor labor practices.

^cOutside Audits: Companies use independent accounting, auditing, testing or consulting firms to monitor - among other things - labor practices.

^dNGO Monitoring: Companies use local or international non-governmental organizations to monitor labor practices.

^e Not specified: Companies either do not have a policy or did not specify how the implementation of their policy is monitored.

¹Company does internal monitoring in situations where it contracts directly with a manufacturer for production of private-label goods.

²Company reported that it is developing an independent monitoring capability to be executed in concert with local NGOs and other organizations.

The outside monitoring of another company's corporate code of conduct is a relatively new endeavor. Accounting and auditing firms have a long tradition of making field visits and reviewing financial records of client corporations. Based on this expertise, some U.S. accounting and auditing firms have expanded their functions to include monitoring of compliance with corporate codes of conduct. Representatives of these companies say that their expertise in examining payroll records, for instance, gives them a comparative advantage in checking for compliance with child labor and other provisions of codes of conduct. Other types of companies offering their services include firms engaged in compliance with safety and health regulations, investigative consulting firms, and specialized companies that have been created for this very purpose. However, since all such auditing and consulting firms are normally hired - and paid for - by the U.S. importer or the vendor being monitored, their total independence is subject to challenge.

NGO Monitoring: Critics of internal, external and outside auditing point to the fact that company representatives, buyer agents or outside auditors may not be in the best position to ascertain that a contractor has violated a company's code. Aside from the charge that these auditors may have a vested interest in not finding violations, some have noted that corporate representatives and auditing firms may not speak the local language, and workers or plant managers may not feel entirely comfortable discussing their work situation with them. To ease these problems, some companies are developing monitoring systems where they use local and international NGOs, or religious or human rights groups to conduct or assist in monitoring. Some companies may adopt such monitoring in response to negative publicity or with the hope of preventing crises from arising. This is a very new practice, however, and has only been tested in a few cases. Furthermore, there are certain issues - including financial ones - that need to be resolved for this approach to be sustainable.

ii. Active Monitoring

Active monitoring may be done through regular site checks, formal audits or evaluations, or special visits by corporate staff. The frequency and intensity of visits vary greatly from company to company. In addition, some companies may use different systems of monitoring for different types of facilities. For example, they may focus their site visits on their larger or more publicized suppliers, or may only monitor those facilities from which they directly import or which manufacture their private-label merchandise.

Several respondents indicated that they are currently stepping up their monitoring of overseas and domestic production facilities. Some, such as Jones Apparel Group ('Jones') and Kellwood, indicated that they are in the process of expanding their extensive domestic monitoring systems to cover international activities.

Respondents had very different views on which type of monitoring is more desirable:

• Some companies feel very strongly that they can do the best job of monitoring themselves, and have the greatest incentive to do so. They also believe that monitoring internally is the most efficient way, since problems are reported directly to management and can be dealt with more quickly.

• Other companies expressed the view that independent, outside monitors may be able to get a more accurate picture of labor conditions or may be more credible than internal monitoring.

Internal monitoring, which employs companies' own staff to monitor for compliance, is the most widely utilized form of active monitoring among respondents.⁸³ Internal monitoring is most commonly done by quality control, merchandising or internal auditing staff; country, regional or contract managers; or senior management. Monitoring of labor policies is usually combined with monitoring for quality and other standards. While the personnel conducting the visits are usually specifically trained to monitor for quality control, it is not always clear that they are trained to monitor compliance with labor policies.

Some respondents, particularly manufacturers, indicated that they have a strong in-country or regional presence in many of the countries where they manufacture, making it easier to conduct frequent inspections of contractors' production facilities:

• Fruit of the Loom, for example, said that contract managers and field personnel visit foreign facilities on at least a weekly basis to check on a number of production issues. These personnel are also trained to look for code of conduct violations and have forms to red-flag problems for senior management, from which further scrutiny and a warning may follow. In-country personnel also make suggestions and recommendations to contractors on how to improve their operations.

• Nike stated that it has extensive personnel located in the countries where it produces, and that each contractor has specific Nike "in-house" personnel assigned to it. They visit apparel contractors every two to three days and report back to headquarters with their findings.

