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entitled 'Defense Management: Industry Practices Can Help Military 
Exchanges Better Assure That Their Goods Are Not Made by Child or 
Forced Labor' which was released on January 31, 2002. 

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United States General Accounting Office: 
GAO: 

Report to Congressional Requesters: 

January 2002: 

Defense Management: 

Industry Practices Can Help Military Exchanges Better Assure That 
Their Goods Are Not Made by Child or Forced Labor: 

GAO-02-256: 

Contents: 

Letter: 

Results in Brief: 

Background: 

Military Exchanges' Efforts to Identify Working Conditions in Overseas 
Factories Not As Proactive As Some Private Sector Retailers' Efforts: 

Single Industry Standard Not Considered Practical, but Industry 
Practices and Other Assistance Could Be Useful to Military Exchanges: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Efforts of Government Agencies, Nongovernmental 
Organizations, and Industry Associations to Address Working Conditions 
in Overseas Factories: 

Government Agencies: 

Nongovernmental Organizations: 

Industry Associations: 

Appendix III: Examples of Web Sites With Codes of Conduct: 

Appendix IV: Comments From the Department of Defense: 

Appendix V: GAO Contacts and Staff Acknowledgments: 

Tables: 

Table 1: Number of Retail Locations and Reported Annual Revenues and 
Earnings for Military Exchanges: 

Table 2: Private Label Merchandise of the Military Exchanges: 

Table 3: Number of Factories by Country or Territory That Produced 
AAFES' Private Label Apparel in Fiscal Year 2000: 

Table 4: Retailers' Web Sites With Codes of Conduct: 

Abbreviations: 

AAFES: Army and Air Force Exchange Service: 

DOD: Department of Defense: 

[End of section] 

United States General Accounting Office: 
Washington, DC 20548: 

January 31, 2002: 

Congressional Requesters: 

The military exchanges operate retail stores similar to department 
stores at 1,552 locations worldwide, selling apparel, footwear, 
household appliances, jewelry, cosmetics, food, and other merchandise. 
Their mission is to (1) provide quality merchandise and services for 
active duty military personnel and certain other persons affiliated 
with U.S. armed forces at uniformly low cost and (2) generate 
reasonable earnings for the support of the Department of Defense's 
morale, welfare, and recreation programs. With sales of $9 billion a 
year, the military exchanges, as a group, are comparable to some of 
the largest general retail chains in the nation. The military 
exchanges sell name brand items (such as Nike, Levi's, and Liz 
Claiborne), as well as apparel and other merchandise under their own 
private labels.[Footnote 1] 

Like leading retailers in the private sector, the exchanges do not 
manufacture the merchandise they sell but, instead, rely on 
independent suppliers, including national name brand companies, 
brokers and importers, and overseas companies. With globalization, 
U.S. businesses have increased their reliance on the latter—importers 
and overseas companies—and, at the same time, have encountered a 
growing number of allegations that overseas factories manufacture 
merchandise under sweatshop conditions. In various countries, there 
are reports of worker rights abuses (such as child labor, forced 
overtime work, and workplace health and safety hazards) and of 
antilabor practices. Such issues have led human rights organizations 
and the news media to scrutinize working conditions at overseas 
factories. Because of this situation, you requested that we examine 
the overseas buying practices of the Army and Air Force Exchange. On 
June 20 and 21, 2001, we briefed the staff of Representatives Cynthia 
McKinney and Sherrod Brown and the Morale, Welfare, and Recreation 
oversight panel of the House Armed Services Committee, respectively, 
on the progress of our work.[Footnote 2] As a result of our briefings, 
the House Armed Services Committee Report for the Fiscal Year 2002
National Defense Authorization Act directed the Secretary of Defense 
to ensure that the military exchanges implement a program to assure 
that their private label merchandise is not produced by child or 
forced labor. 

As agreed with your office, we continued with our work to identify 
industry practices that might provide a framework for or prove 
beneficial to the Navy, Marine Corps, and Army and Air Force exchanges 
in establishing their program. In this report, we (1) compare military 
exchanges with the private sector in terms of the methods used to 
identify working conditions at the overseas factories used by their 
private label suppliers and (2) address whether a single industry 
standard exists to promote adequate working conditions at such 
factories, identify the steps the private sector has taken to promote 
adequate working conditions at overseas factories that could serve as 
a framework for the exchanges' efforts, and identify assistance 
available to the exchanges to initiate steps similar to those of the 
private sector. 

In conducting this review, we analyzed 10 leading private sector 
companies' efforts to identify working conditions in overseas 
factories. We chose seven of the companies from the National Retail 
Federation's list of the 2001 Top 100 Retailers (in terms of sales) in 
the United States.[Footnote 3] The retailers and their ranking on the 
Federation's list are Federated Department Stores, Inc. (15); JCPenney 
(8); Kohl's (36); Kmart (5); The Neiman Marcus Group, Inc. (64); 
Sears, Roebuck and Co. (4); and Wal-Mart (1). The remaining three 
companies—-The Walt Disney Company, Levi Strauss & Co., and Liz 
Claiborne, Inc.-—were chosen on the basis of recommendations from 
government agencies, nongovernmental organizations, and industry 
associations as being among the leaders in efforts to address working 
conditions in overseas factories.[Footnote 4] In addition, we 
interviewed officials and reviewed documents from the Departments of  
State and Labor, the Office of the United States Trade Representative, 
and the International Labor Organization,[Footnote 5] which provided 
perspective on government and industrywide efforts to address working 
conditions in overseas factories. We also interviewed industry 
associations and labor and human rights groups. We did not 
independently evaluate the private sector programs to determine their 
effectiveness or to independently verify specific allegations of 
worker rights abuses. Instead, our results rely on independent 
analyses (such as reports from the State and Labor Departments and the 
International Labor Organization), interviews with industry 
associations and labor and human rights groups, and statements
 made by and documentation provided by the retailers' officials. More 
information on the scope and methodology of our work is presented in 
appendix I. 
 
Results in Brief:  

The military exchanges' methods for identifying working conditions in 
overseas factories that manufacture their private label merchandise 
are not as proactive as the methods employed by companies in the 
private sector, which generally know the identity of their overseas 
suppliers and have knowledge of the conditions under which their 
products are manufactured. The methods taken by retailers in the 
private sector to assess working conditions vary in scope and rigor, 
and they are evolving; nevertheless, leading retailers—either from a 
sense of social responsibility, pressure from outside groups, or a 
desire to protect the reputation of their companies' product lines—are 
far more proactive than the military exchanges in identifying working 
conditions in overseas factories. Specifically, the retailers we 
contacted identified the name and location of the factories making 
their private label merchandise, used information on human rights 
issues to assess the risks of doing business with the factories, 
questioned suppliers about factory working conditions, and visited the 
factories to identify working conditions first-hand. Conversely, only 
the Army and Air Force Exchange knew the identity of the factories 
that manufactured its private label merchandise, and none of the 
exchanges knew the nature of the working conditions in these 
factories. Instead, they assumed that their suppliers and other 
government agencies ensured good working conditions. At the same time, 
they have not taken steps to verify that overseas factories have 
complied with labor laws and regulations or otherwise acted to 
determine the status of employee working conditions. 

A single industrywide standard for working conditions at overseas 
factories was not considered practical by the 10 retailers we 
contacted, whose officials told us that each company must address 
different needs, depending on the size of its operations, the various 
locations where its merchandise is produced, and the labor laws that 
apply in different countries. However, in the past few years, these 
retailers have taken three key steps that they believe helped to 
better assure that their merchandise is not manufactured in sweatshop 
conditions, especially not by child or forced labor. The three steps 
could serve as a framework to guide the exchanges' efforts to develop 
a program to assure that their goods are not manufactured by child or 
forced labor and assistance is available to help the exchanges 
initiate similar action. First, retailers have developed workplace 
codes of conduct that reflect their values and expectations of 
suppliers. The codes include provisions to foster fair and safe labor 
conditions, such as prohibitions against the use of forced labor and 
child labor. Second, retailers implemented the provisions in their 
codes of conduct by disseminating information on them and by providing 
training for their own employees and suppliers and, in some instances, 
for factory workers. For example, most retailers posted information on 
workers rights and workplace standards in the factories in the 
workers' native language and posted their codes of conduct on their 
Internet Web sites. Third, various retailers used their own employees, 
contractors, or a combination of both to regularly inspect factories 
and to make sure their codes of conduct are upheld. The government 
agencies we contacted, such as the Departments of State and Labor, 
expressed a willingness to assist the exchanges in shaping a program 
that meets the congressional direction to assure that private label 
exchange merchandise is not produced by child or forced labor. In 
addition, the International Labor Organization offered to provide 
advisory services, technical assistance, and training programs to help 
the military exchanges define and implement best labor practices 
throughout their supply chain. 

Our report recommends a framework that the Department of Defense and 
its exchange services should adopt as they move to implement the 
congressionally directed program to assure that the exchanges' private 
label merchandise is not produced by child or forced labor. In written 
comments on a draft of this report, the Department concurred with our 
conclusions and recommendations. 

Background:  

Protections for workers in the United States were enacted in the Fair 
Labor Standards Act of 1938, which established three basic rights in 
American labor law: a minimum wage for industrial workers that applied 
throughout the United States; the principle of the 40-hour week, with 
time-and-a-half pay for overtime; and a minimum working age for most 
occupations. Since 1938, the act has been amended several times, but 
the essentials remain. For many years, the act (combined with federal 
and state legislation regarding worker health and safety) was thought 
to have played a major role in eliminating sweatshops in the United 
States. However, we reported on the "widespread existence" of 
sweatshops within the United States in the 1980s and 1990s.[Footnote 
6] Subsequent to our work, in August 1995, the Department of Labor and 
the California Department of Industrial Relations raided a garment 
factory in El Monte, California, and found sweatshop working 
conditions—-workers were confined behind razor wire fences and forced 
to work 20 hours a day for 70 cents an hour. Leading retailers were 
found to have sold clothes made at this factory. According to the 
National Retail Federation, an industry trade association, the El 
Monte raid provoked a public outcry and galvanized the U.S. 
government's efforts against sweatshops. 

