The world’s leading fashion companies have cancelled their orders or put them on hold in the ongoing pandemic, due to dwindling demand and far-reaching restrictions in global logistics. Millions of workers in garment production, many of whom have temporary contracts and little social protection, have already lost their jobs or are suffering from severe income losses as a result of the cancelled orders.
The current situation draws our attention to the vulnerability of global value chains that stretch across international borders multiple times. Disruptions to the production and delivery of goods happen due to pandemics, but also due to natural disasters, such as floods and typhoons, especially in South and Southeast Asia.
This vulnerability is tolerated because it has allowed brand companies to offshore production and services to locations with lower wages, lower social standards and weaker environmental regulations. These ‘benefits’ outweigh the hazards from value chain disruptions from a business perspective. Contractual arrangements usually include a so-called force majeure clause which allows global buyers to forego their payments and duties in exceptional circumstances.
More frequent natural disasters in manufacturing value chains
However, the force majeure may become a new normal in production locations with weak infrastructure and high dependence on a handful of global buyers. When natural disasters impact these locations more often as a result of the rapidly changing climate, they may lose the global buyers’ orders and along with it, the means to maintain operations and pay workers.
Many of the production facilities in Myanmar’s growing export-oriented garment industry are located in the 29 industrial zones of the largest city, Yangon, where floods and earthquakes pose a tangible threat. While Yangon has grown rapidly, the improvement of existing infrastructure, especially drainage systems, and construction of new roads have not progressed at the same rate. Economic losses could be caused by direct damage to production facilities or road damage, and compromise timely transport of manufactured goods to the ports.
The Global Climate Risk Index 2020 ranks countries like Myanmar based on quantifiable impacts of extreme weather events, such as fatalities and economic losses. Countries with large manufacturing sectors are also among the worst affected countries between 1999 and 2018: Myanmar, the Philippines, Vietnam, Bangladesh, and Thailand. Their societies expect more frequent extreme weather events – the force majeure situation may not be as exceptional to them in the near future.
For workers in the garment and textiles industries, force majeure is more than just a clause. When there is a sudden drop in production, workers do not only lose their jobs, but also any social protection, as little as it may be. Wages in the garment industry are generally extremely low. Workers struggle to support their families as they supplement their insufficient wages with overtime premiums for working longer hours. When orders dwindle, or when demand for garments only increases slowly, overtime premiums may not be paid.
Production workers often live on the factory’s premises, where the management provides housing and other facilities. This support may also cease as neither the factory management nor the workers themselves are able to pay for overhead costs. If natural disasters impact large regions, migrant workers may not even be able to return to their families in remote cities and towns, where they can rely on local support networks.
Business accountability to improve social standards and buyer commitment
We need more solidarity arrangements between global buyers and their subcontractors that specifically address the needs of workers in times of crisis. For the protection of workers, global buyers could create crisis funds during good times, when orders are regular and plentiful. Such funds could help support workers when there is a sudden drop in demand.
In Vietnam, garment businesses have reached out to the Ministry of Finance and the banking sector for low-interest or interest-free loans, which could help to pay workers. It’s debatable whether this is a viable and realisable option. Many countries with low and medium national incomes already have low fiscal revenues in normal times.
What is needed is a pronounced effort by governments and companies to improve business accountability in value chains. Governments in Europe have asked companies with headquarters under their legislation to improve value chain transparency by enacting due diligence laws. Laws like these could also help to improve social standards in value chains. Accountability of global buyers could also nudge them to closer collaboration with first-tier and lower-tier suppliers on social standards. The closer collaboration may also help buyers to hold on to suppliers throughout and beyond times of crises, instead of abandoning them in the short run.
JJN has worked with partners in Myanmar, Vietnam and Thailand on Inclusive Industrialization for ASEAN, in particular on the quality and quantity of jobs in the garments and electronics sectors. The research project also included a critical review of how global transformations, such as the climate crisis, impact employment in value chains.