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88–096 PDF 2003

CODES OF CONDUCT: U.S. CORPORATE

COMPLIANCE PROGRAMS AND WORKING

CONDITIONS IN CHINESE FACTORIES

ROUNDTABLE

BEFORE THE

CONGRESSIONAL-EXECUTIVE

COMMISSION ON CHINA

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

APRIL 28, 2003

Printed for the use of the Congressional-Executive Commission on China

(

Available via the World Wide Web: http://www.cecc.gov

CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

LEGISLATIVE BRANCH COMMISSIONERS

House Senate

JIM LEACH, Iowa, Chairman

DOUG BEREUTER, Nebraska

DAVID DREIER, California

FRANK WOLF, Virginia

JOE PITTS, Pennsylvania

SANDER LEVIN, Michigan

MARCY KAPTUR, Ohio

SHERROD BROWN, Ohio

CHUCK HAGEL, Nebraska, Co-Chairman

CRAIG THOMAS, Wyoming

SAM BROWNBACK, Kansas

PAT ROBERTS, Kansas

GORDON SMITH, Oregon

MAX BAUCUS, Montana

CARL LEVIN, Michigan

DIANNE FEINSTEIN, California

BYRON DORGAN, North Dakota

EXECUTIVE BRANCH COMMISSIONERS

PAULA DOBRIANSKY, Department of State*

GRANT ALDONAS, Department of Commerce*

D. CAMERON FINDLAY, Department of Labor*

LORNE CRANER, Department of State*

JAMES KELLY, Department of State*

JOHN FOARDE, Staff Director

DAVID DORMAN, Deputy Staff Director

* Appointed in the 107th Congress; not yet formally appointed in the 108th

Congress.

(II)

(III)

C O N T E N T S

Page

STATEMENTS

Cahn, Doug, vice president, human rights program, Reebok International,

Ltd., Canton, MA ................................................................................................. 2

Niepold, Mil, director of policy, Verite ́, Inc., Jersey City, NJ .............................. 5

van Heerden, Auret, director of monitoring, Fair Labor Association, Washington, DC ............................................................................................................. 9

Rosenbaum, Ruth, executive director, Center for Reflection, Education, and

Action, Hartford, CT ............................................................................................ 12

APPENDIX

PREPARED STATEMENTS

Cahn, Doug ............................................................................................................... 32

Niepold, Mil .............................................................................................................. 35

van Heerden, Auret ................................................................................................. 38

Rosenbaum, Ruth .................................................................................................... 44

(1)

CODES OF CONDUCT: U.S. CORPORATE

COMPLIANCE PROGRAMS AND WORKING

CONDITIONS IN CHINESE FACTORIES

MONDAY, APRIL 28, 2003

CONGRESSIONAL-EXECUTIVE

COMMISSION ON CHINA,

Washington, DC.

The roundtable was convened, pursuant to notice, at 2:30 p.m.,

in room 2200, Rayburn House Office Building, John Foarde [staff

director] presiding.

Also present: Mike Castellano, office of Representative Sander

Levin; Karin Finkler, office of Representative Joe Pitts; Andrea

Yaffe, office of Senator Carl Levin; Bob Shepard, office of Deputy

Secretary of Labor D. Cameron Findlay; Susan O’Sullivan, office of

Assistant Secretary of State Lorne Craner; Erin Mewhirter, office

of Under Secretary of Commerce Grant Aldonas; Susan Roosevelt

Weld, general counsel; Selene Ko, chief counsel for trade and commercial law; Lary Brown, specialist on labor issues; and William

Farris, senior specialist on Internet and commercial rule of law;

Mr. FOARDE. Good afternoon and welcome to this issues roundtable of the Congressional-Executive Commission on China. My

name is John Foarde. I am staff director. On behalf of Chairman

Jim Leach and Co-Chairman Chuck Hagel, we welcome all of you

this afternoon and appreciate not only your coming to hear and listen, but particularly to our panelists for coming to share their

expertise with us this afternoon.

As anyone who has read our first annual report, which was published last October, can attest, our bosses care about the topic of

corporate social responsibility. They asked us to look into it this

year in a very intensive way. One of the first things we discovered,

of course, is that not everyone agrees as to what ‘‘corporate social

responsibility’’ means.

Certainly one of the responses of the business community has

been to adopt codes of conduct to guide their own behavior as they

invest and trade abroad. There are a number of codes, and not all

of them say the same thing. So we thought, as a point of departure,

that it would be useful to have several experts come in to talk

about corporate compliance with codes of conduct. Do they make

any sense? Do they work? We have succeeded beyond our wildest

dreams by having four first-class panelists.

I will introduce all of them at greater length, but they are Doug

Cahn, vice president, Human Rights Programs, Reebok International, Ltd.; Mil Niepold, director of policy, Verite ́, Inc.; Auret

2

van Heerden, director of monitoring, the Fair Labor Association

[FLA]; and Dr. Ruth Rosenbaum, executive director, Center for Reflection, Education, and Action [CREA].

We are going to adopt our usual practice of going wall to window

and begin over on this side with Doug Cahn. As vice president of

Human Rights Programs, Doug oversees Reebok’s corporate commitment to international human rights, both through the company’s business practices and through its philanthropic endeavors.

He joined Reebok in October 1991.

Doug leads the team that develops and implements Reebok’s

workplace code of conduct for factories making Reebok products.

Under his direction, Reebok has been an early leader in innovative

ways to apply codes of conduct to factories owned and operated by

third parties, including the development of a child-labor-free soccer

ball factory in Pakistan, human rights training programs, worker

communication system, and assessment tools.

Doug Cahn directs the human rights grant-making effort at the

Reebok Human Rights Foundation as well.

Doug, welcome and thank you for coming.

Let me review the ground rules here. We will let each panelist

speak for 10 minutes. After 8 minutes, I will remind you that you

have 2 minutes remaining. Any point that you can’t get to in your

presentation, we will try to pick up in the question and answer session, after all four panelists have presented. Each staff member

here will get a chance to ask questions.

Doug, please.

STATEMENT OF DOUG CAHN, VICE PRESIDENT, HUMAN

RIGHTS PROGRAMS, REEBOK INTERNATIONAL, LTD., CANTON, MA

Mr. CAHN. Thank you very much, and thank you for giving me

and Reebok the opportunity to be with you here this afternoon.

For over a decade, Reebok International, Ltd., has implemented

its code of conduct, the Reebok Human Rights Production Standards, in the independently-owned and -operated factories that

make its products. We do this to ensure that workplace conditions

meet internationally recognized standards and local law, to honor

our corporation’s commitment to human rights, to protect our

brand reputation, and to benefit, most importantly, the lives of

150,000 workers—nearly half of whom live in China.

In recent years, an increasing focus of Reebok’s monitoring work

has been to encourage factory workers to participate in workplace

decisions. This focus is born out of Reebok’s experience that code

of conduct compliance is enhanced when workers are involved in

identifying workplace problems and resolving them in dialog with

management.

The current movement of global brands to monitor factories has

its limits. Professional monitors can do much good, but they cannot

be present in every factory, all the time. This realization has

caused us to recognize that a worker representation model—one in

which workers participate in decisions that affect their lives—can

speed our efforts to ensure that quality workplace conditions are

sustained. Among our standards is the provision that Reebok will

respect the rights of workers to freedom of association. With workVerDate 11-MAY-2000 10:39 Jul 23, 2003 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 88096.TXT China1 PsN: China1
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er representation projects, we facilitate the development of this

right, even when host country laws do not fully accept the covenants of the International Labor Organization [ILO] relating to

freedom of association and collective bargaining. In China, as an

example, we hope our worker representation projects will give

greater meaning to this provision of our code of conduct.

In China, our worker participation programs have resulted in

elections of worker representatives in two large footwear factories.

While elections are not the only way of developing problem-solving

mechanisms that include worker participation, they are permissible

under the law in China and, as the level of participation in the two

elections demonstrate, workers view these elections as acceptable

methods to choose representatives who can defend their interests.

Our experiment began with the facilitation of the democratic

election of worker representatives in the Kong Tai shoe factory

[KTS] located in Longgang, China in July 2001. This athletic shoe

factory is publicly listed on the Hong Kong Stock Exchange and

employs just under 6,000 workers.

In the spring of 2001, we examined the existing union charter

and Chinese labor law. Working with management and the thenappointed union, an affiliate of the All China Federation of Trade

Unions [ACFTU], all parties agreed to a process that would be followed and on the underlying charter that would be its guide.

The previous union membership consisted of 19 committee members, of whom 18 were office workers or guards. We sought to avoid

the preponderance of non-production line workers serving as union

leaders by insisting on proportional representation. We wanted to

ensure that a new union would truly represent all workers. Communication and outreach was the next important step. Workers

needed to understand the process in order to be able to participate

fully in it.

There were a variety of materials prepared in order to post on

the walls and explain to workers what this process was about.

Open forums were critically important at that point in order to provide the opportunity for workers to hear the purpose and the process for the union election.

Under the rules, candidates were to be self-nominated. And we

were delighted that 62 candidates put their names forward. The

voting was conducted in secret. On July 28, 2001, each worker received one colored ballot denoting their election zone, and the voting took place.

On the day of the election, there were 4,658 workers in the factory; 1,130 were on leave; 3,409 ballots were issued; 119 chose not

to vote. There were 102 spoiled ballots, and 17 ballots were not

returned.

During the election, 26 workers—16 women and 10 men—were

elected to the committee out of 62 worker candidates. Of the 26

workers 15 were line workers, 7 were line leaders or supervisors,

and 4 were office staff. Of the six former executive committee members who ran, four were re-elected.

Training was and continues to be an essential post election activity, so that the elected representatives can have a better understanding of what is possible under the law in China, and to help

4

them in the process of organizing themselves to become an effective

voice for workers.

A second election was held in a Taiwan-invested factory in October 2002. The 12,000 workers at the Fu Luh Sports Shoe factory

in Fuzhou, China voted for 192 candidates in 7 election zones. Although the Fu Luh factory had a union previously, there was no

charter—nothing written down about the purpose or the structure

of the union. So they had to start from scratch.

We began by bringing Fu Luh leadership to the first factory, the

Kong Tai factory, the one I just mentioned, to view first hand the

process and the outcome of the election that had been held there

a year earlier. Representatives were then introduced to the Kong

Tai charter during that visit and subsequently relied heavily on it

for the development of their own charter document.

Workers were given the opportunity to self-nominate at the second factory, the same as the were in the first. Open forums preceded the nomination process and were meant to inform workers

about the elections, explaining how this was different from the

past; explaining the purpose, for instance, of the trade union; and

encouraging workers’ involvement.

Fu Luh has only one small dorm that houses a few of the factory’s workforce. Most of the workers live offsite. So to ensure that

workers would attend the open forums where the process of the

elections was discussed, workers were required to attend and were

compensated for their time. Open worker forums on this lasted for

about an hour and a half.

The voting, again, was by secret ballot and took place in a fully

transparent manner. A week following the election for the committee members, the chair and vice chair were elected from among

the committee members, and the whole process with speechmaking

and such was repeated.

Training is now the focus at the second factory, the Fu Luh factory, so that the worker representatives can have the benefit of the

knowledge that comes with understanding how to organize information and how to conduct a meeting and such, the basic prerequisites that are necessary for workers to be able to adequately

represent the larger workforce. Two training sessions have already

occurred, and we expect an additional one in the future.

The elections at Kong Tai and Fu Luh are initial efforts to enhance the voice of workers in China in a way that will aid code

compliance and lead, we hope, to a more sustainable model for improving workplace conditions.

These elections were fully consistent with Chinese law and were

supported by the local ACFTU officials. We were pleased will the

overall level of support we observed and we commend all parties,

including ACFTU officials, for their forbearance and, in many

cases, active support.

The guiding principles in the election process were self-nomination; transparency; proportional representation; and one person,

one vote. Self nomination to stand as a candidate; transparency in

the process, so that all would understand it with the same voice;

proportional representation to make sure that each part of the factory was represented in the union committee; and one person, one

vote by secret ballot.

5

In conclusion let me say this, to label the experiments as ‘‘successes’’ or ‘‘failures’’ is to try to put them in boxes where they don’t

necessarily fit. We view them as more steps in the right direction

toward compliance that is more sustainable and that involves

workers in the process.

We are pleased that all parties have cooperated to permit these

elections to take place in a credible, transparent manner in which

they were conducted. At Kong Tai, the union is still growing and

developing. They have spent much of their time during the last

year learning how to work together and how to be a voice for workers. They have routinely assisted workers to get approvals to take

leave. They have fought for proper medical compensation for sick

workers.

We hope these elections will demonstrate that an increase in

worker participation can be achieved in an environment where

fully independent unions do not exist. Our experience is that there

is room for movement and progress within the confines of what

unions are permitted to do today in China. It is our hope that

through this example, other multinational brands and other factories will experiment with these and other ways to establish

sustainable methods for achieving code compliance. In the end, we

better implement our standards when we are willing to challenge

ourselves, our factory partners and workers to find new, more sustainable ways to achieve internationally recognized workplace

norms.

Thank you.

[The prepared statement of Mr. Cahn appears in the appendix.]

Mr. FOARDE. Doug, you are obviously an expert at this. You have

come in exactly on time, and your discipline is commendable and

appreciated.

We would like to come back to the many issues that you have

raised in your statement in the Q and A. It is really very interesting.

Our next panelist is Mil Niepold, director of policy at Verite ́, Inc.,

and head of the Verite ́ New York regional office. Verite ́ is a nonprofit auditor of factory working conditions around the world, and

has performed over 900 individual factory evaluations in 64 countries since 1995, including over 200 in China.

In 1999, Mil negotiated the selection of Verite ́ as the monitoring

body in the settlement of the Saipan lawsuit against 18 U.S. retailers. Before joining Verite ́, her work spanned both the private sector, Fortune 500 companies such as American Express, and the

public sector, the United Nations, the European Union, as well as

various NGOs and nonprofits.

Mil, welcome and thanks very much for coming. Please.

STATEMENT OF MIL NIEPOLD, DIRECTOR OF POLICY, VERITE ́ ,

INC., JERSEY CITY, NJ

Ms. NIEPOLD. Thank you. I wanted to first thank the Commission for inviting Verite ́’s testimony here today. In 1973, Zhou Enlai,

Chinese Premier, said ‘‘China is an attractive piece of meat coveted

by all . . . but very tough, and for years no one has been able to

bite into it.’’ The population is not the only part of this estimation

that has changed 30 years later. Multinational corporations

6

[MNCs], global trading organizations like the World Trade Organization [WTO] and even a few inter-governmental organizations

[IGOs] and non-governmental organizations [NGOs] have clearly

‘‘taken a bite.’’ It is Verite ́’s core belief, and one shared by many

advocates, that respect for labor and human rights—the very same

ones that are covered by this Commission’s mandate and that

China has quite often signed and ratified itself—comes only when

workers themselves are an integral part of the process. Later,

when I address examples of initiatives that have worked or might

potentially work, the direct involvement of workers will be the common thread in each case.

So who is Verite ́? Over the past 8 years Verite ́ has interviewed

approximately 18,000 factory workers for the purpose of identifying

the issues workers face in a newly globalized economy. Verite ́’s

mission is to ensure that people worldwide work under fair, safe,

and legal conditions. Our pioneering approach brings together multinational corporations, trade unions, governments, non-governmental organizations, and workers, primarily, in over 65 countries

for the purpose of identifying solutions to some of the most intractable labor rights violations.

Verite ́ performs social audits—as you have said, to date, over

1,000 factory evaluations have been conducted—to analyze workplace compliance with local and international labor, health, safety,

and environmental laws and standards. Unique as a nonprofit in

the sector dominated by private sector firms, we go beyond monitoring to provide factories with specific recommendations on how to

remedy the problems that we uncover. We also provide training for

factory management and manufacturers. To address the needs of

workers, Verite ́ conducts education programs to teach workers

their legal rights and entitlements in the workplace as well as ‘‘life

skills.’’

In China, this program has been our greatest success. Verite ́ has

operated in China—our first and largest area of operation—extensively since 1995. We have conducted nearly 200 factory audits in

China over the last 8 years. In the past 2 years alone, we have

done 112.

Our findings, and those of others, are very disturbing. There are

egregious health and safety violations. China’s own Work Safety

Administration reported 140,000 deaths in 2002. That is an increase of approximately 30 percent over the year before.