Concern in the United States about sweatshops has spread from its 
shores to the overseas factories that supply goods for U.S. businesses 
and the military exchanges. With globalization, certain labor-
intensive activities, such as clothing assembly, have migrated to low-
wage countries that not only provide needed employment in those 
countries but also provide an opportunity for U.S. businesses to 
profit from manufacturing goods abroad and for consumers to benefit 
from an increasing array of quality products at low cost. Various 
labor issues (such as child labor, forced overtime work, workplace 
health and safety, and unionization) have emerged at these factories. 
In May 2000, for example, the Chentex factory in Nicaragua—-which 
produces much of the Army and Air Force exchange's private label jeans 
and denim product—-interfered in a wage dispute involving two labor 
groups, firing the union leaders of one of the groups. Subsequently, 
much publicity ensued over working conditions at this factory. 

International labor rights were defined in the Trade Act of 1974 as 
the right of association; the right to organize and bargain 
collectively; a prohibition on the use of any form of forced or 
compulsory labor; a minimum age for the employment of children; and 
acceptable conditions of work with respect to minimum wages, hours of 
work, and occupational safety and health. As globalization progressed, 
U.S. government agencies, nongovernmental organizations,[Footnote 7] 
industry associations, retailers, and other private organizations 
began addressing worker rights issues in overseas factories. For 
example, the International Labor Organization, a United Nations 
specialized agency that formulates international policies and programs 
to help improve working and living conditions, has endorsed four 
international labor principles: (1) freedom of association and the 
effective recognition of the right to collective bargaining, (2) the 
elimination of all forms of forced or compulsory labor, (3) the 
effective abolition of child labor, and (4) the elimination of 
discrimination in employment.[Footnote 8] Appendix II provides 
additional information on governmental agencies', nongovernmental 
organizations', and industry associations' efforts to address worker 
rights in overseas factories. 

The Military Exchanges and Their Private Label Merchandise: 

The military exchanges are separate, self-supporting instrumentalities 
of the United States located within the Department of Defense (DOD). 
The Federal Acquisition Regulation, the Defense Federal Acquisition 
Regulation supplement, and component supplements do not apply to the 
merchandise purchased by the exchanges and sold in their retail 
stores, since the purchases are not made with appropriated funds. 
[Footnote 9] The Assistant Secretary of Defense (Force Management 
Policy) is responsible for establishing uniform policies for the 
military exchanges' operations.[Footnote 10] The exchanges are managed 
by the Army and Air Force Exchange Service (AAFES), the largest 
exchange, and by the Navy Exchange Service Command (Navy Exchange) and 
Marine Corps Community Services (Marine Corps Exchange). The exchanges 
operate retail stores similar to department stores selling apparel, 
footwear, household appliances, jewelry, cosmetics, food, and other 
merchandise.[Footnote 11] For the past several years, about 70 percent 
of the exchanges' earnings from these sales revenues were allocated to 
morale, welfare, and recreation activities—libraries, sports programs, 
swimming pools, youth activities, tickets and tour services, bowling 
centers, hobby shops, music programs, outdoor facilities, and other 
quality of life improvements for military personnel and their families—
and about 30 percent to new exchange facilities and related capital 
projects. 

The number of retail locations and the annual revenues and earnings 
reported by the exchange services for 1999 and 2000 are shown in table 
1. 

Table 1: Number of Retail Locations and Reported Annual Revenues and 
Earnings for Military Exchanges: 

Exchange service: AAFES; 
Number of locations: 1,423; 
1999 revenues: $6.69 billion; 
1999 earnings: $361 million; 
2000 revenues: $7.042 billion; 
2000 earnings: $381 million. 

Exchange service: Navy; 
Number of locations: 113; 
1999 revenues: $1.831 billion; 
1999 earnings: $55 million; 
2000 revenues: $1.974 billion; 
2000 earnings: $76 million. 

Exchange service: Marine Corps; 
Number of locations: 16; 
1999 revenues: $547 million; 
1999 earnings: $44 million; 
2000 revenues: $573 million; 
2000 earnings: $46 million. 

Exchange service: Total; 
Number of locations: 1,552; 
1999 revenues: $9.068 billion; 
1999 earnings: $460 million; 
2000 revenues: $9.589 billion; 
2000 earnings: $503 million. 

Source: GAO's analysis of data provided by AAFES, Navy Exchange, and 
Marine Corps Exchange. 

[End of table] 

The exchanges have created private label products, which generally 
carry their own name or a name created exclusively for the exchange. 
The exchanges began creating private labels in the mid-1980s to 
provide lower prices for customers, to obtain higher earnings margins 
for the exchanges, and to remain competitive with major discount 
retailers. Private labels are profitable for retailers because their 
costs do not include marketing, product development, or advertising, 
which are used by companies to position national brands in the 
marketplace and to maintain the market share. In 2000, AAFES reported 
purchases of $44.8 million in private label merchandise from overseas 
companies, and the Navy Exchange reported purchases of $11.6 million 
in private label merchandise from importers.[Footnote 12] The Marine 
Corps Exchange only recently created its private label and did not 
purchase any private label merchandise from importers or overseas 
companies in 2000, but it reported purchases of about $350,000 of 
AAFES' and the Navy Exchange's private label merchandise for resale in 
its stores. The private label goods sold by the military exchanges are 
shown in
table 2. 

Table 2: Private Label Merchandise of the Military Exchanges: 

Exchange: AAFES; 
Type of merchandise: Apparel; 
Exchanges' private label name: Ponytails, Royal Manor, Gumballs, 
Passports, Laura Leigh, and RR Menswear;
Type of merchandise: Housewares; 
Exchanges' private label name: Belagio;
Type of merchandise: Beverages & snacks; 
Exchanges' private label name: Patriot's Choice;
Type of merchandise: Lawn & garden; 
Exchanges' private label name: Strike;
Type of merchandise: Toys; 
Exchanges' private label name: Soldier Bear;
Type of merchandise: Health & beauty aids; 
Exchanges' private label name: AAFES Brand;
Type of merchandise: Toiletries; 
Exchanges' private label name: American Mercantile;
Type of merchandise: Beef jerky; 
Exchanges' private label name: KC Cattle Company;
Type of merchandise: Dog treats; 
Exchanges' private label name: Paw Prints. 

Exchange: Navy Exchange; 
Type of merchandise: Apparel; 
Exchanges' private label name: Basic Concepts and Modern Images;
Type of merchandise: Health & beauty aids; 
Exchanges' private label name: NEX;
Type of merchandise: Beverages & snacks; 
Exchanges' private label name: Patriot's Choice;
Type of merchandise: Lawn & garden; 
Exchanges' private label name: Strike;
Type of merchandise: Automotive accessories; 
Exchanges' private label name: Autoport;
Type of merchandise: Housewares; 
Exchanges' private label name: Harbor Home, Belagio;
Type of merchandise: Eyeglass accessories; 
Exchanges' private label name: NEX Optics;
Type of merchandise: Eyeglass frames; 
Exchanges' private label name: Harborview Eyewear;
Type of merchandise: Toiletries; 
Exchanges' private label name: American Mercantile;
Type of merchandise: Beef jerky; 
Exchanges' private label name: KC Cattle Company;
Type of merchandise: Dog treats; 
Exchanges' private label name: Paw Prints. 

Exchange: Marine Corps Exchange; 
Type of merchandise: Apparel; 
Exchanges' private label name: 4 Star;
Type of merchandise: Health & beauty aids; 
Exchanges' private label name: NEX;
Type of merchandise: Beverages & snacks; 
Exchanges' private label name: Patriot's Choice;
Type of merchandise: Lawn & garden; 
Exchanges' private label name: Strike;
Type of merchandise: Automotive accessories; 
Exchanges' private label name: Autoport;
Type of merchandise: Housewares; 
Exchanges' private label name: Harbor Home, Belagio;
Type of merchandise: Toiletries; 
Exchanges' private label name: American Mercantile;
Type of merchandise: Beef jerky; 
Exchanges' private label name: KC Cattle Company. 

Source: AAFES, Navy Exchange, and Marine Corps Exchange. 

[End of table] 

Military Exchanges' Efforts to Identify Working Conditions in Overseas 
Factories Not As Proactive As Some Private Sector Retailers' Efforts: 

The retailers we contacted in the private sector are more proactive 
about identifying working conditions than the military exchanges. They 
periodically requested that suppliers provide a list of overseas 
factories and subcontractors that they used to make the retailers' 
private label merchandise, administered questionnaires on working 
conditions, visited factories, and researched labor issues in the 
countries where prospective factories are located. The military 
exchanges largely rely on their suppliers to identify and address 
working conditions in overseas factories that manufacture the 
exchanges' private label merchandise. The exchanges generally did not 
maintain the names and locations of the relevant overseas factories. 
The exchanges assumed that their suppliers and other U.S. government 
agencies, such as U.S. Customs Service, ensured that labor laws and 
regulations that address working conditions and minimum wages were 
followed. 

Leading Private Sector Retailers Are Proactive in Identifying Overseas 
Working Conditions: 

The 10 leading private sector retailers we contacted are more active 
in identifying working conditions than the military exchanges for a 
variety of reasons, ranging from a sense of social responsibility to 
pressure from outside groups and a desire to protect the reputation of 
their companies' product lines. These retailers periodically requested 
that overseas suppliers provide a list of factories and subcontractors 
that they used to make the retailers' private label merchandise. Some 
retailers we contacted terminated a business relationship with 
suppliers that used a factory without disclosing it to the retailers. 
For example, JCPenney's purchase contracts stipulate that failure by a 
supplier or one of its contractors to identify its factories and 
subcontractors may result in JCPenney's taking the following actions: 
seeking compensation for any resulting expense or loss, suspending 
current business activity, canceling outstanding orders, prohibiting 
the supplier's subsequent use of the factory, or terminating the 
relationship with the supplier. JCPenney officials told us that they 
have terminated suppliers for using unauthorized subcontractors. Some 
retailers that we interviewed, such as The Neiman Marcus Group, Inc., 
JCPenney, and Liz Claiborne, Inc., developed a company questionnaire, 
which they had factory management complete. The questionnaire 
addressed health and safety issues and whether U.S. or foreign 
government agencies had investigated the factory. The retailers used 
the questionnaire to provide factories with feedback on their 
compliance with the retailers' standards and for the retailer to 
provide the factory an opportunity to make improvements in working 
conditions before an inspection. The representatives of these 
retailers told us that they visited factories to verify the accuracy 
of the factories' answers to the questionnaire before ordering 
merchandise. 

