Background

1. A number of factors have combined to heighten concern over the human conditions under which goods available in our high streets and supermarkets are produced abroad. It becomes ever easier and quicker to source goods from an array of hitherto closed or distant economies. Finished goods of a relatively high level of complexity and sophistication can be and are sourced from a growing range of less developed economies. Side by side with this globalisation of trading has come the vigorous action of a number of campaigning non-governmental organisations (NGOs), including many based or with connections in these countries, in gathering and publishing evidence of abuses of labour, particularly of child labour. While some of the demand for a more critical look at the sourcing of goods has arisen from concerns at the loss of jobs to lower wage economies, there is no gainsaying the depth of genuine concern and consumer awareness at exposures of this sort. At the same time, companies investing ever more heavily in branding and niche markets have to be increasingly defensive of their reputation and image. These developments have taken place within a framework of trade liberalisation under the auspices of the World Trade Organisation (WTO), which constrains the freedom of most states to impose controls on trade, even for avowedly ethical (or environmental) reasons.

2. There has as a result been growing interest in exploring formal and informal means of applying ethical considerations to trade policies and practices, and in particular to the relationship between trade and labour. While there has been activity by a range of multilateral bodies, in particular the WTO and the International Labour Organisation (ILO), the dynamics are such that the running has been made by companies, collectively or individually, and by voluntary bodies, in some cases with the active participation of organised labour. Within the UK, companies, NGOs and trade unions have come together to create the Ethical Trading Initiative (ETI). In the US, a similarly constituted but more narrowly-focussed Apparel Industry Partnership was launched in August 1996, producing a code in April 1997. The Canadian Government is understood to be planning an ethical trade taskforce. Both the Australian and New Zealand Governments have recently produced guidelines for trading codes of practice. There is a range of voluntary activity in many other European countries, notably in Germany and Switzerland.

Inquiry

3. We decided early in this Parliament that it would be useful to hold an essentially introductory session of oral evidence on ethical trading, following our reports on Strategic Export Controls and the proposed Multilateral Agreement on Investment.[1] We heard oral evidence on 9 February 1999 from a number of organisations actively involved in the ETI and others, as well as receiving some written submissions. We intend to continue to pursue a number of the issues raised, some in the context of other inquiries: and to return to the subject in the course of the coming year. We will be visiting the WTO and ILO in Geneva in late March to take forward our interest in this area, as well as to pursue other trade and industry related concerns.

Focus of inquiry

4. "Ethical trading" can be defined in any number of ways. The present focus is a relatively narrow one on the sourcing overseas of goods for consumer sale in the UK and activities undertaken to ensure that such goods have been produced under internationally acceptable labour standards. On this basis trading can be judged to be more or less ethical on a spectrum from ethical to unethical. "Fair trade" on the other hand is a phrase which has come to cover different although related concerns over the economic relationship between the supplier and the buyer. Those who support "fair trade" products seek to ensure that the producers — generally marginalised smallscale producers of food products — receive a price for their product above that which they could otherwise receive. The opposite of such "fair trade" is held to be "conventional trade".

5. There are inherent limitations in thus restricting consideration of ethical aspects of trading —

• it does not cover the ethical issues within the daily life of all companies, such as honesty and truth:
• it risks deflection from global concern in the last few decades over the behaviour of multinationals in terms of their directly or indirectly managed operations across the world, which has given rise to a number of codes, much debate and some positive results:
• it omits the trade in raw materials, components or unfinished goods which are subsequently processed and sold in developed countries:
• it cannot cover the conditions of labour for the vast majority of workers overseas: it has for example been estimated that only 5 per cent of illegal child labour is export related:[2]
• it does not cover the issues of socially responsible investment or tourism.[3]

There is also a risk that concentration on core labour standards — pay, discrimination, child labour, forced labour, freedom of association and collective bargaining — may mask other concerns, such as health and safety. We note, for example, that concern expressed following toy factory fires prompted the British Toy and Hobby Association to distribute a detailed "Fire Prevention and Emergency Preparedness Guide" and that its Code of Conduct places particular emphasis on such matters.[4] Others may feel that the observance more generally of human rights and environmental protection should be criteria in deciding where to source goods. It is important not to lose sight of the much broader canvas of trading which is equally potentially susceptible to ethical examination.