Chinese media sources reported 250,000 injuries in the first

quarter of this year, 30,000 of them resulting death. This is all sectors combined.

The ILO ranks China as the world ‘‘leader’’ in industrial accidents. China estimates 25 million workers are exposed to toxins

annually, with tens of thousands of them injured and incapacitated

annually.

The Hong Kong Christian Industrial Committee recently reported that after 10 years of research on the toy industry—China

manufactures 70 percent of the world’s toys—a full 55 to 75 percent of toy factories are still classified as poor, meaning 80 to 100

hour workweeks are common. The majority of factories use triple

or even quadruple books in order to mask the under payment or

7

non-payment of legally mandated overtime premiums, which range

from 11⁄2 to 3 times the base wage depending on the day.

In some instances it has taken even our most experienced teams

days of research, and interviews, and analysis to really uncover the

true extent of the problem.

Labor laws that are on balance quite robust—for example those

requiring overtime premiums, or automatic machine shut-off devices—are in fact not enforced. Harassment and lengthy imprisonment are also common for those who report violations, peacefully

demonstrate, or who try to associate freely.

Since 1998, Verite ́ has organized an annual China Suppliers

Conference that brings together factory owners and managers with

government officials and non-governmental organization specialists

with the purpose of exploring issues and solving problems.

Now to the topic for today, codes versus laws in China. While not

unique to China by any means, there is a growing debate regarding

the value of voluntary initiatives, such as codes of conduct, versus

direct legal obligations within both national and international legal

frameworks. For the purposes of this discussion, I will not cover

this debate in any detail. However, as we are discussing codes of

conduct and examples of best practices—with the aim of achieving

improved labor rights compliance in China—I would be remiss if I

did not at least touch upon the subject.

Direct obligations, i.e., those that are placed upon companies

under international law, are certainly weaker than those that are

indirect, those placed upon them by governments. Weaker though

they may be, there is nonetheless a clear upward trend in their

being extended to multinational corporate actors. Movements such

as the International Right to Know Campaign, and the increasing

use of U.S. courts to seek redress for perceived MNC complicity in

overseas human and labor rights violations, for example Unocal

and Saipan, to name a few, using the Alien Tort Claims Act, are

examples of this trend.

So, for our purposes today, you may wonder why these distinctions between voluntary initiatives and direct obligations under

international law are relevant? It is simply because, to quote the

excellent report by the International Council on Human Rights Policy, we must go ‘‘beyond voluntarism.’’ Codes are squarely in the

camp of voluntarism and while they are a useful starting point for

improving labor rights compliance, they are simply not enough to

right the ‘‘imbalance of power’’ that exists today between multinationals and most governments.

Governments do not have the resources that multinationals do—

resources that are in many places, including China, greatly eroded

by endemic corruption. Limited resources greatly hinder labor

rights enforcement, but they are not the sole issue. I am by no

means suggesting that more laws and/or more enforcement are the

only answer, but I am saying that rooting both voluntary codes and

national laws in a strong international framework creates a ripple

effect that will help enforcement in ways that merely increasing

the number of labor inspectors cannot.

Violations of human and labor rights thrive in cultures of impunity. Take the example of slavery. While now outlawed in virtually

every country of the world, this heinous practice continues, particuVerDate 11-MAY-2000 10:39 Jul 23, 2003 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 88096.TXT China1 PsN: China1
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larly in countries where the rule of law is eroded. Just as corruption of government officials and police officers allows slavery to

flourish, so too do labor rights violations.

Strengthening the rule of law in any given country is not a task

merely for MNCs and their voluntary initiatives. This is a task for

governments. Grounding all efforts in the international legal

framework helps to achieve a few important things. It creates a climate that favors compliance by strengthening the effectiveness of

voluntary initiatives and it strengthens the work of NGOs and

workers’ advocates and improves judicial efforts, both domestic and

international.

Thus, it is incumbent upon those of us concerned with improving

labor rights on the ground in China, as elsewhere, to use multi-layered approaches that draw on past successes. Each approach

should also be aligned with a particular ‘‘sphere of influence’’ of the

respective stakeholder. Historically, the greatest successes have

come from governments working on the most macro-level legislative improvements, government-to-government consultations, technical assistance programs, and the like.

MNCs in turn have had success when they assert their considerable leverage primarily at the supplier/factory level but they should

by all means continue to exert pressure on governments. One of the

best examples of an MNC working on creative solutions would be

the example that Doug Cahn has just spoken about, with the Kong

Tai election, but there are others.

The Institute of Contemporary Observation launched an initiative recently, posting posters in factories and also setting up a

worker hotline to report violations. There is also another coalition,

the China Working Group, that nine corporations have joined.

It is very common to discuss the ‘‘sticks’’ when discussing human

and labor rights. But, I find the ‘‘carrots’’ to be of greater interest.

The examples cited above share a few things, most notably the inclusion of the workers in the process.

I wanted to close with a quote from Mao Zedong. Speaking of the

population of China, he said, ‘‘On a blank sheet of paper free from

any mark, the freshest and most beautiful pictures can be painted.’’

The picture for labor rights in China would have to include the

following: harmonization of the multiple codes of conduct; a greater

degree of responsibility on the part of multinationals for the havoc

they wreak with their ‘‘just in time’’ delivery and price pressures;

passage, or modification, of implementing legislation required

under China’s ratification of the International Covenant on Economic, Social, and Cultural Rights [ICESCR]; and finally, a direct

contact mission from the ILO.

This would be a very beautiful picture indeed. Thank you.

[The prepared statement of Ms. Niepold appears in the appendix.]

Mr. FOARDE. Thank you very much. Also lots of food for thought

and for a subsequent discussion in the Q and A.

I would like to continue now with Auret van Heerden. Auret represents the Fair Labor Association. The FLA is a unique collaborative effort to improve working conditions in factories around the

world by working cooperatively with forward-looking companies,

NGOs, and universities. The FLA has developed a workplace code

9

of conduct based on ILO standards, and has created a practical remediation and verification process to achieve these standards.

Auret van Heerden has a long history of labor activism in South

Africa and is also an official of the International Labor Organization on loan—if I understand correctly—to FLA. It is a great pleasure to have you today, and thanks for coming.

STATEMENT OF AURET VAN HEERDEN, DIRECTOR OF

MONITORING, FAIR LABOR ASSOCIATION, WASHINGTON, DC

Mr. VAN HEERDEN. Thank you. I would like to just start off just

setting up what codes of conduct are not.

Codes of conduct are in no way, shape, or form a replacement or

a substitute for national labor laws and their enforcement. Codes

of conduct can never replace workers’ organizations and collective

bargaining.

The challenge we face is that, in many countries where FLA participating companies source, you do not have adequate enforcement

of labor law. You do not have adequate penetration of trading and

organization. You do not have collective bargaining agreements to

regulate terms and conditions in the workplace.

The reasons for that are varying and many, and we do not have

time to go into them now, but suffice it to say that we are working

in a global marketplace which is increasingly unregulated. Right

now, I see that trend still going in the wrong direction. This is despite the very noble efforts of the ILO to reinforce national labor

administration to build up employer and worker organizations

around the world. This is despite the fact that the global marketplace is subject to evermore public scrutiny by the media. Consumers are better informed than ever before.

Yet national level labor administration systems and labor relations systems continue to decline. There are a few rays of hope out

there. Indonesia, for example, has undertaken major labor law reforms in recent years. But, those efforts are really only in their infancy, and in some cases, are throwing up new problems that we

have to deal with. In Indonesia, for example, we have a massive

proliferation of trade unions, creating chaos and confusion.

In China, we have a central government which is very aware of

these challenges. In my previous work with the ILO, the Chinese

Government explicitly asked the ILO to come in and help it reform

its labor relations system in its special economic and export processing zones. They are also cognizant of the fact that they don’t

control the provinces and the cities. These are tremendous barriers

in the application of these labor laws, and in many cases, non-application.

Mil has already made reference to the factor of corruption which

undermines the consistent application of labor law in China.

The second challenge that the FLA participating companies face

is that of global competition, because what you have in the global

market place right now is a consistent demand by consumers for

a cheaper product. Weave tailors shave the margin. Those pressures go all the way down supply chain. Everybody wants to reduce

the price being paid for the article, but also to have shorter and

shorter lead times, and quicker and quicker delivery.

10

Those price pressures accumulate on the suppliers at the bottom

of the chain. Since many of them don’t have the management capacity or the management tools to deal with them, they end up

working harder rather than smarter. So, again, global competition

in some ways is pushing factories into non-compliance.

FLA participating companies, together with the other stakeholders in the FLA, have come together and have tried to address

this through codes of conduct and internal and external monitoring.

I want to stress that it is not the monitoring itself which is designed to achieve the compliance. Independent monitoring or even

the internal monitoring is simply a measurement of the progress

that the brands have made in their internal development work in

those factories.

Brand name companies are going back to those factories weekly,

monthly, many times a year to not just identify the compliance

issues in those factories, but to actively work with them on remediation programs. The monitoring conducted by the FLA is an assessment of the efficacy of those programs.

Doug Cahn spelled out the pioneering initiative they have in

China to elect worker representatives. That is one example of how

brand name companies can respond to a designated problem, namely freedom of association in China. Their monitoring is not to repeat that there is a problem with freedom of association, rather it

is to help a company like Reebok assess where it has come in its

remediation program and to help it improve, refine, or focus those

remediation programs.

This is where I think that the FLA program becomes interesting,

in two senses. One is that the brands are inside China. Unlike

many other commentators and critics who are by definition outside,

the brands are present inside China. They have access like you

wouldn’t believe to thousands of factories in China.

The second point is that they are remediating. They are concretely, practically, in a nuts-and-bolts fashion bringing about

changes.

However, these efforts, as concerted as they, are face the same

limitation that every labor administration system in the world

faces—even here in the United States—you never have enough

labor inspectors, or enough labor officials to go to enough factories

on a frequent enough basis to bring about compliance. Compliance

has to be something generated internally, organically within those

workplaces. So, we need to somehow use this effort to kick-start,

to catalyze processes in those factories that will allow them to regulate the terms and conditions.

The ILO in its 90 years of existence has always promoted worker

organization, consultation, negotiation, and dispute resolution as a

most effective way of doing that. I think that it is, to date, still the

best option that we have. Again, the KTS example is an excellent

one of how that can be progressively introduced in a context like

China.

There are a number of other initiatives which we can work in

parallel with, or in concert with in China—young labor lawyers are

taking up cases of industrial accidents, seeking compensation

under Chinese labor law—a very comprehensive law—seeking compensation for workers who are injured; young labor activists doing

11

workers’ education so that they can elect their own representatives;

groups working with young women workers, and many of the problems of discrimination and abuse that they face, particularly young

migrants who come from far away.

There are initiatives within the group of Chinese employers who

are trying to grapple with these international standards that they

are now being held up to, and who are trying to develop their own

policies, and their own management tools to be able to meet these

standards. It is quite a shock to go to a Chinese footwear factory,

and one of the first offices you come to has a sign on the door saying ‘‘Human Rights Officer.’’ Now, that is clearly under pressure

from brand name companies and codes of conduct, but it is a

response. And it is a response which can be encouraged, can be

guided, and which through capacity-building activities can start to

contribute to that indigenous, organic process that we need to catalyze positive action within these factories.

The ILO clearly has a vital role to play in this as well, both at

the central level, in helping the Chinese Government continue its

labor law reform program, but also more importantly in the capacity building sphere. If you take a problem like hours of work, which

Mil referred to, we went in initially and insisted on the maximum

of a 60-hour work week. Factories simply could not cope with that.

Competitive pressures required a lot more than that. Workers

wanted to work a lot more than that in order to maximize their

earnings.

So, as with any enforcement system, if you place the bar too

high, people are obliged to evade it. So, they show us false books.

If you then try to deal with that problem structurally, you realize

that, in effect, you need to re-engineer those factories for them to

have any hope of observing the 60-hour work week. That is still a

long way short of Chinese labor law.

At the moment, there are very few organizations and institutions

that can go in and do that kind of work in China. Brand name companies can certainly do it factory by factory, but it would add a lot

of horsepower to that effort if the ILO could mount a far larger program with its partners in China. Teach factories how to schedule

or how to re-engineer their production process. Teach them how to

organize shifts, which a lot of them are not doing properly at the

moment.

We can then monitor that process to ensure that it is making

progress, and to ensure that those abuses are gradually being reduced. That combination of initiatives, the ILO working together

with its partners, the Chinese Government, employers, trade

unions, brand name companies, and monitoring organizations like

the FLA, all of that requires resources which are very scarce at the

moment. American brand name companies are going to China and

investing in companies that are unknown. It is a unique situation.

Brand name companies are helping workers form worker organizations. It is a unique situation, but then China is a unique environment in which to be working. So, I think for the time being it is

justified, and is the most appropriate response we have at the moment. Thank you.

[The prepared statement of Mr. van Heerden appears in the

appendix.]

12

Mr. FOARDE. Thank you very much, Auret. Again, lots of meat

for subsequent conversation.

Let us go on. Let me recognize Dr. Ruth Rosenbaum, founder and

executive director for the Center for Reflection, Education, and Action [CREA]. The center is located in Hartford, CT. CREA is a social, economic, research, and education organization, unique in that

it starts its analyses of social and economic systems from the perspective of their affect on the lives of the persons made poor or

kept poor.

In addition to educational programs, CREA offers a multi-faceted

service for individuals, organizational investors, and investment

managers who are committed to socially responsible investment.

Ruth is associate professor for research at the Labor

Education Center at the University of Connecticut. She is also the

coordinator of the New England Coalition for Responsible Investment,

and has served as co-chair of the Global Corporate Accountability

Issue Group at the Inter-Faith Center on Corporate Responsibility

since its creation.

Ruth is the creator of the Purchasing Power Index [PPI], a transcultural measurement of the purchasing power of wages, used to

determine what constitutes a sustainable living wage. Ruth, thanks

very much for coming. I appreciate you sharing your expertise with

us.

STATEMENT OF RUTH ROSENBAUM, EXECUTIVE DIRECTOR,

CENTER FOR REFLECTION, EDUCATION, AND ACTION, HARTFORD, CT

Ms. ROSENBAUM. Thank you. I asked either to be first or last because the way we look at things at CREA really has to do with

looking at things on a much more systemic basis. That is the way

I would like to pose my comments this afternoon.

When we look at codes of conduct in China, we see their functioning as parallel to what has happened in every other country in

which we have been involved. My comments are going to be based

on that cumulative knowledge, and then we can specifically apply

it to China.

The first thing I would say is there is a major question that

needs to be asked, and that is why a company is in China in the

first place? If the work situations are so bad, if the labor situations

are so bad, if they violate, from the beginning, codes of conduct

that corporations have, why are the companies there?

We need to be honest and acknowledge that underneath all the

other issues affecting the decision of companies to be in China,

there is the essential issue of cost of production. Companies are in

China because the cost of production is cheaper.

When we examine the effect of this low cost of production, we see

several related issues: First, the factory seeks to pay the lowest

wages possible.

Second, the brands placing the orders seek an ever shortening

turn around time, that is, the time between placing the orders and

receiving the orders.

Third, in order to fill orders in the shortened turn around time,

extended overtime becomes the norm within factories. And workers, seeking higher income, are often willing to work the extended

13

overtime simply because they need more income than their basic

wages can provide.

To this gets added the ‘‘just in time’’ production system in which

companies keep inventory to the lowest limit possible and then

place orders when they need an item, again demanding the shortest turn around time possible.

There is this global reach for what we have said is a race toward

the bottom in terms of wages. It is almost impossible to talk about

raising wages above minimum wage. The corporations will say to

us, ‘‘Well, we do what is legal.’’ And we reply, ‘‘Well, we would expect that you would do what is legal.’’ But that legal requirement

is a floor, and not a ceiling.

We have asked workers in many, many countries, if you were

paid more, would you want all of the overtime, and they say no because they have lives. They have lives with their friends. They

have lives with their families. They have lives with something outside of work.

And so, again, the question to the corporations is, why are they

in China in the first place?

The second issue is where does the power exist to bring about

change? It should exist in the governments. If you read the paper

that I presented for the meeting today, we talk about government

extensively. Somehow, we have created a system where brand

names have produced codes of conduct, and from that we are asking them to come up with systems of compliance.

