Workplace Codes of Conduct in China and Related Labor Conditions
Released: 2003-04-23T00:00:00

U.S. Interests and Policies

U.S. congressional objectives and concerns regarding Chinese labor include supporting laborrights in the People's Republic of China (PRC) and preventing the importation of goods from thePRC that were made from prison labor, child labor, or under conditions that violateinternationally-recognized labor standards. P.L. 106-286 , granting the President authority to extendpermanent normal trade relations treatment to the PRC upon its accession to the World TradeOrganization (WTO), established the Congressional-Executive Commission on China (CECC) tomonitor the PRC's compliance with international human rights standards, including worker rights. The act also authorized the Department of Labor to conduct rule of law training and technicalassistance related to the protection of worker rights in China. In the 107th Congress, H.R. 2782 was introduced that would require U.S. companies in foreign countries toimplement corporate codes of conduct, while labor rights and corporate codes of conduct werehighlighted in three bills criticizing China's human rights record. (1) In 2002, the CECC held twohearings on labor rights and working conditions in China and made a number of recommendationsin its annual report, including expanding rule of law and legal aid programs for workers andpromoting work health and safety councils, raising awareness among export companies in China ofthe importance of legal and fair working conditions to U.S. consumers, and raising the profile oflabor issues in the U.S.-China bilateral dialogue. (2) Also in 2002, the congressionally-mandatedU.S.-China Economic and Security Review Commission (USCC) recommended, among otheractions, that Congress establish a corporate code of conduct for U.S. businesses operating in China. (3)

The United States supports labor rights and other rule of law programs in China through U.S. foreign operations (4) and other appropriations,including grants to the National Endowment forDemocracy (NED) and the Asia Foundation. NED sponsors the American Center for InternationalLabor Solidarity, which administers labor programs in the PRC through the China Labour Bulletin in Hong Kong. The Asia Foundation is engaged in activities related to legal development, civilsociety, and local governance in China through U.S. public and private financing, including legal aidand health programs for migrant women workers funded by the Levi Strauss Foundation.

In October 2002, the Department of Labor awarded a four-year, $4.1 million grant to a consortium of the Asia Foundation, Worldwide Strategies, Inc., and the National Committee onUnited States-China Relations for them to work on strengthening the PRC government's capacityto implement laws and regulations that protect internationally recognized labor rights, promotegreater awareness of the law among Chinese workers and employers, and improve legal aid servicesto women and migrant workers. The Department of Labor also awarded a four-year, $2.3 milliongrant to the National Safety Council for efforts to improve safety and health conditions in Chinesecoal mines.

Labor Conditions in China

Foreign Invested Enterprises

Many egregious forms of labor exploitation have been reported in foreign-owned or "overseas" factories in China's coastal provinces that are engaged in low-skill, labor intensive production forexport. Most of these factories are owned by East Asian investors from Hong Kong, Taiwan, andSouth Korea, and much of their output of toys, shoes, and apparel is contracted by Americancompanies. According to PRC official data, foreign invested enterprises (FIEs), including HongKong and Taiwanese companies, employ approximately 10% of the urban labor force or about 23million workers -- mostly women in their early 20s from impoverished rural areas of China'sinterior. (5)

The most severe and widespread labor rights abuses reported in these factories involve workplace conditions and work hours that are harmful to the physical health of workers, lack of faircompensation, and restriction of movement. During times of peak demand, work days of 12-to16-hours, no days off for several weeks, and managers' under-reporting of hours worked have beenwidely alleged. Most workers are reluctant to protest such treatment because they fear being firedand/or losing back wages, benefits, security deposits, or temporary residency permits that areretained by the employer. Furthermore, many workers are unaware of their legal rights. LocalChinese reporters have estimated that each year, dozens of workers die of causes related tooverwork. (6)

