Global Labor Strategies

Beyond China's New Labor Contract Law

China’s new labor code went into effect on January 1. It could have important consequences for workers in China and in the rest of the world.

The Financial Times on January 2 reports that,

Employers in China fear that a new labour contract law that took effect on Tuesday will intensify growing pressures on manufacturing costs by enhancing the bargaining power of workers.

We estimate that, added together, labour costs [in mainland China] will be close to 40 per cent higher for this year [2008],” said Willy Lin, Hong Kong-based managing director of Milo’s Knitwear (International) Group.

Mr Lin says the new labour contract law, which will make it harder to dismiss workers, could increase costs by about 8 per cent this year, with the rest of the increase caused by higher minimum wages, social security payments and the renminbi’s steady appreciation against the US dollar.

The new law was designed to address some of the rampant abuses in Chinese industry including long hours, dangerous working conditions, and employers that cheat workers out of wages or delay payments.  But like all laws everywhere, the new law will be worth little if it is not interpreted broadly and enforced strictly. If the past is any guide, this could be a problem. China has been notoriously lax in enforcing labor laws. Absent vigorous enforcement, the new law could lead to workers being squeezed even harder in an effort to keep labor costs down. 

Labor and Immigration: Looking Beyond the Elections

Right-wing politicians are trying to fan the flames of passion over immigration during the current election campaign. So far they have met with mixed success, but as the election nears and the Right becomes more desperate, we can expect their efforts to intensify and the flames to grow higher. How should labor respond?

The importance of immigration as a campaign issue varies from region to region and from constituency to constituency. Nationally, just 15% of those surveyed in December in a Los Angeles Times/Bloomberg poll list immigration as a “top priority” in the coming election, and only 27% list it as “one of the most pressing problems facing the country”, but 81% think it is an “important” issue. The two parties are running true to form. Republican candidates, trolling for votes among the nativist wing of the party, are vying to see who can promise the longest and the highest wall along the Mexican border and the most vicious law enforcement in the rest of the country. Democrats, unsure of where key parts of their base stand and unwilling to stick their necks out, are scrambling for cover with rhetoric about the need for “comprehensive” immigration reform.  This duck and cover approach is reflected in replies to a question about immigration and the election posed by the New Republic in November to five prominent Democratic “strategists and consultants” likely to play a key role in the upcoming election.

The press conveniently divides the debate between those candidates who believe in “enforcement only” approaches and those who believe in “enforcement and a road to citizenship”. It is assumed that everyone believes in “border security”.  Other approaches are pushed from mainstream media.

Gone are the hopeful days of two years ago when millions were in the streets demanding immigration reform and amnesty for the undocumented. Instead a Pew Research poll released last week shows that, “just over half of all Hispanic adults in the US worry that they, a family member or a close friend could be deported…..”    And, “nearly two-thirds say the failure of Congress to enact an immigration reform bill has made life more difficult for all Latinos.”

A Call to Action

China’s new Labor Contract Law will become effective on January 1, 2008. At that time companies will be required to provide a written contract to each employee and to provide a handbook of company policies and procedures developed in consultation with worker representatives.

The new law gives new rights to employees and imposes new responsibilities on employers. There is evidence that some companies are taking evasive action to avoid complying with both the letter and the spirit of the law. This has provoked a great deal of controversy in China.

Last year, as the new law was being drafted, foreign corporations and their business associations took strong exception to some of its provisions. As a result changes were made in later drafts to address corporate concerns. Following passage, foreign corporations and their business associations pledged to support the law and abide by its provisions.

Given the public controversy in China over corporate compliance with the new law, it is time for trade unions, worker rights advocates, and political figures around the world to insist that foreign companies and their suppliers prove compliance with the new law and respect for their employees’ rights under the new law. They should demand that foreign corporations take the following 3 steps to prove compliance:

1. Make public the templates of the contracts that they are offering to their employees.
2. Make public copies of company policies and procedures handbooks with a description of how they were written.
3. Make public any instructions that they have issued to their suppliers and the measures that they plan to take to insure compliance by their suppliers.

Foreign companies and their business associations regularly insist that they are law abiding and committed to promoting strong labor rights and legal standards in China. By making key documents public they can demonstrate that commitment, on paper at least.

The time to act is now in the run-up to the Labor Contract Law’s implementation date on January 1, 2008. How the new labor law is implemented in China should be of concern to everyone who supports labor rights and adherence to the rule of law. Trade unions around the world should demand compliance and transparency from the companies that employ their members, from companies which they hope to organize, and from companies in the industries in which they are active. Non-Governmental Organziations working on labor and human rights issues should demand compliance from the companies and industries that they target. And governments in countries around the world should take steps to insure that multinational companies headquartered in their jurisdictions comply fully with both the letter and spirit of China’s Labor Contract Law.

The Battle for Labor Rights in China: New Developments

Here is a review of the fast moving and important developments in the run-up to the January 1, 2008 implementation of China’s new Labor Contract Law.