The purpose of the code of conduct should not be just keeping the

brand name out of trouble. For many corporations having a code

of conduct and doing some kind of minimal compliance is simply

to get the news media off of their back, and to get shareholders off

of their back.

The purpose of the code of conduct realistically should be bringing about change for workers. However, that purpose is so low on

the ladder of priorities for many corporations, that it doesn’t even

seem to exist. We have seen codes take the place of laws, and we

believe that is absolutely critical that we take a look at this.

Somehow the production system in most industries has concluded that corporations bear the ultimate responsibility for the

conditions under which their products are manufactured or assembled. We then expect them to become the creators of the standards

for the factories and the enforcers of those standards. In other

words, we have handed over to corporations the role of society and

the role of government: making and enforcing standards of laws to

the corporations we are holding accountable. It is a shift in power.

It is a shift in responsibility. It is a shift in accountability. We believe that that is really dangerous for society as a whole.

If you go into most factories, you will see a multiplicity of codes.

Some managers will say to us, which code are we supposed to be

obeying? The highest? The lowest? Depending upon who is going to

be inspecting us this week, or this month? Are standards supposed

to change from day to day, or week to week? Who decides? It is an

absolutely bizarre system.

Out of this we have created all kinds of systems of certification

of factories, monitoring, inspecting, etc. The problem with all of

that, even though some people are doing heroic work in trying to

14

improve the conditions in the factories, is that the power comes

from outside the factory and outside the country. The money comes

from outside the country, and outside the factory. When it is all

over, the power and the money leave the factory, and leave the

country.

So, we are not transferring power to the local community. We are

not transferring power to the factory to really bring about the

change that is expected.

For us at CREA, there are three central issues that we use to

evaluate whether or not a code of conduct and whatever enforcing

systems are in place, whether that factory or code is succeeding.

The first measurement for us is absolutely basic, what has changed

for the workers? Although it is a simple question, this should be

the reason why we are looking at codes. It is the situation in the

factory that we are trying to address. And we believe that it is absolutely critical that we see these codes and the situations they are

trying to address not as an abstract thing, unchanged over time,

but rather as the day-to-day reality that workers have to work

within every single day of their lives around the world.

The second measurement that we use is how is the power of enforcement transferred back to civil society and other components of

society in China and in other countries? If all the inspecting, certifying, all the monitoring, and all of the enforcing continues to come

from outside the country, it will continue to be a system of putting

out fires, and of presuming that if a small percentage of factories

are OK, then they all are. There are simply not enough monitors

and certifiers in the world to take care of all the factories that have

to be monitored and certified.

And then the third measurement we have is: where does the

money and the power attached to the money accumulate as a result

of all the inspecting, and certifying, and monitoring? How do we

have a transfer to the local communities so that they can govern

themselves? We do that through education of workers. We do that

through the education and the sharing of power with civil society.

We also have to do it with the money that is being spent on all

of this.

If you talk to monitoring groups or groups that are trying to do

worker education around the world, one of the biggest problems

they have is where do they get the funding to survive? I would suggest to you that the majority of that funding is being absorbed by

organizations in the United States. We need to be honest about

that. We need to learn to share this out.

Looking at the specifics of China today, we would like to suggest

the following: First, that there is a need to start with recognition

of the inherent dignity of each human being, so that workers are

seen not only in terms of what they are able to produce.

Second, the need to look at ways of strengthening civil society in

China. CREA presently is collaborating with the Institute for Contemporary Observation [ICO], and transferring our knowledge and

our ability in terms of measuring a sustainable living wage to them

so that they will be able to do that in their community.

Third, we believe that the CECC, corporations, any group working on the issue, again, needs take a look at why companies are

15

moving to China. What is it that they gain because of the labor situation there as compared to other countries?

Fourth, there needs to be a greater analysis of Chinese law related to labor, including occupational health and safety, wages,

overtime, freedom of association and right the to organize, and systematic ways of addressing these. Again, coupled with the ILO

standards that we have heard spoken about.

Fifth, we need to figure out a way to make it beneficial for factory managers to adhere to the standards. We have got to move

from it being a punitive system to being a reward system.

Sixth, how do we provide support for collaborative efforts between corporations to enhance their power to bring about change

as well as to create an equal standard? Now we see that happening

in the apparel industry, and somewhat in the footwear industry.

But we have the automotive industry, the electronics industry—

there is not an industry out there to which this is not applicable.

Somehow, they are not even on the radar screen in terms of the

work that we are all doing.

On the last level, how do we get investors, the investment community including Wall Street and the other markets around the

world to recognize that raising working conditions is a beneficial

thing even if the costs of production are higher? How do we communicate that the continual drive to lowest cost of production

contributes to the violation of the standards of performance and behavior that we are trying to raise in these codes?

I don’t want anybody to think that we believe that any of this

is simple. If there is anything that I have learned in doing this

work, and it is over a decade that I have been involved in it, it

takes at least 10 times longer to do almost anything than the time

that—see everybody is smiling up here—at least 10 times, maybe

20 times longer. But I really believe that unless we continue at it,

we are on a downward spiral from which there will be no return.

I think we have to salute and support the efforts of those who

seek to promote, enforce, and report on codes of conduct and compliance. Even as we say there needs to be a better system for bringing about change. None of these efforts should be taken lightly. It

is hard work. It is important work, and hopefully, we will be able

to learn from the experiences of all of us who have worked and continue to work on these issues that these codes of conduct seek to

address, and then to devise the methods for systemic change that

remain before us. Thank you.

[The prepared statement of Ms. Rosenbaum appears in the

appendix.]

Mr. FOARDE. Ruth, thank you very much.

And thanks to all four of our panelists. Let’s take a very brief

breather and let me announce that our next staff-led issues roundtable will be here in this room, that is 2255 Rayburn, on Monday,

May 12 at 2:30 p.m. Our topic will be public health in China. We

will be looking at SARS, the transparency issues, and other issues

that are quite current. So, I hope you will join us.

If you have not signed up yet for our roundtable and hearings

announcement list on our Web site, we would like you to do that.

Please visit us at www.cecc.gov.

16

I would like to go now to our question and answer session, and

normally it is the prerogative of he who is chairing to ask the first

questions. But I think today I am going to defer to my friend and

colleague Bob Shepard from the Department of Labor to get us

started, and then we will go around, and I will get a chance a bit

later. Bob, please go ahead and ask a question or two. We are going

to give you 5 minutes to ask a question and hear the answer, and

then we are going to give everybody a chance to do as many rounds

as we can before our time is up.

Mr. SHEPARD. Thank you, John. I would like to thank the members of the panel for very informative, very useful papers and presentations.

In describing the work that is going on, there is a sense that we

are seeing what might generally be called the demonstration

projects, and that we are hoping these projects will in some way

spur the Government of China into some sort of action. I would like

to ask if you could discuss or describe what the attitude to date of

the Chinese Government has been with regard to these projects, for

example, have there been barriers to entry to your groups’ coming

in? Have they required you to register? Has there been oversight

of the activities of the monitors? Has there been feedback? Has

there been pressure against you, or encouragement of your activities?

For example, I was curious. Mr. Cahn noted that you are pushing the principle of freedom of association within the workplace,

whereas this is obviously not a principle that has received high regard nationally in China, and Ms. Niepold discussed how they had

to dig very hard to get a lot of the data. This suggests some type

of a conflict, and perhaps you could describe the relationship you

have had with the Chinese Government or the authorities? We may

have different answers from the provincial and the national levels.

Mr. CAHN. We have received cooperation and to a certain extent,

collaboration from local and provincial authorities as we engaged

in the two election experiments that have occurred to date. All parties at the local and provincial level were aware of what we were

doing. These are large footwear factories where Reebok buys 100

percent of the capacity of those factories. We undertook these experiments in these two factories because we felt we had strong relationships with both management and workers in these facilities

and it would be the ripest environment in which for us to attempt

this experiment. As I say, we were fully open with the local authorities. We consulted through the process.

In the case of the first factory election, at the Kong Tai factory,

the local ACFTU officials were aware and not integrally involved

in the process. By contrast, the ACFTU officials at the second factory were much more involved in every aspect of the election process. So, slightly different levels of interaction, but one where there

was a general sense of cooperation. People had different points of

view from time to time, and there were lots of meetings, and more

meetings, and more meetings, but at the end, there was a consensus on how the process should go forward.

We were very complimentary of that, and hoped that as a result

that we would have the ability to experiment with this in other facVerDate 11-MAY-2000 10:39 Jul 23, 2003 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 88096.TXT China1 PsN: China1
17

tories. We certainly are aware of the fact that others in government

circles are knowledgeable about these experiments.

Ms. NIEPOLD. I would say also that Verite ́’s experience in China,

as I said was our first country—China was actually our first country because our executive director and founder was actually working in China as a sourcing agent when she had the wonderful idea

to found Verite ́ based on her experience in factories.

I should say that in the beginning, it is clear that—when we say ‘‘government,’’ similar to what Doug has said, it means much more

regional, municipal, and local level officials. I am not referring to

national officials when I say ‘‘government,’’ and by and large we

were clearly not on their radar screen, but 3 years later when we

had our first China supplier’s conference, we were. You said collaboration; we were actually being spied on, and by the second

year, we actually were somewhat more welcomed and had government officials present as panelists. So, that was quite a shift.

You asked the question of registration, and we are all clear that

trade unions are not really a factor in China, but we should also

be clear that NGOs really aren’t either. You said it quite well. We

have not been required to register. It is something, obviously, that

has crossed our mind, but for the purposes of right now, we are not

a registered NGO in China, because we simply cannot be one. But

we have not been hindered, I should say, at all in our work. Our

work has been very respectful. It is conducted only by Chinese in

China. There are no Americans in China running these programs,

and as such, I think it has been culturally and locally relevant and

appropriate and has been quite successful.

The one last thing I would say is the government officials have

run the gambit from very clear that they were bribed, to hiding the

fact that they were bribed, to equally clear that they were unaware

of what the laws were that they were supposed to enforce, to very

clear that they were doing a very good job and that they were enforcing the laws. That level of frankness allowed us to actually

have a great deal of success. And some of them have actually said

that we were helping them do their jobs by informing them of what

was really going on in factories. Thanks.

Mr. FOARDE. Even though we have run out of Bob’s time allotment, I think this is such an important part of the question that

if either of you or both of you had a comment on that question,

please go ahead.

Ms. ROSENBAUM. Just one quick thing. I know that most of the

time that we have been in the factory, it has really been because

a corporation has facilitated entrance into the factory. I do know

that there is a project that we are working on that involves several

corporations, and it will be a collaborative project between the corporations. They are seriously concerned about whether the Chinese

Government will permit it. So, since they are the ones who are

doing the actual dialog with them, that just says to me there is

some concern both on the local level and on higher levels.

Mr. VAN HEERDEN. I would just add that we have maintained

contact with the Chinese Government at the central level and also

in the provinces, and with the ACFTU and the China Employers

Confederation [CEC]. All three have expressed tremendous interest

in this work because they are well aware of the problem and they

18

would like to participate. They do want to have a plan for improving working conditions in China.

I’ll just repeat one quote from a Chinese Government official who

said to me that he was really worried that the poor conditions prevailing in factories and the labor relations problems arising from

them could eclipse China’s labor cost advantages.

Mr. FOARDE. Very interesting. Let’s go on, and I should have said

when I recognized Bob Shepard that he represents Deputy Secretary of Labor D. Cameron Findlay, one of our commissioners.

And now I recognize Erin Mewhirter from the Department of

Commerce, who represents Under Secretary of Commerce Grant

Aldonas, another one of the members of our Commission.

Ms. MEWHIRTER. Thank you. Code of conduct monitoring is not

new. Has there been any quantifiable improvement in overall

working conditions in China during the 10 years that auditing and

corrective measures have been ongoing? And how should progress

be measured?

Mr. FOARDE. Anybody that wants to step up to it, or all of you

if you would like to.

Ms. MEWHIRTER. I apologize. Yes, anyone.

Mr. CAHN. I suppose to give a full answer to that question would

take the next day and a half.

Ms. MEWHIRTER. OK.

Mr. CAHN. I know in our own work that there have been considerable improvement in factory workplace conditions over the last

decade that are demonstrable and they are meaningful in terms of

workers. Factories today—in particular, I am thinking of the large

athletic footwear factories that make a great many Reebok shoes— these factories are healthier and safer. There are fewer volatile organic chemicals in the air. There are better communication systems

between workers and management. There are fewer instances of

harassment and abuse. Nonetheless, there are as there are in factories anywhere, many things that can be improved, and this is a

continuous improvement model.

So, we have dozens of programs at play in Chinese factories

today to continue the model of improvement that we have been

able to put in place in the past decade. As to how to measure? It

is an extraordinarily difficult question, because we are talking

about a continuous improvement model, not an absolute model.

Some things are easier to measure than others, and on those things

were measurement is possible, it is possible to look at international

norms, there are many standards that exist in the world. When we

measure organic solvents and what is too much of a particular

chemical, for instance, there are many internationally-recognized

models. Both here in this country and in Europe, for instance,

when it gets to the issue of discrimination, it becomes much more

difficult, and what we are looking for are systems in a factory that

can find the problems and solve them quickly so that these problems don’t become larger problems or systemic problems that never

seem to go away. So, there are certainly ways to do it, and they

are difficult.

Ms. NIEPOLD. I would say that—I will take the second half of

your question first. Verite ́ does measure and track the degree of

improvement very closely, but to answer your question, we—as

19

Doug has said—there are some things that are very hard to measure. So, our working benchmark is actually not at all scientific. It

is the degree to which workers tell us that we have improved their

lives.

Now, that is obviously not scientific, and it also is very messy

when you get into things like voluntary overtime. When a worker

tells you—the point was made earlier by the way the workers will

say they have friends, they have lives, and the sad truth is if they

are a foreign contract worker, our experience has been that they

will say they do want excessive voluntary overtime. So to your

point, that is the measurement that we use.

But to the other point, which is have things improved? Our experience is that things do improve in, unfortunately what we would

call, the easier places. In other words, we have seen improvements

in health and safety. We have seen improvements in posting codes

of conduct. We have seen improvements in posting laws. We have

seen improvements in toilets and bathrooms, and breaks. But

guess what that means? We have seen aggravation in the most serious issues.

In the case of China, the top three issues—and I should also

point out the State of California recently hired Verite ́ to do a major

undertaking to measure just this, and what we have found in the

case of China, which came in last place of 27 emerging markets,

was that the top three issues remain the top three issues, and we

have seen very little improvement; those top three issues being

freedom of association; health and safety; and wages and hours.

Mr. VAN HEERDEN. Our monitoring program has only been going

for 1 year, in fact, the Fair Labor Association program. So, it is

very early. We are obviously building on the work of a number of

our participating companies who have been at this for a lot longer,

but it is too early to talk about trends.

What I would support is what the previous speakers have said,

and that is that under occupational health and safety and conditions of work areas, it is a lot easier to identify the problems and

to remediate them. When we look at areas like freedom of association, discrimination, and harassment and abuse, it is both harder

to detect the problems, to measure them, and to remediate them.

And it is a process of continual improvement.

The other point I would just make, is the need for a critical

mass. The FLA has 13 brand name companies out there doing this.

There are some very big buyers who are not at any of the tables

right now. With the best will in the world, they end up undermining our efforts, because there is no coordination.

So, if you just take volatile organic compounds that was just

mentioned, if the three or four of the biggest importers of footwear

from China could get together and come to an agreement on that

basic standard and on how to remediate it, we could make a huge

impact. So, there really is a need for coordination here.

Ms. ROSENBAUM. Just to add to that quickly, there is a big difference between the right to organize, and the right that is supposed to go with it, the right to engage in collective bargaining. We

have the beginnings of the right to organize. We are waiting to see

the ability of workers to engage in collective bargaining.

20

The second piece is that it depends on the industry. The really

short answer is that it depends on the industry. The more brand

names that you have in the factory, the harder it is to bring about

change. In the footwear industry, because many times you have

one single brand name in the factory, they have tremendous

amount of leverage. In other industries, toys, apparel, etc., where

you can have 5, 10, 15, 20 different brand names there in the

course of the year, all with different standards, it is very hard to

bring about the change.

Mr. FOARDE. Really useful. Thank you. I would like to recognize

our friend and colleague, Andrea Yaffe, who represents Senator

Carl Levin.

