Trade Practices Between Protectionsum & Openness. - Muhammad Farooq Khan

Steps taken for compliances in Pakistan
1.There are about 35 export units in the in Pakistan that have very high levels of social compliance, surveyed through different sources.
2. Social compliance is relatively high in Lahore and Karachi, but poor in Multan, Faisalabad and other smaller cities of Pakistan.
3. The government through the Ministries of Commerce and Science & Technology is subsidizing the cost of implementing ISO 9000 series by individual units.
4. Efforts are being made to improve the standard of servicesbeing provided by PCSIR, PSO, and other organizations.
5. EPB is collaborating with Pakistan National Accreditation Council to create awareness, improve quality standards and link them with international standards.
6. TCO being secretariat of Federal Textile Board (a high level forum for addressing core issues of textile industry),first time raised the issue in the agenda of board meetings; thereby formulating committee which gave recommendations. Based on the recommendation various steps has been taken but the process was slow & could not harmonized & pickup the pace with frequently changing free trade requirement in vogue.

The core of the issue
At the time of formation of the EU, a Social Chapter was included in the EU Charter. This gradually became the basis of social compliance benchmarks that are today being imposed on many exporting countries by the buyers. New legislation are continuously being made & incorporated as a code of import trade, by EU and exporting countries has to imply.
It is important to note that according to the WTO, international standards and regulations must be adhered to as much of free trade. The most important regulations concern industrial goods (TBT) and those pertaining to human, animal and plant health (SPS).
Social Compliance on the other hand does not fall in the ambit of the WTO. We need to recognize that it can tantamount to imposition of those standards which reduce the competitive advantage of low overheads and cheap labor of developing countries.

Following may be proposed:
1)The government should arrange to segregate between companies which supply to the higher end of the market through specific buying houses, and those which supply to the low end of the market. The benchmarks for social compliance should be different for these two categories.
2. Since it is agreed that compliance will enhance living and working standards of labor, introduce d o c u m e n t a t i o n r e d u c e environmental hazards, and improve the country’s image abroad, the government may consider offering incentives to all those who voluntarily opt for different levels of social compliance as follows:

• Contributing to the cost of water treatment plants in industrial clusters in Karachi, Lahore and Faisalabad asa first step.
• Developing Pilot Projects with contributions from buying houses to set up models of social compliance.
• Subsidizing compliance cost on the factory floor.
• Networking with the PCSIR, NIGGE, PITAC, PNAC, PSO, TCO and other institutions to develop support programs for the industry towards social compliance at low cost.
• Subsidizing implementation of ISO14000 in collaboration with the Ministry of Environment.
  

The Perception of Compliance & Its Dimensions
Social compliance issue encompasses Technical Briars to Trade (TBT) & Non Tariff briars (NTB). Although the Uruguay round addressed the issue of “Technical Barriers to Trade” by introducing the Agreement on TBT, but still it provides sufficient room to impose quality standards, both product specific and process specific. The subject of NTB currently appears to have no clear-cut demarcation and there exist a lot of grey areas.
Importers provide their code of conduct and the local Textile Industry (Exporters) has to make compliance of their standards. The auditors deputed by the buyers verify the implementation status to qualify trade relationships. Mostly the issues are derived from local and international Labor Laws – Occupational Health and Safety Standards (OHS) and Environment Standards operational efficiencies, However operational efficiencies referred to as buyers responsibility to carry product Liability of Exporter in EU Market, after completion of assurance process (audit) to the entire chain of manufacturing process by chain member (links) from order acceptance to order deliver, hence slowly and steadily compulsion is taking form of business advantage. This is negative aspect in this trade regime & need further legislation in a higher forum like WTO.

Social dimension in international trade
Many of the international issues related to trade were left open in the Uruguay Round; one of the most controversial subjects concerns the relationship between trade and social conditions in producer countries. Some industrialized countries (generally EU) thought to formulate rules/codes to be linked with international trade. In this regard, various protocols has been signed by member countries and legislated as their import policy and hence become essential criteria for exporting countries generally implies on developing(South East Asian) countries.