According to PRC government statistics, between 6,000 and 8,000 workers die annually in industrial accidents (not including mining). Each year, 13,000 new cases of occupational disease(industrial and mining) are reported. (7) Many foreignenterprises do not compensate employees forwork-related injuries and medical care -- or cover only partial costs -- and have not paid taxes intogovernment-sponsored accident and unemployment insurance funds. Other labor abuses reportedin some foreign firms include verbal humiliation, physical punishment, and severe restrictions onmovement. (8)

Labor Protections

The Official Labor Union

The PRC has been slow to address labor rights in China's burgeoning private sector. Since the late 1990s, the government has attempted to install branches of the official All China Federation ofTrade Unions (ACFTU) in foreign-funded or overseas firms in order to help improve laborconditions and resolve labor disputes. PRC officials claim that enterprise unions have been set upin 40% of newly founded overseas companies. Although the ACFTU represents the interests of bothlabor and the state, and most enterprise union leaders are appointed by the Communist Party, it canserve as a potential check on abusive or illegal management practices. Both local officials andforeign investors have reportedly resisted government efforts at unionization. (9)

New PRC Legislation

In 2001, the PRC ratified the International Covenant on Economic, Social and Cultural Rights, which includes a section granting the right to organize and form independent trade unions. However,China reserved the right to interpret the covenant in a manner consistent with the PRC Constitution,the Labor Law, and the Trade Union Law, which permit only one trade union -- the ACFTU. Thecovenant also provides for safe and healthy working conditions and for equality in the workplace. In 2001, the National People's Congress amended the Trade Union Law to enhance the ACFTU'srole in defending workers' interests. In 2002, the National People's Congress (NPC) passed a WorkSafety Law, Prevention of Occupational Disease Law, and handling of dangerous chemicalsdirective. In January 2003, the ACFTU issued its first "Blue Book of Chinese Trade Unions,"whichpublicizes and explains the rights and interests of Chinese workers. (10) However, local officialsreportedly often downplay labor regulations as a way of attracting or keeping foreign or overseasinvestment.

Non-Governmental Efforts

The most important Chinese non-governmental advocates for workers in the PRC are the press, non-governmental or non-profit organizations, academic researchers, and labor rights attorneys. Zhou Litai, a labor rights and workers' compensation attorney, has represented 800 maimed migrantworkers in Shenzhen, Guangdong province. He has reportedly won 30 out of 200 cases againstvarious FIEs. However, while the central government often allows open criticism of individualcompanies, it suppresses debate on fundamental state policies and strenuously suppressesautonomous labor organization. Labor rights activists often face harassment by local authorities. (11)

ILO Conventions

Since 1919, China has ratified 23 conventions (of which 20 are still in force), including three of the International Labor Organization's eight core conventions. In 2002, China ratified three ILOconventions: No. 182 (core), Worst Forms of Child Labor; No. 167, Safety and Health inConstruction; and No. 150, Labor Administration. China is reportedly preparing to ratifyconvention No. 111 (core), Discrimination. In May 2001, the ILO and the PRC signed amemorandum of understanding aimed at improving labor practices, reforming dispute settlementmechanisms, and strengthening ILO-PRC collaboration.

ILO Core Conventions

U.S. Investment and Trade with China

In 2002, China was the third largest source of imports to the United States, with imports valuedat $125 billion. An estimated 44% of China's exports involve foreign companies. (12) The UnitedStates is the second largest single investor in China after Hong Kong. (13) U.S. companies haveinvested in many sectors including information technology, communications, finance, hotels,automobiles, and consumer goods. Observers have noted relatively good working conditions andcomparatively high wages at American-operated manufacturing facilities offering skilledemployment. However, much of the production in China of low-end goods for U.S. labels iscontracted through other foreign investors. In 2002, toys, footwear, and apparel items made up about25% of all U.S. imports from China, while the PRC was the top supplier of toys, footwear, andleather goods to the United States. (14) Theseexport-oriented industries are dominated by East Asianmanufacturers filling orders for U.S. brands according to their specifications, as well as home toserious labor rights abuses. Some policy-makers have argued that the United States can promotebetter labor conditions in China through these foreign suppliers to U.S. corporations.