• The Gap reported that, once it places an order with a contractor, its in-country staff is constantly monitoring for quality and compliance with its code, sometimes three to four times a week. These visits are both announced and unannounced. The Gap also indicated that its senior field representatives also conduct formal compliance evaluations every 18 months.

• Levi Strauss noted that it has a global infrastructure of people in the communities where it does business. It stressed that its employees have the authority - and the responsibility - to take any steps necessary to ensure compliance, and it has found that in many cases its employees can work with partners and address issues before they become a problem.

• Sara Lee reported that most of its contractors are located in the same areas as the plants it owns and are constantly being monitored by Sara Lee personnel. Sara Lee noted that since its contracts are typically large enough to use entire plants (rather than partial runs), its personnel have freedom of access to contracting facilities and often make unannounced visits.

• Liz Claiborne staff does scheduled and unscheduled spot inspections of facilities, and requires all country managers and Liz Claiborne representatives to complete an annual, 11-page human rights questionnaire for every supplier.

• Tultex Corporation ('Tultex') reported that it charges regional managers with the responsibility of following up with vendors, and that these managers make frequent visits to their factories.

• VF Corporation has its quality control people check on the manufacturing process weekly.

  Some companies send U.S.-based corporate staff or special auditing staff to monitor production facilities for compliance with their policies. Again, in most cases it appears that monitoring is part of a larger process that includes elements such as quality control.

• Levi Strauss has a team of 50 full-time auditors who are based in the regions where they work. These auditors and other in-country employees visit contractors on a regular basis to review quality, production processes and Terms of Engagement issues. Levi Strauss said that all contractors and subcontractors are audited at least once a year, unless problems are found, in which case they are done more frequently - sometimes three and four times a year. Audits often include interviews with employees, both at the factory and away from the factory.

• Jones, for example, reported that its U.S.-based quality control staff, which visit overseas facilities, have been instructed to make sure Jones' policies are implemented. Jones also indicated that in 1997 its domestic in-house auditing staff will be sent to visit all of Jones' larger suppliers. Jones anticipated that while the visits are to be unannounced, Jones' buying agents will probably be advised of the auditing teams' presence in their country.

• JCPenney Company ('JCPenney') reported that it has instructed its associates and buyers to watch for and report any legal violations or questionable conduct to management for follow-up and, when necessary, corrective action.
• Fruit of the Loom reported that senior management and/or corporate counsel conduct on-site contractor audits to confirm compliance with the company's code and other agreements. These audits include a review of employment and labor practices, including an on-site confirmation that workers are of legal working age.

• Kmart stated that it is increasing its regular and surprise on-site inspections of manufacturing facilities. Last year, Kmart conducted 45,000 visits worldwide through its Quality Assurance Department. Kmart investigators have a checklist of what to look for during inspections.

• Land's End's quality assurance team and agents visit existing vendors to monitor standards and assure quality of products.

• The Limited reported that its quality assurance and internal audit teams make regular and unannounced on-site inspections of facilities.

• Liz Claiborne is requiring non-sourcing senior managers and employees who visit factories to evaluate working conditions and fill out a "report card."

• In addition to auditing by quality control personnel, Phillips-Van Heusen recently organized an Employment Practices/Workers' Rights Task Force, made up of employees who are not directly involved with production sourcing. These employees, on a part-time basis, periodically visit contractors worldwide, inspect facilities, and compare their findings to evaluations done by sourcing personnel. According to PVH, the task force does not attempt to reach all factories, but tries to reach representative vendors in all regions. The task force does not reveal which vendors will be visited. Inspections include a review of facility documents, and contractors are asked to provide proof of age.

• Warnaco indicated that its personnel occasionally make unannounced visits of foreign contractors to monitor for compliance with its Business Partner Terms of Engagement.

Some retailers indicated that they concentrate internal monitoring efforts on those facilities that produce private-label merchandise or brands sold exclusively at their stores:

• Federated stated that it routinely inspects all facilities that produce private-label products for Federated for compliance with laws on child labor, as well as safety and health standards.

