Whereas illegal child labor in the hand-knotted carpet industry is widely documented in India, Nepal, and Pakistan, according to the U.S. Department of Labor and the U.S. Department of Commerce, with estimates reaching as high as one million children illegally employed;

Many of these children are bonded laborers who are separated from their families, working under appalling and unsafe conditions, including abuse, malnourishment and sexual exploitation by employers;

The U.S constitutes the largest market for hand-knotted carpets. In 1999, the U.S. Department of Commerce reported approximately $423 million in hand-knotted, oriental rugs were imported from primarily India, China, Pakistan, Turkey and Nepal. This figure, which we believe is significantly higher today, does not represent the much greater retail value of these carpets;

Federated Department Stores (Federated), one of the nation's leading department store retailers, is among the largest single outlets for handmade rugs in the U.S., including rugs from Nepal, Pakistan and India. We commend Federated's Vendor/Supplier Code of Conduct that requires "manufacturers [to] comply with all laws applicable to the country in which the merchandise is manufactured, including but not limited to laws against child or forced labor and unsafe working conditions." (Website);

However, we believe Federated does not have a standardized method for ensuring that its carpets are manufactured free of illegal child labor. For example, nearly 80 percent of Federated's rugs from Nepal are imported by one supplier that does not engage in independent monitoring of rug production;

Independent monitoring of rug production is a viable way to assure that those carpets from India, Nepal and Pakistan are child labor free. For example, Rugmark is a global nonprofit organization working with producers and importers to make and sell carpets free of illegal child labor through independent loom and factory monitoring and certification. The incremental cost of Rugmark certification is insignificant, less than 0.5% of the retail price of a typical carpet. Rugmark-labeled carpets are sold by several major European retailers and are beginning to penetrate markets in North America;

Evidence shows that consumer purchases are influenced by a company's reputation on social responsibility issues. We believe Federated would gain a competitive advantage by offering hand-woven carpets certified to be free of illegal child labor in production;

Resolved, shareholders request the Board of Directors to prepare a report by October 2003, at reasonable cost and omitting proprietary information. The report should detail how our company's Vendor/Supplier Code of Conduct, and its enforcement and monitoring, ensure that carpets sold by Federated are produced without illegal child labor or forced labor.

Supporting Statement

We recommend that the report:
1. Detail efforts to ensure that Federated or its suppliers do not employ children under the age of fifteen, or younger than the age of completing compulsory education in the manufacturing country.
2. Specify monitoring and compliance efforts by Federated and by independent monitors to ensure that there is no use of illegal child or forced labor in the manufacture of carpets sold by Federated.

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