Remarks
Jose W. Fernandez
Assistant Secretary, Bureau of Economic and Business Affairs
Paris, France
June 27, 2013


Introduction

Good evening, I am delighted to be in Paris, and especially honored to be speaking at IFRI. I am pleased to see that business, civil society, and government are all represented here, since each has a role in solving the issues that I will address tonight. This evening I would like to focus on corporate social responsibility and potential partnerships between government and companies that can meet some of these challenges.

Secretary Kerry has stated that “much of foreign policy today is and ought to be economic policy.” Secretary Clinton used to say that foreign policy and economic policy were indivisible. I couldn’t agree more. Whether it is access to resources or increased trade, economics has played a role in diplomacy since time immemorial. Emerging countries such as Turkey and Brazil recognize this: when President Rousseff or Prime Minister Erdogan get off the plane in a foreign country, they have CEOs of their largest companies with them, and often times the success of their foreign trips is measured not by the treaties they execute, but by the deals their private companies sign. Today as we seek to promote regional stability in the Middle East or deal with global warming, it is clear that the private sector is a necessary partner. We need to look no further than recent events in North Africa. High rates of unemployment, particularly among youth, had a significant impact on social cohesion and political stability, and when you put that together with an anemic private sector that can’t generate opportunity because it’s been suffocated by government intervention, you end up with a combustible mix. The lesson here is that both government and the private sector must work together to foster sustainable and inclusive economic growth.

But, companies do more than just create jobs. They bring new skills, technologies, and ideas, and they reflect their origins. I have frequently stated that American companies represent the United States when they invest around the world. I am very proud of the fact that so many U.S. companies have a positive story. They have done everything from delivering lifesaving medicines to remote areas, to creating jobs that provide people with a living wage. We’ve seen it in Intel Corporation’s operations in Vietnam, which lead environmental protection with solar power generation and participate in educational programs for disadvantaged youth and women. We have also seen it in Sorwathé Tea Importer’s operations in Rwanda, which support adult literacy, worker association and collective bargaining rights, lead the industry in advancing the abolition of child labor, and undertake sustainable forestry and water management. Both Intel and Sorwathé were awarded the Secretary of State’s Award for Corporate Excellence for 2012 due to their exemplary business conduct. Not only does their work benefit the communities where these companies operate, but it reflects well on the United States.

So the point that I’d like to start with is that business is an indispensible partner in today’s diplomacy. Therefore it should not be surprising that the United States government and American business have a number of issues of common concern. It is in both of our interests to promote the rule of law, transparency, and respect for human rights as well as encourage economic development. Clearly business needs governments to support its activities, but government also needs business if it truly wants to succeed in achieving sustainable economic growth and development. I am not saying this to flatter the business representatives in attendance this evening. My statement is based on the simple fact that more than one third of the 100 largest economic actors today are private companies, not countries. When comparing the 2011 gross domestic product of countries to the gross revenue of multinational enterprises, ExxonMobil and Wal-Mart would be the 28th and 31st largest economies in the world, out-sizing the economies of Nigeria, Sweden, and Venezuela. In an era of shrinking public budgets, in the era of diplomacy in the age of scarcity, the idea that business on the one hand, and government, on the other, can simply operate in parallel worlds is simply not viable. And so, I would like to take a few moments this evening to look at some models for how business and government can work together.

Corporate Social Responsibility

For many, the idea of Corporate Social Responsibility or CSR simply means the good works of companies – planting trees, setting up schools, or providing food and water during times of crisis. Those are all positive activities that demonstrate good corporate citizenship. But CSR refers to more than just philanthropy. It also means responsible conduct in all of a company’s operations and business practices.

This idea is captured in the United Nations Guiding Principles on Business and Human Rights, which the U.S. strongly supports. These principles are the first broadly accepted, globally applicable, set of guidelines on business and human rights. They provide an important framework for corporations, states, civil society, and others as they work to strengthen approaches to the issue of business and human rights. These kinds of efforts are important for addressing today’s problems that span political boundaries. Which brings me, unfortunately, to some recent events.

