by Krishna N. Das

NEW DELHI (Reuters) – International fashion retailers including H&M and Gap have pledged to raise the purchase price of clothing made in Bangladesh to help that country’s factories offset rising workers’ wages, said a US-based association representing more than 1,000 brands.

After deadly demonstrations between the police and factory workers in Bangladesh, the world’s largest clothing exporter after China, the government this week imposed an increase of almost 60% in the minimum monthly wage, which will rise to 12,500 taka (106. 26 euros) from December, the first increase in five years.

Hundreds of employees were still demonstrating on Thursday, for the second day in a row due to the wage increase deemed insufficient, leading to the closure of nearly 40 factories in the country.

Factory owners had said the wage hike, which comes ahead of January’s general election, would reduce their profit margins by increasing costs by 5 to 6 percent. According to industry estimates, labor accounts for 10 to 13 percent of production costs.

Asked about the possibility of increasing purchase prices by 5 to 6 percent, Stephen Lamar, chief executive of the American Apparel & Footwear Association (AAFA), told Reuters: “Absolutely.”

“As we and our members have repeatedly stated, we are committed to responsible purchasing practices to support wage increases,” he said in an email.

“We also renew our call for the adoption of an annual minimum wage review mechanism so that Bangladeshi workers are not disadvantaged by changing macroeconomic conditions.”

Low wages have allowed Bangladesh to grow its garment industry, which employs around 4 million people. Ready-to-wear clothing plays a vital role in the country’s economy, accounting for nearly 16% of its GDP.

Data from the International Labor Organization shows that even after the minimum wage increase, which some workers considered insufficient, Bangladesh falls behind other regional garment production centers such as Vietnam, where the average monthly wage amounts to 275 dollars, and Cambodia, where it reaches 250 dollars.

Last month, several AAFA members, including Abercrombie & Fitch and Lululemon, told Bangladesh Prime Minister Sheikh Hasina that they wanted to see workers’ wages rise in line with inflation, which currently stands at 9%. Stephen Lamar also wrote to Sheikh Hasina on the matter in July.

American and European retailers are the main buyers of clothing made in Bangladesh. Like most consumer goods retailers, fashion companies are facing a buildup of inventory and a slowdown in the global economy, which is resulting in fewer purchases in major markets.

(Reporting by Krishna N. Das; with contributions from Ruma Paul in Dhaka; by Dagmarah Mackos, editing by Kate Entringer)

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