Codes of Conduct

Many large U.S. brand companies and retailers that source in China have adopted codes ofconduct for their suppliers in order to assure that goods bearing their companies' names are producedunder acceptable working conditions. Lack of compliance with these codes may justify thetermination of contracts by U.S. corporate buyers. These standards are based upon United Nationsand ILO core labor conventions and U.S. Occupational Safety and Health Administration (OSHA)regulations. There are three broad categories: "multi-stakeholder" or external codes developed bynon-profit organizations in consultation with labor and business groups; individual corporate codes; and industry or sector codes. (15) Multi-stakeholderprograms that not only monitor suppliers but alsocertify U.S. companies may generate additional public pressures on corporations to conform withinternational labor rights standards. Although codes vary somewhat, they generally mandatestandards at or above the levels of national labor laws. China's labor laws meet internationalbenchmarks in most respects. Often the main problem or variable is not the stringency of thestandards but rather the level of enforcement. However, not all codes apply rigorous methods formonitoring and effecting compliance. Some experts argue that third party, non-profit auditors aremore effective in monitoring compliance than in-house and for-profit auditors. (16) Independentmonitoring organizations in China include Bureau Veritas, Global Social Compliance, IntertekTesting Services, and VeritÃ©.

Labor codes of conduct have reportedly produced improvements in some large factories that fear losing contracts to large U.S. corporations for violating labor standards. (17) However, some laborrights groups have found monitoring and verification problems stemming from insufficienttransparency, including lack of unannounced audits, lack of input from workers through off-site,confidential interviews (without fear of retribution), and lack of accessibility or disclosure of auditsand assessment scores. (18) Furthermore, largesuppliers often subcontract further to smaller foreignor Chinese companies that have no code of conduct. Only one of the codes sampled in this reportaddresses the problem of subcontracting. The Disney Company's Code of Conduct forbids itsmanufacturers from using subcontractors without the company's written consent, in order to assureboth acceptable labor conditions and product quality. According to some accounts, labor conditionsin privately-owned PRC factories are worse than FIEs.

The financial incentives of suppliers in China to abide by codes of conduct -- attracting or maintaining the business of U.S. corporations -- are often negated by countervailing economicpressures. First, the overabundance of migrant labor from the Chinese countryside suppresses wagesin low-skill and labor intensive, export-oriented industries. Since the late 1990s, real incomes inmany rural areas have fallen while the PRC Ministry of Labor estimates that 20% of farmers arejobless or redundant. Second, export manufacturing zones in China have proliferated, andcompetition for foreign investment has grown, thus pressuring local governments to keep laboractivism to a minimum. Third, the global markets in these sectors have become more exacting. TheHong Kong Christian Industrial Committee reported, for example, that in the past decade, intenseglobal competition in the toy industry has shortened delivery times that multinational corporationsdemand of their contractors by approximately 40%, and driven down prices by 30%, therebyexacerbating labor exploitation despite efforts to improve conditions. The committee recommendedthat international companies adopt fair buying practices and pay reasonable prices for their toys. (19)

Comparing Codes of Conduct

This section compares 11 codes of conduct: four multi-stakeholder codes -- SA8000 (SocialAccountability International), the Ethical Trading Initiative (ETI), the Fair Labor Association (FLA),and the Worker Rights Consortium (for producers of collegiate logo garments); (20) six company codes-- Levi Strauss, Mattel, Nike, Reebok, Walt Disney, and Wal-Mart; and one industry code, theInternational Council of Toy Industries (ICTI) Code of Business Practices. (21) Some companies haveboth developed their own standards and signed onto one or more multi-stakeholder codes. The codesdiscussed in this report and participating U.S. companies represent only a sampling of all codes andcompanies that institute standards of conduct.