Ms. YAFFE. I have a question. I think this was somewhat touched

upon, especially by Ms. Niepold. My question is how has the social

climate changed since the passage of permanent normal trade relations [PNTR] and China’s accession to the WTO? Has there been

more pressure to change and to open up the transparency of their

economy—compared to the standards of the rest of the world? I

mean in the last 3 years, has there been any improvements?

Mr. CAHN. You know, it is our experience that there has been improvement, but I would say that the driver for that improvement

has been the ongoing relationships that we have with those independently owned and operated factories in which we place orders,

as opposed to the passage of PNTR or some other external development. Perhaps that helps define for you where that nexus of leverage or power is and our ability to educate a group of people about

a different way of thinking about managing people. People, in this

case, who make shoes or apparel. But that is certainly where we

have had our almost sole focus and where we see the difference,

it is based on those sets of relationships and where we are able to

get people in a room and began to establish a common shared set

of values and expectations over what workplace conditions should

be.

Ms. NIEPOLD. I was actually going to echo what Doug said. I

wouldn’t—it almost feels a little too soon to say what PNTR might

have done with regard to such a vast and complex country as

China. I think all of the various and myriad facets of free trade,

however, would definitely begin to start, I think, changing things

a little bit over time, when you look at all the various issues

around trade agreements in general, accession to the WTO, things

like that, I think all of those are drivers toward a greater degree

of transparency and openness.

But, truthfully, I think—it is just an educated guess—I am actually thinking that the greatest degree of change in China has occurred by the enlightened self-interest of managers who have seen

the truth is a tired worker doesn’t make a good product. They don’t

make it at a good price. They don’t make it on time. They don’t

make it in a good quality way. Where we have seen sane and rational—as a client of mine calls them—overtime policies, we have

seen improvements in all of those bottom line benefits. So, I think

that those areas are where we are seeing the most change.

Mr. VAN HEERDEN. I would emphasize two different ways of looking at that. From the center, Chinese Government officials told me

things like ‘‘We are joining the WTO, the global market, now we

21

have to play by the global rules.’’ They are turning to organizations

like the WTO and saying teach us what those rules are. Trade

unionists are saying the same thing to us. They are saying ‘‘We are

dealing with the market economy now, we need to learn a new way

of operating that is appropriate to the conflict of interest that you

have in a market economy.’’ From the ground upward, looking upward, I see workers striking

in greater, and greater numbers than ever before over issues like

late and non-payment of wages. Or the restructuring of stateowned enterprises and control over their severance pay and benefits.

I see crime emerging for the first time, that I never concerned

myself with in China before. I unemployed workers who have been

laid off from state-owned enterprises and who can’t find jobs elsewhere, manifesting many forms of social dysfunction: drugs, alcohol

abuse. I see violence in the streets. I see domestic violence. Signs

that society is undergoing a painful transition with a lot more bubbling under the surface and with breakthrough erupting periodically. The Chinese Government is extremely aware of this.

Some Chinese Government officials have said to me that they

will not make the mistake that Gorbachev made in the Soviet

Union—China will not fall apart like the Soviet Union. That has

implications as to the social climate.

Ms. ROSENBAUM. Just one quick thing to add to that. In the past

workers migrated, worked in the factories for a number of years,

and then went home. There is a major transition that is taking

place, or that has taken place, and it is finally being recognized.

That is that, they are not going back. They are staying. So, the

whole social service dimension that needs to be created as we have

larger populations in the areas where the factories are, and a decrease in the number of jobs to handle both the workers that want

to stay, and the workers that are going to migrate, this is yet to

be dealt with.

Mr. FOARDE. Thank you very much. I now go on and recognize

our colleague, Susan O’Sullivan, who represents Assistant Secretary of State Lorne Craner. Do you have a question for the

panel?

Ms. O’SULLIVAN. One. I think two of you, Ms. Niepold and Dr.

Rosenbaum, talked about the efficacy of a carrot or reward system,

at least, ensuring or encouraging compliance with codes and laws.

I am wondering what you had in mind, and what you’ve used that

you have found to be effective?

Ms. ROSENBAUM. Well, I am not sure what exactly I have in

mind. I do know that in country after country, and certainly in

China as much as any place else, fear of punishment doesn’t bring

about long-term change. It only brings about immediate change.

The many levels of hiding of records—I don’t even know how we

can really know what is happening. There are so many levels of

hiding.

So, what that says to me is even though we might be bringing

about some small change in these heroic efforts in a few factories,

we are not changing the system. It seems to me that the change

needs to take place in a number of ways.

First, there has to be a reward system, probably a financial reward because it seems to be the only thing that works. But the

22

other is that there is a whole component in the production system

that we don’t pay attention to very much. That is the companies

that own the factories. They are just almost invisible in this whole

system. Those of us who work in this system know about them, but

they don’t get publicity. Nobody says to them, ‘‘What are you

doing.’’ Or demands that they can bring all the factories that they

own, or where they place orders, up to standards.

We have to find a way to really involve them—the managers, the

owners, the vendors—and also to reward them, and it is probably

going to have to be financial. No, the question is, ‘‘Who ends up

paying for it? ’’ And I think that one of the things we need to make

sure of is that it is not the workers on the bottom. In other words,

that there is not further squeezing both of the factory managers

and of the workers. That somehow bearing the cost of that is really

throughout the system. That is going to involve Wall Street, and

probably the factory owners. Maybe even before the factory owners.

They are the hardest ones to bring to the table.

Ms. NIEPOLD. I think also the example I had in mind was possibly more organic, what I alluded to earlier, which were the gains

in productivity and the presentation of all of these myriad labor

rights compliance issues in a more positive framework. And it is

odd how psychology works. But even when the brands are coming

less at the punitive level and more that ‘‘We understand that we

are partly to blame for this. By the way, how can we work together.

Who can we bring in? ’’ The increasing influence of multi-stakeholder approaches, as

Ruth made the point earlier, certainly complement initiatives that

are done at the ground level involving community activists in their

own communities, CSOs, NGOs, and the like. All of these rewards

are not only the nuts and bolts, but there are also some psychological rewards that have gone along way toward shifting this

problem.

But the specific things that I was really thinking of were increasing emphasis on the bottom line benefits of doing this. There are—

here and there—somebody’s presentation here today mentioned it.

I think it was yours, Auret—the World Bank study about the gains

from freedom of association. There was a very interesting study

done last year by Princeton that looked at the Bridgestone/Firestone situation, and noticed that the shoddy tires were made during a period of labor strife.

There are my favorites. I have these five anecdotes that I trot

around in my head, but the degree to which we all can begin to

really, really crack this nut and say better factories make better

products. Can we approach it from that angle and less beating

them over the head with a stick kind of approach?

Mr. FOARDE. I would recognize our friend and colleague, Mike

Castellano, who works for the other Levin on our Commission, Congressman Sander Levin. Mike.

Mr. CASTELLANO. Thank you, John. I thank you all for being

here. I apologize for being late. I was at another engagement.

Actually, I just want to make a quick comment, following up on

something that was just said, which is that we have seen, that is,

the Ways and Means Democratic trade staff has seen personally,

the impact that good labor relations can have on factories. We

23

visited Cambodia about a year and a half ago, where there is an

innovative agreement in the textile sector. And one thing that even

factory managers would concede is that the increasing rights and

a better organized labor force actually resulted in less friction with

workers and less down time. So, I definitely agree that that is

borne out in practice, at least in my experience.

I want to ask a question, though. And I apologize that I wasn’t

here when the first several questions were asked, so if I am repeating something, answer whatever you feel that you haven’t said that

you want to say. But, if I am not repeating something, please answer the question, which is, I think my boss is of the view that out

of all the core labor standards, the right of association is probably

the most important one, because it is the one through which the

other standards can be realized. If the workers can organize, they

can make sure there is no child labor, forced labor, and ensure

minimum wages and healthy working conditions, et cetera. I just

wonder. The Commission’s responsibility is to make recommendations later in the year to the Congress, basically, on what Congress

can help do. Assuming that right of association is the most important right, or the key right, what would be the single best way for

the U.S. Government, perhaps working through the codes of conduct or your organization to help promote that right in China?

Mr. VAN HEERDEN. If I could kick off on that one. This is what— I started an ILO project to do this in China in the special economic

zones to improve labor relations. What we realized was that there

were many structures provided for in Chinese labor law which

were dormant or ineffectual. For example, every factory has to

have a dispute resolution committee. That offered a tremendous vehicle for education, capacity building and point proving, consultation, negotiation, and dispute resolution in the factory.

Many, many factories have ACFTU branches. Now, whatever we

think about the ACFTU, like any big organization it is not monolithic. I came across in many factories excellent ACFTU representatives who were really grappling with the problems that they were

facing, downsizing for example. Nothing in their Chinese trade

union education had prepared them for that. They were desperate

for examples from Western countries.

So, I think there are vehicles. There are institutions with which

we can work to promote capacity building, new skills, new perspective, new approaches to the labor relations issues that they are

facing. The lower down the chain you go, the greater those opportunities become. If you reached out to the Guangdong ACFTU provincial branch now, you would find a group of people who are looking

the market economy square in the face and saying, ‘‘How in the

world do we deal with this? ’’ And who are desperate for input.

So I am a great believer in engagement through capacity building and training. Clearly, there are tradeoffs in that. A question of

legitimizing certain institutions. There are questions of compromises which need to be made. But, I think that working under

the umbrella of the ILO, we can deal with most of those tradeoffs.

Mr. FOARDE. Anybody else on the panel? Doug, please.

Mr. CAHN. I certainly think that capacity building, as Auret articulates, is absolutely essential if we are to be successful on a

broader scale. Companies like Reebok will have the opportunity

24

and take advantage of that opportunity to exercise their leverage

with their business partners, the independently owned and operated factories that make our products. But we need those voices

within China that can support the application of the laws to the

extent that laws are not being adequately enforced, and that is the

case in many instances. And there are many other companies that

need to come to the table so that all of us in the business community are operating with a level playing field.

Mr. FOARDE. I would next recognize Susan Roosevelt Weld, who

is the general counsel of the Commission. Susan.

Ms. WELD. As a lawyer I am interested in the ways in which the

rule of law can help the position of workers in China. In general,

help from top down can be useful. Reforming government organizations can be useful at the provincial and local levels, but the greatest help will come from empowering the workers to use the laws

that exist, the codes that exist to demand better conditions for

themselves.

So, you look at that problem, and you think, ‘‘Well, what do they

need for that? ’’ They need a practicing bar that is friendly and

feels free. I am wondering in what ways can foreign corporations

help that development? There might be a series of hotlines and so

on. Can you give me your ideas? Perhaps we could put those in recommendations and see if U.S. corporations can be encouraged to

furnish that kind of aid to the people at the bottom who want to

assert their own rights?

Mr. CAHN. Well, I think there are many things that can be done.

I know that there are an increasing number of cases being tried in

the Chinese judicial system related to industrial accidents and getting judgments that weren’t the case some 5 or 6 years ago. That

is a trend that I think will—if it continues—allow the rule of law

to be represented in the industrial South, for sure, where many of

these cases are occurring. That is one way.

I think in general, you have a system in need of accountability.

There must be—there will be many ways to be able to do that,

starting with labor rights education and training for workers and

for those who relate to the legal system. In other words, the creation of legal aid mechanisms so that workers and others have access to rule of law and to the institutions in China which need to

be better accessible to those who are most in need of it. Those are

simply lacking unless we or others, today, make certain that they

are exercised. But it isn’t automatic today.

And there are many efforts in south China—I am sure there are

others on the panel who will be able to speak to some of them to

create greater awareness of the legal mechanisms that are already

available, and those will certainly lead to others.

Ms. NIEPOLD. A perfect segue. I was going to mention as a specific example, Verite ́ has a program that has been around now for

2 years, which is a mobile van. I like to call it the ‘‘upward mobility

project.’’ We have reached 20,000 workers in the past 2 years. It

is a van that is primarily operating in factories where we are invited by factory management, and obviously, at the behest of a lot

of the major brands that have leverage there. But, it has also had

the wonderful spillover effect of allowing us to reach workers who

25

work in factories where we are not welcome, whom we happen to

find at a mutually convenient location.

Entering the second year, we now have begun a ‘‘train the trainers’’ process with the workers. So that has an exponential benefit.

I noted that in your 2002 report, the Commission had the recommendation for further development of legal aid programs. I certainly think that that was an excellent recommendation. It is one

that probably needs to be repeated until it is heard.

I know that in Verite ́’s case, the curriculum of our van is done

on a needs assessment basis. So, workers tell us they want to learn

English. They want to learn sewing. They want to learn whatever,

but the first and primary focus is workers rights education. I think

that all the programs that draw on that, even if it then means referring them to legal aid societies or others, are very successful programs.

Mr. FOARDE. Do either of our other panelists have a comment on

that? No. One of the things that we have done all along in these

issues roundtables is to encourage the person who did all of the

heavy lifting and organizing to sit up here at the panel table and

be able to ask a few questions. And so, I would recognize my friend

and colleague Lary Brown, with thanks for doing all of this today

and getting these great folks here to share their knowledge with

us. Lary.

Mr. BROWN. Thank you. In the 3 minutes remaining to us, I

think the one thing that I would like to ask you is this: As companies that are going into China are setting up their supply chains,

using factories, if they have good solid economic reasons for being

there, and much of the code of conduct compliance has not brought

about overall changes, what should they be doing that they are not

doing now? How should a compliance program look? Anyone can

comment?

Mr. CAHN. How should a compliance program look? Well, you

come in with a strong code. That is the start, and something that

a vast majority of companies do. They come in with—and there is

considerable expertise now—human resources and a set of compliance benchmarks that would allow that company that wished to

place orders to be able to communicate what standards were to be

in place in that factory. There is a number of places to go to do

this now if that capacity doesn’t exist within that company placing

the orders.

There has been, in the last 7 or 10 years, the growth of, in a

sense, a cottage industry of people who are experts who understand

how to do this, are knowledgeable about this and who can do this

in Hong Kong; in the United States to a lesser extent, but still

growing; and in China itself as is the case with Verite ́. I would

make sure those conditions were in place before the first order is

placed, which is at the greatest point of leverage. I would put in

place systems within the factory for reporting back to the buyer of

products on the progress so, that you require the factory to inculcate into its management systems a culture of compliance, rather

than have to impose it from top down so to speak.

Then I think you are into a reasonably good start.

Ms. ROSENBAUM. I know of at least one corporation that demands

certification of the factories before any orders are placed. It seems

26

to me, just picking up on what Doug said, that that is one of the

most important things that can be done. Brands need to say to factories ‘‘before we come, before we put our orders here, you have to

raise the standards.’’ It is much, much harder to do it once you are

in the factories. If we can get more corporations to do that—if that

could become the norm, rather than the remedial afterthought,

when you don’t want to pull the orders because it is going to effect

the workers, I think we would have a better chance of making this

work on a broader basis.

Mr. VAN HEERDEN. I would just add to that that I think transparency would aid this process tremendously. I think that the monitoring programs should be transparent so that you can have this

dialog with your stakeholders and constituents as to whether what

you are doing is the right thing.

Ms. NIEPOLD. Just finally, I also agree greatly in the proactive

approach, as opposed to a reactive one. Some of the work we have

been doing recently, and we certainly encourage companies anywhere to do this would be sort of a risk mapping exercise within

their supply chains. When Verite ́ was founded in 1995, most of the

people we ever spoke to in the corporate sector did not know who

their suppliers were. And they continue not knowing to this day.

In fact, we are quite often sent to factories only to find a factory

manager who says, ‘‘Oh gee, we would love to get their business.’’

They are not even a supplier.

So, the risk mapping has to be in tandem with knowing who your

suppliers are, but more importantly—I don’t know who said it earlier, but who owns the factories. These is where I see truly is more

cutting edge. Knowing who your suppliers are and disclosing them

is one thing, but trying to aggregate leverage within your own supply chain by looking at the ownership structures is another.

Because we find very often that going into each of the respective

factories is nothing compared to if you had sat us down from the

beginning and let us tell you that 25 of them are owned by one guy

in Turkey. We could have done a great deal by going to him and

funneling those resources into remediation.

My pet peeve right now is spending all of one’s money on monitoring, such that there is nothing left for remediation. I encourage

brands increasingly to work together. I think the best example was

the footwear industry, when they pulled together to find a waterbased solvent—glue. Excuse me. I am not an expert, but you know

what I mean. The point being that I thought it was an excellent

example. I think brands should do more than that.