As we reported in our last post, Huawei—the Chinese owned telecommunication company with ties to many foreign firms—recently instituted a personnel program widely believed to be an effort to avoid a key provision in China new Labor Contract Law.  That provision automatically grants open ended contracts to workers with either 10 years of service or two consecutive fixed term contracts.  Open ended contracts allow workers much more job security—since there is no renewal date and workers can only be removed for just cause—and they provide for more severance pay should a layoff occur. Under Huawei’s program 7,000 long term workers were offered economic incentives to quit and be rehired on 1 to 3 year fixed term agreements. The layoff program was widely reported in the Chinese press and roundly criticized by labor rights advocates inside and outside the government.

Now, under intense pressure from the public and the All China Federation of Trade Unions (ACFTU), China’s sole legal union, Huawei has suspended the program.

There is a widespread sense that many firms are engaging in similar practices as they position themselves for life under the new law.

And it's not just Chinese owned firms. Wal-Mart has also come under scrutiny in the Chinese media for some staff reductions. According to the independent on-line Asia Sentinel:

Dong Yu Guo, Public Relations director of Wal-Mart China, told the Jing Hua Times newspaper that the reshuffle of its employees is not aimed at the new labor contract law. Dong noted that Wal-Mart China has two business areas ‑ procurement for its worldwide operations and stores for the local market. Yu said the staff reduction is not going to affect its nearly 100 department stores and Sam’s Clubs, and that more hiring beyond the current 44,000 employees in the retail division is expected.

However, on October 22, the Global Procurement Center for Wal-Mart announced in an internal meeting that more than 100 employees had been laid off, including 40 in Shanghai and 60 in Shenzhen. A woman who works in the Shenzhen center, who asked not to be named, said she has been working there for four years and was laid off last month. She was told she would receive three months salary plus some additional compensation. She said she expected to be off for one to two months before returning to the company.”

Are US and EU Corporations Complicit in Evading China’s New Labor Law?

Evidence is mounting that they are. In a recent post we reported that some firms in China are firing workers in the run-up to the implementation of China’s new labor contract law which grants more rights to workers. Now it appears the problems are widespread and that foreign corporations--including Walmart--may be complicit.

In the interim period between the law's passage on June 29th, 2007 and its effective date on January 1, 2008 employers must bring personnel policies into compliance. Among its provisions, the new law requires a written contract for each employee; encourages open ended contracts rather than fixed term agreements; makes dismissals more difficult; automatically grants open-ended contracts to workers with 10 years of service; and requires that many company policies and procedures be negotiated with employee representatives.

Corporations are looking after their own interests: as 2008 nears, law firms and HR consultants are hard at work giving advice and holding seminars on how to best deal with the new law and HR staffs are drafting new contracts and policies. For workers it’s a different story. At a meeting here in the US last week a visiting Chinese scholar called the current situation “a-symmetrical”.  Citing the example of one firm that has laid off workers to avoid provisions of the new law he asked, “Who is looking out for the interests of the employees?”  Who indeed!   Against the power of the employers, workers have been left to their own devices.

China’s New Contract Labor Law

China’s new Labor Contract Law was enacted by the National People’s Congress on June 29th. It will go into effect on January 1, 2008.

The law was enacted with an unusual amount of debate and controversy both in China and worldwide. GLS has written extensively about the attempts by foreign corporations to gut important provisions of the law. The law's final version has received mixed reviews from the foreign corporations and their lawyers doing business in China.

According to the New York Times:

Many multinational corporations had lobbied against certain provisions in an earlier draft of the new labor law. An early draft gave unions greater powers and made it more difficult to fire workers.

Companies argued that the rules would substantially increase labor costs and reduce flexibility, and some foreign businesses warned that they would have little choice but to move their operations out of China if the provisions were enacted.

International labor experts said several of the most delicate clauses had been watered down. But lawyers representing some big global companies complained that the new law still imposed a heavy burden.

''It will be more difficult to run a company here,'' said Andreas W. Lauffs, head of Baker & McKenzie's employment law group, which represents many of America's biggest corporations in China.

The Christian Science Monitor reports,

"As is always the case with China's laws, the real question will be in whether the new laws are enforced, how they are enforced, and against whom they are enforced," says Dan Harris, an expert at the law firm Harris & Moure.

But, he adds, "there is a feeling the new labor law is more likely to be enforced than the old and, in particular, will be enforced against foreign companies."

Challenging Corporate Secrecy in China

It’s hard to get accurate information about what’s really going on in China’s economy or its workplaces. This is a big problem for unions that need information about the companies they bargain with and the industries within which they operate. It’s also a problem for consumers who need to know about product safety and regulatory standards—as  recent scandals involving contaminated pet food, toothpaste, and children’s toys make clear—and for environmental organizations, human rights advocates, and other watchdog NGOs—all of which play important roles in the civil societies of the industrialized world.

