11. Leather and leather goods

Foreign exchange earnings at a heavy price

'It is a crime to export sewage sludge from Germany to India. But it is free enterprise to export hides to India and to produce sludge in tanning them there'. This observation was made by a participant at the annual general meeting of the German leather industry association against the background of the closure of one of the biggest leather factories in Germany. The company could not afford to install the new plant which would be needed to conform with legislation requiring that waste-water purity be increased from 95 to 98%.

Increasingly strict environmental standards have lead to a decrease in the number of tanneries in most industrialised countries (except Italy). Consequently, increasing numbers of hides and furs from the USA, Oceania, and Europe are exported for processing elsewhere. For many developing countries, leather processing is a welcome source of foreign exchange. As a result, some 50% of leather production is now carried out in developing countries, compared with twenty years ago when the figure was only about 30%. The most important leather-producing countries are Italy and Korea, followed by the states of the former USSR, India, Brazil, Mexico, USA, and China. Although the environmental standards set by developing countries are generally similar to those set by industrialised countries, they are much less likely to be enforced.

Indeed, it is this lack of enforcement which keeps leather production in developing countries competitive on the world market (unlike in labour intensive industries where it is low wages which provide the competitive advantage). This disregard of the environmental problems in the tanning industry has far-reaching social and economic effects, especially in developing countries. The situation in the region of North Arcot in the South Indian state of Tamil Nadu is typical.

11.1 Tanneries as polluters

At the end of the 1970s, the Indian government declared that leather was an important export product. The tanning industry was encouraged by special government support and export promotion, and there was a gradual relaxation of the import restrictions on tanning machinery and chemicals. The industry has been even more favoured by government since 1991 when structural adjustment measures were imposed by the International Monetary Fund.

With the expansion of the leather industry came modern tanning methods. Vegetable tans were replaced by chemicals including zinc, arsenic, cadmium, and chromium, the main tanning agent. As well as producing a finer grained product, chromium tanning has the advantage of reducing the tanning time to about two days. This compares with the vegetable pit tanning process which can take up to two years. It is this chromium tanning process which pollutes the streams, rivers, lakes, reservoirs and wells in the tanning areas of India. The tanning of one kilogram of leather requires at least 35 litres of water, all of which becomes polluted during the process. Although a few of the big tanneries have installed water treatment plant, the water from most smaller tanneries flows untreated into local watercourses.

Social effects

The effects of this environmental scandal are evident. The river Palar in southern India is poisoned over about 100km of its length. In the same region, 35,000 hectares of farmland are affected by tannery waste water. The yield from once-fertile land has been reduced by half. Since farmers receive no compensation for crop losses, many of them have given up and sold their land to the tanneries. In the local population there has been a significant increase in diseases which result from drinking the polluted water: gastro-intestinal disease, asthma, growth abnorma- lities in children, and an infant diarrhoea caused by poisoning through breast milk. Susceptibility to tuberculosis has also increased, and the high salt content turns waste-water pools into breeding grounds for cholera bacteria. The tannery workers themselves suffer from skin diseases, fever, eye inflammation, lung cancer, and now also sterility. This latter condition had, hitherto, been confined to tannery workers in industrialised countries.

In Dindigul, another district of Tamil Nadu, a non-governmental organisation tested soil and water samples from 13 affected villages for tannery chemicals. In almost every case, the values exceeded the limits allowed by Indian legislation. The villages which had been renowned for their cultivation of aubergines and flowers now produce neither. The people have gone too. In Tamil Puthur, only six of the original sixty families remain. The rest have moved to the city in search of work.

A world-wide problem

Pollution from tannery waste is a global problem. World-wide, about 80% of tanners use the chromium process, while the remainder use vegetable tans, fat, urine, alum etc. In Greece, inhabitants of the town of Konitsa petitioned for the closure of a tannery which was polluting the local rivers. In Uruguay, municipal sewer-men died when they entered a sewer carrying tannery waste-water. In Turkey, the values of 'treated' waste-water fall far short of the legal limits. Almost all the tanneries in the former German Democratic Republic have been closed down. However, Italy, the world's leading leather producing and manufacturing country, shows that leather production can be both environmentally acceptable and profitable. It has 2,600 tanneries (employing 27,000 people) and about 85% of the tannery waste-water is treated in nine central water purification plants. The operation of these plants costs some 150 billion lira each year, and the disposal of the sludge costs a further 40 billion lira. These operational costs amount to 3.5% of the selling price, (a comparatively large amount in view of the fact that the price of the hide itself accounts for 50% of the selling price of leather).