Child Labor

The problem of underage workers (under 16) in foreign invested enterprises (FIEs) along the coast is likely considerably less than in township and village enterprises (TVEs) and workshops inChina's rural areas. The risks and costs of traveling and acquiring temporary residency permits infactory towns and the ample supply of legal-age labor reduce the incentives for employing underagelabor in FIEs. However, the preference of many export-oriented factories for hiring youthful workers(late teens to early 20s) creates opportunities for underage Chinese to gain employment. Somereports describe teenagers using fake personal identification cards to work in foreign-ownedassembly plants. (22)

The codes of conduct reviewed herein place restrictions on minimum age ranging from under 16 to under 14. Nike further prohibits the hiring of workers under the age of 18 for footwear. Allcodes apply a higher standard if either the legal minimum age or the age for completing compulsoryeducation is higher. Social Accountability International (SA8000) and the International Council ofToy Industries (ICTI) would prescribe a minimum age of 14 where ILO Convention 138, Article 2.4applies (developing country exception -- members whose economies and educational facilities areinsufficiently developed). The Mattel and Reebok codes stipulate that identity documents must bethoroughly checked and shall be accessible. Mattel and the Ethical Trading Initiative (ETI) requirethat employees under the age of 18 be exempt from hazardous duties. According to the PRC LaborLaw, it is illegal to hire workers under the age of 16. "Young workers" -- ages 16-18 -- areaccorded special treatment, including prohibitions on overtime and night work, regular healthcheck-ups, and other protections.

Forced Labor

The codes universally proscribe several forms of forced labor, including prison labor, indentured labor, and bonded labor. Some codes provide more detailed prohibitions that applyspecifically to involuntary labor practices in China, such as the withholding of wages, securitydeposits, and identity papers or the charging of "severance fees" by employers. The Mattel coderequires a written document for each employee stating that employment and overtime are voluntary. The Reebok code forbids the use of "administrative detainees" in supplier factories. (23) The ICTI codestipulates that "workers are free to leave once their shift ends." The Labor Law of China states thata worker may terminate his employment, or repudiate his labor contract, if the employer compels aworker to work by the use of force, threat or by means of illegally restricting personal freedom, orif the employer fails to pay remuneration or provide working conditions as agreed upon in the laborcontract.

Disciplinary Actions

Most of the sampled codes forbid corporal punishment as well as verbal harassment, sexual harassment, and psychological abuse, or simply declare that employees shall be treated with respectand dignity. The Reebok code adds that employers will not unreasonably restrain workers' freedomof movement including movement in canteens, during breaks, using toilets, accessing water ormedical services. In China, it is illegal for employers to insult or punish workers physically.

Discrimination

In the codes examined, discrimination standards range from none at all, to requirements that personnel decisions be made on the basis of a person's ability to do the job, to more detailedregulations. Generally, the factors that are subject to protection from discrimination are age,ethnicity, gender, race, and religion. Other factors in some codes include disability, sexualorientation, and union or political affiliation. External codes -- SA8000, ETI, FLA, and the WorkerRights Consortium (WRC) -- go furthest in imposing discrimination standards. The Nike and ICTIcodes do not contain provisions on discrimination. China's Labor Law prohibits discrimination onthe basis of nationality, sex, race, and religious beliefs. The WRC and ICTI codes recognize therights of pregnant women. The WRC standards provide the most extensive protections for women-- forbidding pregnant women from being fired, proscribing forced or pressured use ofcontraception, demanding equal pay for women, and barring their exposure to hazardous materials.

Health, Safety, and the Environment

Health and safety areas and issues covered by the codes pertain to: the work environment, housing, and dining areas, injury and fire prevention practices, hazardous materials management,sanitation (including clean toilets and wash rooms), and potable drinking water. Applicablestandards are the national health and safety laws of the government where the factory is located, thehealth and safety conventions of the International Labor Organization, and OSHA regulations. Morecomprehensive standards on some codes include safety features on machines, health and safetytraining, first aid stations, and regulations for exits, space, lighting, ventilation, temperature, andnoise. Some codes also require health and safety professionals to be stationed on the shop floor andspecify procedures for the documentation of injuries. Reebok has the most detailed health and safetycodes. The Labor Law of the PRC entitles workers to refuse to engage in dangerous operationsforced upon them by management in violation of relevant regulations, and allows them to criticize,inform or bring charges against the employer for acts that are harmful to life, safety, and personalhealth. Several of the codes sampled in this report encourage environmentally-safe practices and theassignment of trained personnel for managing hazardous waste.