It’s easy to blame the Chinese government for the information gap. But corporations in China—both foreign and domestic—are as much or more to blame. While how much information corporations can keep secret from the public as “proprietary knowledge” is contested in every country, in China corporations have far exceeded acceptable bounds by creating a raw capitalism based on secrecy and short term advantage. This is at odds with the transparency needed for the rule of law and social accountability. If labor laws, product safety standards, and environmental regulations are to be enforced public access to a wide range of information is required.

Now pressure is building for more transparency. For instance, on a recent trip to China US labor leaders agreed to an information exchange with their Chinese counterparts—something that could serve as the basis for further cooperation between Chinese and non-Chinese unions.  Some corporations are also questioning the corporate climate of secrecy and have even taken steps in the direction of transparency that could serve as the basis for a campaign by labor and civil society organizations to tear down the wall of secrecy that characterizes corporate business practices in China.

New Approaches to Promoting Labor Rights in China

 

A 10-day trip in May by a high profile delegation from Change to Win (CtW), and a recent letter on China’s proposed draft labor law from the General Secretary of the International Trade Union Confederation (ITUC) to China’s President spotlight new approaches by the world’s trade unions as they grapple with how to deal with China’s emergence as a global economic powerhouse—and how to promote labor rights for Chinese workers.

The Change to Win delegation which included Teamster President James Hoffa, SEIU President Andy Stern, United FarmWorkers President Aruto Rodriguez, CtW Chair Anna Burger, and CtW Executive Director Greg Tarpinian  met with Chinese government officials, executives from US based companies doing business in China, and significantly, with officials from the All China Federation of Trade Unions (ACFTU), the government controlled union federation to which all Chinese unions must belong.

 

Why Labor Can and Should Lead a Reassessment of Approaches to China

With US labor leaders holding talks (see here, here and here) with the ACFTU in China, we thought it would be worthwhile to examine the role of the U.S. labor movement in the reassessment of approaches to China.  A later post will explore the questions raised by  U.S. labor's emerging engagement with the ACFTU.

Why Labor Can and Should Lead a Reassessment of Approaches to China

1. Established approaches to China are obsolete. 

China is no longer a cold war adversary, but it is now a global economic powerhouse.  The current policies of labor and of the U.S. government have not adequately recognized today’s reality. 

2. The jobs and wages of workers in the US and everywhere are at stake.

Unions and workers all over the globe are confronting the challenges posed by the emergence of China as a global economic powerhouse.  No other industrializing country has ever attracted jobs at both the high and low ends of the production chain.  From basic level assembly work to the upper tiers of industry and services, China is setting the global norm for working standards around the world.

3. A new China strategy is an economic necessity for labor.

China is a global problem for workers and their unions.  Every day footloose corporations move or threaten to move jobs to China. The “privileged” position of workers in the global North is being rapidly undermined while the aspirations of workers in the developing world are being dashed as China becomes the wage setting country in many industries.

A Response to the US-China Business Council

Global Labor Strategies staff members recently wrote an article for the on-line journal Foreign Policy in Focus. The article was based on our report Behind the Great Wall of China, which documented the opposition of US and EU based corporations in China to a new law that would grant new labor rights to Chinese workers.

In the article we identified the US-China Business Council (USCBC) as one of the lobbying groups that submitted comments to the Chinese government opposing the new law. The US-China Business Council is a Washington based group that includes many of the biggest companies doing business in China and is generally considered an authoritative voice of US based corporate interests in China.

The USCBC took issue with our article. Here is what they wrote.

To the Editor: Re: "Labor Rights in China" (December 21, 2006)

This commentary mistakenly asserts that US companies have launched a "corporate campaign" to "block" China's proposed Labor Contract Law. Far from opposing the new measure, the US-China Business Council, which represents 250 US companies that do business in China, submitted comments on the draft Labor Contract Law to the Chinese government at its request that aim to make the new law more effective and balanced.

The US-China Business Council and its members share the goal of creating a Chinese work environment that is safe, fair, and stable. The overwhelming number of labor abuses occur in locally owned companies that do not share the more advanced labor relations standards that American corporations bring with them when they come to China. That last point cannot be stressed enough¬. American companies by and large are models for improving employment and environmental health and safety standards in China.

The Chinese government's request for comments on the draft law was a significant step forward for increased regulatory transparency in China. The airing of different views should be encouraged as a normal--and integral--part of the drafting process.

Sincerely,

Catherine Gelb
Director, Communications and Publications
The US-China Business Council
1818 N Street, NW Suite 200
Washington, DC 20036

Tel:          202-429-0340      
E-mail: [email protected]

Of course, we welcome this comment by the US-China Business Council. Debate over the proper role of US based businesses abroad is essential. Indeed, we wrote the article and the report upon which it is based to stimulate a debate and reappraisal of the political and business activities of US based firms around the world.

But we stand completely by what we wrote. In fact, our reporting on the position of USCBC on the new law was based entirely on comments submitted by the organization to the Chinese government. Those comments mirrored comments made by other corporate lobbying organizations like the American Chamber of Commerce and the EU Chamber of Commerce. As the law has worked its way through the Chinese legislative process, lobbying organizations have made additional comments and they continue to apply pressure to change the proposed law before it is adopted.