Think Tank: Recent Arbitrations and the Future of the Bangladesh Accord

Viren Mascarenhas and Kayla Winarsky Green

Updated Fri, March 9, 2018 at 4:56 PM UTC

In our previous column last December, we discussed the 2013 Accord on Fire and Building Safety in Bangladesh, which more than 200 global brands and retailers, labor unions and private companies voluntarily entered into in the wake of the disastrous building collapse in Bangladesh’s Rana Plaza on April 24, 2013. The collapse of the building killed more than 1,100 garment workers and injured more than 2,000 others. In 2016, the labor union signatories initiated two arbitrations against global brands alleging that they were not living up to the obligations set forth in the Accord. The two arbitrations were administered by the Permanent Court of Arbitration in The Hague, the Netherlands. On Sept. 4, 2017, the tribunals concluded that the two arbitrations brought under the Accord were admissible.

Since that publication, both arbitrations have settled, indicating that global retailers will take arbitrations initiated by labor unions seeking to hold them accountable via binding dispute settlement mechanisms seriously. The settlements were the first instances in which arbitrations were conducted under a business and human rights agreement (the Accord), and may be a harbinger of the use of arbitration to resolve human rights disputes in an increasingly socially conscious world.

The arbitrations were confidential to some extent. While the existence of the two arbitrations was known, the identity of the fashion brands remains unknown, and not all counsel representing the parties have been identified. The claimants, Swiss labor unions IndustriALL Global Union and UNI Global Union, filed their claims against one fashion brand in July 2016 and against the other in October 2016. While the pleadings are not publicly available, the labor unions subsequently released press statements explaining that the disputes pertained to whether the brands had met certain requirements in the Accord.

Such requirements include the obligation to remediate facilities within mandatory deadlines and negotiate commercial terms that make it financially feasible for their suppliers to cover the costs of remediation. In addition to finding the claims admissible (on the basis that the preconditions to arbitrate the dispute had been satisfied), the tribunals also concluded that certain information about the arbitrations would be made public. The tribunals sought to strike a balance between satisfying the public’s interest in the Accord, and the fulfillment by fashion retailers of the obligations set forth therein, and the privacy of the retailers regarding the binding dispute settlement.

What we do know is this:

The December 2017 Settlement

On Dec. 15, 2017, the Swiss labor unions released twin press statements announcing they had reached a settlement with one of the fashion brands. While the press statements did not go into specifics regarding the terms of the settlement, they stated that they reached an outcome in which the brand committed to providing “substantial funds” to help suppliers remediate their factories and to ensure that the remediation work occurs pursuant to the terms of the Accord.

The January 2018 Settlement

On Jan. 17, 2018, the law firm tasked with representing the unions circulated a press release, confirming that the “historic” settlement agreement was executed, only eight days after the unions filed their Statement of Reply. The press release did not go into specifics, but noted that the settlement amount would ensure that more than 150 garment supply factories are “remediated” and substantial funds would be made available to elevate them into compliance with the standards of the Accord. Under the settlement, the unnamed brand was also mandated to contribute “significant funds” to IndustriALL and UNI’s joint Supply Chain Worker Support Fund, established to support the work of the global unions to improve pay and conditions for workers in global supply chains. IndustriALL Global Union later published an article providing more color on the terms of the settlement. The article specified that the settlement totaled $2.3 million — $2 million toward remediating the factories and $300,000 toward the support fund.

The Future of the Bangladesh Accord

The Accord has served as a catalyst for substantial change and has carved out a clear legacy for itself, within the mere five years that it has been in effect. Along with serving as the legal basis for two such settlements, the Accord has prompted major remediation in the communities it was created to better. Since the Accord went into effect, 83 percent of workplace dangers identified in the Accord’s original round of inspections have been remediated, and 500 “Accord factories” have completed 90 percent or more of the necessary fixes.

However, the terms of the Accord will expire in May, and its future is far from clear. While a successor Accord extending the Accord’s protections until May 31, 2021 was signed in June 2017, there are far less signatories than there are to the initial agreement. As of Jan. 25, 2018, only 53 of the original 220 Accord companies have signed on to the 2018 Accord, prompting advocacy from concerned investors in the form of a public statement.

Specifically, 147 investors holding $3.7 trillion in assets have issued a statement calling on companies to stay the course of the Accord. The investors are part of the Bangladesh Investor Initiative organized by the Interfaith Center on Corporate Responsibility, and they argue that additional time is needed to complete the remediation plans and worker training indicated by audits at the more than 1,600 factories covered by the Accord. The statement will accompany letters being sent to the 160 companies that have not yet become signatories to the three-year extension of the Accord, urging them to participate.

There is also the possibility that the second Accord will not come into place at all. If a joint monitoring committee — which is to be composed of all Accord brand signatories, Accord trade union signatories, the Bangladesh Garment Manufacturers and Exporters Association, the International Labor Organization and the Government of Bangladesh — unanimously agrees that a set of rigorous conditions for a handover to a national regulatory body have been met before the May handover date, the second Accord will be moot. But this is unlikely, especially in the few months before the Accord’s terms end.

Given all that has been accomplished since it was introduced, the 2013 Accord on Fire and Building Safety in Bangladesh is a historical success, but whether it will be a part of the future at the same scale as before is at this point unknown. We will keep you posted on the developments.

Viren Mascarenhas is counsel in King & Spalding’s New York office, and is a member of the International Arbitration Practice Group. Kayla Winarsky Green is an associate in the Special Matters and Investigations practice.

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