Mr. FOARDE. Good. Thank you. We are getting very close to the

witching hour, but I would like to recognize, first Bob Shepard, and

then Mike Castellano for our final questions. Bob.

Mr. SHEPARD. I think the general image I think a lot of people

have in the United States is of China being a very difficult country

that does not have a particularly good record on human rights,

labor rights, but that things have been improving slowly. Mr. van

Heerden has submitted a paper which certainly gives the impression that actually this may not be the case. That globally and perhaps within China, despite all the very good efforts on the part of

monitors, we could be losing the race, too.

27

And certainly within China, there is some reason to believe that

there are a lot of downward pressures. There is competition within

provinces, between the companies. I was struck by—the last time

I was in eastern China, there was concern about companies moving

west because of high incomes, and because of monitoring and

things like that. I was just wondering if maybe some of you could

discuss the balance between our efforts and their efforts, even of

the Chinese Government to improve things, while at the same time

facing some of these downward pressures, how serious they might

be?

Mr. VAN HEERDEN. I would draw a—you could take as an illustration of that dilemma two factors. The one is the Olympics in

2008. There is no way China intends to be embarrassed by inviting

the world to visit China in 2008. That is a tremendous incentive

to make positive change.

At the same time the Multi-Fiber Arrangement is due to expire

on January 1, 2005, and a lot of additional apparel business is

going to move to China and be sourced from China. So we are

going to see factories expanding their operations very, very rapidly.

We are going to see a lot of new investors opening up in China.

A lot who are not used to doing things according to international

standards.

So I think some of the, sort of, ‘‘wild west’’ nature in China is

going to expand, and with the move westward, that is only going

to be exacerbated. So we are going to see contradictory pressures.

Ms. ROSENBAUM. I think what Auret just said illustrates what I

said before, on the question, why do companies go to China in the

first place? If things were improving as much as we would like to

see them improve based upon all the efforts that everybody is making there, than the move to China that almost all of us expect at

the end of the Multi-Fiber Arrangement would not take place. It

is just there. I think it says to us the depth of the work that we

have ahead of us.

Mr. FOARDE. You want to make a comment? Doug, please.

Mr. CAHN. Yes. Just briefly to say that the vast majority—if I am

not mistaken—will be factories that are foreign invested, and in

those factories, there really does seem to be a trend toward compliance, as difficult and slow and sometimes zigzag as that trajectory

is. I think there may be a distinction worth investigating as to

whether there is a difference between the progress, as rough as it

is, with foreign-invested companies and those that are not.

Ms. NIEPOLD. Just one last thing, we actually have tracked some

of that within our limited framework, and we have found improvements are accelerating in the foreign-invested factories, but the

vast ‘‘wild west,’’ as you referred to it, truly are the domestic industries that are producing for domestic consumption. And I think that

a greater spotlight needs to be shown there. And workers will frequently tell us that as bad as the conditions are in the foreignowned factories, they do not compare to those that are domestically

owned.

Mr. FOARDE. Mike.

Mr. CASTELLANO. Thank you. We are focusing on codes of conduct and I think there is an assumption that is fairly widely

shared—it seems to me that because there are pressures, you

28

know, on capitalism, that a code of conduct effort is best able to

be successful when there is a cost to consumer preferences for not

having one. There may be a role for the U.S. Government to help

increase that cost, require a transparency component, et cetera. Do

you have any ideas for how the U.S. Government could help increase the cost and benefits of having a code of conduct program?

Ms. ROSENBAUM. Well, the question is who is supposed to benefit? It seems to me that it is corporations who have the code. I

think that what the government can do, probably in a way that nobody else can, is put pressure on the Chinese Government to want

compliance throughout the whole system.

As I said in my paper, it is unrealistic to ask corporations, essentially private actors in all of this, to bear the role and the responsibility that is the role of government and society. Now many corporations have stepped up to the plate and are doing that. But, I

think one of the reasons why we see so little sustainable compliance is because it is a societal system that we are trying to change.

I don’t think any corporation that comes from the outside has the

ability to do that. I think they are trying to do the things that they

are able to do, but we need a construct coming from a different approach. If China wants companies to do business in China, then it

is their responsibility, to make sure that factories in their country

are in compliance. Everything else is just trying to do something

because that is not happening.

Mr. VAN HEERDEN. I would urge the U.S. Government to devote

more resources to education and training in China. The education

component of it—that is just understanding these rights, the ILO

definition, in the sense of the ILO jurisprudence. More importantly,

the ability to use those rights, and that involves skill sets which

workers are just not getting at the moment. The ACFTU organizers

are not getting it. So, even if we are able to promote freedom of

association and collective bargaining, the ability to bargain cannot

be taken for granted.

A Western market-based labor relations system is going to take

a lot of getting used to in China.

Ms. NIEPOLD. I also—sort of in line with what Ruth was saying,

if you look at the 10 core areas that are in every code of conduct

and all the ILO conventions—it is sort of a silly habit of looking

at what is the root of each of them. And truly what is the root of

each of them is wages. Child labor boils down to wages. Are the

parents being paid enough to live. Contract labor, which is the area

that Verite ́ works the hardest on with foreign, overseas workers

boils down to wages as well.

So, if you ask a multinational corporation to go in and work on

wages, that is impossible. So, when I look at the most egregious

violations that are out there, and they boil down to wages, I am

very clear that it really is at the feet of government to work from

the top and then to have other efforts, which are sort of a category,

pushing rocks up a hill to do something at the lower level. But,

nonetheless, in the trenches initiatives are critical, because until

there comes some enlightened day where governments do make a

difference, in the mean time you are left with workers who really

are dying, possibly on a daily basis, and you need to do whatever

you can in the interim to work for them.

29

Mr. CAHN. Companies increasingly do take responsibility for

workplace conditions in China and elsewhere around the world

where products are made. They have the capacity to accept that responsibility and do much. But, as many of the panelists here have

articulated, there are limits to that influence, and our efforts to implement that code of conduct will be infinitely enhanced by a Government which implements its laws, by a civil society that is there

to support it, and by other companies who are at the table too exercising their influence as well.

Ms. ROSENBAUM. Could I just add one thing?

Mr. FOARDE. Please, go ahead.

Ms. ROSENBAUM. Only because this has just been sitting in my

head the whole time that we were here. And that is, if we want

China to do these things, we need to walk the walk ourselves in

this country. I couldn’t let this go by. We need to take a look at

how we are de-constructing the right to organize and engage in collective bargaining in this country. We need to take a look at who

is entitled to overtime pay and who is not. We need to take a look

at the extension of the work week in this country. We really need

to take a look at these things in our own country because that,

then will give us the credibility when we are talking to China and

other countries.

Thank you.

Mr. FOARDE. And with that word, let me thank each of our four

panelists, Doug Cahn, Mil Niepold, Auret van Heerden, and Ruth

Rosenbaum. On behalf of Chairman Jim Leach, and Co-chairman

Chuck Hagel and all the members of the Congressional-Executive

Commission on China.

We will convene again in 2 weeks, on May 12, a 2:30 p.m. to talk

about public health in China. Thank you all for coming. I will see

you on May 12. Good afternoon.

(31)

A P P E N D I X

32

PREPARED STATEMENTS

PREPARED STATEMENT OF DOUG CAHN

APRIL 28, 2003

INTRODUCTION AND BACKGROUND

For over a decade, Reebok International Ltd. has implemented its code of conduct—the Reebok Human Rights Production Standards—in the independently

owned and operated factories that make its products. We do this to:

• ensure that workplace conditions meet internationally recognized standards and

local law;

• honor our corporation’s commitment to human rights;

• protect our brand reputation; and

• benefit, most importantly, the lives of the 150,000 workers who make our products.

In recent years, an increasing focus of Reebok’s monitoring work has been to encourage factory workers to participate in workplace decisions. This focus is borne

out of Reebok’s experience that code of conduct compliance is enhanced when workers are actively involved in identifying workplace problems and resolving them in

dialog with management. In fact, the first and primary finding of Reebok’s Peduli

Hak (Indonesian for ‘‘Caring for Rights’’) external monitoring experiment, released

in 1999, was that ‘‘greater worker communication and understanding is at the heart

of many solutions to the workplace problems identified.’’

The current movement of global brands to monitor factories has its limits. Professional monitors can do much good, but they cannot be present in every factory, all

the time. This realization has caused us to recognize that a worker representation

model—one in which workers participate in decisions that affect their lives—can

speed our efforts to ensure that quality workplace conditions are sustained. Among

our standards is the provision that Reebok will respect the right of workers to freedom of expression. With worker representation projects, we facilitate the development of this right, even when country laws do not fully accept covenants of the

International Labor Organization related to Freedom of Association and Collective

Bargaining. In China, as an example, we hope our worker representation projects

will give greater meaning to this provision of our code of conduct.

WORKER PARTICIPATION MODEL

It is clear to us that sustainable code compliance is enhanced when strong internal problem-solving mechanisms are in place. Worker participation in problem-solving is a prescription for success. Monitoring as simple ‘‘policing’’ is increasingly not

a way forward. Sustainable monitoring, that is, monitoring that emphasizes education and training and worker participation, is a model that holds promise for the

future.

With worker participation:

• Workers feel more ownership of and commitment to the factory. Communications

are improved. Problems are prevented.

• Management faces less unrest, although it must spend more time on communicating and negotiating with its workforce.

• Reebok sees more efficient production, less monitoring, and higher levels of code

compliance that is more sustainably achieved.

In China, our worker participation programs have resulted in elections of worker

representatives in two large footwear factories. While elections are not the only way

of developing problem-solving mechanisms that include worker participation, they

are permissible under the law in China and, as the level of participation in the two

elections demonstrate, workers view these elections as acceptable methods to choose

representatives that can defend their interests.

THE KONG TAI EXPERIMENT

Our experiment began with the facilitation of the democratic election of worker

representatives in the Kong Tai Shoe factory located in Longgang, China in July

2001. This athletic shoe factory is publicly listed on the Hong Kong stock exchange

and employs just under 6,000 workers.

33

1The term ‘‘union’’ is used in China to describe factory level affiliates of the All China Federation of Trade Unions, a Chinese government institution. It is not possible at present for unions

independent of the ACFTU to operate legally in China.

KONG TAI: PRE-ELECTION

In the spring of 2001, we examined the existing union charter and Chinese labor

law. Working with management and the then- appointed union,1 an affiliate of the

All China Federation of Trade Unions (ACFTU), all parties agreed that the process

would be made more credible with a charter amendment to expand the union committee from 19 to 26 members, which allowed for the expansion of the mediation/

arbitration committee. In fact, the previous mediation/arbitration committee existed

in name only; its members were not active. The Kong Tai experiment did not benefit

from the more concise and relevant PRC trade union law that became effective in

October, 2001. The old law was of little guidance to potential practitioners of a more

democratic, dynamic worker representative system within the factory.

The previous union membership consisted of 19 committee members of whom 18

were office workers or guards (not production line workers). We sought to avoid the

preponderance of non-production line workers serving as union leaders by insisting

on proportional representation. We wanted to ensure that a new union would truly

represent all workers, especially production line workers. Some union members at

that time were understandably upset that they would have to compete for future

committee seats on a more level playing field.

Communication and outreach was the next important step. The newly amended

charter was posted in production areas and common areas, where all workers would

have access to them. A list of ‘‘frequently asked questions’’ was circulated as well.

Questions we posed, like: ‘‘What are the purposes of a trade union?’’ ‘‘Who can be

members of the labor union?’’ and ‘‘What are the duties and responsibilities of each

of the committees or teams?’’ These and other questions were answered in detail.

Still, since a majority of workers could not be expected to study these documents

on their own, open forums were critically important. Factory management and

Reebok explained how newly elected representatives could be different from the previous union where workers were not free to select committee members or determine

their working agenda. The forums started to convince workers that the factory management was serious about its intentions to permit a democratic election. Workers

asked good questions. As a result of the open forums, all parties agreed to scrap

the ‘‘one-year of employment requirement’’ for candidates. Newer workers wanted to

join in.

Under the rules, candidates were to be self-nominated. We were pleasantly surprised when we learned that there would be 62 candidates. We thought it was possible that we would have an election that no one was interested in. Happily, we

were wrong.

In every factory department, information about the department’s candidates was

posted, including a photo and general background like the workers’ village of origin,

length of service at the factory and age, and a short statement explaining why they

wanted to be on the union committee. Information about all candidates was posted

in one central location in the factory as well.

Campaign speeches were held on one night per election zone or factory department. Workers became more and more interested as the nights progressed.

KONG TAI: THE VOTING PROCESS

Voting was conducted in secret. A sample ballot and voting instructions were posted.

On election day, July 28, 2001, each worker received one colored ballot denoting

their election zone (some election zones consisted of more than one production

area—office workers, guards and maintenance staff, for instance, were all lumped

together). Stitching, the largest production area was large enough that it was split

into two zones. Each color represented a different voting zone.

On the day of the election, there were 4,658 workers in the factory; 1,130 were

on leave (15 days off with base pay due to low orders); 3,409 ballots were issued;

119 chose not to vote. There were 102 spoiled ballots and 17 ballots were not returned.

During the election, 26 workers—16 women and 10 men—were elected to the committee out of 62 worker candidates. Fifteen were line workers, 7 were line leaders

or supervisors, 4 were office staff. Of the 6 former executive committee members

who ran, 4 were re-elected.

34

KONG TAI: POST ELECTION EDUCATION AND TRAINING

Training was and continues to be an essential post election priority for committee

members. The local ACFTU told us that they did not have the resources to provide

training. We then contacted two Hong Kong-based non-governmental organizations

who agreed to conduct training. Training began with 6 half-day sessions in October

and November 2001.

Original curriculum of the training included discussions on what is a Trade

Union, the functions of Trade Union committee, strategies for reaching consensus,

internal communication and organizing, how to manage complaints, event organizing and Trade Union administration.

This initial training was followed by several visits from outside groups, such as

a delegation from the Swedish Trade Union Confederation. These contacts helped

the workers at Kong Tai understand the larger context of their work.

The next training phase was an offsite retreat of the elected representatives over

a long weekend in January, 2002 that focused on team building, communication

amongst committee members, and self-evaluation. The offsite training was again

conducted by the Hong Kong CIC and the LESN.

Today, the trainers are trying to work with the workforce at large to increase the

understanding about what they can expect of their elected representatives.

THE FU LUH EXPERIMENT

A second election was held in a Taiwanese-invested factory in October 2002. The

12,000 workers at the Fu Luh Sports Shoes factory in Fuzhou, China voted for 192

candidates in seven election zones. Although the Fu Luh Sports Shoe factory had

a union previously, there was no charter—nothing written down about the purpose

or the structure of the union. They had to start from scratch.

FU LUH: PRE-ELECTION

We began by bringing Fu Luh leadership to the Kong Tai factory to view first

hand the process and the outcome of the election that had been held there a year

earlier. Representatives were introduced to the Kong Tai charter during their visit

and subsequently relied heavily on it for the development of their own charter document.

In addition, in between the date of the Kong Tai election and the start of plans

for an election at Fu Luh, the Chinese government ratified a new trade union law

(in October 2001) eliminating the confusing and often irrelevant language for today’s

modern business environment. The law clearly defined the roles and responsibilities

of unions. We found it helpful in our work at Fu Luh.

At the Kong Tai factory, local ACFTU officials were aware of the election and supportive of it but did not get involved in the details of the process. At the Fu Luh

factory, local union officials were actively involved from the first conversations and

remained involved throughout. They had different ideas from us on some issues

such as the value of proportional representation and campaign speeches. They also

pushed for the creation of a broader Congress in addition to the smaller union Committee to increase the number of workers who could be directly involved in the

union’s activities.

The union charter that was adopted for the Fu Luh factory was similar to the

charter at Kong Tai. It allows for the recall of union members in the event, for instance, of mismanagement and the filling of posts of committee members who leave

the factory. Workers were given the opportunity to self-nominate as was the case

at Kong Tai. The principle of proportional representation was followed.

Open forums preceded the nomination process and were meant to inform workers

about the elections, explain how this was different from the past, explain the purpose of the trade union and encourage workers’ involvement.

Fu Luh has only one small dorm that houses a few of the factory’s workforce.

