[Joint House and Senate Hearing, 108 Congress]
[From the U.S. Government Publishing Office]




                    CODES OF CONDUCT: U.S. CORPORATE
                    COMPLIANCE PROGRAMS AND WORKING
                    CONDITIONS IN CHINESE FACTORIES

=======================================================================

                               ROUNDTABLE

                               before the

              CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 28, 2003

                               __________

 Printed for the use of the Congressional-Executive Commission on China


         Available via the World Wide Web: http://www.cecc.gov



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              CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

                    LEGISLATIVE BRANCH COMMISSIONERS

House                                     Senate

JIM LEACH, Iowa, Chairman            CHUCK HAGEL, Nebraska, Co-Chairman
DOUG BEREUTER, Nebraska              CRAIG THOMAS, Wyoming
DAVID DREIER, California             SAM BROWNBACK, Kansas
FRANK WOLF, Virginia                 PAT ROBERTS, Kansas
JOE PITTS, Pennsylvania              GORDON SMITH, Oregon
SANDER LEVIN, Michigan               MAX BAUCUS, Montana
MARCY KAPTUR, Ohio                   CARL LEVIN, Michigan
                                     DIANNE FEINSTEIN, California
                                     BYRON DORGAN, North Dakota

                     EXECUTIVE BRANCH COMMISSIONERS

                 PAULA DOBRIANSKY, Department of State*
                 GRANT ALDONAS, Department of Commerce*
                D. CAMERON FINDLAY, Department of Labor*
                   LORNE CRANER, Department of State*
                   JAMES KELLY, Department of State*

                      John Foarde, Staff Director

                  David Dorman, Deputy Staff Director

* Appointed in the 107th Congress; not yet formally appointed in 
  the 108th Congress.

                                  (ii)


                            C O N T E N T S

                              ----------                              
                                                                   Page

                               STATEMENTS

Cahn, Doug, vice president, human rights program, Reebok 
  International, Ltd., Canton, MA................................     2
Niepold, Mil, director of policy, Verite, Inc., Jersey City, NJ..     5
van Heerden, Auret, director of monitoring, Fair Labor 
  Association, Washington, DC....................................     9
Rosenbaum, Ruth, executive director, Center for Reflection, 
  Education, and Action, Hartford, CT............................    12

                                APPENDIX
                          Prepared Statements

Cahn, Doug.......................................................    32
Niepold, Mil.....................................................    35
van Heerden, Auret...............................................    38
Rosenbaum, Ruth..................................................    44

 
                   CODES OF CONDUCT: U.S. CORPORATE 
    COMPLIANCE PROGRAMS AND WORKING CONDITIONS IN CHINESE FACTORIES

                              ----------                              


                         MONDAY, APRIL 28, 2003

                            Congressional-Executive
                                       Commission on China,
                                                    Washington, DC.
    The roundtable was convened, pursuant to notice, at 2:30 
p.m., in room 2200, Rayburn House Office Building, John Foarde 
[staff director] presiding.
    Also present: Mike Castellano, office of Representative 
Sander Levin; Karin Finkler, office of Representative Joe 
Pitts; Andrea Yaffe, office of Senator Carl Levin; Bob Shepard, 
office of Deputy Secretary of Labor D. Cameron Findlay; Susan 
O'Sullivan, office of Assistant Secretary of State Lorne 
Craner; Erin Mewhirter, office of Under Secretary of Commerce 
Grant Aldonas; Susan Roosevelt Weld, general counsel; Selene 
Ko, chief counsel for trade and commercial law; Lary Brown, 
specialist on labor issues; and William Farris, senior 
specialist on Internet and commercial rule of law;
    Mr. Foarde. Good afternoon and welcome to this issues 
roundtable of the Congressional-Executive Commission on China. 
My name is John Foarde. I am staff director. On behalf of 
Chairman Jim Leach and Co-Chairman Chuck Hagel, we welcome all 
of you this afternoon and appreciate not only your coming to 
hear and listen, but particularly to our panelists for coming 
to share their 
expertise with us this afternoon.
    As anyone who has read our first annual report, which was 
published last October, can attest, our bosses care about the 
topic of corporate social responsibility. They asked us to look 
into it this year in a very intensive way. One of the first 
things we discovered, of course, is that not everyone agrees as 
to what ``corporate social responsibility'' means.
    Certainly one of the responses of the business community 
has been to adopt codes of conduct to guide their own behavior 
as they invest and trade abroad. There are a number of codes, 
and not all of them say the same thing. So we thought, as a 
point of departure, that it would be useful to have several 
experts come in to talk about corporate compliance with codes 
of conduct. Do they make any sense? Do they work? We have 
succeeded beyond our wildest dreams by having four first-class 
panelists.
    I will introduce all of them at greater length, but they 
are Doug Cahn, vice president, Human Rights Programs, Reebok 
International, Ltd.; Mil Niepold, director of policy, Verite, 
Inc.; Auret van Heerden, director of monitoring, the Fair Labor 
Association [FLA]; and Dr. Ruth Rosenbaum, executive director, 
Center for Reflection, Education, and Action [CREA].
    We are going to adopt our usual practice of going wall to 
window and begin over on this side with Doug Cahn. As vice 
president of Human Rights Programs, Doug oversees Reebok's 
corporate commitment to international human rights, both 
through the company's business practices and through its 
philanthropic endeavors. He joined Reebok in October 1991.
    Doug leads the team that develops and implements Reebok's 
workplace code of conduct for factories making Reebok products. 
Under his direction, Reebok has been an early leader in 
innovative ways to apply codes of conduct to factories owned 
and operated by third parties, including the development of a 
child-labor-free soccer ball factory in Pakistan, human rights 
training programs, worker communication system, and assessment 
tools.
    Doug Cahn directs the human rights grant-making effort at 
the Reebok Human Rights Foundation as well.
    Doug, welcome and thank you for coming.
    Let me review the ground rules here. We will let each 
panelist speak for 10 minutes. After 8 minutes, I will remind 
you that you have 2 minutes remaining. Any point that you can't 
get to in your presentation, we will try to pick up in the 
question and answer session, after all four panelists have 
presented. Each staff member here will get a chance to ask 
questions.
    Doug, please.

STATEMENT OF DOUG CAHN, VICE PRESIDENT, HUMAN RIGHTS PROGRAMS, 
             REEBOK INTERNATIONAL, LTD., CANTON, MA

    Mr. Cahn. Thank you very much, and thank you for giving me 
and Reebok the opportunity to be with you here this afternoon.
    For over a decade, Reebok International, Ltd., has 
implemented its code of conduct, the Reebok Human Rights 
Production Standards, in the independently-owned and -operated 
factories that make its products. We do this to ensure that 
workplace conditions meet internationally recognized standards 
and local law, to honor our corporation's commitment to human 
rights, to protect our brand reputation, and to benefit, most 
importantly, the lives of 150,000 workers--nearly half of whom 
live in China.
    In recent years, an increasing focus of Reebok's monitoring 
work has been to encourage factory workers to participate in 
workplace decisions. This focus is born out of Reebok's 
experience that code of conduct compliance is enhanced when 
workers are involved in identifying workplace problems and 
resolving them in dialog with management.
    The current movement of global brands to monitor factories 
has its limits. Professional monitors can do much good, but 
they cannot be present in every factory, all the time. This 
realization has caused us to recognize that a worker 
representation model--one in which workers participate in 
decisions that affect their lives--can speed our efforts to 
ensure that quality workplace conditions are sustained. Among 
our standards is the provision that Reebok will respect the 
rights of workers to freedom of association. With worker 
representation projects, we facilitate the development of this 
right, even when host country laws do not fully accept the 
covenants of the International Labor Organization [ILO] 
relating to freedom of association and collective bargaining. 
In China, as an example, we hope our worker representation 
projects will give greater meaning to this provision of our 
code of conduct.
    In China, our worker participation programs have resulted 
in elections of worker representatives in two large footwear 
factories. While elections are not the only way of developing 
problem-solving mechanisms that include worker participation, 
they are permissible under the law in China and, as the level 
of participation in the two elections demonstrate, workers view 
these elections as acceptable methods to choose representatives 
who can defend their interests.
    Our experiment began with the facilitation of the 
democratic election of worker representatives in the Kong Tai 
shoe factory [KTS] located in Longgang, China in July 2001. 
This athletic shoe factory is publicly listed on the Hong Kong 
Stock Exchange and employs just under 6,000 workers.
    In the spring of 2001, we examined the existing union 
charter and Chinese labor law. Working with management and the 
then-appointed union, an affiliate of the All China Federation 
of Trade Unions [ACFTU], all parties agreed to a process that 
would be followed and on the underlying charter that would be 
its guide.
    The previous union membership consisted of 19 committee 
members, of whom 18 were office workers or guards. We sought to 
avoid the preponderance of non-production line workers serving 
as union leaders by insisting on proportional representation. 
We wanted to ensure that a new union would truly represent all 
workers. Communication and outreach was the next important 
step. Workers needed to understand the process in order to be 
able to participate fully in it.
    There were a variety of materials prepared in order to post 
on the walls and explain to workers what this process was 
about. Open forums were critically important at that point in 
order to provide the opportunity for workers to hear the 
purpose and the process for the union election.
    Under the rules, candidates were to be self-nominated. And 
we were delighted that 62 candidates put their names forward. 
The voting was conducted in secret. On July 28, 2001, each 
worker received one colored ballot denoting their election 
zone, and the voting took place.
    On the day of the election, there were 4,658 workers in the 
factory; 1,130 were on leave; 3,409 ballots were issued; 119 
chose not to vote. There were 102 spoiled ballots, and 17 
ballots were not 
returned.
    During the election, 26 workers--16 women and 10 men--were 
elected to the committee out of 62 worker candidates. Of the 26 
workers 15 were line workers, 7 were line leaders or 
supervisors, and 4 were office staff. Of the six former 
executive committee members who ran, four were re-elected.
    Training was and continues to be an essential post election 
activity, so that the elected representatives can have a better 
understanding of what is possible under the law in China, and 
to help them in the process of organizing themselves to become 
an effective voice for workers.
    A second election was held in a Taiwan-invested factory in 
October 2002. The 12,000 workers at the Fu Luh Sports Shoe 
factory in Fuzhou, China voted for 192 candidates in 7 election 
zones. Although the Fu Luh factory had a union previously, 
there was no charter--nothing written down about the purpose or 
the structure of the union. So they had to start from scratch.
    We began by bringing Fu Luh leadership to the first 
factory, the Kong Tai factory, the one I just mentioned, to 
view first hand the process and the outcome of the election 
that had been held there a year earlier. Representatives were 
then introduced to the Kong Tai charter during that visit and 
subsequently relied heavily on it for the development of their 
own charter document.
    Workers were given the opportunity to self-nominate at the 
second factory, the same as the were in the first. Open forums 
preceded the nomination process and were meant to inform 
workers about the elections, explaining how this was different 
from the past; explaining the purpose, for instance, of the 
trade union; and encouraging workers' involvement.
    Fu Luh has only one small dorm that houses a few of the 
factory's workforce. Most of the workers live offsite. So to 
ensure that workers would attend the open forums where the 
process of the elections was discussed, workers were required 
to attend and were compensated for their time. Open worker 
forums on this lasted for about an hour and a half.
    The voting, again, was by secret ballot and took place in a 
fully transparent manner. A week following the election for the 
committee members, the chair and vice chair were elected from 
among the committee members, and the whole process with 
speechmaking and such was repeated.
    Training is now the focus at the second factory, the Fu Luh 
factory, so that the worker representatives can have the 
benefit of the knowledge that comes with understanding how to 
organize information and how to conduct a meeting and such, the 
basic prerequisites that are necessary for workers to be able 
to adequately represent the larger workforce. Two training 
sessions have already occurred, and we expect an additional one 
in the future.
    The elections at Kong Tai and Fu Luh are initial efforts to 
enhance the voice of workers in China in a way that will aid 
code compliance and lead, we hope, to a more sustainable model 
for improving workplace conditions.
    These elections were fully consistent with Chinese law and 
were supported by the local ACFTU officials. We were pleased 
will the overall level of support we observed and we commend 
all parties, including ACFTU officials, for their forbearance 
and, in many cases, active support.
    The guiding principles in the election process were self-
nomination; transparency; proportional representation; and one 
person, one vote. Self nomination to stand as a candidate; 
transparency in the process, so that all would understand it 
with the same voice; proportional representation to make sure 
that each part of the factory was represented in the union 
committee; and one person, one vote by secret ballot.
    In conclusion let me say this, to label the experiments as 
``successes'' or ``failures'' is to try to put them in boxes 
where they don't necessarily fit. We view them as more steps in 
the right direction toward compliance that is more sustainable 
and that involves workers in the process.
    We are pleased that all parties have cooperated to permit 
these elections to take place in a credible, transparent manner 
in which they were conducted. At Kong Tai, the union is still 
growing and developing. They have spent much of their time 
during the last year learning how to work together and how to 
be a voice for workers. They have routinely assisted workers to 
get approvals to take leave. They have fought for proper 
medical compensation for sick workers.
    We hope these elections will demonstrate that an increase 
in worker participation can be achieved in an environment where 
fully independent unions do not exist. Our experience is that 
there is room for movement and progress within the confines of 
what unions are permitted to do today in China. It is our hope 
that through this example, other multinational brands and other 
factories will experiment with these and other ways to 
establish 
sustainable methods for achieving code compliance. In the end, 
we better implement our standards when we are willing to 
challenge ourselves, our factory partners and workers to find 
new, more sustainable ways to achieve internationally 
recognized workplace norms.
    Thank you.
    [The prepared statement of Mr. Cahn appears in the 
appendix.]
    Mr. Foarde. Doug, you are obviously an expert at this. You 
have come in exactly on time, and your discipline is 
commendable and appreciated.
    We would like to come back to the many issues that you have 
raised in your statement in the Q and A. It is really very 
interesting.
    Our next panelist is Mil Niepold, director of policy at 
Verite, Inc., and head of the Verite New York regional office. 
Verite is a nonprofit auditor of factory working conditions 
around the world, and has performed over 900 individual factory 
evaluations in 64 countries since 1995, including over 200 in 
China.
    In 1999, Mil negotiated the selection of Verite as the 
monitoring body in the settlement of the Saipan lawsuit against 
18 U.S. retailers. Before joining Verite, her work spanned both 
the private sector, Fortune 500 companies such as American 
Express, and the public sector, the United Nations, the 
European Union, as well as various NGOs and nonprofits.
    Mil, welcome and thanks very much for coming. Please.