Consumers

6. Much of the impetus behind recent developments in ethical trading can be attributed to the growth of expectations among consumers, including institutional consumers, that the products they buy should have been produced in accordance with minimum labour standards. Survey evidence suggests that a majority of consumers are concerned about the human conditions under which goods are produced. Although only a small, if growing, minority may be willing in principle to pay a premium for ethical products — and a smaller minority in practice[5] — anecdotal evidence strongly that a negative ethical image associated with a brand or product can seriously affect sales. It is hard to imagine that a consumer would positively seek out products produced by forced or child labour or in grossly unsafe circumstances. As witnesses pointed out, consumers feel let down if they discover that a product has been so produced, particularly one expected to last for some time. Dr Knight of B & Q noted, "If ten years into the life of [a] rug they realise it was made by exploiting children, their pride in the decorating of their house is eroded ... ."[6] WDM noted "a clear desire from British consumers that their products should not be produced to the detriment of workers of local people overseas",[7] and suggested in oral evidence that "consumers should have the right to be able to ensure that the products that are produced come from supply chains that observe internationally agreed standards on human rights etc."[8] As Christian Aid wrote, "Full implementation of ethical trading would mean that consumers could shop in their supermarkets in the knowledge that what they buy comes from suppliers who offer working conditions which meet internationally accepted standards. However this is still a long way off."[9] The Chair of ETI told us "consumers assume that a company like Sainsbury's, Tesco or whoever, is big enough, powerful enough, experienced enough and ethical enough to sort out the supply chain".[10] When confronted with a range of products of broadly similar quality and price, many consumers will be swayed by other factors, such as the "integrity and decency" of a product, as the Secretary of State for International Development put it in her speech to the ETI Conference on 2 December 1998[11]

7.   Ethical sourcing of products is not only in the interest of those selling such products: it is also an issue of consumers ability to make informed choices. Consumers should feel able to rely on large reputable retailers to sort out their supply chain and provide the option of ethically produced goods, in the same way as they can reasonably expect them to be safe and healthy. Evidence from Safeway referred to a "small but growing proportion" of customers expressing concerns.[12] While it will no doubt remain the case that most consumers or other stakeholders such as employees[13] will not express concerns, that does not mean that they would not do so when made aware of the facts. Trading in goods produced under demonstrably "unethical" conditions may be considered by some to be not very different from trading in unsafe goods. By the same token some clarification may be required of the Trade Descriptions Act as it would apply to false or misleading ethical claims.[14] As the debate on ethical trading unfolds, and as consensus emerges on the core standards to be respected and the means of their monitoring and verification, so will the case for the recognition that unethical trading is considered by some consumers to be offensive.

8. On 27 January 1999 the Government published its draft Bill to establish a Food Standards Agency, intended to "protect public health from risks which may arise in connection with the consumption of food (including risks caused by the way in which it is produced or applied) and otherwise to protect the interests of consumers in relation to food."[15] The Agency is to have the function of developing policies relating to food safety "or other interests of consumers in relation to food".[16] The draft Regulatory Impact Assessment refers to benefits accruing to consumers as including better information "to enable consumers to make informed choices".[17] It is therefore arguable that information to be provided to consumers by the Food Standards Agency might, where practicable, extend to ethical considerations.

Role of DTI

9. Our principal function is to examine the work of the Department of Trade and Industry (DTI). In this essentially preliminary inquiry we have both sought to establish its role in ethical trading policy, and to encourage those who submitted evidence to address what that role, and the role of central Government more generally, should be. Several other departments are involved. The Department for International Development (DfID) is closely concerned with ethical trading policies as they affect the development of poorer countries, and is perceived by many of those involved as having in effect taken the lead in ethical trading matters more generally.[18] DfID found the £500,000 to fund the first three years of operation of the ETI : around half of this has been spent or committed to date.[19] It is now engaged in establishing a Social Dimensions of Business Resource Centre, at similar cost, designed to develop approaches and provide expertise, information and publicity to encourage British, international and domestic businesses operating, producing or trading in poorer countries to adopt socially responsible business practices there, thereby raising labour and living standards.[20] DfID also runs a Business Partnership Unit intended to strengthen its relationship with UK-based business.[21] DfEE are responsible for the development of labour standards at the ILO. FCO have a role in so far as ethical trading considerations impact on foreign policy. But it would seem axiomatic to us that, as the DTI's memorandum stated, "DTI has responsibility for UK trade policy". It is also the lead department on consumer protection and consumer rights and the sponsoring department for the UK commercial bodies most closely affected. The DTI is the national contact point for the OECD Guidelines on Multinational Enterprises,[22] and is evidently supposed to be the department most closely in touch with developments in the world of commerce.