Most workers live offsite in rented rooms. To ensure that workers would attend the

open forums, workers were required to attend and were compensated for their time.

The forums lasted approximately an hour and a half.

The speeches were quite fun—workers laughed and enjoyed themselves (but also

mercilessly ribbed people who were nervous or who lost their place in their speeches).

Workers only attended the speeches of candidates for their particular production

room or election zone.

FU LUH: THE VOTING PROCESS

The voting was by secret ballot and the vote counting was conducted in a fully

transparent manner.

35

A week following the election for the Committee members, the Chair and Vice

Chair were elected from among them. Speeches were again given by all the candidates.

FU LUH: POST ELECTION EDUCATION AND TRAINING

The local ACFTU will provide an initial 2-day training program to elected representatives in mid-November, 2002. After this training, Reebok staff will meet with

the new union members to assess their needs and look for additional ways to help

meet them. Reebok remains open to new and innovative ways to assist in the education and training process of newly elected worker representatives.

DISCUSSION AND CONCLUSION

The elections at Kong Tai and Fu Luh shoe factories are initial efforts to enhance

the voice of workers in China in a way that will aid code compliance and lead, we

hope, to a more sustainable model for improving workplace conditions.

These elections were fully consistent with Chinese law and were supported by

local ACFTU officials. We were pleased will the overall level of support we observed

and we commend all parties, including ACFTU officials, for their forbearance and,

in many cases, active support.

The guiding principles in the election process were transparency, proportional representation and ‘‘one person, one vote:’’

• self nomination to stand as a candidate;

• transparency in the process (holding open forums so all workers would understand it, posting Frequently Asked Questions in the factory to answer concerns,

and transparency in the vote-counting) to instill confidence;

• proportional representation to make sure that each part of the factory was represented on the union committee;

• one person, one vote by secret ballot. (In neither factory had all workers voted

before, or voted in a secret manner.)

To label the experiments as ‘‘successes’’ or ‘‘failures’’ is to try to put them in boxes

where they don’t necessarily fit. We view them as steps in the right direction: toward compliance that is more sustainable and that involves workers in the process.

We are pleased that all parties have cooperated to permit these elections to take

place in the credible, transparent manner in which they were conducted. At Kong

Tai, the union is still growing and developing. They have spent much of their time

during the last year learning how to work together and how to be a union. They

have routinely assisted workers to get approvals to take leave, they have fought for

proper medical compensation for sick workers.

We hope these elections will demonstrate that an increase in worker participation

can be achieved in an environment where fully independent unions do not exist. Our

experience is that there is room for movement and progress within the confines of

what unions are permitted to do today in China. It is our hope that through this

example, other multinational brands and other factories will experiment with these

or other ways to establish sustainable methods of achieving code compliance. In the

end, we better implement our standards when we are willing to challenge ourselves,

our factory partners and workers to find new, more sustainable ways to achieve

internationally recognized workplace norms.

PREPARED STATEMENT OF MIL NIEPOLD

APRIL 28, 2003

I would first like to thank the Congressional Executive Commission on China for

inviting Verite ́’s testimony today.

VERITE ́’S PERSPECTIVE

‘‘China is an attractive piece of meat coveted by all . . . but very tough, and for

years no one has been able to bite into it.’’ Chinese Premier Zhou Enlai, 1973

Thirty years later, the population is not the only part that has changed—multinational corporations, global trading organizations like the WTO and even a few

IGOs and NGOs have clearly ‘‘taken a bite.’’ It is Verite ́’s core belief, and one shared

by many advocates, that respect for labor and human rights—the very same ones

that are covered by this Commission’s mandate and that China has quite often

signed and/or ratified—comes only when workers themselves are an integral part

of the process of enforcing these rights. Later, when I address examples of initiaVerDate 11-MAY-2000 10:39 Jul 23, 2003 Jkt 000000 PO 00000 Frm 00039 Fmt 6601 Sfmt 6621 88096.TXT China1 PsN: China1
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tives that have worked or might potentially work, the direct involvement of workers

will be the common thread in each case.

WHO IS VERITE ́ ?

Over the past 8 years Verite ́ has interviewed approximately 18,000 factory workers for the purpose of identifying the issues workers face in a newly globalized economy. Verite ́’s mission is to ensure that people worldwide work under fair, safe and

legal conditions. Our pioneering approach brings together multi-national corporations, trade unions, governments, non-governmental organizations (NGOs) and

workers—in over 65 countries—for the purpose of identifying solutions to some of

the most intractable labor rights violations.

Verite ́ performs social audits (to date, over 1,000 factory evaluations conducted)

to analyze workplace compliance with local and international labor, health, safety

and environmental laws and standards. Unique as a non-profit independent monitoring and research organization, Verite ́, unlike private sector companies, goes

beyond monitoring to provide factories with specific recommendations to remedy

problems and training for factory management and manufacturers. To address the

needs of workers, Verite ́ conducts education programs to teach workers their legal

rights and entitlements in the workplace as well as ‘‘life skills’’ (literacy, health education, math, English, and computer skills).

VERITE ́ IN CHINA

Verite ́ has operated in China—our first and largest area of operation—extensively

since 1995. We have conducted nearly 200 factory audits in China over the past 8

years, including 112 in the past 2 years.

Our findings, and those of others, are disturbing:

1. Egregious health and safety violations

a. China’s own Work Safety administration reported 140,000 deaths in 2002

(an increase of approximately 30 percent over 2001)

b. Chinese media sources reported 250,000 injuries and more than 30,000

deaths in industrial accidents in the first quarter of this year alone

c. The ILO ranks China as the world ‘‘leader’’ in industrial accidents

d. China estimates 25 million workers are exposed to toxins annually (with

tens of thousands incapacitated annually)

e. The Hong Kong Christian Industrial Committee (HKCIC) reported recently

that, after 10 years of research on the toy industry (China produces 70 percent

of the world’s toys) that a full 55—75 percent are still classified as poor (80–

100 hour work weeks, poor health and safety, not paying minimum wages)

2. Majority of factories use triple or even quadruple books to mask under payment

or non-payment of legally mandated overtime premiums (which range from 1.5 to

3 times the base wage depending on the day of the week and whether or not it is

a holiday). In some instances it has taken even our most experienced teams days

of research, interviews and analysis to uncover the true extent of the problem.

3. Limited enforcement of labor laws that are on balance quite robust (for example

those requiring overtime premiums, automatic machine shut-off safety devices, compensation for injury.

4. Harassment and lengthy imprisonment for those who report violations, peacefully demonstrate and or who try to associate freely.

Since 1998 Verite ́ has organized an annual China Suppliers Conference that

brings together factory owners and managers with governmental officials and nongovernmental organization specialists to explore issues and solve problems related

to labor compliance in China. (Last year’s conference in Xiamen focused on three

aspects of labor compliance: the changing role of unions in Chinese factories; health

and safety compliance; and the comprehensive work-hour calculation system and its

impact on overtime. Presenters included local government and union officials. This

year’s conference will provide Verite ́ the opportunity to release a research report on

the prevalence of excessive overtime and its impact on worker health and safety).

Verite ́’s Worker Education Program, sponsored by Timberland, Eileen Fisher and

New Balance, among others, operates in a mobile van which visits southern Chinese

factories to provide information on workers’ rights, labor law and health information

(recently including updates on HIV, Hepatitis, and SARS); the Program has reached

18,980 workers since its founding in 2001.

Verite ́ has facilitated direct communication between factory managers and local

labor officials in 40 factories since 2001 by inviting labor officials to accompany

auditors to the factories for joint training with factory managers on proper wagecalculation, recordkeeping, and employment-contract procedures.

37

CODES VS. LAWS

While not unique to China by any means, there is a growing debate regarding the

value of voluntary initiatives (such as Codes of Conduct) versus direct legal obligations within both national and international legal frameworks. For the purposes of

this discussion, I will not cover this debate in any detail. However, as we are discussing Codes of Conduct and examples of best practices—with the aim of achieving

improved labor rights compliance in China—I would be remiss if I did not at least

touch on this important subject.

Direct obligations—i.e. those placed upon companies through international law— are weaker than those that are indirect (those placed upon them by governments

who themselves are fulfilling their obligations under international conventions, etc.).

Weaker though they may be, there is nonetheless a clear upward trend in their

being extended to corporate (MNC) actors. Movements such as the International

Right to Know (IRTK) campaign (whose recent report includes various case studies,

including one on McDonald’s and toys made in China) and the increasing use of U.S.

Courtrooms to seek redress for perceived MNC complicity in overseas human and

labor rights abuses (for example Unocal, Saipan, and Shell, lawsuits, among others)

using the Alien Tort Claims Act (ATCA) are examples of this trend.

So, for our purposes today, you may wonder why these distinctions between voluntary initiatives and direct obligations under international law are relevant? It is

simply because, to quote the excellent report by the International Council on

Human Rights Policy, we must go ‘‘beyond voluntarism.’’ Codes are squarely in the

camp of voluntarism and while they are a useful starting point for improving labor

rights compliance, they alone are simply not enough to right the ‘‘imbalance of

power’’ that exists today between major MNCs and most governments. Governments

do not have the resources that MNCs do—resources that are in many places including China—greatly eroded by endemic corruption. Limited resources greatly hinder

labor rights enforcement, but they are not the sole issue. I am by no means suggesting that more laws and/or more enforcement are the only answer, but I am saying that rooting both voluntary codes and national laws in a strong international

legal framework creates a ripple effect that will help enforcement in ways that

merely increasing the number of labor inspectors cannot.

Violations of human and labor rights thrive in cultures of impunity. Take the example of slavery. While now outlawed in virtually every country of the world, this

heinous practice continues particularly in countries where the rule of law is eroded.

Just as corruption of government officials and police officers allows slavery to flourish—so to do labor rights violations. Strengthening the rule of law in any given

country is not a task merely for MNCs and their voluntary initiatives. This is a task

for governments. Grounding all efforts in the international legal framework helps

to achieve a few important things. It creates a climate that favors compliance by

strengthening the effectiveness of voluntary initiatives and national legislation, it

strengthens the work of NGO and workers’ advocates and it improves judicial efforts, both domestic and international.

Thus, it is incumbent upon those concerned with improving labor rights on the

ground in China, as elsewhere, to use multi-layered approaches that draw on past

successes. Each approach should also be aligned with the particular ‘‘sphere of influ- ence’’ of the respective stakeholder—thus historically, the greatest successes have

come from governments working on the most macro level legislative improvements,

government to government consultations, technical assistance programs and the

like. MNCs in turn have had success when they assert their considerable leverage

primarily at the supplier/factory level but they should continue by all means to

exert pressure on governments as well to ensure that the rule of law is both upheld

and strengthened. One of the best examples of an MNC working on creative solutions to the most challenging issue in China is the example that you have just heard

about from Doug Cahn—the Kong Tai (or KTS) factory election of worker representatives. This initiative is exemplary and there are others:

• The Institute of Contemporary Observation recently launched an initiative that

provides posters in factories that outline workers’ rights under Chinese law and

they provide a hotline for workers to call if they are the victims of violations

• A coalition of over 20 NGOs and SRIs (Socially Responsible Investors), including

the International Labor Rights Fund, Global Exchange and Amnesty International USA started the U.S. Business Principles for the Human Rights of Workers in China. To date nine MNCs are participating in this China Working Group

(3Com, Cisco, Intel, KLA-Tencor, Nike, Palm Computing, Reebok and Target)

working to implement the Principles or similar Codes of Conduct.

It is very common to discuss the ‘‘sticks’’ when discussing human and labor rights.

But, I find the ‘‘carrots’’ to be of greater interest. The examples cited above share

38

a few things—most notably the inclusion of the workers in the process—but most

of all they are implicitly or explicitly capitalizing on the fact that there is competitive advantage to be gained from transparency, disclosure and good working conditions. If the industrial revolutions in the U.S. and the U.K. have shown us anything

they have shown us that good factories make better products and over the longer

term, that are more cost-effective.

CONCLUSION

‘‘Apart from their other characteristics, the outstanding thing about China’s 600

million people is that they are ‘‘poor and blank.’’ This may seem a bad thing, but

in reality it is a good thing. Poverty gives rise to the desire for change, the desire

for action and the desire for revolution. On a blank sheet of paper free from any

mark, the freshest and most beautiful pictures can be painted.’’ Mao Zedong 1967

The picture for labor rights in China would have to include the following:

• Harmonization of the multiple codes of conduct (factory owners rightly complain

that the profusion of codes is a confusing time-sink and with at times 40 audits

a month by inexperienced CPAs, auditing as it is conducted by private sector

firms is harmful to workers and disruptive to production cycles)

• A greater degree of responsibility on the part of MNCs who wreak havoc on factories through pressures to lower prices paid to factories and ‘‘just in time’’ delivery demands that inevitably lead to excessive, often forced, overtime

• Passage, or modification, of embodying legislation required under China’s ratification (2001) of the ICESCR (International Covenant on Economic, Social and Cultural Rights and their membership in the ILO (specifically with regard to freedom

of association and collective bargaining) and withdrawal of their reservations

• A direct contact mission from the ILO

This would be a beautiful picture indeed. Thank you.

PREPARED STATEMENT OF AURET VAN HEERDEN

APRIL 28, 2003

LABOR RIGHTS IN CHINA: THE ROLE OF PRIVATE LABOR RIGHTS INITIATIVES

By Auret van Heerden and John Salem Shubash, II

In the contemporary global marketplace, competition to produce goods quickly and

inexpensively often leads to morally unacceptable conditions of work, where labor

relations systems and labor rights have been sacrificed in the name of economic efficiency. A number of scholars have made similar observations. Sabel, et al argue, ‘‘It

is a brute fact of contemporary globalization—unmistakable as activists and journalists catalog scandal after scandal—that the very transformations making possible

higher quality, cheaper products often lead to unacceptable conditions of work’’

(Sabel, et al, 2000). In light of such troubling observations, the role of private labor

rights initiatives, such as the Fair Labor Association (FLA), become crucial.

This paper is divided into six sections. First, we briefly outline why labor relations

systems are breaking down, and why this is morally and economically troubling.

Second, we discuss a number of theoretical strategies for coping with the current

regulatory vacuum. Next, we argue that the FLA, along with other private initiatives, plays an important role in improving international labor rights and we briefly

outline how the FLA complements public regulatory regimes. We then offer a brief

discussion of labor rights in China, and argue that the relocation of global supply

chains to China has out paced the government’s ability to enforce labor rights, making industry self-regulation vital. Finally, we present a case study that demonstrates the effectiveness and potential of private initiatives in improving labor

rights and in strengthening labor relations systems in China. We conclude that the

FLA has gained a high level of access to factories and workers in China, and is

uniquely placed to affect human and labor rights there.

THE BREAKDOWN OF LABOR RELATIONS SYSTEMS

The global economy has witnessed the development of global supply chains that

have outstripped existing labor market regulations and enforcement mechanisms.

Katherine V. Stone, a professor of industrial relations at Cornell University argues,

‘‘existing regulatory approaches are inadequate to ensure that the global marketplace will offer adequate labor standards to its global workforce’’ (Stone, 1999). Additionally, competition to reduce costs and the possibility of capital relocation has

39

resulted in the breakdown of traditional labor relations systems, where labor and

business leaders negotiate collective agreements. The International Confederation of

Free Trade Unions further articulated this finding, arguing, ‘‘Governments, made

increasingly desperate to increase their countries’ exports and attract foreign investment after the Asian crisis, are finding themselves in a buyers’ market dominated

by companies who can name their price. And that price all too often includes cheap

labour, low standards and no trade unions’’ (ICFTU, 1999). This process has weakened the enforcement of labor laws and has allowed labor relations systems to

breakdown. This has resulted in more persistent labor rights violations and more

acute labor conflicts around the globe.

The fact that labor relations systems are breaking down and labor rights violations continue is troubling for both moral and economic reasons. Morally unacceptable working conditions, such as child labor, forced labor, discrimination, overly

excessive working hours and the payment of starvation wages are far too common

in global supply chains. The excessive exploitation of vulnerable members of society,

such as children, women and the poor, for financial gain must be corrected for a

morally acceptable global economy to be created.