  STATEMENT OF MIL NIEPOLD, DIRECTOR OF POLICY, VERITE, INC., 
                        JERSEY CITY, NJ

    Ms. Niepold. Thank you. I wanted to first thank the 
Commission for inviting Verite's testimony here today. In 1973, 
Zhou Enlai, Chinese Premier, said ``China is an attractive 
piece of meat coveted by all . . . but very tough, and for 
years no one has been able to bite into it.'' The population is 
not the only part of this estimation that has changed 30 years 
later. Multinational corporations [MNCs], global trading 
organizations like the World Trade Organization [WTO] and even 
a few inter-governmental organizations [IGOs] and non-
governmental organizations [NGOs] have clearly ``taken a 
bite.'' It is Verite's core belief, and one shared by many 
advocates, that respect for labor and human rights--the very 
same ones that are covered by this Commission's mandate and 
that China has quite often signed and ratified itself--comes 
only when workers themselves are an integral part of the 
process. Later, when I address examples of initiatives that 
have worked or might potentially work, the direct involvement 
of workers will be the common thread in each case.
    So who is Verite? Over the past 8 years Verite has 
interviewed approximately 18,000 factory workers for the 
purpose of identifying the issues workers face in a newly 
globalized economy. Verite's mission is to ensure that people 
worldwide work under fair, safe, and legal conditions. Our 
pioneering approach brings together multinational corporations, 
trade unions, governments, non-governmental organizations, and 
workers, primarily, in over 65 countries for the purpose of 
identifying solutions to some of the most intractable labor 
rights violations.
    Verite performs social audits--as you have said, to date, 
over 1,000 factory evaluations have been conducted--to analyze 
workplace compliance with local and international labor, 
health, safety, and environmental laws and standards. Unique as 
a nonprofit in the sector dominated by private sector firms, we 
go beyond monitoring to provide factories with specific 
recommendations on how to remedy the problems that we uncover. 
We also provide training for factory management and 
manufacturers. To address the needs of workers, Verite conducts 
education programs to teach workers their legal rights and 
entitlements in the workplace as well as ``life skills.''
    In China, this program has been our greatest success. 
Verite has operated in China--our first and largest area of 
operation--extensively since 1995. We have conducted nearly 200 
factory audits in China over the last 8 years. In the past 2 
years alone, we have done 112.
    Our findings, and those of others, are very disturbing. 
There are egregious health and safety violations. China's own 
Work Safety Administration reported 140,000 deaths in 2002. 
That is an increase of approximately 30 percent over the year 
before.
    Chinese media sources reported 250,000 injuries in the 
first quarter of this year, 30,000 of them resulting death. 
This is all sectors combined.
    The ILO ranks China as the world ``leader'' in industrial 
accidents. China estimates 25 million workers are exposed to 
toxins annually, with tens of thousands of them injured and 
incapacitated annually.
    The Hong Kong Christian Industrial Committee recently 
reported that after 10 years of research on the toy industry--
China manufactures 70 percent of the world's toys--a full 55 to 
75 percent of toy factories are still classified as poor, 
meaning 80 to 100 hour workweeks are common. The majority of 
factories use triple or even quadruple books in order to mask 
the under payment or non-payment of legally mandated overtime 
premiums, which range from 1\1/2\ to 3 times the base wage 
depending on the day.
    In some instances it has taken even our most experienced 
teams days of research, and interviews, and analysis to really 
uncover the true extent of the problem.
    Labor laws that are on balance quite robust--for example 
those requiring overtime premiums, or automatic machine shut-
off devices--are in fact not enforced. Harassment and lengthy 
imprisonment are also common for those who report violations, 
peacefully demonstrate, or who try to associate freely.
    Since 1998, Verite has organized an annual China Suppliers 
Conference that brings together factory owners and managers 
with government officials and non-governmental organization 
specialists with the purpose of exploring issues and solving 
problems.
    Now to the topic for today, codes versus laws in China. 
While not unique to China by any means, there is a growing 
debate regarding the value of voluntary initiatives, such as 
codes of conduct, versus direct legal obligations within both 
national and international legal frameworks. For the purposes 
of this discussion, I will not cover this debate in any detail. 
However, as we are discussing codes of conduct and examples of 
best practices--with the aim of achieving improved labor rights 
compliance in China--I would be remiss if I did not at least 
touch upon the subject.
    Direct obligations, i.e., those that are placed upon 
companies under international law, are certainly weaker than 
those that are indirect, those placed upon them by governments. 
Weaker though they may be, there is nonetheless a clear upward 
trend in their being extended to multinational corporate 
actors. Movements such as the International Right to Know 
Campaign, and the increasing use of U.S. courts to seek redress 
for perceived MNC complicity in overseas human and labor rights 
violations, for example Unocal and Saipan, to name a few, using 
the Alien Tort Claims Act, are examples of this trend.
    So, for our purposes today, you may wonder why these 
distinctions between voluntary initiatives and direct 
obligations under international law are relevant? It is simply 
because, to quote the excellent report by the International 
Council on Human Rights Policy, we must go ``beyond 
voluntarism.'' Codes are squarely in the camp of voluntarism 
and while they are a useful starting point for improving labor 
rights compliance, they are simply not enough to right the 
``imbalance of power'' that exists today between multinationals 
and most governments.
    Governments do not have the resources that multinationals 
do--resources that are in many places, including China, greatly 
eroded by endemic corruption. Limited resources greatly hinder 
labor rights enforcement, but they are not the sole issue. I am 
by no means suggesting that more laws and/or more enforcement 
are the only answer, but I am saying that rooting both 
voluntary codes and national laws in a strong international 
framework creates a ripple effect that will help enforcement in 
ways that merely increasing the number of labor inspectors 
cannot.
    Violations of human and labor rights thrive in cultures of 
impunity. Take the example of slavery. While now outlawed in 
virtually every country of the world, this heinous practice 
continues, particularly in countries where the rule of law is 
eroded. Just as corruption of government officials and police 
officers allows slavery to flourish, so too do labor rights 
violations.
    Strengthening the rule of law in any given country is not a 
task merely for MNCs and their voluntary initiatives. This is a 
task for governments. Grounding all efforts in the 
international legal framework helps to achieve a few important 
things. It creates a climate that favors compliance by 
strengthening the effectiveness of voluntary initiatives and it 
strengthens the work of NGOs and workers' advocates and 
improves judicial efforts, both domestic and international.
    Thus, it is incumbent upon those of us concerned with 
improving labor rights on the ground in China, as elsewhere, to 
use multi-layered approaches that draw on past successes. Each 
approach should also be aligned with a particular ``sphere of 
influence'' of the respective stakeholder. Historically, the 
greatest successes have come from governments working on the 
most macro-level legislative improvements, government-to-
government consultations, technical assistance programs, and 
the like.
    MNCs in turn have had success when they assert their 
considerable leverage primarily at the supplier/factory level 
but they should by all means continue to exert pressure on 
governments. One of the best examples of an MNC working on 
creative solutions would be the example that Doug Cahn has just 
spoken about, with the Kong Tai election, but there are others.
    The Institute of Contemporary Observation launched an 
initiative recently, posting posters in factories and also 
setting up a worker hotline to report violations. There is also 
another coalition, the China Working Group, that nine 
corporations have joined.
    It is very common to discuss the ``sticks'' when discussing 
human and labor rights. But, I find the ``carrots'' to be of 
greater interest. The examples cited above share a few things, 
most notably the inclusion of the workers in the process.
    I wanted to close with a quote from Mao Zedong. Speaking of 
the population of China, he said, ``On a blank sheet of paper 
free from any mark, the freshest and most beautiful pictures 
can be painted.''
    The picture for labor rights in China would have to include 
the following: harmonization of the multiple codes of conduct; 
a greater degree of responsibility on the part of 
multinationals for the havoc they wreak with their ``just in 
time'' delivery and price pressures; passage, or modification, 
of implementing legislation required under China's ratification 
of the International Covenant on Economic, Social, and Cultural 
Rights [ICESCR]; and finally, a direct contact mission from the 
ILO.
    This would be a very beautiful picture indeed. Thank you.
    [The prepared statement of Ms. Niepold appears in the 
appendix.]
    Mr. Foarde. Thank you very much. Also lots of food for 
thought and for a subsequent discussion in the Q and A.
    I would like to continue now with Auret van Heerden. Auret 
represents the Fair Labor Association. The FLA is a unique 
collaborative effort to improve working conditions in factories 
around the world by working cooperatively with forward-looking 
companies, NGOs, and universities. The FLA has developed a 
workplace code of conduct based on ILO standards, and has 
created a practical remediation and verification process to 
achieve these standards.
    Auret van Heerden has a long history of labor activism in 
South Africa and is also an official of the International Labor 
Organization on loan--if I understand correctly--to FLA. It is 
a great pleasure to have you today, and thanks for coming.

 STATEMENT OF AURET VAN HEERDEN, DIRECTOR OF MONITORING, FAIR 
               LABOR ASSOCIATION, WASHINGTON, DC

    Mr. van Heerden. Thank you. I would like to just start off 
just setting up what codes of conduct are not.
    Codes of conduct are in no way, shape, or form a 
replacement or a substitute for national labor laws and their 
enforcement. Codes of conduct can never replace workers' 
organizations and collective bargaining.
    The challenge we face is that, in many countries where FLA 
participating companies source, you do not have adequate 
enforcement of labor law. You do not have adequate penetration 
of trading and organization. You do not have collective 
bargaining agreements to regulate terms and conditions in the 
workplace.
    The reasons for that are varying and many, and we do not 
have time to go into them now, but suffice it to say that we 
are working in a global marketplace which is increasingly 
unregulated. Right now, I see that trend still going in the 
wrong direction. This is despite the very noble efforts of the 
ILO to reinforce national labor administration to build up 
employer and worker organizations around the world. This is 
despite the fact that the global marketplace is subject to 
evermore public scrutiny by the media. Consumers are better 
informed than ever before.
    Yet national level labor administration systems and labor 
relations systems continue to decline. There are a few rays of 
hope out there. Indonesia, for example, has undertaken major 
labor law reforms in recent years. But, those efforts are 
really only in their infancy, and in some cases, are throwing 
up new problems that we have to deal with. In Indonesia, for 
example, we have a massive proliferation of trade unions, 
creating chaos and confusion.
    In China, we have a central government which is very aware 
of these challenges. In my previous work with the ILO, the 
Chinese Government explicitly asked the ILO to come in and help 
it reform its labor relations system in its special economic 
and export processing zones. They are also cognizant of the 
fact that they don't control the provinces and the cities. 
These are tremendous barriers in the application of these labor 
laws, and in many cases, non-application.
    Mil has already made reference to the factor of corruption 
which undermines the consistent application of labor law in 
China.
    The second challenge that the FLA participating companies 
face is that of global competition, because what you have in 
the global market place right now is a consistent demand by 
consumers for a cheaper product. Weave tailors shave the 
margin. Those pressures go all the way down supply chain. 
Everybody wants to reduce the price being paid for the article, 
but also to have shorter and shorter lead times, and quicker 
and quicker delivery.
    Those price pressures accumulate on the suppliers at the 
bottom of the chain. Since many of them don't have the 
management capacity or the management tools to deal with them, 
they end up working harder rather than smarter. So, again, 
global competition in some ways is pushing factories into non-
compliance.
    FLA participating companies, together with the other 
stakeholders in the FLA, have come together and have tried to 
address this through codes of conduct and internal and external 
monitoring. I want to stress that it is not the monitoring 
itself which is designed to achieve the compliance. Independent 
monitoring or even the internal monitoring is simply a 
measurement of the progress that the brands have made in their 
internal development work in those factories.
    Brand name companies are going back to those factories 
weekly, monthly, many times a year to not just identify the 
compliance issues in those factories, but to actively work with 
them on remediation programs. The monitoring conducted by the 
FLA is an assessment of the efficacy of those programs.
    Doug Cahn spelled out the pioneering initiative they have 
in China to elect worker representatives. That is one example 
of how brand name companies can respond to a designated 
problem, namely freedom of association in China. Their 
monitoring is not to repeat that there is a problem with 
freedom of association, rather it is to help a company like 
Reebok assess where it has come in its remediation program and 
to help it improve, refine, or focus those remediation 
programs.
    This is where I think that the FLA program becomes 
interesting, in two senses. One is that the brands are inside 
China. Unlike many other commentators and critics who are by 
definition outside, the brands are present inside China. They 
have access like you wouldn't believe to thousands of factories 
in China.
    The second point is that they are remediating. They are 
concretely, practically, in a nuts-and-bolts fashion bringing 
about changes.
    However, these efforts, as concerted as they, are face the 
same limitation that every labor administration system in the 
world faces--even here in the United States--you never have 
enough labor inspectors, or enough labor officials to go to 
enough factories on a frequent enough basis to bring about 
compliance. Compliance has to be something generated 
internally, organically within those workplaces. So, we need to 
somehow use this effort to kick-start, to catalyze processes in 
those factories that will allow them to regulate the terms and 
conditions.
    The ILO in its 90 years of existence has always promoted 
worker organization, consultation, negotiation, and dispute 
resolution as a most effective way of doing that. I think that 
it is, to date, still the best option that we have. Again, the 
KTS example is an excellent one of how that can be 
progressively introduced in a context like China.
    There are a number of other initiatives which we can work 
in parallel with, or in concert with in China--young labor 
lawyers are taking up cases of industrial accidents, seeking 
compensation under Chinese labor law--a very comprehensive 
law--seeking compensation for workers who are injured; young 
labor activists doing workers' education so that they can elect 
their own representatives; groups working with young women 
workers, and many of the problems of discrimination and abuse 
that they face, particularly young migrants who come from far 
away.
    There are initiatives within the group of Chinese employers 
who are trying to grapple with these international standards 
that they are now being held up to, and who are trying to 
develop their own policies, and their own management tools to 
be able to meet these standards. It is quite a shock to go to a 
Chinese footwear factory, and one of the first offices you come 
to has a sign on the door saying ``Human Rights Officer.'' Now, 
that is clearly under pressure from brand name companies and 
codes of conduct, but it is a 
response. And it is a response which can be encouraged, can be 
guided, and which through capacity-building activities can 
start to contribute to that indigenous, organic process that we 
need to catalyze positive action within these factories.
    The ILO clearly has a vital role to play in this as well, 
both at the central level, in helping the Chinese Government 
continue its labor law reform program, but also more 
importantly in the capacity building sphere. If you take a 
problem like hours of work, which Mil referred to, we went in 
initially and insisted on the maximum of a 60-hour work week. 
Factories simply could not cope with that. Competitive 
pressures required a lot more than that. Workers wanted to work 
a lot more than that in order to maximize their earnings.
    So, as with any enforcement system, if you place the bar 
too high, people are obliged to evade it. So, they show us 
false books. If you then try to deal with that problem 
structurally, you realize that, in effect, you need to re-
engineer those factories for them to have any hope of observing 
the 60-hour work week. That is still a long way short of 
Chinese labor law.
    At the moment, there are very few organizations and 
institutions that can go in and do that kind of work in China. 
Brand name companies can certainly do it factory by factory, 
but it would add a lot of horsepower to that effort if the ILO 
could mount a far larger program with its partners in China. 
Teach factories how to schedule or how to re-engineer their 
production process. Teach them how to organize shifts, which a 
lot of them are not doing properly at the moment.
    We can then monitor that process to ensure that it is 
making progress, and to ensure that those abuses are gradually 
being reduced. That combination of initiatives, the ILO working 
together with its partners, the Chinese Government, employers, 
trade unions, brand name companies, and monitoring 
organizations like the FLA, all of that requires resources 
which are very scarce at the moment. American brand name 
companies are going to China and investing in companies that 
are unknown. It is a unique situation. Brand name companies are 
helping workers form worker organizations. It is a unique 
situation, but then China is a unique environment in which to 
be working. So, I think for the time being it is justified, and 
is the most appropriate response we have at the moment. Thank 
you.
    [The prepared statement of Mr. van Heerden appears in the 
appendix.]
    Mr. Foarde. Thank you very much, Auret. Again, lots of meat 
for subsequent conversation.
    Let us go on. Let me recognize Dr. Ruth Rosenbaum, founder 
and executive director for the Center for Reflection, 
Education, and Action [CREA]. The center is located in 
Hartford, CT. CREA is a social, economic, research, and 
education organization, unique in that it starts its analyses 
of social and economic systems from the perspective of their 
affect on the lives of the persons made poor or kept poor.
    In addition to educational programs, CREA offers a multi-
faceted service for individuals, organizational investors, and 
investment managers who are committed to socially responsible 
investment. Ruth is associate professor for research at the 
Labor 
Education Center at the University of Connecticut. She is also 
the coordinator of the New England Coalition for Responsible 
Investment, and has served as co-chair of the Global Corporate 
Accountability Issue Group at the Inter-Faith Center on 
Corporate Responsibility since its creation.
    Ruth is the creator of the Purchasing Power Index [PPI], a 
trans-cultural measurement of the purchasing power of wages, 
used to determine what constitutes a sustainable living wage. 
Ruth, thanks very much for coming. I appreciate you sharing 
your expertise with us.