Developing countries on the other hand, was opposed in general to this and fear that the intentions are to introduce a new form of disguised protectionism. The countries in favor simply say that they are not seeking any form of protectionism but want to c o m b a t u n a c c e p t a b l e situations like child labor and putting prisoners to work.

France, which held the presidency of the European Council until June 30, 1995, has presented a memorandum on this which sets out the following considerations.

a. In a global economy, trade liberalization, economic growth and development have to go hand in hand.
b. The conditions for a debate on the social dimension of international trade seem to be more favorable today.
c. Stances in favor of the social dimension in international trade are multiplying in Europe.
d. The European Union has a duty to act to improve the living and working conditions of workers throughout the world.

Although they generally support a linkage between labor, environment, product safety and trade. However, by a large majority they agreed to promote the following social rights:
i) To end forced labor
ii) To finish with child labor
iii) To introduce the right to organize Unions
iv) To collective bargaining
v) To Qualify Environmental Standards.
vi) To assure product safety/consumer health safety.
vii) To assure Production efficiency.

This process is than become trade compulsion known as assurance process in the supply chain. The document calls for a link between free trade and workers rights to be defended within international organization such as the WTO, the OECD and the ILO (International Labour Organization). Even when the GATT was set up, social standards were ignored and, ever since social clauses in international trade were discussed but they did never materialize. This is, apart from the fact that many countries support the ILO international labour code (banning child and forced labour) and have signed the relevant conventions. The effect till now is virtually included in agreements between importing and exporting countries, no real progress is seen yet.

Social Accountability as stated earlier it is a volunteer measure of an organization’s commitment to its stated principles, its stakeholders and its impact on the society by complying with international code of social & environmental compliance. Textile in Pakistan, being a labor-intensive industry faces the implication of social accountability on a much advanced degree. Therefore, increasingly companies have to integrate social accountability in their supply chain management. The main challenges in social accountability in supply chains are:

• Managing risks across the entire supply chain process.
• Managing supply chain risk in an integrated manner, i.e. ensuring that traditional performance criteria such as quality & design are integrated with environment , social performance & consumer health safety criteria.
• Implement social, ethical and environmental policy (commonly known as codes of conduct) through the development of objectives, programs and mechanisms for monitoring s o c i a l c o m p l i a n c e performance.

Why assurance process in the supply chain ?
Why complaint Supply Chain Assurance coversboth operational efficiency and responsibility for social, environmental, occupational health & safety (OHS) and product safety issues. In this assurance process, operationalefficiency is referring to the entire chain of manufacturing processes by the chain members (‘links’) from order acceptance to order delivery. As such, it enables the buyer to carry product liability for supplier products in the EU market.

In the textile and garments sector in the EU, more and more attention is paid to the production circumstances. Consequently compliance with market access requirements is becoming more and more important for successful export. On the one hand it requires implementing environmental, social and occupational health and safety improvements in the producing countries, on the other hand it requires that the product complies with all requirements set by the importer.

Textile Buyers are expected by their country’s norms of trade, civil society and stakeholders to be responsible towards the society they are operating in and to be accountable for the activities they are undertaking through out Europe and the US, the pressure groups have demanded that production and services sourced out to the developing or under developed countries due to cheap labor should not lead to environment deterioration, exploitation and bad working conditions, which are produced under inhuman or sweatshop like working conditions, using child labor, or forced, or by underpaid workers on one hand and the exporting firms should be committed to assure consumer health safety (product
safety) on the other hand. The issues related with the product safety are:

• Unsafe design.
• Unsafe Material
• Residues hazardous substance. (carcinogenic & other prohibited substance)

In Pakistan, Social compliance is now a vital part of business strategy for supply chain management. Many companies have designed the social compliance programs for their vendor factories. Most important component of compliance is legal compliance to the local labor and environmental laws, implementation of codes of conduct of the organization in the vendor factories in countries like India, China, Vietnam, Cambodia, Pakistan, and Bangladesh.
These codes comprise of Labor standards, Health & Safety (both occupation & consumer) standards, local labor laws and Environment standards. Documented regulatory and policies of Manufacturing, Units are known as the soft infrastructure of the company. Generally buyers tend to inspect and look into Management Policy on compliance. The soft infrastructure or regulatory framework is equally essential for small and medium size companies and for all companies engaged in producing primary products. Even though the Industrial Unit does not have the resources to implement such policies, the presence of such regulations will assure the buyer that the Mill is conscious of its social responsibilities and is in the process of procuring the required standards. For social compliance the buyers under compulsion from the pressure groups in their society asked the supplier company in the developing as well as under developed countries to comply with following law :-