Each of the 10 retailers we contacted told us they also used 
information on human rights issues that was either developed 
internally or was available from government agencies and 
nongovernmental organizations to assess labor issues in the countries 
where the factories are located. This included the Department of 
State's annual Country Reports on Human Rights Practices (a 
legislatively mandated report to Congress that covers worker rights 
issues in 194 countries), which the retailers frequently cited as a 
source for identifying labor issues in a particular country. Most 
retailers also used information obtained from the United Nations; U.S. 
Department of State; U.S. Customs Service; U.S. Department of Labor; 
and nongovernmental organizations, such as Amnesty International. 
[Footnote 13] The retailers we contacted used this information in 
their assessments of suppliers to avoid business arrangements with 
factories in areas with a higher risk of labor abuses. In addition, 
some of the retailers told us that their decisions to buy merchandise 
made in a particular country sometimes depended on whether they could 
improve factory conditions in a country. For example, companies such 
as Levi Strauss & Co. used only those Chinese factories that corrected 
problem conditions, an approach supported by the officials we met at 
the Departments of State and Labor.[Footnote 14] 

Exchanges Are Less Proactive in Identifying Factories' Working 
Conditions: 

The military exchanges' methods for identifying working conditions in 
overseas factories that manufacture their private label merchandise 
are not as proactive as the methods employed by companies in the 
private sector. Only the Army and Air Force Exchange knew the identity 
of the factories that manufactured its private label merchandise, and 
none of the exchanges knew the nature of working conditions in these 
factories. Instead, they assumed that their suppliers and other 
government agencies ensured good working conditions. While the 
exchanges have sent letters to some suppliers describing their 
expectations of compliance with labor laws and regulations that 
address working conditions and minimum wages in individual countries, 
they have not taken steps to verify that overseas factories are in 
compliance or otherwise acted to determine the status of employee 
working conditions; instead, they assumed that their suppliers and 
other government agencies ensured good working conditions. For 
example, the Navy Exchange and the Marine Corps Exchange do not 
routinely maintain the name and location of the overseas factories 
that manufactured their merchandise because they rely on brokers and 
importers to acquire the merchandise from the overseas factories. The 
AAFES Retail Business Agreement[Footnote 15] requires suppliers to 
promptly provide subcontractors' name and manufacturing sites upon 
request. But because it had no program to address working conditions 
in overseas factories, AAFES has not requested this information, 
except for the suppliers it used for its private label apparel, and 
then only to check on the quality of the merchandise being 
manufactured. AAFES' records show that in fiscal year 2000, its 
private label apparel was manufactured in 70 factories in 18 countries 
and territories, as shown in table 3. 

Table 3: Number of Factories by Country or Territory That Produced 
AAFES' Private Label Apparel in Fiscal Year 2000: 

Country/territory: China; 
Number of factories: 27. 

Country/territory: Taiwan; 
Number of factories: 9. 

Country/territory: Indonesia; 
Number of factories: 6. 

Country/territory: Singapore; 
Number of factories: 6. 

Country/territory: Hong Kong; 
Number of factories: 3. 

Country/territory: India; 
Number of factories: 3. 

Country/territory: Fiji; 
Number of factories: 2. 

Country/territory: Macau; 
Number of factories: 2. 

Country/territory: Nicaragua; 
Number of factories: 2. 

Country/territory: Pakistan;
Number of factories: 2. 

Country/territory: Brunei; 
Number of factories: 1. 

Country/territory: Myanmar (Burma); 
Number of factories: 1. 

Country/territory: Honduras; 
Number of factories: 1. 

Country/territory: Korea; 
Number of factories: 1. 

Country/territory: Malaysia; 
Number of factories: 1. 

Country/territory: Mauritius; 
Number of factories: 1. 

Country/territory: Saipan; 
Number of factories: 1. 

Country/territory: Thailand; 
Number of factories: 1. 

Source: AAFES. 

[End of table] 

In some cases, the exchanges' private label merchandise was 
manufactured in countries that have been condemned internationally for 
their human rights and worker rights violations. For example, at 9 of 
the 10 retailers we contacted, officials told us that they had ceased 
purchasing from Myanmar (formerly Burma) in the 1990s because of 
reports of human rights abuses documented by governmental bodies, 
nongovernmental organizations, and the news media; at one retailer we 
contacted, officials told us that they had ceased purchasing from 
Myanmar in 2000 for the same reasons. In contrast, during 2001, each 
exchange purchased private label apparel made in Myanmar. 

For the most part, the exchanges assume compliance with laws and 
regulations that address child or forced labor in the countries where 
their factories are located instead of determining compliance. In 
1996, for example, following the much publicized El Monte, California, 
sweatshop incident, the Navy Exchange notified all of its suppliers by 
letter that it expected its merchandise to be manufactured without 
child or forced labor and under safe conditions in the workplace, but 
it did not attempt to determine whether these suppliers and their 
overseas factories were willing and able to meet these expectations. 
[Footnote 16] The Navy Exchange and Marine Corps Exchange relied 
solely on their suppliers to address working conditions in the 
factories. Similarly, AAFES' management officials told us that they 
assumed that their suppliers were in compliance with applicable laws 
and regulations by virtue of their having accepted an AAFES purchase 
order. According to these management officials, when suppliers accept 
a purchase order, they certify that they are complying with their
Retail Business Agreement. This agreement, distributed by letter to 
all suppliers in 1997, states that by supplying merchandise to AAFES, 
the supplier guarantees that it-—along with its subcontractors—-has 
complied with all labor laws and regulations governing the 
manufacture, sale, packing, shipment, and delivery of merchandise in 
the countries where the factories are located.[Footnote 17] According 
to AAFES officials, an AAFES contracting officer and a representative 
of the supplier are to sign the agreement. We reviewed the contracting 
arrangements between AAFES and nine of its suppliers of private label 
merchandise. Only four of the nine suppliers had signed the AAFES 
Business Agreement. 

AAFES management officials also told us that they rely on the reputation
of their suppliers for assurance that overseas factories are in 
compliance with its business agreements. For example, these officials 
told us that they use only the overseas suppliers that have existing 
business relationships with other major U.S. retailers. The officials 
also stated that since many of these private retailers have developed 
and are using their own program to address working conditions in their 
overseas factories, the use of the same suppliers provided some degree 
of confidence that the suppliers are working within the laws of the 
host nation. However, some retailers we contacted said their programs 
addressed factory conditions only for the period that the factories 
were manufacturing the retailer's merchandise and that the factories 
did not have to follow their program when they were manufacturing 
merchandise for another company. AAFES management officials also told 
us that they rely on the U.S. Customs Service to catch imported 
products that are manufactured under abusive working conditions. 
However, the Customs officials we interviewed told us that their 
agency encourages companies to be aware of the working conditions in 
supplier factories to further reduce their risk of becoming engaged in 
an import transaction involving merchandise produced with forced or 
indentured child labor.[Footnote 18] According to the Customs' 
officials, the military exchanges—-like retailers—-are responsible for 
assuring that their merchandise is not produced with child or forced 
labor. 

Single Industry Standard Not Considered Practical, but Industry 
Practices and Other Assistance Could Be Useful to Military Exchanges: 

A single industry standard for adequate working conditions does not 
exist, and the retailers we contacted did not believe that such a 
standard was practical because each company must address different 
needs, depending on the size of its operations, the various locations 
where its merchandise is produced, and the labor laws that apply in 
different countries. However, each of the retailers that we contacted 
had taken three key steps that could serve as a framework for the 
exchanges in promoting compliance with local labor laws and 
regulations in overseas factories. They involve (1) developing codes 
of conduct[Footnote 19] for overseas suppliers; (2) implementing their 
codes of conduct by disseminating expectations to their purchasing 
staff, suppliers, and factory employees; and (3) monitoring to better 
ensure compliance. The three steps taken by the retailers vary in 
scope and rigor, and they are evolving. We did not independently 
evaluate the effectiveness of these retailers' efforts, but the 
retailers' representatives told us that although situations could 
occur in which their codes of conduct are not followed, they believed 
that these steps provided an important framework for ensuring due 
diligence and helped to better assure fair and safe working 
conditions. The government agencies we visited and the International 
Labor Organization also recognized these three steps as key program 
elements and expressed a willingness to assist the exchanges in 
shaping a program to assure that child or forced labor was not used to 
produce their private label merchandise. 

Three Industry Practices Could Provide a Framework for the Exchanges: 

Representatives of the 10 retailers we contacted believed that the 
three steps they have taken—developing codes of conduct for overseas 
suppliers; implementing their codes of conduct by disseminating 
expectations to their purchasing staff, suppliers, and factory 
employees; and monitoring to better ensure compliance—provide due 
diligence as well as a mechanism to address and improve working 
conditions in overseas factories. For example, officials at Levi 
Strauss & Co. told us that after they refused to do business with a 
prospective supplier in India because the supplier's factory had wage 
violations and health and safety conditions that did not meet Levi 
Strauss & Co.'s guidelines, the supplier made improvements and 
requested a reassessment 4 months later. According to Levi Strauss & 
Co., the reassessment showed that the supplier had corrected wage 
violations and met health and safety standards. In addition, employee 
morale had also improved, as indicated by lower turnover, improved 
product quality, and higher efficiency at the factory. 

