[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]




  WORKING CONDITIONS AND FACTORY AUDITING IN THE CHINESE TOY INDUSTRY

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

                                HEARING

                               before the

              CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           DECEMBER 11, 2014

                               __________

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              CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

                    LEGISLATIVE BRANCH COMMISSIONERS

Senate                               House

                                     

SHERROD BROWN, Ohio, Chairman        CHRIS SMITH, New Jersey, 
CARL LEVIN, Michigan                 Cochairman
DIANNE FEINSTEIN, California         FRANK WOLF, Virginia
JEFF MERKLEY, Oregon                 ROBERT PITTENGER, North Carolina
                                     MARK MEADOWS, North Carolina
                                     TIM WALZ, Minnesota
                                     MARCY KAPTUR, Ohio
                                     MICHAEL HONDA, California

                     EXECUTIVE BRANCH COMMISSIONERS

                 CHRISTOPHER P. LU, Department of Labor
                   SARAH SEWALL, Department of State
                STEFAN M. SELIG, Department of Commerce
                 DANIEL R. RUSSEL, Department of State
                  TOM MALINOWSKI, Department of State

                    Lawrence T. Liu, Staff Director

                 Paul B. Protic, Deputy Staff Director

                                  (ii)
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                             CO N T E N T S

                              ----------                              

                               Statements

                                                                   Page
Opening Statement of Hon. Sherrod Brown, a U.S. Senator from 
  Ohio; Chairman, Congressional-Executive Commission on China....     1
Qiang, Li, Executive Director and Founder, China Labor Watch.....     4
Reese, William S., President and CEO, International Youth 
  Foundation; Member, ICTI CARE Foundation Governance Board......     5
Brown, Jr., Earl V., Labor and Employment Law Counsel and China 
  Program Director, Solidarity Center, AFL-CIO...................     6
Campbell, Brian, Director of Policy and Legal Programs, 
  International Labor Rights Forum...............................     8

                                APPENDIX
                          Prepared Statements

Qiang, Li........................................................    22
Reese, William S.................................................    27
Brown, Jr., Earl V...............................................    30
Campbell, Brian..................................................    32

Brown, Hon. Sherrod..............................................    34
Smith, Hon. Christopher Smith....................................    35

                       Submission for the Record

ICTI CARE Response to China Labor Watch's November 18, 2014, 
  Report on Five Toy Factories...................................    37

 
  WORKING CONDITIONS AND FACTORY AUDITING IN THE CHINESE TOY INDUSTRY

                              ----------                              


                      THURSDAY, DECEMBER 11, 2014

                            Congressional-Executive
                                       Commission on China,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:46 
a.m., in Room SVC 212-10, Capitol Visitor's Center, Hon. 
Sherrod Brown, Chairman, presiding.

 OPENING STATEMENT OF HON. SHERROD BROWN, A U.S. SENATOR FROM 
  OHIO; CHAIRMAN, CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

    Chairman Brown. The Commission will come to order. Thank 
you all for joining us, the five of you. I appreciate that very 
much. I am sorry for the lateness of the start.
    We just had a vote on the Senate floor and there are House 
votes going on, too, so colleagues, including Cochairman Smith, 
I believe, will be joining us. We will have people kind of 
coming in and out. I apologize for the unevenness of that and 
what that sometimes does to hearings here.
    This is an important hearing. This is the last hearing that 
I will preside over with a change in the majority in the 
Senate. Chairman Smith and I have worked together for four 
years in this Commission taking turns chairing.
    The chair next year will go back to the House and the 
Cochair will be a Senate Republican. It has been an honor to 
work with this Commission for these almost four years.
    David Machinist, today, thank you for the work that you did 
on this, Paul and Lawrence, especially as the two Staff 
Directors, for the work they have done on this. Lawrence is 
moving on and I am particularly appreciative for the close 
personal relationship and the work that we have been able to do 
together.
    This hearing is important and fitting because of the time 
of the year it is. Obviously, this is when many of the toys 
that are made in China are purchased in the United States for 
the holiday season.
    I have three grandchildren. I know the excitement of the 
holidays and I know what these toys mean to children and 
parents and grandchildren. Not just should we care about the 
quality and the safety of the toys and issues like lead paint, 
we should also care about the workers--something we don't think 
much about on Christmas mornings or holiday mornings or when we 
look at these toys, think about the people who actually make 
these toys.
    It used to be the case that toys were made in America, 
often by union workers, often by workers that could actually 
afford to buy the toys that they make. I remember some years 
ago after NAFTA [North American Free Trade Agreement] passed, 
at my own expense, I flew to the Texas-Mexican border and went 
across the border with a friend and went to an auto plant in 
Mexico.
    It was new. It looked like an auto plant in Lorain, Ohio or 
Avon Lake, Ohio or Cleveland, Ohio. It was modern. It was 
clean. The workers were working hard. There was one difference 
between the two auto plants, the Mexican one and the Ohio one 
and that is the Mexican one did not have a parking lot because 
the workers could not afford to buy the cars that they were 
making.
    We see much of that in the toy industry. So often workers 
cannot afford to, for their children, buy the toys that they 
make.
    Towns like Bryan, Ohio, a little town in the northwest 
corner of Ohio, near to Indiana and to Michigan--Bryan, Ohio--
for years workers at the company called the Ohio Art Company 
made something that most of you, if you grew up in this country 
would have played with, something called Etch-A-Sketch. A 
decade or so ago, Walmart came to the Ohio Art Company and 
said, we want to sell your Etch-A-Sketch, your product for 
under $10 at Walmart.
    The Ohio Art Company thought they had no choice and they 
shut down production, most of their production in the United 
States, moved it to China where they could produce with low-
wage workers and a whole lot of other things, could produce 
these toys and Walmart could make the money that they thought 
they should make from each toy.
    Today the production of Etch-A-Sketch is now in Shenzhen, 
China. A hundred people lost their jobs and a community, in 
part, lost some of its pride when that happened.
    Today, some 85 percent of our toys come from China. They 
will be made by factory workers like the ones investigated in 
China Labor Watch's most recent report. Some are temporary 
workers, some are students, some make as little as $1.23 an 
hour, some work more than 100 hours of overtime a month, in 
blatant violation of China's overtime laws. China's laws are 
not all that bad, but the enforcement of those laws is.
    These young people often live in crowded dorms, sometimes 
18 people to a room. They stand for long hours at work. 
Emergency exit doors are locked. We have seen the tragedies 
that can result from that.
    At the base monthly wage they are making, it would take 
nearly two months for one of these workers to afford the Thomas 
the Train mountain set that sells for $400, made in China.
    We have seen this story repeated over and over again, 
American companies moving production to China to take advantage 
of cheap labor, poor labor enforcement, and then resell these 
goods back to the United States. This business model is pursued 
by hundreds and hundreds of American companies--think about 
this. A company shuts down in Steubenville or Toledo, Ohio, 
moves its production to Wuhan or Beijing, gets tax breaks doing 
it and then sells those products back into the home country.
    It is not good for the environment. It is not good for 
communities and you can see what it does. For all intents and 
purposes, it is a business model for all we can see, 
unprecedented in human history. Shut down production in one 
country, move it overseas, sell the production back into the 
original country.
    Eight years ago I introduced the Decent Working Conditions 
and Fair Competition Act to expand the Tariff Act of 1930 to 
prohibit the importation of goods made with sweatshop labor. 
Private industry said we don't need a law. Members could deal 
with the problem on their own through codes of conduct, through 
certifications, through audits.
    Eight years later, the problem has not gone away. What I 
want to know today is are corporate codes and self-policing 
sufficient or do we need a new approach? Does the toy industry 
in China need something like the legally binding Bangladesh 
Accord, which I urged companies like Walmart and Target to join 
last year or an anti-sweatshop law like the one I introduced 
eight years ago?
    We need to do something. We need to be able to tell our 
children that the person who made their toys, perhaps the 
mother or the father of a child like them, just living in 
another country, worked in a good place where she made a decent 
living. We cannot say that now.
    I look forward to hearing from the witnesses. I will begin 
the introductions and then look forward to the testimony of the 
four of you.
    Kevin Slayton is the interpreter. I happened to go to the 
school opening of his middle school before he was old enough to 
be in middle school, many years ago. He is the interpreter. I 
think you lived in Taiwan for a while, you have studied at Ohio 
State and learned to speak Mandarin very, very well there.
    I will introduce the four principals. Li Qiang is the 
founder and executive director of China Labor Watch. He has 20 
years of experience in labor rights. He has led hundreds of 
investigations into labor conditions at factories in China, 
including 100 toy factories. He has written opinion pieces and 
given numerous media interviews on working conditions. He 
testified before this Commission two years ago. Welcome, Li 
Qiang.
    William Reese is the president and CEO of the International 
Youth Foundation, which he has served since 1998. He is a non-
industry member of the Governance Board of the ICTI CARE 
Foundation, established by the International Council of Toy 
Industries [ICTI] in 2002 to promote fair labor standards and 
safe working conditions in the production of toys through an 
auditing and certification system. He serves as a board member 
for Worldwide Responsible Accredited Production [W.R.A.P.] 
which certifies the apparel industry. Welcome, Mr. Reese.
    Earl Brown is a labor and employment law counsel and China 
program director for the Solidarity Center at the AFL-CIO. Mr. 
Brown has represented trade unions and employees in U.S. labor 
and civil rights litigation for coming up on 40 years, 30-some 
many years. He was previously general counsel for the 
Teamsters. He testified before the Commission in 2012 on worker 
rights. Welcome, Mr. Brown.
    Brian Campbell is the director of policy and legal programs 
at the International Labor Rights Forum [ILRF]. He is 
responsible for policy, legal, and legislative advocacy for 
efforts to end child labor and forced labor. For a decade, he 
has directed ILRF China programs where he has partnered with 
local organizations to develop a program to train legal 
advocates, including judges, arbitrators, mediators, and 
attorneys to promote rule of law through improving enforcement 
of workers' legal rights in China. Mr. Campbell, welcome to 
you.
    Li Qiang, if you would begin.