The installation of water purification plant in leather-processing factories in India and other developing countries would have an even greater impact on profits than it has in Italy. The world market price of Italian leather is 3.32US$ per square foot compared with only 1.36US$ for leather from India, and even less for leather from Korea and China (1992 prices). As competition on the world market is tough, the agreement of all leather-producing countries would be required to achieve the higher prices which are needed to finance purification plant. (The history of coffee cartels has shown that such multilateral agreements are well nigh impossible to sustain.)

Quite apart from the cost of construction and operation of purification plant, there are the costs of know-how and technology which generally have to be bought from industrialised countries. Since many of the tannery machines and chemicals are also imported, even more of the foreign exchange earned by the leather industry goes back to industrialised countries.

There have been attempts to tackle this problem through development aid. In Thailand, German development funds have been used to build a pilot plant for chromium reclamation, while at Kanpur in India, engineers are trying to find a long term sustainable solution with the support of Dutch development aid. If, when, and to what extent, such pilot plants will be imitated remains to be seen.

The most polluting processes in leather production are in the early stages, up to the 'wet-blue' stage. Many of the larger tanneries in Germany and in India are now buying this semi-finished product to avoid involvement in the polluting processes. Unfortunately, most of the producers of 'wet blue' are smaller enterprises which are less likely to be able to afford their own purification plant.

11.2 International trade of leather and leather goods.

In order to obtain the highest possible added value from commodity hides and furs, a country should be involved in the production of finished leather goods as well as in leather processing. For some countries, punitive taxes make the export of finished leather goods less attractive, but the share of developing countries in the world leather trade has, nevertheless, increased from 41% to 62% in the last twenty years.

Leather goods

Whereas twenty years ago, 70% of leather was used for shoes, today it is only 50%. In developing countries, shoes and shoe components still account for 70% of production, while in industrial countries there has been a trend towards the use of leather in furnishing, clothing, bags etc. There has thus been a shift in the world shoe market: at the end of the 1960s, 90% of shoes came from Europe, now the share has dropped to 43%. At the same time, developing countries' share of the market has risen from 7% to 55%.

The shoe production process is highly diversified, with all semi-finished products being traded internationally. Competition is tough in all segments of the trade. A shoe that has been designed in Italy may have a sole made in Brazil, an instep made in Korea, a heel produced in Hong Kong and be sold in Germany under a label 'Made in Italy'.

Apart from 'Bata', there are few big enterprises in shoe production. Companies with a very few employees can work very successfully on an international level if they specialise in single shoe components. Relatively small companies are also competitive in the production of other types of leather goods. A company with as few as two or three employees can achieve a niche in the world market if it specialises in the production of an item such as a special drive belt or a component of a medical appliance.

However diverse the companies involved in the value chain of a particular item, there has to be close co-operation between them. In the case of shoes, the tanners, the shoe component producers, the shoe assembly firms, and the sellers must be able to respond in a co-ordinated manner to changes in fashion. Because leather goods are so highly fashion-dependent, the time lag from leather production to the selling of the shoes must be as short as possible, and the companies must keep themselves informed of fashion trends. Producers in developing countries are equally subject to the dictates of western fashion since only 5% of the shoes traded internationally are actually sold in developing countries. Producers in developing countries who do not have access to western market information have little chance of becoming successful exporters.

11.3 Trade restrictions

As developing countries have recognised the potential of leather and leather goods as sources of foreign exchange, they have introduced restrictions on the export of hides and furs. Indeed, export is prohibited from India, Brazil, Nigeria, and Korea. To ensure supplies for their own leather industry, a few developing countries now import hides from elsewhere. However, imports to Italy and Korea (which have no import restrictions) account for two thirds of the world-wide trade in hides and furs.