• Nordstrom reported that it conducts random inspections of contractor facilities in cases where it contracts directly with a manufacturer for the production of private-label merchandise. These visits, both announced and unannounced, monitor for compliance with all applicable laws and confirm that no child or forced labor is used.

• Wal-Mart indicated it is increasing its inspections of domestic and overseas factories, focusing on those factories that produce lines sold exclusively at Wal-Mart, such as the Kathie Lee line.

Implementation of child labor policies may differ, depending on whether goods are produced at wholly owned facilities or contractor facilities, or purchased through buying agents:

• Oxford stated that it is quite confident of its own facilities' adherence to all laws, and made a distinction between implementation in wholly owned facilities versus contractor facilities. Oxford Industries utilizes its internal audit staff to periodically check compliance with applicable laws and Oxford policy in all of its wholly-owned facilities. For contractors, Oxford reports that it is the responsibility of the Oxford contract manager or employee who hires the contractor to take reasonable steps to ascertain that the contractor is in compliance and to document those steps. Oxford also indicated that quality-control staff and higher-level managers visit contractor facilities during production runs a couple of times a year. Oxford stated that while quality control staff is in plants more frequently, it does not have the same clout as managers to exact immediate change.

• Sara Lee stated that through its direct control and management of its wholly-owned facilities, it is able to ensure that its Operating Principles are being implemented and followed at those facilities. When Sara Lee purchases apparel from a domestic supplier that has secured the products from a subcontractor, it expects the supplier to meet the requirements of those principles.

External monitoring, or monitoring of suppliers' production facilities by buying agents, is used by at least nineteen respondents.⁸⁴ While some of these respondents rely on buying agents for most of their imports, others only use buying agents in certain cases.

• Dillard Department Stores ('Dillard') charges its buying agents with the responsibility of periodically monitoring production, to ensure that quality goals and Dillard's policies are realized, including that on child labor. These inspections are done three to four times a year, and agents are required to return a form indicating their findings.

• Dress Barn requires its buying agents to monitor production facilities during the manufacturing process for goods specifically ordered by Dress Barn. The agents are required to examine a range of labor and employment practices, and use an extensive audit form during the visit. This audit form includes questions specifically addressing child labor.

• Mercantile Stores Company ('Mercantile') reported that its buying agent is responsible for implementation of its child labor policy and is instructed to be vigilant regarding child labor. Mercantile believes that its vendors are aware of its child labor policy because they are required to sign it.

• Stage Stores, which currently uses AMC's code (but is developing its own code), did not specify its monitoring system. However, AMC - a buyer's cooperative which orders imported merchandise on behalf of its retail shareholders - indicated that AMC vendors are "aware" of its code, which contains provisions prohibiting child labor. Vendors go through an annual certification process, which includes a variety of quality assurance issues and meeting AMC's code. AMC said that it has employees in most countries from which it orders apparel.⁸⁵ In a few countries where AMC orders are small it relies on "commissionaires," who act as buyer agents.

• Venture Stores ('Venture') purchases essentially all imported apparel through a buying agent. The agent is aware of Venture's policy not to purchase merchandise from foreign vendors who use child labor and is required to comply with this policy. While Venture requires its buying agent to certify that child labor was not used in the manufacture of any merchandise, it does not indicate how it ensures compliance, other than through visits by Venture personnel when feasible.

• VF Corporation and Sara Lee, when using buying agents, have them inspect production facilities. VF Corporation's buying agents go to plants two to three times during the course of production - for an initial audit, a final audit, and often one in-between.

Kellwood, Nike, Price/Costco, Inc. and Wal-Mart all indicated that they currently use or have in the past hired outside auditing, accounting or consulting firms to monitor compliance with their codes of conduct:

• Nike stated that every Nike contractor is subject to unannounced spot checks by the consulting firm Ernst & Young. Nike reported that Ernst & Young has been doing audits for several years, and indicated that while all of its footwear facilities have been audited by Ernst & Young, not all apparel contractors, particularly those where Nike has very little production, have been audited. Ernst & Young reviews the contractors' books and interviews employees, according to Nike. On child labor, the auditors look at birth certificates or other evidence, if available. Nike says the auditors conduct interviews with employees away from their managers. When violations are found, Nike asks the factory manager to set up a timetable for remedying the problem.

