Bangladesh\\\'s garment industry at the crossroads

The garment industry in Bangladesh has come a long way from just 50 factories in the 1980s employing only a few thousand people to about 5,400 factories currently employing nearly 4.0 million people, mostly women. The ready-made garments (RMG) industry has been the main driver of Bangladeshi exports in the past two decades. The share of garments in total exports increased from 53 per cent in fiscal year (FY 95 to 79.6 per cent in FY13. Twenty-one of the top 25 export products of Bangladesh, including the top five export items, are clothing articles.
Supportive public policies that gave special dispensation to the sector, such as back-to-back Letters of Credit (LCS) and special bonded warehouse facilities enhanced the natural advantage that Bangladesh has in labour-intensive products. Garment exports reached a historic high of US$21.5 billion in FY13, constituting 16.7 per cent of gross domestic product (GDP).
 A succession of deadly fire and building collapse incidents in the last year has exposed the dreadful state of physical and social compliance and put the industry at a historic crossroads. It could rise to become a US$36-US$42 billion industry by 2020 if it can ensure that the horrors of Tazreen Fashions and Rana Plaza are never repeated, or all by continuing to neglect workers' rights and safety, thereby compelling buyers to reduce their reliance on, or even abandon Bangladesh altogether in order to protect their reputations.
Bangladesh's RMG export potential is far from being exhausted. According to the McKinsey report 2011, Bangladesh has the potential to replace China as the biggest apparel sourcing hotspot. Bangladesh exports mostly basic garments, with concentration on T-shirts, trousers, shorts, shirts, jackets, jerseys, pullovers, and cardigans.
Bangladesh's garment hegemony in global markets hinges on price and capacity. Low wages and lax regulations underlie Bangladesh's competitive advantage. There is a vast network of garment factories that can churn out clothing quickly and cheaply. Taking full advantage of cheap labour and special incentives provided by the government, Bangladesh has expanded its capacity enough to become the next China.
A wake up call? This sunny picture of the RMG industry has changed since November 2012 with five deadly incidents, of which the deadliest was the Rana Plaza building collapse in Savar which killed more than 1,100 workers in April, 2013. The accidents have exposed the fragility of the hurriedly built capacity to deliver orders in time without bothering to comply with rules, regulations and worker safety standards.
The incidents drew global attention to worker safety and rights violations putting pressure on big global clothing brands and the Bangladesh government to respond by using their economic weight to bring change. After reviewing the salient features of the garment industry, this special focus section provides an assessment of the post-Rana Plaza developments in the RMG industry, including an analysis of the factors underlying the compliance failures and the action plans being contemplated to address the failures.
Currently, both woven and knitwear have almost even shares in total RMIG exports. The share of woven garments in total RMG exports declined from 74.3 per cent to 51.3 per cent from FY 00 to FY13 while the share of knitwear increased to 48.7 per cent from 24.7 per cent in the same period. This was due to the higher average growth of knitwear at 18.8 per cent compared to a 10.3 per cent growth of woven garment during FY00-FY13 (Figure 1).
The sharp increase in the exports of knitwear resulted from changes in the Rules of Origin (ROO) in the European Union (EU) market from "3-stage-processing" to "2-stage-processing" in the late 1990s. This required a double transformation from yarn to fabric and from fabric to garment, meaning that fabric had to be sourced locally.
Bangladesh developed an integrated value chain in knitwear; producing 80 per cent of knitwear exporters' fabric needs while for woven 35 per cent of the fabric used is locally produced. The value addition is around 35-40 per cent in woven and around 70 per cent in knitwear. However, since the relaxation of the ROO in the EU, effective from January 2011, woven garments have also witnessed a significant boost as the EU now permits "single-stage processing" and allows the use of non-originating materials up to 70 per cent under the value added criteria, compared with maximum 49 per cent previously.
Garment exports are concentrated in the EU and US markets. Around 79.3 per cent of the total garment exports were directed to the EU and US market in calendar year 2012, with the EU and US receiving 58.1 per cent and 21.2 per cent respectively. Garment exports to the EU are dominated by knitwear, while woven garments are the main exports to the US market.