In contrast, for leather and leather goods, various import restrictions reflect the interests of industrialised countries in protecting their own production. This became clear in the Uruguay Round of GATT negotiations which was concluded in 1994. The Uruguay agreements were generally characterised by drastic reductions in MFN (Most Favoured Nation) tariffs and an extension of duty-free imports to Quad countries (Canada, USA, Japan, and the EU). There was significantly little easing of restrictions on those goods which developing countries want to export to Quad countries, goods like textiles, clothing, leather, shoes, and travel articles. These goods are still excluded from the General System of Preferences (GSP). MFN tariffs for these goods (except leather) will be considerably higher than the average tariffs for all other goods.

After Uruguay, the MFN tariffs for leather range from 2.8% (USA) to 6.4% (Canada); for shoes from 9.8% (USA) to 17.1% (Japan); and for travel articles from 3.9% (EU) to 14% (USA). Recently, there have been demands both from the European parliament and from the UNCTAD VIII negotiations at Cartagena for duty free imports from developing countries to be extended.

As far as non-tariff barriers are concerned, the EU market is protected by quota restrictions on imports of leather, shoes, and travel articles. This is, without doubt, of particular interest to Italy. But it also favours countries such as Portugal and Spain which produce leather and leather goods of a lower quality. The quotas available are defined for particular goods and for individual countries or groups of countries. In shoe and leather production the ACP (African, Caribbean, and Pacific) countries play a minor role, so that the EU concessions for these countries have little effect. In contrast, EU quotas are a serious barrier to countries like China, Korea, Thailand, and India for whom shoe and leather exports are of increasing importance. Korea calculates that effective tariff and non-tariff barriers for Korean shoes amounted to 140% in 1990. Korea even agreed to so-called voluntary trade restrictions with a number of countries including the USA and Canada.

Environmental standards as trade barriers?

Growing environmental awareness among consumers in industrialised countries leads to a more critical attitude to production conditions and the environmental background of products. UNCTAD experts, the US Congress, the European Parliament and ministries for development aid in various countries publicly discuss the introduction of environmental standards for traded goods. The prohibition of PCP (pentachlorophenol) in Germany serves to illustrate how such standards can turn into trade barriers for developing countries.

PCP is a fungicide used all over the world up to the mid 1980s to protect materials such as wood, hides, wet- blue, and leather from mildew. PCP can be produced easily and cheaply and is effective in small quantities. It is now known to be one of the most dangerous carcinogenic substances: it is not only a danger in itself, but is often polluted with dioxins and other dangerous chemicals. Moreover PCP easily escapes from treated materials into the air and adheres to objects such as furniture, garments, dust, and food.

When PCP was banned in Germany in 1990, following similar action by the Netherlands and Denmark, it was without warning to the leather industry. As a consequence of vehement protests from various countries, a transition period of one year was granted to leather goods before the ban (at 5 parts per million) was enforced. In 1992, a whole shipload of leather goods worth 1 million DM was sent back to India because it did not have the required PCP certificate.

PCP is a health hazard, particularly for those workers who have to apply the substance and for the people who deal with the treated hides and leather. Indeed, the ban on PCPs should be a blessing for those individuals most affected. However, when the PCP ban was enforced in Germany, India did not even possess the technology to measure PCP levels. In the following years, laboratory equipment was financed from development aid funds, but the matter of communicating the new restrictions to the whole of the industry down to the smallest producer of wet-blue still poses a problem.

11.4 Fair Trade

The developing countries pay a heavy price for the foreign exchange they earn by exporting leather and leather goods. The real costs of leather processing are measured in poorer health, damage to the environment, and crop losses. As long as these costs are not included in prices, the increased foreign exchange earned by leather exports is not of net value to the country as a whole. World market prices for leather will only rise when the costs of depollution are widely acknowledged and incurred, or when the populations affected can put sufficient pressure on their own governments.

Even if these higher prices can be achieved, it has to be recognised that leather production uses up one of our most precious resources - clean water. In the short term, a closed cycle economy is not a realistic expectation for the leather industry - and every drop of water used is not available as drinking water.

Unlike leather processing the production of leather goods is labour-intensive, and developing countries can benefit from their low wage costs. It would, nevertheless be in the interest of workers for wage costs to rise and for their working conditions to be improved. The European Fair Trade organisations therefore import leather goods directly from leather workers cooperatives and give them technical assistance and loans where necessary.