10. DTI told us that it was "very keen to encourage ethical trading".[23] It has "endorsed" the Ethical Trading Initiative.[24] Mr Bridge, the senior official concerned, assured us that the ethical aspect of trade policy was "right at the heart of what we have been doing",[25] and that the ethical trading message was delivered to businesses "in the various day-to-day contacts that our industry sections have with their clients in British industry".[26] The main concrete evidence of this presented in oral evidence was the recently concluded OECD Convention on Bribery of Foreign Public Officials.[27] It could be said that the DTI has offered ethical trading all support short of actual help. The time is now ripe for the department to play its part in raising the profile of the debate with an adequate level of commitment of resources.[28] If there is a role for the Department of Trade and Industry to help develop, benchmark and promulgate best practice by British companies, it is arguable that it is as likely to bear fruit in the essentially "political" area of trading ethics as in the encouragement of greater financial or technical efficiency. We would welcome some explicit Ministerial encouragement of ethical trading, and the devotion of an adequate level of financial and personnel resources.

Social clause

11. There has been a longstanding debate — little or none of it conducted in Parliament — on the suggestion that "social clauses" should be inserted into trade agreements, restricting or blocking the access to markets of products from countries with poor standards of labour and other human rights. Particular efforts were made, in advance of the first Ministerial meeting of the WTO in Singapore in December 1996, to insert a social clause into the WTO's procedures, whereby contracting parties would ensure the observance of minimum labour standards, subject to a degree of external verification. These efforts proved in vain; but the issue remains a live one. The 1998 ILO Declaration was to some extent a result of the WTO Ministerial view that the ILO was the forum to set and deal with labour standards. The British Government is not keen to press for any work within WTO on the link between trade and labour, for fear of alienating those developing countries opposed to the idea, whose support is needed for developing follow-up mechanisms in the ILO.[29] The international trade union movement continues to press the case for the use of trade measures to enforce internationally agreed labour standards. As the General Secretary of the International Textile, Garment and Leather Workers' Federation told us "lack of respect for international labour standards provides some countries with a very unfair competitive advantage over others", giving as an example the way in which countries such as India, by recognising freedom of association and the right to collective bargaining, are undercut by others such as China, which do not.[30]

12. If those nations in membership of ILO carried out their obligations, there would be no need for consideration of such an issue. One of our witnesses suggested that after 80 years of existence the ILO needed a new set of teeth.[31] The introduction of follow-up mechanisms would be a welcome step in that direction. While the Government believes it best not to make too direct a link between trade policy and labour standards, that leaves some room for manoeuvre. The forthcoming November 1999 WTO Ministerial offers an opportunity for the Government to develop a rather more dynamic policy on linkages between trade policy and labour standards which, while respecting the sometimes opposing views of our European partners and the suspicions of developing countries, does more to reflect public concern at the continuation of abuses of labour rights and the growing sense that the WTO regime of trade liberalisation is an obstacle to be surmounted rather than part of a possible solution.

