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26–031 PDF 2006

WORKING CONDITIONS IN CHINA:

JUST AND FAVORABLE?

ROUNDTABLE

BEFORE THE

CONGRESSIONAL-EXECUTIVE

COMMISSION ON CHINA

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

NOVEMBER 3, 2005

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

Senate House

CHUCK HAGEL, Nebraska, Chairman

SAM BROWNBACK, Kansas

GORDON SMITH, Oregon

JIM DEMINT, South Carolina

MEL MARTINEZ, Florida

MAX BAUCUS, Montana

CARL LEVIN, Michigan

DIANNE FEINSTEIN, California

BYRON DORGAN, North Dakota

JAMES A. LEACH, Iowa, Co-Chairman

DAVID DREIER, California

FRANK R. WOLF, Virginia

JOSEPH R. PITTS, Pennsylvania

ROBERT B. ADERHOLT, Alabama

SANDER LEVIN, Michigan

MARCY KAPTUR, Ohio

SHERROD BROWN, Ohio

MICHAEL M. HONDA, California

EXECUTIVE BRANCH COMMISSIONERS

STEVEN J. LAW, Department of Labor

PAULA DOBRIANSKY, Department of State

DAVID DORMAN, Staff Director (Chairman)

JOHN FOARDE, Staff Director (Co-Chairman)

(II)

(III)

C O N T E N T S

Page

STATEMENTS

Gearhart, Judy, Program Director, Social Accountability International, New

York, NY ............................................................................................................... 2

Viederman, Dan, Executive Director, Verite ́, Amherst, MA ................................ 6

Rosenbaum, Ruth, Executive Director, Center for Reflection, Education, and

Action, Inc., Hartford, CT .................................................................................... 11

(1)

WORKING CONDITIONS IN CHINA:

JUST AND FAVORABLE?

THURSDAY, NOVEMBER 3, 2005

CONGRESSIONAL-EXECUTIVE

COMMISSION ON CHINA,

Washington, DC.

The roundtable was convened, pursuant to notice, at 2:35 p.m.,

in room 480, Ford House Office Building, David Dorman (Senate

Staff Director) presiding.

Also present: John Foarde, House Staff Director; Chris Mitchell,

Legislative Director, office of Representative Michael Honda; Adam

Bobrow, Counsel, Commercial Rule of Law; Katherine Palmer

Kaup, Special Advisor on Minority Nationalities Affairs; and Patricia Dyson, Senior Counsel for Labor Affairs.

Mr. DORMAN. We are very pleased to have a distinguished panel

here with us to talk about working conditions in China. But before

we get started, I would like to tell everyone that this is our first

roundtable since the Commission’s 2005 Annual Report came out.

If you have not seen the Annual Report yet, you will find copies

of it outside the front door. So please feel free to take a copy. If

they are all gone, please stop down at the Commission’s staff offices on the second floor of this building and we can give you one

there.

I want to apologize to everyone in the audience. This is the first

time we have used this room. As you probably noticed, the room

does not have microphones. So I am going to ask everybody in the

audience to raise their hand if you cannot hear a speaker during

the course of the roundtable. I will take that as a notice to tell the

person talking to speak up just a little bit.

We will all try to keep our voices at the right level, but it is easy

to forget over 90 minutes. So, please feel free to raise your hand

if you cannot hear.

Mr. FOARDE. It might also be useful if you would move forward.

There are plenty of seats up here in the front, so move yourselves

forward. Do not be shy.

Mr. DORMAN. As in previous roundtables, I will introduce each

of our panelists individually, and then give each panelist five minutes to make a statement. After all our panelists have spoken, each

individual on the dais will have an opportunity to ask a question

and hear an answer from one, or all, of the panelists. We will continue asking questions and hearing answers until we have reached

4 o’clock, or until we run out of questions. Since I have been on the

Commission staff we have never run out of questions, so I think

we will probably use up all that time. So let’s get started.

2

I would like to introduce our first panelist, Judy Gearhart. Judy

is the Program Director for Social Accountability International

[SAI]. Ms. Gearhart serves as the program director at SAI and as

an adjunct professor at Columbia University. She joined SAI in

1998. She has worked on democratization and women’s labor issues

in Mexico and conducted evaluations for UNICEF in Honduras. Ms.

Gearhart is the author of a national child labor study in Honduras

for the International Labor Organization [ILO]. She has participated in numerous public forums and published on topics including: NGO networks’ influence on policymaking, child labor, and

corporate social responsibility [CSR]. Ms. Gearhart holds a master’s

degree in international affairs from Columbia University.

Ms. Gearhart, thank you very much for joining us today. You

have five minutes for an opening statement.

Ms. GEARHART. Oh. Five minutes. I thought it was 10.

Mr. DORMAN. Ten minutes. I stand corrected.

Ms. GEARHART. Thanks.

STATEMENT OF JUDY GEARHART, PROGRAM DIRECTOR,

SOCIAL ACCOUNTABILITY INTERNATIONAL, NEW YORK, NY

Ms. GEARHART. I will run through briefly what Social Accountability International does and talk a little bit about how we are

working in China.

SAI published the SA8000 Standard for Safe and Decent Workplaces in 1997, after an 18-month consensus-based drafting process

by our international advisory board, which includes international

business, trade unions, and non-governmental organizations.

The SA8000 standard is based on ILO Conventions, the Universal Declaration of Human Rights [UDHR], and other human

rights norms. It also defers to national law in the countries where

it is applied, whichever norm is stronger.

SA8000 is primarily a business-to-business standard, in line with

International Organization for Standardization [ISO] principles of

continuous improvement and management systems-based implementation. SAI accredits independent organizations which audit

workplace facilities for compliance with the standard. Once in full

compliance, those facilities receive a certification which lasts three

years and requires semi-annual surveillance audits. For us, certifications are an important communication mechanism and they do

three things: signal a facility’s social responsibility to brand customers; provide a level of transparency for consumers—factory

names and locations are published on the SAI Web site and the facility is required to publicly report on compliance; and provide a

handle for workers and their advocates, and all others, to claim

their rights—there is an open complaints process—both internal to

a certified facility and external through complaints filed with the

accredited certification body and to SAI. Resolutions of complaints

are posted to the SAI Web site.

As of June 2005, there are 710 certifications worldwide, covering

436,600 workers, spanning 45 countries and 52 industries. In

China, there are 99 certifications concentrated in the apparel, footwear, housewares, and electronics sectors.

In addition to these certifications, there are thousands of gap

analysis audits conducted each year against SA8000, using SA8000

3

as a benchmark, and numerous certification applicant audits that

do not result in certification. So, it is a well-known benchmark.

SA8000, it is important to note, is a voluntary standard. There

are two main drivers behind these certifications and the benchmark audits. One is international brand pressure, international

brands seeking to ensure their suppliers provide decent working

conditions in compliance with SA8000 and to protect their reputation and the value of their brands. The other driver is the motivation of managers or owners of factories, farms, and service centers

seeking, on their own, to provide decent working conditions in compliance with the standard and to gain a competitive edge in international markets and/or to protect their reputation and the value

of their own local brands.

The uptake of SA8000 in China is among the strongest. It is the

country with the largest number of workers covered in certified

facilities and the third largest number of certifications in any country.

Nevertheless, much smaller countries, such as Italy, have more

than twice as many certified facilities—Italy has 233, compared to

China’s 99—and a significantly higher proportion of the population

is covered. China is unusual among the top countries for SA8000

certification, as the other leaders are Italy, Brazil, and India, countries where there is already a robust corporate social responsibility

movement and debate. This is mainly what I want to talk about

today.

I think one of my first points here is that SA8000 is working to

encourage a robust CSR dialogue within China and among forwardthinking business and opinion leaders. I think that is an important

step. So what I can tell you about the CSR debate in China, from

what we learned, is that the debate is rapidly growing and SA8000

is frequently referenced. A key word search in November 2005

yielded 118,000 references to SA8000, just to give you an example.

The debate in China, from 2004 through early 2005, tended to fall

along two lines: those who see corporate social responsibility as a

threat and those who see it as the right way to do business. These

differing views can be found within business circles as well as

among government institutions.

Those who see CSR as a threat to Chinese business competitiveness are those who are focused on a low-cost strategy, in our view.

They cite CSR as the imposition of foreign values on China, and

it is regarded as a potential trade barrier. They also seem to confuse the requirement of the market with a government requirement. This is something important to clarify.

There is a lot of misinformation about SA8000 in the Chinese

press. In the case of SA8000, the press was reporting that the

United States would require all imports from China to be certified

to SA8000 as of May 2004. That is not the case. That is not anything we have put out, but it is one of the points that speaks to

the confusion.

In contrast, CSR in general—or SA8000 specifically—is also seen

by others in China as an attractive opportunity to improve Chinese

business competitiveness. That view is for those looking to advance

Chinese production toward higher value-added goods, and who seek

an advanced industrial relation system in China, with ‘‘best practice’’ human resource management, better-quality productivity, and

4

retention of workers. A couple of local governments currently provide subsidies for local firms that seek to implement SA8000 within

China. This is an interesting indicator of some actors in China

being receptive to SA8000.