 A trend of slow market diversification is emerging as the shares of garment exports to markets other than the EU and US have grown, from 5.6 per cent in 2000 to 20.7 per cent in 2012. Slow recovery of the EU and US economies from the global economic crisis and active government policy supports has been encouraging exporters to explore non-traditional markets such as China, Japan, South Africa, Russia, and India.
The growth in garment exports in recent years has been volume driven. In FY13 the export volume of knitwear and woven garment grew by 14.7 per cent and 18.5 per cent respectively. In the US market, from 2000 to 2012, the volume of knitwear exports increased 2.6 times while woven exports doubled. During the same period, the volume of knitwear exports increased three-fold and woven exports increased 2.3 times in the EU market.
Although the average unit price showed a declining trend during the early 2000s in both markets, it has been slowly rising in recent years. During 2010 to 2012 average unit price of knitwear increased 24.6 per cent and 4.5 per cent while woven price increased by 32.1 per cent and 22. 2 per cent in the EU and US market respectively. This reflects a slow product diversification happening within garment sector as Bangladesh moves up the value chain.
The RMG sector is the largest employer in the manufacturing sector of Bangladesh. After the migrant worker community of around 7.7 million, the RMG sector is the largest employer in Bangladesh outside agriculture. Growth in employment more than doubled since FYOO to FY12, reaching 4.0 million workers (Figure 3) of whom 80 per cent are women. The number of RMG factories has grown steadily over the years, reaching 5,400 garment factories in FY12.
At the same time the scale and size of RMG factory operations has grown, with RMG factory employment averaging 500 workers per factory in FYOO and 741 garment workers per factory in FY12 (Figure 5). Productivity, measured in terms of export per worker, has increased from USS2, 700 in 2000 to nearly US$4,800 in 2012 (Figure 4). However, productivity is low in Bangladesh compared to some competing countries mainly due to lack of skill and infrastructure. In FY12, RMG productivity was US$32,331 per worker in China and US$12,560 per worker in Vietnam.
RMG has the potential to grow much more. Garment export can continue to grow by increasing market share. Currently China is the clear front runner with 28.5 and 38.2 per cent of market share in EU and US respectively in calendar year 2012. However, China is vacating some price competitive product segments for higher value added products. This presents opportunities for Bangladesh to improve its market share in RMG in those markets.
 Currently Bangladesh holds only 9.2 and 5.6 per cent of the market in the EU and US respectively. Capturing 20 per cent of China's garment export would more than double Bangladesh's total export? In addition, the non-traditional markets like Japan is actively seeking to diversify its garment import base from China to "China plus". Even Chinese investors are seeking to source from Bangladesh as China is shifting away from basic garments and wage rates are continuing to rise. For instance, a Hong Kong-owned lingerie and swimwear factory in an export processing zone 10 years ago had 3,500 workers in China. Currently, it has 2,500 workers in Bangladesh, and 200 in China.
Competitive price level is the prime reason for buyers to source from Bangladesh. This stems from the abundance of cheap labour. The minimum wage has been adjusted twice, after 12 years and four years, since 1994 (Figure 6). Even after the 80 per cent increase of minimum wage in 2010 to around US$38 per month, Bangladesh has the lowest wage among competing countries (Table 1). Wages are higher in EPZs than outside EPZs.
Wage rates vary by skill level and range from US$20-22 per month for an apprentice, US$38 per month for an unskilled worker, US$45 per month for a semi-skilled worker and up to US$60 per month for a skilled worker as of 2010. According to the Bangladesh Export Processing Zone Authority (BEPZA) in 2010, wage rates in Vietnam were nearly twice as high and in China nearly 10 times as high as those in Bangladesh.
The prevalent low wage, in combination with the rising labour cost in China, is leading buyers to alternative sourcing destinations like Bangladesh. In the medium to long term, buyers see and feel the necessity of rising wages in Bangladesh. However, they expect a significant efficiency increase to offset this rising cost which will keep Bangladesh's price level highly competitive in the future.