  STATEMENT OF RUTH ROSENBAUM, EXECUTIVE DIRECTOR, CENTER FOR 
        REFLECTION, EDUCATION, AND ACTION, HARTFORD, CT

    Ms. Rosenbaum. Thank you. I asked either to be first or 
last because the way we look at things at CREA really has to do 
with looking at things on a much more systemic basis. That is 
the way I would like to pose my comments this afternoon.
    When we look at codes of conduct in China, we see their 
functioning as parallel to what has happened in every other 
country in which we have been involved. My comments are going 
to be based on that cumulative knowledge, and then we can 
specifically apply it to China.
    The first thing I would say is there is a major question 
that needs to be asked, and that is why a company is in China 
in the first place? If the work situations are so bad, if the 
labor situations are so bad, if they violate, from the 
beginning, codes of conduct that corporations have, why are the 
companies there?
    We need to be honest and acknowledge that underneath all 
the other issues affecting the decision of companies to be in 
China, there is the essential issue of cost of production. 
Companies are in China because the cost of production is 
cheaper.
    When we examine the effect of this low cost of production, 
we see several related issues: First, the factory seeks to pay 
the lowest wages possible.
    Second, the brands placing the orders seek an ever 
shortening turn around time, that is, the time between placing 
the orders and receiving the orders.
    Third, in order to fill orders in the shortened turn around 
time, extended overtime becomes the norm within factories. And 
workers, seeking higher income, are often willing to work the 
extended overtime simply because they need more income than 
their basic wages can provide.
    To this gets added the ``just in time'' production system 
in which companies keep inventory to the lowest limit possible 
and then place orders when they need an item, again demanding 
the shortest turn around time possible.
    There is this global reach for what we have said is a race 
toward the bottom in terms of wages. It is almost impossible to 
talk about raising wages above minimum wage. The corporations 
will say to us, ``Well, we do what is legal.'' And we reply, 
``Well, we would expect that you would do what is legal.'' But 
that legal requirement is a floor, and not a ceiling.
    We have asked workers in many, many countries, if you were 
paid more, would you want all of the overtime, and they say no 
because they have lives. They have lives with their friends. 
They have lives with their families. They have lives with 
something outside of work.
    And so, again, the question to the corporations is, why are 
they in China in the first place?
    The second issue is where does the power exist to bring 
about change? It should exist in the governments. If you read 
the paper that I presented for the meeting today, we talk about 
government extensively. Somehow, we have created a system where 
brand names have produced codes of conduct, and from that we 
are asking them to come up with systems of compliance.
    The purpose of the code of conduct should not be just 
keeping the brand name out of trouble. For many corporations 
having a code of conduct and doing some kind of minimal 
compliance is simply to get the news media off of their back, 
and to get shareholders off of their back.
    The purpose of the code of conduct realistically should be 
bringing about change for workers. However, that purpose is so 
low on the ladder of priorities for many corporations, that it 
doesn't even seem to exist. We have seen codes take the place 
of laws, and we believe that is absolutely critical that we 
take a look at this.
    Somehow the production system in most industries has 
concluded that corporations bear the ultimate responsibility 
for the conditions under which their products are manufactured 
or assembled. We then expect them to become the creators of the 
standards for the factories and the enforcers of those 
standards. In other words, we have handed over to corporations 
the role of society and the role of government: making and 
enforcing standards of laws to the corporations we are holding 
accountable. It is a shift in power. It is a shift in 
responsibility. It is a shift in accountability. We believe 
that that is really dangerous for society as a whole.
    If you go into most factories, you will see a multiplicity 
of codes. Some managers will say to us, which code are we 
supposed to be obeying? The highest? The lowest? Depending upon 
who is going to be inspecting us this week, or this month? Are 
standards supposed to change from day to day, or week to week? 
Who decides? It is an absolutely bizarre system.
    Out of this we have created all kinds of systems of 
certification of factories, monitoring, inspecting, etc. The 
problem with all of that, even though some people are doing 
heroic work in trying to improve the conditions in the 
factories, is that the power comes from outside the factory and 
outside the country. The money comes from outside the country, 
and outside the factory. When it is all over, the power and the 
money leave the factory, and leave the country.
    So, we are not transferring power to the local community. 
We are not transferring power to the factory to really bring 
about the change that is expected.
    For us at CREA, there are three central issues that we use 
to evaluate whether or not a code of conduct and whatever 
enforcing systems are in place, whether that factory or code is 
succeeding. The first measurement for us is absolutely basic, 
what has changed for the workers? Although it is a simple 
question, this should be the reason why we are looking at 
codes. It is the situation in the factory that we are trying to 
address. And we believe that it is absolutely critical that we 
see these codes and the situations they are trying to address 
not as an abstract thing, unchanged over time, but rather as 
the day-to-day reality that workers have to work within every 
single day of their lives around the world.
    The second measurement that we use is how is the power of 
enforcement transferred back to civil society and other 
components of society in China and in other countries? If all 
the inspecting, certifying, all the monitoring, and all of the 
enforcing continues to come from outside the country, it will 
continue to be a system of putting out fires, and of presuming 
that if a small percentage of factories are OK, then they all 
are. There are simply not enough monitors and certifiers in the 
world to take care of all the factories that have to be 
monitored and certified.
    And then the third measurement we have is: where does the 
money and the power attached to the money accumulate as a 
result of all the inspecting, and certifying, and monitoring? 
How do we have a transfer to the local communities so that they 
can govern themselves? We do that through education of workers. 
We do that through the education and the sharing of power with 
civil society. We also have to do it with the money that is 
being spent on all of this.
    If you talk to monitoring groups or groups that are trying 
to do worker education around the world, one of the biggest 
problems they have is where do they get the funding to survive? 
I would suggest to you that the majority of that funding is 
being absorbed by organizations in the United States. We need 
to be honest about that. We need to learn to share this out.
    Looking at the specifics of China today, we would like to 
suggest the following: First, that there is a need to start 
with recognition of the inherent dignity of each human being, 
so that workers are seen not only in terms of what they are 
able to produce.
    Second, the need to look at ways of strengthening civil 
society in China. CREA presently is collaborating with the 
Institute for Contemporary Observation [ICO], and transferring 
our knowledge and our ability in terms of measuring a 
sustainable living wage to them so that they will be able to do 
that in their community.
    Third, we believe that the CECC, corporations, any group 
working on the issue, again, needs take a look at why companies 
are moving to China. What is it that they gain because of the 
labor situation there as compared to other countries?
    Fourth, there needs to be a greater analysis of Chinese law 
related to labor, including occupational health and safety, 
wages, overtime, freedom of association and right the to 
organize, and systematic ways of addressing these. Again, 
coupled with the ILO standards that we have heard spoken about.
    Fifth, we need to figure out a way to make it beneficial 
for factory managers to adhere to the standards. We have got to 
move from it being a punitive system to being a reward system.
    Sixth, how do we provide support for collaborative efforts 
between corporations to enhance their power to bring about 
change as well as to create an equal standard? Now we see that 
happening in the apparel industry, and somewhat in the footwear 
industry. But we have the automotive industry, the electronics 
industry--there is not an industry out there to which this is 
not applicable. Somehow, they are not even on the radar screen 
in terms of the work that we are all doing.
    On the last level, how do we get investors, the investment 
community including Wall Street and the other markets around 
the world to recognize that raising working conditions is a 
beneficial thing even if the costs of production are higher? 
How do we communicate that the continual drive to lowest cost 
of production 
contributes to the violation of the standards of performance 
and behavior that we are trying to raise in these codes?
    I don't want anybody to think that we believe that any of 
this is simple. If there is anything that I have learned in 
doing this work, and it is over a decade that I have been 
involved in it, it takes at least 10 times longer to do almost 
anything than the time that--see everybody is smiling up here--
at least 10 times, maybe 20 times longer. But I really believe 
that unless we continue at it, we are on a downward spiral from 
which there will be no return.
    I think we have to salute and support the efforts of those 
who seek to promote, enforce, and report on codes of conduct 
and compliance. Even as we say there needs to be a better 
system for bringing about change. None of these efforts should 
be taken lightly. It is hard work. It is important work, and 
hopefully, we will be able to learn from the experiences of all 
of us who have worked and continue to work on these issues that 
these codes of conduct seek to address, and then to devise the 
methods for systemic change that remain before us. Thank you.
    [The prepared statement of Ms. Rosenbaum appears in the 
appendix.]
    Mr. Foarde. Ruth, thank you very much.
    And thanks to all four of our panelists. Let's take a very 
brief breather and let me announce that our next staff-led 
issues roundtable will be here in this room, that is 2255 
Rayburn, on Monday, May 12 at 2:30 p.m. Our topic will be 
public health in China. We will be looking at SARS, the 
transparency issues, and other issues that are quite current. 
So, I hope you will join us.
    If you have not signed up yet for our roundtable and 
hearings announcement list on our Web site, we would like you 
to do that. Please visit us at www.cecc.gov.
    I would like to go now to our question and answer session, 
and normally it is the prerogative of he who is chairing to ask 
the first questions. But I think today I am going to defer to 
my friend and colleague Bob Shepard from the Department of 
Labor to get us started, and then we will go around, and I will 
get a chance a bit later. Bob, please go ahead and ask a 
question or two. We are going to give you 5 minutes to ask a 
question and hear the answer, and then we are going to give 
everybody a chance to do as many rounds as we can before our 
time is up.
    Mr. Shepard. Thank you, John. I would like to thank the 
members of the panel for very informative, very useful papers 
and presentations.
    In describing the work that is going on, there is a sense 
that we are seeing what might generally be called the 
demonstration projects, and that we are hoping these projects 
will in some way spur the Government of China into some sort of 
action. I would like to ask if you could discuss or describe 
what the attitude to date of the Chinese Government has been 
with regard to these projects, for example, have there been 
barriers to entry to your groups' coming in? Have they required 
you to register? Has there been oversight of the activities of 
the monitors? Has there been feedback? Has there been pressure 
against you, or encouragement of your activities?
    For example, I was curious. Mr. Cahn noted that you are 
pushing the principle of freedom of association within the 
workplace, whereas this is obviously not a principle that has 
received high regard nationally in China, and Ms. Niepold 
discussed how they had to dig very hard to get a lot of the 
data. This suggests some type of a conflict, and perhaps you 
could describe the relationship you have had with the Chinese 
Government or the authorities? We may have different answers 
from the provincial and the national levels.
    Mr. Cahn. We have received cooperation and to a certain 
extent, collaboration from local and provincial authorities as 
we engaged in the two election experiments that have occurred 
to date. All parties at the local and provincial level were 
aware of what we were doing. These are large footwear factories 
where Reebok buys 100 percent of the capacity of those 
factories. We undertook these experiments in these two 
factories because we felt we had strong relationships with both 
management and workers in these facilities and it would be the 
ripest environment in which for us to attempt this experiment. 
As I say, we were fully open with the local authorities. We 
consulted through the process.
    In the case of the first factory election, at the Kong Tai 
factory, the local ACFTU officials were aware and not 
integrally involved in the process. By contrast, the ACFTU 
officials at the second factory were much more involved in 
every aspect of the election process. So, slightly different 
levels of interaction, but one where there was a general sense 
of cooperation. People had different points of view from time 
to time, and there were lots of meetings, and more meetings, 
and more meetings, but at the end, there was a consensus on how 
the process should go forward.
    We were very complimentary of that, and hoped that as a 
result that we would have the ability to experiment with this 
in other factories. We certainly are aware of the fact that 
others in government circles are knowledgeable about these 
experiments.
    Ms. Niepold. I would say also that Verite's experience in 
China, as I said was our first country--China was actually our 
first country because our executive director and founder was 
actually working in China as a sourcing agent when she had the 
wonderful idea to found Verite based on her experience in 
factories.
    I should say that in the beginning, it is clear that--when 
we say ``government,'' similar to what Doug has said, it means 
much more regional, municipal, and local level officials. I am 
not referring to national officials when I say ``government,'' 
and by and large we were clearly not on their radar screen, but 
3 years later when we had our first China supplier's 
conference, we were. You said collaboration; we were actually 
being spied on, and by the second year, we actually were 
somewhat more welcomed and had government officials present as 
panelists. So, that was quite a shift.
    You asked the question of registration, and we are all 
clear that trade unions are not really a factor in China, but 
we should also be clear that NGOs really aren't either. You 
said it quite well. We have not been required to register. It 
is something, obviously, that has crossed our mind, but for the 
purposes of right now, we are not a registered NGO in China, 
because we simply cannot be one. But we have not been hindered, 
I should say, at all in our work. Our work has been very 
respectful. It is conducted only by Chinese in China. There are 
no Americans in China running these programs, and as such, I 
think it has been culturally and locally relevant and 
appropriate and has been quite successful.
    The one last thing I would say is the government officials 
have run the gambit from very clear that they were bribed, to 
hiding the fact that they were bribed, to equally clear that 
they were unaware of what the laws were that they were supposed 
to enforce, to very clear that they were doing a very good job 
and that they were enforcing the laws. That level of frankness 
allowed us to actually have a great deal of success. And some 
of them have actually said that we were helping them do their 
jobs by informing them of what was really going on in 
factories. Thanks.
    Mr. Foarde. Even though we have run out of Bob's time 
allotment, I think this is such an important part of the 
question that if either of you or both of you had a comment on 
that question, please go ahead.
    Ms. Rosenbaum. Just one quick thing. I know that most of 
the time that we have been in the factory, it has really been 
because a corporation has facilitated entrance into the 
factory. I do know that there is a project that we are working 
on that involves several corporations, and it will be a 
collaborative project between the corporations.  They are 
seriously concerned about whether the Chinese Government will 
permit it. So, since they are the ones who are doing the actual 
dialog with them, that just says to me there is some concern 
both on the local level and on higher levels.
    Mr.  van Heerden. I would just add that we have maintained 
contact with the Chinese Government at the central level and 
also in the provinces, and with the ACFTU and the China 
Employers Confederation [CEC]. All three have expressed 
tremendous interest in this work because they are well aware of 
the problem and they would like to participate. They do want to 
have a plan for improving working conditions in China.
    I'll just repeat one quote from a Chinese Government 
official who said to me that he was really worried that the 
poor conditions prevailing in factories and the labor relations 
problems arising from them could eclipse China's labor cost 
advantages.
    Mr. Foarde. Very interesting. Let's go on, and I should 
have said when I recognized Bob Shepard that he represents 
Deputy Secretary of Labor D. Cameron Findlay, one of our 
commissioners.
    And now I recognize Erin Mewhirter from the Department of 
Commerce, who represents Under Secretary of Commerce Grant 
Aldonas, another one of the members of our Commission.
    Ms. Mewhirter. Thank you. Code of conduct monitoring is not 
new. Has there been any quantifiable improvement in overall 
working conditions in China during the 10 years that auditing 
and corrective measures have been ongoing? And how should 
progress be measured?
    Mr. Foarde. Anybody that wants to step up to it, or all of 
you if you would like to.
    Ms. Mewhirter. I apologize. Yes, anyone.
    Mr. Cahn. I suppose to give a full answer to that question 
would take the next day and a half.
    Ms. Mewhirter. OK.
    Mr. Cahn. I know in our own work that there have been 
considerable improvement in factory workplace conditions over 
the last decade that are demonstrable and they are meaningful 
in terms of workers. Factories today--in particular, I am 
thinking of the large athletic footwear factories that make a 
great many Reebok shoes--these factories are healthier and 
safer. There are fewer volatile organic chemicals in the air. 
There are better communication systems between workers and 
management. There are fewer instances of harassment and abuse. 
Nonetheless, there are as there are in factories anywhere, many 
things that can be improved, and this is a continuous 
improvement model.
    So, we have dozens of programs at play in Chinese factories 
today to continue the model of improvement that we have been 
able to put in place in the past decade. As to how to measure? 
It is an extraordinarily difficult question, because we are 
talking about a continuous improvement model, not an absolute 
model. Some things are easier to measure than others, and on 
those things were measurement is possible, it is possible to 
look at international norms, there are many standards that 
exist in the world. When we measure organic solvents and what 
is too much of a particular chemical, for instance, there are 
many internationally-recognized models. Both here in this 
country and in Europe, for instance, when it gets to the issue 
of discrimination, it becomes much more difficult, and what we 
are looking for are systems in a factory that can find the 
problems and solve them quickly so that these problems don't 
become larger problems or systemic problems that never seem to 
go away. So, there are certainly ways to do it, and they are 
difficult.
    Ms. Niepold. I would say that--I will take the second half 
of your question first. Verite does measure and track the 
degree of improvement very closely, but to answer your 
question, we--as Doug has said--there are some things that are 
very hard to measure. So, our working benchmark is actually not 
at all scientific. It is the degree to which workers tell us 
that we have improved their lives.
    Now, that is obviously not scientific, and it also is very 
messy when you get into things like voluntary overtime. When a 
worker tells you--the point was made earlier by the way the 
workers will say they have friends, they have lives, and the 
sad truth is if they are a foreign contract worker, our 
experience has been that they will say they do want excessive 
voluntary overtime. So to your point, that is the measurement 
that we use.
    But to the other point, which is have things improved? Our 
experience is that things do improve in, unfortunately what we 
would call, the easier places. In other words, we have seen 
improvements in health and safety. We have seen improvements in 
posting codes of conduct. We have seen improvements in posting 
laws. We have seen improvements in toilets and bathrooms, and 
breaks. But guess what that means? We have seen aggravation in 
the most serious issues.
    In the case of China, the top three issues--and I should 
also point out the State of California recently hired Verite to 
do a major undertaking to measure just this, and what we have 
found in the case of China, which came in last place of 27 
emerging markets, was that the top three issues remain the top 
three issues, and we have seen very little improvement; those 
top three issues being freedom of association; health and 
safety; and wages and hours.
    Mr. van Heerden. Our monitoring program has only been going 
for 1 year, in fact, the Fair Labor Association program. So, it 
is very early. We are obviously building on the work of a 
number of our participating companies who have been at this for 
a lot longer, but it is too early to talk about trends.
    What I would support is what the previous speakers have 
said, and that is that under occupational health and safety and 
conditions of work areas, it is a lot easier to identify the 
problems and to remediate them. When we look at areas like 
freedom of association, discrimination, and harassment and 
abuse, it is both harder to detect the problems, to measure 
them, and to remediate them. And it is a process of continual 
improvement.
    The other point I would just make, is the need for a 
critical mass. The FLA has 13 brand name companies out there 
doing this. There are some very big buyers who are not at any 
of the tables right now. With the best will in the world, they 
end up undermining our efforts, because there is no 
coordination.
    So, if you just take volatile organic compounds that was 
just mentioned, if the three or four of the biggest importers 
of footwear from China could get together and come to an 
agreement on that basic standard and on how to remediate it, we 
could make a huge impact. So, there really is a need for 
coordination here.
    Ms. Rosenbaum. Just to add to that quickly, there is a big 
difference between the right to organize, and the right that is 
supposed to go with it, the right to engage in collective 
bargaining. We have the beginnings of the right to organize. We 
are waiting to see the ability of workers to engage in 
collective bargaining.
    The second piece is that it depends on the industry. The 
really short answer is that it depends on the industry. The 
more brand names that you have in the factory, the harder it is 
to bring about change. In the footwear industry, because many 
times you have one single brand name in the factory, they have 
tremendous amount of leverage. In other industries, toys, 
apparel, etc., where you can have 5, 10, 15, 20 different brand 
names there in the course of the year, all with different 
standards, it is very hard to bring about the change.
    Mr. Foarde. Really useful. Thank you. I would like to 
recognize our friend and colleague, Andrea Yaffe, who 
represents Senator Carl Levin.
    Ms. Yaffe. I have a question. I think this was somewhat 
touched upon, especially by Ms. Niepold. My question is how has 
the social climate changed since the passage of permanent 
normal trade relations [PNTR] and China's accession to the WTO? 
Has there been more pressure to change and to open up the 
transparency of their economy--compared to the standards of the 
rest of the world? I mean in the last 3 years, has there been 
any improvements?
    Mr. Cahn. You know, it is our experience that there has 
been improvement, but I would say that the driver for that 
improvement has been the ongoing relationships that we have 
with those independently owned and operated factories in which 
we place orders, as opposed to the passage of PNTR or some 
other external development. Perhaps that helps define for you 
where that nexus of leverage or power is and our ability to 
educate a group of people about a different way of thinking 
about managing people. People, in this case, who make shoes or 
apparel. But that is certainly where we have had our almost 
sole focus and where we see the difference, it is based on 
those sets of relationships and where we are able to get people 
in a room and began to establish a common shared set of values 
and expectations over what workplace conditions should be.
    Ms. Niepold. I was actually going to echo what Doug said. I 
wouldn't--it almost feels a little too soon to say what PNTR 
might have done with regard to such a vast and complex country 
as China. I think all of the various and myriad facets of free 
trade, however, would definitely begin to start, I think, 
changing things a little bit over time, when you look at all 
the various issues around trade agreements in general, 
accession to the WTO, things like that, I think all of those 
are drivers toward a greater degree of transparency and 
openness.
    But, truthfully, I think--it is just an educated guess--I 
am actually thinking that the greatest degree of change in 
China has occurred by the enlightened self-interest of managers 
who have seen the truth is a tired worker doesn't make a good 
product. They don't make it at a good price. They don't make it 
on time. They don't make it in a good quality way. Where we 
have seen sane and rational--as a client of mine calls them--
overtime policies, we have seen improvements in all of those 
bottom line benefits. So, I think that those areas are where we 
are seeing the most change.
    Mr. van Heerden. I would emphasize two different ways of 
looking at that. From the center, Chinese Government officials 
told me things like ``We are joining the WTO, the global 
market, now we have to play by the global rules.'' They are 
turning to organizations like the WTO and saying teach us what 
those rules are. Trade unionists are saying the same thing to 