 STATEMENT OF LI QIANG, EXECUTIVE DIRECTOR AND FOUNDER, CHINA 
                       LABOR WATCH [CLW]

    Mr. Qiang [interpreted by Kevin Slaten]. I want to thank 
the Commission for organizing this hearing. I come here not 
only as an activist, but I also come as a father of two 
children.
    Liu Pan, who began working at the Yiuwah Factory at the age 
of 15, got his arm stuck in a machine before his entire body 
was pulled in. His head was crushed beyond recognition when his 
family saw him. Liu was only 17 when he died.
    The factory where he worked had passed Disney's audit and 
was making Disney products during the time of Liu Pan's death. 
After media reports, Disney said it would improve conditions, 
but in the end, it removed its orders from the Yiuwah plant.
    This is his ID when he went in the factory. He was a young 
person. Tragedies like this are the result of poor labor 
conditions.
    CLW's recent investigation of four toy factories discovered 
serious labor abuses that included a hiring discrimination 
against minority groups, detaining of workers personal IDs, 
safety hazards like uninspected machines and locked safety 
exits, a lack of safety training, insufficient purchase of 
social insurance as required by law, mandatory excessive 
overtime, unpaid wages, abuse of management, ineffective 
audits, and more.
    These types of abuses represent a lack of improvement in 
the toy manufacturing industry's labor conditions over the 
previous few years. For instance, toy workers in the factories 
we recently investigated earn one-third less in wages and 
benefits than Foxconn workers when controlling for working 
hours.
    The primary reason for deteriorating labor conditions in 
the toy industry is profit. Brand companies suppress the 
production price at factories and factories, in turn, maintain 
a profit on the backs of its workers. Toy companies have 
stringent demands in regard to product materials and quality, 
so labor costs ultimately become the only flexible input. 
Workers who are situated at the bottom of this system are 
forced to bear the costs.
    These labor violations are an injustice for workers. They 
are also a risk for investors and stockholders. For example, we 
have deduced through our investigation that two of Mattel's 
directly controlled factories, in just the past year, owe about 
$7 million to 9,000 workers in unpaid social insurance fees.
    Unpaid insurance led to the massive strike in April at the 
Nike and Adidas factory called Yue Yuen which resulted in 
production and back-pay costs of $60 million, according to the 
Wall Street Journal.
    Ultimately, if the toy industry wants to truly reform labor 
conditions and bring them in line with legal and international 
standards, there are going to be unavoidably higher costs to 
pay for the toy companies.
    Thank you.
    Chairman Brown. Thank you. Mr. Reese, please proceed.
    [The prepared statement of Mr. Qiang appears in the 
appendix.]

STATEMENT OF WILLIAM S. REESE, PRESIDENT AND CEO, INTERNATIONAL 
YOUTH FOUNDATION; MEMBER, ICTI CARE FOUNDATION GOVERNANCE BOARD

    Mr. Reese. Senator, Thank you for accommodating my need to 
leave early today for a long-scheduled meeting at the World 
Bank--given my involvement with the International Youth 
Foundation Worldwide, as a board member of ICTI CARES, I bring 
some of those experiences to bear--being aware, responsible and 
ethical in the process of managing its supply chains.
    The program was established because ICTI members, national 
toy associations, along with their retailer and toy brands were 
committed to having a comprehensive and unified approach to 
understanding the conditions under which toys are made; were 
desirous of supporting a process to help raise standards; and 
eager to have a way of knowing and rewarding manufacturers with 
demonstrated positive performance.
    I am going to ask that my full comments be a part of the 
record.
    Chairman Brown. Without objection.
    Mr. Reese. We believe our programs have met high standards 
of ethical manufacturing or pushed those standards to be 
higher. We are one of the very few industry-specific integrated 
social compliance organizations in the world. We vet and train 
internationally recognized accredited audit firms that are then 
chosen randomly to conduct these audits. Finally, we certify 
the results of the audits by awarding or not awarding a seal of 
compliance to the factories.
    We do this transparently. Our code of business practice, 
performance standards, audit procedures, seals of compliance, 
et cetera are all publicly available on our Web site.
    Now what we do, the toy firms commit to requiring and 
accepting ICTI CARE process certification of their suppliers as 
a way of doing business. We manage the qualification, 
appointment, and training of highly qualified, internationally 
accredited audit companies to carry out these audits.
    The ICTI CARE Foundation currently uses seven well-trained, 
well-vetted and accredited audit firms that have undergone a 
rigorous technical review before we ever start working with 
them.
    A supplier or factory completes an application package to 
become a member. Once a factory application has been accepted, 
our operations team in Hong Kong randomly assigns an audit firm 
from the seven qualified firms that I have mentioned.
    Once the audit firm issues a favorable report, the factory 
will receive a certification seal valid for one year after 
which it will be subject to another audit, and an unannounced 
audit. In other words, a factory that comes into the program is 
audited twice in its first year.
    If the audit firm issues a report that identifies any 
faults, the factory will be required to adopt a corrective 
action plan and to address those points--point-by-point. 
Thereafter, a scheduled re-audit is done to ensure that the 
corrective action plan has been implemented. Factories are put 
on probation pending correction of identified faults until they 
are handled.
    Now let me talk for a minute about complaint procedures and 
we are very much interested in taking the proper time and 
research to reply to CLW and to your Commission. We take 
allegations seriously. Once we have received a complaint, we 
jump to action and part of that is in my full report.
    Our own audit staff conducts audits, unannounced audits, 
investigating all of the issues. The process works best when we 
can work with factories and with NGOs to work through these 
issues.
    However, we don't just investigate and require correction. 
We also help workers in factories to reach agreement on issues 
that arise between them.
    In closing, Senator, with support of a multi-stakeholder 
board, which governs the ICTI CARE Board--and we have an annual 
report here that lists all of the outside non-toy industry 
people who make up the majority of the board--with a committed 
operations team in Asia, an experienced and accredited, as I 
said, social compliance auditors responsible to the brands and 
retailers supporting the process, we have helped improve the 
awareness and realization of better working standards in toy 
factories in China.
    We have learned a lot over the past 10 years. We use what 
we have learned to constantly improve our process and we 
appreciate this Commission and its seriousness to invite us to 
testify and we look forward to answering questions and what I 
cannot answer today in my time, we will certainly answer in 
writing.
    Chairman Brown. Thank you, Mr. Reese. Thank you for being 
here. The toy industry was not so cooperative with this 
hearing. You were--I appreciate that. I am sorry you have to 
leave early. Jim Yong Kim and what he is doing is very 
important, but so is this.
    Mr. Reese. Thank you. Yes.
    Chairman Brown. Mr. Brown?
    [The prepared statement of Mr. Reese appears in the 
appendix.]

   STATEMENT OF EARL V. BROWN, JR., LABOR AND EMPLOYMENT LAW 
 COUNSEL AND CHINA PROGRAM DIRECTOR, SOLIDARITY CENTER, AFL-CIO

    Mr. Brown. Thank you, Senator. I want to first thank you 
and Chairman Smith and your very able staff for a consistent 
long-term focus on a very complicated society, China, and for 
providing a forum for a voice on China. I think it is a major 
contribution.
    I am an American labor lawyer. I work for the human rights 
and worker rights NGO [non-governmental organization] of the 
AFL-CIO, the Solidarity Center. Prior to that, I was mainly a 
courtroom lawyer for trade unions--many unions that are in Ohio 
for agricultural workers, steelworkers, coal miners--I 
represented the coal miners for many years.
    Since 1999, I have had a privilege of a window on the rise 
of industrial workers in China and with that rise, the rise of 
worker voice and worker rights advocacy at the grassroots in 
China.
    I think that industrial workers are key to robust civil 
society. They are key to deepening space in society and that 
autonomous worker voice in formal and informal organizations is 
also an indispensable element of legal compliance. I am not 
talking about social progress, I am talking about sheer 
compliance with applicable Chinese and other countries' labor 
laws.
    Without workers at the grassroots, you cannot enforce 
complicated occupational health and safety regulations and you 
cannot even--in environments like China--enforce pay laws. It 
takes workers, and we think and I agree and Li Qiang has found 
that auditing, social auditing, is like staging Shakespeare's 
play, ``Hamlet,'' without the Prince of Denmark.
    It does not include this complicated element of worker 
voice, particularly in a society where public reporting, 
regulatory norms are vague, not precise and there is no testing 
record of public documentation for compliance with laws. 
Imagine trying to find out, for example, whether a certain 
factory in China produces, via prison labor, coffee mugs for 
importation in the United States.
    There are millions of coffee mugs imported into the United 
States, probably every coffee mug that you drink out of, and 
the majority are from China.
    Chairman Brown. There is a small startup plant in eastern 
Ohio.
    Mr. Brown. Well good.
    Chairman Brown. A former pottery center that makes mugs. So 
you stand corrected, but only a few. Thank you.
    Mr. Brown. Is it a unionized plant?
    Chairman Brown. It has 10 people so far. They are hiring 
ex-cons there. It is an incredible thing. They have got a big 
thing--never mind. Go ahead Mr. Brown.
    Mr. Brown. Okay.
    [Laughter.]
    Chairman Brown. I hope that it is, but it is not yet.
    Mr. Brown. Well we hope that they will have worker voice in 
the United States as well.
    So imagine trying to find out that this state-involved 
enterprise--who owns it, who is profiting, who the agents are 
in the chain that ship the coffee mugs to the United States, 
who orders them, what the brands do? Imagine trying to find 
that out in China. People are afraid even to go to local 
government offices and ask for documents because their identity 
will be reported.
    Industrial workers, as I mentioned, I think are key to 
robust civil society. They are also very complicated and the 
audit model is translating a financial model to a social 
situation. You cannot find out in China or anywhere else, 
really, whether occupational health and safety is a reality on 
the shop floor or way down underground unless you talk to 
workers. To talk to workers and get them to talk to you, you 
have to develop trust.
    This social investigation is the missing element of social 
auditing. I think if we are looking to what the U.S. Government 
should do--remove from the geopolitics, it should fund and 
support to a greater degree than it does and bring to the table 
the grassroots networks of workers in China and the worker 
rights advocates like Li Qiang.
    Chairman Brown. Thank you, Mr. Brown.
    Mr. Campbell?
    [The prepared statement of Mr. Brown appears in the 
appendix.]