At the moment, in the later months of 2005, the pro-CSR voices

seem to be growing stronger, especially with the Chinese central

government having issued the Harmonious Society Policy in February 2005. Unfortunately, the China National Certification Agency [CNCA], has also raised several concerns and is currently taking

a sharp look at certifications throughout China. They required both

facilities seeking certification to any social or environmental standard, and also the certification bodies to which they have applied,

to first seek permission from the CNCA before beginning a certification audit. The effect has been to curb the rate of certification

and discourage Chinese certification bodies from applying to SAI

for accreditation or to audit against SA8000. We are feeling this

impact directly. As explained above, for us, certification is an important point of transparency for a business-to-business social compliance program.

Meanwhile, we know of numerous international organizations

working in China to improve workplace conditions, thus further

spurring the debate, but also adding some confusion.

The Global Compact conference coming up in December promises

to be another opportunity to elicit support for corporate social responsibility in China. SAI, like many other organizations, has capacity-building programs there and we are seeking to collaborate

broadly.

Finally, my last point. SAI’s project right now on the ground is

to provide training for managers and workers together. The project

aims to help managers see the benefits of running a socially

responsible business and to enable workers to understand the competitive challenges facing the business and how they can use voluntary codes and other mechanisms to exercise their rights.

A few factories in China are seeking to achieve certification for

the internal benefits, not just because a customer has asked for it,

rather than something in response to those demands from U.S. and

European brands. Most, however, still seek to comply with SA8000

or other business codes or other multi-stakeholder codes, like the

Fair Labor Associations [FLA], or others, because of foreign pressure. This is a problem because monitoring has its limits. Double

bookkeeping is a well-known common practice, and workers are

often fed the answers that they are meant to give to the auditors.

Even the managers who are trying sincerely to meet the standard

frequently do not understand the concepts behind these codes of

conduct well enough to communicate those effectively to workers.

To this end, SAI is seeking to help these managers to ‘‘own’’ the

implementation process, not just to prepare for social audits.

SAI is also implementing strategies to encourage worker/manager dialogue and worker participation in workplace improvements

within the parameters of Chinese law. Working in partnership with

several brands, a few suppliers, and local NGOs, SAI has developed

an innovative training program. It is an important training program given China’s superpower status in manufacturing, with hundreds of thousands of factories. It is a huge challenge for any

5

actors, businesses, trade unions, and NGOs alike, to improve working conditions.

Any program requires both depth and reach. Since the early

1990s, all major Western companies have been relying on social auditing or monitoring for acceptable working conditions, which has

significantly raised awareness, at least among their primary suppliers, in China. Many have taken corrective actions under those

requests from the brands and their customers and auditors. These

days, however, many corporate compliance teams have also realized that there are major shortfalls of an audit-only compliance

program: one, that such programs are external or imposed; two,

there is general agreement that workers are the parties most affected and the ones who know the most about working conditions.

Unfortunately, all social auditing programs—even with the best

NGO monitors—are challenged as to how deeply they can incorporate worker opinion and participation. These programs can only

help create the space for workers, who then need to find their own

voice.

So, in response to a call for more factory ownership of compliance

programs, SAI, in collaboration with our various partners, initiated

at the end of 2003, a worker/manager training program aimed at

deepening worker involvement in the factories’ implementation program. It is a comprehensive training program in which we train all

of the workers in a factory and the managers, and, after a brief

training for everyone, there is a dialogue. There is a discussion

about how the factory measures up against international labor

norms, codes of conduct like SA8000, and Chinese Labor Law. In

the factories in which we have conducted this training, the workers

and the managers agreed that they needed a mechanism to continue this dialogue, that this was a useful discussion. By November

2004, workers had organized independent nominations and elections and established worker committees in three factories. Workers and managers in the fourth factory are currently working to set

something up as well there.

Since March 2005, project participants have conducted a series

of evaluations, and what we are finding is interesting. The workers

are enjoying much better opportunities to air their concerns. Per

one survey in one factory of 20 percent of the workforce, 68 percent

stated that the worker committee significantly enhanced communication between managers and workers.

Worker committees have been increasingly proactive. In one, factory representatives are monitoring food quality; in another, the

worker committee worked together to successfully convince the

management to adjust unit prices for 80 percent of the workers.

This is a breakthrough. The ongoing dialogue between the two

groups has become at least one of the primary factors contributing

to, at various levels, better retention rates, improved wages, and

reduced working hours.

Workers and managers at all the factories participating have

been far more confident and willing to continue the program on

their own, and many have acknowledged that the program has offered much added value potentially minimizing the work needed on

factory audits and the consulting that has been frequently enlisted

to prepare management for those audits.

6

A finding probably more critical than all the rest is that the pilot

project strongly suggests that workers in China do care about their

rights and identity, in addition to recognizing the need for better

working conditions.

Thank you.

Mr. DORMAN. Good. Thank you very much for that statement. I

am sure it will generate good questions and dialogue.

Next, I would like to introduce Mr. Dan Viederman. Mr.

Viederman is Executive Director of Verite ́. Mr. Viederman became

Executive Director after three years as director of research, where

he managed Verite ́’s efforts to assess labor conditions for institutional investors, including the California and New York State pension systems and government agencies. He has spent over 10 years

working in Asia with NGOs and businesses focused on issues of environmental protection and rural development. He served as CEO

of World Wildlife Fund’s China program, where he established the

first Beijing office for an international environmental organization

in China. He has worked as country director for China for Catholic

Relief Services focused on relief and small-scale developmental

work in China’s interior. Mr. Viederman served on the faculty of

Chongqing Architecture University. A graduate of Yale University,

he has a master’s degree from Columbia University’s School of

International and Public Affairs.

We might be accused of being biased toward Columbia at this

particular roundtable. [Laughter.]

Ms. ROSENBAUM. I did not go there. [Laughter.]

Mr. VIEDERMAN. We owe it all to our graduate program.

Mr. DORMAN. Mr. Viederman, you have 10 minutes for your

opening statement.

STATEMENT OF DAN VIEDERMAN, EXECUTIVE DIRECTOR,

VERITE ́ , AMHERST, MA

Mr. VIEDERMAN. Thank you very much. I am trying to think of

how I can best work off of what Judy was introducing, because

clearly there is a lot of overlap between the work that SAI does and

what Verite ́ does. We are not a certifying organization. We are a

nonprofit that works globally, and extensively in China, for over a

decade. We started as a social monitoring organization, so our expertise and much of our core competency remains in the area of

going into factories and finding out about labor conditions on behalf

of international brands.

So what I thought I would do is talk in three parts. First, what

is the picture that monitoring has presented to Verite ́ of working

conditions in China. I will try and pull out a few key, salient

points. I am happy to go into as much detail as you want about

them later. Second, I will talk about some of the positive impacts,

and certainly some of the limitations, that implementing codes of

conduct from international corporate involvement in China has accomplished. In other words, what has been good, what has come

out of monitoring against codes that is useful, and what are the

limitations. Then, third, to talk about, from Verite ́’s perspective,

some of the key questions that remain and some of the steps that

we are aiming to take to move forward to continue to improve implementation of labor standards in China.

7

So, first of all, the picture of working conditions in China is not

a pretty one. Indeed, we believe it is fair to say that most, if not

all, international brands that are sourcing in China are in violation

of their own codes of conduct or Chinese labor law at one point or

another during their sourcing experiences in China.

I am going to speak about the picture of Chinese workplaces

based on approximately 350 factory audits that we have undertaken over the past three years, which we have conducted for various international brands in a variety of sectors and industries,

largely garments and footwear, but including others, including

hard goods, accessories, and electronics. I have four or five main

points. The most complex issues that we find in China are related

to compensation and work hours. This is a particularly complex

issue for international brands, and also for Chinese factories,

because of the vagueness of the Labor Law itself, which lends to

constant reinterpretation and a variety of creative forms of bookkeeping. In 2004, from a sample of 80 of the factories that we audited, only 9 factories did not have overtime hour violations, and

of those 80 factories surveyed roughly half had wage violations related to regular working hours as well. In 2003, the figures were

about similar: 75 percent of factories that we audited had overtime

wage violations. Over 90 percent had overtime hour violations,

meaning workers exceeded limits on hours or days worked.

The second area of significant non-compliance with codes and

with international and domestic labor standards is benefits. This is

another area where the law is relatively new, and designed, promulgated, and implemented in different forms across different

regions and locations. It presents a significant challenge to companies that are trying to be in compliance with Chinese labor law,

and obviously to Chinese factories as well.

In roughly the same sample of about 80 factories that we surveyed in 2004, fewer than 5 were in full compliance with benefits

laws. Common violations in this area include no provision of paid

vacation for workers, which is a particularly vague area of the

Labor Law, and failure to enroll workers in the legally mandated

social security system. We must note that some workers—particularly those who are migrant workers—choose not to enroll in the

system either because they do not understand it, or because they

do not trust it, or both.