Bangladesh has the capacity advantage over other countries in manufacturing large orders of basic garments. Many countries in the world produce basic clothing (for instance T-shirts) articles. However, only a select few countries -- China, Bangladesh, Vietnam, Indonesia, and to some extent Cambodia -- have developed complex systems of producing and supplying high-quality and larger order sizes in the low and lower mid-market segment.
In terms of capacity, Bangladesh is at an advantage compared to other supplier countries, with 5,400 factories, whereas Vietnam, Indonesia, Ethiopia, and Cambodia have 3,174; 2,600; 436 and 260 factories respectively. In addition, the 4.0 million labour force in Bangladesh is significantly larger than the 1.2 million of Vietnam and 0.01 million of Ethiopia.
 Bangladesh has developed a strong capability with three decades of experience in the RMG sector. A formidable number of skilled workforce is required to oversee quality control, labelling, and shipping of garments. With most of Bangladesh's labour force being women, they are socially adapted to garment-making skills such as sewing, cutting, etc.
Foreign buyers have tried unsuccessfully to encourage garment-making in other countries. India and Pakistan are not well organized for large-scale production, as high-risk or structural workforce factors prevent utilization of their capacity. Africa does not have enough workers with the skills required for high-volume labelling and shipping. Latin America does not have enough workers interested in operating sewing machines. Guatemala has excellent quality, but its industry is too slow with delivery.
The capability to handle large orders along with the favourable trade agreements that allow duty-free exports under the EU's Generalised System of Preferences (GSP) umbrella has made Bangladesh an attractive sourcing destination for European companies. In addition, the reduction of GSP beneficiaries from 176 to 89 by the EU, which will be effective from January 2014, is likely to increase Bangladesh's exports because of fewer competitors in the market.
Canada will be imposing a general preferential tariff from January 2015 on 72 higher-income and trade-competitive countries. Bangladesh will not be affected by these changes because it is eligible for duty-free access under the least developed country (LDC) tariff.
 Bangladesh has begun also to move up the garment value chain.  It is attracting a growing number of retailers of fashion basics, such as Zara. Zara currently orders around 80 million units from Bangladeshi manufacturers, which might grow as local production improves. Designer brands, including Giorgio Armani, Ralph Lauren, and Hugo Boss, also have outsourced manufacturing to Bangladesh.
The principal market for higher-value garments is Europe, in part because of the prominence of European designers and buyers in this market segment, but there is a growing presence in the US market as well. Mid-market brands plan to grow their share in Bangladesh by 20-25 per cent in the medium term.
The Impact of Industrial Accidents: Recent industrial accidents have revived concerns over compliance in labour standards and worker safety, which has put Bangladesh's competitiveness in RMG at risk.
Bangladesh's garment industry is in the spotlight of international attention due to the recent industrial disasters. Non-governmental organisation (NGOs) and corporate social responsibility (CSR) stakeholders both at home and abroad have always been apprehensive about meeting international labour and social compliance standards in the garment industry. A series of major incidents between November, 2012 and April, 2013, which resulted in combined deaths of around 1,250 workers, has turned the apprehension into reality. These back-to-back incidents have led to a severe image crisis worldwide.
The latest of these tragedies occurred on April 24, 2013 when an eight-story multi-purpose building, the Rana Plaza, collapsed, claiming more than 1, 100 lives, most of whom were garment workers in the upper floors of the building in five garment factories. This was the worst industrial accident in Bangladesh and one of the worst in South Asia and in the world.
 The enormity of the accident renewed the concern in the world as to whether the low cost advantage of Bangladesh in the garment industry is based on unfair treatment of workers. Unsafe working conditions, infringement of workers' rights in the absence of freedom of association and collective bargaining, and low wage have become the key areas of concern under the social compliance framework.
Attention to poor working conditions, violation of workers' rights and low wage rates has become pronounced. Compliance with internationally acceptable working condition, labour standards, and preservation of worker rights has gained renewed significance for buyers worldwide in their decision to source from Bangladesh.
