Andrew B. Schroth

Customs & International Trade Law

GDLSK LLP (Hong Kong)

ASCHROTH@GDLSK.COM

WWW.GDLSK.COM

� ThreeThreeThreeThree----Dimensions: Environmental, Economic and SocialDimensions: Environmental, Economic and SocialDimensions: Environmental, Economic and SocialDimensions: Environmental, Economic and Social

� Reconcile tensions between environmental sustainability, Reconcile tensions between environmental sustainability, Reconcile tensions between environmental sustainability, Reconcile tensions between environmental sustainability, economic development, and human welfareeconomic development, and human welfareeconomic development, and human welfareeconomic development, and human welfare

� ““““Sustainability is the result of responsible business Sustainability is the result of responsible business Sustainability is the result of responsible business Sustainability is the result of responsible business practices and policies that make a positive impact on all practices and policies that make a positive impact on all practices and policies that make a positive impact on all practices and policies that make a positive impact on all people in the value chain from workers to consumers, people in the value chain from workers to consumers, people in the value chain from workers to consumers, people in the value chain from workers to consumers, maintain the environment for future generations, and maintain the environment for future generations, and maintain the environment for future generations, and maintain the environment for future generations, and result in a more productive and viable companyresult in a more productive and viable companyresult in a more productive and viable companyresult in a more productive and viable company”””” –––– UDSIAUDSIAUDSIAUDSIA

� UnUnUnUn----environmental = Unenvironmental = Unenvironmental = Unenvironmental = Un----economicaleconomicaleconomicaleconomical� UnUnUnUn----environmental = Unenvironmental = Unenvironmental = Unenvironmental = Un----lawful lawful lawful lawful

� Market competitionMarket competitionMarket competitionMarket competition: reduce prices, reduce quality in production, use cheapest resources.

� Fungibility/Volatility of FashionFungibility/Volatility of FashionFungibility/Volatility of FashionFungibility/Volatility of Fashion: clothing is disposable, changeable, wasteful.

� Complex supply chainComplex supply chainComplex supply chainComplex supply chain: hard to manage, decentralized, outsourced, independent components under different legal regimes.

� EconomicsEconomicsEconomicsEconomics: use more-waste more good for the suppliers (dyes, chemicals, components, etc.); compliance is expensive.

� New regulatory New regulatory New regulatory New regulatory and legislative developments in China, and legislative developments in China, and legislative developments in China, and legislative developments in China, Europe, the United States Europe, the United States Europe, the United States Europe, the United States ◦ Moving from voluntary to mandatory; Moving from voluntary to mandatory; Moving from voluntary to mandatory; Moving from voluntary to mandatory; ◦ Moving from promoting sustainability to mandating it Moving from promoting sustainability to mandating it Moving from promoting sustainability to mandating it Moving from promoting sustainability to mandating it

� ConsumersConsumersConsumersConsumers drive legislation: more aware when it drive legislation: more aware when it drive legislation: more aware when it drive legislation: more aware when it comes to purchasing safe, sustainable, and ecocomes to purchasing safe, sustainable, and ecocomes to purchasing safe, sustainable, and ecocomes to purchasing safe, sustainable, and eco----friendly products. friendly products. friendly products. friendly products.

� Tariffs and NonTariffs and NonTariffs and NonTariffs and Non----Tariff BarriersTariff BarriersTariff BarriersTariff Barriers: used for world: used for world: used for world: used for world----wide wide wide wide carbon reduction scheme and the increase in energy carbon reduction scheme and the increase in energy carbon reduction scheme and the increase in energy carbon reduction scheme and the increase in energy prices associated with domestic comprehensive prices associated with domestic comprehensive prices associated with domestic comprehensive prices associated with domestic comprehensive energy law energy law energy law energy law

� NEINEINEINEI: Effort to increase exports and increase : Effort to increase exports and increase : Effort to increase exports and increase : Effort to increase exports and increase employment: make foreign competitors comply to employment: make foreign competitors comply to employment: make foreign competitors comply to employment: make foreign competitors comply to stringent sustainability regulationsstringent sustainability regulationsstringent sustainability regulationsstringent sustainability regulations

Capital Markets Can Drive Sustainability:

� Companies adopt sustainable business models;

� Sustainable practices lead to increased profits;

� Increased profits attract investors and move markets;

� Confidence in the market creates culture of sustainability;