The third main area of non-compliance that I wanted to mention

is health and safety. In China, conditions range widely and many

factors contribute to whether or not a factory is in compliance with

health and safety requirements, including location, the level of

local enforcement of safety laws, the resources and devotion of the

factory management to adequate enforcement, the length of time

the factory has been in operation, and management quality and capacity, among others. But health and safety violations of varying

severity are commonplace in China. Major violations are in the

areas of machine safety, fire safety, chemical safety, and the provision and use of personal protection equipment. According to our

findings in year 2002, 40 percent of the factories audited had machine safety violations. In most cases, the machines lacked safety

devices. Toxic chemicals were mislabeled and mishandled in over

30 percent of the factories, though this may be a low estimate.

8

Over half of the factories did not provide, or the workers did not

use, the appropriate personal protection equipment. These are cutand-dried numbers about violations at the factory level that lead

to quite severe problems, injuries, and even death, for workers.

Other issues that we find include child labor, which is generally

not present in export factories, but juvenile labor is quite common.

This is particularly a function of inadequate age verification procedures. Juvenile workers generally do not work in accordance with

the protections that are legally required of juvenile workers, including medical examinations, registration with the government, and

the limitations on work hours. Discrimination is something that we

found reported, particularly against pregnant applicants and pregnant employees, in about 40 percent of the factories that we saw

in 2004. These, then, are some of the standard code of conduct

issues about which we find endemic violations.

Having said that, and having painted this relatively bleak picture, there are positives that have come out of the implementation

of codes of conduct by international brands, and one of them is that

we have access to this picture. In some ways, without the implementation of codes of conduct and of the regular auditing and monitoring that we do as a result of those codes, we would not be able

to know what is going on in Chinese factories. This is something

easy to overlook, and yet important to mention, despite the fact, as

Judy mentioned, and as we as an organization strongly feel, that

most of the factory monitoring that is undertaken is inadequate in

its depth and quality.

Indeed, you can rarely find factories these days that do not expect external audits, particularly those that source for export industries, and they willingly provide, in most cases, some sort of

proof of social compliance; whether or not that proof is reliable and

as thorough as we might like is a different question. Significantly,

there is movement toward the positive in export factories in other

ways. This is particularly apparent if you take a long enough perspective at the issue and look back 10 years, and maybe look forward 10 years.

I participated in Verite ́’s annual China sourcing conference this

summer, where we bring together staff from Chinese factories with

outside experts and NGOs in China. There was something akin to

a kind of pass/fail mania going on among the Chinese factories.

They are very eager for the stamp that will allow them to achieve

the expectations of their international partners. Codes of conduct

are a part of the common parlance among factory management and

ownership of this particular cohort of Chinese society. At our conference this summer, we presented case studies from two additional

factories that have, on their own, in many ways in reaction to

international codes of conduct and the requirements for other

brands, come up with high impact, significant, and innovative social compliance programs that act to the benefit of their workers.

There are a couple of case studies on our Web site, and I can send

those case studies to anyone who is interested in seeing what those

are.

There is increased acceptance of the kind of worker training programs that Verite ́ has undertaken and the kind of factory management training and interaction and collaborative effort that Ruth

9

will talk about, I assume, and that Judy already talked about. So,

these are significant positive signs.

They are, of course, tame in terms of the scale of the actual problems and the number of workplaces in China. Despite that scale

imbalance, these positive developments are still important for the

potential that they represent.

The weaknesses in code implementation—i.e., labor violations—

persist for several reasons. Too often, companies do not look carefully enough or with enough intention for the problems that they

no doubt find, or could find, in their supplier factories. Companies

are likely to ignore, in many cases, their own role in the creation

of these problems. Sourcing practices are arguably an area where

there is a high potential for short-term improvement in social compliance outcomes, as well as a great deal of control exerted by the

companies themselves. Factories are too often an object of the compliance process rather than a partner. This is a limitation of the

overall social compliance model as it exists right now. The project

that Judy mentioned and that Ruth will talk about are examples

to the contrary, but they do not represent the broad condition at

this point. In addition, true compliance is not valued by the market. Strong social compliance performance is infrequently rewarded

and, in fact, strong social compliance performance is often contradicted by the corporate purchasing policies of the brand to which

vendor factories are attempting to supply.

Compliance is, at this point, not compelled by Chinese regulators

due to unclear policies, policy contradictions, as well as a fundamental lack of capacity. Furthermore, a limitation on the impact of

international codes of conduct, when we are looking at China as a

whole, is quite significant. Our look is really through the keyhole

presented by export-oriented sourcing. Our view ignores the vast

number of workplaces in China that operate beyond the reach of

international codes of conduct. For example: those producing for

China’s domestic market or for export to other poor Asian countries

rather than to the West; raw material suppliers down the supply

chain, including tanneries, embroidery workshops, home work

areas, and slaughterhouses for the leather that becomes shoes;

most agricultural workplaces, and workplaces exporting in industries which have yet to implement strong codes and code implementation mechanisms. Code of conduct implementation is an area of

effort that is most well-developed in the apparel and footwear industries.

Last, sourcing that takes place out of Guangdong and Fujian,

where code of conduct monitoring is most active. This is something

that we have begun to work on more effectively because we were

brought there by our international partners, as their sourcing

moves beyond the Guangdong area. In fact, around 40 percent of

the work that we do on a factory audit basis is in inland provinces

and the Yangtze River delta area. This represents a significant

shift away from the areas where management capacity and civil society are more well-developed to be able to deal with the social

compliance problems.

Moving forward, clearly these are problems that we as a group

of concerned citizens, companies, and organizations need to address. The efforts we have collectively undertaken are really minusVerDate 11-MAY-2000 13:09 Feb 21, 2006 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 U:\DOCS\26031.TXT CHINA1 PsN: CHINA1
10

cule in comparison to the level of the problem. To us, this points

toward an obvious set of approaches, namely, that we focus on integrating social compliance performance and labor protections within

Chinese society; that we have to move beyond the small impact of

our programs to larger and sustainable societal impact. In order to

do that, we need to ensure that institutions in China develop and

maintain ownership of meaningful interventions and working conditions in CSR. From our perspective, there are three key groups

to work with.

Obviously, government is a key player and has an obvious role

to play. As David mentioned, I come from a background in the environmental field in China and saw the development of significant

and useful collaborative programs between international organizations and government in environmental protection. I look for the

potential to create such programs in the CSR or the labor arena

as well. Chinese NGOs are a second segment of society that needs

to be engaged by international actors, responsibly and in clear relation to their ability to absorb funding. Again, in reference to the

environmental field where there has been an explosion of the number of NGOs working on environmental issues, I look ahead and

wonder whether there will be a similar explosion of CSR-oriented

Chinese NGOs. Then, of course, Chinese workers and workers’ organizations themselves need to be much more fully integrated into

workplace assessments and the resolution of workplace problems.

Opportunities exist to expand worker training like we have undertaken, worker participation and assessments, like SAI’s pilot

program, and other such programs. We have engaged individuals

in our annual conference from within the All China Federation of

Trade Unions in dialogue, and found that in some cases we have

been able to facilitate a useful dialogue between them and some of

the companies with which we have been working.

So, overall, we see a picture where problems are endemic; where

there is some improvement, which is at this point almost anecdotal

in its scale; and that sustainable solutions need to be developed

that come from Chinese institutions themselves. The role that we

can play best is to help facilitate and develop those sustainable institutions. Thank you.

Mr. DORMAN. Good. Thank you very much. Next, we will hear

from Dr. Ruth Rosenbaum. Dr. Rosenbaum is Executive Director of

the Center for Reflection, Education, and Action, Inc., a socialeconomic research and education organization. Dr. Rosenbaum is

the creator of the Purchasing Power Index, a transcultural measurement of the purchasing power of wages used to determine what

constitutes a sustainable living wage. She is associate professor for

research at the Labor Education Center at the University of Connecticut. She received a bachelor’s degree in biology and chemistry

from Hunter College, master’s degrees in molecular biology from

Hunter College and in theology from Manhattan College, and a

doctorate in social economics and social justice from Boston College.

Dr. Rosenbaum, thank you for joining us again. You have 10

minutes for an opening statement.

11

STATEMENT OF RUTH ROSENBAUM, EXECUTIVE DIRECTOR,

CENTER FOR REFLECTION, EDUCATION, AND ACTION, INC.,

HARTFORD, CT

Ms. ROSENBAUM. Thank you. Every time I listen to that, I think

of what an eclectic background I bring to all of this.

Sometimes when I hear my colleagues speak about China, I recall that we do a lot of work in a lot of other parts of the world

also, and it seems to me that what we are describing in China, I

also could be describing in El Salvador, Guatemala, or Kenya. I

could be describing so many places around the world. So I think

we need to keep that in mind, that the enormity, just the size of

China, makes it seem like it is the center of many things or that

the problems there are different. But honestly, when I look at the

work we are doing in other countries, the parallels, to me, are simply overwhelming.

I think we are at a particular time in China where we are beginning to see a few things that are changing. Number one, we are

hearing from factories that there is regional competition for workers, that there is a worker shortage. If you think back 10 years ago

when we talked about the labor supply in China being unlimited,

the fact that factories are now talking about a labor shortage and

therefore are seen holding onto workers that are trained so that

they can have an adequate work supply, that this is something

that might give us a handle to address some of the issues that my

colleagues have talked about.

