This document produced by the Fair Labor Association raises debate regarding the Designated Supplier Program, initiated by the Workers Rights Consortium.  Issues of concern include guidelines regarding the program’s impact on countries which bar independent unions, associational rights, living wage, antitrust issues, the selection of DSP factories, and the impact on retail prices

Fair Labor Association

English

DigitalCommons@ILR

  February 16, 2006 1 
 
Issues and Comments on the Designated Supplier Program (DSP) Proposal 
 
FLA constituents have raised a number of issues related to the DSP and asked that the 
FLA comment on them.  This document presents some of the issues raised and some brief 
comments by the FLA. 
 
 
1. Are there antitrust concerns? 
 
 A. Will the universities prevail if there is an antitrust challenge? 
  a. Is the opinion based on a mistaken assumption? 
  b. Why is there no Business Review Letter? 
  c. Does imposition of a wage other than one that is legally mandated  
   increase risk? 
 B. If the opinion doesn't prevail what are the implications for school licensing 
  programs? 
 
Comments 
 
The assumption underlying the antitrust legal advice memo is that products of licensors 
are not competitive, meaning that a buyer who seeks to buy a product with a particular 
university logo will not buy a product with another university’s logo no matter what the 
price difference.  This may not be a realistic assumption given the intense competition in 
the apparel market and the many different outlets that sell logoed products.  Arguing that 
products of licensors are non-competitive may be a position that universities and 
licensees are not comfortable taking because of its implications in other antitrust disputes.   
 
The WRC has not obtained a Business Review Letter from the Department of Justice 
(DOJ) for the Designated Suppliers Program.  When the FLA was being formed, many of 
the member companies and universities took great comfort from the DOJ's Business 
Review Letter.  While a favorable Business Review Letter is not a guarantee against all 
antitrust lawsuits, it does indicate that the DOJ does not have a current intention to 
exercise its enforcement discretion and challenge a proposed set of activities.  A Business 
Review Letter can also be used to respond to threats of private litigation. 
 
There are certain areas that tend to increase antitrust concerns at the DOJ.  One of these is 
arrangements involving wages, particularly if the arrangements entail not merely 
payment of minimum, legally mandated wages, but rather some other wage level, such as 
a living wage. 
 
Should the DSP go forward and litigation result in a finding of antitrust violation, this 
could have serious implications for universities and for their licensing programs, 
particularly because of the treble damages associated with antitrust violations.   
 
  February 16, 2006 2 
2. What will be the impact in countries where there are legal or structural 
reasons that would prevent factories from becoming designated? 
 
 A. Are all factories in China and Vietnam ruled out of the program? 
 B. Will requirements such as the prohibition against trade unions in certain  
  sectors (e.g., Bangladesh's export processing zones) lead to the same  
  outcome? 
 C. How is abandoning these factories any different from cutting and running? 
 D. Do the proponents of the proposal have any analysis of the level of  
  displacement associated with the proposal and how to deal with such  
  displacement? 
 
Comments 
 
The proposal requires that in order to be designated, a factory’s employees must be 
represented by a legitimate, representative labor union or other representative employee 
body.  In countries like China and Vietnam, workers are not permitted to form labor 
unions of their own choosing.  Factories in these countries therefore might not be 
designated under the DSP.  In countries like Bangladesh, where unions are permitted, 
workers in export processing zones – where garment producers are likely to be located – 
do not have such right. Following the same logic, factories in export processing zones in 
Bangladesh might not be designated.  Bangladesh has over 2 million workers employed 
in apparel production and apparel exports represent over 70% of the country’s total 
exports.  As the MFA Forum has indicated, there are no readily available jobs in 
Bangladesh for workers who may lose their jobs in the apparel industry. 
 
As a result of the program, licensees are likely to end working relationships with many 
factories and leave workers without jobs.  This would seem to be contrary to the WRC’s 
long-held view that companies should stay with troubled factories and improve matters 
rather than “cut and run.”  
 
In most countries of the world, there is no unemployment insurance program to assist 
workers through a period of unemployment. 
 
 
3. Does having an NGO in Washington be the final arbiter over decisions made 
by workers in a factory violate ILO principles regarding freedom of association? 
 
 A. What criteria would be used? 
 B. What will happen in locales where unions are allowed but collective  
  bargaining is not? 
 C. Does any single organization have the capacity to make these types of  
  judgments in thousands of factories? 
 D. What if there are conflicting views? 
  
Comments 
  February 16, 2006 3 
 
The ILO Freedom of Association Convention states that “workers and employers, 
without distinction whatsoever, shall have the right to establish and, subject only to the 
rules of the organization concerned, to join organizations of their own choosing without 
previous authorization.” Freedom of association does not mean there has to be a union—
only that the workers shall have the right to form a union if they so choose.  The DSP 
goes farther, requiring that unions or some other representative body exist in a factory in 
order to be designated. 
 
Under the DSP, the WRC will be the arbiter of whether or not a union is “legitimate.”  It 
is not clear how the WRC will do this and what criteria it would use.  By entering into 
this arena, the WRC would delve into a tricky area as ILO jurisprudence indicates that 
only workers themselves have the right to form unions and choose their leaders, and 
interference from the outside – such as by indicating or suggesting what might be 
“legitimate” representation – is not allowed.  Moreover, it is not clear how the WRC will 
make the determination of whether temporary contract labor arrangements “have the 
effect of hindering the exercise of [organizational] rights,” or whether some classes of 
contract workers -- such as canteen workers, medical personnel, security guards – might 
be permitted. 
 