us. They are saying ``We are dealing with the market economy 
now, we need to learn a new way of operating that is 
appropriate to the conflict of interest that you have in a 
market economy.''
    From the ground upward, looking upward, I see workers 
striking in greater, and greater numbers than ever before over 
issues like late and non-payment of wages. Or the restructuring 
of state-owned enterprises and control over their severance pay 
and benefits.
    I see crime emerging for the first time, that I never 
concerned myself with in China before. I unemployed workers who 
have been laid off from state-owned enterprises and who can't 
find jobs elsewhere, manifesting many forms of social 
dysfunction: drugs, alcohol abuse. I see violence in the 
streets. I see domestic violence. Signs that society is 
undergoing a painful transition with a lot more bubbling under 
the surface and with breakthrough erupting periodically. The 
Chinese Government is extremely aware of this.
    Some Chinese Government officials have said to me that they 
will not make the mistake that Gorbachev made in the Soviet 
Union--China will not fall apart like the Soviet Union. That 
has implications as to the social climate.
    Ms. Rosenbaum. Just one quick thing to add to that. In the 
past workers migrated, worked in the factories for a number of 
years, and then went home. There is a major transition that is 
taking place, or that has taken place, and it is finally being 
recognized. That is that, they are not going back. They are 
staying. So, the whole social service dimension that needs to 
be created as we have larger populations in the areas where the 
factories are, and a decrease in the number of jobs to handle 
both the workers that want to stay, and the workers that are 
going to migrate, this is yet to be dealt with.
    Mr. Foarde. Thank you very much. I now go on and recognize 
our colleague, Susan O'Sullivan, who represents Assistant 
Secretary of State Lorne Craner. Do you have a question for the 
panel?
    Ms. O'Sullivan. One. I think two of you, Ms. Niepold and 
Dr. Rosenbaum, talked about the efficacy of a carrot or reward 
system, at least, ensuring or encouraging compliance with codes 
and laws. I am wondering what you had in mind, and what you've 
used that you have found to be effective?
    Ms. Rosenbaum. Well, I am not sure what exactly I have in 
mind. I do know that in country after country, and certainly in 
China as much as any place else, fear of punishment doesn't 
bring about long-term change. It only brings about immediate 
change. The many levels of hiding of records--I don't even know 
how we can really know what is happening. There are so many 
levels of hiding.
    So, what that says to me is even though we might be 
bringing about some small change in these heroic efforts in a 
few factories, we are not changing the system. It seems to me 
that the change needs to take place in a number of ways.
    First, there has to be a reward system, probably a 
financial reward because it seems to be the only thing that 
works. But the other is that there is a whole component in the 
production system that we don't pay attention to very much. 
That is the companies that own the factories. They are just 
almost invisible in this whole system. Those of us who work in 
this system know about them, but they don't get publicity. 
Nobody says to them, ``What are you doing.'' Or demands that 
they can bring all the factories that they own, or where they 
place orders, up to standards.
    We have to find a way to really involve them--the managers, 
the owners, the vendors--and also to reward them, and it is 
probably going to have to be financial. No, the question is, 
``Who ends up paying for it? '' And I think that one of the 
things we need to make sure of is that it is not the workers on 
the bottom. In other words, that there is not further squeezing 
both of the factory managers and of the workers. That somehow 
bearing the cost of that is really throughout the system. That 
is going to involve Wall Street, and probably the factory 
owners. Maybe even before the factory owners. They are the 
hardest ones to bring to the table.
    Ms. Niepold. I think also the example I had in mind was 
possibly more organic, what I alluded to earlier, which were 
the gains in productivity and the presentation of all of these 
myriad labor rights compliance issues in a more positive 
framework. And it is odd how psychology works. But even when 
the brands are coming less at the punitive level and more that 
``We understand that we are partly to blame for this. By the 
way, how can we work together. Who can we bring in? ''
    The increasing influence of multi-stakeholder approaches, 
as Ruth made the point earlier, certainly complement 
initiatives that are done at the ground level involving 
community activists in their own communities, CSOs, NGOs, and 
the like. All of these rewards are not only the nuts and bolts, 
but there are also some psychological rewards that have gone 
along way toward shifting this 
problem.
    But the specific things that I was really thinking of were 
increasing emphasis on the bottom line benefits of doing this. 
There are--here and there--somebody's presentation here today 
mentioned it. I think it was yours, Auret--the World Bank study 
about the gains from freedom of association. There was a very 
interesting study done last year by Princeton that looked at 
the Bridgestone/Firestone situation, and noticed that the 
shoddy tires were made during a period of labor strife.
    There are my favorites. I have these five anecdotes that I 
trot around in my head, but the degree to which we all can 
begin to really, really crack this nut and say better factories 
make better products. Can we approach it from that angle and 
less beating them over the head with a stick kind of approach?
    Mr. Foarde. I would recognize our friend and colleague, 
Mike Castellano, who works for the other Levin on our 
Commission, Congressman Sander Levin. Mike.
    Mr. Castellano. Thank you, John. I thank you all for being 
here. I apologize for being late. I was at another engagement.
    Actually, I just want to make a quick comment, following up 
on something that was just said, which is that we have seen, 
that is, the Ways and Means Democratic trade staff has seen 
personally, the impact that good labor relations can have on 
factories. We 
visited Cambodia about a year and a half ago, where there is an 
innovative agreement in the textile sector. And one thing that 
even factory managers would concede is that the increasing 
rights and a better organized labor force actually resulted in 
less friction with workers and less down time. So, I definitely 
agree that that is borne out in practice, at least in my 
experience.
    I want to ask a question, though. And I apologize that I 
wasn't here when the first several questions were asked, so if 
I am repeating something, answer whatever you feel that you 
haven't said that you want to say. But, if I am not repeating 
something, please answer the question, which is, I think my 
boss is of the view that out of all the core labor standards, 
the right of association is probably the most important one, 
because it is the one through which the other standards can be 
realized. If the workers can organize, they can make sure there 
is no child labor, forced labor, and ensure minimum wages and 
healthy working conditions, et cetera. I just wonder. The 
Commission's responsibility is to make recommendations later in 
the year to the Congress, basically, on what Congress can help 
do. Assuming that right of association is the most important 
right, or the key right, what would be the single best way for 
the U.S. Government, perhaps working through the codes of 
conduct or your organization to help promote that right in 
China?
    Mr. van Heerden. If I could kick off on that one. This is 
what--I started an ILO project to do this in China in the 
special economic zones to improve labor relations. What we 
realized was that there were many structures provided for in 
Chinese labor law which were dormant or ineffectual. For 
example, every factory has to have a dispute resolution 
committee. That offered a tremendous vehicle for education, 
capacity building and point proving, consultation, negotiation, 
and dispute resolution in the factory.
    Many, many factories have ACFTU branches. Now, whatever we 
think about the ACFTU, like any big organization it is not 
monolithic. I came across in many factories excellent ACFTU 
representatives who were really grappling with the problems 
that they were facing, downsizing for example. Nothing in their 
Chinese trade union education had prepared them for that. They 
were desperate for examples from Western countries.
    So, I think there are vehicles. There are institutions with 
which we can work to promote capacity building, new skills, new 
perspective, new approaches to the labor relations issues that 
they are 
facing. The lower down the chain you go, the greater those 
opportunities become. If you reached out to the Guangdong ACFTU 
provincial branch now, you would find a group of people who are 
looking the market economy square in the face and saying, ``How 
in the world do we deal with this? '' And who are desperate for 
input.
    So I am a great believer in engagement through capacity 
building and training. Clearly, there are tradeoffs in that. A 
question of legitimizing certain institutions. There are 
questions of compromises which need to be made. But, I think 
that working under the umbrella of the ILO, we can deal with 
most of those tradeoffs.
    Mr. Foarde. Anybody else on the panel? Doug, please.
    Mr. Cahn. I certainly think that capacity building, as 
Auret articulates, is absolutely essential if we are to be 
successful on a broader scale. Companies like Reebok will have 
the opportunity and take advantage of that opportunity to 
exercise their leverage with their business partners, the 
independently owned and operated factories that make our 
products. But we need those voices within China that can 
support the application of the laws to the extent that laws are 
not being adequately enforced, and that is the case in many 
instances. And there are many other companies that need to come 
to the table so that all of us in the business community are 
operating with a level playing field.
    Mr. Foarde. I would next recognize Susan Roosevelt Weld, 
who is the general counsel of the Commission. Susan.
    Ms. Weld. As a lawyer I am interested in the ways in which 
the rule of law can help the position of workers in China. In 
general, help from top down can be useful. Reforming government 
organizations can be useful at the provincial and local levels, 
but the greatest help will come from empowering the workers to 
use the laws that exist, the codes that exist to demand better 
conditions for themselves.
    So, you look at that problem, and you think, ``Well, what 
do they need for that? '' They need a practicing bar that is 
friendly and feels free. I am wondering in what ways can 
foreign corporations help that development? There might be a 
series of hotlines and so on. Can you give me your ideas? 
Perhaps we could put those in recommendations and see if U.S. 
corporations can be encouraged to furnish that kind of aid to 
the people at the bottom who want to assert their own rights?
    Mr. Cahn. Well, I think there are many things that can be 
done. I know that there are an increasing number of cases being 
tried in the Chinese judicial system related to industrial 
accidents and getting judgments that weren't the case some 5 or 
6 years ago. That is a trend that I think will--if it 
continues--allow the rule of law to be represented in the 
industrial South, for sure, where many of these cases are 
occurring. That is one way.
    I think in general, you have a system in need of 
accountability. There must be--there will be many ways to be 
able to do that, starting with labor rights education and 
training for workers and for those who relate to the legal 
system. In other words, the creation of legal aid mechanisms so 
that workers and others have access to rule of law and to the 
institutions in China which need to be better accessible to 
those who are most in need of it. Those are simply lacking 
unless we or others, today, make certain that they are 
exercised. But it isn't automatic today.
    And there are many efforts in south China--I am sure there 
are others on the panel who will be able to speak to some of 
them to create greater awareness of the legal mechanisms that 
are already available, and those will certainly lead to others.
    Ms. Niepold. A perfect segue. I was going to mention as a 
specific example, Verite has a program that has been around now 
for 2 years, which is a mobile van. I like to call it the 
``upward mobility project.'' We have reached 20,000 workers in 
the past 2 years. It is a van that is primarily operating in 
factories where we are invited by factory management, and 
obviously, at the behest of a lot of the major brands that have 
leverage there. But, it has also had the wonderful spillover 
effect of allowing us to reach workers who work in factories 
where we are not welcome, whom we happen to find at a mutually 
convenient location.
    Entering the second year, we now have begun a ``train the 
trainers'' process with the workers. So that has an exponential 
benefit. I noted that in your 2002 report, the Commission had 
the recommendation for further development of legal aid 
programs. I certainly think that that was an excellent 
recommendation. It is one that probably needs to be repeated 
until it is heard.
    I know that in Verite's case, the curriculum of our van is 
done on a needs assessment basis. So, workers tell us they want 
to learn English. They want to learn sewing. They want to learn 
whatever, but the first and primary focus is workers rights 
education. I think that all the programs that draw on that, 
even if it then means referring them to legal aid societies or 
others, are very successful programs.
    Mr. Foarde. Do either of our other panelists have a comment 
on that? No. One of the things that we have done all along in 
these issues roundtables is to encourage the person who did all 
of the heavy lifting and organizing to sit up here at the panel 
table and be able to ask a few questions. And so, I would 
recognize my friend and colleague Lary Brown, with thanks for 
doing all of this today and getting these great folks here to 
share their knowledge with us. Lary.
    Mr. Brown. Thank you. In the 3 minutes remaining to us, I 
think the one thing that I would like to ask you is this: As 
companies that are going into China are setting up their supply 
chains, using factories, if they have good solid economic 
reasons for being there, and much of the code of conduct 
compliance has not brought about overall changes, what should 
they be doing that they are not doing now? How should a 
compliance program look? Anyone can comment?
    Mr. Cahn. How should a compliance program look? Well, you 
come in with a strong code. That is the start, and something 
that a vast majority of companies do. They come in with--and 
there is considerable expertise now--human resources and a set 
of compliance benchmarks that would allow that company that 
wished to place orders to be able to communicate what standards 
were to be in place in that factory. There is a number of 
places to go to do this now if that capacity doesn't exist 
within that company placing the orders.
    There has been, in the last 7 or 10 years, the growth of, 
in a sense, a cottage industry of people who are experts who 
understand how to do this, are knowledgeable about this and who 
can do this in Hong Kong; in the United States to a lesser 
extent, but still growing; and in China itself as is the case 
with Verite. I would make sure those conditions were in place 
before the first order is placed, which is at the greatest 
point of leverage. I would put in place systems within the 
factory for reporting back to the buyer of products on the 
progress so, that you require the factory to inculcate into its 
management systems a culture of compliance, rather than have to 
impose it from top down so to speak.
    Then I think you are into a reasonably good start.
    Ms. Rosenbaum. I know of at least one corporation that 
demands certification of the factories before any orders are 
placed. It seems to me, just picking up on what Doug said, that 
that is one of the most important things that can be done. 
Brands need to say to factories ``before we come, before we put 
our orders here, you have to raise the standards.'' It is much, 
much harder to do it once you are in the factories. If we can 
get more corporations to do that--if that could become the 
norm, rather than the remedial afterthought, when you don't 
want to pull the orders because it is going to effect the 
workers, I think we would have a better chance of making this 
work on a broader basis.
    Mr. van Heerden. I would just add to that that I think 
transparency would aid this process tremendously. I think that 
the monitoring programs should be transparent so that you can 
have this dialog with your stakeholders and constituents as to 
whether what you are doing is the right thing.
    Ms. Niepold. Just finally, I also agree greatly in the 
proactive approach, as opposed to a reactive one. Some of the 
work we have been doing recently, and we certainly encourage 
companies anywhere to do this would be sort of a risk mapping 
exercise within their supply chains. When Verite was founded in 
1995, most of the people we ever spoke to in the corporate 
sector did not know who their suppliers were. And they continue 
not knowing to this day. In fact, we are quite often sent to 
factories only to find a factory manager who says, ``Oh gee, we 
would love to get their business.'' They are not even a 
supplier.
    So, the risk mapping has to be in tandem with knowing who 
your suppliers are, but more importantly--I don't know who said 
it earlier, but who owns the factories. These is where I see 
truly is more cutting edge. Knowing who your suppliers are and 
disclosing them is one thing, but trying to aggregate leverage 
within your own supply chain by looking at the ownership 
structures is another. 
Because we find very often that going into each of the 
respective factories is nothing compared to if you had sat us 
down from the beginning and let us tell you that 25 of them are 
owned by one guy in Turkey. We could have done a great deal by 
going to him and funneling those resources into remediation.
    My pet peeve right now is spending all of one's money on 
monitoring, such that there is nothing left for remediation. I 
encourage brands increasingly to work together. I think the 
best example was the footwear industry, when they pulled 
together to find a water-based solvent--glue. Excuse me. I am 
not an expert, but you know what I mean. The point being that I 
thought it was an excellent example. I think brands should do 
more than that.
    Mr. Foarde. Good. Thank you. We are getting very close to 
the witching hour, but I would like to recognize, first Bob 
Shepard, and then Mike Castellano for our final questions. Bob.
    Mr. Shepard. I think the general image I think a lot of 
people have in the United States is of China being a very 
difficult country that does not have a particularly good record 
on human rights, labor rights, but that things have been 
improving slowly. Mr. van Heerden has submitted a paper which 
certainly gives the impression that actually this may not be 
the case. That globally and perhaps within China, despite all 
the very good efforts on the part of monitors, we could be 
losing the race, too.
    And certainly within China, there is some reason to believe 
that there are a lot of downward pressures. There is 
competition within provinces, between the companies. I was 
struck by--the last time I was in eastern China, there was 
concern about companies moving west because of high incomes, 
and because of monitoring and things like that. I was just 
wondering if maybe some of you could discuss the balance 
between our efforts and their efforts, even of the Chinese 
Government to improve things, while at the same time facing 
some of these downward pressures, how serious they might be?
    Mr. van Heerden. I would draw a--you could take as an 
illustration of that dilemma two factors. The one is the 
Olympics in 2008. There is no way China intends to be 
embarrassed by inviting the world to visit China in 2008. That 
is a tremendous incentive to make positive change.
    At the same time the Multi-Fiber Arrangement is due to 
expire on January 1, 2005, and a lot of additional apparel 
business is going to move to China and be sourced from China. 
So we are going to see factories expanding their operations 
very, very rapidly. We are going to see a lot of new investors 
opening up in China. A lot who are not used to doing things 
according to international standards.
    So I think some of the, sort of, ``wild west'' nature in 
China is going to expand, and with the move westward, that is 
only going to be exacerbated. So we are going to see 
contradictory pressures.
    Ms. Rosenbaum. I think what Auret just said illustrates 
what I said before, on the question, why do companies go to 
China in the first place? If things were improving as much as 
we would like to see them improve based upon all the efforts 
that everybody is making there, than the move to China that 
almost all of us expect at the end of the Multi-Fiber 
Arrangement would not take place. It is just there. I think it 
says to us the depth of the work that we have ahead of us.
    Mr. Foarde. You want to make a comment? Doug, please.
    Mr. Cahn. Yes. Just briefly to say that the vast majority--
if I am not mistaken--will be factories that are foreign 
invested, and in those factories, there really does seem to be 
a trend toward compliance, as difficult and slow and sometimes 
zigzag as that trajectory is. I think there may be a 
distinction worth investigating as to whether there is a 
difference between the progress, as rough as it is, with 
foreign-invested companies and those that are not.
    Ms. Niepold. Just one last thing, we actually have tracked 
some of that within our limited framework, and we have found 
improvements are accelerating in the foreign-invested 
factories, but the vast ``wild west,'' as you referred to it, 
truly are the domestic industries that are producing for 
domestic consumption. And I think that a greater spotlight 
needs to be shown there. And workers will frequently tell us 
that as bad as the conditions are in the foreign-owned 
factories, they do not compare to those that are domestically 
owned.
    Mr. Foarde. Mike.
    Mr. Castellano. Thank you. We are focusing on codes of 
conduct and I think there is an assumption that is fairly 
widely shared--it seems to me that because there are pressures, 
you know, on capitalism, that a code of conduct effort is best 
able to be successful when there is a cost to consumer 
preferences for not having one. There may be a role for the 
U.S. Government to help increase that cost, require a 
transparency component, et cetera. Do you have any ideas for 
how the U.S. Government could help increase the cost and 
benefits of having a code of conduct program?
    Ms. Rosenbaum. Well, the question is who is supposed to 
benefit? It seems to me that it is corporations who have the 
code. I think that what the government can do, probably in a 
way that nobody else can, is put pressure on the Chinese 
Government to want compliance throughout the whole system.
    As I said in my paper, it is unrealistic to ask 
corporations, essentially private actors in all of this, to 
bear the role and the responsibility that is the role of 
government and society. Now many corporations have stepped up 
to the plate and are doing that. But, I think one of the 
reasons why we see so little sustainable compliance is because 
it is a societal system that we are trying to change.
    I don't think any corporation that comes from the outside 
has the ability to do that. I think they are trying to do the 
things that they are able to do, but we need a construct coming 
from a different approach. If China wants companies to do 
business in China, then it is their responsibility, to make 
sure that factories in their country are in compliance. 
Everything else is just trying to do something because that is 
not happening.
    Mr. van Heerden. I would urge the U.S. Government to devote 
more resources to education and training in China. The 
education component of it--that is just understanding these 
rights, the ILO definition, in the sense of the ILO 
jurisprudence. More importantly, the ability to use those 
rights, and that involves skill sets which workers are just not 
getting at the moment. The ACFTU organizers are not getting it. 
So, even if we are able to promote freedom of association and 
collective bargaining, the ability to bargain cannot be taken 
for granted.
    A Western market-based labor relations system is going to 
take a lot of getting used to in China.
    Ms. Niepold. I also--sort of in line with what Ruth was 
saying, if you look at the 10 core areas that are in every code 
of conduct and all the ILO conventions--it is sort of a silly 
habit of looking at what is the root of each of them. And truly 
what is the root of each of them is wages. Child labor boils 
down to wages. Are the parents being paid enough to live. 
Contract labor, which is the area that Verite works the hardest 
on with foreign, overseas workers boils down to wages as well.
    So, if you ask a multinational corporation to go in and 
work on wages, that is impossible. So, when I look at the most 
egregious violations that are out there, and they boil down to 
wages, I am very clear that it really is at the feet of 
government to work from the top and then to have other efforts, 
which are sort of a category, pushing rocks up a hill to do 
something at the lower level. But, nonetheless, in the trenches 
initiatives are critical, because until there comes some 
enlightened day where governments do make a difference, in the 
mean time you are left with workers who really are dying, 
possibly on a daily basis, and you need to do whatever you can 
in the interim to work for them.
    Mr. Cahn. Companies increasingly do take responsibility for 
workplace conditions in China and elsewhere around the world 
where products are made. They have the capacity to accept that 
responsibility and do much. But, as many of the panelists here 
have articulated, there are limits to that influence, and our 
efforts to implement that code of conduct will be infinitely 
enhanced by a Government which implements its laws, by a civil 
society that is there to support it, and by other companies who 
are at the table too exercising their influence as well.
    Ms. Rosenbaum. Could I just add one thing?
    Mr. Foarde. Please, go ahead.
    Ms. Rosenbaum. Only because this has just been sitting in 
my head the whole time that we were here. And that is, if we 
want China to do these things, we need to walk the walk 
ourselves in this country. I couldn't let this go by. We need 
to take a look at how we are de-constructing the right to 
organize and engage in collective bargaining in this country. 
We need to take a look at who is entitled to overtime pay and 
who is not. We need to take a look at the extension of the work 
week in this country. We really need to take a look at these 
things in our own country because that, then will give us the 
credibility when we are talking to China and other countries.
    Thank you.
    Mr. Foarde. And with that word, let me thank each of our 
four panelists, Doug Cahn, Mil Niepold, Auret van Heerden, and 
Ruth Rosenbaum. On behalf of Chairman Jim Leach, and Co-
chairman Chuck Hagel and all the members of the Congressional-
Executive Commission on China.
    We will convene again in 2 weeks, on May 12, a 2:30 p.m. to 
talk about public health in China. Thank you all for coming. I 
will see you on May 12. Good afternoon.