Apart from weak regulatory enforcement of safety standards, absence of formal trade union in the various RMG units is likely to have contributed to safety failures. The lack of proper trade unions has meant that workers are not able to exercise their rights to effective bargaining for safer working environments. Trade unions in many countries have offered legitimate and effective ways to establish fair deals for workers by providing a legal foundation to stand together.
Poor wage rates have also come under sharp focus. The international community has always been concerned that Bangladesh's low-cost competitive edge reflects abundant cheap labour being used under sweatshop conditions. A recent study found that the real wage in the RMG industry in Bangladesh declined by 2.0 per cent from 2001 to 2011. The minimum wage set in 2010 was alleged not to be equivalent to a "living wage" by workers and different international worker rights organisations and there has been a demand for another increase ever since. The workers demand gained added weight as the recent industrial setbacks also exposed the substandard working condition the workers had been exposed to. H&M, the biggest buyer of Bangladeshi RMG, advised to revise the minimum wage.
The sustainability of the competitiveness of the ready-made garment industry has been put into question. Apparel manufacturers are reporting 30-35 per cent reductions in orders due to the recent compliance failures. Citing safety concerns, Walt Disney has already ceased production; H&M has been rethinking their sourcing strategy, while Wal-Mart blacklisted 250 RMG factories in Bangladesh. Global fashion houses are starting to look for new sourcing countries such as Vietnam, Cambodia, and Indonesia, for fear of reputational risk. International retail giants, such as indicted, are also considering a zero-tolerance policy, and cutting ties with suppliers who are non-compliant (or who subcontract to non-compliant factories).
The United States suspended the trade benefits of Bangladesh under the GSP program. The GSP statute requires certain standards for workers' rights and safety for a country to be eligible. GSP facilities culminates from not only the Rana Plaza incident but also from the repeated concerns of the US government on insufficient progress on the reforms to better protect worker rights and safety in the last six years.
Although this cancellation will not impact Bangladeshi exports directly since RMG did not have GSP in US to begin with and Bangladeshi exports enjoying GSP is a very small fraction (0.6 per cent) of total exports to US, it sends adverse signals about domestic production condition and taints Bangladesh's image further. Thirteen countries have been suspended from the GSP program on similar grounds previously. Although most were later reinstated, Belarus, Sudan, Syria and Myanmar have remained out of the facility.
 Bangladesh's GSP status will be evaluated again in December 2013 based on the reforms to improve labour safety and standards. Legal authorization of the GSP program expired on July 31, 2013. This means that imports that were previously eligible for duty-free treatment under GSP is subject to regular, normal trade related duties for all commodities until the program is extended.
 The decision to promote improvement in working conditions and labour rights by suspending GSP is debatable. Bangladesh's GSP utilization has been very low historically as the main export item RMG does not fall under the GSP facility. In FY13, only US$33 million of exports qualified under GSP. By contrast, Bangladesh export of RMG to the US was US$5.0 billion in FY13 with import duties amounting to US$745 million at an average rate of 14.9 per cent. So removal of GSP is unlikely to have any major impact directly on the RMG exports from Bangladesh to US as the duty structure faced by Bangladeshi garments remains the same.
Agro products (mainly tobacco and tobacco products), ceramics and plastics are the dominant exports to the US from Bangladesh under GSP, covering 33.4 per cent, 16.5 per cent and 15.3 per cent of total exports under GSP respectively in calendar year 2012. These industries are unrelated to the recent tragedies with no incidence of labour rights violation. Thus the punitive trade sanctions by the US can be termed as off target and will have a negative impact on these unrelated and well performing industries both in terms of exports and labour welfare.
Rather than suspending Bangladesh from GSP, a promise to apply GSP to all Bangladesh exports contingent upon the improvement in safety records might have been a more effective policy. Reducing or eliminating the duty on apparel items would directly benefit workers in Bangladesh by increasing employment and encouraging economic growth through growth in exports. This in turn could also have improved the working environment for the labours. Favouring the carrot of GSP for everything over waving the stick of cancellation of GSP would have improved the welfare of the US consumers as well.
