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Cablegate: Labor Problems Persist, Worrying Investors

VZCZCXRO4560
OO RUEHDT RUEHPB
DE RUEHHM #0878/01 2740603
ZNR UUUUU ZZH
O P 300603Z SEP 08
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4957
INFO RUCPDOC/USDOC WASHDC PRIORITY 0079
RUEHHI/AMEMBASSY HANOI PRIORITY 3325
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEHHM/AMCONSUL HO CHI MINH CITY 5185

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000878

SENSITIVE
SIPDIS

STATE FOR EAP/MLS, USAID/ANE, EEB/TPP/BTA/ANA, DRL/ILCSR
USAID/ANE/EAA FOR FRANK DONOVAN
STATE PASS USTR FOR BISBEE
USDOL FOR DUS PONTICELLI, ZHAO
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO

E.O. 12958: N/A
TAGS: ECON ELAB EINV PREL SOCI VM
SUBJECT: LABOR PROBLEMS PERSIST, WORRYING INVESTORS

REF: HCMC 320

HO CHI MIN 00000878 001.2 OF 002


1. (SBU) Vietnam's deficit of human resources is now the most
frequently cited challenge facing companies in southern Vietnam.
This issue is shifting leverage from factory managers to
workers, leading to more strikes in the first half of 2008 than
in all of 2007, as well as contributing to 18 percent wage
inflation since January. Weak local labor institutions
(including most provincial branches of the Vietnam General
Confederation of Labor and Ministry of Labor) put pressure on
management to resolve labor disputes. Successful factory
managers avoid strikes by devoting time and resources to
understanding their workers needs and ensuring that local unions
act as clear channels for communication. Additional
transparency and training are needed, but the United States can
also help by creating opportunities for non-governmental
organization and civil society actors to educate workers,
managers and regulators about their rights and obligations. End
Summary.

Foreign-owned Factories Pinched by Strikes
------------------------------------------
2. (SBU) U.S. investors and partner companies, especially in
manufacturing, are being affected by labor unrest and unexpected
demands for wage increases. According to one U.S. buyer, there
were 544 labor actions in all of 2007 but 500 in the first half
of 2008. The dispute resolution roles that Vietnam's labor law
assigns to the Ministry of Labor (MOLISA) and the Vietnam
General Confederation of Labor (VGCL) are rarely put into
practice locally, so when workers strike it's up to employers to
find a resolution. 73 percent of the strikes in 2007 were at
foreign direct investment (FDI) companies and 83 percent were in
Ho Chi Minh City (HCMC), and Binh Duong and Dong Nai provinces.
Since FDI employs 500,000 workers in garment factories, foreign
companies have significant exposure to and impact on Vietnam's
labor markets.

3. (SBU) HCMC labor analysts believe that workers strike because
the rising cost of living in southern Vietnam hits low-wage
unskilled workers hardest; year-on-year inflation in September
was 27.9 percent. They say that DOLISA and VGCL do try to
create an environment for workers and managers to resolve
difference, but in practice do little else. Workers often
remain ignorant of their rights and obligations under the labor
law and as a result adopt a "strike first" mentality.

4. (SBU) Earlier this year the strike first mentality cost one
factory "one million dollars a day for 10 days, all over 30
cents per worker per day." Lack of an effective union meant
that the company management did not have anyone to negotiate
with, and leaders that eventually came forward did not represent
the interests of the full group. Even after an initial
agreement was reached, workers refused to return to work.
Because of this type of experience, FDI managers call on the GVN
to fully and consistently implement the Vietnam's 2006 amended
Labor Law, which requires workers to go through an
administrative and mediation process before going on strike.

Foreign Strategies and Results
------------------------------
5. (SBU) In practice, successful companies are finding ways to
work around the system to strengthen unions in their shops in
order to make sure they understand their workers. In a few
cases, factories do have strong and de facto independent unions
that pay into Vietnam's VGCL union umbrella system but receive
little or no support or direction from above.

6. (SBU) One Korean-invested garment producer in Dong Nai
province employs nearly 10,000 workers at an average starting
wage of 65 USD, just barely above Vietnam's minimum wage for
that area. The company has a staff of up to ten ex-patriots
human resource (HR) specialists working specifically on labor
relations and strengthening the factories various shop unions.
Through regular trainings, meetings and feedback channels, these
HR specialists concentrate on enabling the unions to effectively
convey the concerns of the workers to management, and to serve a
channel for open dialogue. The manager of this factory says
that his company ends up trying, with little effect, to help
provincial DOLISA and VGCL play more than a superficial role.
So far, the company's approach has paid off. Despite the low
wages they have not had any strikes.

7. (SBU) Not all managers are this successful. A
Taiwanese-invested company in Thay Ninh Province pays its 18,000
workers 90 USD, 43 percent more than the Korean company, and

HO CHI MIN 00000878 002.2 OF 002


well above minimum wage. This factory's human resource
department processed paperwork but little else, and the manager
seemed almost contemptuous of his workers saying "they earn more
than anyone else around and they still strike." Earlier this
year, workers walked out for several days before management was
able to get a response to the question, "what do you want?"
Unfortunately the response was attached to a rock and thrown at
the office building. This strike was resolved later that week
with another small increase in salary, but the manager expects
more trouble in the future.

Contrast with the Vietnamese Way
--------------------------------
8. (SBU) Vietnamese companies say that strikes at FDI factories
are completely understandable, because foreign managers do not
involve workers in the management process. They emphasize that
Vietnamese-owned enterprises accounted for just 27 percent of
strikes in 2007. Vietnamese managers believe this is because
the labor representatives in Vietnamese factories are much more
powerful than in FDI factories. Vietnamese companies
traditionally have institutionalized channels for communication,
dialogue and dispute resolution, not only through the unions but
also through the Party. A Vietnamese-owned factory's union
leader often interacts with the factory's manager as an equal.

Conclusion
----------
9. (SBU) Since so much of Vietnam's export success is based on
comparatively cheap labor, encouraging MOLISA and VGCL to play a
constructive role in dispute resolution should be a priority for
the GVN. Already, a few multinationals have decided they
probably will not expand production in Vietnam because of the
strikes. But since the vast majority of strikes happen at FDI
factories, it has been easy for the GVN to remain sanguine about
the problem. Individual companies are stepping up to fill the
education vacuum and international, non-governmental and
especially corporate social responsibility organizations are
beginning to play a larger role. The United States can help by
encouraging the GVN to make space for these kinds of groups to
teach managers best practices, help strengthen local unions and
to build the capacity of MOLISA and VGCL. Our industry and
government interlocutors agree; Vietnam's long-term economic
competitiveness is at stake. End conclusion.

10. (U) This cable was coordinated with Embassy Hanoi.
FAIRFAX

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