Developing a Code of Conduct: 

In 1991, Levi Strauss & Co. became the first multinational company to 
establish a code of conduct to convey its policies on working 
conditions in supplier factories, and subsequently such codes were 
widely adopted by retailers. According to the Department of Labor, 
U.S. companies have adopted codes of conduct for a variety of reasons, 
ranging from a sense of social responsibility to pressure from 
competitors, labor unions, the media, consumer groups, shareholders, 
and worker rights advocates. In addition, allegations that a company's 
operations exploit children or violate other labor standards put sales—
which depend heavily on brand image and consumer goodwill—at risk and 
could nullify the hundreds of millions of dollars a company spends on 
advertising. According to Business for Social Responsibility, a 
nongovernmental organization that provides assistance for companies 
developing and implementing corporate codes of conduct, adopting and 
enforcing a code of conduct can be beneficial for retailers because it 
can strengthen legal compliance in foreign countries, enhance 
corporate reputation/brand image, reduce the risk of negative 
publicity, increase quality and productivity, and improve business 
relationships. 

Codes of conduct vary in content. They can be a mixture of labor 
principles recommended by international organizations like the
International Labor Organization, local laws, and internal corporate 
standards,[Footnote 20] but they almost always include the following 
elements: prohibitions against child labor, forced labor, 
discrimination, harassment, or abuse, and requirements to ensure 
health and safety. They frequently include provisions on working 
hours, overtime compensation, wages and benefits, support for freedom 
of association and the right to organize and bargain collectively, and 
compliance with applicable laws. In addition, enforcement or 
corrective actions for violations of the code are listed in some codes 
of conduct. For example, the code of conduct for Federated
Department Stores (one of the retailers we contacted) states, 

"when notified by the U.S. Department of Labor or any state or foreign 
government, or after determining upon its own inspection that a 
supplier or its subcontractor has committed a serious violation of law 
relating to child or forced labor or unsafe working conditions,
Federated will immediately suspend all shipments of merchandise from 
that factory and will discontinue further business with the supplier." 
[Footnote 21] 

An official from Federated Department Stores, Inc., said that the 
company would demand that the supplier factory institute the 
monitoring programs necessary to ensure compliance with its code of 
conduct prior to the resumption of any business dealings with that 
supplier. 

A variety of monitoring organizations, colleges, universities, and 
nongovernmental organizations have codes of conduct, and codes of 
conduct have now been widely adopted by the private sector. The
International Labor Organization's Business and Social Initiatives 
Database[Footnote 22] includes codes of conduct for about 600 
companies. While the military exchanges' core values oppose the use of 
child or forced labor to manufacture their merchandise, the military 
exchanges do not have codes of conduct articulating their views. 
Examples of Internet Web sites with codes of conduct are included in 
appendix III. 

Implementing Codes of Conduct: 

Although retailers in the private sector implement their codes of 
conduct in various ways, officials of the retailers we contacted told 
us that they generally train their buying agents and quality assurance 
employees on their codes of conduct to ensure that staff at all stages 
in the purchasing process are aware of their company's code. For 
example, an official at Levi Strauss & Co. stated that his company 
continually educates its employees, including merchandisers, contract 
managers, general managers in source countries, and other personnel at 
every level of the organization during the year. Officials of the 
retailers we contacted told us they also have distributed copies of 
their codes of conduct to their domestic and international suppliers 
and provided them with training on how to comply with the code. In 
addition, some retailers required suppliers to post codes of conduct 
and other sources of labor information in their factories in the 
workers' native language. For example, The Walt Disney Company has 
translated its code of conduct into 50 different languages and 
requires each of its suppliers to post the codes in factories in the 
appropriate local language. Retailers such as Liz Claiborne, Inc., and 
Levi Strauss & Co. also work with local human rights organizations to 
make sure that workers understand and are familiar with their codes of 
conduct. 

Some retailers dedicate staff solely to implementing a code of 
conduct, while other retailers assign these duties to various 
departments—-such as compliance, quality assurance, legal affairs, 
purchasing agents, and government affairs—-as a collateral 
responsibility. Executives and officials from the retailers we 
contacted stated that the successful implementation of a code of 
conduct requires the involvement of departments throughout the supply 
chain, both internally and externally (including supplier and 
subcontractor factories). They also stated that the involvement of 
senior executives is critical because they provide an institutional 
emphasis that helps to ensure that the code of conduct is integrated 
throughout the various internal departments of the company. 

Monitoring for Compliance: 

To help ensure that suppliers' factories are in compliance with their 
codes of conduct, the retailers we contacted have used a variety of 
monitoring efforts. Retailer officials told us that the extent of 
monitoring varies and can involve internal monitoring, in which the 
company uses its own employees to inspect the factories; external 
monitoring, in which the company contracts with an outside firm or 
organization to inspect the factories; or a combination of both. The 
various forms of monitoring involve the visual inspection of factories 
for health and safety violations; interviewing management to 
understand workplace policies; reviewing wage, hour, age, and other 
records for completeness and accuracy; and interviewing workers to 
verify workplace policies and practices. The 10 retail companies we 
contacted did not provide a precise cost for their internal and 
external monitoring programs, but a representative of Business for 
Social Responsibility estimated that monitoring costs ranged from 
$250,000 to $15 million a year. Some retailers suggested that the 
military exchanges could minimize costs by joining together to conduct 
monitoring, particularly in situations where the exchanges are 
purchasing merchandise manufactured at the same factories. 

Companies that rely on internal monitoring use their own staff to 
monitor the extent to which supplier factories adhere to company 
policies and standards. According to an official with the National 
Retail Federation, the world's largest retail trade association, 
retailers generally prefer internal monitoring because it provides 
them with first-hand knowledge of their overseas facilities. At the 
same time, representatives of the nongovernmental organizations we 
visited expressed their opinion that inspections performed by internal 
staff may not be perceived as sufficiently independent. According to 
information we obtained from the retailers we contacted, nearly all of 
them had an internal monitoring program to inspect all or some 
supplier factories; their internal monitoring staff ranged from 5 to 
100 auditors located in domestic and international offices. Some 
retailers said they perform prescreening audits before entering into a 
contractual agreement, followed by announced and unannounced 
inspections at a later time. The frequency of audits performed at 
supplier factories depends on various factors, such as the rigor and 
size of the corporation's monitoring plan, the location of supplier 
factories, and complaints from workers or nongovernmental 
organizations. 

Some retailers-—along with colleges, universities, and factories—-are 
also using external monitoring organizations that provide specially 
trained auditors to verify compliance with workplace codes of conduct. 
We visited four of these monitoring organizations-—Fair Labor 
Association, Social Accountability International, Worker Rights 
Consortium, and Worldwide Responsible Apparel Production. More 
information on these monitoring organizations appears in appendix II. 
Each organization has different guidelines for its monitoring program, 
but typically, a program involves (1) a code of conduct that all 
participating corporations must implement and (2) the inspection of 
workplaces at supplier factories participating in the program by audit 
firms accredited by the organization External monitoring 
organizations' activities differ in scope. For example, under the
 Fair Labor Association's program, companies use external monitors 
accredited by the Fair Labor Association for periodic inspections of 
factories. In contrast, in the Worldwide Responsible Apparel 
Production's program, individual factories are certified as complying 
with their program. Although differences in scope exist-—and have led 
to debate on the best approach for a company—-corporations that are 
adopting external monitors believe they are valuable for providing an 
independent assessment of factory working conditions. 

Advisory Services Are Available to Assist the Exchanges in Formulating 
a Program: 

Some retailers we contacted offered to share their experiences in 
developing programs to address working conditions in overseas 
factories. The Departments of Labor and State, the U.S. Customs 
Service, and the International Labor Organization prepare reports that 
address working conditions in overseas factories. These organizations 
expressed a willingness to assist the military exchanges in shaping a 
program to assure that child or forced labor does not produce private 
label exchange merchandise. Furthermore, the International Labor 
Organization offered to provide advisory services, technical 
assistance, and training programs to help the military exchanges 
define and implement best labor practices throughout their supply 
chain. 

Conclusions: 

The military exchanges lag behind leading retailers in the practices 
they employ to assure that working conditions are not abusive in 
overseas factories that manufacture their private label merchandise. 
As a result, the exchanges do not know if workers in these factories 
are treated humanely and compensated fairly. The exchanges recently 
became more interested in developing a program to obtain information 
on worker rights and working conditions in overseas supplier plants, 
and the House Armed Services Committee Report for the Fiscal Year 2002 
National Defense Authorization Act requires them to do so. However, 
developing a program that is understood throughout the supply chain, 
lives up to expectations over time, and is cost-effective will be a 
challenge. Leading retailers have been addressing these challenges for 
as long as 10 years and have taken three key steps to promote adequate 
working conditions and compliance with labor laws and regulations in 
overseas factories—developing codes of conduct, implementing the codes 
of conduct by the clear dissemination of expectations, and monitoring 
to ensure that suppliers' factories comply with their codes of 
conduct. Drawing on information and guidance from various U.S. 
government agencies and the International Labor Organization can 
facilitate the military exchanges' development of such a program. 
Information available from these entities could be useful not only in 
establishing an initial program but also in implementing it over time, 
and the costs may be minimized by having the military exchanges pursue 
these efforts jointly. 

Recommendations for Executive Action: 

As the Secretary of Defense moves to implement the congressionally 
directed program to assure that private label exchange merchandise is 
not produced by child or forced labor, we recommend the Under 
Secretary of Defense (Personnel and Readiness), in conjunction with 
the Assistant Secretary of Defense (Force Management Policy), require 
the Army and Air Force Exchange Service, Naval Exchange Service 
Command, and Marine Corp Community Services to develop their program 
around the framework outlined in this report, including: 

* creating a code of conduct that reflects the values and expectations 
that the exchanges have of their suppliers; 

* developing an implementation plan for the code of conduct that 
includes steps to communicate the elements of the code to internal 
staff, business partners, and factory workers and to train them on 
these elements; 

* developing a monitoring effort to ensure that the codes of conduct 
are upheld; 

* using government agencies, such as the Departments of State and 
Labor, retailers, and the International Labor Organization as 
resources for information and insights that would facilitate 
structuring their program; 

* establishing ongoing communications with these organizations to help 
the exchanges stay abreast of information that would facilitate their 
implementation and monitoring efforts to assure that exchange 
merchandise is not produced by child or forced labor; and 

* pursuing these efforts jointly where there are opportunities to 
minimize costs. 