                            A P P E N D I X

=======================================================================


                          Prepared Statements

                              ----------                              


                    Prepared Statement of Doug Cahn

                             APRIL 28, 2003

                      INTRODUCTION AND BACKGROUND

    For over a decade, Reebok International Ltd. has implemented its 
code of conduct--the Reebok Human Rights Production Standards--in the 
independently owned and operated factories that make its products. We 
do this to:

 ensure that workplace conditions meet internationally 
    recognized standards and local law;
 honor our corporation's commitment to human rights;
 protect our brand reputation; and
 benefit, most importantly, the lives of the 150,000 workers 
    who make our products.

    In recent years, an increasing focus of Reebok's monitoring work 
has been to encourage factory workers to participate in workplace 
decisions. This focus is borne out of Reebok's experience that code of 
conduct compliance is enhanced when workers are actively involved in 
identifying workplace problems and resolving them in dialog with 
management. In fact, the first and primary finding of Reebok's Peduli 
Hak (Indonesian for ``Caring for Rights'') external monitoring 
experiment, released in 1999, was that ``greater worker communication 
and understanding is at the heart of many solutions to the workplace 
problems identified.''
    The current movement of global brands to monitor factories has its 
limits. Professional monitors can do much good, but they cannot be 
present in every factory, all the time. This realization has caused us 
to recognize that a worker representation model--one in which workers 
participate in decisions that affect their lives--can speed our efforts 
to ensure that quality workplace conditions are sustained. Among our 
standards is the provision that Reebok will respect the right of 
workers to freedom of expression. With worker representation projects, 
we facilitate the development of this right, even when country laws do 
not fully accept covenants of the International Labor Organization 
related to Freedom of Association and Collective Bargaining. In China, 
as an example, we hope our worker representation projects will give 
greater meaning to this provision of our code of conduct.

                       WORKER PARTICIPATION MODEL

    It is clear to us that sustainable code compliance is enhanced when 
strong internal problem-solving mechanisms are in place. Worker 
participation in problem-solving is a prescription for success. 
Monitoring as simple ``policing'' is increasingly not a way forward. 
Sustainable monitoring, that is, monitoring that emphasizes education 
and training and worker participation, is a model that holds promise 
for the future.
    With worker participation:

 Workers feel more ownership of and commitment to the factory. 
    Communications are improved. Problems are prevented.
 Management faces less unrest, although it must spend more time 
    on communicating and negotiating with its workforce.
 Reebok sees more efficient production, less monitoring, and 
    higher levels of code compliance that is more sustainably achieved.

    In China, our worker participation programs have resulted in 
elections of worker representatives in two large footwear factories. 
While elections are not the only way of developing problem-solving 
mechanisms that include worker participation, they are permissible 
under the law in China and, as the level of participation in the two 
elections demonstrate, workers view these elections as acceptable 
methods to choose representatives that can defend their interests.

                        THE KONG TAI EXPERIMENT

    Our experiment began with the facilitation of the democratic 
election of worker representatives in the Kong Tai Shoe factory located 
in Longgang, China in July 2001. This athletic shoe factory is publicly 
listed on the Hong Kong stock exchange and employs just under 6,000 
workers.

                         KONG TAI: PRE-ELECTION

    In the spring of 2001, we examined the existing union charter and 
Chinese labor law. Working with management and the then- appointed 
union,\1\ an affiliate of the All China Federation of Trade Unions 
(ACFTU), all parties agreed that the process would be made more 
credible with a charter amendment to expand the union committee from 19 
to 26 members, which allowed for the expansion of the mediation/
arbitration committee. In fact, the previous mediation/arbitration 
committee existed in name only; its members were not active. The Kong 
Tai experiment did not benefit from the more concise and relevant PRC 
trade union law that became effective in October, 2001. The old law was 
of little guidance to potential practitioners of a more democratic, 
dynamic worker representative system within the factory.
---------------------------------------------------------------------------
    \1\ The term ``union'' is used in China to describe factory level 
affiliates of the All China Federation of Trade Unions, a Chinese 
government institution. It is not possible at present for unions 
independent of the ACFTU to operate legally in China.
---------------------------------------------------------------------------
    The previous union membership consisted of 19 committee members of 
whom 18 were office workers or guards (not production line workers). We 
sought to avoid the preponderance of non-production line workers 
serving as union leaders by insisting on proportional representation. 
We wanted to ensure that a new union would truly represent all workers, 
especially production line workers. Some union members at that time 
were understandably upset that they would have to compete for future 
committee seats on a more level playing field.
    Communication and outreach was the next important step. The newly 
amended charter was posted in production areas and common areas, where 
all workers would have access to them. A list of ``frequently asked 
questions'' was circulated as well. Questions we posed, like: ``What 
are the purposes of a trade union?'' ``Who can be members of the labor 
union?'' and ``What are the duties and responsibilities of each of the 
committees or teams?'' These and other questions were answered in 
detail.
    Still, since a majority of workers could not be expected to study 
these documents on their own, open forums were critically important. 
Factory management and Reebok explained how newly elected 
representatives could be different from the previous union where 
workers were not free to select committee members or determine their 
working agenda. The forums started to convince workers that the factory 
management was serious about its intentions to permit a democratic 
election. Workers asked good questions. As a result of the open forums, 
all parties agreed to scrap the ``one-year of employment requirement'' 
for candidates. Newer workers wanted to join in.
    Under the rules, candidates were to be self-nominated. We were 
pleasantly surprised when we learned that there would be 62 candidates. 
We thought it was possible that we would have an election that no one 
was interested in. Happily, we were wrong.
    In every factory department, information about the department's 
candidates was posted, including a photo and general background like 
the workers' village of origin, length of service at the factory and 
age, and a short statement explaining why they wanted to be on the 
union committee. Information about all candidates was posted in one 
central location in the factory as well.
    Campaign speeches were held on one night per election zone or 
factory department. Workers became more and more interested as the 
nights progressed.

                      KONG TAI: THE VOTING PROCESS

    Voting was conducted in secret. A sample ballot and voting 
instructions were posted.
    On election day, July 28, 2001, each worker received one colored 
ballot denoting their election zone (some election zones consisted of 
more than one production area--office workers, guards and maintenance 
staff, for instance, were all lumped together). Stitching, the largest 
production area was large enough that it was split into two zones. Each 
color represented a different voting zone.
    On the day of the election, there were 4,658 workers in the 
factory; 1,130 were on leave (15 days off with base pay due to low 
orders); 3,409 ballots were issued; 119 chose not to vote. There were 
102 spoiled ballots and 17 ballots were not returned.
    During the election, 26 workers--16 women and 10 men--were elected 
to the committee out of 62 worker candidates. Fifteen were line 
workers, 7 were line leaders or supervisors, 4 were office staff. Of 
the 6 former executive committee members who ran, 4 were re-elected.

             KONG TAI: POST ELECTION EDUCATION AND TRAINING

    Training was and continues to be an essential post election 
priority for committee members. The local ACFTU told us that they did 
not have the resources to provide training. We then contacted two Hong 
Kong-based non-governmental organizations who agreed to conduct 
training. Training began with 6 half-day sessions in October and 
November 2001.
    Original curriculum of the training included discussions on what is 
a Trade Union, the functions of Trade Union committee, strategies for 
reaching consensus, internal communication and organizing, how to 
manage complaints, event organizing and Trade Union administration.
    This initial training was followed by several visits from outside 
groups, such as a delegation from the Swedish Trade Union 
Confederation. These contacts helped the workers at Kong Tai understand 
the larger context of their work.
    The next training phase was an offsite retreat of the elected 
representatives over a long weekend in January, 2002 that focused on 
team building, communication amongst committee members, and self-
evaluation. The offsite training was again conducted by the Hong Kong 
CIC and the LESN.
    Today, the trainers are trying to work with the workforce at large 
to increase the understanding about what they can expect of their 
elected representatives.

                         THE FU LUH EXPERIMENT

    A second election was held in a Taiwanese-invested factory in 
October 2002. The 12,000 workers at the Fu Luh Sports Shoes factory in 
Fuzhou, China voted for 192 candidates in seven election zones. 
Although the Fu Luh Sports Shoe factory had a union previously, there 
was no charter--nothing written down about the purpose or the structure 
of the union. They had to start from scratch.

                          FU LUH: PRE-ELECTION

    We began by bringing Fu Luh leadership to the Kong Tai factory to 
view first hand the process and the outcome of the election that had 
been held there a year earlier. Representatives were introduced to the 
Kong Tai charter during their visit and subsequently relied heavily on 
it for the development of their own charter document.
    In addition, in between the date of the Kong Tai election and the 
start of plans for an election at Fu Luh, the Chinese government 
ratified a new trade union law (in October 2001) eliminating the 
confusing and often irrelevant language for today's modern business 
environment. The law clearly defined the roles and responsibilities of 
unions. We found it helpful in our work at Fu Luh.
    At the Kong Tai factory, local ACFTU officials were aware of the 
election and supportive of it but did not get involved in the details 
of the process. At the Fu Luh factory, local union officials were 
actively involved from the first conversations and remained involved 
throughout. They had different ideas from us on some issues such as the 
value of proportional representation and campaign speeches. They also 
pushed for the creation of a broader Congress in addition to the 
smaller union Committee to increase the number of workers who could be 
directly involved in the union's activities.
    The union charter that was adopted for the Fu Luh factory was 
similar to the charter at Kong Tai. It allows for the recall of union 
members in the event, for instance, of mismanagement and the filling of 
posts of committee members who leave the factory. Workers were given 
the opportunity to self-nominate as was the case at Kong Tai. The 
principle of proportional representation was followed.
    Open forums preceded the nomination process and were meant to 
inform workers about the elections, explain how this was different from 
the past, explain the purpose of the trade union and encourage workers' 
involvement.
    Fu Luh has only one small dorm that houses a few of the factory's 
workforce. Most workers live offsite in rented rooms. To ensure that 
workers would attend the open forums, workers were required to attend 
and were compensated for their time. The forums lasted approximately an 
hour and a half.
    The speeches were quite fun--workers laughed and enjoyed themselves 
(but also mercilessly ribbed people who were nervous or who lost their 
place in their speeches).
    Workers only attended the speeches of candidates for their 
particular production room or election zone.