In some parts of China, especially in the Pearl River Delta, we

are certainly hearing about the problem of energy availability. The

last few times that I was in China working on the project that I

am going to describe, there was not a factory that does not have

at least one day without electricity. So, the fact that electricity or

energy availability is being limited, and that this is an extra cost

in terms of having to purchase generators to be able to run their

factories, when you have a factory of 20,000 workers, I cannot even

imagine what kind of generators we are talking about in a situation like that.

The other thing that has been very obvious to me, since my first

world really is molecular biology, is the increased rates of pollution

that we are finding, and also the exhaustion of the ground water

supply in some areas where the factories have been located, and

how this is going to play out in terms of factories being able to continue to work in certain areas. We really do not know. But these

are certainly situations that are there.

The three of us have been at the annual conference of Business

for Social Responsibility [BSR], and in listening to speaker after

speaker after speaker for the past couple of days, and a lot of the

meetings that we have had, everybody keeps talking about corporate social responsibility. I keep wanting to raise the question,

why are we doing any of that? What is the purpose of it?

So I am going to tell you up front that for CREA, which is what

we call our organization instead of our long name, corporate social

responsibility is bringing about change to benefit workers, and in

turn benefit their families and the communities from which they

come and in which they live, and it does not make any difference

whether that is in China or other places.

12

So it is not just for the good name of the corporation and it is

not for the amorphous good that is out there, but we want to be

able to see tangible, positive change in the lives of the workers and

the communities. We believe that, in that happening, that we are

going to see positive change within the factories.

What I would like to share with you today is just some information about a project that we have been privileged to be involved in.

It is called Project Kaleidoscope, or Project K, for short. It is a cooperative, collaborative project that has involved 10 factories, two

brands, socially responsible investors from the faith-based community, the investment community, the Connecticut State government

or the Connecticut State treasurer’s office, research and NGO organizations that are also SRI investors, NGOs in China, and academia. That is academics in China, and I guess you could talk

about myself as an academic, even though that is really not the

way I would describe myself. This project involves factories that

produce toys, both plastic and plush, apparel factories, and footwear factories. So, we have quite a spectrum of involvement.

What makes this project different? There are a number of components that make the project different. Number one, we are looking

at management as partners in corporate social responsibility rather

than the object of CSR. I think that this has brought about a mindset change in the minds and ways that the management within the

factories have received what we have proposed and what we have

done. In the past, in audit systems—and again, it does not make

any difference whether it is in China or in other places—you have

outside auditors coming in to check on the factories. It is what we

call, in shorthand, the ‘‘gotcha’’ approach. ‘‘Gotcha.’’ We caught you

at A, B, C, D, whatever it is. Now, if you think back to your own

experiences when you were a child and you went to school, like in

grammar school, and you had to take a test, and you were hoping

that the questions were going to be about the things that you

knew, and the teacher was not going to ask the things that you

didn’t know, the things you were unsure of, and when you got the

test back, what you had on it most of the time were things that

were marked wrong. Am I correct? Is that not the way you all experienced your tests?

What we are trying to do, instead of only focusing on the things

that are wrong, we are trying to focus on the things that are right

and helping them to grow. So to give back an exam that would

have the things marked right, and then ask how do you increase

that, rather than only the things that are wrong. It is a change in

respect or a change in the way we have been showing our respect

for what factory managers, factory workers, and so on have been

trying to do. In this new program, this Project Kaleidoscope, as we

call it, we are trying to help everybody see things in a new way.

I have two things that I use to illustrate this point. I usually have

them with me, and I do not now, I am sorry. One is like a tubular,

multi-lensed thing. It is like a cone shape and has a multi-lens at

the end. If you look through that, you see the exact same thing

over and over and over again. It is almost like an insect’s eye. That

is different from a kaleidoscope, in which you have a set of pieces

inside a tube, but as you rotate them you see something different.

That is essentially what we are trying to do with management,

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with workers, with supervisors within the factory, that is to say,

when you look at what is going on here, how do you look at it, and

look at it in a different way.

The new program, Project Kaleidoscope, has asked the factory

management, working with their supervisors and worker representatives, to design systems in the factory. The purpose of these

systems—and this is my shorthand, not the project shorthand—is

to find things that need to be fixed, to fix them, and then to learn

from that and prevent them from happening again. So my three

key words in the project are: find, fix, and prevent.

And they can tell us about what they found, tell us how they

fixed it, and to tell us the systems that they have set in place to

prevent these things in the future. It is very different from having

outside auditors coming in and saying, ‘‘We have found it, now you

have to go fix it, and, well, prevention will just be, did we find it

again the next time? ’’ In this process or in this new way of looking

at things, the factory has become a partner in this ‘‘find, fix, and

prevent’’ process. It is a systems-based approach in which we have

asked the factories to take a look at anything that might go wrong,

try to prevent it, but to help everybody understand how they participate in this effort.

Everybody in the factory has been involved—workers, line managers, supervisors, senior management. On all levels, we have had

to do education, we have had to do training, and especially we have

had to do capacity building. The capacity building has been necessary on every single level. It is one thing to know something, it

is another thing to be able to make it operational. What we have

emphasized is that everybody has the responsibility and everybody

has the ‘‘response-ability,’’ the ability to respond when something

happens, and that to respond when something happens is a positive rather than saying, ‘‘I do not want to get involved, I am going

to hide and not be part of whatever this problem is.’’ We have tried

to work with the factories to develop internal systems that are particular to the factory. The smallest factory has about 370 workers,

the largest factory is almost 20,000 workers. Only part of that

20,000 produce for the brand that is involved in the project.

But the biggest issue for us has been capacity building at all

these levels. One of the training programs that we have used has

helped to create communication between the different levels within

the factory.

A lot of it has had to do with answering the question, ‘‘How do

we do this with an atmosphere or with behavior that is respectful

of the efforts that have gone on beforehand? ’’ And, so just to tell

you a story: I was walking around in one of the largest factories

in the project with the factory manager, and we just happened to

be talking to each other. And we got to one floor of the factory and

I said to him, ‘‘Is this not curious? ’’ I said, ‘‘All of these lines in

this part of the factory are set up for production, but when we get

over there everything is set up in clusters.’’ I said, ‘‘Gee, do you

have any idea why the clusters are there? ’’ He said, ‘‘Oh, I will go

fix them.’’ I said, ‘‘Wait. Why do we not find out why it happened? ’’

Well, it turned out that the workers had created the clusters slowly, over time, because handing down what they were working on,

handing things down the production line, was not as efficient for

14

them as being able to hand it to the side, so what they had done

is created a square, and they were just able to pass it around in

the square and then hand it on when they were done. So, that was

the first thing.

Then we were walking around. And again, because my background is in molecular biology, every time I go by an exhaust system I put my hand underneath to see if it is on, having been in

numerous factories where you have these huge systems and there

is no vacuum or no suction. So I stuck my hand underneath and

I said to the manager, ‘‘Where does it vent? Outside? ’’ He looked

at me and he said, ‘‘I do not know.’’ We walked the entire factory

as he was showing me around—and there were many floors, like

seven or eight floors to this—and we followed the vent system. It

was like this big adventure. We followed the vent system. He said

to me, ‘‘I do not even know if it has a filter on the outside.’’ So we

looked. We got outside, and sure enough, there was a filter on the

outside and it was clean. It was relatively clean. I said, ‘‘Whose job

is it to keep it clean or to change the filter when it is dirty? ’’ He

said, ‘‘I do not know.’’ This was wonderful. Everything was good.

It was the way it was supposed to be. But who was responsible for

keeping it that way? Was it chance? Was it just chance that it happened to be clean that day?

By the time we went back the second time, he knew who was responsible, and also if that person was not there or if that team of

people were not there, who was going to be responsible to train

somebody else to change the filter, and to dispose of the dirty filter.

They do not really dispose of them, they clean them. The point

being that sometimes there are good things happening there and

they do not really know how it is happening or why it is happening.

The manager said to me afterward, ‘‘You are a very good teacher.’’ And I am not telling you this story because of what he said

to me. I said, ‘‘What do you mean? ’’ He said, ‘‘I did not feel embarrassed by any of the questions you were asking me.’’ For me, that

was a huge learning experience. In the audits, they are embarrassed. They feel awkward, they feel embarrassed, they feel on the

spot.

Now, our process for this Project K is as rigorous as traditional

auditing. It goes into absolutely every aspect of everything that

goes on, not only in the factory itself, but in the dormitories, in the

cafeteria, et cetera. But the embarrassment piece is gone because

we are asking them to figure out the things that need to be fixed,

and to do that with getting feedback from their workers. With participation in this new approach, we have already seen a change in

the factories. Rather than being concerned about what an audit

may find, the internal self-correcting systems that they have designed address these concerns and so they are happy to tell us

about them. There are some consistent problems that remain. Excessive overtime and working hours, we consistently find this, and

then I would say the whole question of wage levels. But I would

like to suggest, and to build on what my colleagues spoke about,

that excessive overtime and the extension of working hours is not

always the responsibility of the factory itself, but many times has

15

to do with the sourcing practices of the many brands that are in

the factories.