Agency Comments and Our Evaluation: 

In commenting on a draft of this report, the Assistant Secretary of 
Defense (Force Management Policy) concurred with its conclusions and 
recommendations. The Assistant Secretary identified planned
implementing actions for each recommendation and, where action had not 
already begun, established July 1, 2002, as the date for those actions 
to be effective. The Department's written comments are presented in 
their entirety in appendix IV. 

We are sending copies of this report to the appropriate congressional 
committees; the Secretary of Defense; the Secretary of the Army; the
Secretary of the Navy; the Secretary of the Air Force; the Commander,
Army and Air Force Exchange Service; the Commander, Navy Exchange
Service Command; the Commander, Marine Corps Community Services; the 
Director, Office of Management and Budget; and interested 
congressional committees and members. We will also make copies 
available to others upon request. 

Please contact me at (202) 512-8412 if you or your staff has any 
questions concerning this report. Major contributors to this report 
are listed in appendix V. 

Signed by: 

Barry W. Holman, Director: 
Defense Capabilities and Management: 

List of Congressional Requesters: 

The Honorable Cynthia McKinney; 
The Honorable Sherrod Brown; 
The Honorable David E. Bonior; 
The Honorable Julia M. Carson; 
The Honorable Peter A. DeFazio; 
The Honorable Sam Farr; 
The Honorable Earl F. Hilliard; 
The Honorable Marcy Kaptur; 
The Honorable Dennis Kucinich; 
The Honorable Jim McGovern; 
The Honorable George Miller; 
The Honorable Lynn Nancy Rivers; 
The Honorable Bernard Sanders; 
The Honorable Jan Schakowsky; 
The Honorable Fortney Pete Stark; 
House of Representatives. 

[End of section] 

Appendix I: Scope and Methodology: 

To compare military exchanges with the private sector in terms of the 
methods used to identify working conditions at the overseas factories, 
we limited our work to the exchanges' efforts related to private label 
suppliers and performed work at the military exchanges and leading 
retail companies. To determine the actions of the exchanges to 
identify working conditions in the factories of their overseas 
suppliers, we reviewed the policies and procedures governing the 
contract files, purchase orders, and contractual agreements at the 
exchanges' headquarters offices and interviewed officials responsible 
for purchasing merchandise sold by the exchanges. For example, we 
reviewed the contracting arrangements between the Army and Air Force 
Exchange Service (AAFES) and nine of its suppliers of private label 
merchandise to determine if AAFES had requested information on working 
conditions in overseas factories and whether the suppliers had signed 
the contractual documents. For historical perspective, we reviewed the 
results of prior studies and audit reports of the military exchanges. 
We met with officials and performed work at the headquarters of AAFES 
in Dallas, Texas; the Navy Exchange Service Command (Navy Exchange) in 
Virginia Beach, Virginia; and the Marine Corps Community Services 
(Marine Corps Exchange) in Quantico, Virginia. 

To determine the actions of the private sector to identify working 
conditions in the factories of their overseas suppliers, we analyzed 
10 leading private sector companies' efforts to identify working 
conditions in overseas factories by interviewing the companies' 
officials and the documentation they provided. We chose seven of the 
companies from the
National Retail Federation's list of the 2001 Top 100 Retailers (in 
terms of sales) in the United States.[Footnote 23] The retailers and 
their ranking on the Federation's list follow: Federated Department 
Stores, Inc. (15); JCPenney (8); Kohl's (36); Kmart (5); The Neiman 
Marcus Group, Inc. (64); Sears, Roebuck and Co. (4); and Wal-Mart (1). 
The remaining three companies—-The Walt Disney Company, Levi Strauss & 
Co., and Liz Claiborne, Inc.—-were chosen on the basis of 
recommendations from U.S. government agencies, nongovernmental 
organizations, and industry associations as being among the leaders in 
efforts to address working conditions in overseas factories. These 
three companies generally refer to themselves as "manufacturers" or 
"licensing" organizations, but they also operate retail stores. We 
interviewed officials and reviewed documents from the Departments of 
State and Labor, the Office of the United States Trade Representative, 
and the International Labor Organization to gain a perspective on 
government and industry efforts to address factory working conditions. 
We also interviewed officials from industry associations and labor and 
human rights groups. 

To identify steps the private sector has taken to promote adequate 
working conditions at factories that could serve as a framework for 
the exchanges, we focused on the efforts of the 10 retailers. We 
documented the programs and program elements (e.g., codes of conduct, 
plans for implementing codes of conduct throughout the supply chain, 
and monitoring efforts) used by the 10 retailers that we contacted. We 
did not independently evaluate the private sector programs to 
determine the effectiveness of their efforts or to independently 
verify specific allegations of worker rights abuses. Rather, we relied 
primarily on discussions with retailers' officials and the 
documentation they provided. We met with officials from government 
agencies and reviewed independent studies such as State and Labor 
Department and International Labor Organization reports, providing a 
perspective on government and industrywide efforts to address working 
conditions in overseas factories. We documented the procedures the 
exchanges used to purchase merchandise and interviewed headquarters 
personnel responsible for buying and inspecting merchandise made 
overseas. We also reviewed the exchanges' policies, statements of core 
values, and oversight programs. 

To gain a perspective on the various approaches to address worker 
rights issues, we interviewed nongovernmental organizations and 
industry associations, including representatives from the National Labor
Committee, National Consumers League, International Labor Rights Fund,
Global Exchange, Investor Responsibility Research Center, Business for
Social Responsibility, National Retail Federation, and the American
Apparel and Footwear Association. In addition, we interviewed officials
from four monitoring organizations—the Fair Labor Association; Social
Accountability International; Worldwide Responsible Apparel 
Production; and Worker Rights Consortium—which inspect factories for 
compliance with codes of conduct governing labor practices and human 
rights. 

To collect information on government enforcement actions and funding 
for programs to address working conditions in overseas factories, we 
interviewed officials from the Department of State's Office of 
International Labor Affairs, the Department of Labor's Bureau of 
International Labor Affairs, the U.S. Customs Service's Fraud 
Investigations Office, and the Office of the United States Trade 
Representative. For an international perspective on worldwide efforts, 
we visited the International Labor Organization's offices in 
Washington, D.C., and Geneva, Switzerland. 

We performed our review from April through November 2001 in accordance 
with generally accepted government auditing standards. 

[End of section] 

Appendix II: Efforts of Government Agencies, Nongovernmental 
Organizations, and Industry Associations to Address Working Conditions 
in Overseas Factories: 

Government Agencies: 

U.S. Customs Service The Customs Service's Fraud Investigations Office 
and its 29 attaché offices in 21 countries investigate cases 
concerning prison, forced, or indentured labor.[Footnote 24] The 
Customs officials work with the Department of State, Department of 
Commerce, and nongovernmental organizations to collect leads for 
investigations. In some cases, corporations have told Customs about 
suspicions they have about one of their suppliers and recommended an 
investigation. In addition, private citizens can report leads they may 
have concerning a factory. The Forced Child Labor Center was 
established as a clearinghouse for investigative leads, a liaison for 
Customs field offices, and a process to improve enforcement 
coordination and information. Customs also provides a toll-free 
hotline in the United States (1-800-BE-ALERT) to collect investigative 
leads on forced labor abuses. 

Outreach efforts from the Customs Service involve providing seminars 
around the world for U.S. government agencies, foreign governments, 
nongovernmental organizations, and corporations concerning forced and 
indentured labor issues. In December 2000, Customs published a manual 
entitled Forced Child Labor Advisory, which provides importers, 
manufacturers, and corporations with information designed to reduce 
their risk of becoming engaged in a transaction involving imported 
merchandise produced with forced or indentured child labor. Customs 
also publishes on its Internet Web site a complete list of outstanding 
detention orders and findings concerning companies that are suspected 
of producing merchandise from forced or indentured labor. Customs can 
issue a detention order if available information reasonably, but not 
necessarily conclusively, indicates that imported merchandise has been 
produced with forced or indentured labor, the order may apply to an 
individual shipment or to the entire output of a type of product from 
a given firm or facility. If, after an investigation, Customs finds 
probable cause that a class of merchandise is a product of forced or 
indentured child labor, it can bar all imports of that product from 
that firm from entering the United States. 

On June 5, 1998, the Department of the Treasury's Advisory Committee 
on International Child Labor was established to provide the Treasury 
Department and the U.S. Customs Service with recommendations to 
strengthen the enforcement of laws against forced or indentured child 
labor, in particular, through voluntary compliance and business 
outreach. The Advisory Committee was established to support law 
enforcement initiatives to stop illegal shipments of products made 
through forced or indentured child labor and to punish violators. The 
Committee comprises industry representatives and child labor experts 
from human rights and labor organizations. 

Customs Service officials told us they have met with leading retailers 
to provide feedback on their internal monitoring programs to assure 
that their merchandise is not produced with forced child labor. Customs 
Service officials expressed a willingness to assist the exchanges in 
shaping a program to assure that child or forced labor does not 
produce private label exchange merchandise. 
 
U.S. Department of Labor: 

The Department of Labor conducts targeted enforcement sweeps in major 
garment centers in the United States, but it does not have the 
authority to inspect foreign factories. In August, 1996, the 
Department of Labor called upon representatives of the apparel 
industry, labor unions, and nongovernmental organizations to join 
together as the Apparel Industry Partnership (later becoming the Fair 
Labor Association) to develop a plan that would assure consumers that 
apparel imports into the United States are not produced under abusive 
labor conditions. 