                       FU LUH: THE VOTING PROCESS

    The voting was by secret ballot and the vote counting was conducted 
in a fully transparent manner.
    A week following the election for the Committee members, the Chair 
and Vice Chair were elected from among them. Speeches were again given 
by all the candidates.

              FU LUH: POST ELECTION EDUCATION AND TRAINING

    The local ACFTU will provide an initial 2-day training program to 
elected representatives in mid-November, 2002. After this training, 
Reebok staff will meet with the new union members to assess their needs 
and look for additional ways to help meet them. Reebok remains open to 
new and innovative ways to assist in the education and training process 
of newly elected worker representatives.

                       DISCUSSION AND CONCLUSION

    The elections at Kong Tai and Fu Luh shoe factories are initial 
efforts to enhance the voice of workers in China in a way that will aid 
code compliance and lead, we hope, to a more sustainable model for 
improving workplace conditions.
    These elections were fully consistent with Chinese law and were 
supported by local ACFTU officials. We were pleased will the overall 
level of support we observed and we commend all parties, including 
ACFTU officials, for their forbearance and, in many cases, active 
support.
    The guiding principles in the election process were transparency, 
proportional representation and ``one person, one vote:''

 self nomination to stand as a candidate;
 transparency in the process (holding open forums so all 
    workers would understand it, posting Frequently Asked Questions in 
    the factory to answer concerns, and transparency in the vote-
    counting) to instill confidence;
 proportional representation to make sure that each part of the 
    factory was represented on the union committee;
 one person, one vote by secret ballot. (In neither factory had 
    all workers voted before, or voted in a secret manner.)
    To label the experiments as ``successes'' or ``failures'' is to try 
to put them in boxes where they don't necessarily fit. We view them as 
steps in the right direction: toward compliance that is more 
sustainable and that involves workers in the process.
    We are pleased that all parties have cooperated to permit these 
elections to take place in the credible, transparent manner in which 
they were conducted. At Kong Tai, the union is still growing and 
developing. They have spent much of their time during the last year 
learning how to work together and how to be a union. They have 
routinely assisted workers to get approvals to take leave, they have 
fought for proper medical compensation for sick workers.
    We hope these elections will demonstrate that an increase in worker 
participation can be achieved in an environment where fully independent 
unions do not exist. Our experience is that there is room for movement 
and progress within the confines of what unions are permitted to do 
today in China. It is our hope that through this example, other 
multinational brands and other factories will experiment with these or 
other ways to establish sustainable methods of achieving code 
compliance. In the end, we better implement our standards when we are 
willing to challenge ourselves, our factory partners and workers to 
find new, more sustainable ways to achieve internationally recognized 
workplace norms.
                                 ______
                                 

                   Prepared Statement of Mil Niepold

                             APRIL 28, 2003

    I would first like to thank the Congressional Executive Commission 
on China for inviting Verite's testimony today.

                          VERITE'S PERSPECTIVE

    ``China is an attractive piece of meat coveted by all . . . but 
very tough, and for years no one has been able to bite into it.'' 
Chinese Premier Zhou Enlai, 1973
    Thirty years later, the population is not the only part that has 
changed--multi-national corporations, global trading organizations like 
the WTO and even a few IGOs and NGOs have clearly ``taken a bite.'' It 
is Verite's core belief, and one shared by many advocates, that respect 
for labor and human rights--the very same ones that are covered by this 
Commission's mandate and that China has quite often signed and/or 
ratified--comes only when workers themselves are an integral part of 
the process of enforcing these rights. Later, when I address examples 
of initiatives that have worked or might potentially work, the direct 
involvement of workers will be the common thread in each case.

                             WHO IS VERITE?

    Over the past 8 years Verite has interviewed approximately 18,000 
factory workers for the purpose of identifying the issues workers face 
in a newly globalized economy. Verite's mission is to ensure that 
people worldwide work under fair, safe and legal conditions. Our 
pioneering approach brings together multi-national corporations, trade 
unions, governments, non-governmental organizations (NGOs) and 
workers--in over 65 countries--for the purpose of identifying solutions 
to some of the most intractable labor rights violations.
    Verite performs social audits (to date, over 1,000 factory 
evaluations conducted) to analyze workplace compliance with local and 
international labor, health, safety and environmental laws and 
standards. Unique as a non-profit independent monitoring and research 
organization, Verite, unlike private sector companies, goes 
beyond monitoring to provide factories with specific recommendations to 
remedy problems and training for factory management and manufacturers. 
To address the needs of workers, Verite conducts education programs to 
teach workers their legal rights and entitlements in the workplace as 
well as ``life skills'' (literacy, health education, math, English, and 
computer skills).

                            VERITE IN CHINA

    Verite has operated in China--our first and largest area of 
operation--extensively since 1995. We have conducted nearly 200 factory 
audits in China over the past 8 years, including 112 in the past 2 
years.
    Our findings, and those of others, are disturbing:

    1. Egregious health and safety violations
          a. China's own Work Safety administration reported 140,000 
        deaths in 2002 (an increase of approximately 30 percent over 
        2001)
          b. Chinese media sources reported 250,000 injuries and more 
        than 30,000 deaths in industrial accidents in the first quarter 
        of this year alone
          c. The ILO ranks China as the world ``leader'' in industrial 
        accidents
          d. China estimates 25 million workers are exposed to toxins 
        annually (with tens of thousands incapacitated annually)
          e. The Hong Kong Christian Industrial Committee (HKCIC) 
        reported recently that, after 10 years of research on the toy 
        industry (China produces 70 percent of the world's toys) that a 
        full 55--75 percent are still classified as poor (80-100 hour 
        work weeks, poor health and safety, not paying minimum wages)
    2. Majority of factories use triple or even quadruple books to mask 
under payment or non-payment of legally mandated overtime premiums 
(which range from 1.5 to 3 times the base wage depending on the day of 
the week and whether or not it is a holiday). In some instances it has 
taken even our most experienced teams days of research, interviews and 
analysis to uncover the true extent of the problem.
    3. Limited enforcement of labor laws that are on balance quite 
robust (for example those requiring overtime premiums, automatic 
machine shut-off safety devices, compensation for injury.
    4. Harassment and lengthy imprisonment for those who report 
violations, peacefully demonstrate and or who try to associate freely.

    Since 1998 Verite has organized an annual China Suppliers 
Conference that brings together factory owners and managers with 
governmental officials and non-governmental organization specialists to 
explore issues and solve problems related to labor compliance in China. 
(Last year's conference in Xiamen focused on three aspects of labor 
compliance: the changing role of unions in Chinese factories; health 
and safety compliance; and the comprehensive work-hour calculation 
system and its impact on overtime. Presenters included local government 
and union officials. This year's conference will provide Verite the 
opportunity to release a research report on the prevalence of excessive 
overtime and its impact on worker health and safety).
    Verite's Worker Education Program, sponsored by Timberland, Eileen 
Fisher and New Balance, among others, operates in a mobile van which 
visits southern Chinese factories to provide information on workers' 
rights, labor law and health information (recently including updates on 
HIV, Hepatitis, and SARS); the Program has reached 18,980 workers since 
its founding in 2001.
    Verite has facilitated direct communication between factory 
managers and local labor officials in 40 factories since 2001 by 
inviting labor officials to accompany auditors to the factories for 
joint training with factory managers on proper wage-calculation, 
recordkeeping, and employment-contract procedures.

                             CODES VS. LAWS

    While not unique to China by any means, there is a growing debate 
regarding the value of voluntary initiatives (such as Codes of Conduct) 
versus direct legal obligations within both national and international 
legal frameworks. For the purposes of this discussion, I will not cover 
this debate in any detail. However, as we are discussing Codes of 
Conduct and examples of best practices--with the aim of achieving 
improved labor rights compliance in China--I would be remiss if I did 
not at least touch on this important subject.
    Direct obligations--i.e. those placed upon companies through 
international law--are weaker than those that are indirect (those 
placed upon them by governments who themselves are fulfilling their 
obligations under international conventions, etc.). Weaker though they 
may be, there is nonetheless a clear upward trend in their being 
extended to corporate (MNC) actors. Movements such as the International 
Right to Know (IRTK) campaign (whose recent report includes various 
case studies, including one on McDonald's and toys made in China) and 
the increasing use of U.S. Courtrooms to seek redress for perceived MNC 
complicity in overseas human and labor rights abuses (for example 
Unocal, Saipan, and Shell, lawsuits, among others) using the Alien Tort 
Claims Act (ATCA) are examples of this trend.
    So, for our purposes today, you may wonder why these distinctions 
between voluntary initiatives and direct obligations under 
international law are relevant? It is simply because, to quote the 
excellent report by the International Council on Human Rights Policy, 
we must go ``beyond voluntarism.'' Codes are squarely in the camp of 
voluntarism and while they are a useful starting point for improving 
labor rights compliance, they alone are simply not enough to right the 
``imbalance of power'' that exists today between major MNCs and most 
governments. Governments do not have the resources that MNCs do--
resources that are in many places including China--greatly eroded by 
endemic corruption. Limited resources greatly hinder labor rights 
enforcement, but they are not the sole issue. I am by no means 
suggesting that more laws and/or more enforcement are the only answer, 
but I am saying that rooting both voluntary codes and national laws in 
a strong international legal framework creates a ripple effect that 
will help enforcement in ways that merely increasing the number of 
labor inspectors cannot.
    Violations of human and labor rights thrive in cultures of 
impunity. Take the example of slavery. While now outlawed in virtually 
every country of the world, this heinous practice continues 
particularly in countries where the rule of law is eroded. Just as 
corruption of government officials and police officers allows slavery 
to flourish--so to do labor rights violations. Strengthening the rule 
of law in any given country is not a task merely for MNCs and their 
voluntary initiatives. This is a task for governments. Grounding all 
efforts in the international legal framework helps to achieve a few 
important things. It creates a climate that favors compliance by 
strengthening the effectiveness of voluntary initiatives and national 
legislation, it strengthens the work of NGO and workers' advocates and 
it improves judicial efforts, both domestic and international.
    Thus, it is incumbent upon those concerned with improving labor 
rights on the ground in China, as elsewhere, to use multi-layered 
approaches that draw on past successes. Each approach should also be 
aligned with the particular ``sphere of influence'' of the respective 
stakeholder--thus historically, the greatest successes have come from 
governments working on the most macro level legislative improvements, 
government to government consultations, technical assistance programs 
and the like. MNCs in turn have had success when they assert their 
considerable leverage primarily at the supplier/factory level but they 
should continue by all means to exert pressure on governments as well 
to ensure that the rule of law is both upheld and strengthened. One of 
the best examples of an MNC working on creative solutions to the most 
challenging issue in China is the example that you have just heard 
about from Doug Cahn--the Kong Tai (or KTS) factory election of worker 
representatives. This initiative is exemplary and there are others:

 The Institute of Contemporary Observation recently launched an 
    initiative that provides posters in factories that outline workers' 
    rights under Chinese law and they provide a hotline for workers to 
    call if they are the victims of violations
 A coalition of over 20 NGOs and SRIs (Socially Responsible 
    Investors), including the International Labor Rights Fund, Global 
    Exchange and Amnesty International USA started the U.S. Business 
    Principles for the Human Rights of Workers in China. To date nine 
    MNCs are participating in this China Working Group (3Com, Cisco, 
    Intel, KLA-Tencor, Nike, Palm Computing, Reebok and Target) working 
    to implement the Principles or similar Codes of Conduct.

    It is very common to discuss the ``sticks'' when discussing human 
and labor rights. But, I find the ``carrots'' to be of greater 
interest. The examples cited above share a few things--most notably the 
inclusion of the workers in the process--but most of all they are 
implicitly or explicitly capitalizing on the fact that there is 
competitive advantage to be gained from transparency, disclosure and 
good working conditions. If the industrial revolutions in the U.S. and 
the U.K. have shown us anything they have shown us that good factories 
make better products and over the longer term, that are more cost-
effective.

                               CONCLUSION

    ``Apart from their other characteristics, the outstanding thing 
about China's 600 million people is that they are ``poor and blank.'' 
This may seem a bad thing, but in reality it is a good thing. Poverty 
gives rise to the desire for change, the desire for action and the 
desire for revolution. On a blank sheet of paper free from any mark, 
the freshest and most beautiful pictures can be painted.'' Mao Zedong 
1967
    The picture for labor rights in China would have to include the 
following:

 Harmonization of the multiple codes of conduct (factory owners 
    rightly complain that the profusion of codes is a confusing time-
    sink and with at times 40 audits a month by inexperienced CPAs, 
    auditing as it is conducted by private sector firms is harmful to 
    workers and disruptive to production cycles)
 A greater degree of responsibility on the part of MNCs who 
    wreak havoc on factories through pressures to lower prices paid to 
    factories and ``just in time'' delivery demands that inevitably 
    lead to excessive, often forced, overtime
 Passage, or modification, of embodying legislation required 
    under China's ratification (2001) of the ICESCR (International 
    Covenant on Economic, Social and Cultural Rights and their 
    membership in the ILO (specifically with regard to freedom of 
    association and collective bargaining) and withdrawal of their 
    reservations
 A direct contact mission from the ILO

    This would be a beautiful picture indeed. Thank you.
                                 ______
                                 

                Prepared Statement of Auret van Heerden

                             APRIL 28, 2003

  Labor Rights in China: The Role of Private Labor Rights Initiatives

            By Auret van Heerden and John Salem Shubash, II

    In the contemporary global marketplace, competition to produce 
goods quickly and inexpensively often leads to morally unacceptable 
conditions of work, where labor relations systems and labor rights have 
been sacrificed in the name of economic efficiency. A number of 
scholars have made similar observations. Sabel, et al argue, ``It is a 
brute fact of contemporary globalization--unmistakable as activists and 
journalists catalog scandal after scandal--that the very 
transformations making possible higher quality, cheaper products often 
lead to unacceptable conditions of work'' (Sabel, et al, 2000). In 
light of such troubling observations, the role of private labor rights 
initiatives, such as the Fair Labor Association (FLA), become crucial.
    This paper is divided into six sections. First, we briefly outline 
why labor relations systems are breaking down, and why this is morally 
and economically troubling. Second, we discuss a number of theoretical 
strategies for coping with the current regulatory vacuum. Next, we 
argue that the FLA, along with other private initiatives, plays an 
important role in improving international labor rights and we briefly 
outline how the FLA complements public regulatory regimes. We then 
offer a brief discussion of labor rights in China, and argue that the 
relocation of global supply chains to China has out paced the 
government's ability to enforce labor rights, making industry self-
regulation vital. Finally, we present a case study that demonstrates 
the effectiveness and potential of private initiatives in improving 
labor rights and in strengthening labor relations systems in China. We 
conclude that the FLA has gained a high level of access to factories 
and workers in China, and is uniquely placed to affect human and labor 
rights there.

                THE BREAKDOWN OF LABOR RELATIONS SYSTEMS

    The global economy has witnessed the development of global supply 
chains that have outstripped existing labor market regulations and 
enforcement mechanisms. Katherine V. Stone, a professor of industrial 
relations at Cornell University argues, ``existing regulatory 
approaches are inadequate to ensure that the global marketplace will 
offer adequate labor standards to its global workforce'' (Stone, 1999). 
Additionally, competition to reduce costs and the possibility of 
capital relocation has resulted in the breakdown of traditional labor 
relations systems, where labor and business leaders negotiate 
collective agreements. The International Confederation of Free Trade 
Unions further articulated this finding, arguing, ``Governments, made 
increasingly desperate to increase their countries' exports and attract 
foreign investment after the Asian crisis, are finding themselves in a 
buyers' market dominated by companies who can name their price. And 
that price all too often includes cheap labour, low standards and no 
trade unions'' (ICFTU, 1999). This process has weakened the enforcement 
of labor laws and has allowed labor relations systems to breakdown. 
This has resulted in more persistent labor rights violations and more 
acute labor conflicts around the globe.
    The fact that labor relations systems are breaking down and labor 
rights violations continue is troubling for both moral and economic 
reasons. Morally unacceptable working conditions, such as child labor, 
forced labor, discrimination, overly 
excessive working hours and the payment of starvation wages are far too 
common in global supply chains. The excessive exploitation of 
vulnerable members of society, such as children, women and the poor, 
for financial gain must be corrected for a morally acceptable global 
economy to be created.
    A number of recent studies have outlined the positive correlation 
between high labor standards, and specifically coordinated labor 
markets, and macroeconomic 
performance. A recent World Bank report entitled ``Unions and 
Collective Bargaining: Economic Effects in a Global Environment'' found 
that countries with highly coordinated collective bargaining tended to 
be associated with lower levels of unemployment, lower earnings 
inequality, fewer strikes and generally better levels of macroeconomic 
performance (Aidt and Tzannotos, 2003:12). Similarly, a recent OECD 
study attempted to analyze the effects of labor standards on 
macroeconomic performance by comparing the economic indicators of 
countries that undertook major labor market reforms before and after 
the reform. The report, which studied the effects of labor market 
reforms on macroeconomic performance in 17 countries, found that on 
average, GDP grew at 3.8 percent per year before the improvement in 
labor standards and grew 4.3 percent afterwards. The OECD further 
argues, ``Countries which strengthen their core labor standards can 
increase economic growth and efficiency by creating an environment 
which encourages innovation and higher productivity'' (OECD, 2000). 
Maryke Dessing summarized the economic argument for labor standards, 
stating, ``Labour standards in general can become the source of 
competitiveness and economic dynamism as they transform the production 
process. Labour standards aim at correcting market failures, 
internalizing social externalities associated with firms' activities, 
and thus improve factor allocation consistent with the general good'' 
(2001:3). Given the moral and economic arguments in favor of labor 
standards, many actors stand to benefit from their implementation.