• Local labour law.
• Local Factory act.
• Local Environment Standards
• International instruments (ILO)

Pakistan has ratified majority of the ILO convention and has a due coverage in the local labour laws. There is however a need to evaluate the impact of each and every clause on the industry specially the cost to become complaint and consequently the increase in the cost of production due to the per-force compliance of such regulation on one hand, viz. a viz. the production practices being followed by the industry by engaging contract workers/work piece rate system/regular workers force as the case may be on the other. The industry is willing to pay the due rights to the workers but complains that the local labour laws need to be amended accordingly specially incorporating definition of contractlabour/piece rates workers/regular workers so that the inspection firm which inspects record of the local manufacturing firm on behalf of the buyer could be satisfied and little room left for misunderstanding for exploitation.

Added value of being compliant
“Social, OHS, environment, P r o d u c t s a f e t y ” b e encompasses in the entire supply chain i.e. from manufacturer to retailer. This question Embraces All necessary requirements of buyer to fulfill by exporters. Buyers are expected from their society & international Institution like WTO/ILO to take care of spell out norms/code by using assurance process as a tool, which will make the exporter more responsible towards his society & World Community.

• A simple answer to question is ”trade compulsion” to be compliant to the above objectives.
• The add value is of course the market access & to some extent enhanced unit price.
• Improved company image in the major market & thus restore buyer’s confidence.
• Help increase in market share
• Become more competitive amongst the competitors
• Will open gate for FDI (Foreign Direct Investment) through improved country image.
• Open influx of joint venture Tools to become complaint in the insurance process of buyer requirement
• The exporting companies in their management program/action plan should incorporate details of buyer’srequirement for market access & method/equipments be provided to become complaint.
• Human resource department of exporting companies should launch seminar for different working groups to discuss social, OHS, environmental & product safety issues. The inputs received there of may be included in their action plan. This will ensure the companies fully complaint.
• Company should develop their own brands instead of Lien Trading & fetch brand values market share.
• Improved quality of product through optimum Quality Control Programs, which will improve company image & hence an ease for market access.
• Policies regarding employees, customer care (both product safety & intime delivery), availing market opportunity, environmental safety, responsibilities towards society be clearly defined in their action plan, which should in line with buyers requirement & international norms.
• International Business Supporting bodies like CBI should be contacted & guide line in there web site www.cbi.nl can be followed. The REGISTRATION of CBI is very easy. the use of CBI web site would benefit an exporting company in various aspect i.e. it provide case study, export planner as per EU requirement, success stories, day to day EU legislation, all previous legislation and many more. There fore, every exporter of Pakistan should register him self on this web site by following the links “registration”. This is also true for government officer related trade & industry, any way.
• A series of work shop/seminar regarding awareness of the issue may jointly be organized by government functionaries, Association, Chambers & CBI in different cities. These work shop may be arranged for different management & supervisory group level, this activity will provide an acquainted managerial team of trade complaint for industry and will play an active role in growth of country’s export & hence adynamic export industry will be the out come.
• Enhanced opportunities to organize trade unions and bargain collectively.
• Improving employee recruitment, retention and performance.
• Better supply chain management and performance (Information Network Development)
• Clear and credible assurance for business & ethical decisions.
• Broad coverage of product categories and production geography

Points to ponder

• Awareness of issue & implication are limited that addresses the gut issues in their industries
• Cost of implementation is too high
• It requires too much Documentation work
• Lack of infrastructure
• Complex Tax regime
• Lack of Literacy
• Compliance of standards require proper management system which is difficult to maintain especially for SMEs
• People mixed many issues with one an other regarding compliance, so they get confused.