The example I used when we presented this yesterday at the

BSR conference is: I am at an NGO and I get a call on Thursday

just as I am closing down for the day. I am the Executive Director,

and somebody says, ‘‘Ruth, we need this report on Monday morning.’’ I know that that means Thursday night, Friday, Friday night,

and probably Saturday and Sunday, I am going to have to work on

this report. That is excessive overtime, folks. It happens to everybody who is sitting in this room, I would be willing to bet. Why?

Part of it has to do with planning. The other part of it has to do

with the sourcing practices and brands and nobody wanting to assume the risk of having supply on hand. So they have pushed it

down with just-in-time production and lean manufacturing and so

on, so it is the factory that has to assume all that risk. The factory

does not want to assume the risk of overproduction either, so what

do they do? They wait to see whether they have the orders. So,

somehow within all of this we have to come up with some way of

addressing this part of the problem.

The piece that continues to be of concern to me, and this is because of the work we do really around the world, is the sustainable

living wage. The wage levels in Chinese factories need to go up.

The fact that there are many workers that are willing to work at

those wage levels is not the same thing as saying that those wages

really provide enough purchasing power for the workers to have a

dignified standard of living.

As we are seeing the deconstruction of the hukou system and as

we are seeing more and more workers not return to their villages

and stay within the towns and cities where the factories are located, those workers are going to want to be able to get married

and to be able to support their families, to have children, send

their children to school, et cetera. I cannot imagine that those

things are going to take place without the demand for wages to go

up, so I think that this is something that we are going to see in

the future.

The last thing I would say is that with the educational materials

that the factories have developed, some of the factories, when we

were there in June, had big charts on the self-auditing they had

done and the things they had found. They were big charts. They

are posted for all the workers to see, for everybody to see. The

workers will stand there and they will translate them for us. Anyway, they were able to show us what the progress is, what it is

that they are trying to do to improve. We now hear factory management saying, ‘‘We want to be a code of conduct [COC] factory.’’

This, to me, says that in some way, shape, or form, we have gotten

the message across. What it is going to take to fully implement all

of that? Of course, that is going to take time. But I do think that

there are changes that we are beginning to see that give me hope.

I wish that when I was in other parts of the world there would be

the same response. I am still waiting to go into my first factory in

Central America where a factory manager says, ‘‘Gee, we want to

be a COC factory.’’ Right, Judy? Have you ever heard it? I have not

heard it either.

So, thank you very much.

16

Mr. DORMAN. Good. Very important and very interesting statements. So, we will move into the question and answer phase. But,

first, I would like to check with the audience. Can everybody hear

us in the back? Are we doing all right, speaking loud enough?

Good. I will start with a question for each of you and then we will

move down the dais to other staff that will have questions.

Judy, in your statement, you said that the Chinese Government

is running an examination of standards right now, and part of the

outcome of this examination has been decreasing interest in applying for such standards. Did I understand you correctly?

Ms. GEARHART. Yes.

Mr. DORMAN. Do you believe that this policy originates with the

central government, and this review is driven by the central government? That is the first part of my question.

The second part is whether or not it is your sense that this decreased interest, or the decreasing numbers of applications, is an

intended outcome of this policy or an unintended outcome?

Ms. GEARHART. The organization that is looking at certifications

in the process is the CNCA, which is the government agency overseeing accreditation activity in the country. As I mentioned in my

remarks, there appear to be varying views within the different government organizations, and the whole concept of corporate social

responsibility is still very much being defined by how people are

viewing it, and I think people are changing their views as we

speak, so it is in flux.

Whether or not the consequences will be limiting in the long

term is unclear, but it seems that has been the effect up to now.

I do not have a determined conclusion yet whether it is intended

or unintended.

We are in conversations with them. So far, I think that is positive, that we are talking with them directly and we are looking at

how to understand each other better. But it is something to watch,

is all I would say.

Mr. DORMAN. Mr. Viederman, Dr. Rosenbaum, any comments on

that? I have an additional question, but I thought you may have

something to add.

Mr. VIEDERMAN. I think, clearly, there is a lot of debate going on

in China, as elsewhere, about what role certification plays. In

China, there is an added political component to this debate, and

certainly it seems to us that there is an effort to create a ‘‘certification with Chinese characteristics,’’ some sort of domestically

more acceptable model. I think it is unclear at this point, bureaucratically, how much broad sway that this certification effort has.

Then again, it is clearly an indication on the part of some segment of the government that CSR is something to be endorsed in

one way, shape, or form. We could quarrel about the specific certification standard, but the fact that it is clearly stated as a topic that

is up for discussion is, as Judy says, worth paying attention to.

Mr. DORMAN. Good.

Ms. ROSENBAUM. I agree with what my colleagues have said. The

only thing I would add is I think part of it has to do with national

pride, instead of having CSR being imposed from the outside, an

effort to make it something that is owned within China and to

come up with a Chinese standard of doing it, which, if we can get

17

the standard to match the kinds of standards that are already out

there, would raise the standard.

Mr. DORMAN. Mr. Viederman and Dr. Rosenbaum, in terms of

the auditing process, can you give us a sense of the level of interest

by local governments, and by local trade unions. Are they interested in what you are doing, the outcome? Are they helpful?

Ms. ROSENBAUM. Well, I know that before we started Project K,

the brands were in dialogue with the government on a whole variety of levels to make sure that we had buy-in from them, that there

was not going to be any negative repercussions and so on. But that

is pretty much it. We have not heard anything else since then.

Mr. VIEDERMAN. The formal auditing that we do tends to happen

without any significant involvement from government agencies.

Clearly they are aware of it, as a significant manifestation of international interest in Chinese factories, and there are members of

the bureaucracy, or ex-members of the Chinese labor bureaucracy

who have begun to participate in one way, shape, or form in factory

assessments, or as consultants, and in helping to improve factory

conditions. So there is a sort of an informal interaction, but from

our perspective there has not been either a real formal endorsement of, or interaction with, the audit process that we have undertaken.

Mr. DORMAN. Good. Well, thank you.

Ms. ROSENBAUM. Just one other thing. One of the things we have

insisted on as part of this project is that every factory that is involved has an active worker committee, and not just a worker committee, but an active worker committee, and that membership in

the worker committee is something that workers have the option

to join if they want to join it. So the whole idea of worker representatives, or for the workers, having the idea that they have the

right to have somebody represent them, is something that we are

really trying to grow within the factory. So far, it seems to be progressing. That is probably the best way to describe it.

Mr. DORMAN. Thank you.

I am going to turn my questioning over to my colleague, John

Foarde, who is Staff Director on the Commission for our Co-Chairman, Representative Jim Leach.

John.

Mr. FOARDE. Thank you, Dave.

First of all, thanks to all three of you for being here this afternoon and taking time out from the conference to come over and

share your views with us. Dan and Ruth have been panelists before

at CECC roundtables, so welcome back. Judy, this is your first

time, and I hope not your last.

I would like to pick up on the theme that Dave was questioning

you about just a moment ago, but turn it around a little bit and

ask you for your views on what it would take, from the central government level, to push along, and what sort of changes would it

take, to make CSR and perhaps SA8000 as a standard, and sustainable wage and environmental standards, really work in China,

not only in the export sectors that most of you are working in, but

also in the internal sector? What sort of policy changes, what sort

of attitude changes, and what is the likelihood of that happening?

18

Mr. VIEDERMAN. I think the one area of clear need is increased

capacity, and I would say increased expertise on the part of the

people who are tasked with doing factory inspections for the government. There is just a fundamental lack of capacity, a bureaucratic gap in their ability to achieve the relatively high standards

that are written into Chinese law.

One significant intervention would be to make a commitment at

a national level, and at a local level as well, that such capacity

gaps should be filled. There also are clarifications that are needed

of the law itself and the regulations that implement the law that

would be beneficial to international companies sourcing in China in

their interaction with Chinese factories, particularly in the newer

manifestations of the Chinese Labor Law, the newer pieces on benefits, and in the area of overtime. So I see a clear need there, and

a role for those of us on the outside to play in bringing that expertise and that capacity to facilitate improved implementation of the

law.

As for what kind of attitude change needs to happen, I find it

significant that there is an official Chinese standard, in the sense

that it is an attitude change. The bureaucratic commitment is

there; and whether or not it becomes reality, at least it is something for people to organize around. I think that it is a significant

statement there that we can make use of. But the attitude change

is a relatively bigger piece, I think, even than the capacity change.

Ms. ROSENBAUM. The other thing that we also hear from factories is that they would like to see some sort of—what is the word

I want—they would like to see the laws on the local level and on

the national level at least match.

Mr. FOARDE. Harmonization?

Ms. ROSENBAUM. Harmonization. That is a very good word.

Thank you. They would like to see these laws harmonized. Because

it is like, if you do one then you are not going to be in compliance

with the other, and so on. So, part of it is the notion that you do

not have to be in compliance with either one, so the whole idea of

standardizing or harmonizing the laws and regulations so that it

is possible to come up with some kind of unified set of standards,

this step would really be helpful. Then I echo what Dan said about

the capacity of enforcement.