� Governments will move to protect sustainability investments

� The Toxic Substances Control Act The Toxic Substances Control Act The Toxic Substances Control Act The Toxic Substances Control Act of 1976 of 1976 of 1976 of 1976 (regulate chemicals) Amendment bill - April 2010 S. 3209 (1Q 2012 earliest)

� Clean Energy and Security Act Clean Energy and Security Act Clean Energy and Security Act Clean Energy and Security Act ((((H.R. 2454H.R. 2454H.R. 2454H.R. 2454) ) ) ) ////Clean Energy Jobs and American Power ActClean Energy Jobs and American Power ActClean Energy Jobs and American Power ActClean Energy Jobs and American Power Act((((S. 1733S. 1733S. 1733S. 1733) • Subsidies for R&D on Sustainable Textiles

• Incentives for renewable energy/conservation

• Material Safety Data Sheets (MSDS) – composition lists from suppliers (proposed only) .

� Business Transparency on Trafficking and Business Transparency on Trafficking and Business Transparency on Trafficking and Business Transparency on Trafficking and Slavery ActSlavery ActSlavery ActSlavery Act: Bill requires companies to disclose efforts to identify and address the risks of human trafficking, forced labor, slavery, and the worst forms of child labor in their supply chains.

� FTAs/MTAsFTAs/MTAsFTAs/MTAsFTAs/MTAs: : : : Inclusion of Sustainability Provisions in treaties (social, environmental standards and benchmarks); e.g., elimination of “yarn forward” origin rule for advancements in social welfare

� EU's Textile and Clothing Eco-Labeling Directive: get eco-label if reduce harmful effects on water/air in fiber production; reduce alergenics; shrinkage, color fastness.

� EU Biocidal Products Directive (draft): Controls biocides in textiles.

� EU Nano-Material Law (draft): Control of materials made with nanotechnology, potential migration of tiny nanoparticles into the environment and bodies

� REACH RegulationREACH RegulationREACH RegulationREACH Regulation: Comprehensive chemical assessment system; currently bans certain chemicals registered with the European Chemicals Agency (ECHA) from import if carcinogenic, mutagenic, or toxic to reproduction.

� Industrial Emissions Directive Industrial Emissions Directive Industrial Emissions Directive Industrial Emissions Directive (draft): "best available techniques" to cut pollutants including nitrogen oxides, sulphur dioxide, dust, asbestos and heavy metals by 2012.

� CPSIA CPSIA CPSIA CPSIA –––– REACH Models REACH Models REACH Models REACH Models (Product Safety) (Product Safety) (Product Safety) (Product Safety) ◦ Set standards for emissions/consumptionSet standards for emissions/consumptionSet standards for emissions/consumptionSet standards for emissions/consumption

◦ Mandatory reduction of Energy and Water Consumption Mandatory reduction of Energy and Water Consumption Mandatory reduction of Energy and Water Consumption Mandatory reduction of Energy and Water Consumption and CO output (GHG)and CO output (GHG)and CO output (GHG)and CO output (GHG)

◦ Independent 3Independent 3Independent 3Independent 3rdrdrdrd Party Testing at Factory LevelParty Testing at Factory LevelParty Testing at Factory LevelParty Testing at Factory Level

◦ Compliance Certificates (PreCompliance Certificates (PreCompliance Certificates (PreCompliance Certificates (Pre----Exportation)Exportation)Exportation)Exportation)

◦ Require Sustainable Fibers/Apply Cotton TaxRequire Sustainable Fibers/Apply Cotton TaxRequire Sustainable Fibers/Apply Cotton TaxRequire Sustainable Fibers/Apply Cotton Tax

◦ Supply chain traceability (tracking labels) Supply chain traceability (tracking labels) Supply chain traceability (tracking labels) Supply chain traceability (tracking labels)

◦ Duty reductions for Duty reductions for Duty reductions for Duty reductions for ““““sustainablesustainablesustainablesustainable”””” apparelapparelapparelapparel

◦ Use of renewable and recycled materials in all productsUse of renewable and recycled materials in all productsUse of renewable and recycled materials in all productsUse of renewable and recycled materials in all products

““““CaliforniacationCaliforniacationCaliforniacationCaliforniacation”””” –––– Proposition 69 for Sustainable Proposition 69 for Sustainable Proposition 69 for Sustainable Proposition 69 for Sustainable PracticesPracticesPracticesPractices

