How international trade rules hinder fair fashion

Despite many initiatives for fair and sustainable fashion, the majority of clothing is still produced with disregard to human dignity. When the industry does not change, could laws and policies that limit or ban the trade of unfair fashion be the solution?

Pepijn Tielens15 February 2021

It is likely that a share of the things you eat, use and wear, have crossed multiple borders. International trade is everywhere and has an impact on everyone. To ensure ‘trade flows as smoothly, predictably and freely as possible’, international trade rules were established. The primary objective of these rules is to facilitate trade between countries with as little restrictions as possible. In practice, we see that this prosperity comes at a cost, as brands are always on the lookout for the cheapest countries to produce, which leads to exploitation of humans, animals and nature. So, what are the trade rules that hinder fair fashion?

Free trade

There are dozens of reasons, to hold the fashion industry accountable, promote transparency or subsidize fair fashion. To do this on a global scale through laws is harder than it seems, and that has everything to do with international trade rules. To understand this, we’ll need some background information first.  

The main organization for international trade is the World Trade Organization (WTO) and almost all countries in the world are a member of this international organization. Thanks to the trade-wars between the US and China, the WTO has been featured in the headlines lately, but the story goes back to 1947. In the aftermath of World War II (WWII) many international organizations, were established to govern the international order and ensure peace and security. World leaders were convinced that a new economic world order, governed by trade rules among others, was necessary to prevent a repetition of WWII. At present the WTO ensures that trade rules are followed, promotes the establishment of trade agreements between countries and in case of disagreement, it acts as a court to settle disputes. The goal of the WTO is to promote trade between countries by taking away trade barriers, such as tariffs that need to be paid when importing or exporting products. Through negotiation rounds, all members (countries) develop new agreements and rules to reach the WTO goals and create an international trade system without barriers. In order to ensure that countries are committed to negotiate about trade rules, some of the basic rules of international trade have been laid down in the General Agreement on Tariffs and Trade (GATT). Every country that is a member of the WTO has signed the GATT and thus pledged to international trade.

Non-discrimination

So far so good. But… it is the GATT, that, while eliminating barriers to free trade, simultaneously increases barriers to regulate the fashion industry on a global scale. This is mainly due to three provisions that are included in the GATT:

- Article I (The Most Favoured Nation Principle)

- Article III (National Treatment Principle)

- Article XI (General Elimination of Quantitative Restrictions); 

It is these three provisions that embody the most important principle of the WTO: non-discrimination. This means that a country cannot discriminate between other trading countries or between their own products and foreign products. To understand why non-discrimination is the most important principle of the WTO, we’ll have to look at history. Discrimination against other countries was an important characteristic of the protectionist trade policies pursued by many countries during the Great Depression of the 1930s. These discriminatory policies are regarded as an important contributing cause of the crises that led to WWII. To avoid repetition, non-discrimination has become a central element in international trade.

Most Favoured Nation Principle

This principle ensures that a country cannot favour the import of “like products” of one country, over the same products of another country. “Like products” are products that are similar. The GATT only looks at the end-product and does not take into account how products are produced, which is called PPM (process and production method). Up till now, there have been many disputes between countries about “like products” and the WTO decides on a “case-by-case” basis if products are alike.

Germany puts a tax on the import of Columbian non-alcoholic beers that are produced by taking out the alcohol at the end and have exempted tax for Mexican non-alcoholic beers that do not involve alcohol in the production process at all. Columbia is “discriminated” and will likely complain in front of the WTO. Although the PPM differs, the end-product is the same, so the WTO will decide that Germany has to remove the tax.  

National Treatment Principle

The second principle looks at trade restrictions between an importing and exporting country. It is not allowed to ask a higher tariff/tax, ban or limit the import of a “like product” from a foreign country, when there is not a similar measure in place that limits national products as well.

After the tax on the Columbian beers, Germany decides to put the tax tariff on all foreign non-alcoholic beers, which puts the German non-alcoholic beer industry on a comparative advantage as these beers are not taxed in the same way. Columbia goes to the WTO for the second time and invokes the National Treatment Principle. As discrimination between foreign and national products is prohibited, Columbia will successfully challenge the tariff.