A number of recent studies have outlined the positive correlation between high

labor standards, and specifically coordinated labor markets, and macroeconomic

performance. A recent World Bank report entitled ‘‘Unions and Collective Bargaining: Economic Effects in a Global Environment’’ found that countries with highly

coordinated collective bargaining tended to be associated with lower levels of unemployment, lower earnings inequality, fewer strikes and generally better levels of

macroeconomic performance (Aidt and Tzannotos, 2003:12). Similarly, a recent

OECD study attempted to analyze the effects of labor standards on macroeconomic

performance by comparing the economic indicators of countries that undertook

major labor market reforms before and after the reform. The report, which studied

the effects of labor market reforms on macroeconomic performance in 17 countries,

found that on average, GDP grew at 3.8 percent per year before the improvement

in labor standards and grew 4.3 percent afterwards. The OECD further argues,

‘‘Countries which strengthen their core labor standards can increase economic

growth and efficiency by creating an environment which encourages innovation and

higher productivity’’ (OECD, 2000). Maryke Dessing summarized the economic argument for labor standards, stating, ‘‘Labour standards in general can become the

source of competitiveness and economic dynamism as they transform the production

process. Labour standards aim at correcting market failures, internalizing social

externalities associated with firms’ activities, and thus improve factor allocation

consistent with the general good’’ (2001:3). Given the moral and economic arguments in favor of labor standards, many actors stand to benefit from their implementation.

STRATEGIES TO IMPROVE LABOR STANDARDS

A number of strategies for improving labor standards internationally have been

proposed. The strategies outlined in this paper are divided into two categories: (1)

regulatory approaches; and (2) cosmopolitan approaches, which employ both public

and private initiatives to improve labor rights.

Regulatory approaches attempt to find methods to improve the enforcement of

core labor standards internationally. One such approach involves linking labor

rights to trade negotiations. Proponents of this approach argue that the US-Jordan

Free Trade Agreement, which has labor and environmental rights clauses and enforcement via a dispute settlement mechanism, should be a model for future trade

negotiations (Ruebner, 2001). Similarly, others argue that labor rights should be

included in the World Trade Organization (WTO). They argue that the WTO’s

Trade-Related Aspects of Intellectual Property Rights (TRIPS) sets a precedent for

including legal frameworks for protecting rights in the WTO, and thus could easily

be applied to labor rights (Wells, 2001). They argue that the dispute settlement

mechanism of the WTO, and the possibility of applying trade sanctions on noncompliant countries, would be a distinct advantage of using the WTO framework.

Others argue that an enhanced international regulatory regime using the International Labor Organization (ILO) is the best method for improving labor standards.

They say that the ILO system of ‘‘sunshine’’ (openness and transparency), ‘‘carrots’’

(assistance and rewards for labor rights compliance), and ‘‘sticks’’ (penalties for

labor rights violations) forms the basis of an effective labor rights regulatory regime

(Wells, 2001). The proponents of this view argue that the actions taken by member

states to punish Burma for the use of forced labor shows the potential effectiveness

of the ILO. Many critics, however, argue that the ILO is incapable of enforcing labor

standards internationally, and that their ‘‘punishment’’ is often limited to bad pubVerDate 11-MAY-2000 10:39 Jul 23, 2003 Jkt 000000 PO 00000 Frm 00043 Fmt 6601 Sfmt 6621 88096.TXT China1 PsN: China1
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1Where there are discrepancies between the code and national law, the higher standard applies.

licity. They argue that much more needs to be done to ensure labor standards are

upheld. As outlined previously, the inability of regulatory regimes to keep pace with

global economic change suggests that some other approach must be employed to

complement the role of the ILO and other regulatory regimes.

Many intellectuals make the opposite argument, stating that labor standards in

trade agreements are advocated by protectionist groups and by misguided NGOs,

and that labor standards harm developing country workers (Bhagwati, et al, 1999).

However, if a truly global approach is taken that improves labor rights across the

globe, the negative competition that fuels labor rights violations can be altered, and

more positive competition can be initiated to attract investment. Examples of positive competition for attracting foreign direct investment would include developing a

skilled workforce, a strong infrastructure and more effective government institutions. Positive competition quickly breaks down with the absence of a globally

coordinated strategy, however.

In an attempt to create such a global strategy, some argue that ‘‘cosmopolitan’’

approaches must be taken to address labor rights violations internationally. A ‘‘cosmopolitan’’ approach involves coordinating global responses to international problems and executing them locally, in coordination with local bodies. David Held

articulates this strategy by arguing that two interrelated sets of transformations

must take place to improve labor rights internationally. First, companies must

adopt socially responsible rules, while public institutions at local, national, regional

and global levels must enhance their regulatory regimes (Held, 2002). A similar sentiment is echoed by Amartya Sen, a Nobel laureate in economics and a leading development philosopher, who argues, ‘‘In dealing with conditions of working lives, as

well as the interests and rights of workers in general, there is a similar necessity

to go beyond the narrow limits of international relations: not just beyond the national boundaries but even beyond international relations into global connections’’

(Sen, 1999). This promising approach, which depends on building ‘‘global connections’’ and worldwide coalitions, reinforces the need for ‘‘private’’ labor rights initiatives to articulate and advocate the rights of workers on an international scale.

THE ROLE OF PRIVATE LABOR RIGHTS INITIATIVES AND THE FLA

Non-regulatory, or ‘‘private’’ approaches promote corporate social responsibility by

allowing companies to adopt a code of conduct and promote adherence to that code.

Critics argue that voluntary approaches are simply public-relations activities for the

corporations, which do not change their behavior as a result of voluntary codes of

conduct. All voluntary approaches are not the same, however.

Some voluntary approaches, such as the U.N. Global Compact, have been referred

to as ‘‘learning networks,’’ where companies can exchange ideas about corporate social responsibility and exchange ideas and ‘‘best practices.’’ Although these networks

have no inspection regimes and do not require the remediation of labor rights violations among their members, the open exchange of ideas has a number of potential

benefits (Ruggie, 2002). Other voluntary mechanisms, and specifically the FLA, are

much more demanding and effectively complement public labor rights regimes such

as the ILO and national labor ministries.

The FLA has a workplace code of conduct, based on ILO principles, which brandname multinational enterprises sign and agree to implement throughout their supply chains.1 The Participating Companies (PCs), as they are known, agree (inter

alia) to:

• inform factory managers and workers of the code,

• train their compliance staff in the code standards,

• internally monitor their production facilities to assess compliance and

• monitor progress, and remediate any non-compliance.

The FLA then conducts independent external monitoring of a random sample of

those facilities to ensure that the PC is implementing its compliance program. It is

important to note that the FLA independent external monitoring is unannounced

and that the results are published. The process of internal and external monitoring

involves consulting knowledgeable local sources, worker and management interviews, a review of wage and hour records and an inspection of the factory. In addition to the brand name PCs, there are 175 universities affiliated with the FLA. They

require that their licensees join the FLA and implement compliance programs.

There are presently some 4000 facilities in over 80 countries covered by the FLA

program.

41

2There are a number of reasons why companies sign on to the FLA or other private initiatives, such as improved brand reputation, improved and more efficient labor relations systems,

and a lower likelihood of crisis following the discovery of a major labor rights violation. 3The World Bank classifications are: low income, $745 or less; lower middle income, $746–

2975; upper middle income, $2976–9205; high income, $9206 or more. This calculations is based

on GNI per capita. The entire list can be seen at http://www.worldbank.org/data/countryclass/

classgroups.htm.

By consulting and working closely with local groups around the world, the FLA

has participated in the formation of a global network dedicated to improving labor

rights. By working globally and without national allegiances, the FLA takes steps

to ensure that all workers in the PC supply chains, regardless of their country, experience the benefits of improved labor rights. This global approach helps prevent

a ‘‘race to the bottom,’’ and helps creates positive competitive pressures for suppliers

engaged in business relationships with FLA PCs.

HOW THE FLA COMPLEMENTS REGULATORY REGIMES

Given the breakdown of labor relations and regulatory regimes and the national

and international levels, ‘‘private’’ initiatives like the FLA attempt to fill this regulatory vacuum and create the ‘‘global networks’’ necessary to advocate improved

labor rights. The FLA complements regulatory regimes in three principle ways: (1)

because the PCs commit to a stringent monitoring and remediation process, and because the results of the process are published, they have strong incentives to correct

labor rights violations in their supply chains; (2) because the FLA works in coordination with PCs and local NGOs, it has a large physical presence in China, where

other efforts to address the human and labor rights situation have been limited; and

(3) because of the economic leverage of PCs with their suppliers, remediation is negotiated from a position of relative power.2 This process is particularly relevant in

China, since the relocation of multinational enterprises to the country has taken

place so quickly that the Chinese authorities cannot effectively enforce labor laws

throughout the country.

The FLA is a framework for collaboration among different actors to improve respect for labor rights. By involving the participation of global brands, the FLA is

able to bring attention to violations wherever they occur, and promote the accountability of brand-name companies for the protection of labor rights in their supply

chains. The FLA also engages local groups in the monitoring and remediation process. By coordinating with PCs and local NGOs and targeting compliance efforts at

specific factories, the FLA is well placed to respond to the speed of change in global

sourcing. This is particularly advantageous in China, where the pace of global investment and sourcing has overwhelmed the regulatory regime.

In 2001, the FLA PCs had 497 factories in China. Of these 497 factories, the FLA

conducted independent external monitoring visits at 53 factories, or 10.66 percent

of the total. Although concern about human rights in China is high in the international community, an alarmingly few number of organizations have been able to

conduct concrete, hands-on human and labor rights work there. Given the rare

experience of the FLA in practicing human and labor rights work in China, the organization’s various ‘‘people on the ground,’’ and our unique access to factories and

workers, the FLA is well placed to affect human and labor rights in China in a very

practical and tangible way.

Given the economic leverage that FLA PCs have over their contractors, the FLA

can negotiate with labor rights violators from a position of relative strength. While

the FLA encourages PCs to ‘‘remediate rather than terminate,’’ the possibility of losing an important business relationship is a powerful incentive for factories to work

with PCs in order to address labor rights violations. Regulatory regimes, while possessing a great deal of moral authority, are seldom able to mobilize the financial

resources of the FLA PCs.

Ensuring respect for international labor standards is a lengthy and complex process, highlighting the need for systematic efforts to monitor, remediate and verify

compliance. The FLA participates in this process in an era when regulatory regimes,

and particularly the Chinese authorities, cannot do it alone. While the FLA does not

substitute for labor law enforcement and collective bargaining, the FLA serves as

a complement to the efforts of regulatory regimes.

LABOR RIGHTS IN CHINA

According to the World Bank, China has a population of 1.272 billion people, a

workforce of 706 million people, and is categorized as a lower-middle-income economy based on Gross National Income (GNI) per capita.3 Given the size of the ChiVerDate 11-MAY-2000 10:39 Jul 23, 2003 Jkt 000000 PO 00000 Frm 00045 Fmt 6601 Sfmt 6621 88096.TXT China1 PsN: China1
42

nese workforce and the relatively low costs of labor, companies have been relocating

to China at an amazing pace; FDI has been flowing into China at an average of

over $40bn for more than a decade, and in 2002, China became the world’s largest

recipient of foreign direct investment (FDI) (Economist, Feb. 13, 2003). This has

fuelled a 116.2 percent growth in GDP since 1991, an average growth of 9.7 percent

annually, making China the fasting growing large economy in the world (World

Bank, Sept. 14, 2002).

Labor rights in China are defined in a very particular way, and critics argue that

they have not kept pace with the growth in FDI and GDP. The Chinese Constitution

guarantees Freedom of Association, but this right is subject to the interests of the

State and the Communist Party. Only one trade union, the ACFTU, is recognized.

It has traditionally seen its role as protecting the interests of the Party, the government, the employer and the worker. The shift from state-controlled to private enterprise is bringing about a reevaluation of that role, and many local union officials

are adopting Western trade union techniques and adapting them to their circumstances. According to the ACFTU, there were 103 million trade union members

in China in 2000, and 67,000 unions in foreign-invested enterprises, with a membership of 6 million workers. However, unofficial estimates of ACFTU presence in

foreign-invested enterprises suggest that less than 10 percent are organized. It has

been government policy to promote collective bargaining since 1995, and by the end

of 2000, some 240,000 agreements had been registered with the Ministry of Labor

and Social Security. Most of these agreements, however, are products of an administrative process rather than collective bargaining.

Although the right to strike was removed from the Constitution in 1982, more

than 100,000 strikes take place each year, particularly over late or non-payment of

wages, severance payments in cases of bankruptcy and lay-offs resulting from the

downsizing of enterprises. In Freedom of Association Case #2031, the Committee on

FOA noted that while the government of China believes that its laws guarantee the

rights of workers to form and join organizations of their own choosing, the Committee concluded that many provisions of the Trade Union Act were contrary to the

fundamental principles of FOA. The Committee also recalled that it had concluded

in two previous cases (1652 and 1930) that the Trade Union Act prevented the establishment of trade union organizations independent of the Government and the

Party.

Additionally, the China Daily reported a number of highly publicized industrial

accidents recently. The latest statistics show that in the first 2 months of 2003 there

were 1,639 deaths from 1,417 workplace accidents in industrial and mining enterprises, prompting the government to announce the formation of a new State Administration of Work Safety to promote safety at work. According to the paper the

problem stemmed from the ‘‘prevailing ignorance among employers of working conditions resulting from irrational pursuit of profits’’ but the ‘‘main reason is that

many local officials have tolerated some employers’ malpractice in a bid to pursue

economic development at the cost of work safety.’’

Given the rapid relocation of multinational corporations to China, the inability of

the Chinese authorities to enforce existing labor laws, and the continued restrictions

on freedom of association in China, industry self-regulation becomes vital. In the following section, two case studies that detail the positive impact of private labor

rights initiatives and codes of conduct in China are presented.

CASE STUDIES

As mentioned before, China presents a unique set of remediation challenges for

FLA PCs. In an attempt to address persistent health and safety and freedom of association violations that were reported by FLA independent external monitors, three

FLA PCs, three Taiwan-based footwear manufacturers, and four Hong Kong-based

labor rights non-governmental organizations (NGOs) developed a joint project to

build the occupational health and safety (OHS) capacity of local groups in southern

China. According to one of the companies,

‘‘Engaging workers in problem solving with management significantly reduced

the amount of time spent on myriad small, recurring problems (e.g. mistakes

made by factory administrative staff, miscommunications between management

and workers). In a few cases where worker representatives acted in a sophisticated and professional manner, serious problems have also been attended to and

resolved without Reebok’s involvement. This emphasis represents the next

generation of strategies to honor code commitments that respect the rights of

workers to freedom of association.’’

Acting on the principle that an organized workforce can create a more sustainable

system of labor relations and can improve a number of labor rights problems, the

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stakeholders established plant-wide health and safety committees, drawn from

workers and management, to develop action plans to help correct workplace health

and safety hazards. By organizing the workers into such groups, the stakeholders

have found a way to sustain improved labor relations and adherence to the FLA

Code in China.

The international training team consisted of industrial hygienist Garrett Brown

(from Maquiladora Health and Safety Support Network), health educators Pam Tau

Lee and Betty Szudy (from the Labor Occupational Health Program at the University of California at Berkeley), as well as professor Dara O’Rourke (Massachusetts

Institute of Technology). The project team worked with China Working Women’s

Network (CWWN), Asia Monitor Resource Center (AMRC), the Hong Kong Christian

Industrial Committee (HKCIC), and the Association for the Rights of Industrial Accident Victims to develop the project.

CWWN and the project staff conducted group discussions with participating organizations prior to the training to assess the needs of the workers. They also held

discussions with the labor practices managers of Adidas and Reebok in Hong Kong,

and visited a 60,000-worker shoe complex in Dongguan City.

Using interactive, participatory techniques, the trainings covered topics such as

identifying safety hazards, industrial hygiene controls, chemicals effects on the

body, ergonomics, noise, machine guarding, and fire evacuation. The trainings also

addressed workers’ legal rights, and workplace inspection techniques. All training

materials were translated into Chinese; English-speaking instructors had simultaneous translation for their presentation and activities. After the training, each factory’s participants reunited to create a proposal for setting up the health and safety

committee in their respective factories.

This pioneering effort involving cooperative efforts among brands, NGOs and factories has had a positive impact:

• Factory management have since come together to share their experiences in setting up the Health and Safety committees;

• NGOs have become more knowledgeable about health and safety issues;

• The worker-management committees are young, but they are functioning; and

• A democratically elected union now supports one committee.

