Friday, November 29, 2013

The power of bargain

The power of bargain
Do a lot of people know that out of a price tag of $22.12 for a pair of jeans sold in Britain, just 90 cents goes to cutting and making the jeans, which includes labor and factory expenses such as rent, energy, and safety measures? I didn’t, until I read a report by Bloomberg on the cost of garment production in Bangladesh in 2013.
So I have my doubts when American Ambassador to Vietnam, David Shear tried to sell the Trans-Pacific Partnership, a free trade agreement that the U.S., Vietnam and 10 other countries are negotiating, to the Vietnamese people. “Vietnam will benefit greatly from expanded access to the U.S. and other markets as the TPP reduces tariffs in several key export areas,” Mr. Shear told Can Tho University students last Thursday.
Pure logic tells us that economic benefits shall be proportional according to the assigned role each country plays in the globalized trade. The price breakdown for a pair of jeans reflects this proportional benefit quite well. But more on that later.
The Bloomberg garment report was made in response to the worst labor accident in 2013 when 1,129 workers were killed and at least 1,500 more were injured as the Rana Plaza garment factory they worked in collapsed on April 24 in Bangladesh. After the accident, voices were raised to demand more corporate accountability. Fashion brands, apparel producers and retailers promised to take responsibility for what happens in the factories that make the clothing they sell. But despite all the public outrage, people tend to forget that all required improvements in the working conditions demanded of the factories were squeezed out of the 90 cents the factories get from making a pair of jeans. “Let us earn those few cents, and nobody has to die while making basic jeans,” factory owner Tipu Munshi was quoted by Bloomberg as complaining.
Negotiators to free trade agreements like the TPP realize the situation only too well. That’s why, under pressure from their own consumers, developed countries like the U.S. demand poorer countries like Vietnam to treat its workers better in exchange for greater market access. But again, somehow Vietnam has to manage treating its workers better with the same 90 cents it gets.
Getting back to Mr. Shear’s remarks, he’s right in saying that “expected gains are more clear, can be roughly estimated, and generally occur in existing sectors, such as footwear and apparel, where Vietnam is already competitive”. The TPP can help Vietnamese garment makers ignore bids from non-member competitors from Bangladesh or China, thus avoiding the race to the bottom normally seen in the global apparel industry. Without the TPP, Vietnamese garment makers might have to lower their bids to win contracts. But their share from the supply chain in this industry remains a pittance compared to other stages on the value chain.
So the best way to sell the TPP to Vietnamese people is neither a promise of enormous gains in GDP growth or bigger export volumes nor a promise of more foreign investment. It should be a bigger share of the pie. Somehow, that is sort of a “mission impossible” task but increasing the share that garment workers in particular or other players in the globalization game can get is the only way to persuade people of the sustainability of free trade.
Independent safety inspections of garment and footwear factories are useful but not crucial in guaranteeing the workers’ safety. If they get more than the 90 cents, they will have bigger power of bargain and they will take care of their own safety measures.
People might wonder why middlemen whose job is to collect and pass orders from retailers on to garment makers earn five times as much as the workers who make the garment. And more importantly, do negotiators at free trade agreement negotiations ever discuss narrowing the gap?
Of course, they don’t. Negotiators always try to snatch the biggest share for their own businesses and one would be so naive as to thinking otherwise. And intellectual property rights are among the tools that people use to maintain their edge over others.
Pressure from the consumers, therefore, should not focus on working conditions. It should be more specific: how much is paid towards those who make the clothes or shoes they wear. If the right price is paid, the working conditions will take care of itself. But don’t ask me how the fruit of globalization can be divided fairly. It can’t and thus, we have the contradictory nature of free trade agreements, the TPP included.