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. 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, 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. Appendix II provides additional information on governmental agencies’, nongovernmental organizations’, and industry associations’ efforts to address worker rights in overseas factories. 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. The Assistant Secretary of Defense (Force Management Policy) is responsible for establishing uniform policies for the military exchanges’ operations. 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. 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. 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.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. 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. 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. 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. 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.