General Elimination of Quantitative Restrictions

The last principle is concerned with quantitative restrictions, which in practice often concerns limitations on trade volumes or trade bans. However, quantitative restrictions are broad as the WTO decides on a case-by-case basis, so even a label on certain products can be seen as a restriction. Overall, this principle is similar to the other two, only that it is concerned with other trade measures.

To ensure that their own beers are still competitive, Germany decides to limit the trade of Columbian non-alcoholic beers and put a warning-label on all Columbian beers, that indicates the PPM. Columbia complains again but this time against the limitation and the labeling. After a long process, the WTO decides to lift the limitation as well as the labeling, because the warning-label has disadvantaged the Columbian non-alcoholic beers and Germany did not have a justification for this restriction.

A sustainable T-shirt

As far as non-alcoholic beverages are concerned, it seems fairly honest to apply the principle of non-discrimination. But let’s look at these trade rules from a sustainability perspective. Are sustainable t-shirts and unsustainable t-shirts “like products”?

Well… yes and no. If there remains a trace of production or process method in the end-product, it is generally agreed among WTO-countries that countries can differentiate between products. A t-shirt that is made out of biological cotton is not a “like product” as compared to a t-shirt which contains cotton that has been grown through pesticides, because the cotton still contains a pesticide residue. This means that a country can favour the one product over the other, or in practice: a country could ban or limit the import of t-shirts made of pesticidal cotton or set higher import tariffs to discourage production and trade. However, not all PPMs can be found in the end-product, which are the so-called “non-product related PPMs”. A t-shirt that has been produced in a sweatshop by an underpaid garment worker is a “like product” as compared to a t-shirt that has been produced under fair conditions. So, under current WTO-rules, it is likely that countries cannot limit or ban trade of unfair fashion and promote trade of fair fashion, as “non-product related PPMs” are not considered in the determination of “like products”. As the WTO decides on “like products” on a case-by-case basis, it remains a mystery where the division between these PPMs lies. The barrier for sustainability has been challenged since a long time. The International Institute for Sustainable Development indicated in 1998 that the differentiation on PPMs between sustainable and unsustainable produced goods is vital to ensure that free trade does not hinder sustainable development, but rather balances these interests. 

Exceptions

As every rule has its exceptions, there are also exceptions to the GATT rules. As the basic principle is non-discrimination, it is up to the country that invokes the exception, to justify it. In the case of textile, a relevant exception is the necessity to protect public morals, which would justify a trade regulation. An exception will only be accepted by the WTO when it does not constitute an arbitrary of unjust discrimination between countries (remember the Most-Favoured Nation Principle?) or a disguised restriction on international trade. In practice the WTO often favours trade over environmental, social and public health issues, when they act as a court to settle trade disputes between members. Countries are allowed to pursue environmental policies, but only in a non-discriminatory manner. Historically the public morals exception has been invoked in cases concerning firearms, pornography and products linked to animal cruelty. But what does ‘public moral’ actually mean? To answer this question in a previous case (US-Gambling), the WTO took the Oxford dictionary and concluded that ‘public morals’ are “standards of right and wrong conduct maintained by or on behalf of a community or nation”. The difficulty here lies how we can define standards of right and wrong on an international scale, as the textile sector operates across the globe. 

Any ideas? Well, what about human rights, our universal standards of right and wrong conduct? From numerous reports, it is clear that human rights are violated in the fashion industry. Think about forced labour (Uighurs in Xinjiang), child labour (throughout the whole supply chain), sexual assault of women (the Lesotho’ jeans industry) etc. Countries could invoke this exception when regulating international trade of unfair fashion. This could push governments of exporting countries, who are responsible for the protection of human rights on their territory, to ensure that workers’ rights are respected in the supply chain. In the past the EU has justified a ban on the trade of fur of baby seals, because of the public morals’ exception (European Communities - Measures Prohibiting the Importation and Marketing of Seal Products) and the fact that fur of baby seals is a visible PPM.