Mr. FOARDE. Along those same lines, do you get the sense from

the types of discussions that you are having that people are looking

for a commitment, a public commitment on the part of central government authorities, perhaps from the political leadership at the

very top, to this sort of thing because they are not sure whether

or not it might be accepted?

Ms. ROSENBAUM. I do not know. I have not heard that as much

as, you kind of hear that CSR is something that the government

is pushing. But to say it is has come down as a mandate, that you

have to do it, I have not heard it that strongly yet. But you do get

the feeling that it is out there and everybody knows that it is out

there. That certainly has been a change, I think, in the past two

years.

Mr. FOARDE. Thank you.

Ms. GEARHART. There were several conferences canceled earlier

this year, so I think there are some concerns as to how much the

19

discussion around corporate social responsibility can move forward

easily. So to speak to your first question, my two main recommendations are going back to encouraging the national corporate social responsibility dialogue and discussion and looking at

how to make that more organic to China and, as Dan mentioned,

looking at not just the export industries, but the other industries,

the growing Chinese domestic companies and how they are looking

at these issues.

The other point I would make is that it is important to clarify

the complementarity between voluntary mechanisms, codes of conduct or other voluntary initiatives, and government regulations. I

think that international actors should seek to clarify that CSR and

voluntary codes of conduct are not a substitute for government

regulation. The voluntary initiatives are really a reinforcement of

support, a tool, really, for employers and factory managers to move

forward and understand. I think for many of us, the management

systems element is a core component that Ruth talked about, and

it is one of the core requirements of the SA8000 standard. We are

not just talking about a checklist approach to improving labor conditions, but really about improving how businesses are run and the

sustainability of businesses, and the long-term vision of those businesses.

Ms. ROSENBAUM. The last time I was here before the Commission

staff, one of the things I said, just to build on what Judy said, one

of the questions that I raised, was how appropriate it is or inappropriate it is to have corporations creating an environmental standard or creating labor standards? I offered the view that this is really

the role of government acting on behalf of its citizens. I would say

that that still is the major question. It is part of what I think you

are asking in terms of what the role of the Chinese Government

should be. I think that it should be the organization or the entity

that says, ‘‘This is what the standard should be.’’ Our hope is that

they would be as high, if not higher, than the kinds of standards

we have had in CSR and that they would apply, as you were saying, across the board both for Chinese production for China and for

production for export. But that is really their responsibility.

Mr. FOARDE. Thank you. Very useful.

Mr. DORMAN. Good. Thank you, John. Next, I would like to recognize Mr. Chris Mitchell, who is Legislative Director for Representative Mike Honda, a CECC Member.

Mr. MITCHELL. Thanks. Ms. Gearhart and Dr. Rosenbaum, I

think you hit on what I was going to ask you to elaborate on, and

that is, just in general, management and practices. It seems like

improvements in corporate social responsibility are so linked to better management practices. So that leads to the question, how well

are some of these NGOs that look at corporate responsibility working with other organizations that focus on management practices

that have experience working with local Chinese companies?

Ms. GEARHART. I think that local NGOs in China are going

through growing pains or a learning curve, if you will. Most of

them are very new. Even the kind of institutional infrastructure

that it takes to run an organization, train and maintain staff, etc.

takes time to build; so things are in flux on that level.

20

In March, we held an informal discussion with several of the organizations that are doing manager training or worker-manager

training. Many of these are locally based NGOs. In those discussions, I found that the consensus among the group, for example, is

that, yes, worker training is important, but manager training is

equally as important, as I mentioned in my remarks. Even if managers are trying sincerely to implement a CSR management program and respect workers’ rights, it is something they have not

dealt with before. As we said, you see that the world over. I mean,

people do not usually study these issues when they set out to be

factory managers.

So I would say that I found the NGOs to be quite aware and

thinking about how to relate to managers. As for what their experience levels are, I think everybody is looking at how to do this work

in new and innovative ways, and sometimes you find management

consultants that have the longest running experience of training

managers and they are not necessarily the ones that are going to

be the most effective trainers on social issues. They can be very effective, but sometimes the NGOs bring in a new, fresh perspective.

The ideal is to have a multi-disciplinary team.

Mr. MITCHELL. Yes.

Ms. ROSENBAUM. Our experience has been that when you have

a team that is working with management, with the rest of the factory, then you have this spectrum of abilities, and a spectrum of

experiences. It is part of what we have had in Project K. There is

a group of people working together and none of us has all the experience that is needed, but different people have had it. At the same

time as we have been working together, we have each then been

gaining experience from the expertise of the others in the group.

So we will be able to multiply that, both here in the United States

in terms of working with brands, and the groups that are in China,

the expertise they have been sharing with us, and vice versa. The

number of groups, the number of organizations, the number of people with expertise that are needed to really do this, I would say we

are a drop in the ocean right now, to be honest with you. It is long,

hard work.

Mr. MITCHELL. With respect to some of the practices by U.S.

companies that may lead to excessive overtime and some of these

other issues that we are concerned about, to what degree have U.S.

companies started to alter their purchasing policies, either as part

of this Project Kaleidoscope or any other effort?

Mr. VIEDERMAN. I think it is in the very early stages. I think it

is one of the newer topics in the discussion, particularly around

overseas labor standards. I think a few companies are explicitly

identifying, in public reports, that this is an issue that they recognize is a contribution on their part to the difficult and persistent

problems at the factory level. There is certainly dialogue going on

about best practices or better practices, and it is not something

that has achieved either widespread acceptability among U.S. or

European companies or brands, though it is certainly a part of the

dialogue that factories have with the brands.

In fact, Verite ́ did a study on the problem of overtime a couple

of years ago, looking at brand practice, looking at worker perception, looking at manager perception. The leading response from

21

managers was that they wanted better communication with the

brands to whom they were selling. So, they certainly see that it is

an issue that needs to be addressed, and I think the brands here

are beginning—in some cases, not all—to understand that and to

reflect it .

Ms. ROSENBAUM. Yes. It is just the very beginning stages. I

would echo what Dan is saying. What we have the managers pleading for is to level the load, because that allows them to have a

workforce that they can maintain and to keep those workers busy,

to employ them at full capacity, and yet not have to do the excessive overtime. And how the brands are going to do that, both in Europe and in the United States, that is still a work in progress, shall

we say. But at least some are beginning to hear it.

Ms. GEARHART. I think it is a collective action problem because

this has been an issue raised for us. We had a conference in China

in 2001 and some of the brands that were there spoke up and

opened the door for this to become a discussion. We never had a

chattier conference in China before that, but the suppliers really

wanted to talk about this issue.

However, some of the brands we work with that have tried to

change the timing of their orders or the way they are doing their

orders to address this issue, report that most factories turn around

and take orders from other brands. So, unless there is a systemwide change—and I think Ruth’s mentioning of the just-in-time

practices is part of it, it will be difficult to sustain change. I mean,

it used to be something, 10 years ago, everybody was complaining

about. Now it has sort of dropped out of the common discussion.

How do you bring the brands together in order to address this?

I think one positive step forward, besides the fact that this is a

relatively hot topic now in these discussions, that it is going along

with a moment when major brands are beginning to publish their

supplier lists and they are beginning to share information about

factories. That sharing of information about the social compliance

of factories and the supplier lists, and everything, is, I think, another important part to bringing these problems toward a collective

action solution; that could help change how these orders happen.

Ms. ROSENBAUM. I guess I really hope that you are right, Judy.

I just know, when the FLA and the Worker’s Rights Consortium

[WRC] were formed, one of the things we did at CREA was assemble this enormous data base with all the factories, all the universities that were either in the WRC or the FLA. It was all the

factories or anything that they had at their university level on it

where they produced. So we were able to—we still are able—to look

in a country and say these are all the universities that produce

there, therefore, these are all the brands that are in there. We offered that information to anybody who wanted it and we could not

get anybody—anybody—to use it in terms of any kind of cooperative sourcing.

So it is my hope that now that this problem has been around

long enough, that maybe—we may have to just wait until something hits the moment to address it—it is going to begin to come

up again, but it is still a problem that is on the table. And I am

not sure it is solvable at the factory level. I really think it has to

be solved in terms of order placement. I said this yesterday at the

22

conference when I spoke. It was not the most popular thing I have

ever said to a group of brands. There was dead silence in the room

when I said it.

Mr. DORMAN. Good. Thank you. I would like to turn the questioning over to Dr. Kate Kaup, who is a Special Advisor on the

Commission staff.

Kate.

Ms. KAUP. Thank you very much. I would like to ask Dan a question and then I have a related question for all of the witnesses.

Dan, you mentioned that in Verite ́’s audits you found a good deal

of discrimination against pregnant women. Did you also find discrimination against ethnic minorities?

And for all of our witnesses, will you please tell us if most of

your work is conducted primarily in the east coast or do you also

focus on western areas? Do you conduct any work in Xinjiang? You

mentioned that 40 percent of your work is conducted in the

interior. Could you please clarify what you consider to be the ‘‘interior? ’’

Mr. VIEDERMAN. Not the very interior yet. Coastal interior. Ethnic discrimination is not a problem that has come up as a priority

finding, especially in southern Chinese factories. When we say ‘‘interior,’’ we are talking more about upriver from Shanghai on the

Yangtze River. So, Anhui, certainly to Jiangsu, Jiangxi, but not

much farther west than that at this point.