Explaining Compliance Failures: Non-compliance in worker safety is a collective failure of the manufacturers, buyers, and regulators.
Global retailers are constantly trying to provide cheap clothes to consumers in order to compete in the apparel market. This means offering lower prices to manufactures, which compete with each other by undercutting prices. To protect profits under such the so-called "race to the bottom" phenomenon, both buyers and manufacturers neglect compliance.
Buyers concentrate on getting quality product at low price regardless of the working environment while manufacturers do not invest in improving safety and labour standards. Very often manufacturers subcontract orders to smaller factories with substandard compliance, at a price that is even lower than what the buyers offer. Hence, with a smaller profit margin, most subcontracting factories do not commit to maintain various compliance standards in order to minimize cost.
Sometimes, this subcontracting happens without the authorization of the buyers. Approving a sub-contracting factory can take several weeks to set up and complete. So in order to save time, manufacturers sometimes skip the disclosure. Many buyers also do not maintain enough manpower to regularly monitor the factories who are supposed to process their orders. These dynamics are reinforced by the following:
l Lax regulatory enforcement: Lack of regulatory oversight is a major contributor to non-compliance. The overall enforcement of labour law and building code is very low. Monitoring of building safety standards by the relevant government authorities is weak because of insufficient manpower with relevant expertise. The compliance monitoring cell within Export Promotion Bureau (EPB), which is mandated to improve enforcement by regular monitoring, also lacks sufficient manpower.
The Department of Inspection for Factories and Establishments (DIFE), who is primarily responsible to inspect industrial units, has only 46 inspectors for around 28000 factories in the formal manufacturing sector. In addition, absence of any credible threat of consequences for violating the law makes many firms apathetic to compliance. Failures by the governmental bodies to ensure the proper implementation of safety standards also occurs when policymakers or regulatory bodies favour particular interest groups rather than the national interests they are mandated to serve.
Regulatory agencies such as the Ministry of Labour and Rajdhani Unnayan Kartripakkha (RAJUK) or capital city development authority allegedly focus more on advancing the interests of special interest groups. The apparent involvement of high profile people in garments explains why there have been no convictions on any of the major disasters.
l Land and infrastructure deficit: Scarcity of land has led to the spread of factories in high-rise buildings not suited for industrial purposes. It has also encouraged malpractice of developing multi-storied buildings in unsuitable areas (for instance, in inadequately filled up marsh land) making the buildings more prone to accidents. The energy shortage (power and gas) makes it difficult for the utility authorities to install electricity and gas connections to larger sites where factories can relocate.
Access to reliable power supply has been identified as one of the most important factors for garment firms to choose Dhaka city as a factory location (with the exception of EPZs), even though the buildings are not always suited for operating factories. The duration of power outages experienced by garment firms in Dhaka city, at 4.2 hours per day is below the average for Chittagong city (4.9 hours per day) and Dhaka Periurban areas (4.5-4.8 hours per day). Due to the power outage, factories have to maintain powerful generators which increase cost and make structurally weak buildings more susceptible to cracks and collapse.
l Lack of knowledge in compliance issues: Although the government of Bangladesh adopted a unified code of conduct after 2006 and enacted labour law and building code, there is a lack of knowledge among RMG owners and mid management staff about the essential components of compliance and safety in general. The situation is worse in case of smaller sub-contracting units where crucial elements like leave entitlement of workers, adequate number of fire exits, adequate work space for workers etc. are missing. The lack of understanding about compliance management at the owner and supervisory level is not helping the industry to improve compliance.
Stakeholders' Response: Different stakeholder groups have announced a variety of actions to improve the hazardous working condition and labour standards.
A mostly-European consortium of 89 retailers and apparel brands has agreed to sign the "Accord on Fire and Building Safety in Bangladesh". This is a multi-stakeholder agreement between signatory brands and a coalition of local trade unions, global unions, labour organizations and international NGOs where the signatory brands agree to establish a fire and building safety program over a period of five years.