Import restraints

13. Legislation could be used to incentivise ethical trading and penalise the opposite, based on prohibition of import and/or sale of goods or services produced under specified circumstances, or failing to meet specified certification tests. Such legislation has been touted elsewhere, notably in the USA, where a number of bills seeking to prohibit the import of the products of child labour, or to provide for labelling of goods as "Child Labor Free" have been proposed in recent years. The US has statutory provisions banning the import of goods manufactured by prison labour and by indentured (bonded) child labour.[32] Extension of such legislation to cover broader breaches of ILO Conventions would not only be likely to fall foul of WTO rules, but might also be likely to be of little effect in improving labour standards as opposed to simply driving some suppliers out of the market.[33] DTI is not interested in the idea of imposing or requiring standards.[34] We note however the suggestion from Mr Zadek that "the relevance of some public regulation is once again being recognised and acknowledged by business itself.... One senior corporate executive stated 'Private fixing and imposition of standards can be haphazard and ultimately discriminatory.'"[35] The OECD Convention on Bribery and Corruption, and its Guidelines for Multinational Enterprises, for all their weaknesses, have the advantage of being signed up to by Governments. To the extent that codes of conduct do involve a degree of interference in another country's affairs, it may be less unacceptable if deriving from another Government rather than a corporation or private sector initiative. The case can be made for controls on imports which would bear down as heavily on products produced under demonstrably objectionable conditions as do similar controls on dumped goods on those being sold at an artificially low price.

Tariffs and sanctions

14. Given the rejection by successive British Governments of a social clause linking trade and labour issues, and the general view expressed in evidence to us that ethical trading did not — and should not — require incentives,[36] it should be noted that the UK has been an active proponent of the special incentive scheme now embedded within the EU Generalised System of Preferences (GSP), and indeed of a very much more ambitious scheme than that adopted.[37] The EU scheme as adopted in 1998 offers preferentially reduced tariffs for products from countries able to demonstrate full compliance with the ILO Conventions on freedom of association, collective bargaining and child labour.[38] The scheme is of rather doubtful effectiveness. The rates of reduction (of 15, 25 or 35 per cent) of the duty applied are too low to provide any real incentive, given that the prevailing rates of duty are in any event fairly low and in the case of many products from the poorest countries zero.[39] Only one application has so far been received, from Moldova: Georgia and Sri Lanka are considering application.[40] The TUC expressed its support for this procedure and sought its extension to cover all the core ILO Conventions.[41] If it is worth having a scheme of preferential tariffs for those signing up to and complying with international labour standards, then it must be worth having a successful scheme. We recommend that the Government press with vigour for a worthwhile scheme of preferential tariffs when the current scheme comes up for review, and that it insist upon regular reporting by the Commission of the outcome of the present scheme.

15. The other side of this coin is the deployment of punitive or preventative trade measures, such as those used in particular by the US. The US has procedures under its amended Section 301 of the 1974 Trade Act whereby it can impose import restrictions on, or suspend the availability of its GSP system to, countries failing to respect internationally recognised workers' rights. They seem however to have been used against countries such as Nicaragua and Syria as much for reasons of foreign policy as from a desire to encourage reforms in labour practices. The EU GSP system has a narrower power of whole or partial withdrawal, exerciseable only in relation to forced or prison labour, and currently deployed against Myanmar. The UK's ability to impose similar national measures under the 1939 Act used for export controls is perhaps doubtful.[42] The consensus among NGOs is broadly somewhat unfavourable to sanctions and boycotts, except where, as is the case of South Africa, bodies representing those likely to be directly affected actively seek such measures.[43] Nevertheless, few would quarrel with the sanctions applied on Myanmar. The question of the circumstances in which punitive trade measures can and should be deployed is one which we intend to pursue further in discussions in Geneva, particularly in the light of recent WTO decisions and the recent failure to agree in Cartagena on the proposed biosafety protocol. A case could be made for democratic nations to be allowed under defined circumstances to give legal force to a desire on the part of their citizens to restrict or ban the import of certain classes of products.