The Bureau of International Labor Affairs, Department of Labor, has 
produced seven annual congressionally requested reports on child 
labor, entitled By the Sweat and Toil of Children, concerning the use 
of forced labor, codes of conduct, consumer labels, efforts to 
eliminate child labor, and the economic considerations of child labor. 
Other relevant reports on worker rights produced by the Bureau include 
the 2000 Report on Labor Practices in Burma and Symposium on Codes of 
Conduct and International Labor Standards. 

Since 1995, the Department of Labor has also contributed $113 million 
to international child labor activities, including the International 
Labor Organization's International Program for the Elimination of 
Child Labor. In addition, the Department of Labor provided the 
International Labor Organization with $40 million for both fiscal 
years 2000 and 2001 for programs in various countries concerning 
forced labor, freedom of association, collective bargaining, women's 
rights, and industrial relations in lesser-developed nations. The 
Department also provides any company that would like to learn how to 
implement an effective monitoring program with technical assistance, 
and Labor officials have expressed a willingness to assist the 
exchanges in shaping a program to assure that private label exchange 
merchandise is not produced by child or forced labor. 

U.S. Department of State:  

On January 16, 2001, the Department of State's Anti-Sweatshop 
Initiative awarded $3.9 million in grants to support efforts to 
eliminate abusive working conditions and protect the health, safety, 
and rights of workers overseas. The Anti-Sweatshop Initiative is 
designed to support innovative strategies to combat sweatshop 
conditions in overseas factories that produce goods for the U.S. 
market. Five nongovernmental and international organizations, such as 
the Fair Labor Association, International Labor Rights Fund, Social 
Accountability International, American Center for International 
Solidarity, and the International Labor Organization, received over $3 
million. In addition, the U.S. Agency for International Development 
will administer an additional $600,000 for smaller grants in support 
of promising strategies to eliminate abusive labor conditions 
worldwide. 

The Department of State's Bureau of Democracy, Human Rights, and Labor 
publishes Country Reports on Human Rights Practices, a legislatively 
mandated annual report to Congress concerning worker rights issues, 
including child labor and freedom of association in 194 countries. 
Retailers and manufacturers stated they have utilized these reports to 
stay abreast of human and labor rights issues in a particular country 
and to make factory selections. The Department of State has expressed 
a willingness to assist the exchanges in shaping a program to assure 
that child or forced labor does not produce private label exchange 
merchandise. 

Office of the U.S. Trade Representative:  

The Office of the U.S. Trade Representative leads an interagency 
working group—-the Trade Policy Staff Committee-—which has the right 
to initiate worker rights petition cases under the Generalized System 
of Preferences. The Generalized System of Preferences Program 
establishes trade preferences to provide duty-free access to the 
United States for designated products from eligible developing 
countries worldwide to promote development through trade rather than 
traditional aid programs. A fundamental criterion for the Generalized 
System of Preferences is that the beneficiary country has or is taking 
steps to afford workers' internationally recognized worker rights, 
including the right to association; the right to organize and bargain 
collectively; a prohibition against compulsory labor; a minimum age 
for the employment of children; and regulations governing minimum 
wages, hours of work, and occupational safety and health. Under the 
Generalized System of Preferences, any interested party may petition 
the committee to review the eligibility status of any country 
designated for benefits. If a country is selected for review, the 
committee then conducts its own investigation of labor conditions and 
decides whether or not the country will continue to receive 
Generalized System of Preferences benefits. Interested parties may 
also submit testimony during the review process. In addition, U.S. 
Trade Representatives can express their concern about worker rights 
issues in a country to foreign government officials, which may place 
pressure on supplier factories to resolve labor conditions. (The 
general authority for duty-free treatment expired on September 30, 
2001 [19 U.S.C. 2465]. Proposed legislation provides for an extension 
with retroactive application similar to previous extensions of this 
authority. Authority for sub-Saharan African countries continues 
through September 30, 2008 [19 U.S.C. 2466b]). 

International Labor Organization: 

The International Labor Organization is a United Nations specialized 
agency that seeks to promote social justice and internationally 
recognized human and labor rights. It has information on codes of 
conduct, research programs, and technical assistance to help companies 
address human rights and labor issues. Currently, the International 
Labor Organization is developing training materials to provide mid-
level managers with practical guidance on how to promote each of its 
four fundamental labor principles both internally and throughout a 
company's supply chain. The following are the four fundamental 
principles: (1) freedom of association and the effective recognition 
of the right to collective bargaining, (2) the elimination of all 
forms of forced or compulsory labor, (3) the effective abolition of 
child labor, and (4) the elimination of discrimination in employment. 
These principles are contained in the International Labor 
Organization's Declaration on Fundamental Principles and Rights at 
Work and were adopted by the International Labor Conference in 1998. 
To promote the principles, the U.S. Department of Labor is funding 
various projects pertaining to improving working conditions in the 
garment and textile industry and is addressing issues of freedom of 
association, collective bargaining, and forced labor in the following 
regions or countries: Bangladesh, Brazil, Cambodia, the Caribbean, 
Central America, Colombia, East Africa, East Timor, Kenya, India, 
Indonesia, Jordan, Morocco, Nigeria, Nepal, Vietnam, southern Africa, 
and Ukraine. For fiscal years 2000 and 2001, these projects received 
about $40 million in funding. 

On January 16, 2001, the International Labor Organization was awarded 
$496,974 by the Department of State Anti-Sweatshop Initiative to 
research how multinational corporations ensure compliance with their 
labor principles. Another research project seeks to demonstrate the 
link between international labor standards and good business 
performance. A major product of the research will be a publication for 
company managers that looks at the relationship between International 
Labor Organization conventions and company competitiveness and that 
then examines how adhering to specific standards (i.e., health and 
safety, human resource development, and workplace consultations) can 
improve corporate performance. The International Labor Organization 
has also created the Business and Social Initiatives Database, which 
includes extensive information on corporate policies and reports, 
codes of conduct, accreditation and certification criteria, and 
labeling programs on its Web site. For example, the database contains 
an estimated 600 codes of conduct from corporations, nongovernmental 
organizations, and international organizations. 

From fiscal year 1995 through fiscal year 2001, the Congress has 
appropriated over $113 million for the Department of Labor for 
international child labor activities including the International Labor 
Organization's International Program on the Elimination of Child 
Labor. The program has estimated that the United States will pledge 
$60 million for the 2002-3 period. The United States is the single 
largest contributor to the International Program on the Elimination of 
Child Labor, which has focused on the following four objectives: 

* Eliminating child labor in specific hazardous and/or abusive 
occupations. These targeted projects aim to remove children from work, 
provide them with educational opportunities, and generate alternative 
sources of income for their families. 

* Bringing more countries that are committed to addressing their child 
labor problem into the program. 

* Documenting the extent and nature of child labor. 

* Raising public awareness and understanding of international child 
labor issues. 

The program has built a network of key partners in 75 member countries 
(including government agencies, nongovernmental organizations, media, 
religious institutions, schools, and community leaders) in order to 
facilitate policy reform and change social attitudes, so as to lead to 
the sustainable prevention and abolition of child labor. During fiscal 
years 2000-2003, the United States is funding programs addressing 
child labor in the following countries or regions: Bangladesh, Brazil, 
Cambodia, Colombia, Costa Rica, the Dominican Republic, El Salvador, 
Ghana, Guatemala, Haiti, Honduras, India, Jamaica, Malawi, Mongolia, 
Nepal, Nicaragua, Nigeria, Pakistan, the Philippines, Romania, South 
Africa, Tanzania, Thailand, Uganda, Ukraine, Vietnam, Yemen, and 
Zambia and Africa, Asia, Central America, Inter-America, and South 
America. 

Nongovernmental Organizations: 

Business for Social Responsibility: 

Business for Social Responsibility, headquartered in San Francisco, 
California, is a membership organization for companies, including 
retailers, seeking to sustain their commercial success in ways that 
demonstrate respect for ethical values, people, communities, and the 
environment. (Its sister organization, the Business for Social 
Responsibility Education Fund, is a nonprofit charitable organization 
serving the broader business community and the general public through 
research and educational programs.) In 1995, this organization created 
the Business and Human Rights Program to address the range of human 
rights issues that its members face in using factories located in 
developing countries. The Business and Human Rights Program provides a 
number of services; for example, it offers (1) counsel and information 
to companies developing corporate human rights policies, including 
codes of conduct and factory selection guidelines for suppliers; (2) 
information services on human rights issues directly affecting global 
business operations, including country-specific and issue-specific 
materials; (3) a means of monitoring compliance with corporate codes 
of conduct and local legal requirements, including independent 
monitoring; (4) a mechanism for groups of companies, including trade 
associations, to develop collaborative solutions to human rights 
issues; and (5) the facilitation of dialogue between the business 
community and other sectors, including the government, media, and 
human rights organizations. 

Fair Labor Association: 

The Fair Labor Association, a nonprofit organization located in 
Washington, D.C., offers a program that incorporates both internal and 
external monitoring. In general, the Association accredits independent 
monitors, certifies that companies are in compliance with its code of 
conduct, and serves as a source of information for the public. 
Companies affiliated with the Association implement an internal 
monitoring program consistent with the Fair Labor Association's 
Principles of Monitoring, covering at least one-half of all their 
applicable facilities during the first year of their participation, 
and covering all of their facilities during the second year. In 
addition, participating companies commit to using independent external 
monitors accredited by the Fair Labor Association to conduct periodic 
inspections of at least 30 percent of the company's applicable 
facilities during its initial 2- to 3-year participation period. On 
January 16, 2001, the Fair Labor Association was awarded $750,000 by 
the Department of State's Anti-Sweatshop Initiative to enable the 
organization to recruit, accredit, and maintain a diverse roster of 
external monitors around the world. The Fair Labor Association's 
participating companies include the following: Adidas-Saloman A.G.; 
Nike, Inc.; Reebok International Ltd.; Levi Strauss & Co.; Liz 
Claiborne, Inc.; Patagonia; GEAR for Sports; Eddie Bauer; Josten's 
Inc.; Joy Athletic; Charles River Apparel; Phillips-Van Heusen 
Corporation; and Polo Ralph Lauren Corporation. 