   STATEMENT OF BRIAN CAMPBELL, DIRECTOR OF POLICY AND LEGAL 
           PROGRAMS, INTERNATIONAL LABOR RIGHTS FORUM

    Mr. Campbell. Thank you, Mr. Chairman, for inviting me to 
share some ideas for tools that the U.S. Government can employ 
that will bring an end to the terrible abuses facing factory 
workers in China and in other countries.
    As was well-documented in China Labor Watch's report and 
testimony, the sweatshops are the result of complex modern 
business practices by multi-national enterprises. The reasons 
sweatshops exist are not complicated. Sweatshops are the result 
of high-stakes, intense cost and production pressures placed on 
local companies in China by multi-national enterprises.
    Unfortunately during peak production season, the demands of 
the buyer can lead directly to coercive management policies and 
in many cases force labor to meet production demands. For 
example, in the case of Mattel Electronics Dongguan and 
Zhongshan Coronet factories, China Labor Watch documented in 
their report how workers who initially voluntarily came to work 
for the company eventually found themselves unable to leave 
during the peak season without having to leave behind wages 
that were already legally owed to them.
    With such dire consequences for workers, it is vital that 
the Chinese and United States Governments work closely together 
using all of the tools at their disposal to bring an end to the 
root causes of these labor abuses. In doing so, it is important 
that we remember two immutable facts that most inform any 
course of action.
    First, unless workers can access a legally binding remedy, 
they stand to lose if they raise complaints, use grievance 
processes or take other actions to protect their rights. As is 
clearly demonstrated in China Labor Watch's reports, workers 
are the most vulnerable person in the supply chain. They are 
simultaneously unable to protect themselves from management 
retaliation and from the economic hit caused by loss of 
business when companies use CSR [corporate social 
responsibility] policies incorporated into supplier contracts 
to rescind the contracts.
    Second, global multi-national enterprises and the companies 
that comprise them like Mattel and Fisher-Price exist by virtue 
of a grant of authority from governments and legislatures like 
our Congress which endow them with one overarching legal duty 
that defines the very nature of this corporate person's 
character, a fiduciary duty to maximize profits on behalf of 
shareholders. As a result, business practices employed by 
companies like Mattel, such as lean production time CSR 
programs are designed to achieve this singular duty, to protect 
shareholder interests, though there may be other ancillary 
benefits from time to time.
    In order to strike a new balance between the myopic profit-
maximizing nature of the corporate person and human beings 
impacted by their business practices, the United States and 
Chinese Governments have already taken an important step by 
endorsing the UN Guiding Principles on Business and Human 
Rights.
    In line with the OECD [Organisation of Economic Co-
operation and Development] guidelines for multi-national 
enterprises, another international agreement, the Guiding 
Principles provide a mutual framework for addressing human 
rights violations and global supply chains that cross national 
borders. It is based on three fundamental principles.
    First, governments have a duty to protect human rights. 
Second, multi-national enterprises have a responsibility to 
respect human rights. Third, victims such as exploited migrant 
workers have a right to a meaningful, effective remedy from 
both governments and the companies.
    However, in order to implement the respect, protect and 
remedy framework, Congress must pass the necessary laws, 
including amending already existing legislation to reflect 
these principles and to ensure that effective remedies are in 
place for victims. Every agency of the government has to take 
on their share of this work.
    First, Congress must ensure that companies cannot import 
goods made with forced labor. This would require amending the 
Tariff Act of 1930.
    Second, Congress should pass H.R. 4842 and the Senate 
should have a companion bill, which is the Business and Supply 
Chain Transparency Act. This is a vital first step toward 
ensuring that multi-national enterprises implement their duty 
to respect or do no harm because it legally mandates reporting 
on their due diligence requirements. But we need to go further.
    Third, as a government consumer, we must act to put in 
protections for our government supply chain. These must go 
beyond just forced labor, but tackle the root causes of forced 
labor like these sweatshop conditions.
    Fourth, Congress should help the United States provide 
dispute resolution through the OECD national contact point. 
That means providing them the mandate and the resources.
    Finally, I applaud President Obama for announcing that they 
will implement a National Action Plan for implementing these UN 
Guiding Principles and I call on Congress to support that 
effort and to pass the laws necessary to do so. Thank you very 
much.
    [The prepared statement of Mr. Campbell appears in the 
appendix.]
    Chairman Brown. Mr. Campbell, thank you.
    Let me start with Mr. Reese since you have to leave. Mr. 
Brown said that basically auditing falls short. You don't talk 
to workers enough, all of the criticisms he made. Tell me why 
he is wrong.
    Mr. Reese. Well, social auditing won't solve all issues, 
but social auditing and even the auditing we do in our own 
country here is a snapshot in time and when it shows that there 
are issues that need to be worked on, then you fix them and 
work on them. And that is what our social auditing is all 
about.
    It takes into account worker voices because there is a 
helpline in which workers--and we have copies, actually, of a 
card that each of them carries around with them and is issued 
and trained to use where there is a helpline that a worker can 
call in and say here is a problem I am having on the job and 
those issues are dealt with. So there is a voice.
    Chairman Brown. Do you have the feeling that a worker in 
one of these plants--Li Qiang talked about the 17-year-old who 
is young and from a small town and probably a little scared 
coming to the big city or coming to this plant and has never 
really seen anything like this in his life--you think they are 
going to believe calling some place is confidential?
    Mr. Reese. First of all, we talk to and train the workers 
so that they can believe in that. And then I think we only earn 
our credibility because we follow up on their calls.
    Chairman Brown. And any of these others, feel free to speak 
because I want this to be more of a conversation, but I am sort 
of starting with Mr. Reese.
    Mr. Qiang. During our investigation, the investigator 
actually called the helpline multiple times in different 
factories and there was really no effect.
    This is a Mattel worker who was beat up by the security 
guards at the factory. After he was beat up on the grounds, 
this is what he looked like.
    A relative of this worker died at the factory, had 
committed suicide. They went to protest at the gates and then 
were beat up by security. After the suicide, they had called 
the ICTI hotline about this suicide and what the factory did to 
contribute to it and there was no effect.
    The reason this person committed suicide is because she was 
a 45-year-old female worker who was on the production line and 
working too slowly for the management's preferences and she was 
yelled at then, berated, they told her she was working too 
slow, she could lose her job. She ended up crying on the line 
because of that pressure, went up to the fourth floor, jumped 
off and killed herself.
    The family demanded 250,000 RMB from the factory, which is 
roughly $40,000, I think. Up to this point--this is three years 
ago--they have never received all of that compensation.
    Chairman Brown. Thank you, Li Qiang.
    Mr. Reese, we delayed this hearing a little while because 
you needed more time to investigate the allegations raised in 
the China Labor Watch report. Share some of the findings that 
you have.
    Mr. Reese. Okay, Senator, we received the report on 
November 18, when you received it. Our operations people are 
looking into all of those issues right now and we will get back 
to you, but we do not--it has only been a few weeks ago and 
there are a lot of issues and we will look into every one of 
them and publish our summary report and make sure you get a 
copy.
    Chairman Brown. This report will be totally public?
    Mr. Reese. Yes.
    Chairman Brown. You publish?
    Mr. Reese. Yes.
    Chairman Brown. Okay.
    Mr. Reese. All of our summary reports are put up on our Web 
site.
    [The report appears in the appendix.]
    Chairman Brown. Do you disclose information about plants 
that have lost their certification and do you explain--or been 
put on probation--including specific reasons? Do you publish 
that? Do you make that public so that people know that?
    Mr. Reese. We publish--and I will have to ask maybe a 
colleague of mine here to put--to either add or put it back in 
writing to you, but we certainly publish which firms are 
accredited and are no longer accredited or put on probation.
    Chairman Brown. And do you explain why those companies, 
those firms were put on probation or were decertified?
    Mr. Reese. Our audits show that, yes. Yes, our audits show 
that.
    Chairman Brown. And they show not just the fact that they 
were decertified or on probation but----
    Mr. Reese. Our audits are specific with factories as to why 
they were decertified, yes.
    Chairman Brown. I understand that toy companies commit to 
buy from only certified factories, but that this is voluntary. 
Is that correct?
    Mr. Reese. Well, it is not viewed as voluntary by the 
factories of American firms who commit to it. Yes, it--the 
Commitment--is voluntary to the American firms. They have 
signed the ICTI CARE Process pledge to commit to buying their 
things from----
    Chairman Brown. So all of these major companies that we 
have heard of Mattel and Hasbro, they only buy in China from 
companies that are certified?
    Mr. Reese. That is right.
    Chairman Brown. And that is what your experience is Mr. 
Campbell and Mr. Brown?
    Mr. Brown. My experience is that--in preparation for this 
hearing, I went back over a list of reports about the toy 
industry since 1999, they all read the same. There is a 1999 
report that reads like Li Qiang's report, that these 
organizations of the United States and the people down the 
chain do not even know, sometimes, who the contracting is going 
to.
    So this idea that a certification program is effective in 
controlling the supply chain, I think belies the complexity and 
the lack of disclosure in supply chains.
    Chairman Brown. Mr. Reese, that begs the question--you 
certified a factory. That factory's behavior is acceptable. 
That factory then subcontracts to another factory that is not 
certified. How do you stop that from happening?
    Mr. Reese. That is a very complex issue and I must say we 
are working on that. Right now we are certifying the factory.
    Chairman Brown. You certify the first factory, but that 
factory might buy from a factory that is not certified in a lot 
of those practices.
    Mr. Reese. That is right.
    Chairman Brown. So does that not concern you?
    Mr. Reese. We are trying to push that out through the 
supply chains, but that is--you are absolutely right, Earl. It 
is a very complex situation and it does not lend itself easily 
to quick checklists. But our continuous improvement program is 
absolutely about getting the supply chains to push that out.
    Chairman Brown. I remember when we did hearings. Senator 
Kennedy asked me to do some hearings on the HELP [Health, 
Education, Labor, and Pensions] Committee years ago on the 
supply chain in pharmaceuticals. Pfizer and a number of other 
companies were not even able to trace where all of their 
ingredients came from because there was such a long 
``fingery''--if you will--supply chain which begs the question 
that shouldn't they be responsible for the safety of their 
drugs regardless of--the FDA cannot go to China and regulate 
every village where some ingredients, where the first component 
comes from.
    So what are you doing about that? You have had a number of 
years with this voluntary certification. What progress have you 
made reaching further out in the supply chain where you have--
there are the safety issues that are pronounced there, but 