The question is to what extent countries and the WTO would accept a public morals justification because of human rights abuses, as those abuses are not visible in the end product (PPMs, remember?). Furthermore, trade restrictions could be put in place, but it remains to be seen how this works in practice. Will a ban or an increased import tariff on clothing from factories that cannot guarantee decent work and fair treatment lead to improved circumstances? Or will these factories close which could potentially lead to millions of garment workers plunging further into poverty? Evidence tends to prove the latter: when COVID-19 hit, major fashion brands stopped payments down their supply chains. Guess who pays the final bill? Garment workers. Profit over people, because the final summer sale must go on. History has shown that fashion brands will find one way or another to keep producing cheap without respecting rights of garment workers. If it is not China or Bangladesh, they will move to Ethiopia, where cheap labour is in abundance. Somehow, there has not been a country or group of countries that has taken a strong stance against human rights violations in the fashion industry, and the question is how many Rana Plazas it will take until countries as well as the industry itself will put an end to this.  

Labelling

So, if human rights abuses are not visible in the end-product, could we make it visible for consumers? As said before, you do not buy your clothing because it is made in a sweatshop under harsh conditions. It is partly a matter of transparency and awareness and an increase herein, which could gradually put pressure on fashion brands, governments and the textile industry. Could a label be the solution? Eco-labels already exist and textile brands in Europe can Choose the Flower for your Textiles’. Human rights or social responsibility labels for clothing? Well, you’ve guessed it… “non-product related PPM” so likely that it is not allowed under current international trade rules.

Currently, the labels that do exist are voluntary, and brands can easily greenwash their products. An obliged label, concerning sustainability and social responsibility, could make customers more aware of what it is they buy and they will be directly confronted when they buy their clothing. The past has shown that Codes of Conduct, certifications and audits alone are not enough to make fashion brands transparent. To make matters even worse, Follow The Money, a Dutch independent platform for investigative journalism, recently disclosed that certifications and ethical labels are good for the name of the brand, but do not say anything about ethical conditions at all, as even these “independent” audits are corrupted and driven by profit.  

A long way to go

It seems under current trade rules, attempts by governments to push towards sustainable and fair fashion will strand. The rules do not permit a deviation from limitless and profit-driven trade to fair free trade. The question countries should ask themselves: Is free trade more important than respect for human rights and a sustainable world for all to live and thrive in? As long as countries do not take the initiative to regulate unfair trade or negotiate for sustainable trade rules, the WTO-regime remains a barrier for a fairer fashion industry.

Luckily, there are shifts to put rules into place to hold the fashion industry accountable, such as new EU law which is regarded as ‘gamechanger for human rights’. This due diligence legislation contains requirements for businesses to prevent negative human rights and environmental impacts in their supply chains. Companies need to identify negative implications, take appropriate action and track the effectiveness of the measures. This law applies to all companies in the EU as well as non-EU countries that sell products in the EU, such as Primark t-shirts from Bangladesh that are sold in The Netherlands. Sanctions and even criminal measures will be put in place, in case of non-compliance. The first text of the law is expected in June 2021 and similar laws on responsibility for environmental matters and human rights in the supply chain have been introduced on the national level in France (2017) and Germany (2021). From the looks of it, the European Union will make it much harder for fashion brands to produce without respect for human dignity in their supply chains, although there is still a long way to go.

While we wait for these changes to happen, you can change your consuming pattern for the sake of humanity and our planet. How? Read our blog and to make it easier we will label your purchases through our Chrome extension, so you can make an informed decision, not only environmentally, but also socially.

About the author: Pepijn Tielens  has a background in Public International Law with a focus on human rights and the Sustainable Development Goals. Through his study he conducted research about sustainability in the garment industry. He currently works as a study- and career counselor for refugee students at Stichting UAF and is vice-coordinator of the UNCTAD Youth Action Hub The Netherlands.

If you have any questions, comments or feedback, feel free to contact us! hello@fairify.io

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