Factory Tragedies

In the last year, the world has watched, horrified, as one factory disaster after another took the lives of workers in the global garment sector. The Ali Enterprises factory fire in Pakistan in September 2012, killed nearly 300 in conditions local officials described as a “death trap.” Two months later, the Tazreen Fashions factory fire in Bangladesh killed over 100, many because the exit doors were locked and fire extinguishers were only for show. In April of this year, the Rana Plaza building collapse led to the deaths of well over 1,100 garment workers in Bangladesh, some of whom had complained about the dangerous working conditions, to no avail. And just this month, a fire in a Chinese factory killed over 100. Again, in a pattern that is as macabre as it is inexplicable, many exits were locked or intentionally blocked.

Unfortunately, it often takes a nightmare to bring about a dream. In 1911, the United States experienced a tragedy along the lines of those in Bangladesh. To this day, in fact, the Triangle Shirtwaist Factory fire is remembered by workers everywhere. The Triangle factory employed 500 people, mostly women, on floors 8-10 of a building in Washington Square, near today’s NYU. The women, some as young as 14 years old, were leaders in the fight against sweatshops and for the creation of labor unions. Two years earlier, they had walked out in protest of low wages, excessively long hours, and unsanitary and dangerous work conditions. But they needed jobs, and went back to work. On a late March day in 1911, 102 years ago, a fire broke out on the eighth floor of the factory. Within 30 minutes, 146 of the workers were dead. Some women were able to reach a fire escape that was partially blocked and rickety, but their weight proved to be too much and it broke free from the building killing at least 20. Others perished from smoke inhalation. A door to a stairwell was locked and the factory did not have a sprinkler system, even though sprinkler systems were common in cotton mills at the time.

In the days following, many in New York believed that this tragedy would become just another in a long series of factory accidents. But instead, the tragic deaths of these garment workers provided momentum to the burgeoning labor movement. The Triangle Shirtwaist Factory fire galvanized hundreds of activists to push for fundamental reforms in the workplace. The State of New York launched “The Factory Investigating Commission,” which transformed the State’s labor laws, laws that became the model for the rest of the United States. After the Triangle Factory Fire, it was no longer acceptable for workers to be forced to toil in unsafe conditions. And so when my mother, also an immigrant, went to work in a garment factory in New York 50 years after Triangle, her workplace looked quite different. The work was still hard, back breaking in fact, but it was safe, and her children never worried that she wouldn’t make it home from the factory.

While some countries have come a long way in establishing these norms and standards, there are still many where workers, including children, work in unsafe conditions for long hours and little pay. Garment workers in developing countries frequently still face the choice between working in an unsafe building or having no job at all. But today’s global supply chains mean that tragedies such as the ones in Pakistan and Bangladesh are no longer just the concern of one company or a single country. The shirt I’m wearing today could have been made in any one of a number of countries, and likely passed through several from the growing of cotton through the stitching, before finally arriving in my local store.

The fact of the matter is that just like business can be a force for good; it can also exacerbate some of capitalism’s greatest excesses. Rana Plaza was not just about the failure of government to look after its workers. Everyone in Bangladesh to some extent outsourced not just the piece work, but also outsourced accountability: the government by not passing or enforcing the protective labor laws that would have enabled freedom of association, the factory owners by not looking after basic safety and just worrying about meeting deadlines, the international companies that just asked whether local laws were being enforced, and not whether basic conditions were met, and yes, by the ultimate consumers, by all of us, the wearers of the garments who looked no further than the price tags on our t-shirts.

I firmly believe that companies can do well by doing good. They can be leaders and drivers of change. Government, business, and civil society must combine their resources and expertise to make sure that Tazreen Fashions, Rana Plaza, Ali Enterprises, and others don’t happen again. The Kimberley Process, which I will turn to next, is an example of a government-led initiative, which benefits significantly from the expertise and participation of business and civil society.

Kimberley Process

Between 1989 and 2003, Liberia experienced two bloody civil wars that killed over a quarter of a million people and displaced another 1.3 million. President Charles Taylor used diamonds to bankroll a conflict that spilled over into neighboring Sierra Leone. In response to this and other similar examples, the international community looked to curb the benefits that oppressive regimes gained from the sale of gems and other natural resources. And so, in 2003, the Kimberley Process was born.

The Kimberley Process Certification Scheme is an international initiative created to increase transparency and oversight in the rough diamond trade in order to eliminate the use of diamonds by rebel groups or their allies to finance the overthrow of legitimate governments. It controls trade in rough diamonds between participating countries through domestic implementation of a certification scheme that makes the trade more transparent and secure; and prohibits trade with non-participants. Over 80 countries participate in the Kimberley Process, with industry and civil society attending as observers.

