F. Enforcement

As discussed in Chapter II, enforcement of corporate codes of conduct depends on the system used by U.S. corporations to ensure compliance. Corporations responding to the survey indicated that they used a graduated system to respond to violations, including: a) monetary fines or penalties; b) probationary status; c) demand for corrective action; d) providing education (particularly where child labor violations are involved); e) cancellation of an individual contract; and f) severance of the relationship. Positive reinforcement included: a) retention of current contracts; and b) awarding of additional contracts.

Information regarding enforcement of codes of conduct is reported in this section, arranged around the following issues:

• What corrective measures do U.S. corporations use to address violations of their codes of conducts by foreign suppliers?
• What specific mechanisms are used by U.S. corporations to reward suppliers which comply with codes of conduct?

1.Corrective Measures

As has been discussed above, Department of Labor officials learned that many U.S. corporations engage in extensive screening of foreign garment contractors prior to entering into a supply relationship. The purpose of the screening process is primarily to set aside companies that did not have the ways and means to carry out quality production. The contractor's ability to comply with labor standards provisions in codes of conduct - and child labor provisions in particular - is increasingly part of the screening process.

• For example, in El Salvador, Lindotex representatives stated that before starting production for a new foreign purchaser, representatives of the purchaser come to El Salvador and inspect local companies to see if they qualify. These inspectors look at whether companies comply with national laws with regard to pay, overtime, child labor, bathrooms per worker, occupational hazards, etc. Workers must show a birth certificate or other official document showing age to be hired.
• In India, Associated Indian Exports, an apparel-buying office located in New Delhi with regional offices in Bangalore and Bombay, operates as a middleman or facilitator between foreign purchasers and Indian producers and currently represents Sears, Wheat Seal, and Casual Corner. Most of its U.S. customers require that the Indian producers sign a declaration containing a statement that no child labor was used in the production of the item. (If a contractor uses a subcontractor, it must also certify for the subcontractor.)
  • For example, Sears has a 20-page survey questionnaire that the Indian supplier must sign; other U.S. importers have a 2 to 5-page agreement. For each potential supplier to Sears, Associated Indian Exports administers the 20-page questionnaire/evaluation form, including the taking of photographs of the production area. Sears' central office must be satisfied with the results of the supplier survey before it enters into a contract.
  • If a potential Sears supplier is rejected, the supplier is told why and what needs to be done to correct any deficiencies. There is no regular inspection or monitoring of the requirements of a supplier once it is certified, but each supplier must undergo re-certification every 3 years.

Companies that have passed the screening process and have become contractors of U.S. corporations may face a range of corrective measures should they fall short in complying with the code of conduct. For example:

• In Guatemala, although garment contractors and subcontractors were unable to articulate the U.S. companies' policies to address violations of their codes of conduct, they expressed great concern about the possibility of losing their contracts if they were found to have child labor problems.
  • At Lindotex, an inspector from The Gap recently recommended that the company provide more fire extinguishers.
  • A representative of Phillips-Van Heusen stated that in May 1996, his company had identified three young workers (under 15 years of age) in a plant operated by a subcontractor in San Pedro de Sacatepequez. Upon learning of their presence, Phillips-Van Heusen required the company to dismiss the three young workers immediately.
• In the Dominican Republic, many companies stated that U.S. clients had requested changes in the physical conditions of the factories during their visits to the companies. These changes often included requirements for eating facilities, bathrooms, and more lighting or ventilation. In most cases, changes with regard to working conditions, were related to safety and health issues. Most of the companies that had contracts with Levi Strauss in the Santiago Zona Franca said that Levi Strauss requested all companies to reinforce, move, or rebuild wooden mezzanines - where sewing machines were stationed - as a fire safety precaution.
  • Undergarment Fashions mentioned that JCPenney, in addition to performing periodic visits to the plant, also had a rating system to evaluate the contractor's performance. Under this rating system, a company must receive at least 50 points in order to maintain its current contract. If the company does not obtain a satisfactory rating, it is put on probation and given a reasonable period of time to make the requested changes.
  • High Quality Products, located in Zona Franca Los Alcarrizos, a contractor for the Jones Apparel Group, said that Jones Apparel terminated a contract with Bonahan Apparel (Zona Franca Bonao) because of Bonahan's refusal to recognize the establishment of a union in its plant.
• In Honduras, Rothschilds made a number of recommendations regarding clean toilets, lighting, ventilation, drinking water, and hours of work for 14- and 15-year-old workers at Global Fashions.

2.Positive Reinforcement

Respondents to the voluntary survey of U.S. retailers and garment manufacturers made extensive reference to the streamlining of the supplier base that is taking place in the industry. In part because of the priority to improve quality, but also because of a concern about violations of labor standards - and child labor provisions more specifically - U.S. garment importers have cut back sharply on subcontracting and also reduced the number of their foreign suppliers. From the point of view of foreign garment producers, the streamlining of suppliers carried out by the U.S. garment industry has resulted in clear winners and losers.

• On the one hand, suppliers to the U.S. market that can meet quality and timeliness of product considerations and comply with codes of conduct have been rewarded with continuation of orders and with additional orders diverted to them from producers that rely on subcontracting schemes.
• On the other hand, marginal suppliers - in terms of quality and timeliness of output, physical plant, or ability to comply with labor standards - have been shunned, losing their contracts with U.S. importers and having to resort to sales to other less-profitable markets, including their own domestic market.

Continued access to the U.S. market is a very large incentive for overseas garment producers to meet quality/timeliness requirements and comply with codes of conduct. Thus, the prospect of the continued ability to ship to the U.S. market reinforces compliance with appropriate standards. Foreign countries also have a great deal at stake, as unused quota allocations translate into the loss of export revenue to the nations in the short term and loss of quota in the longer term.