                 STRATEGIES TO IMPROVE LABOR STANDARDS

    A number of strategies for improving labor standards 
internationally have been proposed. The strategies outlined in this 
paper are divided into two categories: (1) regulatory approaches; and 
(2) cosmopolitan approaches, which employ both public and private 
initiatives to improve labor rights.
    Regulatory approaches attempt to find methods to improve the 
enforcement of core labor standards internationally. One such approach 
involves linking labor rights to trade negotiations. Proponents of this 
approach argue that the US-Jordan Free Trade Agreement, which has labor 
and environmental rights clauses and enforcement via a dispute 
settlement mechanism, should be a model for future trade negotiations 
(Ruebner, 2001). Similarly, others argue that labor rights should be 
included in the World Trade Organization (WTO). They argue that the 
WTO's Trade-Related Aspects of Intellectual Property Rights (TRIPS) 
sets a precedent for including legal frameworks for protecting rights 
in the WTO, and thus could easily be applied to labor rights (Wells, 
2001). They argue that the dispute settlement mechanism of the WTO, and 
the possibility of applying trade sanctions on noncompliant countries, 
would be a distinct advantage of using the WTO framework.
    Others argue that an enhanced international regulatory regime using 
the International Labor Organization (ILO) is the best method for 
improving labor standards. They say that the ILO system of ``sunshine'' 
(openness and transparency), ``carrots'' (assistance and rewards for 
labor rights compliance), and ``sticks'' (penalties for labor rights 
violations) forms the basis of an effective labor rights regulatory 
regime (Wells, 2001). The proponents of this view argue that the 
actions taken by member states to punish Burma for the use of forced 
labor shows the potential effectiveness of the ILO. Many critics, 
however, argue that the ILO is incapable of enforcing labor standards 
internationally, and that their ``punishment'' is often limited to bad 
publicity. They argue that much more needs to be done to ensure labor 
standards are upheld. As outlined previously, the inability of 
regulatory regimes to keep pace with global economic change suggests 
that some other approach must be employed to complement the role of the 
ILO and other regulatory regimes.
    Many intellectuals make the opposite argument, stating that labor 
standards in trade agreements are advocated by protectionist groups and 
by misguided NGOs, and that labor standards harm developing country 
workers (Bhagwati, et al, 1999). However, if a truly global approach is 
taken that improves labor rights across the globe, the negative 
competition that fuels labor rights violations can be altered, and more 
positive competition can be initiated to attract investment. Examples 
of positive competition for attracting foreign direct investment would 
include developing a skilled workforce, a strong infrastructure and 
more effective government institutions. Positive competition quickly 
breaks down with the absence of a globally 
coordinated strategy, however.
    In an attempt to create such a global strategy, some argue that 
``cosmopolitan'' approaches must be taken to address labor rights 
violations internationally. A ``cosmopolitan'' approach involves 
coordinating global responses to international problems and executing 
them locally, in coordination with local bodies. David Held 
articulates this strategy by arguing that two interrelated sets of 
transformations must take place to improve labor rights 
internationally. First, companies must adopt socially responsible 
rules, while public institutions at local, national, regional and 
global levels must enhance their regulatory regimes (Held, 2002). A 
similar sentiment is echoed by Amartya Sen, a Nobel laureate in 
economics and a leading development philosopher, who argues, ``In 
dealing with conditions of working lives, as well as the interests and 
rights of workers in general, there is a similar necessity to go beyond 
the narrow limits of international relations: not just beyond the 
national boundaries but even beyond international relations into global 
connections'' (Sen, 1999). This promising approach, which depends on 
building ``global connections'' and worldwide coalitions, reinforces 
the need for ``private'' labor rights initiatives to articulate and 
advocate the rights of workers on an international scale.

        THE ROLE OF PRIVATE LABOR RIGHTS INITIATIVES AND THE FLA

    Non-regulatory, or ``private'' approaches promote corporate social 
responsibility by allowing companies to adopt a code of conduct and 
promote adherence to that code. Critics argue that voluntary approaches 
are simply public-relations activities for the corporations, which do 
not change their behavior as a result of voluntary codes of conduct. 
All voluntary approaches are not the same, however.
    Some voluntary approaches, such as the U.N. Global Compact, have 
been referred to as ``learning networks,'' where companies can exchange 
ideas about corporate social responsibility and exchange ideas and 
``best practices.'' Although these networks have no inspection regimes 
and do not require the remediation of labor rights violations among 
their members, the open exchange of ideas has a number of potential 
benefits (Ruggie, 2002). Other voluntary mechanisms, and specifically 
the FLA, are much more demanding and effectively complement public 
labor rights regimes such as the ILO and national labor ministries.
    The FLA has a workplace code of conduct, based on ILO principles, 
which brand-name multinational enterprises sign and agree to implement 
throughout their supply chains.\1\ The Participating Companies (PCs), 
as they are known, agree (inter alia) to:
---------------------------------------------------------------------------
    \1\ Where there are discrepancies between the code and national 
law, the higher standard applies.

 inform factory managers and workers of the code,
 train their compliance staff in the code standards,
 internally monitor their production facilities to assess 
    compliance and
 monitor progress, and remediate any non-compliance.

    The FLA then conducts independent external monitoring of a random 
sample of those facilities to ensure that the PC is implementing its 
compliance program. It is important to note that the FLA independent 
external monitoring is unannounced and that the results are published. 
The process of internal and external monitoring involves consulting 
knowledgeable local sources, worker and management interviews, a review 
of wage and hour records and an inspection of the factory. In addition 
to the brand name PCs, there are 175 universities affiliated with the 
FLA. They require that their licensees join the FLA and implement 
compliance programs. There are presently some 4000 facilities in over 
80 countries covered by the FLA program.
    By consulting and working closely with local groups around the 
world, the FLA has participated in the formation of a global network 
dedicated to improving labor rights. By working globally and without 
national allegiances, the FLA takes steps to ensure that all workers in 
the PC supply chains, regardless of their country, experience the 
benefits of improved labor rights. This global approach helps prevent a 
``race to the bottom,'' and helps creates positive competitive 
pressures for suppliers engaged in business relationships with FLA PCs.

               HOW THE FLA COMPLEMENTS REGULATORY REGIMES

    Given the breakdown of labor relations and regulatory regimes and 
the national and international levels, ``private'' initiatives like the 
FLA attempt to fill this regulatory vacuum and create the ``global 
networks'' necessary to advocate improved labor rights. The FLA 
complements regulatory regimes in three principle ways: (1) because the 
PCs commit to a stringent monitoring and remediation process, and 
because the results of the process are published, they have strong 
incentives to correct labor rights violations in their supply chains; 
(2) because the FLA works in coordination with PCs and local NGOs, it 
has a large physical presence in China, where other efforts to address 
the human and labor rights situation have been limited; and (3) because 
of the economic leverage of PCs with their suppliers, remediation is 
negotiated from a position of relative power.\2\ This process is 
particularly relevant in China, since the relocation of multinational 
enterprises to the country has taken place so quickly that the Chinese 
authorities cannot effectively enforce labor laws throughout the 
country.
---------------------------------------------------------------------------
    \2\ There are a number of reasons why companies sign on to the FLA 
or other private initiatives, such as improved brand reputation, 
improved and more efficient labor relations systems, and a lower 
likelihood of crisis following the discovery of a major labor rights 
violation.
---------------------------------------------------------------------------
    The FLA is a framework for collaboration among different actors to 
improve respect for labor rights. By involving the participation of 
global brands, the FLA is able to bring attention to violations 
wherever they occur, and promote the accountability of brand-name 
companies for the protection of labor rights in their supply chains. 
The FLA also engages local groups in the monitoring and remediation 
process. By coordinating with PCs and local NGOs and targeting 
compliance efforts at specific factories, the FLA is well placed to 
respond to the speed of change in global sourcing. This is particularly 
advantageous in China, where the pace of global investment and sourcing 
has overwhelmed the regulatory regime.
    In 2001, the FLA PCs had 497 factories in China. Of these 497 
factories, the FLA conducted independent external monitoring visits at 
53 factories, or 10.66 percent of the total. Although concern about 
human rights in China is high in the international community, an 
alarmingly few number of organizations have been able to conduct 
concrete, hands-on human and labor rights work there. Given the rare 
experience of the FLA in practicing human and labor rights work in 
China, the organization's various ``people on the ground,'' and our 
unique access to factories and workers, the FLA is well placed to 
affect human and labor rights in China in a very practical and tangible 
way.
    Given the economic leverage that FLA PCs have over their 
contractors, the FLA can negotiate with labor rights violators from a 
position of relative strength. While the FLA encourages PCs to 
``remediate rather than terminate,'' the possibility of losing an 
important business relationship is a powerful incentive for factories 
to work with PCs in order to address labor rights violations. 
Regulatory regimes, while possessing a great deal of moral authority, 
are seldom able to mobilize the financial resources of the FLA PCs.
    Ensuring respect for international labor standards is a lengthy and 
complex process, highlighting the need for systematic efforts to 
monitor, remediate and verify compliance. The FLA participates in this 
process in an era when regulatory regimes, and particularly the Chinese 
authorities, cannot do it alone. While the FLA does not substitute for 
labor law enforcement and collective bargaining, the FLA serves as a 
complement to the efforts of regulatory regimes.

                         LABOR RIGHTS IN CHINA

    According to the World Bank, China has a population of 1.272 
billion people, a workforce of 706 million people, and is categorized 
as a lower-middle-income economy based on Gross National Income (GNI) 
per capita.\3\ Given the size of the Chinese workforce and the 
relatively low costs of labor, companies have been relocating to China 
at an amazing pace; FDI has been flowing into China at an average of 
over $40bn for more than a decade, and in 2002, China became the 
world's largest recipient of foreign direct investment (FDI) 
(Economist, Feb. 13, 2003). This has fuelled a 116.2 percent growth in 
GDP since 1991, an average growth of 9.7 percent annually, making China 
the fasting growing large economy in the world (World Bank, Sept. 14, 
2002).
---------------------------------------------------------------------------
    \3\ The World Bank classifications are: low income, $745 or less; 
lower middle income, $746-2975; upper middle income, $2976-9205; high 
income, $9206 or more. This calculations is based on GNI per capita. 
The entire list can be seen at http://www.worldbank.org/data/
countryclass/classgroups.htm.
---------------------------------------------------------------------------
    Labor rights in China are defined in a very particular way, and 
critics argue that they have not kept pace with the growth in FDI and 
GDP. The Chinese Constitution guarantees Freedom of Association, but 
this right is subject to the interests of the State and the Communist 
Party. Only one trade union, the ACFTU, is recognized. It has 
traditionally seen its role as protecting the interests of the Party, 
the government, the employer and the worker. The shift from state-
controlled to private enterprise is bringing about a reevaluation of 
that role, and many local union officials are adopting Western trade 
union techniques and adapting them to their circumstances. According to 
the ACFTU, there were 103 million trade union members in China in 2000, 
and 67,000 unions in foreign-invested enterprises, with a membership of 
6 million workers. However, unofficial estimates of ACFTU presence in 
foreign-invested enterprises suggest that less than 10 percent are 
organized. It has been government policy to promote collective 
bargaining since 1995, and by the end of 2000, some 240,000 agreements 
had been registered with the Ministry of Labor and Social Security. 
Most of these agreements, however, are products of an administrative 
process rather than collective bargaining.
    Although the right to strike was removed from the Constitution in 
1982, more than 100,000 strikes take place each year, particularly over 
late or non-payment of wages, severance payments in cases of bankruptcy 
and lay-offs resulting from the downsizing of enterprises. In Freedom 
of Association Case #2031, the Committee on FOA noted that while the 
government of China believes that its laws guarantee the rights of 
workers to form and join organizations of their own choosing, the 
Committee concluded that many provisions of the Trade Union Act were 
contrary to the fundamental principles of FOA. The Committee also 
recalled that it had concluded in two previous cases (1652 and 1930) 
that the Trade Union Act prevented the establishment of trade union 
organizations independent of the Government and the Party.
    Additionally, the China Daily reported a number of highly 
publicized industrial accidents recently. The latest statistics show 
that in the first 2 months of 2003 there were 1,639 deaths from 1,417 
workplace accidents in industrial and mining enterprises, prompting the 
government to announce the formation of a new State Administration of 
Work Safety to promote safety at work. According to the paper the 
problem stemmed from the ``prevailing ignorance among employers of 
working conditions resulting from irrational pursuit of profits'' but 
the ``main reason is that many local officials have tolerated some 
employers' malpractice in a bid to pursue economic development at the 
cost of work safety.''
    Given the rapid relocation of multinational corporations to China, 
the inability of the Chinese authorities to enforce existing labor 
laws, and the continued restrictions on freedom of association in 
China, industry self-regulation becomes vital. In the following 
section, two case studies that detail the positive impact of private 
labor rights initiatives and codes of conduct in China are presented.

                              CASE STUDIES

    As mentioned before, China presents a unique set of remediation 
challenges for FLA PCs. In an attempt to address persistent health and 
safety and freedom of association violations that were reported by FLA 
independent external monitors, three FLA PCs, three Taiwan-based 
footwear manufacturers, and four Hong Kong-based labor rights non-
governmental organizations (NGOs) developed a joint project to build 
the occupational health and safety (OHS) capacity of local groups in 
southern China. According to one of the companies,

          ``Engaging workers in problem solving with management 
        significantly reduced the amount of time spent on myriad small, 
        recurring problems (e.g. mistakes made by factory 
        administrative staff, miscommunications between management and 
        workers). In a few cases where worker representatives acted in 
        a sophisticated and professional manner, serious problems have 
        also been attended to and resolved without Reebok's 
        involvement. This emphasis represents the next 
        generation of strategies to honor code commitments that respect 
        the rights of workers to freedom of association.''

    Acting on the principle that an organized workforce can create a 
more sustainable system of labor relations and can improve a number of 
labor rights problems, the stakeholders established plant-wide health 
and safety committees, drawn from workers and management, to develop 
action plans to help correct workplace health and safety hazards. By 
organizing the workers into such groups, the stakeholders have found a 
way to sustain improved labor relations and adherence to the FLA Code 
in China.
    The international training team consisted of industrial hygienist 
Garrett Brown (from Maquiladora Health and Safety Support Network), 
health educators Pam Tau Lee and Betty Szudy (from the Labor 
Occupational Health Program at the University of California at 
Berkeley), as well as professor Dara O'Rourke (Massachusetts Institute 
of Technology). The project team worked with China Working Women's 
Network (CWWN), Asia Monitor Resource Center (AMRC), the Hong Kong 
Christian Industrial Committee (HKCIC), and the Association for the 
Rights of Industrial Accident Victims to develop the project.
    CWWN and the project staff conducted group discussions with 
participating organizations prior to the training to assess the needs 
of the workers. They also held discussions with the labor practices 
managers of Adidas and Reebok in Hong Kong, and visited a 60,000-worker 
shoe complex in Dongguan City.
    Using interactive, participatory techniques, the trainings covered 
topics such as identifying safety hazards, industrial hygiene controls, 
chemicals effects on the body, ergonomics, noise, machine guarding, and 
fire evacuation. The trainings also addressed workers' legal rights, 
and workplace inspection techniques. All training materials were 
translated into Chinese; English-speaking instructors had simultaneous 
translation for their presentation and activities. After the training, 
each factory's participants reunited to create a proposal for setting 
up the health and safety committee in their respective factories.
    This pioneering effort involving cooperative efforts among brands, 
NGOs and factories has had a positive impact:

 Factory management have since come together to share their 
    experiences in setting up the Health and Safety committees;
 NGOs have become more knowledgeable about health and safety 
    issues;
 The worker-management committees are young, but they are 
    functioning; and
 A democratically elected union now supports one committee.