Freedom of Association

The multi-stakeholder codes -- SA8000, ETI, FLA, and WRC -- and some company codes in this sample assert the rights of workers to join or form trade unions of their own choosing and tobargain collectively without fear of retribution. The SA8000 code provides that where the lawprohibits these freedoms, the employer shall facilitate the development of parallel means forindependent and free association and bargaining. Mattel and Reebok also require that grievanceprocedures be set up. Some company codes surveyed either do not address these rights or state thatworkers may join any legally-sanctioned labor organization, which in China is the ACFTU. In thePRC, workers in most private and foreign invested enterprises lack any union representation whileindependent organization is not tolerated by the government. In some enterprises where unions exist,workers reportedly are not aware of them. According to the PRC Labor Law, collective contractsmay be negotiated between the enterprise management and enterprise trade union or workers'congress. However, collective contracts apply mostly to large, state-owned enterprises, anddecisions about workers' pay, working hours, health, welfare, and other issues are largelynon-negotiable. In 2001 and 2002, Reebok was successful in urging two Taiwanese-owned suppliersin China to hold free elections for representatives of the official trade union, touted as first of its kindin China. (24)

Working Hours

Excessive work hours is one of the most common labor abuses and causes of sickness and accidents in Chinese factories. Many codes prescribe a maximum of 60 hours per week, includinga maximum of 48 hours of regular time and voluntary overtime not to exceed 12 hours, or the legalmaximum if it is lower. All codes require one day off per week. Some codes apply restrictions "ona regular basis" rather than unconditionally. Others provide an exception to maximum workinghours under "extraordinary circumstances." (25) TheSA8000 code allows mandatory overtime if it ispart of a collective bargaining agreement. Mattel, Wal-Mart, and ICTI state that working hours shallcomply with local laws. China's Labor Law mandates an average work week of 40 hours with oneday off every seven days. It prohibits overtime work in excess of 3 hours per day or 36 hours permonth, and stipulates that it must be voluntary.

Compensation

Although low relative to many other developing counties, wages in China's labor intensive, export-oriented industries continue to attract migrants from rural areas of China's interior, whereunemployment is high and average incomes are comparatively low. (26) The baseline standards forcompensation are wage and benefits levels that comply with local laws or match "prevailing industrystandards." Some multi-stakeholder codes -- SA8000, ETI, and WRC -- include "basic needs" or"living wage" clauses. (27) Some codes also requireemployers to provide written pay policies beforeemployment contracts are signed and accurate pay statements or records (listing all calculations anddeductions) for each pay period. Other additional standards in some codes include requiring thepayment of "premium rates" for overtime work, prohibiting the withholding of wages for disciplinarypurposes, and deducting "reasonable amounts" for food and housing. According to China's LaborLaw, the overtime rate of pay is 150% of the regular rate; legal compensation for working on restdays is 200% of regular pay, while work on national holidays is compensated at 300% of the baserate.

Compliance

Although extensive compliance guidelines are a crucial element in making codes of conduct effective, some of the sampled codes do not provide for them to any significant extent. Some codesapply an auditing system consisting of assessment or grading standards and corrective actionprocedures. The Disney code mandates comparatively rigorous on-site inspections, declaring thatthey be unannounced and that they include private or confidential interviews with workers. Bycontrast, Nike requires inspections "with or without prior notice" and Wal-Mart only specifies"personal interviews." Few of the codes sampled in this report explicitly call for third party orindependent auditors. Others refer to "designated" monitoring agencies or to internal auditors(self-monitoring).