Could Indonesia's garment industry guide Bangladesh?

Indonesia has reformed its clothing industry since the sweatshop-plagued 1990s, and may offer a model for Bangladesh to improving labor standards while also remaining competitive.

Focus

While much of the world was reacting to the collapse of the Rana Plaza garment factory in Bangladesh, another clothes-making country, Indonesia, was gripped by its own labor nightmare – the discovery of a kitchenware factory that had held dozens of employees locked in small rooms and deprived them of pay for months.

The case was an extreme example of abuse, but workers'-rights groups say it revealed how even countries that have made progress on improving labor standards are under pressure to cut costs and remain competitive.

A mix of government support and binding agreements between unions and foreign companies have helped give Indonesian workers a voice and improved health and safety, say activists, meaning workers here are more concerned with salaries than ceiling collapses. "We're much better than Bangladesh in many ways; we have one of the best minimum wages in Asia, and we're relatively free to form trade unions," says Surya Tjandra, a labor laws expert at Jakarta's Atma Jaya University.

Like much of Asia, Indonesia built its garment industry on the back of a large pool of low-cost labor, starting in the 1970s. But factory conditions have improved since the sweatshop-plagued 1990s. And after Indonesia's autocratic leader Suharto stepped down 15 years ago, ushering in democracy, labor reforms accelerated.

Former President Megawati Sukarnoputri supported several worker-friendly laws, including a 2003 law that mandates high severance payments. In the past year, minimum wages shot up by as much as 40 percent.

Indonesia's unions also have grown noisy, frequently taking to the streets to protest low wages and other grievances. They've had some success, but still face challenges organizing. Government officials worry that disruptive protests, which occasionally result in violence, could drive away foreign investors.

That's why big-name brands have a critical role to play in improving factory conditions, say labor activists.

They point to a freedom of association protocol [FOAP] signed in June 2011 by trade unions, supplier factories, and six international sportswear brands – including Adidas, Nike, and Puma – which helps ensure that workers can organize in factories to push for better pay and working conditions. It's the first such accord worldwide to involve commitments between local labor groups and suppliers and global retailers.

After the accord was signed, a factory making goods for Nike agreed to pay more than $1 million in unpaid overtime to nearly 4,500 workers as part of a settlement with a local union. In April, a supplier for Adidas came to a similar compensation agreement.

An agreement with six companies may be small when compared with the new accord on fire and building safety in Bangladesh signed by dozens of companies. But the six represent the bulk of the global athletic footwear market, which means they have an important role to play in setting industry standards, says Jeroen Merk, a policy coordinator at the Clean Clothes Campaign, one of the organizations that advocated for the protocol.

Accords like the FOAP are important, says Scott Nova, executive director of the Worker Rights Consortium, a labor-monitoring group, because they are binding agreements "that speak to the obligations of factory owners and the brands and retailers."

Implementation however, remains a challenge. Factories still prevent workers from carrying out union activities; the law allows unions to form but does not set out specific rights that allow them to function. "There have been huge problems with workers being robbed of severance pay," Mr. Nova says, "and while the minimum wage is substantially higher due largely to massive worker protests, it's still a poverty wage."

The minimum wage, set by local governments, ranges from $80 to $160 a month, compared with $37 in Bangladesh and $75 in Cambodia. Indonesia is the world's 12th-largest exporter of textile products, accounting for roughly 1.8 percent of global demand. In recent years it has lost market share to Vietnam and Cambodia, but its relatively better working conditions could start to draw more orders from foreign retailers.

"We're well proven in quality and delivery times," says Ade Sudrajat, the chairman of the Indonesian Textile Association, adding that factories also comply with buyers' codes of conduct on health and safety, which most major retailers have drafted.

Nike was one of the first companies to create codes governing the conditions at its supplier factories following a series of public scandals in the 1990s that partly involved unpaid workers in Indonesia.