The Kimberley Process is one example of how business, government, and civil society can cooperate to advance mutual goals. Within the Kimberley Process, we see coordinated efforts to maintain the integrity of the rough diamond supply chain. Stakeholders from around the world – from workers to local communities in producing countries, to civil society and consumers – are striving to ensure that trade in rough diamonds does not fuel conflict. The Kimberley Process has been a success in that less than one percent of diamonds traded are “conflict diamonds” – a significant decrease from an estimated high of fifteen percent in the 1990s. Today you will not find many conflicts in Africa that are financed by blood diamonds.

But, the Kimberley Process is not a panacea. It is a work in progress. There are a range of challenges in the diamond supply chain that the Kimberley Process does not address, such as labor issues and human rights. This is why the United States and others encourage continued discussions with the Kimberley Process about updating the “conflict diamond” definition to include any form of armed conflict directly associated with the rough diamond trade. This has spurred debate that continues to this day, but we believe that expansion of the “conflict diamond” definition is essential if the Kimberley Process is to remain a relevant, if the Kimberley Process is to remain credible, if it is to remain an effective mechanism capable of meeting current and future challenges. This is why I, and others at the State Department, have been working with industry, civil society, and other governments to support other initiatives in the precious stones sector. There is a new Multi-stakeholder Working Group examining existing due diligence schemes for industry and trying to identify gaps and opportunities. These include the OECD Due Diligence Guidelines for Minerals from Conflict-Affected and High-Risk Areas, the Jewelers of America Diamond Source Warranty Protocol, and the Responsible Jewellery Council’s Voluntary Chain of Custody certification.

We value this tripartite approach and expect this new effort will complement the work of the Kimberley Process. I firmly believe that the ability of all interested parties to work together will result in better solutions to improve livelihoods, expand commerce and positively impact our communities.

Efforts such as these must continue and expand. And they will expand, because in the future consumers will demand confidence that the gem in their necklace, the clothes that they wear, or the diamonds newlyweds seal their love with, were not produced by a system that caused others to suffer or die. Industry must be leaders in these efforts, but government and civil society are equally important partners. This is the approach we are taking with Bangladesh, to which I will now return.

Bangladesh

The tragedies at Rana Plaza and Tazreen Fashions underscore the urgent need for the Bangladeshi government, owners, and buyers to all strengthen respect for workers’ rights, including ensuring safe and healthy working conditions. In Bangladesh, our engagement on labor issues is one of the most important elements of our bilateral relationship, a relationship that stretches back to the creation of the nation, a relationship we value highly. Our goal is to help Bangladesh continue to build on its economic achievements, but to do so in a way that ensures that the growth of its export sector does not come at the expense of safe and healthy working conditions or fundamental human rights. We believe three key reforms are particularly important for improving the situation in Bangladesh: (i) guaranteeing the right of workers to organize, (ii) guaranteeing minimum fire safety standards, and (iii) ensuring structural soundness of factories and other facilities.

We support the Government of Bangladesh’s efforts to draft amendments to national labor laws that would bring them more in line with international standards and open the way for establishment of a Better Work program by the International Labor Organization and the International Finance Corporation. The Better Work program works to improve compliance with labor standards through factory assessments and training, and we are encouraged by the commitment Bangladesh has made since the tragedy at Rana Plaza to make reforming these laws a priority. An important tool to ensure worker safety is the voice of the workers themselves, which comes from their ability to freely associate.

It would, of course, be easy to urge international companies to simply stop doing business in Bangladesh. But, we cannot forget that Bangladesh has grown at a steady 5-6 percent per annum since 1996, fueled in large part by a garment industry has helped to lift millions out of poverty, including almost four million women. We encourage international investors not to turn their backs on Bangladesh. The solution is reform, not withdrawal. Ultimately, success will depend on the will and commitment of industry, government, civil society, and everyday Bangladeshis to come together to change the culture of workplace safety and worker rights in Bangladesh, and to no longer outsource accountability.