Government purchasing

16. Several witnesses noted that central and local government had a role to play as a major purchaser of goods, as well as a potentially influential one.[44] Other public bodies such as the organisers of the Sydney Olympics and FIFA have developed contractually binding codes on the production of goods carrying their brand identification. As Traidcraft Exchange put it, central and local government purchasing "can send strong market signals and create incentives to support production that meets specified standards".[45] The Fairtrade Foundation's Annual Report noted that the House of Commons decision of November 1997 to use exclusively Fairtrade coffee had given "a huge boost" to its campaign to develop the availability of such products in catering outlets. There is, however, a startling absence of clear guidance as to the admissibility of fair trade or other ethical specifications in catering contracts under "best value" procurement regulations. It was suggested to us that the DETR was indeed itself confused.[46] In a note which we had sought, the DETR set out the terms of the Local Government Bill relating to "best value" and emphasised the Government's view that "modern public procurement should not be used as a means to pursue other, wider, aims" and that "it would be difficult for public bodies to demonstrate value for money if they attempted to evaluate unquantifiable criteria which were not directly relevant to the performance of the contract in question".[47] Dr Zadek noted the distinct possibility that ethical specifications might fall foul of EU and WTO public procurement rules, and suggested that this was an issue to be pursued in the next WTO round of negotiations.[48] Clear guidance should be provided to local and other public authorities as to the permissibility of public procurement tenders containing specifications relating to ethical production.

Ethical Trading Initiative

17. A number of industry and trade associations, particularly in sectors such as toys, sporting goods and food products, have in recent years developed and published codes for their members which seek to apply common standards to their sourcing. Some firms have developed their own codes. Several of the NGOs interested in the area have formed a Monitoring and Verification Working Group to examine and develop models for the monitoring and independent verification of such codes, to ensure that they are effective in practice. The Ethical Trading Initiative grew out of these developments, as a way of bringing together the players rather than continuing in a sometimes sterile posture of confrontation and counter-accusation. Following a meeting of a number of companies, NGOs and trade unions in May 1997, the ETI was formally launched in December 1997, with 3 years funding from DfID and the endorsement of DTI. It has a small staff. In September 1998 it produced its agreed Base Code.[49] In December 1998 it held a conference, addressed by the Secretary of State for International Development. It is now embarked on trials of different methods of inspection, monitoring and verification in three pilot projects, on wine production in South Africa, horticulture in Zimbabwe and clothing in China.[50] Its first Annual Report is due out soon.

18. We warmly welcome the ETI, and the extent to which it has brought together those involved, to a degree not replicated elsewhere in Europe, to seek constructive engagement as a means of advancing towards agreed objectives.

(a)  The NGOs involved, while continuing to campaign on salient issues, have perforce to accept that constant criticism is not always the most constructive way forward, particularly where a company is judged to be making genuine efforts.[51]

(b)  Companies have to take what DfID candidly recognised as the risky undertaking of examining their own supply chains and of putting themselves up to be sniped at: "by beginning to discover things that they do or they do not know about and trying to rectify them, they actually hold themselves up to public scrutiny ....".[52] Most companies who have done so consider however that critical examination of their supply chain in terms of labour conditions fit relatively easily with what they must already do to ensure technical product quality.[53] As Mr Coates of WDM put it — "We are not asking companies to do anything through their monitoring and verification systems that they do not already do to assure product quality."[54]

(c)  Trades Unions, who are eager to ensure that what they see as governmental duties to enforce national and international laws are not diluted by private or voluntary action, and that codes brokered between companies and NGOs do not replace or devalue collective bargaining, and who are also concerned to ensure that freedom of association is not quietly dropped from codes,[55] are being asked to give the process some sort of implicit approval on behalf of workers overseas.

19. The ETI evidently has a long road to travel. Its business membership is currently largely limited to a number of large, and some smaller, retailers in the food and clothing retail sectors, many of whom already had codes in various stages of development. There are a lot of firms whose absence may become more conspicuous with the passage of time.[56] It is also possible that it might take on board some explicit consumer representation.[57] Given the interest in many other European countries, it may be that it can be used as a template for others, reflecting the existing European fair trade network: that could usefully replace the confrontational way in which ethical trading issues are handled in some countries.[58] The Ethical Trading Initiative is a valuable example of voluntary initiative supported by Government which could usefully be drawn to the attention of our European partners.

Codes of Conduct

20. The main concentration in the current ethical trading debate is on the adoption and implementation of codes of conduct. We do not propose to examine existing codes in any detail: there have been a number of recent publications which have done this, and we understand others are in progress.[59] Nor would it be appropriate for us to seek to establish what should and should not be in such codes. Based on the evidence put to us, however and on the readily available literature, we have arrived at some general conclusions —

(a)  There is not likely to be either an ideal Code or a uniquely acceptable means of monitoring and verification: those companies who have developed an individual approach to ethical sourcing which does not fit the ETI model, such as B & Q, who put an emphasis on concentrating on change in particular product areas, or C & A, who in effect prioritise some labour rights over others and seek to go "deeper" on those, are of course fully entitled to pursue an independent course.