The commitment of big brands like H&M, the biggest buyer from Bangladesh, will have a significant impact on the implementation of this accord. The accord includes independent inspections by trained safety experts and public reporting, disclosure of the names of suppliers, supplier contracts with sufficient financing and adequate pricing, mandatory safety improvements financed by brands by negotiating with the supplier through options such as joint investments, providing loans, accessing donor or government support, offering business incentives, or paying for renovations directly.
The establishment of worker-represented committees in both oversight and implementation, and a binding contract to make these commitments enforceable, is a major step forward towards the improvement of the situation in the sector. The Accord also commits signatory companies to stay in Bangladesh at least for the first two years of the Accord. However, this effort will cover around 1,000 factories which is about one fifth of the total industry. The agreement is also largely limited to Tier I factories, representing mostly large and relatively compliant firms. This might potentially leave out small non-compliant RMG units that do mainly sub-contracting of large firms who are in many instances not authorized by the buyer.
A group of 20 North American retailers announced their initiative over the next five years. The North American retailers formed the Alliance for Bangladesh Worker Safety which includes major buyer brands like Wal-Mart, Gap Inc., J.C. Penney, etc. They represent the majority of the North American imports of RMG from Bangladesh. The commitment was drawn upon discussion with government of Bangladesh and the United States, fire and safety experts and worker representatives.
The initiative was developed with the help of the Bipartisan Policy Centre. It calls for inspections of 100 per cent of alliance member factories within the first year; development of common safety standards; transparent sharing of inspection results; and actively supporting democratic election and operation of Worker Participation Committees (WPQ in each alliance factory. Members of the alliance are providing the funding necessary over the five-year period -- currently at US$45 million and growing -- to support the specific programs of the initiative, with some companies offering an additional combined total of over US$100 million in loans and access to capital to assist factory owners they work with for factory safety improvements.
 The North American initiative appears to be less progressive than the European one. Although the American program has some measurable and result-oriented components, it is not legally binding. It does not involve any worker representation either in oversight or planning that might make the enforcement questionable. Financing improvements only through providing loans is not going to vastly improve the working conditions in the short to medium term.
Under the North American Alliance, retailers are not taking any responsibility to improve standards. Rather, any retailer can decide not to do business with a manufacturer if the manufacturer does not improve standards by themselves which is similar to the current scenario of the industry. The Alliance also has a lot of the features of private regulatory regimes that research has shown over the last 10 years is not very effective. For instance, brands and retailers control over factory inspections by approving qualified inspectors to carry out factory inspections and develop remediation plans is deemed different from the various factory audit systems that had been developed by international buyers as a part of their corporate social responsibility (CSR) programs.
These systems in several occasions proved to be ineffective. In Pakistan, a garment factory named All Enterprises burned down claiming 262 casualties on September 2012, less than a month after it was certified by the international auditing organization, Social Accountability International (SAI). Two of the factories in Rana Plaza were certified as compliant with the standards of the Business Social Compliance Initiative (BSCI), a company controlled CSR initiative with over 1,000 member companies in Europe.
European Union (EU) and Bangladesh agreed to a time bound "Sustainability Compact". Although EU expressed their interest in staying engaged to improve labour conditions, they also warned about the potential withdrawal of EU GSP scheme if satisfactory progress is not made under the agreed compact (see Box Al for an analysis of the impact of removing EU GSP)."
The key commitments made by Bangladesh to improve labour standards features amendment of the labour law aimed at improving the fundamental rights of workers by July 2013; effective implementation, enforcement, and monitoring of the amended labour law in all factories including the EPZs; upgrading the Department of Factories and Establishments (DIFE) to Directorate with a strength of 800 inspectors with 200 inspectors recruited by end of 2013; create a publicly accessible database listing all RMG units with relevant information on compliance; implementation of the National Tripartite Plan of Action on Fire Safety and Structural Integrity in the RMG industry in accordance with the established milestones and timelines; assess building and fire safety of all active export oriented RMG units by June 2014 with most populated factories assessed by 2013; and launch skills training programs for the seriously injured workers by December, 2013. International Labour Organisation (ILO) will monitor the progress, coordinate efforts and mobilize technical resources.