Ms. KAUP. Is that a result of having trouble getting proper approval to go out west or just of having your hands full on the east

coast?

Mr. VIEDERMAN. I think it is a question, because we will go in

when brands ask us to go essentially in response to where they are

sourcing. They are still sourcing closer to the coast, probably purely

for transportation and logistical reasons.

I was having a conversation with someone the other day who described factories eager to take advantage of wage differentials between coastal areas and inland, poorer areas, you know, even on

the order of a few hours’ drive. I think it is only a matter of time

until sourcing increasingly pushes inland simply because the transport networks are improving.

Ms. ROSENBAUM. Just to make you laugh, the only discriminatory issue that came up had to do with food that was appropriate

to where the workers came from. In one factory, this was a very

big issue, whether it would be spicy or not spicy. The factory solved

it by having two types of food available.

But aside from the pregnancy issue which is there, or has been

there at different times, not so much in this project because it is

addressed directly in the project, well, that really is the only issue

that has shown up. We have not seen anything in terms of ethnic

minorities at all.

Ms. GEARHART. And how far out were you?

Ms. ROSENBAUM. Not very far at all. Again, the same answer as

Dan. The brands are facilitating access for these programs at the

moment. But there has been some interest in other areas.

We cover more than apparel and footwear, so to the extent that

the agriculture production sector starts to look at standards,

SA8000 would be a tool that could be used, but it has not really

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happened yet. We are talking to some brands that are looking at

the whole supply chain down to the cotton production, so that may

be on the horizon.

Ms. KAUP. May I ask a couple more questions?

Mr. DORMAN. Yes.

Ms. KAUP. It is not really a follow-up question. Dan, you mentioned domestic Chinese NGOs and their involvement with CSR.

Could you please discuss the challenges that Chinese NGOs face

compared to those faced by international NGOs?

Mr. VIEDERMAN. Sure. Domestic Chinese NGOs face a very uncertain—what is the right phrase—legal environment in which

they can exist. International NGOs, for that matter, do as well, but

it is obviously of less risk to international NGOs than it is for Chinese NGOs. Certainly those NGOs that are working on labor issues

particularly can run into conflict with institutions that want to promote economic growth, or entrenched economic interests within

particular factory groups.

My experience has been that NGOs in China are still generally

in the personality phase of organizational development, so there is

not sort of a strong, institutional understanding or societal understanding of what role an NGO plays and how it differs from other

institutions. Therefore, it is rare to find people who can effectively

manage the difficult institutional environment that NGOs face in

China. That difficult environment limits the number of people who

can effectively work within NGOs, and a limitation on increasing

their professionalism. Not to say that there are not some striking

examples, because there are, but it is not certainly a widespread

phenomenon at this point. It is really in some ways a systemic

challenge for the organizations themselves.

Mr. DORMAN. I should have mentioned that Dr. Kaup is our Special Advisor on Ethnic and Minority Affairs, but you might have

guessed that by her questions.

Mr. VIEDERMAN. I figured that out. [Laughter.]

Ms. KAUP. That is helpful. Thank you.

Mr. DORMAN. Next, I would like to introduce Adam Bobrow, who

is a Senior Counsel for Commercial Rule of Law on the Commission

staff.

Mr. BOBROW. Thank you to all the members of the panel for

being here. I have two things which are totally unrelated, but one

picks up on what Chris Mitchell asked. Are there any efforts, are

there any thoughts, about working with what the companies would

call the demand side? It seems as though the brands have an interest and they attempt to market some advantage that they have because, let us say, outside of the China context, the advantages that

are created by having a product that is produced in a responsible

manner. But actually, if it were inside China, it seems to me that

you would need to develop a consumer desire for products produced

that create a sustainable wage or that are done in a way that does

not impact workers in a strongly negative way. So is there any

move toward consumer education or public education on the issues

of sustainable wage?

Ms. ROSENBAUM. In the United States or in China?

Mr. BOBROW. In China. I mean, is there any support for that?

24

Ms. ROSENBAUM. We have been contacted by a few folks who are

connected to organizations—that is all I can say about them—

where the whole idea of doing some kind of sustainable living wage

study—in fact, in two instances, we have even trained people on

how to do it. But it has really been deemed too dangerous to do

right now. So in terms of the wage issue, it is a very difficult landscape, but that is not just in China, that is true in a variety of

places.

I think the first question would be getting people to be paid the

legal wages to which they are entitled, both for regular time and

for overtime. So then what a sustainable living wage would be,

would be some place above that. I do not know. I have not heard

of anything except from NGOs or people who are teaching in the

university who are teaching about some of these things, but not the

same kind of consumer demand or questions that are being raised

throughout the United States. I have not heard anything like that.

I do not know.

Mr. VIEDERMAN. I would say it is only a matter of time. There

is certainly no institutional structure yet that seems to be pushing

those sorts of issues in a formal way. But just as there is sort of

a noticeable, if small, demand for so-called ‘‘green food,’’ or organically certified food, according to Chinese organic standards as well

as other environmentally sensitive products, and there are brands

that have developed in China around that marketing angle, much

as there are brands elsewhere. It is probably only a matter of time

until someone tries to exploit that market purely from a commercial side. But I am not aware of it happening yet, in the sense that

someone is marketing a domestically branded sweatshop-free garment.

Ms. ROSENBAUM. I think the question is how dangerous would it

be for somebody to try to do that. The word that came back to us

in terms of the wage issue, was that it would be dangerous to try

begin that kind of a public conversation. That was just a couple of

months ago.

Ms. GEARHART. Last year there were some legal shifts that make

it easier for retailers to open up shop in China, so you will see

more Wal-Marts and more Carrefours, and more of these international branded retailers in China. The retailers interact with the

consumer market very differently than the international brands,

which are mostly going there to export. Also, the auto industry, I

think, is another place to look.

The industries that are really looking at the Chinese consumer

market are the industries that need to be brought into the efforts

to promote CSR. I mean, this whole CSR debate, if you go to the

BSR conference that we are all here for, you do not just see apparel

and footwear. It is a broader discussion. So how do you bring those

groups together to then talk within China? Hopefully, the Global

Compact conference in December will spark some of that.

Mr. DORMAN. I would like to turn the questioning over to Pat

Dyson, who is Senior Counsel for Labor Affairs on the Commission

staff.

Pat.

25

Ms. DYSON. First, I want to thank you very much. I called most

of you to ask you to come, and thanks for coming. It is very enlightening for all of us.

I wanted to ask Dan and Ruth: how much do you think workers

know about their own rights before you come to train them and

give them some idea? Do they know that they should have overtime

pay? Do they know what overtime is? Do they know what the minimum wage is that they should be getting when you go into a community?

Mr. VIEDERMAN. In a word, no. Not much.

Ms. ROSENBAUM. Yes, I agree. No, not much.

Mr. VIEDERMAN. And, in fact, one of the findings that we frequently see in our factory audits is that information is not shared

with workers, as most brand codes require it to be. So there is little

transparency internally in the workplace, not to mention the complication of figuring out whether someone is working on a piece

rate or whether the overtime is paid on the piece rate. I cannot

even figure it out and I have looked at lots of these documents. It

is very complex.

Ms. DYSON. So I assume there is no poster like we have in our

workplace here saying what the minimum wage is.

Ms. ROSENBAUM. Now there is, with this project. In some of the

factories I have been in, I also have seen the posters. But in terms

of how to figure it out, one of the things that a number of the factories that are part of this project have done is to set up computer

systems to which the workers have access. They can put in their

name, they can put in the number of hours that they have worked

for that pay period, and it says right in there how much of it is

regular time, how much of it is overtime, how close they are to

meeting their piece rate that they have to meet. The workers can

stand there. Obviously, somebody is translating for me. I mean,

Dan speaks Chinese, I do not. They can just go through and just

tell you how the whole thing works. So, the education that has

been done is really to help the workers understand all of this.

One of the systems that we have really insisted on be set up in

the factories, when a worker has a question about his or her paycheck, who do they go to? We teach them how to ask the appropriate questions; not, there is a problem with my paycheck, but I

see this, I see this, or whatever kind of thing. So, to help them to

be able to verbalize that is something we have worked very hard

on doing.

Ms. GEARHART. Through the worker training project that we

have been doing, I think the workers have learned very quickly, to

the point where I think they have brought ideas to the table. So,

for example, one worker committee that actually addressed wage

levels and overtime rates.

One of the complicated things that we have heard before from

auditors or from compliance officers at different brands, is that it

is difficult to calculate overtime premiums because of the piece

rate; so how do you figure that out without creating too much extra

work for the payroll department? From the reports we have gotten

from the factories, the workers on the worker committee had ways

to look at that and figure out a system. How they define it and how

26

they look at it may not be in the same language we would use, but

I think they are very aware.

Also, of course, education levels have varied depending on the

factories we are in. We find workforces that have very different average education levels. But that does not seem to necessarily determine how quickly they are able to uptake and understand the

issues. It just may determine how quickly and strongly they want

to move forward on addressing the issues.