Global Exchange: 

Global Exchange, headquartered in San Francisco, California, is a 
nonprofit research, education, and action center dedicated to 
increasing global awareness among the U.S. public while building 
international partnerships around the world. Global Exchange has filed 
and supported class-action lawsuits against 26 retailers and 
manufacturers concerning alleged sweatshop abuse in Saipan's apparel 
factories.[Footnote 25] As of September 2001, 19 of those corporations 
had settled for $8.75 million and have agreed to adopt a code of 
conduct and a monitoring program in Saipanese factories that produce 
their merchandise. 

International Labor Rights Fund: 

The International Labor Rights Fund is a nonprofit action and advocacy 
organization located in Washington, D.C. It pursues legal and 
administrative actions on behalf of working people, creates innovative 
programs and enforcement mechanisms to protect workers' rights, and 
advocates for better protections for workers through its publications; 
testimony before national and international hearings; and speeches to 
academic, religious, and human rights groups. The Fund is currently 
participating in various lawsuits against multinational corporations 
involving labor rights in Burma, Colombia, Guatemala, and Indonesia. 

In 1996, the International Labor Rights Fund and Business for Social 
Responsibility were key facilitators in establishing a monitoring 
program for a Liz Claiborne, Inc., supplier factory in Guatemala The 
Guatemalan nongovernmental monitoring organization, Coverco, was 
founded from this process and has since published two public reports 
on the results of its meetings with factory management and factory 
workers. Officials at Liz Claiborne, Inc., stated that the monitoring 
initiative has been very effective in detecting and correcting 
problems and helpful in offering ideas for best practices and has 
provided enhanced credibility for the company's monitoring efforts. 

In 2001, the International Labor Rights Fund was awarded an Anti- 
Sweatshop Initiative grant from the Department of State in the amount 
of $152,880. The Fund plans to undertake a project to work with labor 
rights organizations in Africa, Asia, and Latin America to build a 
global campaign for national and international protections for female 
workers. The Fund will conduct worker surveys and interviews in Africa 
and the Caribbean to determine the extent of the problem. In addition, 
the Fund and its nongovernmental organization partners will develop an 
educational video to help alert women workers in these countries about 
the problem of sexual harassment. 

Investor Responsibility Research Center: 

The Investor Responsibility Research Center, located in Washington, 
D.C., is a research and consulting organization that performs 
independent research on corporate governance and corporate 
responsibility issues. The Center contributed to the University 
Initiative Final Report, which collected information on working 
conditions in university-licensed apparel factories in China, El 
Salvador, Mexico, Pakistan, South Korea, Thailand, and the United 
States. The report addresses steps the universities can implement to 
address poor labor conditions in licensee factories and ongoing 
efforts by government and nongovernmental organizations to improve 
working conditions in the apparel industry. The report is based on 
factory visits and interviews with nongovernmental organizations, 
labor union officials, licensees, factory owners and managers, and 
government officials. 

National Consumers League: 

The National Consumers League is a nonprofit organization located in 
Washington, D.C. Its mission is to identify, protect, represent, and 
advance the economic and social interests of consumers and workers. 
Created in 1899, the National Consumers League is the nation's oldest 
consumer organization. The League worked for the national minimum wage 
provisions in the Fair Labor Standards Act (passed in 1938) and has 
helped organize the Child Labor Coalition, which is committed to 
ending child labor exploitation in the United States and abroad. The 
Child Labor Coalition comprises more than 60 organizations 
representing educators, health groups, religious and women's groups, 
human rights groups, consumer groups, labor unions, and child labor 
advocates. The Coalition works to end child labor exploitation in the 
United States and abroad and to protect the health, education, and 
safety of working minors. 

National Labor Committee: 

The National Labor Committee is a nonprofit human rights organization 
located in New York City. Its mission is to educate and actively 
engage the U.S. public on human and labor rights abuses by 
corporations. Through education and activism, the committee aims to 
end labor and human rights violations. The committee has led 
"Corporate Accountability Campaigns" against major retailers and 
manufactures to improve factory conditions. In El Salvador, the 
National Labor Committee has facilitated an independent monitoring 
program between (1) The GAP, the retailer; (2) Jesuit University in 
San Salvador, the human rights office of the Catholic Archdiocese; and 
(3) the Center for Labor Studies, a nongovernmental organization. The 
committee advocates that corporations should disclose supplier factory 
locations and hire local religious or human rights organizations to 
conduct inspections in factories. 

Social Accountability International: 

Social Accountability International, founded in 1997, is located in 
New York City, New York. It is a nonprofit monitoring organization 
dedicated to the development, implementation, and oversight of 
voluntary social accountability standards in factories around the 
world. In response to the inconsistencies among workplace codes of 
conduct, Social Accountability International developed a standard, 
named the Social Accountability 8000 standard, for workplace 
conditions and a system for independently verifying compliance of 
factories. The Social Accountability 8000 standard promotes human 
rights in the workplace and is based on internationally accepted 
United Nations and International Labor Organization conventions. 
Social Accountability 8000 requires individual facilities to be 
certified by independent, accredited certification firms with regular 
follow-up audits. As of November 2001, 82 Social Accountability 8000 
certified factories were located in 21 countries throughout Asia, 
Europe, North America, and South America. U.S. and international 
companies adopting the Social Accountability 8000 standard are Avon, 
Cutter & Buck, Eileen Fisher, and Toys R Us. In 2001, Social 
Accountability International was awarded an Anti-Sweatshop Initiative 
grant from the Department of State of $1 million for improving social 
auditing through research and collaboration; capacity building; and 
consultation with trade unions, nongovernmental organizations, and 
small and medium-sized enterprises; and consumer education. These 
projects will take place in several countries, including Brazil, 
China, Poland, and Thailand, and consumer education will be focused on 
the United States. 

Worker Rights Consortium: 

Worker Rights Consortium, a nonprofit monitoring organization located 
in Washington, D.C., provides a factory-based certification program 
for university licensees. University students, administrators, and 
labor rights activists created Worker Rights Consortium to assist in 
the enforcement of manufacturing codes of conduct adopted by colleges 
and universities; these codes are designed to ensure that factories 
producing goods bearing college and university logos respect the basic 
rights of workers. The Worker Rights Consortium investigates factory 
conditions and reports its findings to universities and the public. 
Where violations are uncovered, the Consortium works with colleges and 
universities, U.S.-based retail corporations, and local worker 
organizations to correct the problem and improve conditions. It is 
also working to develop a mechanism to ensure that workers producing 
college logo goods can bring complaints about code of conduct 
violations, safely and confidentially, to the attention of local 
nongovernmental organizations and the Worker Rights Consortium. As of 
November 2001, 92 colleges and universities had affiliated with the 
Worker Rights Consortium, adopting and implementing a code of conduct 
in contracts with licensees. 

Worldwide Responsible Apparel Production: 

The Worldwide Responsible Apparel Production, a nonprofit monitoring 
organization located in Washington, D.C., monitors and certifies 
compliance with socially responsible standards for manufacturing and 
ensures that sewn products are produced under lawful, humane, and 
ethical conditions. The basis for creating the monitoring and 
certification program came from apparel producers that requested that 
the American Apparel & Footwear Association address inconsistent 
company standards and repetitive monitoring. The program is a factory 
certification program that requires a factory to perform a self-
assessment followed by an evaluation by a monitor from the Worldwide 
Responsible Apparel Production Certification Program. On the basis of 
this evaluation, the monitor will either recommend that the facility 
be certified or identify areas where corrective action must be taken 
before such a recommendation can be made. Following a satisfactory 
recommendation from the monitor, the Worldwide Responsible Apparel 
Production Certification Board will review the documentation of 
compliance and decide upon certification. The Certification Program 
was pilot tested in 2000 at apparel manufacturing facilities in 
Central America, Mexico, and the United States. As of November 2001, 
500 factories in 47 countries had registered to become certified. 

Industry Associations: 

American Apparel & Footwear Association: 

The American Apparel & Footwear Association, a national trade 
association located in Washington, D.C., represents roughly 800 U.S. 
apparel, footwear, and supplier companies whose combined industries 
account for more than $225 billion in annual U.S. retail sales. The 
Association was instrumental in creating the Worldwide Responsible 
Apparel Production monitoring program. The Association's Web site 
states that "members are committed to socially responsible business 
practices and to assuring that sewn products are produced under 
lawful, humane, and ethical conditions." The American Apparel & 
Footwear Association has also created a Social Responsibility 
Committee, in which various manufacturers meet to discuss their 
programs to address worker rights issues. 

National Retail Federation: 

As the world's largest retail trade association, National Retail 
Federation, located in Washington, D.C., conducts programs and 
services in research, education, training, information technology, and 
government affairs to protect and advance the interests of the retail 
industry. The Federation's membership includes the leading department, 
specialty, independent, discount, and mass merchandise stores in the 
United States and 50 nations around the world. It represents more than 
100 state, national, and international trade organizations, which have 
members in most lines of retailing. The National Retail Federation 
also includes in its membership key suppliers of goods and services to 
the retail industry. The Federation has a Web site link entitled, 
"Stop Sweatshops," which provides information on the retail industry's 
response to sweatshops, including forms of monitoring and a brief 
history of U.S. sweatshops. The Federation also has an International 
Trade Advisory Council, comprising retail and sourcing 
representatives, which discusses various issues pertaining to 
international labor laws; international trade; and customs matters, 
both in the legislative and regulatory areas. 

[End of section] 

Appendix III: Examples of Web Sites With Codes of Conduct: 

The codes of conduct for the retailers we visited that have posted 
their codes on the Internet are at the Internet Web sites shown in 
table 4. 

Table 4: Retailers' Web Sites With Codes of Conduct: 

Retailer: Federated Department Stores, Inc. 
Web site: [hyperlink, http://www.federated-fds.com]. 