Following difficulty could be overcomes

• Limited awareness of Standards especially in the private sector.
• Lack of coordination among the concerned agencies
• No internationally recognized accreditation body involvement in testing/ quality control of Products.
• Most of the Auditors do not support for the improvement plan
• Ineffective Standard development and dissemination
• Insufficient training facilities for capacity building at various institutions with no international recognition Training and education on standards for trade union leaders and worker activists.

Impediment in being compliant
The Government of Pakistan has taken various initiatives to set up the regulatory and institutional infrastructure for the protection of environment in the country. These initiative, although a step towards the right direction, but seem to be insufficient to address the problem confronted by the exporting industries. An integrated approach is needed to cater the sector specific needs.
Concrete development programmes are needed to develop to prevent vulnerable sectors such as textile processing, aparel & leather. The industry mostly exists as SMEs and likely to face difficulties in complying with environment regulations. The reasons include lack of awareness, lack of compliance capacity due to limited managerial capability, lack of technical know how and most importantly limited financial resources. The Provincial Government and City Govt. should take initiative to develop Wastewater Treatment Plants on cooperative basis or alternatively can recover the cost over a certain period of time from the industry.

Conclusion & Recommendations

• The subject of Non-Tariff Barriers currently appears to have no clear cut demarcation and there exist a lot of grey areas.
• The agreement on Technical Barriers to Trade (T.B.T.) in WTO clearly says that market access can or should only be restricted through imposition of standards based on scientific findings and rationale.
• Practically the developed countries are at freedom to immediately impose trade restrictions even to investigate a particular case or an export consignment.
• There is need to develop awareness amongst all the stakeholders about the Social – Health - Safety and Environment related issues, the local & international laws and a commitment to comply with required standards.
  The Industrial Relation Ordinance – Factories Act – Condition of Employment Act etc of Pakistan be further reviewed by Ministry of Labour & Manpower in consultation with Ministry of Textile Industry.
• The regulations concerning environment – effluent disposal laws and relevant procedures for industry need to bestandardized. Federal Environment Division should take initiative & standardize regulations in consultation with Provincial Governments and Stake-holders on environment.
• be launched at Federal & Provincial level to develop awareness on Compliance of Social Health– Safety and Environment Standards amongst the Stakeholders.
• Government functionaries (Labour – Environment – Health etc.) should be educated to understand the requirement liberalized and their role should be re-defined to synergies with the national approach of industrialization and export promotion rather than restrictive.
• The processing/value added industry needs to be facilitated by d e ve l o p m e n t o f c o n c r e t e E nv i r o n m e n t C o m p l i a n c e Programmes as the industry mostly exists as SMEs and likely to face difficulties in complying with environment regulations. The reasons include lack of awareness, lack of compliance capacity due to limited managerial capability, lack of technical know how and most importantly limited financial resources.
• The Provincial Government and City Govt. should take initiative to develop Wastewater Treatment Plants on cooperative basis or alternatively can recover the cost over a certain period of time from the industry. The treated water should be used for agriculture andnot thrown in the usual disposal nullahs.
• Provision for complying regulation /laws of WTO& social compliance be given a grace period of further 05 year because country like Pakistan who has a self grown industries(un like other competitors, Indiabangladesh- srilanka who establish their industry & institutions either by foreign consultant or through joint ventures, which surely incorporate facilities in the industrial infrastructure to fully compliant with market access trade requirements) Pakistan textile/garment sector have a little or even no infra str ucture facilities & most importantly the garment/ wet process sector in Pakistan is an SME and cottage based.

These smaller units could not absorb the shocks of Byers requirement of being compliant. This is an additional financial cost factors towards production cost, and will make them in competition in the world market. Gov’t Of Pakistan took various initiative to with stand the rigors of current issues of market access i.e. R&D support to value added sectors ,helping in development of infra structure, easy long term & export financing(reduction in , establishment of special industrial cluster zone viz t e x t i l e c i t i e s, garment cities, launching of on j o b s k i l l d e v e l o p m e n t training program .
This process may take several year to bring t h e s e S M E s u n d e r t h e u m b r e l l a o f wo r l d t r a d e p r a c t i c e s i n vogue .it is there for, the WTO & t h e p r e s s u r e groups in the i m p o r t i n g c o u n t ry may r e v i e w t h e implication of regulation on industry of these developing countries and may adopt.