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    China Business
     Aug 3, 2012

Labor rights a sore in US-China relations
By Benjamin A Shobert

In many ways, the United States Congress' view of workers' rights in China has never recovered from the Bill Clinton administration. Prior to his pursuit of Most Favored Nation (MFN) status for China, Clinton had publicly linked progress on human rights with MFN.

His reversal on this reflected widely received wisdom that as China's economy grew, human-rights abuses would lessen and workers' rights would advance. In a broad sense, the growth in China's economy has made the lives of millions of everyday Chinese better. But problems remain, and many in congress and elsewhere believe more could have been done then, and must be


pursued now, lest the rights of China's factory workers forever be allowed to fester.

Added to this legitimate concern are more insidious frustrations that China's economic growth owes something to its ability to bend rules to which Western nations elect to hold themselves.

In the violation of these rules, China creates cost advantages that make it impossible for Western companies to compete; unless, of course, Western governments choose to involve themselves in leveling the playing field through tariffs or import regulations.

Both would have seemed unlikely several years ago, but as the eurozone enters recessionary waters and the United States continues to struggle, both sets of policies are now widely under consideration.

On Tuesday, the Congressional Executive Commission on China (CECC), led by Representative Christopher Smith (Republican - New Jersey) turned its attention to the question of how the working conditions and workers' rights in China have changed since problems at Foxconn in Shenzhen, adjoining Hong Kong, came to light. Taiwan-based Foxconn, a leading maker of mobile electronic devices for Apple and other leading technology companies, has been the focus of international attention due to a number of high-profile suicides at its factories over the past couple of years.

Perhaps not surprisingly, the consensus from Tuesday's hearing was that whatever changes have been made in China are inadequate, and that only US-style controls will serve to provide Chinese workers with adequate protections.

Thea Lea, the deputy chief of staff at the AFL-CIO (the American Federation of Labor and Congress of Industrial Organizations) shared her opinion with the commission that whatever your view on how the US government uses its informal leverage on China, "so little happens".

Earl Brown, the labor and employment law counsel and China Program director for the AFL-CIO testified, "The remedy for this is to really entrench in US federal law due-diligence compliance on Chinese labor practices."

Brown's sentiment was widely reflected across the six experts who testified as part of Tuesday's commission hearing. All agreed that whatever changes Chinese businesses would make would only be made if their customers - for all practical matters American and European retailers and manufacturers - face legal problems if they do not properly audit suppliers for compliance to Western labor standards.

On this point, Brown added that congress should "not shy away from this because [these practices] take place overseas ... supply chains should be monitored and inspected".

The traditional push back by business to this sort of federal legislation is that, as Charles Kernaghan testified, it would "limit free trade". Kernaghan, the executive director for the Institute of Global Labor and Human Rights, was adamant that "nothing will change in the global economy without enforceable labor rights".

In his mind, companies aggressively pursue intellectual property rights, but attempts to get them to view human rights as important have thus far fallen on deaf ears. Business has been quick to point at third party auditing firms that are used; however, for many who testified on Tuesday, this is inadequate.

As seen by those who testified at this week's hearing, audit systems in China are "ineffective and corrupt". When asked by a congressman what could be done to buttress the auditing of Chinese firms for Western standards, Kernaghan noted, "there has to be outside pressure, because without undercover people [in these factories in China], we would not know what was really happening".

He went on to add, "If we don't keep up pressure on these companies in China and their buyers, these practices will continue."

One member of Tuesday's panel, Li Qiang, heads up a group that has taken steps to provide workers with the ability to report abusive working environments. As the founder and executive director of China Labor Watch, Li said his group has installed more than 100 hotlines around the country. Workers can pick up the phone and anonymously report unsafe or illegal labor practices.

Concerns on the part of workers over whether their call is actually anonymous and pushback from companies who like how such a reporting vehicle improves their public image but who resent the cost burden of compliance have thus far prevented further adoption of China Labor Watch's phone lines.

According to Mary Gallagher, an associate professor of political science at the University of Michigan, the US government has a role to play in forcing American companies to comply with international labor standards. As she testified, "A voluntary code of conduct is self-policing, and most companies aren't really that interested in finding problems."

Looking at the mixed motives of third-party auditors who are paid for by the companies themselves, Gallagher said, "The auditors work for you and that is a problem." An equal problem is, as she pointed out, "bottom feeders who don't have a brand ... they don't particularly care if they get caught violating a labor law ... they can close down and open up somewhere else the next day."

Where Tuesday's hearings proved the most illuminating was not reviewing what has changed in China since the problems at Foxconn in late 2011. What was most interesting was the connection made by Congressman Sherrod Brown (Democrat - Ohio) on workers' rights in China and lost jobs in America.

Brown was quick to point out that the US trade deficit can be explained in a number of ways, not least of which was that China competes on the basis of labor practices that America has chosen not to follow. According to Brown, it isn't that American workers cannot compete against Chinese-made goods; it is that they cannot compete if different standards are required of the businesses that employ both groups of workers.

Brown was particularly troubled that "Innovation happens here, but production happens elsewhere. We as a nation tend to use our innovative edge ... they are making our drugs, even our Olympic uniforms."

Cheap shots about the Olympic uniforms aside, Brown is concerned that America's economic model is overly idealistic and does not reflect the brutal realities his state in particular has faced as part of the dislocation of traditional manufacturing. As he sees it, jobs created through innovation are not enough; it is the linkage that exists between innovation and manufacturing that America is not adequately protecting.

Referencing the trade deficit between the US and China, Brown reflected what is becoming an increasingly common view in congress: the status quo of America's relationship with China needs to change.

This has always been a dynamic relationship with its own unresolved tensions, but in the aftermath of the 2008 financial crisis, more congressional leaders are finding China's trade policies, labor practices, human-rights abuses, and military build-up as cause to fundamentally revisit what America should expect of China as a trading and strategic partner.

On the broader question of human rights, there are certainly practices that Beijing could stop, and reforms it could start, that would address congressional concerns. But on the economic front, it is less clear that Beijing can alter the labor practices of its workers in ways that would be broad enough to substantially alter the competitive landscape workers in the American Midwest face.

In the aftermath of Tuesday's CECC hearing, the options available to the American people are of little comfort. Duties could be imposed on companies that are found to violate international labor standards, but by then it is too late to protect dislocated manufacturers.

Broad tariffs could be set out against specific industries in China that are believed to be worst offenders, but it is unclear whether this would be an action the World Trade Organization would enforce.

Consequently, America's mood towards China continues to sour, fed by a constant stream of frustrations that seem poorly matched to actions US politicians have the power to take.

Benjamin A Shobert is the Managing Director of Rubicon Strategy Group, a consulting firm specialized in strategy analysis for companies looking to enter emerging economies. He is the author of the upcoming book Blame China and can be followed at www.CrossTheRubiconBlog.com.

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