Although Bangladesh government fulfilled the pledge of amending the labour law within the stipulated deadline, the fulfilment of all the other actions within the stipulated time-frame will be very challenging.
The US action plan provided to the government of Bangladesh is broadly consistent with the EU compact. In addition to the steps mentioned in the EU compact, US action plan envisages concrete actions required under the GSP action plan, such as increasing sanctions for labour right violations sufficient to deter future misconduct, publicly reporting on the outcome of union registration applications, establishing an effective complaint mechanism for labour violations, and ending violence and harassment of labour activists and unions. Proper implementation of these actions could provide a basis for the US to reinstate the GSP trade benefits.
 The government has taken some legal and administrative steps to improve labour safety and welfare. The government and representatives of Bangladesh employers' and workers' organizations signed the National Tripartite Plan of Action on Fire Safety and Structural Integrity (NTPA). This action plan was an integration of the National Tripartite Plan of Action on Fire Safety signed on March, 2013 in response to the Tazreen factory fire and the Joint Tripartite Statement adopted in May, 2013 in the wake of the Rana Plaza tragedy by the same stakeholders.
The main activities identified in the integrated NTPA include assessment of the structural integrity and fire safety of RMG factory buildings, strengthening labour inspection, worker and management training, building awareness of occupational safety and health and worker rights and rehabilitation of disabled workers. The National Occupational Health and Safety (OHS) Policy are at final stage for adoption. The registration process of Trade Union in the RMG sector has been improved and 29 trade unions (Dhaka 21, Chittagong 8) have been given registration in the first six months of 2013.
Steps have been taken for acquisition of 532 acres of land to establish Garments Industrial Park near Dhaka city to relocate the factories. Government is also trying to strengthen the monitoring of building construction by increasing manpower of the development authority of Dhaka from 1087 to 2000. In order to reassess the minimum wage, the government formed a six-member wage board in June, 2013. Workers are proposing a monthly minimum wage of Tk 8,100 79 (USS104) which is an increase of around 166 per cent from the current minimum wage, while owners gave a preliminary proposal of a 20 per cent wage increase to Tk 3,600 (US$46).
Government is strengthening regulatory oversight over the industries. Government has taken steps to upgrade the DIFE to Directorate and strengthen inspection capacity by 200 inspectors by December 2013. Proposal has been sent to Ministry of Public Administration to increase the number of manpower of the Department from 314 to 2,291 which includes new posts of 854 inspectors. DIFE has formed 23 special inspection teams to inspect the RMG factories to find out the non-registered and non-compliant factories and to take appropriate steps accordingly.
Based on the findings of inspection teams, 20 factories have been shut down temporarily for the structural defects of the factory buildings. Moreover, the inspection teams have visited 3,452 factories (3,169 in Dhaka and 288 in Chittagong) and 263 cases (in Dhaka 47 and in Chittagong 16) have been filed against the non-compliant factories with the Labour Court.
Bangladesh's legislature amended the Labour Law to provide improved protection for the fundamental rights to freedom of association and the rights to collective bargaining. There were 87 amendments made in the new law. The elimination of previous obligation to send to employers the names of union leaders at the time of registration of a trade union, allowing workers to call on outside experts for advice during collective bargaining and allowing to elect 10 per cent of their enterprise officers from outside the workplace in the public sector is expected to improve labour rights situation.
The increase in the number of trade unions allowed in factory from two to five has also been welcomed. There are several other measures included to improve worker safety and welfare. Including provisions for four-nation of a central fund for employees of 100 per cent export-oriented, foreign-owned companies, mandatory deposition of 5.0 per cent of net profit in provident and welfare funds, group insurance provisions for workers in case of accidents is expected to increase worker welfare.
Providing labour inspectorate new responsibilities to inspect safety and health conditions of workplaces and conduct on-the-spot inspections, bar-ring change in factory layout and locking exits without permission of inspectors will help improve worker safety. However, the ILO and other international labour rights organizations have termed this change insufficient based on the unofficial translation of the amendments. The main areas of concern includes not reducing the 30 per cent minimum membership requirement to form unions and not extending freedom of association and collective bargaining rights to workers in EPZs.