• Kellwood said that it recently began using Ernst & Young and Contractor Services Compliance Corporation to conduct outside monitoring overseas.⁸⁶ Kellwood indicated that the initial visits are scheduled, but once the system is in place the outside monitors will also do unannounced visits on a regular basis. The monitors do a random sampling of interviews with workers, according to Kellwood. Kellwood stated that it deals with the finest retailers, and wants them to feel confident that they are getting a product of value, made in accordance with national laws and moral and ethical standards. It believes outside monitoring is part of the "cost of doing business."

• Price/Costco, Inc. ('Price/Costco') reported that as part of its quality-assurance program, which has been in place since 1995, it uses an outside auditor to inspect vendors' facilities. These outside audits are only done where Price/Costco buys through a U.S. wholesaler - not where Price/Costco is the importer of record, in which case it does its own monitoring. The outside auditors look at labor conditions and labor force make-up, in addition to a variety of quality-assurance issues. Price/Costco indicated that the outside audits are paid for by the vendors.

• Wal-Mart hires a third-party agency to conduct routine visits of overseas factories with which Wal-Mart contracts directly.

The Gap and Liz Claiborne are currently experimenting with NGO monitoring at some of the contractor facilities from which they import:

• The Gap, in cooperation with a number of NGOs, has worked to develop an NGO monitoring mechanism at Mandarin International, an independent contractor in El Salvador.
  • The developments that led up to this third-party monitoring pilot began with alleged violations at Mandarin, including the use of child labor, forced overtime, unsafe working conditions, intimidation of workers to prevent union organizing and firing of union leaders.⁸⁷
  • When The Gap's own investigation of the allegations regarding Mandarin did not come up with any evidence to corroborate the complaints, NGOs and human rights groups called for the use of "independent" monitors. After considering cancelling its contracts with Mandarin and pulling out of El Salvador, The Gap instead signed an agreement in which it consented to explore the viability of an independent monitoring program in El Salvador and agreed to re-approve the Mandarin plant as a Gap contractor once it felt confident that the plant could effectively implement its code.⁸⁸
  • In January 1996, The Gap and some NGOs formed an Independent Monitoring Working Group (IMWG). Members of the IMWG traveled to El Salvador to visit the Mandarin plant, met with various parties, and solicited input from more than 75 U.S. and international human rights, labor, religious, academic and business groups to develop a working model for independent monitoring.
  • The IMWG developed the following definition of independent monitoring: "An effective process of direct observation and information-gathering by credible and respected institutions and individuals to ensure compliance with corporate codes of conduct and applicable laws to prevent violations, process grievances, and promote humane, harmonious, and productive workplace conditions."⁸⁹
  • In March 1996, Mandarin managers, workers, and current and former union leaders signed a resolution that included, among other elements, the formation of an independent monitoring team in El Salvador - the Independent Monitoring Group of El Salvador (IMGES). With these developments, The Gap re-approved Mandarin for the production of its goods. The team of monitors, made up of volunteers of local human rights organizations, is based near the plant, has regular access to it, and can receive and investigate complaints from workers without fear of reprisal.⁹⁰

• Liz Claiborne is currently developing its own NGO monitoring pilot program with the expectation that such a monitoring capacity will improve reporting on compliance with its Standards of Engagement.
  • Liz Claiborne reported that monitors will listen to the concerns of workers and management, review compliance with local laws, compare factory practices with its standards, and create mechanisms for workers to report grievances in privacy, including telephone numbers to call or locked drop-off boxes for written complaints.
  • According to Liz Claiborne's survey response, "key elements for the program will be independence and an understanding of local issues." Liz Claiborne also noted that it expects to adapt and improve the program based on data and input from the pilot effort, the monitors, and involved NGOs and governments.

iii. Contractual Monitoring

Many respondents require their suppliers, buying agents or contractors to abide by their policy on child labor through contractual agreements or some form of certification process. These contractual obligations are an expression by manufacturers and retailers of their expectation that the contractors' or suppliers' business relationship with them is based on full compliance with their policy or code. The incorporation of child labor policies into contractual obligations in many cases shifts at least part of the burden of responsibility for ensuring compliance onto the contractor, supplier or buying agent. In addition, such contractual obligations provide a legal avenue for terminating agreements on the basis of violations.