� Integrated approach where brands, factories, suppliers, designers, marketers, technologists and governments can work together

� RSLRSLRSLRSL� AAFA Global Textile Effluent GuidelinesAAFA Global Textile Effluent GuidelinesAAFA Global Textile Effluent GuidelinesAAFA Global Textile Effluent Guidelines� AAFA Supplier Environmental Standards & AAFA Supplier Environmental Standards & AAFA Supplier Environmental Standards & AAFA Supplier Environmental Standards & Best Practices Best Practices Best Practices Best Practices

� University of DelawareUniversity of DelawareUniversity of DelawareUniversity of Delaware’’’’s Sustainable Apparel s Sustainable Apparel s Sustainable Apparel s Sustainable Apparel Initiative Initiative Initiative Initiative

� Global Responsibility Care CharterGlobal Responsibility Care CharterGlobal Responsibility Care CharterGlobal Responsibility Care Charter� Voluntary Product Environmental ProfileVoluntary Product Environmental ProfileVoluntary Product Environmental ProfileVoluntary Product Environmental Profile (VPEP)� Global Organic Textile Standard Global Organic Textile Standard Global Organic Textile Standard Global Organic Textile Standard � EcoEcoEcoEco----Index or Sustainable Apparel Index Index or Sustainable Apparel Index Index or Sustainable Apparel Index Index or Sustainable Apparel Index

� Evaluate the impacts of the entire life cycle of apparel products: materials, manufacturing, packaging, transportation, use, and end of life.

FIVE AREASFIVE AREASFIVE AREASFIVE AREAS:

� Water use and quality;

� Energy use and greenhouse gases;

� Waste; chemicals and toxicity; and

� Social and labor.

� By Oct 1, 2011: Finalize v1.0 of the EcoEcoEcoEco----Index Index Index Index

� Oct 2011 - Jan 2012: Participating brands pilot the eco-index on a select set of products

� Jan 2012 - Mar 2012: Consolidate lessons from pilot, revise the index as appropriate

� Mar 2012 - xxx: Publish the v1.0 eco-index.

� Concurrently, work is being undertaken on the v2.0 eco-index, which is more data driven than v1.0 – score based rating system with specific parameters

� The plan is for v2.0 to go into pilot in 2013.

� QR Tracking Code� Full sustainability information/data

� Comparison with other products

� Detail on chemicals used, processes, labor practices, product safety, compliance certificates

� renewable and biodegradable materials� recycled fiber � convert biomass into bio-polymers that can be used in fibers

� canola oil for textile dyeing and finishing� enzyme technology for textile processing � Natural fibers: alpaca, kenaf, kapok, coir, pineapple and banana fibers

� closed-loop production systems for waste reduction� limit or eliminate water in the processing of fibers and fabrics

� reduce water consumption and increases dye consumption � Use of CO2 dyeing and waterless dyeing� laser technology for water-free denim washing � plasma technologies to effect surface modification of fibers � digital printing

� AAFA AAFA AAFA AAFA ((((Environmental Committee ) Environmental Committee ) Environmental Committee ) Environmental Committee ) http://http://http://http://www.apparelandfootwear.orgwww.apparelandfootwear.orgwww.apparelandfootwear.orgwww.apparelandfootwear.org))))

� AFRIM RSL Supplier Tool KitAFRIM RSL Supplier Tool KitAFRIM RSL Supplier Tool KitAFRIM RSL Supplier Tool Kit -------- ((((http://afirmhttp://afirmhttp://afirmhttp://afirm----group.com/supplierrsltool.htmgroup.com/supplierrsltool.htmgroup.com/supplierrsltool.htmgroup.com/supplierrsltool.htm))))

� Outdoor Industry Association Eco Index ToolsOutdoor Industry Association Eco Index ToolsOutdoor Industry Association Eco Index ToolsOutdoor Industry Association Eco Index Tools http://www.outdoorindustry.org/gov.csr.eco.tools.htmlhttp://www.outdoorindustry.org/gov.csr.eco.tools.htmlhttp://www.outdoorindustry.org/gov.csr.eco.tools.htmlhttp://www.outdoorindustry.org/gov.csr.eco.tools.html

