Cablegate: China's New Labor Mediation Law Gets Mixed Reviews

DE RUEHGZ #1278/01 3470831
R 130831Z DEC 07





E.O. 12958: N/A
SUBJECT: China's New Labor Mediation Law Gets Mixed Reviews

(U) This document is Sensitive But Unclassified. Please protect

1. (SBU) SUMMARY: A new national draft law on labor dispute
mediation and arbitration will significantly improve labor-employer
relations, Guangdong provincial labor officials and lawyers told
officials from the U.S. Federal Mediation and Conciliation Service
(FMCS). AmCham South China members disagreed, warning that the law
would have little actual impact and worrying that labor disputes and
continuing labor shortages would only get worse. AmCham company
representatives asked FMCS Director Arthur F. Rosenfeld for
additional training resources for what was termed a "huge gap" in
Chinese labor mediation capabilities. END SUMMARY.

--------------------------------------------- --------
Labor Officials: New Law Builds on the Current System
--------------------------------------------- --------

2. (U) The new draft labor mediation law, as described by Guangdong
Provincial labor officials, will overcome four main limitations of
China's current arbitration system: 1) the process takes too long,
2) arbitration costs are too high, serving as a barrier to entry for
workers, 3) the system is inefficient, with many cases still ending
up going to litigation, and 4) limited integration with the existing
court system. Zhu De Jiang, Director of the Labor Dispute
Arbitration Office of the Guangdong Provincial Labor and Social
Security Department, said that mandatory time limits on each part of
the process, a complete waiving of arbitration fees, and a clearer
role for the courts under the new law would address the four

--------------------------------------------- ------
U.S. Experts Question China's Arbitration Framework
--------------------------------------------- ------

3. (U) Following Zhu's explanation of the arbitration framework
under the draft law, FMCS Acting Deputy Director Scot Beckenbaugh
pointed out that mediation and arbitration in China differ
significantly from labor mediation in the United States.
Beckenbaugh suggested that arbitration commissions in China, with
members drawn from Labor Department, union, and company management
ranks, might not be perceived as neutral, and that the new law did
not have sufficient incentives to encourage cases from going to the
more costly and time-consuming litigation process. American
mediators and arbitrators, on the other hand, are typically
independent, third-party entities, and arbitrations decisions in the
United States are usually final.

4. (U) Chinese Labor and Social Security Department officials
provided the FMCS delegation with conflicting statistics, suggesting
that they do not have a firm understanding of the efficiency of
their own arbitration process. While Zhu said that 80 percent of
"all cases" were resolved at the arbitration stage, other officials
had previously said that only 50 percent of cases were resolved in
arbitration, with the rest going to court.

--------------------------------------------- ----
Labor Arbitration Reform Still Debated Internally
--------------------------------------------- ----

5. (U) The draft mediation law is in its second review by the
Standing Committee of the National People's Congress (NPC) and will
likely receive final approval by mid-January 2008, according to
Guangdong Provincial Lawyers' Association Labor Law Commission
Director Xiao Sheng Fang. The first review of the draft law began
on August 26, 2007. Xiao indicated that the NPC had accepted many
of the revisions requested by Guangdong lawyers, who had significant
experience in labor disputes.

6. (U) Zhu stated that NPC legislators were still split into two
camps over the new draft law. Legislators favoring an
American-style arbitration system, where arbitration decisions are
legally binding, are opposed by those who believe that the relevant
parties should be allowed to appeal arbitration decisions, to
"protect workers' rights." Zhu indicated that the final law would
likely preserve this right of appeal.

--------------------------------------------- ----
Guangdong Labor Officials Unsupportive of Strikes
--------------------------------------------- ----

7. (SBU) Guangdong labor officials were not sympathetic to workers
who strike. Stating that his Department closely tracks major labor
disputes around the world, Zhu said that he and his colleagues
"admired" President Bush's decision to break the 2002 U.S. West
Coast longshoremen's strike. Zhu also referred to the recent public
transportation strikes in France, saying that the French workers

GUANGZHOU 00001278 002 OF 002

"didn't care for their country's economy."

--------------------------------------------- ----------
U.S. Companies Pessimistic on Law's Reducing Labor Disputes
--------------------------------------------- ----------

8. (SBU) Presenting a much less optimistic picture about the draft
law's chances for success, AmCham South China representatives from
Disney, Adidas, and Nike emphasized a strong need for alternative
mediation training opportunities. Disney Asia's Regional Director
for International Labor Standards Jim Leung described a huge gap in
the abilities of Chinese arbitrators and labor officials, stating
that while multinational companies would welcome effective formal
mediation processes, Chinese mediators lacked the perceived
neutrality and arbitration experience of American negotiators.
Without effective legal mediation, Leung said, American companies
were turning to private human resources consulting firms and NGOs
for labor conflict resolution training. All of the company
representatives expressed great interest in possible USG-sponsored
or NGO-supported mediation training opportunities, saying that the
demand for arbitration skills was considerable.

9. (SBU) In south China's existing factory workplace culture,
mediation could not happen naturally and labor disputes would
continue to fester, according to the AmCham representatives.
Specifically, a dearth of overall management skills, traditional
top-down company structures, and a lack of employee feedback
mechanisms all contributed to fraying labor-management
relationships. All three companies confirmed that workplace abuses
were rampant in south China, directly affected their own
manufacturing supply chains, and presented the companies with
serious labor compliance challenges. Noting that labor shortages
and labor disputes had increased dramatically since 2004, Leung
guessed that China's new labor regulations would take at least 20 to
30 years to significantly change China's existing culture of
labor-management relations.

10. (U) This cable was cleared by the FMCS delegation.


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