How important is the Bangladesh Accord?

Bangladesh won’t get any less safe if Gap doesn’t sign the Bangladesh Accord – and most of Bangladesh’s garments will be made in factories outside the Accord if it does.

Two fundamental points about the Bangladesh Accord seem to be getting lost and confusing a lot of people:

1.      There’s a very great deal less to it than meets many people’s eyes. Companies signed up to it at opening of business on May 15 account for just 11.6% of the German apparel  market and 21.5% of the UK’s.  The garment industry is highly fragmented, and the 40 or so top buyers the Accord has targeted account for about a third of Europe’s apparel imports. Of itself, even after five years, the Accord will not prevent the rest of the world’s garment buyers from using unsafe factories. The possibility of further Bangladesh garment factory disasters remains real however many of the world’s major buyers sign up.

2.      But there’s also a very great deal more to it than meets other people’s. Its alleged legal enforceability doesn’t necessarily force buyers to pay for factory upgrading, and may well not open up signatories to lawsuits in California if a building catches fire. But it certainly commits signatories to continued procurement from Bangladesh, and comes close to committing them to maintaining procurement volumes from certain categories of factory.

With Gap's and Walmart's recent track record, the likelihood of their failing to enforce safety in their Bangladesh factories is probably remote, whatever piece of paper they sign. The real fear many US buyers have is of being legally forced to remain in Bangladesh, and continue producing at their current level, however much the commercial or political practicality of garment making there may deteriorate.

Such a deterioration isn’t at all unlikely, given the recent experience of politically motivated  work stoppages (“hartals”) and employee agitation. The commercial consequences of further deterioration are limited for Europeans, because Bangladesh is likely to retain its unique combination of relatively low wages, extensive manufacturing capacity and duty-free access to Europe for the foreseeable future.

Whatever higher wages Bangladesh's new Wage Panel recommends, and whenever those recommendations turn into money in paypackets, wages in Bangladesh are so far behind the rest of Asia that a substantial rise is unlikely to make the country seriously uncompetitive for Europeans soon. But for Americans, as a typical Bangladeshi blouse gets hit with the same 16.6% import duty as one from China, higher production costs in Bangladesh, together with the serious costs imposed on producers by the country's instability, offer a real risk Bangladesh will soon turn uncompetitive. With duty-free Haiti about to expand, Vietnam likely to become duty-free and not a snowball’s chance in Hell Bangladesh will get duty-free status to the US for years, "soon" may be a lot sooner than many think, and though few American businesses are likely to run away altogether, most must have contingency plans for less exposure to the country.

The Accord, however many big buyers sign on, is just a small first step in securing safe factories. And we’re likely to have to deal with the very high possibility of continuing catastrophes in Bangladesh even once it’s signed.