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Not Concerned About Garment Exports From Bangladesh? You Should Be

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Not Concerned About Garment Exports From Bangladesh? You Should Be

A recently-announced agreement from North American and European retailers – establishing a “common, minimum criterion for fire and strucural inspection safety standards,” in Bangladesh's textile factories – could end up having a ripple effect across not only the stores sellling those garments but also for investors and consumers.

Bangladesh, as Reuters noted, is second only to China when it comes to the production of apparel for export; with 60 percent of the clothes made in Bangladesh ending up in Europe and another 23 percent going to the United States.

The country's $20 billion garment industry is essential to Bangladesh's economy; reportedly employing four million workers and making up 80 percent of the nation's export income. But the low wages that allowed Bangladesh to become a manufacturing powerhouse have also lead to sweatshop conditions and dangerous workplaces.

This past April, over 1,100 workers died when an eight-story factory building collapsed outside Dhaka. And 112 employees of a factory that makes clothes for Wal-Mart (NYSE: WMT), Disney (NYSE: DIS) and other Western brands were killed last November, when a fire swept through their facility.

After coming under intense international scrutiny, retailers organized two groups, the North American Alliance for Bangladesh Worker Safety and the Euro-centric Accord on Fire and Building Safety in Bangladesh.

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According to the Wall Street Journal, the new agreement would have the Accord inspect over 1,600 factories in Bangladesh, while the 26-member Alliance – which makes includes such companies as Costco (NASDAQ: COST) , The Gap (NYSE: GPS), Fruit of the Loom, owned by Berkshire Hathaway (NYSE: BRK-A),J.C. Penney(NYSE: JCP) , Macy's(NYSE: M),L.L. Bean and Target (NYSE: TGT) – would monitor about 600 other garment manufacturing facilities.

Bangladeshi garment workers have also been protesting for higher wages. On Thursday, the government approved a 77 percent pay increase for those workers, starting in December, to around $68 monthly for entry-level employees. Reuters reports the raise “was in line with the expectations of factory owners who had said they would ask retailers to shoulder part of the costs.”

Analysts say we should expect those additional retail costs to end up in the laps of customers.

Anything that's going to increase the cost for producers will get passed down the road to consumers,” Mac Clouse, a professor of finance at the University of Denver's Daniels College of Business, told Benzinga.

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And while the price hikes may not end up being significant, those additional safety expenses and wage increases could prompt the international garment industry to once again look elsewhere for manufacturers – much as they looked to Bangladesh after China's laborers began demanding better conditions and higher wages.

And factory owners in Bangladesh are already saying the planned wage increases at their facilities will make them uncompetitive against Vietnam and more cost-efficient producers in other emerging economies.

 

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