there is the purpose of this hearing and frankly the most 
important purpose, I think, is the safety of these workers.
    How are you reaching them? What progress have you made in 
these years?
    Mr. Reese. Well, you are absolutely right, our goal is to 
improve the working conditions for the workers themselves and 
that is their hours, that is their pay, that is making sure 
that they are of age, their health systems, their safety 
systems and those issues and that is exactly what the Code of 
Conduct audits. And it helps companies that are not reaching it 
to become properly certified or they are terminated.
    Mr. Brown. Senator?
    Chairman Brown. Yes, Mr. Brown?
    Mr. Brown. I want to address a little bit the complexity 
argument. Complexity points to the need for a system of 
garnering worker input which workers can trust and is shielded 
from the power of the employer to punish people for telling the 
truth.
    Labor rights networks and labor rights advocates, given the 
legal structure of China, are one key element of that and I do 
not believe a bunch of auditors and a bunch of managers and a 
bunch of memos going down through corporations and their 
suppliers can grasp the facts of labor law compliance on the 
factory floor.
    Chairman Brown. So, Mr. Reese is saying that this 
compliance--the auditors can make these plants safer with the 
work they do. You think it has to be more or in addition 
empowering workers to be able to point those out and you are 
saying Mr. Reese's construct of voluntary audits and 
certification cannot really bring those workers' voices in as 
thoroughly as they need to be?
    Mr. Brown. Exactly. I used to represent coal miners' mine 
safety committees. And I learned one thing. You can have 
engineers and everybody else, but it is the worker at the plant 
who knows whether he is getting paid right or she knows whether 
she is getting paid right, who knows that this load is too 
heavy or this pace is too fast, not a 25-year-old accountant 
from one of the four accounting firms that somehow are able to 
pretend that they don't interweave in a way that presents some 
conflict of interest. But I will leave that to another thing--
can do.
    Chairman Brown. Li Qiang, what have you found in your 
studies?
    Mr. Qiang. This auditing system is really of no use. It is 
really directed at investors. It is to lower risks so investors 
look at these reports and sort of calculate whether or not 
there is a risk in the supply chain.
    They do it once or twice a year when they come, the 
factories prepare for it. They can adapt and pass it that way.
    The factories that we have investigated, not just these 
ones, but in the past as well, they have all been audited 
multiple times, not just by ICTI, but also by companies--their 
own auditors.
    Chairman Brown. Mr. Campbell, did you want to comment on 
that?
    Mr. Campbell. Thank you very much. Yes, I want to comment 
just generally on the overall concept and just build a little 
bit on something that Li Qiang said which is, the primary duty 
of the company that I mentioned in my testimony is profit 
maximization. And so the audit systems, in my experience, have 
really been designed as a defensive tool. It is to protect the 
reputation of the company. And there is a value to that.
    There is a value to a company's reputation for workers and 
I want to actually say that, too, because there are workers who 
are committed to companies. There are workers who have been 
working at companies for many years. When they lose their 
sales, those workers suffer and that is something important to 
remember, too.
    It is not to say that there is not anything that we can do, 
but it is to say that there are conflicting interests that are 
inherently involved in this economic relationship. I think what 
is important here is that--let me give you an example. Several 
years ago, my organization and Terry Collingsworth, a 
tremendous attorney, brought a suit that I was able to work on, 
against Walmart.
    We came across workers and supply chains that were not 
getting paid overtime, forced overtime, all of the problems. 
Representing these workers--and they were from many different 
countries--we filed a lawsuit on their behalf, on the behalf of 
Chinese workers in U.S. court because Walmart incorporated this 
code of conduct in their contract.
    Contract law in California says that if you incorporate a 
contract clause to benefit a third party, that third party is a 
party to the contract and therefore, can take specific action 
to enforce that contract. In this case, we lost and the workers 
lost the case because Walmart had to admit in court that they 
never intended to benefit the workers with their code of 
conduct.
    It was intended as a defensive tool. And so therefore, the 
court in the 9th Circuit had to rule. They said, ``Well, as a 
result, there was no intent to benefit the worker. So, 
therefore, we cannot say that this is for the worker. So, 
therefore, they are not a party.''
    So when you hear companies talk about incorporating codes 
into their contracts and stuff, they are not legally binding 
just because they are in a contract. And that is important. 
Workers need legally binding remedies.
    If they call a complaint process, they cannot rely on the 
company to provide money. They need an independent process, 
arbitration, mediation. These types of processes will guarantee 
that workers have access to justice.
    These are not offered by social auditing. I think social 
auditing--I think it is important companies understand due 
diligence is important. It plays a role. But again, it is not 
going to solve the problem.
    What we need are remedies, legal remedies that companies 
commit to. And I think the Bangladesh Accord is a good example 
of one, where there is a legally binding remedy if the factory 
is found--in Bangladesh--to not be in compliance, than the 
companies have agreed to an arbitration that is enforceable in 
the home country of that company and that arbitration is to 
secure the funds from that company who promised by contract, 
which is by law now, to provide the money to help fix that 
factory.
    It could go further and this is what we need in the toy 
industry. We do not have a problem with factory structures. We 
have a problem with forced overtime and peak production seasons 
and lean production.
    So I think it is really important that we focus on what the 
problems are and come up with some legally binding remedies 
that companies are willing to legally commit to, enforceable in 
courts that will allow for workers to raise grievances and feel 
they can do so in a protected way. Thank you.
    Chairman Brown. Sure. Mr. Reese, what does ICTI CARE think 
about the Bangladesh Accord, what he was talking about?
    Mr. Reese. Frankly, that is another industry in another 
country. Our work is predominately in China with the toy 
industries and most of the Bangladesh work, which I do know 
about from another association because I serve on the W.R.A.P. 
Board, that is about mostly apparel and it is about Bangladesh 
and fire and all of those things.
    Now there are safety issues that are a part of our audit. I 
must say whether an auditor is 25, 35, or 45, they are well-
trained in what they are doing. They are audited by us as to 
assure how good their auditing is. They are trained in the 
code. They are trained in social auditing.
    Auditing is a snapshot. Auditing is not the entire solution 
to changing these things, but it gives you the snapshot of what 
needs to be improved and our program is about improving the 
working conditions of workers.
    Chairman Brown. What else have you advocated? If you say 
auditing is a snapshot and auditing is helpful, but it is not a 
full solution, what is your organization recommending beyond 
the auditing?
    Mr. Reese. There are surprise audits and secondary audits 
when we have some disputes. Ultimately, too, some of this is 
about the governance of China and how they manage their own 
laws.
    We, personally, are not a lobbying outfit. We are not 
pushing public policy. Personally, though, I would like to see 
workers able to organize and protest or express their rights, 
but that is not our role. We are there to improve the working 
conditions of workers through the social auditing and 
compliance of these supply chains.
    We give workers a voice. Now I must tell you. And we will 
look into calls that were not answered or calls where there is 
some evidence about what happened. But what we have found is 
that the majority of the calls are about the quality of food or 
their dormitory or something like this.
    A lot of calls are actually by workers who want to work 
more hours. But there are calls, too, that come in from workers 
who say I am being forced to work overtime or I am working 
overtime and not getting paid. Well, that triggers an immediate 
second audit by us and can terminate the certification if that 
is proven.
    Chairman Brown. Li Qiang, do you want to speak and then I 
have a question.
    Mr. Qiang. Yes, workers do want more overtime. That is 
because their base wage is too low. Without doing a tremendous 
amount of overtime, they do not have a living wage. How are you 
going to raise a family on a couple hundred dollars in a place 
where prices are going up? Raise a family--you have kids, you 
have a spouse. You cannot live on these wages.
    And the factory uses this against workers as a punishment. 
If workers are not listening to what the management wants, if 
they are pushing back against management, management will say I 
just won't give you any overtime and they know that that means 
they will not have a living wage.
    In the toy industry there is a seasonal nature. In the busy 
season the factories will make workers take on a tremendous 
amount of overtime and sort of some of the conditions that we 
saw here.
    In the off season, the factory wants the workers to quit, 
but if they fire them, they have to pay them compensation 
according to law. So they take away all of their overtime 
intentionally, restrict a lot of workers from having any 
overtime and the workers have no choice but to leave because it 
is not a living wage. And when they quit, they do not get 
compensation because under Chinese law, you do not have to give 
them compensation.
    Chairman Brown. You do not have to give them compensation 
for the hours that they have already worked?
    Mr. Qiang. No. I am sorry. Severance pay.
    Chairman Brown. Severance pay.
    Mr. Qiang. As well as social insurance that has not been 
paid. We see this very commonly in China. There has been social 
insurance that has not been paid that is required by law over 
months and workers have no chance of getting any of that back 
pay if they quit.
    Chairman Brown. Mr. Reese said that part of this is the 
problem with Chinese law or the enforcement of Chinese law, not 
surprising. The UN Guiding Principles on Business and Human 
Rights--mentioned by Mr. Campbell--the Chinese have endorsed 
it. What are your thoughts about China doing more than saying 
they are for these principles, getting them enforced in the 
higher echelons of Chinese society or Chinese Government to 
begin to enforce these principles? Answer that and then I want 
to follow up.
    Mr. Reese. Senator, could I jump in? I apologize for having 
to leave. I have stayed 15 minutes longer than I was supposed 
to, but we will get back to you on all questions that have been 
raised up until now and after this in writing to both you and 
the Commission as may be requested.
    Chairman Brown. Thank you, Mr. Reese. Do you want to answer 
that first? He is explaining that.
    Mr. Brown. I just wanted to say that food in militarized 
factories where people are congregated in dormitories, that 
live in dormitories and their sole source in some of these 
areas for food is the factory is a vital issue. Very similar, 
it does not rank below pay and if you are a factory worker and 
you have to carry water up 8 flights after a 12-hour shift, 
that is also a very concrete issue.
    And worker voice comes out in all these various things. So 
the complexity argument argues for incorporation of 
organizations that Mr. Li Qiang works with into the process of 
determining whether there is compliance.
    Chairman Brown. Okay.
    Mr. Qiang. This problem with law enforcement in China 
actually has two aspects to it. There is the government aspect, 
there is also the company aspect because the companies have to 
respect the law and the government has to enforce it.
    The way it works in China, usually, is that the companies 
will go sort of lobby local government and tell them we want to 
surpass working hour laws. We do not want to pay all of the 