(b)  It is critically important that codes encourage companies not to drop those suppliers whose performance does not meet agreed standards, but to nudge and cajole them into improvements, requiring patience on all sides and a degree of toleration of the imperfections of the world as it is.[60] As Mr Green of CAFOD noted "you cannot expect garment companies to stop sourcing from China".[61]

(c)  Although the 1998 ILO Declaration of Fundamental Principles and Rights at Work included freedom of association and collective bargaining, many codes omit reference to these matters. As an ILO 1998 Report noted "the paucity of treatment of this issue is remarkable, given the degree of unanimity on its essential nature between employers and workers at the ILO level".[62] While companies are of course free in practice to prioritise some labour rights over others, and to recognise that in some societies their exercise is some way off, it would be destructive were codes omitting the freedom of association and collective bargaining and discrimination rules to become widespread simply because of unfavourable prevailing social and labour structures in some countries.

(d)  Systems of monitoring and verification, or of accreditation, will only be seen by concerned consumers as effective if and when they penetrate beyond manufacturing plants to lower levels of assembly, including homework: it should not be so very difficult for companies or associations able to assure quality of production to give similar assurances on labour conditions. Reactive codes relying solely on complaint do not seem credible to us.

Smaller firms

21. While the larger companies are in the visible forefront of developments, it must be remembered that many UK SMEs source globally and require a system of ethical assurance within their financial and management resources. Similarly the firms whose operations are the object of scrutiny are themselves often small and chronically under-resourced; it would be destructive of efforts to nurture the culture of entrepreneurship in less developed countries if onerous systems of compliance were to drive all but large concerns out of the export market.

Labelling

22. Instant certification of particular products can be achieved by labelling or branding, so that consumers can be assured that a product has been produced in a particular desired way — for example, without the use of child labour. The Environment Sub-Committee has been conducting an inquiry into the environmental impact of consumer products which includes consideration of eco-labelling, and no doubt a number of its conclusions will have validity for ethical labelling. The perceived fiasco of European eco-labelling has indeed had an effect on the attitude to labelling among many observers.

23. Our witnesses expressed a general scepticism as to the prospects of a generally recognised and universally applicable label which would be able to assure a consumer that a product had been "ethically produced".[63] The ETI is not designed to lead to such an outcome; its logo is not a trademark and is not intended to be used in advertising.[64] Those involved feel strongly that its purpose is to advance the ethical standards of production of the mainstream of traded goods rather than of particular products from particular producers and so that a label would convey the wrong message.[65] As one witness put it — "We are not saying that ethical is a nice attractive alternative for producers. This is the way companies should be doing business .... to discriminate between products that are ethical and ones that are not tends to voluntarise something that is a quite clear moral position ..... ."[66] Conversely, the DTI's guarded view on ethical labelling owes something to an unwillingness to see products without such a label branded as unethical and so discriminated against.[67]

24. There is however a consensus that the existing labelling/branding schemes are of value, not least in raising the level of public awareness.[68] The FairTrade mark and its related European equivalents are carried on an ever wider range of products, soon to include bananas and orange juice. While still capturing only a relatively small slice of a narrow part of the market, the growing use of FairTrade marked products by institutions — including the House of Commons and DfID but not (as yet) the DTI[69] - suggests that for specific products with a specific focus a label can indeed be effective. The Rugmark scheme for labelling hand-knotted carpets as being manufactured without child labour, while subject to some criticism, has had apparent success in its objectives.[70] There is a scheme for cut flowers, the Flower Label programme. Such schemes remain rare, and are generally narrowly focussed on selected products, countries and issues — particularly child labour. There are difficulties over the potential proliferation of labels, their genuineness and the practicalities of conveying worthwhile information on a product such as a vest or a football, as well as the extent to which it is desirable to have a "pass/fail" certification of this sort.[71] Although the issue of consumer ethical/social labelling is not one currently for Government, it can readily be foreseen that demand may arise for a UK or EU scheme of labelling, comparable to eco-labelling or the child safety label. The European Commission has recently commissioned a report on social labelling, which among other things drew attention to the potential for such labelling to fall foul of WTO rules as a technical barrier to trade.[72] There is no demand for a comprehensive social labelling initiative, and many doubts about the value of any such scheme. There may however soon be a multiplicity of social labels which will require some response from the public authorities, and which may demand a revisiting of international trade rules on labelling.