Some companies, particularly retailers, may have general language in their purchase order or vendor contracts requiring vendors to comply with applicable laws but have no mechanisms for monitoring compliance. In certain cases, respondents indicated that they have no knowledge of how or where imported goods they purchase are produced.

• A number of respondents indicated that compliance with their corporate code of conduct or policy is part of their purchase orders or other contracts.

• Other respondents (Dollar General, Venture and Woolworth Corporation) also indicated that their letters of credit contain provisions on child labor.
  • Woolworth Corporation ('Woolworth') reported that its manufacturers must complete a Certificate of Product Manufacture and Inspection - certifying that a said factory was truly used to produce the garments and that no child labor was used in their production - before letters of credit can be drawn down.

• Price/Costco's Import Vendor Agreement states that the vendor must secure a written and signed confirmation from the owner of the "prime factory" that the factory and all subcontractor facilities used are in compliance with its child labor policy.

Several companies require written acknowledgment by their contractors, suppliers or buying agents that they have read and understood their policies on child labor. This is usually done through requiring contractors to review and sign a code of conduct or a special certification form.

• Federated indicated that it requires its "core vendors" to acknowledge annually in writing their understanding of Federated's policies requiring full compliance with applicable laws, including those relating to child labor. It reported that relationships are immediately terminated with manufacturers and suppliers who fail to do so.

• The Limited also requires every supplier to periodically certify their compliance and that of their subcontractors with its's policy, which includes provisions on child labor.

• Mercantile indicated that it decided to put its child labor policy in a stand-alone certification form that suppliers must sign because it did not want that policy to be lost within a larger contract.

• Oxford reported that it is implementing a computerized tracking system to ensure that each contractor has read and understood Oxford's sourcing policy and acknowledged that it will be terminated in the case of violations of that policy, which includes provisions on child labor.

• Talbots, as part of a new program (effective September 1996), requires all of its international suppliers to furnish a signed, notarized statement confirming adherence to its policies on child labor and other standards. Talbots stated that it will require suppliers to re-certify their adherence annually and will not place new orders with any companies that fail to complete the certification.

  Some respondents require certification on shipping documents:

• JCPenney, requires that foreign and U.S. suppliers of imported merchandise obtain a manufacturer's certificate for each shipment certifying that the merchandise was manufactured at a specific factory (identified by name, country and location) and that no illegal child labor was employed in its manufacture.

• Talbots requires all international manufacturers to include a statement on their shipping documents accompanying imported merchandise confirming their adherence to the company's policy.

Some respondents require contractors to take on certain responsibilities or actions themselves to ensure that the policy is not violated:

• Fruit of the Loom indicated that in signing its code of conduct, contractors agree to require all their employees who are responsible for implementing the code to review and familiarize themselves with it.

• JCPenney's purchase contracts require suppliers to impose the same standards on their contractors as the company places on them (including certification that no forced, indentured or illegal child labor was employed in the manufacture of the merchandise).

• Kmart's purchase order requires suppliers to contractually agree that they have "ascertained and financially warranted" that no child labor was utilized in the manufacture of merchandise, and obligates them to be responsible for and inspect their subcontractors. Vendors also must sign Kmart's Certificate of Compliance (introduced in June 1996), certifying that they will increase their factory inspections and take vigilant action to prevent problems. Vendors' signature of this Certificate also binds them to make a payment, equivalent of 50 percent of Kmart's order, to a local human rights or children's organization in case of failure to comply.

• Talbots requires its vendors to certify in their shipping documents that they have a program in effect for monitoring their contractors.