social insurance that is required by law. And they get this 
sort of permission from the local government to do so.
    So for example with working hours, you might know that 
Chinese labor law does not permit more than 36 hours of 
overtime a month. A lot of factories, many factories will go to 
the local government and ask them for permission to surpass 
this 36-hour law and they will often get it. They will just get 
this permission and it allows them to do--there is no real 
limit according to the written permission they have. They get 
this permission from the local government to do so.
    Chairman Brown. A number of those companies that you say--
for want of a better term--lobby local Chinese officials, I 
assume a number of those companies are either U.S. companies, 
Western companies or contracting with Western companies; 
correct?
    Mr. Qiang. Yes.
    Chairman Brown. Li Qiang, do you see any difference between 
European companies' behavior in China to weaken standards for 
workers--pay, bathroom breaks, food in the dormitories, a whole 
host of issues, safety? Do you see American companies much 
different from European companies or Japanese companies in 
China? Is their behavior pretty similar?
    Mr. Qiang. It is very similar. For example, two of the 
factories--we were just talking about this report. Two of the 
factories we looked at were directly managed and owned by 
Mattel.
    Maybe 10 years ago there was a difference. The foreign-
owned companies like the Mattel factories were found or even if 
they are European-owned, they might have been much better than 
the local contractors, but nowadays, they are very similar, 
sort of a similar level now.
    Chairman Brown. This is, in some cases, American companies 
or German companies or companies contracting with them, they 
will go--but clearly subcontracting with Mattel or Hasbro or a 
European company that will go directly to local Chinese 
officials to weaken some of the provisions of Chinese law that 
protect workers?
    Mr. Qiang. Yes, that is right. So in the case--for example, 
again of these Mattel factories, both of these factories we 
recorded during our investigation had excessive overtime.
    In order to do that in a sort of so-called legal way, they 
would have had to have gone to the local government to get this 
permission.
    Chairman Brown. So if instead of--we asked, I believe, 
Hasbro and Mattel to be here, they declined. If they had joined 
us--if the CEO of Mattel or Hasbro were sitting there right now 
and you said what you said, what would you say now--what would 
he say?
    Mr. Qiang. They would say they are a part of the ICTI 
process. And they would say it is an industry issue.
    Chairman Brown. Would they deny having gone to local 
officials to weaken the laws, to weaken the enforcement?
    Mr. Qiang. They are even more clear about what is going on 
in the factories than we are. I have met with Hasbro and Mattel 
executives and they very well understand what is going on in 
these factories.
    I remember meeting with somebody from Mattel when I was in 
Hong Kong and they directly told me we have permission from the 
government to have these sort of overtime hours. So they were 
defending themselves with that----
    Chairman Brown. So they acknowledge going to the local 
governments and getting this permission on overtime and back 
pay and some of these things and not paying social insurance 
and----
    Mr. Qiang. I did not bring that up directly when I was in 
that meeting, but with overtime, yes. They admitted getting 
this permission from the government, going to the government to 
get their permission.
    Chairman Brown. Thank you. Mr. Campbell, if the Congress 
passed a Decent Working Conditions and Fair Competition Act, 
prohibit importation of goods made with sweatshop labor and 
empower the FTC [Federal Trade Commission] and all of the 
things that went with it, what would happen?
    Mr. Campbell. I think what would happen right out of the 
gate is that the industry is going to take these issues much 
more seriously. Currently, U.S. law prohibits the importation 
of goods made with forced labor and there are a few things that 
need to change in that law for it to actually function.
    As the report documented very well, there is a very fine, 
thin line between poor working conditions, sweatshop conditions 
that then at peak production times turn into brief periods of 
forced labor. Forced labor is not just slavery.
    I think looking at how that law has functioned, I think 
what is important is to recognize that, first, there needs to 
be a remedy because, again, when you do detain a product, it is 
going to send economic financial ramifications back down the 
supply chain and we do not want to hurt the victims. The 
victims here are, remember, these forced-labor workers in 
China.
    So we need to figure out how to work better with the 
Chinese Government to ensure that remedies are available when 
action is taken. But action still should be taken because no 
one should be profiting from what are, on the forced-labor 
side, crimes and other violations of what are local laws.
    I think it needs to be done in a coordinated way and it 
needs to be surgical. It cannot just be like an entire 
industry. It needs to be the Mattel factory. We have the 
information, we have the investigation and we know where the 
products are coming into if that is one of the factories that 
is under investigation.
    So I think expanding it to sweatshops would actually be the 
way to achieve the ultimate goal of the forced labor because 
that is where it starts. And so I think it is a good idea. I 
think trade, though, can be a difficult issue because of the 
challenge on the remedy side.
    Often, I think, if you just detain the product, companies 
will just cut ties with those factories. So when examining 
legislation like this, I would make sure that there is some way 
to ensure that the victims get financial remedies and others 
that they need to make themselves whole.
    And that could be done in many different ways. I know that 
victims of forced labor who are currently being--that there are 
currently cases. The Department of Justice prosecutes under 
U.S. law. There are funds available to them. They are not yet 
available when dealing with these issues overseas because of 
the way investigations work.
    But I think all of that can be fixed and I think it can be 
a workable idea as long as it is surgical and there is good 
cooperation on all sides.
    Chairman Brown. Li Qiang, are things getting worse in the 
toy industry?
    Mr. Qiang. Relative to the past, it is getting worse. If 
you look at other factories that have really gotten a lot of 
attention before, like Foxconn as a sweatshop, for example, 
Foxconn's conditions have improved a little bit even if it 
still has problems. For example, I mentioned in my testimony 
that wages of Foxconn workers are now one-third higher than 
these toy factory workers if you control for hours they work.
    Just to emphasize that point, if the same worker was in a 
toy factory, the Foxconn factory, and they did the exact same 
amount of working hours in the same region, in the same area, 
the toy worker would make one-third less.
    Chairman Brown. Speaking of that, Mr. Brown, and this 
probably is my last question. Are the problems you described 
equally applicable to toys as to the electronics industry? Do 
you see pretty significant similarities across the board, Mr. 
Li Qiang's comment notwithstanding?
    Mr. Brown. I think his report and all of the 20 years of 
auditing of the toy industry and other industries show a 
systemic similarity. It is all the same.
    If I could just return to the point of local government, 
the subcontractors in this chain, the principal prime 
subcontractors are all colluding with local government to avoid 
Chinese labor law. For example, to pay the statutorily required 
social insurance contributions, they get a little chit from the 
local government lowering it and it is a major cause of 
industrial strife and it is a major labor abuse.
    Chairman Brown. Would Mattel and Hasbro argue that those 
local governments are democratically selected?
    Mr. Brown. No, they would not. And I think that helps the 
penetration----
    Chairman Brown. I understand that they are not, but would 
they argue they are? Would they sit here and argue----
    Mr. Brown. I have never heard anyone argue that.
    Chairman Brown. Well, I understand that. They also are not 
here and they did not want to testify. So if they are 
justifying going to a government agency that is supposed to 
represent the public to get lower wages, temporarily during the 
season Mr. Campbell talks about, the busy season, toy 
manufacture season, the fall, late summer, fall, whenever it 
is, would they argue that those local governments are actually 
representing the Chinese people? Never heard them do that?
    Mr. Brown. I have never heard them do that and I am trying 
to puzzle how they could.
    Chairman Brown. Mr. Li Qiang, go ahead.
    Mr. Qiang. As you may know, the situation in China, with 
the majority of workers in these factories being migrant 
workers, internal migrant workers, they come from other 
provinces. So a lot of these workers are going to Guangdong, 
for example, where the majority of manufacturing takes place 
for the toy industry.
    The local government does not see these migrants as their 
constituency, so to speak. In the end, they are going to go 
home or they figure they are going to go home. They are not 
responsible for their welfare after they leave. They are not 
responsible for their retirement. They are not responsible for 
the benefits. Their household registration is not in that 
region. So this really makes the local government more like a 
business because it doesn't really see these people as 
constituents.
    Chairman Brown. Li Qiang, you mentioned Foxconn, you both 
mentioned Foxconn, that pay is maybe one-third higher. Is that 
entirely because of public pressure in this country and the 
embarrassment of Apple and some of these major American iconic 
companies that----
    Mr. Qiang. I do think it's because of public pressure. 
Starting in 2010 and 2011 when Foxconn really appeared in the 
news and a lot of organizations were reporting on them. And 
some of these improvements have also brought along the entire 
industry. So you will see some of these similar improvements in 
other electronics factories.
    Chairman Brown. Why have we not been successful at shining 
a light on Mattel and Hasbro and the big American toymakers in 
the same way?
    Mr. Qiang. It is really a lack of attention. Generally 
speaking, there has been so much attention on the electronics 
industry. If you look from 2007-2008 when maybe the toy 
industry was a little more on top on things, they were more 
willing to change things, ever since then the electronics 
industry has gotten so much attention in the media and the 
attention, relatively speaking, toward the toy industry has 
gone down. So this has brought the same sort of relevant 
decline in working conditions.
    For example just with this recent report--well, if you were 
to publish the Foxconn report or even electronics report, you 
will get reports from the AP, the Wall Street Journal, the New 
York Times, all of the big news companies will report on it. 
But this last report that we did with the toy company, there is 
very little reporting in the media. There is just not as much 
attention on toy issues.
    So the toy industry is taking advantage of the fact that 
they have less attention, to be less enthusiastic or active 
about these reforms and you see the relative decline in the 
labor conditions as a result.
    Chairman Brown. Mr. Brown, last words?
    Mr. Brown. Very last words. I think there should be more 
standing for public interests advocates to intervene and 
propose remedies in trade disputes like the sweatshop law that 
Mr. Campbell discussed. I think that is very important.
    Chairman Brown. I thank you all for joining us. This will 
conclude the hearing.
    Congressman Smith has a statement that we will enter into 
the record.
    [The prepared statement of Representative Smith appears in 
the appendix.]
    Chairman Brown. Any additional comments you want to make, 
we would love to have for the record. We may send letters to 
each of you asking for more comments, if you would please 
within a week turn those letters around and give us answers.
    I appreciate the advocacy of all of you for those that 
clearly need a voice in this world.
    The Commission is adjourned.
    [Whereupon, at 11:54 a.m., the hearing was concluded.]
                            A P P E N D I X