Retailer: Levi Strauss & Co. 
Web site: [hyperlink, http://www.levistrauss.com]. 

Retailer: Liz Claiborne, Inc. 
Web site: [hyperlink, http://www.lizclaiborne.com]. 

Retailer: JCPenney 
Web site: [hyperlink, http://www.jcpenney.net]. 

Retailer: The Neiman Marcus Group, Inc. 
Web site: [hyperlink, http://www.nmgoperations.com]. 

Retailer: Wal-Mart 
Web site: [hyperlink, http://www.walmart.com]. 

Retailer: The Walt Disney Company 
Web site: [hyperlink, http://www.disney.go.com]. 

[End of table] 

Appendix IV: Comments From the Department of Defense: 

Assistant Secretary Of Defense: 
Force Management Policy: 
4000 Defense Pentagon: 
Washington, D.C. 20301-4000: 

January 17, 2002: 

Mr. Barry W. Holman: 
Director, Defense Capabilities and Management: 
U.S. General Accounting Office: 
Washington, DC 20548: 

Dear Mr. Holman: 

This is the Department of Defense (DoD) response to the GAO draft 
report, GAO-02-256, "Defense Management: Industry Practices Can Help 
Military Exchanges Better Assure That Their Goods Are Not Made by 
Child Or Forced Labor, dated December 13, 2001 (GAO Code 350054)." 

The DoD concurs with the overall comments and recommendations in the 
report. Specific comments on the recommendations are enclosed. 

Thank you for the opportunity to comment on this report. 

Sincerely, 

Signed by: 

Charles S. Abell: 

Enclosure: As stated. 

[End of letter] 

GAO Code 350054/GA0-02-256: 

"Defense Management: Industry Practices Can Help The Military 
Exchanges Better Assure That Their Goods Are Not Made By Child Or 
Forced Labor" 

Department Of Defense Comments To The Recommendations: 

Recommendations: As the Secretary of Defense moves to implement the
congressionally directed program to assure that private label exchange 
merchandise is not produced by child or forced labor, the GAO 
recommended that the Under Secretary of Defense (Personnel and 
Readiness), in conjunction with the Assistant Secretary of Defense 
(Force Management), require the Army and Air Force Exchange Service, 
Naval Exchange Service Command, and Marine Corp Community Services to 
develop their program around the framework outlined in this report, 
including: 

1. creating a code of conduct that reflects the values and 
expectations the exchanges have of their suppliers; 

DoD Response: Concur. The Department plans to issue policy requiring the
exchanges to develop a code of conduct effective July 1, 2002. 

2. developing an implementation plan for the code of conduct that 
includes steps to communicate the elements of the code to internal 
staff, business partners, and factory workers and to train them on 
these elements; 

DoD Response: Concur. The Department plans to issue policy requiring the
exchanges to develop an implementation plan effective July 1, 2002. 

3. developing a monitoring effort to ensure the codes of conduct are 
upheld; 

DoD Response: Concur. The Department plans to issue policy requiring the
exchanges to develop a monitoring program effective July 1, 2002. 

4. using government agencies, such as the Departments of State and 
Labor, retailers, and the International Labor Organization as 
resources for information and insights that would facilitate 
structuring their program; 

DoD Response: Concur. During the past year, the exchanges have initiated
contact with many organizations to gather information and insights 
about the development of their program. Among these are other 
retailers, including JC Penny and Sears, and other organizations such 
as the Fair Labor Association, Social Accountability International and 
Worldwide Responsible Apparel Production. 

5. establishing ongoing communications with these organizations to 
help the exchanges stay abreast of information that would facilitate 
their implementation and monitoring efforts to assure that exchange 
merchandise is not produced by child or forced labor; and; 

DoD Response: Concur. The Department plans to issue policy requiring the
exchanges to establish and maintain ongoing contact with these 
organizations effective July 1, 2002. 

6. pursuing these efforts jointly to minimize costs where there are 
opportunities to minimize costs. 

DoD Response: Concur. As part of ongoing exchange cooperative efforts, 
the exchanges are working together to implement this program jointly. 
The Department plans to issue policy effective July 1, 2002 to 
implement the congressionally directed program and GAO guidance that 
will assure private label exchange merchandise is not produced by 
child or forced labor. 

[End of section] 

Appendix V: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Ronald L. Berteotti (214) 777-5702: 
Roger L. Tomlinson (214) 777-5777: 

Acknowledgments: 

In addition to those named above, Nelsie Alcoser, Jimmy Palmer, and
Susan Woodward made key contributions to this report. 

[End of section] 

Footnotes: 

[1] Private label merchandise includes products carrying the 
exchange's own name or a name created exclusively for that exchange. 

[2] Specifically, we noted that the Army and Air Force Exchange (1) 
has not had a program to address the working conditions and rights for 
employees of overseas suppliers of its merchandise, (2) recognized 
that it needed to develop a program that provides visibility of worker 
rights and working conditions for employees of its overseas suppliers, 
and (3) was interested in identifying industry practices that it might 
apply to its operations. 

[3] The National Retail Federation is the world's largest retail trade 
association. 

[4] These three companies generally refer to themselves as 
"manufacturers" or "licensing" companies, but they also operate retail 
stores. Therefore, in this report, we refer to the 10 companies we 
contacted as "retailers." 

[5] The International Labor Organization is a United Nations 
specialized agency that seeks to promote social justice and 
internationally recognized human and labor rights. 

[6] In 1988, 1989, and 1994, we reviewed the nature and prevalence of 
sweatshops in Sweatshops in the U.S.: Opinions on Their Extent and 
Possible Enforcement Options (GAO/HRD-88-130BR, Aug. 30, 1988), 
"Sweatshops" in New York City: A Local Example of a Nationwide Problem 
[hyperlink, http://www.gao.gov/products/GAO/HRD-89-101BR], June 8, 
1989, and Garment Industry: Efforts to Address the Prevalence and 
Conditions of Sweatshops [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-95-29], Nov. 2, 1994. 

[7] In this case, nongovernmental organizations are private 
organizations that pursue activities to relieve suffering, promote the 
interests of the poor, protect the environment, provide basic social 
services, or undertake community development. 

[8] The four principles are contained in the International Labor 
Organization's Declaration on Fundamental Principles and Rights at 
Work that were adopted by the International Labor Conference in 1998. 

[9] The exchanges indirectly receive benefits from appropriated funds. 
For example, they do not pay (1) rent for the use of properties owned 
by the U.S. government, (2) the salaries of military personnel working 
for the exchanges, and (3) utilities associated with overseas 
exchanges. Such benefits are not recorded on the exchanges' books; 
however, DOD's finance and accounting data showed that, in fiscal year 
2000, such benefits accrued to the Army and Air Force Exchange totaled 
$155.9 million; to the Navy Exchange Service Command, $32.3 million; 
and to the Marine Corps Community Services, $6.4 million. 

[10] The Assistant Secretary reports to the Under Secretary (Personnel 
and Readiness) who, in turn, reports to the Deputy Secretary of 
Defense. 

[11] The exchanges provide a host of other services and specialty 
stores, including furniture stores, florist shops, barber and beauty 
shops, optical shops, liquor stores, and fast-food restaurants. 

[12] For merchandise purchased directly from overseas companies, the 
exchanges pay customs duties and tariffs on the portion that is 
imported into the United States, as do retailers in the private 
sector. In fiscal year 2000, AAFES was the only exchange that directly 
imported merchandise from overseas companies, and it paid $6 million 
in tariffs. 

[13] Amnesty International is a human rights organization that 
annually releases a report about human rights abuses in every country 
of the world. 

[14] According to the State Department's Country Reports on Human 
Rights Practices, freedom of association is severely restricted in 
China, and forced labor is a problem as well. 

[15] The AAFES Retail Business Agreement contains terms and conditions 
applicable to the business relationship between the supplier and AAFES. 

[16] Although its suppliers have changed since 1996, the Navy Exchange 
has not issued another notification letter. 

[17] Although its suppliers have changed since 1997, AAFES has not 
issued another agreement letter. 

[18] See Forced Child Labor Advisory, U.S. Customs Service (Dec. 2000). 

[19] For the purpose of this report, the term "codes of conduct" is 
used generically to refer to various types of corporate policies and 
standards concerning working conditions in factories. These codes of 
conduct take different forms, including statements of company policy 
in the form of letters to suppliers, provisions in purchase orders or 
letters of credit, and/or compliance certificates. 

[20] Resource guides on codes of conduct in the apparel industry are 
available from the International Labor Organization and the Department 
of Labor. Business for Social Responsibility, a nongovernmental 
organization, provides companies that are developing corporate codes 
of conduct with guidance and information and maintains a database of 
corporate human rights policies and practices for its membership. 

[21] Federated Department Stores, Inc., Corporate Polices, Sweatshops. 

[22] The database consists of information on corporate policies and 
reports, codes of conduct, accreditation and certification criteria, 
and labeling programs and is available on the International Labor 
Organization's Web site at [hyperlink, 
http://oracle02.ilo.org:6060/vpi/vpisearch.first]. 

[23] The National Retail Federation is the world's largest retail 
trade association. 

[24] Customs enforces section 307 of the Tariff Act of 1930 (19 U.S.C. 
sec. 1307), which prohibits the importation of merchandise produced in 
whole or in part with prison labor, forced labor, or indentured labor 
under penal sanction. Customs attaché offices are in the following 
countries: (1) Austria, (2) Belgium, (3) Brazil, (4) Canada, (5) 
Columbia, (6) England, (7) France, (8) Germany, (9) Italy, (10) Japan, 
(11) Korea, (12) Mexico, (13) Panama, (14) People's Republic of China, 
(15) the Philippines, (16) Russia, (17) Singapore, (18) South Africa, 
(19) Thailand, (20) Uruguay, and (21) Venezuela. 

[25] Saipan is part of the Commonwealth of Northern Mariana Islands, a 
U.S. territory. 

[End of section] 

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