Some respondents who utilize buying agents contractually obligate these agents to implement their policies on child labor:

• Dollar General requires buying agents to warrant that merchandised purchased for the company is not manufactured in violation of any human rights resolutions.

• Spiegel requires its buying agents to implement its code.

Some companies require documentary proof of compliance or reserve the right to carry out on-site inspections:

• Phillips-Van Heusen's contracts require facilities to have on-site such documents as proof of age or wages paid.

• Fruit of the Loom requires contractors to provide proof of compliance, including proof that all employees meet the minimum age.

• For some companies (e.g., Fruit of the Loom and Jones), endorsement of a code or policy is also an authorization to allow the contracting company free access to contractors' facilities and any information requested in order to monitor for compliance.⁹¹

• Vendors who sign Russell Corporation's ('Russell') Vendor Policy give Russell the right to conduct on-site inspections.

Some companies, although they have specific language prohibiting child labor or general contract language requiring adherence to applicable laws, do not appear to have any mechanism for compliance. The contractual language, in these cases, is the only visible means by which these companies implement their policies with regard to imported apparel.

• Ames' purchase order requires vendors to comply with all applicable labor laws and states that failure to comply would result in cancellation. Ames' buyers are instructed to stay alert to any indication that goods are being made under unacceptable conditions, and states that if any such problems exist, it would take action. However, Ames said that it uses agents for the purchase of its imports and it generally has no knowledge or control over where the goods are manufactured.

• BJ's Wholesale Club, a division of Waban, indicated that any imported apparel it sells is purchased domestically, and it has no control over which countries or facilities that apparel comes from. Furthermore, it stated that it has no knowledge of the workforce in those facilities.

• In its purchase order, Burlington Coat Factory requires that vendors comply with all applicable laws, but no further compliance action is taken.

• Family Dollar indicated that its purchase orders have always required vendors to comply with all applicable labor laws. However, Family Dollar gave no indication of any compliance process.

• Home Shopping Network includes specific language prohibiting the use of child labor in its purchase order terms and conditions as well as a vendor-practices agreement. However, it gave no indication of how it implements those provisions.

• Ross Stores' purchase order requires its vendors to comply with all applicable laws and regulations. The company stated that it would not knowingly purchase goods that are made by children or exploited workers, but does not visit any manufacturing sites or have any other system for monitoring compliance. However, Ross Stores indicated that it is reviewing its purchasing process regarding foreign suppliers.

b. Evaluation of Prospective Contractors

While technically not a monitoring activity, evaluation of prospective contractors with regard to labor standards is becoming an important aspect of code implementation. At least seventeen of the companies that responded to the survey stated that they have a process in place to evaluate overseas facilities before they establish a business relationship with them.⁹² Such on-site evaluations or inspections have long been made primarily to verify whether the facilities have the physical capacity to meet quality and quantity specifications. Increasingly, the working conditions and employment practices of prospective contractors are also being evaluated, screening out companies that are violators or have the potential for being so in the future.

• Several of the companies that conduct such evaluations indicated that compliance with their policies on working conditions is an important factor in the decision to place a production program with a contractor. These evaluations, according to many, enable them to screen out contractors who do not comply with applicable legal standards or who do not meet a company's own standards.

• A few respondents indicated that such pre-contract inspections had enabled them to avoid doing business with a facility that appeared to employ under-age children, but most reported that when facilities are rejected, it is usually for other reasons.

The evaluations typically involve an inspection of the physical plant and include other elements such as reviewing company records (including employment records), evaluating the workforce, and explaining company policies and expectations.

• Some companies use a standard checklist or questionnaire that includes specific questions or criteria related to working conditions and employment practices, including questions on the age of workers.

• Other companies, such as Land's End, indicated that they have an intricate process to qualify vendors, but did not disclose what the process entails.

• Levi Strauss' initial evaluation of potential business partners is done by a team of employees representing different divisions of the company and includes one of its 50 specially trained auditors.⁹³ Levi Strauss indicated that the evaluations take at least two full days to complete, and auditors use a 20-page form to evaluate the policies, practices, and conditions of the contractors. They also review payroll, personnel and other records and check health and safety conditions. To get a "full picture of a potential contractor's adherence to the Terms of Engagement standards," the team also relies on unannounced visits, advice from outside organizations and community leaders, and interviews with workers both on-site and away from the facility.