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                          Prepared Statements

                              ----------                              


                     Prepared Statement of Li Qiang

                           december 11, 2014

                         Fair Toys for Our Kids

    I am the founder and Executive Director of the New York-based China 
Labor Watch (CLW) and a labor activist that has participated in China's 
labor rights movement for over twenty years, including investigation of 
toy factories that began in 1999. To date, I have led research on labor 
conditions of more than 100 toy factories. The reason I am testifying 
before Congress today is not only because for years I have observed the 
toy industry's poor labor conditions, it is also because I recently 
became the father of two children and have come to fully understand the 
importance of improving the conditions and rights of workers in the toy 
industry as a result.
    I care deeply about my children's safety and make sure that they do 
not leave my sight, whether at home or outside. I want for my children 
to grow up safely, and I also hope that they develop empathy. When I 
take my son to the toy store, its shelves overflowing with Mickey 
Mouse, Transformers, Barbie Dolls, and little planes, cars, and balls. 
His face is always brimming with joy as he stops in front of each toy. 
Every time I see this, I come under a lot of pressure, because I 
understand that behind American fairytales made in China, there is 
often a tragic story, and I do not want my child's happiness to be 
connected to this.
    When I take my son to Toys R Us to look at Disney toys, I often 
think of a boy named Liu Pan who died at the age of 17 while working at 
the Yiuwah Factory in Dongguan, China. Liu, who had been working at the 
factory for two years already, was so exhausted by the conditions of 
his work that he let his hand and then entire body get trapped in a 
machine. After Liu's death was publicized in the media, Disney 
announced that the factory he worked at was responsible for less than 
15% of Disney's orders, and since it did not meet Disney's labor 
standards, Disney pulled out of the factory and would have no further 
relationship with it.
    This kind of heartbreaking story is not limited to Disney. A 
similar tragedy occurred in a Mattel factory, where a 45-year old 
mother of two named Hu Nianzhen was reprimanded by her manager in front 
of her co-workers for working too slowly on the production line. The 
manager threatened that the company would fire her for slow working 
speed and forced her to leave the production line, prompting Hu to sob 
in the workshop. While no one was paying attention, Hu climbed to the 
fourth floor. Shortly after, a bang was heard throughout the workshop; 
Hu had thrown herself from the roof and died immediately. Neither the 
factory nor Mattel accepted any responsibility for her death. When Hu's 
family sought out the factory for an explanation, they were severely 
beaten outside the factory's gates by factory guards. They were later 
forced to sign a compensation agreement which awarded them only 90,000 
RMB ($14,580).
    These stories are not just outliers; they were caused by the 
terrible labor conditions within the toy industry.
    Between June and November 2014, CLW carried out another in-depth 
investigation of labor conditions in the toy manufacturing industry, 
this time targeting four facilities in Guangdong, China: Mattel 
Electronics Dongguan (MED), Zhongshan Coronet Toys (Coronet), Dongguan 
Chang'an Mattel Toys 2nd Factory (MCA), and Dongguan Lung Cheong Toys 
(Lung Cheong). CLW's investigation confirmed that the factories produce 
for some of the largest toy brand companies in the world: Mattel and 
Fisher-Price, Disney, Hasbro, and Crayola, including famous toy brands 
like Barbie, Mickey Mouse, Transformers' Optimus Prime, and Thomas the 
Tank Engine. According to company information, the factories also 
produce toys for other major toy companies and retailers likes Target, 
Kid Galaxy, Spinmaster, Kids II, and Tomy IFI.
    CLW's 2014 investigation once again uncovered a long list of labor 
rights violations, most of which existed in toy supplier factories in 
2007, suggesting that over the past seven years, the state of labor 
conditions in the toy manufacturing industry has failed to improve and 
are instead deteriorating. During peak season, workers commonly work 
six days a week, eleven hour a day; do not receive adequate healthcare 
or insurance nor legally mandated safety training; live in small rooms 
in factory dorms with 10 or more workers; have their IDs illegally 
confiscated; are made to jump through hoops if they wish to resign; and 
are not able to receive due wages if they quit.
                   summary of investigative findings
    A CLW investigator entered the aforementioned four toy factories as 
a worker, laboring alongside other workers under the same conditions. 
Other CLW investigators also carried out follow-up assessments in 
October and November 2014. Through direct experience and hundreds of 
worker interviews, CLW's investigation discovered a set of 20 legal and 
ethical labor violations, a summary of which is below.

          1. Hiring discrimination: Restrictions on the age and ethnic 
        group of applicants were found as well as a refusal to hire 
        applicants with tattoos.
          2. Detaining personal IDs: Two factories illegally detain 
        workers' personal IDs during hiring procedures, one factory for 
        24 hours, the other for five hours.
          3. Lack of physical exams: Three factories do not provide any 
        physical exams to workers before or after being hired, meaning 
        that previous conditions are unknown before going on the job, 
        and if a worker contracts an occupational illness, she may not 
        have the necessary evidence to prove that it was related to 
        work at the factory. While one factory provides physical exams, 
        workers are not given their exam results.
          4. Lack of legally mandated safety training: Chinese legal 
        regulations require 24 hours of pre-job safety training for 
        manufacturing workers. In three factories, workers receive half 
        to two hours of pre-job training, much of which is unrelated to 
        occupational safety. The fourth factory conducts absolutely no 
        pre-job training.
          5. Workers forced to sign training forms despite lack of 
        training: Three factories force workers to sign forms 
        certifying that they participated in health and safety training 
        that they never actually receive.
          6. Labor contract violations: Three companies make workers 
        sign incomplete labor contracts while providing very little 
        time to read the contract and rushing workers to sign it. 
        Workers must wait one to two months after signing to receive a 
        copy of their labor contract, which is a violation of China's 
        Labor Contract Law. A fourth factory fails to sign any labor 
        contracts with temp workers or student workers and only signs 
        contracts with formal workers after a multi-month probation 
        period.
          7. Underpayment of legally mandated social insurance: All 
        four factories pay workers' social insurance at a rate below 
        legal obligations.
          8. Excessive overtime work: All of the factories investigated 
        have workers accumulate at least 100 hours of overtime a month, 
        with one factory's workers laboring over 120 hours of overtime 
        a month, three times in excess the statutory maximum of 36 
        hours per month.
          9. Unpaid wages: Two factories fail to pay workers overtime 
        wages for daily mandatory work meetings before and after their 
        shifts. The other two factories do not pay workers during 
        mandatory training.
          10. Frequent rotation between day and night shifts: One plant 
        rotates workers between day and night shifts once a week and 
        another plant once every two weeks. Such frequent shift 
        rotation has been shown to be harmful to workers' health.
          11. Lack of protective equipment: All factories investigated 
        failed to provide workers with sufficient protective equipment 
        despite their coming into regular contact with harmful 
        chemicals.
          12. Ill-maintained production machinery: Three plants failed 
        to conduct regular safety inspections of production machinery, 
        based on a lack of inspection records.
          13. Poor living conditions: The toy factories investigated 
        generally maintain poor living conditions for their workers, 
        including crowded and hot dorms with 8 to 18 people per room, 
        five shower rooms for 180 people, lax dorm management leading 
        to frequent theft, and fire safety concerns.
          14. Fire safety concerns: One factory locks emergency exit 
        doors, and fire escape routes are blocked. None of the 
        factories provide sufficient fire prevention training to 
        workers.
          15. Environmental pollution: Industrial waste water is 
        discharged into the general sewer system and a failure to 
        separate industrial waste from general waste.
          16. Lack of effective grievance channels: Some of the 
        factories investigated have a complaint hotline, but the phone 
        number is out of order or workers are often told by the 
        operator to simply tell their supervisor about the problem.
          17. Lack of union representation: The factories have unions, 
        but most were in name only, failing to actually represent 
        worker interests. One factory had a more active union, but it 
        usually led social activities with workers. Moreover, union 
        representatives are not elected by workers and the union 
        chairman is a member of the company's management team.
          18. Illegal resignation procedures: Three factories require 
        workers to obtain management approval before resigning, but 
        Chinese law only requires workers to give notice, not apply for 
        resignation.
          19. Abusive management: Management is sometimes verbally 
        abusive to workers. For example, a supervisor in one factory 
        told a worker with sick parents that ``even if someone dies in 
        your family you'll not be allowed to resign.''
          20. Auditing fraud: Two companies were found to use deceptive 
        methods during social audits. In one factory, workers are made 
        by management to hide the truth about working conditions. 
        Another factory even creates a special area for inspection that 
        has better conditions than its other production facilities.