Following the Tazreen Fashions factory fire in November 2012, international companies stepped up their efforts to remedy fire safety issues at the factories where their clothes are produced. This has been a complex and multilayered process that has relied on the Bangladeshi manufacturers’ and exporters’ associations, as well as local owners and managers of factories. We believe that international brands must make it clear to their suppliers that worker safety is a priority, and work in conjunction with efforts by other stakeholders (including the Government of Bangladesh) to enable supplier factories to become compliant. A unified industry can be a catalyst for change, and the U.S. government has publicly asked brands to act collectively. In this vein, we’ve offered a number of recommendations that we feel are important components of a serious response to labor issues in Bangladesh. These include the following five recommendations:

  1. Providing adequate funding for safety inspections and remediation of identified problems in the factories they source from, including training for inspectors, managers, and workers.
  2. Conducting credible and legitimate safety inspections by an independent third party, along with validation of factory safety measures according to local law and accepted international standards.
  3. Empowering workers to have a role in finding solutions, meaning that brands should establish a mechanism to enable workers, unions or elected workers’ representatives to have meaningful input into discussions of workplace safety and conditions of work. Workers must be able to have dialogue with management, and must feel confident that reporting safety problems, or advocating for better conditions, will not result in harassment or reprisals.
  4. Ensuring transparency, including public disclosure of factories not meeting minimum fire and building safety standards.
  5. Accepting responsibility for suppliers. If factories are found to be deficient in meeting minimum standards, remediation plans need to be implemented, or companies should cease ordering from those factories.

We are pleased to see brand initiatives that have embraced these recommendations. Again, we have urged brands to stay in the country and invest in improving the sector, rather than opting to “cut and run.”

Bangladesh has reached an inflection point, one that is similar to the one that the United States realized in 1911. Will the government take ownership of this issue by enacting and implementing laws? Will companies work to change the status quo and improve working conditions in the garment sector? Will workers organize to advocate effectively for their rights? If so, Bangladesh will become a preferred brand, a model for sustainable and inclusive economic growth. But there is, of course, another scenario, where everyone returns to business-as-usual, where we accept that there will be more fires, more factory collapses, and more children whose parents will never return home from the factories. If that’s the case, Bangladesh will become a tainted brand, a low-wage and low-regulation model for growth, and there will come a point where consumers will vote with their wallets against products produced in Bangladesh, in the same way that consumers will not buy blood diamonds today and – we hope – tomorrow they will also will also demand that garments be violence free.

I hope that’s not the case. When I visited Bangladesh a month ago, I met young men and women, my kids’ age, who rushed to Rana Plaza and spend days and nights pulling bodies out of the rubble. They still wake up at night with nightmares. But they didn’t stop there: after the tragedy they worked with factory owners to get the women who could work jobs, and compensation for those unable to go back to work. Those kids are winners; they are not victims. they deserve to grow up in a Bangladesh that continues to bring millions out of poverty, not in a country that is a winner in a race to the bottom.

Conclusion

Companies operate in a global context and, in many ways, a global “fishbowl.” The actions companies take directly, as well as those of their affiliates and suppliers, are frequently visible and can be closely scrutinized. Scrutiny, in turn, can lead to changes in consumer behavior or investor expectations. Companies have a financial incentive to conduct their operations in line with the expectations of their consumers and broader stakeholders. All of us must demand it. Respect for human and labor rights, sound environmental practices, and respect for the rule of law should permeate every tier of a company’s operations in its home country and beyond.

As the global economy evolves, the U.S. government will support the innovations and activities of business that help improve the welfare of people. We will partner with business on projects where business and government have comparative advantages that can be harnessed by working together. We will promote the rule of law, respect for human rights, environmental protection, the sustainable use of resources, and a level playing field by encouraging responsible business behavior.

The Kimberley Process shows what business, civil society, and government can accomplish when they work together. We are trying to take the lessons learned from this model and others, as well as the expertise of international organizations such as the ILO, and work with business and civil society to address the problems in Bangladesh that we are all now so painfully aware of.

I firmly believe in selling the “American brand.” American companies should not just make the most innovative software or the most fashionable clothes. They should also be the best employers, the best neighbors, the best partners. They should compete without paying bribes and leave the environment better than they found it. The United States government supports the efforts of business to undertake sound corporate social responsibility policies and practices because we firmly believe that good corporate citizenship is good business and reflects well on America. As Benjamin Franklin said, “it takes many good deeds to build a good reputation, and only one bad one to lose it.” We will work to maximize the good deeds, and minimize the bad ones. Thank you.