• Fruit of the Loom reviews potential contractors' management experience and financial condition to ascertain whether they can deliver quality products in compliance with Fruit of the Loom's standards and all applicable laws.

• Salant reported that it looks for workers who appear underage or malnourished during evaluations, and utilizes a checklist that includes a question on whether contractors keep age records of all employees.

Two of the retailers who conduct pre-contract inspections of potential contractors use an external organization to do them:

• When Wal-Mart contracts directly with an overseas manufacturer to produce goods, it hires an outside agency to inspect factory conditions before work begins. Wal-Mart indicated that this process has identified more than 105 factories that failed to comply with Wal-Mart's standards - and therefore are not eligible for contracts with Wal-Mart.

• Price/Costco has an outside audit done of every new foreign facility in cases where it uses a U.S. wholesaler who sells imported goods. These audits include a site visit and evaluation of quality and volume capabilities, as well as working conditions and labor force composition. Price/Costco indicated that the vendor pays for the audits.

Some companies, such as VF Corporation, re-inspect facilities that they have not used for few a seasons to ensure that they still comply with its standards.

• Federated maintains a database that includes all approved suppliers as well as a "red-flagged list" of vendors that have been rejected.

4. Enforcement

Enforcement of corporate codes of conduct refers to how U.S. companies respond to violations of their codes. Enforcement is essential to the success of a corporate code. As a report on codes of conduct has stated, "without adequate enforcement, codes can be mere public-relations ploys, misleading consumers that workers' rights are actually respected in production."⁹⁴

Information from those respondents who outlined their policies on enforcement indicates that there are various levels of response to violations of child labor policies. Most companies stated that they would first investigate all allegations to confirm the use of child labor.⁹⁵ Most also indicated that they use graduated responses to confirmed violations, which include: a) monetary fines or penalties; b) probationary status; c) demand of corrective action; d) support of educational projects (particularly where child labor violations are involved); e) cancellation of an individual contract; and f) severance of the relationship. Positive reinforcement includes: a) retention of current contracts; and b) awarding of additional contracts.

While termination of a contractual relationship may send the strongest signal regarding intolerance of child labor, a zero-tolerance policy has immediate effects for the factory management and for the workers who would lose their jobs when factory orders are canceled.

Resolution of the problem of child labor means different things for different companies. In most cases, it simply means dismissal of the child workers. For others, resolution occurs when the supplier puts satisfactory monitoring systems in place. To a very few companies, such as Levi Strauss, resolving the problem might mean contributing resources, if necessary, to achieve sustained change. Some companies indicated that they believe their ability to modify contractors' behavior depends greatly on the amount of leverage they can exercise on those contractors. Companies have far less leverage with contractors where they only have small production runs.

The vast majority of companies that responded to the survey reported that they have never found any violations of the child labor provisions of their code or policy. Some companies attributed this to their efforts to evaluate and carefully select suppliers before entering into contracts with them. Others indicated that child labor violations of their codes are less common than other types of violations, such as health and safety.

Of the companies that responded to the survey, only four - The Gap, Levi Strauss, Phillips-Van Heusen, and Sears - have confirmed instances of child labor in overseas production facilities that were producing garments for their account.⁹⁶ In all of these instances, the plant employing underage workers was an independent contractor.

• The Gap reported that, when it has discovered child labor in a facility producing its merchandise, it took immediate action to either correct the problem or terminate the business relationship with the facility.

• Levi Strauss reported that when it first began implementing its Terms of Engagement, about five percent of its contractors were terminated due to a variety of conditions, including the use of child labor. However, during initial Terms of Engagement evaluations in Bangladesh, it found several underage girls working in two contractor facilities. Levi Strauss stated that, rather than having the underage workers discharged, it persuaded the contractors to stop employing underage children, but to continue paying the girls even though they no longer worked. Levi Strauss paid for the former underage workers' tuition, books and uniforms to attend school, and the contractors agreed to employ the girls once they had finished school.