� University of Delaware Sustainable Apparel InitiativeUniversity of Delaware Sustainable Apparel InitiativeUniversity of Delaware Sustainable Apparel InitiativeUniversity of Delaware Sustainable Apparel Initiative http://www.sai.udel.edu/http://www.sai.udel.edu/http://www.sai.udel.edu/http://www.sai.udel.edu/

� BluesignBluesignBluesignBluesign®®®® StandardStandardStandardStandard http://www.bluesign.com/http://www.bluesign.com/http://www.bluesign.com/http://www.bluesign.com/

� BSR: Apparel, Mills, and Sundries Working GroupBSR: Apparel, Mills, and Sundries Working GroupBSR: Apparel, Mills, and Sundries Working GroupBSR: Apparel, Mills, and Sundries Working Group http://www.bsr.org/en/http://www.bsr.org/en/http://www.bsr.org/en/http://www.bsr.org/en/

� National Textile Association: Voluntary Product Environmental PrNational Textile Association: Voluntary Product Environmental PrNational Textile Association: Voluntary Product Environmental PrNational Textile Association: Voluntary Product Environmental Profileofileofileofile http://www.nationaltextile.org/vpep/http://www.nationaltextile.org/vpep/http://www.nationaltextile.org/vpep/http://www.nationaltextile.org/vpep/

� Worldwide Responsible Accredited Production (WRAP)Worldwide Responsible Accredited Production (WRAP)Worldwide Responsible Accredited Production (WRAP)Worldwide Responsible Accredited Production (WRAP) http://www.wrapcompliance.org/http://www.wrapcompliance.org/http://www.wrapcompliance.org/http://www.wrapcompliance.org/

� OekoOekoOekoOeko----Tex Standard 100Tex Standard 100Tex Standard 100Tex Standard 100 http://www.oekohttp://www.oekohttp://www.oekohttp://www.oeko----tex.com/oekotex100_public/index.asp?cls=02tex.com/oekotex100_public/index.asp?cls=02tex.com/oekotex100_public/index.asp?cls=02tex.com/oekotex100_public/index.asp?cls=02

� Global Organic Textile StandardGlobal Organic Textile StandardGlobal Organic Textile StandardGlobal Organic Textile Standard http://www.globalhttp://www.globalhttp://www.globalhttp://www.global----standard.org/standard.org/standard.org/standard.org/

� Textile (Organic) ExchangeTextile (Organic) ExchangeTextile (Organic) ExchangeTextile (Organic) Exchange http://www.textileexchange.org/http://www.textileexchange.org/http://www.textileexchange.org/http://www.textileexchange.org/

� NRDC China ProjectNRDC China ProjectNRDC China ProjectNRDC China Project http://china.nrdc.org/http://china.nrdc.org/http://china.nrdc.org/http://china.nrdc.org/

� Fair Trade Certified Apparel ProgramFair Trade Certified Apparel ProgramFair Trade Certified Apparel ProgramFair Trade Certified Apparel Program http://www.transfairusa.org/content/certification/apparel_prograhttp://www.transfairusa.org/content/certification/apparel_prograhttp://www.transfairusa.org/content/certification/apparel_prograhttp://www.transfairusa.org/content/certification/apparel_program.phpm.phpm.phpm.php

� Retail Industry Leaders Association: Retail Sustainability InitiRetail Industry Leaders Association: Retail Sustainability InitiRetail Industry Leaders Association: Retail Sustainability InitiRetail Industry Leaders Association: Retail Sustainability Initiativeativeativeative http://www.rila.org/sustainability/Pages/default.aspxhttp://www.rila.org/sustainability/Pages/default.aspxhttp://www.rila.org/sustainability/Pages/default.aspxhttp://www.rila.org/sustainability/Pages/default.aspx

� Certified B Corporation http://www.bcorporation.net/Certified B Corporation http://www.bcorporation.net/Certified B Corporation http://www.bcorporation.net/Certified B Corporation http://www.bcorporation.net/

� GAFTI GAFTI GAFTI GAFTI –––– Sustainability Committee http://www.gafti.org/templateSustainability Committee http://www.gafti.org/templateSustainability Committee http://www.gafti.org/templateSustainability Committee http://www.gafti.org/template

� Sustainable Apparel Coalition Sustainable Apparel Coalition Sustainable Apparel Coalition Sustainable Apparel Coalition -------- http://www.apparelcoalition.org/http://www.apparelcoalition.org/http://www.apparelcoalition.org/http://www.apparelcoalition.org/