In an interview with the AP, Garrett Brown argued, ‘‘Clearly the workers, supervisors and managers who participated learned a great deal and are now able to put

that into real life practice in the plants.’’ This case demonstrates the ability to improve labor rights in China, even when regulatory regimes are incapable of doing

so.

CONCLUSION

Because of the inability of the Chinese authorities to monitor and remediate labor

rights violations in the rapidly expanding industrial zones, labor rights in China are

suffering. Consequently, private labor rights initiatives, such as the FLA, have attempted to fill the resulting regulatory vacuum. Although the FLA is no substitute

for local, national, regional and global regulations, it does complement the regulatory process by using the economic force of PCs, which have committed to the rigorous FLA monitoring and remediation process in order to improve labor rights

worldwide. Given the unique access of the FLA to factories and workers in China,

the organization is capable of taking concrete steps to improve the human and labor

rights situation in the country.

BIBLIOGRAPHY

Aidt, Toke and Zafiris Tzannotos (2003) Unions and Collective Bargaining: Economic Effects in a Global Environment (Washington, DC: World Bank).

Bhagwati, Jagdish (1999) Third World Intellectuals and NGOs-Statement Against

Linkage (http://www.columbia.edu/?jb38/TWIN—SAL.pdf)

Dessing, Maryke (2001) ‘‘The Social Clause and Sustainable Development’’ ICTSD

Resource Paper No. 1 (Verdun: International Centre for Trade and Sustainable

Development)

Economist (April 6, 2000) ‘‘Discrimination against rural migrants is China’s apartheid’’ (http://www.economist.com/displayStory.cfm?Story—ID=299640)

Economist (Feb. 13, 2003) ‘‘China’s Economic Success’’ (http://www.economist.com/

displayStory.cfm?story—id=1576786).

Held, David (2002) ‘‘Globalization, Corporate Practice and Cosmopolitan Social

Standards’’ Contemporary Political Theory vol.1, pp.59–78.

ICFTU (1999) Building Workers’ Human Rights into the Global Trading System

(Brussels: ICFTU).

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ICFTU (Nov. 29, 2002) ‘‘ICFTU CHINA POLICY’’ (http://www.icftu.org/

displaydocument.asp?Index=991217172&Language=EN).

OECD (Oct., 2000) International Trade and Core Labor Standards (Paris: OECD).

Ruggie, John (2002) ‘‘The Theory and Practice of Learning Networks: Corporate Social Responsibility and the Global Compact’’ Journal of Corporate Citizenship

issue 5, pp.27–36.

Sabel, Charles, Dara O’Rourke and Archon Fung (2000) ‘‘Ratcheting Labor Standards: Regulation for Continuous Improvement in the Global Workplace’’ Faculty

Research Working Paper Number:RWP00–010 (Cambridge: Harvard).

Sen, Amartya (June, 1999) ‘‘Globalized Ethics in a Globalized Economy’’ Keynote

Speakers at the 87th International Labor Conference, Geneva, Switzerland.

Stone, Katherine V. (1999) ‘‘To the Yukon and Beyond: Local Laborers in a Global

Labor Market’’ Journal of Small and Emerging Business Law vol. 3, no. 1, p. 93.

Wells, Gary (2001) Trade Agreements: A Pro/Con Analysis of Including Core Labor

Standards (http://fpc.state.gov/6119.htm).

World Bank (Sept. 14, 2003) ‘‘China at a Glance’’ (http://www.worldbank.org/cgi-bin/

sendoff.cgi?page=%2Fdata%2Fcountrydata%2Faag%2Fchn—aag.pdf)

World Bank (2001) ‘‘China Data Profile’’ (http://devdata.worldbank.org/external/CP

Profile.asp?SelectedCountry=CHN&CCODE=CHN&CNAME=China&PTYPE=CP)

PREPARED STATEMENT OF RUTH ROSENBAUM

APRIL 28, 2003

The function of codes of conduct in China needs to be placed within the larger

context of codes of conduct and enforcement systems throughout the globalized

world. We will see that what is happening in China is parallel to what has happened and is continuing to happen within the contract supplier system worldwide.

In countries with strong legal codes that recognize the rights of workers, including

standards related to occupational health and safety, working hours, right to organize

and engage in collective bargaining, etc., it is society as a whole that has established

those standards. The standards themselves are expressed through the society’s legal

codes and enforcement systems. These give evidence that the societies hold themselves individually and collectively accountable for upholding the standards that

they have devised. The standards include, of course, those standards to which corporations are held.

As production and assembly has moved from countries where such standards,

legal codes and strong enforcement exist, to other countries, differences are readily

apparent.

1. The standards to which factories are held by the society and its government

vary from country to country. In fact, these standards are often much lower than

those in the ‘‘home’’ countries of the corporations placing the orders in the factories.

2. The legal systems for the enforcement of standards range from non-existent to

minimal at best.

3. The legal channels for addressing poor standards or violation of standards either do not exist—or the workers are in danger if they express concerns or raise

issues.

For at least the past decade, if not longer, a steady stream of media reports have

exposed the harsh realities within factories to consumers, investors, as well as to

labor rights and human rights organizations. Different countries and the problems

within factories in those countries rise to public consciousness as a result of media

focus and then as the months pass, other countries have taken their place.

One of the mistakes within the varied responses to these exposes and reports has

been to see the problems as isolated, the exception to the norm, etc. The responses

have focused on a particular factory, a particular situation. Heroic work has been

done by coalitions of organizations to bring about change in a particular factory—

while the other factories in the same trade zone or province or country continue

with similar patterns of behavior.

The underlying question within all of this is the following:

Where does the power exist to bring about change within the factories as individual factories and within the supply chain components within any country, including China?

We need to keep in mind that for many industries, the factories of production or

assembly are usually not owned by the corporations or the brand names with which

we are all so familiar. They are contractors or vendors for the corporations. This

lack of corporation ownership makes the power issue even more important.

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Yet, the focus of the media has been on the corporations placing orders within

the factory. In response, corporation after corporation have produced a standard for

the work place, the factory; hence the Codes of Conduct as we know them today.

Although called by many names, these codes were set forth as the standard for the

factory or, another way to say it would be, the ‘‘laws’’ for performance in the factory.

We need to pay attention to what has taken place with this development. We have

concluded that the corporations bear ultimate responsibility for the conditions under

which their products are manufactured or assembled. We then expect them to become

the creators of the standards for the factories and the enforcers of those standards.

In other words, we have handed over the role of the society and its governance— making and enforcing standards and laws—to the corporations we are attempting

to hold accountable. It is a shift in power, a shift in responsibility and a shift in

accountability.

When this plays out within the production system, we have the common phenomenon of almost any factory which accepts orders from numerous corporations,

having a display wall with the various codes of conduct for these corporations

framed and available for anyone who wants to take the time to read them. In theory, at least, these are the standards within which products are produced within the

factory.

Careful examination of the various codes quickly exposes one of the major flaws

of the role of codes of conduct in a production factory. The codes from the various

corporations are not the same. So what is the standard to which the factory must

adhere? Is it the common denominator or the higher standard or a combination

thereof? Is it one standard one day and another standard another day depending

on the product being produced and/or the corporation for which the product is being

produced and/or the particular inspection, monitoring, certification team that is

coming? How is the management of the factory to know, much less the workers?

Whose standard is it really? It does not matter which code of conduct we are

using, it is still not the rule of law and governance of the community or country

in which production is taking place. In fact, in many instances, the codes of conduct

are higher that the legal standards within the country of production. This is certainly true in China—and so many other countries that could be named.

When codes are conduct are seen as something imposed from the outside rather

than a standard of behavior that is adopted from within the society, for the benefit

of all involved, it depends on an external enforcement system for adherence. Hence

we have the various systems of monitoring, inspection, certification, etc. that have

developed as means and method of enforcing the codes.

Again with most of the monitoring, inspection and certification, the power of enforcement comes from the outside: outside the community and often, outside the

country of production.

For us at CREA, there are three central issues that we use to evaluate whether

or not the code of conduct and whatever enforcement systems are in place for that

factory/code are succeeding:

1. What changes for the workers? Although a simple question, this should be the

reason why we are looking at codes. It is the situations in the factory that we are

trying to address. It is critical that we see that we see these codes and the situations they are trying to address not as an abstract exercise but rather as the dayto-day reality for workers in China, most especially, but in any country where the

assembly plant system works worldwide.

2. How is power of enforcement transferred back to civil society and other components of society within China—and within other countries? If all the inspecting, certifying, monitoring, enforcing continues to have to come outside the community, it

will continue to be a system of putting out fires, of presuming that if a small percentage of factories are OK, that they all are.

3. Where do the money and the power attached to the money accumulate as a

result of all the inspecting, certifying, monitoring, etc.? If we are looking at a system

that can be sustained over time, there needs to be the transfer of sufficient funding

and the associated power to the communities where the factories are located. The

funding needs to remain within the community to support a sustainable economic

system where appropriate governance can develop and function.

While all of this is applicable anywhere in the world, the specifics of China are

our focus today. CREA suggests the following:

1. The need to start with recognition of the inherent dignity of each human being,

so that workers are not seen only in terms of what they are able to produce.

2. The need to look at ways of strengthening civil society within China. Organizations such as the Institute for Contemporary Observation (ICO), with which CREA

is collaborating on a project, need to be seen as equal partners. We need to find

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ways to have work such as theirs seen as the ordinary, the way it should be done,

rather than the exception or the extra-ordinary means of functioning.

3. The CECC, corporations, any group working on the issue, needs take a look

at why companies move to China. What is it that they gain because of the labor

situation there as compared to other countries? For companies moving production

to China because of the lower costs and standards there, there needs to be the

means of holding these corporations accountable.

For example, how does the issue of ‘‘Just in time’’ production and the on-going

shortening of turn around time in relationship to orders being placed and demands

placed on factories, resulting in abusive situations for workers?

4. There needs to be a greater analysis of Chinese law related to labor, including

OHS, wages, overtime, freedom of association and right to organize, and systematic

ways of addressing these. This needs to be coupled to an examination of the ILO

standards relating to occupation health and safety, work hours, etc., followed by the

examination of each of these codes of conduct and their enforcement systems. Again,

the underlying issue is how to bring these together in order to improve standards

for workers.

5. How do we make it beneficial for factory managers to adhere to the standards?

At the present time we use a system of rewards and punishments based on the placing and withdrawal of orders to ensure compliance with the code of conduct. How

do we move this reason for compliance to a standard that is beneficial for all factory

managers to adhere to? How do we make adherence to codes the norm rather than

the exception?

Within the Chinese governmental system, how do we make it possible for a factory to be singled out positively if its standards go beyond the legal?

6. How do we provide support for collaborative efforts between corporations to enhance their power to bring about change as well as to create an equal standard?

How would the development of a collaborative code of conduct be constructed that

would not be the lowest common denominator? And then, how do we provide a neutral space for a trial of this to take place and evaluated, without the spotlight or

glare of publicity so that change for the workers could really take place.

7. On another level, how do we get investors, the investment community including

Wall Street and the other markets around the world to recognize that raising working condition standards is a beneficial thing even if the costs of production are higher? How do we communicate that the continual drive to lower costs of production

contribute to the violation of the standards of performance and behavior that we are

trying to raise in these codes of conduct?

These systemic questions, and many others that could also be raised, focus the

issue of codes of conduct on the global production system as it functions within society, most specifically in China. For more than a decade, members of CREA’s staff

have worked with numerous corporations on issues of code of conduct development,

reporting mechanisms, monitoring and inspections; in fact, we continue to do so

even as I speak here today about the need to look at the issues on a systemic basis.

Without looking at the systemic issues, CREA is convinced that real change, sustained change, change that affects the lives of workers, and their communities cannot and will not take place. In the meantime, we salute and support the efforts of

those who seek to promote, enforce and report on codes of conduct and compliance

with them. These efforts should not be taken lightly. This is hard work. It is important work. Hopefully, we will be able to learn from the experiences of all of us who

have worked and continue to work on the issues that these codes of conduct seek

to address and devise the methods for system change that remain before us.

Thank you for your time and attention.

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SUBMISSIONS FOR THE RECORD

PREPARED STATEMENT OF THE WEI JINGSHENG FOUNDATION

APRIL 28, 2003

STATEMENT ON U.S. CORPORATIONS’ CODES OF CONDUCT IN CHINA

One of the major fields this Foundation works on regards workers’ rights, as well

as the codes of conduct and working conditions of the companies and factories that

employ them, including those of foreign companies and joint ventures. Of course, the

U.S. companies have a lot of investment and are doing a lot of business with China.

For these companies, naturally, their primary concern is profit. Most of them do

not want to ‘‘interfere with the internal affairs’’ of China, nor do they want to care

about Chinese human rights. On the surface, it seems very reasonable. In reality,

it has helped the Chinese Communists to restrict and even suppress Chinese human

rights, including the flow of information and free expression. Nevertheless, while

these companies only focus on revenues and care about self-protection with their

concern of offending the Chinese government, they have really done damage not just

to Chinese human rights, but also their own interests.

What these companies have done has effectively reduced the pressure the international community has on the Chinese government. It is now time for these companies to review their moral and ethical codes. They should try to apply what they

have in their own country to the factories and companies overseas, especially in

China. Among them, these companies should build a moral standard of not protecting the interests of the suppressive Chinese government. They should not speak

in favor of the Chinese government. They should not work on behalf of what the

Chinese government wants yet is unable to accomplish itself, either in China, or in

the United States, or elsewhere in the world.

Although we know these calls of conscience have their limited appeal, we want

to point out that how these companies conduct themselves in China has not just

helped the Chinese government to further damage human rights by allowing a poor

standard of conduct in China, but also damaged their own interests and that of

their employees. Their conduct has resulted in themselves and their employees

being afraid to speak freely, not just inside China, but even overseas. (We have examples but are not submitting these cases and names until necessary, which involve

top brand-name companies.) It also brings them the hazard of health, which could

be life threatening.

Take the recent spread of SARS as an example. Due to the fact that the Chinese

government restricted the truth, instead of spreading the necessary information,

their obstacles have helped to spread the virus. The result is not just damaging the

health and lost lives of our fellow Chinese inside China, but also the same threat

to the rest of the world, including the health and lives of these companies.

Not long ago, a poor woman with diagnosed SARS was refused health care in the

south and had to return to her home in the north. It was that fateful journey that

made more people in the north get infected with the disease, before the poor woman

died. Not any excuse should let the innocent citizens’ lives be victimized, and expose

the whole world to risk. It is time for us to realize that pressure must be brought

to the Chinese government as much as we can. That is the responsibility of the

whole world, for the welfare of all humanity. The U.S. companies must strengthen

and enhance their own codes of conduct not just in the United States, but also in

the rest of the world, including China. These companies have a choice between

aligning themselves with the Chinese workers for their welfare, or aligning themselves with the Chinese government to exploit and suppress workers’ rights and

benefits altogether.

As a matter of fact, the poor workers’ benefit protection has a long history. For

more than a decade, there have been more than one hundred twenty million ‘‘peasant workers’’ from the countryside supporting almost all of the construction and

service industry, especially the processing industry for export. In reality, they are

‘‘second class citizens’’ with no official ‘‘city registration.’’ They live in terrible temporary shelters. Due to the lack of official ‘‘city registration,’’ they do not have the

social and economical benefits the city dwellers may have, and especially they lack

health and life insurance. Under the health system that is guided by rules that

refuse patients who do not have money, a sick ‘‘peasant worker’’ basically has nothing for protection even when he/she is very ill, like the woman who died of SARS

that was mentioned in the last paragraph. The so-called ‘‘workers union’’ which is

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paid by and works for the Chinese government, has done nothing beneficial for

these miserable workers. The owners and enterprisers simply keep an attitude of

‘‘one eye open with one eye closed’’ in dealing with these problems, unless a dispute

gets out of control.

One has to ask, for a government that does not care for the welfare of its own

people and lied to protect itself, how could others including these companies trust

this kind of government? How could you give assistance to this type of government

in any form, or align your moral codes and ethical conduct with the allowance of

this type of government?

It is time for the U.S. companies to act and raise their moral conduct in China,

to what we expect of them in the United States. It is time for the U.S. government

and Congress to act, on behalf of the freedom loving people instead of the profit

seeking companies, to ensure the moral and ethical expectation of these companies.

Thank you very much for your attention.

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