• Phillips-Van Heusen reported that it has found child labor in several off-shore facilities.⁹⁷ The company said that in such instances, it has discussed the problem with the contractor and allowed 30 to 90 days to discharge the underage workers. In three instances, the contractors complied. In the one instance that the contractor did not comply, Phillips-Van Heusen discontinued its relationship with the contractor. In one case, where it had a large concentration of production with multiple contractors and sewing shops in one area, Phillips-Van Heusen observed children in manufacturing areas who were not in school. The company determined that educational opportunities were lacking, and made a commitment to a multi-year project to improve the educational system. Phillips-Van Heusen has built classrooms, provided for a well, electricity and additional teachers, and purchased desks and supplies.

• Sears reported that in late 1994, the BBC brought to its attention that it had found children working in a manufacturing facility in India that produced garments for Sears. Sears subsequently contacted the U.S. importer that was procuring the garments, and that importer denied that child labor was being used. Sears demanded that child labor not be used, and asked that documentation of age be required. The importer provided Sears with such documentation, which contained a Government of India certification stamp. When Sears received a videotape of a BBC broadcast, which clearly showed children working at the facility, Sears demanded that its garments no longer be made there. Sears later terminated the importer when it was found to still be using the facility (although Sears pointed out that no goods from the facility were supplied to Sears).

Other companies have received allegations of violations of their policies on child labor:

• JCPenney stated that it had received allegations of underage workers by its associates but determined after its own investigation that there had been no violation.

• Liz Claiborne reported that after recently uncovering an alleged breach in a Middle Eastern country, it is investigating the allegation in cooperation with a U.S.-based human-rights organization.

Only a few companies - Kmart, Montgomery Ward, Salant and Venture - reported that they would respond to violations of their child labor policy with immediate terminations of the business relationship. Many others, including Fruit of the Loom, The Limited, Nordstrom, Oxford and Ross Stores, indicated that violations could be punished with terminations, but not unconditionally or before other approaches were tried. Most companies outlined an incremental response to violators.

Following are some examples of stated enforcement policies:

• Federated stated that if it is notified by a governmental authority or determines on its own a serious violation of its policy, it will immediately suspend all shipments from the subject factory and discontinue further business until that factory institutes the monitoring programs necessary to ensure compliance. If notified of a violation by another party, Federated will immediately suspend further shipments, pending the supplier's explanation and commitment to take satisfactory remedial action. Federated stated that it may also take legal action.

• JCPenney reported that if, after full investigation, it determines that misconduct has occurred, it would take appropriate corrective actions, which could include canceling the affected order, prohibiting the supplier's future use of the factory where the violation took place, or terminating JCPenney's relationship with the supplier. If informed by a government of violation of labor laws, it will immediately suspend shipments from the factory, with any resumed shipments conditioned on verification that the supplier has put the monitoring programs in place to ensure compliance.

• Jones indicated that it will generally first try to get remediation of the problem before withdrawing. But it will take appropriate actions as warranted, ranging from canceling the affected purchase contract or terminating its relationship with the supplier.

• Kmart stated that if a supplier is found to be in violation, it will cancel the order, with the supplier bearing the burden of any loss and responsible for other damages. Furthermore, Kmart stated that it will sever its relationship with the vendor, who will be assessed a payment, worth 50 percent of the contract, to be donated to a human rights or children's organization in the community where a violation occurred.⁹⁸

• Liz Claiborne stated that it will first investigate reported violations to find out the scope and nature of the problem, and the status of the workers involved. It requests contractors to address the situation in a humane manner, while ensuring that the facility be brought up to standards.

• Nike indicated that when a problem on an issue other than child labor has been found, Nike has asked the factory manager to set up a timetable for remedying the problem.

• VF Corporation reported that it would first do its own investigation of allegations. If a violation were confirmed, it would try to first work with contractors to correct deficiencies. If that does not work, VF Corporation stated that it would terminate the relationship.