In addition, there is a concern that not allowing hiring of union leaders from outside the worker groups of the respective factory, requiring more than two-thirds of the union members to authorize strikes 83 will make the freedom of association quite restrictive.
 The associations have taken some initiatives to ensure compliance. The garment manufacturers associations asked its members to submit soil test report and approved building designs in order to check the structural integrity of the buildings. As of July 3, 2013, only 1,819 members of the BGMEA and 353 members of the BKMEA had submitted the required documents. The BGMEA stopped providing utilization declaration (UD) certificates and other services to 180 factories who failed to provide these documents 85 and another 160 factories for not having adequate space in the roof tops to facilitate exit in case a fire breaks. The Bangladesh Garment Manufacturers & Association (BGMEA) shut down eight factories on safety grounds while four were given deadlines to repair faults in the buildings. The BGMEA and Chittagong Development Authority (CDA) also started to conduct safety inspections of factories in Chittagong. The BGMEA announced creation of a worker database for the whole industry and initially instructed around 300 factories in Ashulia near Dhaka to develop databases of their workers."
Conclusions: Sustaining the success of the RMG industry by restoring its image will require swift policy decisions and effective implementation through coordinated efforts.
Effective implementation of the planned actions is the key to protect exports from any further damage. The EU, the main trading partner of Bangladesh, is going to closely monitor the efforts to improve labour conditions for the whole of FY14. In order to maintain the preferential access to EU, Bangladesh has to demonstrate substantial improvements in compliance.
Failure to achieve the milestones agreed within the given timeline in FY14 may result in suspension of GSP by EU. This could have grave consequences for the overall export sector and the economy. Although the labour law has been reformed, implementation regulations will be needed to bring the provisions of the new amendments into practical effect. The recruitment of factory inspectors by the government is not moving fast enough because of bureaucratic complications. Only four inspectors have so far been appointed and 70 other were under the appointment process as of September.
 Although the government has filed cases against some of the noncompliant factories in the labour court, the factories are running in full swing with unsafe working conditions as the DIFE do not have the authority to shut down the factories.
Database creation of RMG workers by the BGMEA is also moving very slowly.  Although five government agencies have sent teams to inspect the 5,400 factories, it is estimated that it would take at least five years to complete the process. In order to expedite the proper execution of the strategic plans, both government and the private sector procedures need to be streamlined. Furthermore, development of the industrial park should be fast tracked to facilitate relocation of factories from unsuitable buildings to proper industrial buildings.
 Coordination between the various stakeholders is essential to maintain coherence and effectiveness of implementation. Although the plan of action set by European and US buyers are supposed to take the NTPA of the government as a basis for inspecting factories, no unified standards of safety has been set yet.
Experts deem that it is not an ideal situation to have competing initiatives between two sets of retailers. The result may be counterproductive because of uncoordinated and even conflicting efforts.
Many factories have multiple clients who are either part of the European Accord or US Alliance. If there is no coordination between the initiatives, a factory building might be inspected several times, each time with a different result as there is no unified code to follow. This might lead to suspension of production for inordinately long time or non-compliant factories continuing production. For instance, a factory banned by Wal-Mart and indicted for safety reasons, was manufacturing shirts for another US based apparel retailer VF Corp. There is also disconnecting between the activities of the government and the association.
The BGMEA was not aware of the activities of the government in closing down 20 factories. The EU and US buyers' initiatives may cover around 30 per cent of the factories. There is also a need to ensure that the remaining factories are under the purview of the overall safety initiative.
Recently, the government and the buyers initiatives agreed to develop and follow a common guideline to inspect factories. The government also created a 30 member expert panel to inspect the factories not covered by the buyers. This harmonisation of activities and coordination between stakeholders should continue till the life time of the initiatives to ensure proper inspection and compliant production facilities.
This is an edited version of a recent analysis of the situation in Bangladesh's garments industry by the World Bank in its latest Bangladesh Development Update: Poverty Reduction and Economic Management South Asia Region