    In an interview with the AP, Garrett Brown argued, ``Clearly the 
workers, supervisors and managers who participated learned a great deal 
and are now able to put that into real life practice in the plants.'' 
This case demonstrates the ability to improve labor rights in China, 
even when regulatory regimes are incapable of doing so.

                               CONCLUSION

    Because of the inability of the Chinese authorities to monitor and 
remediate labor rights violations in the rapidly expanding industrial 
zones, labor rights in China are suffering. Consequently, private labor 
rights initiatives, such as the FLA, have attempted to fill the 
resulting regulatory vacuum. Although the FLA is no substitute for 
local, national, regional and global regulations, it does complement 
the regulatory process by using the economic force of PCs, which have 
committed to the rigorous FLA monitoring and remediation process in 
order to improve labor rights worldwide. Given the unique access of the 
FLA to factories and workers in China, the organization is capable of 
taking concrete steps to improve the human and labor rights situation 
in the country.

                              BIBLIOGRAPHY

Aidt, Toke and Zafiris Tzannotos (2003) Unions and Collective 
    Bargaining: Economic Effects in a Global Environment (Washington, 
    DC: World Bank).
Bhagwati, Jagdish (1999) Third World Intellectuals and NGOs-Statement 
    Against Linkage (http://www.columbia.edu/?jb38/TWIN--SAL.pdf)
Dessing, Maryke (2001) ``The Social Clause and Sustainable 
    Development'' ICTSD Resource Paper No. 1 (Verdun: International 
    Centre for Trade and Sustainable Development)
Economist (April 6, 2000) ``Discrimination against rural migrants is 
    China's apartheid'' (http://www.economist.com/
    displayStory.cfm?Story--ID=299640)
Economist (Feb. 13, 2003) ``China's Economic Success'' (http://
    www.economist.com/displayStory.cfm?story--id=1576786).
Held, David (2002) ``Globalization, Corporate Practice and Cosmopolitan 
    Social Standards'' Contemporary Political Theory vol.1, pp.59-78.
ICFTU (1999) Building Workers' Human Rights into the Global Trading 
    System (Brussels: ICFTU).
ICFTU (Nov. 29, 2002) ``ICFTU CHINA POLICY'' (http://www.icftu.org/
    displaydocument.asp?Index=991217172&Language=EN).
OECD (Oct., 2000) International Trade and Core Labor Standards (Paris: 
    OECD).
Ruggie, John (2002) ``The Theory and Practice of Learning Networks: 
    Corporate Social Responsibility and the Global Compact'' Journal of 
    Corporate Citizenship issue 5, pp.27-36.
Sabel, Charles, Dara O'Rourke and Archon Fung (2000) ``Ratcheting Labor 
    Standards: Regulation for Continuous Improvement in the Global 
    Workplace'' Faculty Research Working Paper Number:RWP00-010 
    (Cambridge: Harvard).
Sen, Amartya (June, 1999) ``Globalized Ethics in a Globalized Economy'' 
    Keynote Speakers at the 87th International Labor Conference, 
    Geneva, Switzerland.
Stone, Katherine V. (1999) ``To the Yukon and Beyond: Local Laborers in 
    a Global Labor Market'' Journal of Small and Emerging Business Law 
    vol. 3, no. 1, p. 93.
Wells, Gary (2001) Trade Agreements: A Pro/Con Analysis of Including 
    Core Labor Standards (http://fpc.state.gov/6119.htm).
World Bank (Sept. 14, 2003) ``China at a Glance'' (http://
    www.worldbank.org/cgi-bin/
    sendoff.cgi?page=%2Fdata%2Fcountrydata%2Faag%2Fchn--aag.pdf)
World Bank (2001) ``China Data Profile'' (http://devdata.worldbank.org/
    external/CP 
    Profile.asp?SelectedCountry=CHN&CCODE=CHN&CNAME=China&PTYPE=CP)
                                 ______
                                 

                  Prepared Statement of Ruth Rosenbaum

                             APRIL 28, 2003

    The function of codes of conduct in China needs to be placed within 
the larger context of codes of conduct and enforcement systems 
throughout the globalized world. We will see that what is happening in 
China is parallel to what has happened and is continuing to happen 
within the contract supplier system worldwide.
    In countries with strong legal codes that recognize the rights of 
workers, including standards related to occupational health and safety, 
working hours, right to organize and engage in collective bargaining, 
etc., it is society as a whole that has established those standards. 
The standards themselves are expressed through the society's legal 
codes and enforcement systems. These give evidence that the societies 
hold themselves individually and collectively accountable for upholding 
the standards that they have devised. The standards include, of course, 
those standards to which corporations are held.
    As production and assembly has moved from countries where such 
standards, legal codes and strong enforcement exist, to other 
countries, differences are readily apparent.

    1. The standards to which factories are held by the society and its 
government vary from country to country. In fact, these standards are 
often much lower than those in the ``home'' countries of the 
corporations placing the orders in the factories.
    2. The legal systems for the enforcement of standards range from 
non-existent to minimal at best.
    3. The legal channels for addressing poor standards or violation of 
standards either do not exist--or the workers are in danger if they 
express concerns or raise issues.

    For at least the past decade, if not longer, a steady stream of 
media reports have exposed the harsh realities within factories to 
consumers, investors, as well as to labor rights and human rights 
organizations. Different countries and the problems within factories in 
those countries rise to public consciousness as a result of media focus 
and then as the months pass, other countries have taken their place.
    One of the mistakes within the varied responses to these exposes 
and reports has been to see the problems as isolated, the exception to 
the norm, etc. The responses have focused on a particular factory, a 
particular situation. Heroic work has been done by coalitions of 
organizations to bring about change in a particular factory--while the 
other factories in the same trade zone or province or country continue 
with similar patterns of behavior.
    The underlying question within all of this is the following:

          Where does the power exist to bring about change within the 
        factories as individual factories and within the supply chain 
        components within any country, including China?

    We need to keep in mind that for many industries, the factories of 
production or assembly are usually not owned by the corporations or the 
brand names with which we are all so familiar. They are contractors or 
vendors for the corporations. This lack of corporation ownership makes 
the power issue even more important.
    Yet, the focus of the media has been on the corporations placing 
orders within the factory. In response, corporation after corporation 
have produced a standard for the work place, the factory; hence the 
Codes of Conduct as we know them today. Although called by many names, 
these codes were set forth as the standard for the factory or, another 
way to say it would be, the ``laws'' for performance in the factory.
    We need to pay attention to what has taken place with this 
development. We have concluded that the corporations bear ultimate 
responsibility for the conditions under which their products are 
manufactured or assembled. We then expect them to become the creators 
of the standards for the factories and the enforcers of those 
standards.
    In other words, we have handed over the role of the society and its 
governance--making and enforcing standards and laws--to the 
corporations we are attempting to hold accountable. It is a shift in 
power, a shift in responsibility and a shift in accountability.
    When this plays out within the production system, we have the 
common phenomenon of almost any factory which accepts orders from 
numerous corporations, having a display wall with the various codes of 
conduct for these corporations framed and available for anyone who 
wants to take the time to read them. In theory, at least, these are the 
standards within which products are produced within the factory.
    Careful examination of the various codes quickly exposes one of the 
major flaws of the role of codes of conduct in a production factory. 
The codes from the various corporations are not the same. So what is 
the standard to which the factory must adhere? Is it the common 
denominator or the higher standard or a combination thereof? Is it one 
standard one day and another standard another day depending on the 
product being produced and/or the corporation for which the product is 
being produced and/or the particular inspection, monitoring, 
certification team that is coming? How is the management of the factory 
to know, much less the workers?
    Whose standard is it really? It does not matter which code of 
conduct we are using, it is still not the rule of law and governance of 
the community or country in which production is taking place. In fact, 
in many instances, the codes of conduct are higher that the legal 
standards within the country of production. This is certainly true in 
China--and so many other countries that could be named.
    When codes are conduct are seen as something imposed from the 
outside rather than a standard of behavior that is adopted from within 
the society, for the benefit of all involved, it depends on an external 
enforcement system for adherence. Hence we have the various systems of 
monitoring, inspection, certification, etc. that have developed as 
means and method of enforcing the codes.
    Again with most of the monitoring, inspection and certification, 
the power of enforcement comes from the outside: outside the community 
and often, outside the country of production.
    For us at CREA, there are three central issues that we use to 
evaluate whether or not the code of conduct and whatever enforcement 
systems are in place for that factory/code are succeeding:

    1. What changes for the workers? Although a simple question, this 
should be the reason why we are looking at codes. It is the situations 
in the factory that we are trying to address. It is critical that we 
see that we see these codes and the situations they are trying to 
address not as an abstract exercise but rather as the day-to-day 
reality for workers in China, most especially, but in any country where 
the assembly plant system works worldwide.
    2. How is power of enforcement transferred back to civil society 
and other components of society within China--and within other 
countries? If all the inspecting, certifying, monitoring, enforcing 
continues to have to come outside the community, it will continue to be 
a system of putting out fires, of presuming that if a small percentage 
of factories are OK, that they all are.
    3. Where do the money and the power attached to the money 
accumulate as a result of all the inspecting, certifying, monitoring, 
etc.? If we are looking at a system that can be sustained over time, 
there needs to be the transfer of sufficient funding and the associated 
power to the communities where the factories are located. The funding 
needs to remain within the community to support a sustainable economic 
system where appropriate governance can develop and function.

    While all of this is applicable anywhere in the world, the 
specifics of China are our focus today. CREA suggests the following:

    1. The need to start with recognition of the inherent dignity of 
each human being, so that workers are not seen only in terms of what 
they are able to produce.
    2. The need to look at ways of strengthening civil society within 
China. Organizations such as the Institute for Contemporary Observation 
(ICO), with which CREA is collaborating on a project, need to be seen 
as equal partners. We need to find ways to have work such as theirs 
seen as the ordinary, the way it should be done, rather than the 
exception or the extra-ordinary means of functioning.
    3. The CECC, corporations, any group working on the issue, needs 
take a look at why companies move to China. What is it that they gain 
because of the labor situation there as compared to other countries? 
For companies moving production to China because of the lower costs and 
standards there, there needs to be the means of holding these 
corporations accountable.
    For example, how does the issue of ``Just in time'' production and 
the on-going shortening of turn around time in relationship to orders 
being placed and demands placed on factories, resulting in abusive 
situations for workers?
    4. There needs to be a greater analysis of Chinese law related to 
labor, including OHS, wages, overtime, freedom of association and right 
to organize, and systematic ways of addressing these. This needs to be 
coupled to an examination of the ILO standards relating to occupation 
health and safety, work hours, etc., followed by the examination of 
each of these codes of conduct and their enforcement systems. Again, 
the underlying issue is how to bring these together in order to improve 
standards for workers.
    5. How do we make it beneficial for factory managers to adhere to 
the standards? At the present time we use a system of rewards and 
punishments based on the placing and withdrawal of orders to ensure 
compliance with the code of conduct. How do we move this reason for 
compliance to a standard that is beneficial for all factory managers to 
adhere to? How do we make adherence to codes the norm rather than the 
exception?
    Within the Chinese governmental system, how do we make it possible 
for a factory to be singled out positively if its standards go beyond 
the legal?
    6. How do we provide support for collaborative efforts between 
corporations to enhance their power to bring about change as well as to 
create an equal standard? How would the development of a collaborative 
code of conduct be constructed that would not be the lowest common 
denominator? And then, how do we provide a neutral space for a trial of 
this to take place and evaluated, without the spotlight or glare of 
publicity so that change for the workers could really take place.
    7. On another level, how do we get investors, the investment 
community including Wall Street and the other markets around the world 
to recognize that raising working condition standards is a beneficial 
thing even if the costs of production are higher? How do we communicate 
that the continual drive to lower costs of production contribute to the 
violation of the standards of performance and behavior that we are 
trying to raise in these codes of conduct?

    These systemic questions, and many others that could also be 
raised, focus the issue of codes of conduct on the global production 
system as it functions within society, most specifically in China. For 
more than a decade, members of CREA's staff have worked with numerous 
corporations on issues of code of conduct development, reporting 
mechanisms, monitoring and inspections; in fact, we continue to do so 
even as I speak here today about the need to look at the issues on a 
systemic basis. Without looking at the systemic issues, CREA is 
convinced that real change, sustained change, change that affects the 
lives of workers, and their communities cannot and will not take place. 
In the meantime, we salute and support the efforts of those who seek to 
promote, enforce and report on codes of conduct and compliance with 
them. These efforts should not be taken lightly. This is hard work. It 
is important work. Hopefully, we will be able to learn from the 
experiences of all of us who have worked and continue to work on the 
issues that these codes of conduct seek to address and devise the 
methods for system change that remain before us.
    Thank you for your time and attention.

                       Submissions for the Record

                              ----------                              


           Prepared Statement of the Wei Jingsheng Foundation

                             april 28, 2003

       Statement on U.S. Corporations' Codes of Conduct in China

    One of the major fields this Foundation works on regards workers' 
rights, as well as the codes of conduct and working conditions of the 
companies and factories that employ them, including those of foreign 
companies and joint ventures. Of course, the U.S. companies have a lot 
of investment and are doing a lot of business with China.
    For these companies, naturally, their primary concern is profit. 
Most of them do not want to ``interfere with the internal affairs'' of 
China, nor do they want to care about Chinese human rights. On the 
surface, it seems very reasonable. In reality, it has helped the 
Chinese Communists to restrict and even suppress Chinese human rights, 
including the flow of information and free expression. Nevertheless, 
while these companies only focus on revenues and care about self-
protection with their concern of offending the Chinese government, they 
have really done damage not just to Chinese human rights, but also 
their own interests.
    What these companies have done has effectively reduced the pressure 
the international community has on the Chinese government. It is now 
time for these companies to review their moral and ethical codes. They 
should try to apply what they have in their own country to the 
factories and companies overseas, especially in China. Among them, 
these companies should build a moral standard of not protecting the 
interests of the suppressive Chinese government. They should not speak 
in favor of the Chinese government. They should not work on behalf of 
what the Chinese government wants yet is unable to accomplish itself, 
either in China, or in the United States, or elsewhere in the world.
    Although we know these calls of conscience have their limited 
appeal, we want to point out that how these companies conduct 
themselves in China has not just helped the Chinese government to 
further damage human rights by allowing a poor standard of conduct in 
China, but also damaged their own interests and that of their 
employees. Their conduct has resulted in themselves and their employees 
being afraid to speak freely, not just inside China, but even overseas. 
(We have examples but are not submitting these cases and names until 
necessary, which involve top brand-name companies.) It also brings them 
the hazard of health, which could be life threatening.
    Take the recent spread of SARS as an example. Due to the fact that 
the Chinese government restricted the truth, instead of spreading the 
necessary information, their obstacles have helped to spread the virus. 
The result is not just damaging the health and lost lives of our fellow 
Chinese inside China, but also the same threat to the rest of the 
world, including the health and lives of these companies.
    Not long ago, a poor woman with diagnosed SARS was refused health 
care in the south and had to return to her home in the north. It was 
that fateful journey that made more people in the north get infected 
with the disease, before the poor woman died. Not any excuse should let 
the innocent citizens' lives be victimized, and expose the whole world 
to risk. It is time for us to realize that pressure must be brought to 
the Chinese government as much as we can. That is the responsibility of 
the whole world, for the welfare of all humanity. The U.S. companies 
must strengthen and enhance their own codes of conduct not just in the 
United States, but also in the rest of the world, including China. 
These companies have a choice between aligning themselves with the 
Chinese workers for their welfare, or aligning themselves with the 
Chinese government to exploit and suppress workers' rights and benefits 
altogether.
    As a matter of fact, the poor workers' benefit protection has a 
long history. For more than a decade, there have been more than one 
hundred twenty million ``peasant workers'' from the countryside 
supporting almost all of the construction and service industry, 
especially the processing industry for export. In reality, they are 
``second class citizens'' with no official ``city registration.'' They 
live in terrible temporary shelters. Due to the lack of official ``city 
registration,'' they do not have the social and economical benefits the 
city dwellers may have, and especially they lack health and life 
insurance. Under the health system that is guided by rules that refuse 
patients who do not have money, a sick ``peasant worker'' basically has 
nothing for protection even when he/she is very ill, like the woman who 
died of SARS that was mentioned in the last paragraph. The so-called 
``workers union'' which is paid by and works for the Chinese 
government, has done nothing beneficial for these miserable workers. 
The owners and enterprisers simply keep an attitude of ``one eye open 
with one eye closed'' in dealing with these problems, unless a dispute 
gets out of control.
    One has to ask, for a government that does not care for the welfare 
of its own people and lied to protect itself, how could others 
including these companies trust this kind of government? How could you 
give assistance to this type of government in any form, or align your 
moral codes and ethical conduct with the allowance of this type of 
government?
    It is time for the U.S. companies to act and raise their moral 
conduct in China, to what we expect of them in the United States. It is 
time for the U.S. government and Congress to act, on behalf of the 
freedom loving people instead of the profit seeking companies, to 
ensure the moral and ethical expectation of these companies.
    Thank you very much for your attention.

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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