Cablegate: Csr in the Classroom and On the Factory Floor

DE RUEHGZ #0603/01 1440909
R 240909Z MAY 07





E.O. 12958: N/A
SUBJECT: CSR in the Classroom and on the Factory Floor

(U) This message is sensitive but unclassified. Please handle

1. (SBU) SUMMARY: Domestic factories are struggling to comply with
multiple responsibilities that can complement one another but that
may at times also be at variance with one another: their buyers'
corporate social responsibility (CSR) codes of conduct and with
government regulations on wages and work hours, according to
participants in a recent training seminar run by U.S. NGO Business
for Social Responsibility (BSR). A recent garment industry survey
revealed that 70 percent of China's garment factories maintain
fraudulent documents, 30 percent of the workers are paid below
minimum wage, and almost all workers work more hours than legally
permitted. Though factories can improve efficiency and increase
wages though CSR practices, the transition from noncompliance to
compliance is difficult and slow. END SUMMARY.

2. (SBU) During a visit by State DRL Program Officer Samuel Chang on
May 15-16, Econoff and Chang attended the closing session of a CSR
training program run by BSR, an organization that is funded in part
by DRL. The nine-month series of classes for factory managers
(mostly suppliers of multinational corporations) covered health and
safety management, labor regulations, and reducing overtime through
improved productivity. Chang and Econoff also visited a Hong
Kong-owned garment factory in Dongguan that supplies Sears and other
U.S. brands and that participated in the BSR training.

The Government Perspective

3. (SBU) Chinese officials are increasingly concerned with labor
compliance in factories and are less tolerant of violations,
according to the director of the Guangdong Labor and Social Security
Bureau's Labor Association and Information Center, Gan Wenchuan. In
addition, the new generation of migrant workers is less willing to
work for low wages and is more aware of legal rights. Surprisingly,
Gan was critical of the All-China Federation of Trade Unions
(ACFTU), which he said is supposed to protect the rights of workers
but instead protects the interests of enterprises. In response to a
question from factory managers, Gan said that the Chinese government
has shown no interest in raising the cap on overtime hours.

Factory Managers Discuss the Difficulties of Complying
--------------------------------------------- ---------

4. (SBU) Factory managers said they are audited between 5 and 15
times per year by their various buyers - a process that leads to
"audit fatigue." The buyers often have different and sometimes
conflicting codes of conduct regarding minimum wage and working
hours. The factory managers also noted the challenge of educating
senior management on CSR concepts and convincing them to make the
necessary investments - particularly in the garment industry, where
profit margins are tight. They also face greater scrutiny by the
Chinese media regarding labor practices. Nevertheless, the managers
highlighted their positive efforts, which include forming CSR
committees with worker representatives, increasing training hours,
and improving transparency. They noted that rotating workers
regularly and publishing worker handbooks has also improved

Garment Industry Survey: Not a Pretty Picture

5. (SBU) A survey of labor compliance in the garment industry
conducted by third-party firms hired by Sears revealed that the
state of compliance among China's garment factories is "dismal."
According to Sears Compliance Manager Johnny Wong, the survey found
that 70 percent of garment factories in China keep fraudulent sets
of documents in order to demonstrate compliance to buyers and
government officials. In addition, 30 percent of workers at garment
factories are paid below the minimum wage. The survey found that
garment workers average between 70 and 90 hours of work per week,
far above the legal limit of 49 hours (40 regular hours per week and
36 overtime hours per month). Overtime pay is typically not
calculated differently than regular pay (which is usually on a
piece-rate basis), and few factories pay all of the required social
insurance fees to the government. Factories also frequently do not
provide sufficient paid leave or use the required legal contracts,
according to the survey.

6. (SBU) According to Sears' Wong, China's garment factories would
not use false documents if buyers were willing to work with them to

GUANGZHOU 00000603 002 OF 002

improve labor compliance gradually. He said Sears' Wage Research
Improvement Program does this, but noted that progress has proven to
be difficult and slow. In a separate conversation, Sears Director
of Global Compliance Ian Spaulding said "many" of China's factories
do not comply with PRC wage laws, and "none" comply with working
hour laws. In part, this is because these laws do not reflect
market realities - for example, migrant workers themselves want to
work more than 49 hours per week to earn as much money as possible
in a short period of time.

Garment Factory: Getting Better, but Still Not There
--------------------------------------------- -------

7. (SBU) Greenway, a factory in Dongguan that produces women's
undergarments for Sears, Macy's, Nordstrums, and other U.S. brands,
is still not fully compliant with labor laws but has made
significant progress. According to the Hong Kong owners, until a
few years ago, they kept false records and routinely underpaid
workers. After working closely with Sears, and with training from
BSR, they have been able to reduce the wage gap and improve
productivity. Key to this is a new bonus system that provides
additional incentives for workers. Average wages have increased by
10 percent over the past year, turnover has reduced from 6 percent
to 3 percent, and the factory is not having trouble finding workers
(as is the case with many factories in the Pearl River Delta). The
factory also uses a UV light machine provided by the local police
department to check for fake identification cards used by minors.

8. (SBU) Despite these improvements, the factory managers estimated
that a few hundred of their approximately 5,000 workers do not
receive the minimum wage. The average wage in the factory is RMB
1,500 (USD 196); Dongguan's minimum wage, including overtime, is RMB
1,200 per month (USD 157). Workers also continue to work more hours
than legally permitted. The owners complained that their profits
have fallen considerably during the past 10 years because of pricing
pressure from buyers. Sears' Spaulding said he is encouraged by the
factory's adoption of CSR principles and its improving compliance
record, but highlighted the challenge of introducing change
country-wide. Sears alone has 2,800 suppliers in China.

9. (U) DRL Program Officer Samuel Chang did not have an opportunity
to review this cable.


© Scoop Media

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