Standards

25. Recent years have seen the emergence of several series of generic systems management standards under the auspices of the International Standards Organisation, notably the environmental ISO 14000 series and the quality assurance ISO 9000 series. There have been proposals for comparable social standards. There is a new international standard, intended to enable companies to "develop, maintain and enforce policies and procedures in order to manage those issues which it can control or influence [and] demonstrate to interested parties that policies, procedures and practices are in conformity with the requirements of this standard." Entitled Social Accountability 8000 (SA 8000), it has been recently developed by the New York-based Council for Economic Priorities and its Accreditation Agency (CEPAA). Companies and their suppliers who wish to be able to demonstrate that they comply with such standards have to be audited by certification companies accredited by CEPAA. The audit process is set out in a 60-page Guidance Document. SA 8000 was formally launched only around a year ago, so that it is difficult to draw any firm conclusions at this stage. Three organisations — SGS-ICS, Det Norske Veritas and BVQI — have so far been accredited to audit facilities. Only four certified facilities exist: Avon Products in the USA, and three in China. The process of training SA 8000 auditors is beginning.[73] It evidently offers the advantage of a single readily accessible standard, in a format which is comprehensible to those accustomed to dealing with similar environmental and animal welfare standards.[74] . It offers purchasers such as governments a formal standard which can be incorporated in tender documents, although it remains to be seen how far a "SA 8000 preferred" or "SA 8000 only" specification would fit in with international, European and domestic law. It avoids a supplier having to meet a raft of overlapping or conflicting demands arising from different codes.

26. Evidence given to us did however also point up some important potential disadvantages with SA 8000, in particular the extent to which it removes the responsibility on companies to source ethically, leaving the onus on suppliers to achieve — and pay for — certification.[75] While large manufacturing plants may be able to follow this route, it seems improbable that most of the hundreds of thousands of small concerns producing for export will, let alone those working at home.[76] As Phil Wells of the Fairtrade Foundation put it, "The rewards are there for having good suppliers, not necessarily for encouraging your suppliers to improve".[77] B & Q warned of the danger that "factories where practices are already good will be accredited, whilst factories with major problems are ignored, resulting in hardship for those workers".[78] Only time will tell how far such standard-setting is likely to be truly effective in this area.

Social Audit

27. The increased emphasis on ethical sourcing is part of a wider growth in awareness of the social accountability of companies to the community at large. Social accountability has as its handmaiden social and ethical accounting, auditing and reporting. These are not new concepts. As Dr Zadek put it — "There has been an explosion of work in developing and applying non-financial measurement frameworks and associated process and substantive standards relevant to business .....".[79] Although the move towards social audit has been much more pronounced in North America than in Europe, there is growing interest among UK companies. There has also been significant professional and academic interest. Social auditing in the UK remains however at a somewhat undeveloped stage. The TUC noted the absence of a recognised social audit profession, suggesting a role for the ILO in creating such a capacity.[80] Some observers feel that the current review of the Companies Acts offers an opportunity to bring it into the mainstream.[81] The Consultation Document from the Company Law Review Steering Group Modern Company Law For A Competitive Economy: The Strategic Framework, published on 26 February 1999, addresses at various points the potential for changes to company law to recognise the interests of stakeholders, and notes the current extent of "non statutory reporting".[82] Views are being sought on these matters. Those seeking to encourage and incentivise ethical sourcing and reformed trading practices will no doubt seek to use this opportunity. We gained the impression that DTI has yet to grasp that enhancing the mechanisms of social accountability of companies is one means of advancing an ethical trading policy, and that there is indeed likely to be a trade policy interest in proposals made in that respect.[83] We recommend that the Department ensures that its ethical trading concerns are given due weight in the current Company Law Review.