Ms. ROSENBAUM. One of the things you have done, too—I have

done this in the past with the factory managers—is to say to them,

‘‘How do you figure out the piece rate in terms of overtime? I want

to see exactly how you do it. What are the formulas you use? ’’ If

the answer is, like, ‘‘Well, you know, we really do not have a formula,’’ we ask, ’’Well, how do you do it then? Is it a spinning wheel

and you throw a dart? I mean, what is it that you use? ’’ The more

you pin them down and the more you ask them exactly how do they

do it, then that is something that can be transferred to the workers. So it is difficult. The whole relationship of piece rate and overtime is difficult, but they have to have a formula to do it. Then

there is the question of, does the formula comply with the Labor

Law, but first you have to know exactly what method they are

using and to really push them until you get it.

Ms. GEARHART. One thing I wanted to add. One of the impacts

we have seen from the worker committee process and worker/manager dialogue, is that some of the workers reported that they now

see themselves differently. I am certainly not a Chinese linguist,

but the language change for them is apparently significant; going

from considering themselves migrant workers to workers is a status jump up within their context and thus has been important for

them. They have reported feeling that now that they have gotten

this dialogue and this participation, that they now feel like workers, which is a positive point and necessary to helping them to

claim their rights.

Ms. ROSENBAUM. Another thing we have done with managers, is

to say, ‘‘Do you look at your workers as a cost or do you look at

them as an asset? Because without your workers you cannot

produce.’’ Just raising the question has been startling in some of

the factories. They said, ‘‘We only look at them as a cost, almost

like a piece of machinery.’’ If you look at them as an asset that enables you to grow your business and to operate in a responsible, ontime way, then you are going to look at your workers in a totally

different manner. So, just those kinds of wording things, just the

way we asked the questions, has really made a big difference.

Mr. DORMAN. Well, we have just six minutes left. Like always,

our time seems to disappear. So I am going to ask a couple of quick

wrap-up questions and then give the last question to Pat Dyson to

finish up the roundtable.

Dan, you talked earlier about Chinese labor NGOs. You also

mentioned a Chinese CSR NGO. Is there a CSR NGO in China?

Mr. VIEDERMAN. I will speculate on that.

Mr. DORMAN. I do not mean to put you on the spot.

Mr. VIEDERMAN. No. I was speculating that it is potentially a

productive way to describe an NGO that might yet develop. A labor

NGO that is also working on CSR issues, especially to the extent

27

that they are engaged with international brands, might effectively

define itself as a CSR organization.

It may be semantic, but productively semantic, to change the terminology and talk about them as corporate social responsibility

NGOs, because clearly corporate social responsibility is something

that is well-accepted within a particular swath of Chinese society.

But I did not have a specific organization in mind.

Mr. DORMAN. I did not mean to put you on the spot.

Mr. VIEDERMAN. No, no. I think is an area for exploitation by

Chinese NGOs.

Mr. DORMAN. Dr. Rosenbaum, during your testimony you mentioned that you do not see a child labor problem in the export sector.

Ms. ROSENBAUM. Did I say that?

Mr. VIEDERMAN. I think I may have said that.

Ms. ROSENBAUM. Yes.

Mr. DORMAN. This is an issue that our Commissioners have focused on. But you did bring up that you do see juvenile labor in

the export sector. Are there Chinese laws and regulations that provide additional protection for juvenile workers?

Mr. VIEDERMAN. Without reference to a document, I think that

there is. The Chinese Labor Law does require that juvenile workers

have special protections, including that they have to have regular

medical examinations and that they are not allowed to work overtime. Juvenile workers have a more strict limit on the number of

hours that they can work, for example. So, there is a difference. I

would be happy to find out more information.

Ms. ROSENBAUM. I thought, also, that they are not allowed to

work at night, to do night shifts.

Mr. VIEDERMAN. Right.

Mr. DORMAN. So that is something to look at.

Mr. VIEDERMAN. There is a distinction.

Mr. DORMAN. One final question. I think this came up in conversation a couple of times in the last hour and a half, and some

additional comments would be useful. Can you tell us more about

the programs that train factory managers on labor relations, and

the formation of independent committees. Three factories were

mentioned, out of a much larger number that do not participate.

What, or who, initiated the programs at these factories? What accounts for the programs? Enlightened factory management? Brands

helping local government? What distinguishes the factories that

choose to take this road? Can you provide us additional insights?

Ms. ROSENBAUM. In terms of the project that we worked on, each

of these 10 factories was invited to participate.

Mr. DORMAN. So you initiated it.

Ms. ROSENBAUM. That is right. Now, whether this will then

spread in terms of, let us say, other factories being interested in

doing something like this, at this point we do not know. We still

have a number of months to go in the project. But I think there

has to be a business case for CSR. I mean, we can make the labor

case and we can make the environmental case and the occupational

health and safety case for it, but I think that there has to be a

business case for CSR also, that factories that are good at these

things, that are willing to make the investment of time, energy,

and effort, are somehow going to see that this affects their business

28

in a positive way. If we are able to do that, I would suspect that

we will see factories that are going to do it.

At the same time, and I would say this comes from background

in other countries more than in China, I think there are some factories whose management are never going to get it. I just think

that is the nature of the beast, that there are some people who are

slow learners on some of these topics. So I do not think there is

going to be like a magic tipping point and all of a sudden everybody

is going to get it.

Just the fact that we are hearing factories say, ‘‘We want to be

a COC company, we want to be known that way, we want to be

in compliance so that when you come in you do not find us with

a set of problems that you have to tell us how to fix, but that we

have already addressed these things.’’ This, for me, is progress. I

do not know if that really addresses it.

Ms. GEARHART. We have seen factories be more interested and

more willing based on long-term relationship and trust with a

given brand.

Ms. ROSENBAUM. Yes.

Ms. GEARHART. However, I would say that that needs to be combined with individual factory managers, and preferably the owners,

having the will. In some factories you will find those individual

managers who have enough autonomy, enough trust from the factory owner to move forward, and they are thinking innovatively. It

does still come down to individuals at that level.

Mr. DORMAN. Last question to Pat Dyson.

Ms. DYSON. Thank you. Dan, I think that you looked into the

wage issue in a number of factories. There is some thought that if

wages improve in China, and living conditions and benefits, that

companies will then flee to other parts of Asia that are cheaper. So,

in other words, improvement is not going to help the Chinese workers in the end. Do you think that is a fair point? I see you smiling.

Do you have an opinion on that?

Ms. ROSENBAUM. That is the excuse.

Mr. VIEDERMAN. I guess there are a couple of ways to look at

that question, one of which is that the brands that are currently

sourcing in China and the factories that are currently operating

there with Chinese management do face a legal and an ethical obligation, be it articulated in the code of conduct or otherwise, to operate in accordance with that code or with local law. So whether

or not there is an argument to be made that, economically, good

labor practices would force Chinese workplaces to close and people

would go source in Burma or Bangladesh, in a sense avoids the

question of what do you do while you are still there.

So I do not find it a particularly productive question to ask at

this point. There is so much that can be done in the short-term,

and needs to be done, just to bring labor standards up to where

they ought to be based on existing commitments. Beyond that—I

cannot speak for brands—it certainly seems to me that they are

sourcing, and have decided where to source, for a variety of different reasons, not simply on the basis of the strictest identification

of the lowest wage country. So, I would be surprised if you would

see a mass exodus from China if working conditions were improved.

29

Ms. ROSENBAUM. Pat, I get asked that all the time. It does not

matter whether we are talking about China, whether you are talking about Central America, or Africa. It does not make any difference.

There is this other piece that says—and I say this to brands all

the time—if you want to expand your markets, more people have

to be able to afford your products. So at some point, those two

points have to coincide. We will run out of places on the face of

earth to run for cheap labor, and at some point we will have to deal

with all of this. But we hear that in country after country when

you raise the wage issue.

But there is an ethical and a moral thing that is involved here,

and it is what should any worker who works for a 40-hour or a 48-

hour work week be able to do as a result of that work? I would say

the same thing to people who are employing people here in the

United States. What do workers have the right to expect in return

for the labor that they give, good, honest work? There should be a

decent standard of living and the ability to care for yourself and

for your family. That should go without saying. You can call it a

family value. I am sorry, I am being fresh. I apologize. No, I do not.

[Laughter.] I think I did that the last time I was before the Commission also.

Ms. DYSON. We will still ask you back.

Ms. ROSENBAUM. Sure.

Mr. DORMAN. Well, as you all know, the Commission mandate

calls on us to look at rule of law and human rights development

in China. This is a broad mandate, and our Commissioners are attuned to the entire range of issues in this mandate. But there is

a smaller set of issues that generate a particular level of interest

by our Commissioners, and this is one of them. Especially because

of this, I would like to thank each of you for sharing your wisdom,

your insights, and your knowledge on this issue. I found this to be

a very interesting and useful conversation, so I hope you will come

back and join us in the future.

Ms. ROSENBAUM. Thank you for having us.

Mr. VIEDERMAN. Thank you.

Ms. GEARHART. Thank you.

Mr. DORMAN. With that, we will call the roundtable to a conclusion. Thank you.

[Whereupon, at 4:05 p.m. the hearing was concluded.]

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