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Debate on labor in China
Foreign Policy in focus
FPIF Commentary
Debate on Labor in China
Catherine Gelb, Tim Costello, Brendan Smith, and Jeremy Brecher | February 8, 2007
Editor: John Feffer
U.S. Companies Want Better Chinese Labor Law
Catherine Gelb
The FPIF commentary ("Labor Rights in China" by Tim Costello, Brendan Smith, and Jeremy Brecher) mistakenly asserts that U.S. companies have launched a "corporate campaign" to "block" China's proposed Labor Contract Law. Far from opposing the new measure, the U.S.-China Business Council, which represents 250 U.S. companies that do business in China, submitted comments on the draft Labor Contract Law to the Chinese government at its request that aim to make the new law more effective and balanced.
The U.S.-China Business Council and its members share the goal of creating a Chinese work environment that is safe, fair, and stable. The overwhelming number of labor abuses occur in locally owned companies that do not share the more advanced labor relations standards that American corporations bring with them when they come to China. That last point cannot be stressed enough--American companies by and large are models for improving employment and environmental health and safety standards in China.
The Chinese government's request for comments on the draft law was a significant step forward for increased regulatory transparency in China. The airing of different views should be encouraged as a normal--and integral--part of the drafting process.
A Response to the US-China Business Council
Tim Costello, Brendan Smith, and Jeremy Brecher
Our recent FPIF article was based on our Global Labor Strategies report Behind the Great Wall of China, which documented the opposition of U.S. and EU based corporations in China to a new law that would grant new labor rights to Chinese workers.
In the article, we identified the U.S.-China Business Council (USCBC) as one of the lobbying groups that submitted comments to the Chinese government opposing the new law. The US-China Business Council is a Washington-based group that includes many of the biggest companies doing business in China and is generally considered an authoritative voice of U.S.-based corporate interests in China.
The USCBC took issue with our article. Of course, we welcome this comment by the U.S.-China Business Council. Debate over the proper role of U.S.-based businesses abroad is essential. Indeed, we wrote the article and the report upon which it is based to stimulate a debate and reappraisal of the political and business activities of U.S.-based firms around the world.
But we stand completely by what we wrote. In fact, our reporting on the position of USCBC on the new law was based entirely on comments submitted by the organization to the Chinese government. Those comments mirrored comments made by other corporate lobbying organizations like the American Chamber of Commerce and the EU Chamber of Commerce. As the law has worked its way through the Chinese legislative process, lobbying organizations have made additional comments and they continue to apply pressure to change the proposed law before it is adopted.
First, a little background. When the draft law was made public in the spring of 2005 the Chinese government invited comments from interested parties. They received nearly 200,000 comments. Most were from ordinary people in China. But some were from organizations like the American Chamber of Commerce, the EU Chamber of Commerce, and the US-China Business Council.
The law itself was prompted by a massive wave of strikes and civil disturbances. Its aim seems to be to respond to the threat of social instability by setting some basic labor standards and regulations in China's chaotic labor markets. The result is a modest, but real, step in the direction of providing China's workers some of the same rights and standards common in most industrial societies.
The USCBC argues that "[t]he overwhelming number of labor abuses occur in locally owned companies that do not share the more advanced labor relations standards that American corporations bring with them when they come to China." In point of fact, the USCBC opposes the adoption of a host of commonly accepted "advanced labor relations standards"--standards that would apply to both foreign-based firms and the (often) Chinese-owned businesses that comprise the supplier chains of many U.S. corporations.
The draft labor law runs about 23 pages in English and contains 65 articles. The comments of the USCBC identified half a dozen or so key areas to which it took exception. But these areas represent the heart of the law.
Here are some of the provisions that they objected to. For a complete text of the comments submitted by the USCBC, click here.
Non-compete Agreements and the Freedom to Change Jobs
Non-compete agreements are a regressive feature of U.S. and other western systems that have crept into the Chinese economy. They are especially common in high skilled jobs. They prevent workers from changing jobs easily if they have access to proprietary knowledge as determined by an employer. For a developing economy like China, knowledge transfer is essential. The USCBC objected to the draft law's regulations on non-compete agreements including its cap on damages that a firm could collect from a worker who leaves one job for another job and restrictions on non-compete agreements when a worker leaves a job and moves to an entirely different part of the country
Limited Probationary Periods
Currently corporations can set probationary periods unilaterally, often for an entire year, keeping people in a highly precarious employment status. This is a major problem for workers since it leaves them with little or no protections. The new law sets standard probationary periods of from one to six months depending on the type of job. The USCBC argues against limiting the probationary period from one to six months because it "[will make] it more difficult for employees and employers to properly evaluate the work relationship." Instead, it should therefore be left to the sole discretion of employers to set probationary periods for all employees--including the most unskilled--for up to six months.
Payment for training
Under current practice employees sign a separate contract that allows companies to recover any training costs if a worker terminates his/her employment. Under current law almost anything that management considers "training"--including many of the kinds of on-the-job training that are standard for any new job--can be subject to re-payment, leaving a departing worker either in debt or, if unable to repay the training expenses, bonded to his/her current employer. The new law limits costs employers can recover by, for instance, defining "training" as instruction that takes place "off-the-job," on a full-time basis, and lasting for at least six months. The USCBC opposes the new law because "the employer would not be entitled to claim compensation from the departing employee for [on-the-job and other types] of training experiences."
Severance Payments
There is theoretically no at-will employment in China; all workers are supposed to have labor contracts--although in practice many do not. Most contracts are for a "fixed term," after which an employer can dismiss a worker without penalty and a worker can leave without penalty. This system encourages highly unstable employment relationships. The proposed draft law encourages stable employment by requiring employers to provide severance pay to workers whose contracts end, but not to those whose contracts are renewed. The USCBC opposes this provision.
Limits on Temporary Work
Chinese companies employ a large number of temporary workers hired through temp agencies. Temporary work encourages management to avoid the protections and commitment that come with standard employment. Under the new law, temp agency workers would become permanent employees after one year of employment at a client firm, thus reducing the number of insecure, contingent jobs. According to the USCBC, "This stipulation impedes the right of the employer to find the best person for the job and will reduce the flexibility of human resource allocation."
Negotiations on Lay-offs
In practice corporations frequently lay off workers at their own discretion. Under the new proposals, corporations would have to negotiate the terms of any lay-off of more than 50 people with the union or representatives of the workers. The USCBC opposes this provision.
Expanded Collective Bargaining
The new law provides for negotiations over workplace policies and procedures, lay-offs, health and safety, and firings with a union or an "employee representative." Foreign corporations demand unilateral authority, not negotiation. The USCBC writes, "It is not feasible to state that an employer's regulations and policies shall be void if they are not adopted through negotiation with the trade union. Requiring the consent of the trade union before such changes can be made is overly burdensome and may prevent important company policies from being implemented in a timely manner. Final authority and responsibility for company policies should rest in the hands of the employer."
If the USCBC and other organizations representing global companies really wanted "to make the new law more effective and balanced" there are plenty of suggestions they could have made. For instance, the law says nothing about expanding the rights of workers to organize and bargain with employers through representatives of their own choosing--rights guaranteed under U.S. and international labor law. Instead, they chose only to oppose key provisions of the new law.
Catherine Gelb is the director of communications and publications at the US-China Business Council. Tim Costello, Brendan Smith, and Jeremy Brecher wrote the report Behind the Great Wall of China for Global Labor Strategies (www.laborstrategies.org//index.php?).
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