The proposal  suggests that in addition to having a union or other representative 
employee body, the factory must negotiate in good faith a collective bargaining 
agreement with the union or employee body.  Many factories that have unions do not 
meet the more stringent requirements in local law to have the power to negotiate a CBA.  
This requirement seems to set a very high bar and whittle down even more the number of 
factories that could meet the test. 
 
If there are conflicting views among organizations regarding whether or not a union is 
“legitimate,” how will the WRC make a determination? 
 
4. Is the proposed path to achieving a living wage the best? 
 
 A. Does any single organization have the capacity to calculate and verify the  
  payment of a living wage in dozens of countries with thousands of   
  factories? 
 B. Will a regulatory regime be sustainable unless it is tempered by market  
  realities? 
 C. If the living wage as proposed is only a temporary alternative to wage  
  levels achieved through collective bargaining, why not focus efforts on  
  achieving democratically-elected worker organizations with the ability to  
  negotiate? 
 
Comments 
 
The determination of living wages is complicated both definitionally and in practice.  
This requirement would pose a huge work load on the staff of the WRC.  The two 
  February 16, 2006 4 
illustrations in the WRC website – for Indonesia and El Salvador – do not reassure us that 
calculating a living wage is a straightforward procedure.   
 
• The proposal suggests that living wages would be calculated monthly for every 
location where a factory is located.  This is potentially a huge list of countries/areas, 
probably over 100 countries and many regions within each country. 
• The proposal suggests that prices would be collected monthly in each location—this 
suggests that the WRC would be doing the equivalent of the work that the Bureau of 
Labor Statistics does in the United States to calculate the U.S. Consumer Price Index 
around the world.   
• Commodities have different prices – even for commodities that appear to be 
homogeneous (like rice) the price will vary depending on quality, size of purchase, 
type of store where it is sold, etc. 
• The basket of commodities to be priced probably varies across regions. 
 
There are myriad technical and data problems in calculating the living wage even for one 
factory.  To do it adequately and defensibly on a “worksite-by-worksite” basis and on a 
monthly basis – as contemplated by the WRC proposal – would require a veritable army 
of staff.  We are not aware of the WRC’s experience in calculating living wages. 
 
The DSP approach of a living wage calculated by the WRC fundamentally disempowers 
workers and the labor relations process.  We should be creating incentives and 
undertaking capacity building to encourage worker representation and collective 
bargaining to allow workers and employers to arrive at a wage level that reflects the 
domestic situation. 
 
National wage fixing machinery is usually tripartite and allows representation by all 
interested parties.  That improves the chances of them arriving at a realistic level.  The 
WRC as the arbiter of living wages would have none of the legitimizing features of a 
national mechanism mandated by law or established through collective bargaining. 
 
5. Is the proposed supply-chain model economically viable? 
 
 A. Are there enough factories to provide the product differentiation needed to 
  sustain licensing revenues? 
 B. Since the entire collegiate-licensing business is a small fraction of the  
  apparel industry, will the higher-quality factories, with many customers  
  beside licensees, simply opt out of manufacturing for licensees imposing  
  these requirements? 
 
Comments  
 
There has been very limited or no engagement to date of the licensee community in the 
development of the DSP.  Licensees would be in the best position to be able to determine 
how the proposal would affect their activities in terms of identifying sufficient factories 
to serve all of their needs.  To our knowledge, the WRC has not carried out this analysis.   
  February 16, 2006 5 
 
We are aware of a list consisting of 62 factories, 10 where the WRC knows that progress 
has been made with regard to freedom of association because there is a recognized trade 
union and another 52 where the WRC has knowledge that there is a trade union.  The 
distribution of these factories is heavily tilted toward Africa.  Thus 35 of the factories 
(56%) are in Africa (14 in Swaziland, 13 in South Africa, 8 in Kenya), 10 in South East 
Asia (4 each in Thailand and Indonesia, 2 in the Philippines),  6 in the United States 
(nearly 10%), 5 in East Asia (5 in Cambodia, none in China or Vietnam), 5 in Latin 
America (2 in the Dominican Republic, and one each in Mexico, El Salvador, and Haiti), 
and 1 in South Asia (1 in Sri Lanka, none in India, Pakistan, or Bangladesh).   
 
An open question is whether, when faced with the DSP, some of the licensees for whom 
collegiate products are not central, will decide to terminate licensed production and will 
move into other forms of production, to the financial detriment of universities.  
 
 
6. Who is going to pay for the cost increase, and how large will it be? 
 
Comments 
 
The DSP is quite candid in stating that consumers will pay for the cost increase.   
 
The WRC document titled “The Impact of Substantial Labor Cost Increases on Apparel 
Retail Prices” states that the impact of increasing wages to living wage levels would 
result in “relatively small increases in retail prices.”  However, the legal opinion by Baker 
for the WRC states that the DSP would result in price increases paid by licensee factories 
on the order of 10-12%.  This may be the “relatively small increase in prices” that the 
WRC refers to in its paper. 
 
We are not aware of analysis that would show how an increase in the price of logoed 
goods of 10-12%, while presumably prices of other competitive products remain the 
same, would affect sales of logoed goods. 


Issues and Comments on the Designated Supplier Program (DSP)

This document produced by the Fair Labor Association raises debate regarding the Designated Supplier Program, initiated by the Workers Rights Consortium.  Issues of concern include guidelines regarding the program’s impact on countries which bar independent unions, associational rights, living wage, antitrust issues, the selection of DSP factories, and the impact on retail prices.Issues_and_Comments_on_the_DSP.pdf: 63 downloads, before Oct. 1, 2020

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