The fair trade importers are well aware of the environmental issues and are participating in the search for solutions. At present, vegetable-tanned leather of high quality is rarely available and is very expensive due to the long tanning process. With the support of the fair trade organisations, some Indian cooperatives are seeking ways of making vegetable-tanned leather a more viable product.

Association of Crafts People

Leather goods in India are produced in two ways. Some production is carried out in modern factories equipped with appropriate machinery, but most is produced in a widespread cottage industry. In the latter, ready-cut parts are glued and sewn by people working in their own homes. In both these production methods, it is the big export firms or their intermediaries which control the industry, and self-employed craftsmen find themselves largely excluded. In Calcutta, many leather workers have lost their livelihood in competition with cheaper, industrially produced goods.

'The Association of Crafts People, Calcutta' is a cooperative which supplies fair trade organisations in Europe. Its aim is to develop the self sufficiency of leather workers by providing education and training as well as marketing and export advice. The group produces bags, money-belts, purses, rucksacks etc. and is organised democratically. An elected committee of seven members conducts current business and every member has the right to vote and to stand for election.

Debt bondage is another issue addressed by the association. Although prohibited by law, debt bondage (where individuals are tied to debts which they can never repay) is still widespread in India. Debt bondage often affects members of the lowest caste, whom Ghandi named 'harijans' (God's children), who today prefer to call themselves 'dalits'. Since, in India, both leather production and the handling of leather are supposed to be 'unclean', it is often dalits who are employed in the industry. By granting loans to its members, the Association of Crafts People has helped many dalits to free themselves from debt bondage.


In India, there are about a thousand tanneries, many of which are very small and owned by members of the tanner castes who learned the craft from their fathers. They use vegetable tans to produce leather of inferior quality for the local market. In these tanneries, working conditions can be appalling. The tanning liquors and chemicals are handled barefoot, neither masks nor gloves are provided and ventilation is quite inadequate, even where dangerous solvents are in use.

Other small tanneries which produce leather for export are owned by Muslims, since Hindus consider the handling of hides and leather 'unclean'. Being capital-intensive, these tanneries tend to be rather small enterprises, employing between 50 and a 100 people, most of whom are day-labourers. The people employed are, for the most part, semi-skilled workers, since members of the tanner castes would have to be paid as skilled workers. Nevertheless, the workers in these more mechanised tanneries are well paid compared to the Indian average, and working conditions are surprisingly good.

In the region around Dindigul in Tamil Nadu, child-labour in tanneries is widespread. Boys from the age of 11 or 12 are often employed to clean the tanning tumblers, since they are small enough to climb inside the chambers. It is not long before they are experienced enough to give a warning before they faint from the chemical vapours. Like other workers, they have no accident insurance. The boys earn about 15 rupees a day, which is twice as much as children who weave carpets.

In India, between 1.5 and 2 million people are employed in the production of leather goods, mostly in the informal sector. About 85% of the Indian leather goods are produced by the small and cottage industry sector. The main products are sandals for the local market, clothing, handbags, and travel articles. In order to protect the informal sector, the organised sector only gets a production licence when at least 75% of the leather goods produced are for export. In Calcutta which has a communist government, the workers have to be protected too. If 50 or more people are employed in a company, trade unions have to be admitted. In practice, most companies side-step this regulation by never employing more than 49 workers.

Tables and graphics

Leather Exports Million US Dollars
1972 1982 1992
Italy: 33 300 1359
Korea: - 2 702
Hongkong: 1 37 642
USA: 13 186 617
Germany 52 160 490
Brasil 11 80 351
China - 27 150
India 33 123 136
Source: FAO, World Statistical Compendium for raw hides and skins, leather and leather footwear, 1994.
Shoe Exports Million US Dollars
1972 1982 1992
Italy 671 2087 5007
China 21 285 2156
Korea 10 379 1890
Hongkong 3 39 1821
Brasil 32 490 1368
Germany 69 296 896
USA 6 57 342
India 12 28 174
Source: FAO, World Statistical Compendium for raw hides and skins, leather and leather footwear, 1994.
Taxes for leather imports
Leather: EU 3,5; USA 2,8; Japan 2,5;
Shoes: EU 10,7; USA 9,8; Japan 13,2;
Bags and suchlike: EU 3,9; USA 14; Japan 8,2

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