    These violations suggest that labor conditions have failed to 
improve in toy industry supplier factories over the past seven years. 
And relative to other industries, conditions may even be deteriorating. 
For instance, over the past few years, workers at electronics 
manufacturer Foxconn have seen an increase in overall compensation and 
reduction in working hours. Before calculating overtime wages, the 
average monthly wage of workers in the four toy factories investigated 
is 1,335 RMB ($218). But even after illegally excessive overtime hours, 
working at least six days a week in 12-hour shifts, these toy workers 
earn between 2,500 RMB ($409) and 3,000 RMB ($490) a month. In 
comparison, a worker at Foxconn in Chengdu, Zhengzhou, or Shenzhen, 
despite excessive overtime of 80 hours per month, will earn around 
3,500 RMB ($573).
                worker exploitation in the toy industry
    Intense business competition and demand for cheap products drives 
toy companies to suppress manufacturing prices. Toy sellers, especially 
international brand companies, have largely moved their manufacturing 
base from their home countries to developing countries in Asia and 
Latin America to utilize cheap labor. In order to mitigate investment 
risk, instead of building their own factories in these regions, toy 
companies often contract their manufacturing to local factories via 
intermediary supply chain firms. Supplier factories have little choice 
but to accept the production price put forward by the toy company. 
Sometimes, in order to receive the business, factories will even reduce 
the cost further. But toy companies maintain strict demands on material 
and product quality, so labor costs ultimately become the only flexible 
factor. Workers, situated at the bottom of this system, are forced to 
bear the cost.
    Multinationals are keen to benefit from this system. While it 
reduces their investment risk, it also enables them to distance 
themselves from factories that act in unethical or illegal ways. The 
multinationals that do not directly employ workers making their 
products often rely on this fact when blaming factories for poor or 
illegal labor conditions.
    Many toy companies divide their toy orders among dozens or hundreds 
of factories in order to ensure that their orders in any given factory 
only consists of a small proportion of that factory's total orders--
usually no more than 20 percent. Toy companies will also use this as a 
basis for avoiding responsibility for poor labor conditions. For 
example, if CLW uncovers labor rights violations at a Disney supplier 
factory in China, Disney might respond that it only maintains a small 
number of orders in the plant and is unable to influence the factory's 
behavior. Disney will blame the factory or could even blame other 
clients of the factory. If public pressure is too intense, toy 
companies will claim that the factory failed to respect their code of 
conduct and, on this basis, end business with the plant. In this way, 
toy companies can make a public show of standing up for workers' rights 
while reducing their own risk and costs to their business. Instead of 
acting with a true sense of responsibility, most major toy companies 
will use coping and delay tactics when faced with labor violations.
    In addition to maximizing profit via suppliers, some toy companies 
will directly manage a number of factories in order to guarantee 
product quality and inventory. But poor and illegal labor conditions 
are a universal problem in the toy manufacturing industry, and even 
these directly controlled factories violate workers' rights. Despite 
this, the companies who manage these factories will push off 
responsibility for labor violations to others, claiming that it's an 
industry problem.
    China's workers have naturally attempted to protest the 
aforementioned circumstances; in 2013, workers at the Shenzhen Baode 
Toy Factory went on strike to demand improvements in the factory's 
labor conditions and the social insurance owed to them.
    Shenzhen Baode Toy Factory is a typical export-oriented 
manufacturer which mainly makes products for Mattel and Disney. The 
factory was built in 1989 and has nearly 10,000 workers at peak 
periods. At the time of the strike over social insurance payments in 
August 2013, there were 3,000 workers employed at the factory, a number 
which dropped to 1,000 after the strike.
    According to information received from workers, when data was 
calculated in May 2013, there were 438 workers who had been at the 
factory for more than five years, 247 workers who had been at the 
factory for more than 10 years, 158 workers who had been at the factory 
for more than 15 years, and 48 workers who had been at the factory for 
more than 20 years. The social insurance issue was divided between 
cases were the factory paid less than the amount due or simply had not 
paid at all.
    Among the three thousand workers employed by Shenzhen Baode, 
divided by their time working at the factory, the number of workers who 
were at the factory for more than five years and were owed social 
insurance payments totaled 398; those who were at the factory for more 
than 10 years and were owed social insurance payments totaled 141; 
those who were at the factory for more than 15 years and were owed 
social insurance payments totaled 59. This data is based on the number 
of workers still in the factory in May 2013; when workers who had left 
the factory before May are also considered, the proportion of workers 
owed social insurance payments is even higher.
    Local social insurance regulations require that a company pays 
17.3% of wages as insurance and each individual pays 8.5% of their 
wages as insurance. Based on these rules, assuming average monthly 
wages of 2,000 RMB ($324) and annual wages of 24,000 RMB ($3,888) over 
the past 10 years, the company would owe each worker 4,152 RMB ($672) 
per year in insurance backpay, or 41,520 RMB ($6,726) for 10 years of 
unpaid insurance.

[GRAPHIC] [TIFF OMITTED] T2632.001


    .epsBesides the issues of long-term workers who are owed 
compensation, after the government mandated that all enterprises 
purchase social insurance for their workers, new workers also found 
that their various legally mandated insurances were not paid in full by 
companies. The base monthly wage of Baode's workers combined with 
overtime pay and other subsidies came out to 3,000 RMB ($486) per 
month. According to law, social insurance fees should be paid according 
to that amount, but the company instead paid insurance according to the 
local minimum wage of 1,808 RMB ($292) per month, which disregards 
1,192 RMB ($193) in overtime wages and subsidies. When calculated in 
this manner, the company evaded 206 RMB ($33) per month, or 2,475 RMB 
($401) per year, in insurance fees for each worker.
    The attitudes of the brand companies, factory, and government 
towards the Baode strike were as follows:

          (1) Brand Company Reaction: After the Baode workers began 
        striking over the social insurance issue, Baode's main clients, 
        Disney and Mattel, attempted to distance themselves from the 
        factory by quickly pulling out of production at Baode, 
        explaining the move was primarily for business reasons. In 
        reality, Mattel and Disney had worked with the company for ten 
        years at that point and were aware of the situation with 
        respect to Baode failing to purchase social insurance for its 
        workers. Their actions were a typical method employed by 
        multinational companies to shirk responsibility and place the 
        blame entirely on supplying factories.
          (2) Factory Reaction: Baode contracted out its existing 
        orders to other factories, thus reducing the production work 
        for its workers, ensuring they could not receive overtime, and 
        in turn forcing workers to subsist on the minimum wage, which 
        is too low to be considered a living wage. Under these 
        circumstances, many workers were forced to quit, which meant 
        that not only did the factory not have to compensate them for 
        social insurance, but also did not have to provide severance 
        pay. Within three months of the strike, the number of workers 
        at Baode dropped from 3,000 to 1,000.
          Baode's actions reflect the typical method that Chinese 
        factories use to lay off workers; not only is it legal, it 
        ensures that companies do not have to pay the compensation they 
        would be required to hand out if they formally terminated 
        workers of their positions rather than forcing them out.
          (3) Government Reaction: Baode's workers began petitioning 
        the Shenzhen Guanlan Social Insurance and Labor Offices in 
        addition to the local official labor union in April 2014 but 
        never received any response. In July 2013, the workers 
        petitioned the Shenzhen Municipal People's Congress, Municipal 
        Labor Union, Insurance Bureau, and Legislative Affairs Office, 
        but each of the aforementioned institutions passed 
        responsibility to one another other without giving a clear 
        response to the workers.

    In summary, the brand companies, factory, and government each 
employed various methods to deflect responsibility and create legal 
loopholes, which ultimately lead to severe violations of workers' 
rights.
    CLW's investigation this year discovered that all four factories 
had legal violations related to unpaid or insufficiently paid social 
insurance. For instance, Mattel Electronics Dongguan and Chang'An 
Mattel 2nd Factory are both directly controlled by Mattel Toys and 
together employ about 9,000 workers. Based on our conservative 
estimates, to bring these two plants in accordance with relevant 
Chinese social insurance regulations, Mattel would need to take on 
another $7 million in costs, which is about half of a percent of 
Mattel's 2013 profit of $1.17 billion.
    China's economic development has not led to real benefits for its 
workers, the vast majority of whom still struggle both in work and 
life. China's economic and political elites are the true beneficiaries 
of China's economic growth, while the workers have only been on the 
receiving end of exploitation. Western multinationals have invested 
heavily in China, but that has not brought about the spread of a system 
of values which includes human rights and democracy. Instead, these 
companies have benefited from the lack of protection that a labor union 
would provide Chinese workers and have quietly exploited them. They 
have used PR tactics to package their publicly stated labor standards 
without ever truly executing those standards.
    We are by no means powerless in the face of these circumstances. 
First, we can utilize public hearings such as this one to exert 
pressure on the toy industry and put forth more media reports to ensure 
that the public takes note of the production process of toys. Through 
writing letters or contacting executives at toy companies, we can 
ensure that those who benefit from the toy industry take action to 
improve working conditions in toy factories.
    Furthermore, we can demand that these toy companies begin by making 
improvements in the four factories on which we have reported rather 
than look for excuses to simply pull out of the factory.
    Finally, the toy companies should, within the next year, make the 
aforementioned companies comply with Chinese law as well as the labor 
standards published by the toy companies themselves. Both must be 
obeyed fully, and there should be no space to make any excuses. To that 
end, I have three suggestions for the improvement of labor conditions 
in the toy industry more broadly:

          1. Improving the toy manufacturing industry requires that 
        companies' make their production conditions transparent; all 
        toys should be labeled with their specific factory origin. 
        Factories and brands which have been shown to have committed 
        rights' violations should respond seriously to each violation, 
        in addition to providing an in-depth course of action for 
        making reforms instead of putting forth a general response 
        promising investigations.
          2. Guangdong Province is currently carrying out labor union 
        reform pilots. International brand corporations should 
        encourage their suppliers to carry out direct union elections, 
        allowing elected representatives to truly represent the demands 
        of workers and engage in collective bargaining with the 
        factories to protect the rights of workers.
          3. Factories must establish effective worker hotlines so that 
        workers may convey labor issues through an independent channel 
        that can ultimately aid workers in successfully resolving work-
        related problems and protecting their rights.

    Why must the improvement of labor conditions begin in the toy 
industry? Because we cannot let our children grow up with this shadow 
hanging over them. Let's ensure our children do not also have to face 
the dirty side of the toy industry after they grow up. Let's ensure 
that the smiles of our children are founded on just and fair working 
conditions.
                                 ______
                                 

           Prepared Statement of ICTI CARE Foundation, Inc. 
                     Presented by William S. Reese

                           december 11, 2014
    Good morning Commissioners, staff, ladies and gentlemen. My name is 
William Reese and I have been a member of the Governance Board of the 
ICTI CARE Foundation (ICF) since 2007. On behalf of our board, I would 
like to thank you for the opportunity to discuss the ICTI CARE Process.
    As you may know, the ICTI CARE Foundation does not currently have a 
CEO, although a new CEO has been appointed and will start in February. 
Given the timing, we felt it was appropriate for a board member to 
testify. As a board member I have strong knowledge of our mission, 
policies and programs, but to the extent that you have detailed 
questions about operating procedures or specific ICTI CARE Process 
operations as they relate to individual factories, I may have to defer 
response to such questions.
    Turning to the ICTI CARE Foundation: Because we work to ensure 
ethical treatment of workers in factories which produce products for 
children, we believe our programs have to meet high standards in 
ethical manufacturing. We are one of the very few industry-specific, 
integrated social compliance organizations in the world. We created a 
Code of Business Practice in 1991 to define ethical treatment of 
workers, consistent with national labor laws. We then developed the 
audit protocols and guidance documents that specify performance 
standards and audit procedures; we vetted and trained internationally-
recognized audit firms that are chosen randomly to conduct our audits; 
and finally we certify the results of the audits, by either awarding or 
withholding a Seal of Compliance.
    We do this transparently. Our Code of Business Practice, 
performance standards, audit procedures, Seals of Compliance and our 
responses to NGOs' reports, such as those from China Labor Watch, are 
all publicly available on our website.
    My presentation focuses on three main areas: who we are, what we do 
and how we operate when we receive complaints about factories 
registered in our programs.
    Who we are: The ICTI CARE Foundation was incorporated in the state 
of New York as a non-profit industry association in 2004. The 
Governance Board was established by the International Council of Toy 
Industries (a coalition of national toy industry associations) in 2005 
and we are just completing our 10th year of operation. Our board is a 
mixed one of current and former toy industry leaders, civil society and 
NGOs; and we operate independently of the industry.
    The program was established because ICTI's members--national toy 
associations, along with their retailer and toy brand members, were 
committed to having a comprehensive and unified approach to 
understanding the conditions under which toys were made, desirous of 
supporting a process to help raise standards, and eager to have a way 
of knowing and rewarding manufacturers for demonstrated performance.
    Accordingly, we developed the ICTI CARE Process, the worldwide toy 
industry's ethical manufacturing program, and have been responsible 
both for its initial funding and for oversight and guidance as it has 
grown and evolved.
    The ICTI CARE (Caring, Aware, Responsible, Ethical) Process is a 
global social compliance program, dedicated to promoting fair labor 
treatment, as well as employee health and safety, in the worldwide 
supply chain of the toy and juvenile products industries. It provides a 
single, fair, thorough, transparent and consistent program to monitor 
factory compliance with ICTI's Code of Business Practices. The Code was 
promulgated in May 1991 and it has been strengthened and updated 
periodically, most recently in 2010.
    The operations arm of the ICTI CARE Process is the ICTI CARE 
Foundation Asia, Ltd., located in Hong Kong.
    What we do: The main components of the ICTI CARE Process include:

         A program under which toy and children's product 
        marketers, retailers and licensors commit to requiring and/or 
        accepting ICTI CARE Process Certification of their suppliers as 
        meeting the high standards required by the ICTI Code of 
        Business Practice.
         The qualification, appointment and training of highly 
        qualified audit companies to carry out the audit process. The 
        ICTI CARE Foundation currently uses seven qualified audit firms 
        that have undergone a rigorous technical review and approval 
        process. They perform audits in accordance with ICP protocols 
        primarily in China, with some occasional auditing in Macau, 
        Hong Kong, Taiwan, Thailand, Vietnam, Indonesia and India. 
        These audit firms have collectively performed hundreds of 
        thousands of social compliance audits for ICTI CARE and their 
        other clients across a broad range of multi-stakeholder, 
        industry and brand ethical sourcing programs.
         Toy-producing factories register in the ICTI CARE 
        Process to begin their progress toward certification that will 
        qualify them to supply manufactured goods to brands, retailers 
        and licensors that have committed their companies to source 
        their products from ethical suppliers.
         To begin, they complete an application package. Once a 
        factory's application has been accepted, Operations randomly 
        assigns an audit firm from the list of seven qualified firms to 
        conduct an unannounced audit.
         Once the audit firm issues a favorable report, the 
        factory will receive a certification seal, valid for one year, 
        after which it will be subject to another, unannounced audit. .
         If the audit firm issues a report that identifies any 
        faults, the factory will be required to adopt a Corrective 
        Action Plan to address them. Thereafter, a scheduled re-audit 
        is done to ensure that the Corrective Action Plan has been 
        implemented. Factories may be put on probation pending 
        correction of identified faults.
         If the audit firm issues a report that identifies 
        significant, critical faults, such as employment of underage or 
        forced labor, or if a factory fails to demonstrate a commitment 
        to correcting identified non-critical faults through adoption 
        and implementation of a corrective action plan, factories may 
        be terminated.
         The ICTI CARE Process has an extensive training 
        program focused on helping workers to understand their rights 
        and helping management to operate more effectively, using the 
        Code of Business Practices as a guide to how to improve margins 
        by improving the productivity of their workers through 
        motivation and fair treatment.

    Complaint Procedures:
    Complaints about factory operations, policies or treatment of 
workers come to us in a variety of ways.

         First, one of the best sources is our confidential, 
        worker Helpline--a free telephone and e-mail service that 
        allows workers to ask questions of any kind. Very often they 
        want to better understand their labor rights; but the service 
        also serves as an avenue for complaints about the way they are 
        being treated or the way the factory is run. The Helpline is 
        manned by the Little Bird organization, a Chinese NGO 
        specializing in labor issues. They answer routine questions 
        directly and refer any serious matters (about 10% of the total) 
        to our Operations team, which can intervene with factory 
        management to seek resolution.
         Second, we receive direct communications to 
        Operations, by e-mail or telephone, which we also investigate.
         Third, we are contacted by worker-focused NGOs. There 
        are several with whom we have working relationships.
         Finally, some complaints also come during private 
        interviews with workers that are a normal part of audits. Those 
        complaints are incorporated in the audit report.

    We take allegations seriously. Once we have received a complaint, 
we begin engaging directly with the parties involved.

         First, we compare the allegations received with how 
        the factory fared in its most recent audit, including any 
        Corrective Action Plan that the factory may have adopted.
         Second, our own staff auditors conduct an unannounced 
        investigative audit. If necessary we can also use one of the 
        seven qualified audit firms, but, as a matter of policy, we do 
        not use the same firm that conducted the most recent audit.
         Based on the results, a report is prepared, comparing 
        the allegations made by the complainant with what we found.
         Depending on the nature of the results, we may require 
        a corrective action plan, place the factory on probation or 
        terminate it.
         We will then publish our own report addressing the 
        issues outlined by the complainant's report.

    This process works best when we can work with the NGO from the 
beginning. This is often the case, including with earlier complaints 
lodged by China Labor Watch. We have even engaged CLW to verify issues 
found through our factory audits. They have done this by interviewing 
workers outside the factory. Then we compared their findings with ours, 
in what proved to be a very useful collaboration.
    Working privately prior to publication of a report is almost always 
more productive than trying to correct issues after one is released. 
When a report becomes public, factory owners and managers may become 
more inclined to obscure actual conditions in order to present a better 
picture than what exists. But in a less pressured situation, factory 
owners may be more open to revealing actual problems, root causes and 
sustainable fixes. Given that the goal is to help workers, then all of 
the stakeholders should be brought together in a constructive manner to 
identify issues and solutions. Publishing a report is effective at 
gaining attention for the report issuer but is not always the most 
effective way to promote improvement in working conditions.
    The ICP provides other services beyond auditing. we don't just 
investigate and require correction; we also help workers and factories 
to reach agreement on issues that arise between them.
    An example of this, one that is in process right now, involves a 
factory that is closing down and moving to another location. Management 
planned to fire all the workers at the current site, but allegedly did 
not follow government-mandated procedures. So the workers went on 
strike. We were alerted to the situation almost simultaneously by 
Helpline calls and by a Hong Kong based NGO with which we have worked 
in the past: Working with them, factory management, worker leadership, 
government authorities and the toy brands involved, we have begun a 
mediation which we expect will be concluded successfully by next week.
    The ICTI CARE Process was developed as an industry-wide approach to 
promote ethical manufacturing of toys and other children's products. 
With the support of a multi-stakeholder Board, a committed Operations 
team, experienced social compliance auditors, responsible brands and 
retailers supporting the process, toy manufacturers voluntarily 
choosing to undergo our process, and with the engagement of workers 
themselves, we have helped to improve the awareness and realization of 
better working conditions in toy factories in China and elsewhere. We 
have learned a lot in the past 10 years and we use what we have learned 
to constantly improve our processes. But, we recognize that our work is 
continuous and we have much work ahead of us.
    Thank you for allowing us this opportunity to testify before the 
Commission today.

                            William S. Reese

    Bill Reese was appointed President and Chief Executive Officer of 
the International Youth Foundation in 2005, having joined IYF in May 
1998 as its Chief Operating Officer. He was President and CEO of 
Partners of the Americas for twelve years. Previously, he served with 
the Peace Corps for ten years, first as a volunteer in Salvador, 
Brazil, then as director of Brazil operations, and in Washington as 
deputy director of the Latin American and Caribbean region. He 
currently sits on the board of The Prince's Youth Business 
International in the UK as well as InterAction, where he served 
previously as Chair. Mr. Reese has also joined the Alcatel-Lucent 
Foundation Board and serves as a board member of two organizations 
committed to certifying best practices in global supply chains in the 
apparel and toy industries: W.R.A.P. and ICTI Care Foundation. 
Reflecting his interest in promoting international volunteerism, he has 
joined the boards of Encore International Service Corps and Global 
Citizen Year. Mr. Reese received his BA in Political Science from 
Stanford University and is a 1995 graduate of the Business School's 
Executive Program.

                   The International Youth Foundation

                         http://www.iyfnet.org/
    The International Youth Foundation (IYF) prepares young people to 
be healthy, productive, and engaged citizens.

    For over twenty years, IYF has sought to tell a new story about the 
role of young people in our world. Rather than view youth as `problems 
to be solved,' we recognize and support their role as creative problem 
solvers. We engage young people as partners in development, equipping 
them with the know-how and tools to contribute to their communities.
    At the core of our work is creating new possibilities for young 
people.
    We are passionate in our belief that educated, employed, and 
engaged young people possess the power to solve the world's toughest 
problems. Every young person therefore deserves the opportunity to 
realize his or her full potential. Our programs are catalysts for 
change that help youth learn, work, and lead.
    Recognizing that no one sector of society alone has the resources 
or expertise to effectively address the myriad challenges facing 
today's youth, IYF is mobilizing a global community of businesses, 
governments, and civil society organizations--each committed to 
developing the power and promise of young people. Since 1990, IYF has 
mobilized over US$200 million in resources to expand the opportunities 
for the world's youth by helping to fund programs and partnerships with 
472 youth-serving organizations worldwide. In 2013, our global network 
included 224 partners in 70 countries.
                                 ______
                                 

                Prepared Statement of Earl V. Brown, Jr.

                           december 11, 2014

           The Environment for ``Social Auditing'' in the PRC

    The April 24, 2013 Rana Plaza factory collapse in Dhaka, 
Bangladesh, with its death toll of over 1,100 workers, and an abundance 
of evidence of negligence and indifference on the part of multi-
national brands, manufacturers and building owners, poses a stark and 
tragic challenge to those that assert that international brands and 
other multinationals are able to effectively police compliance along 
the labyrinths of their supply chains with even the most elemental 
norms of occupational health and safety. The Rana Plaza disaster 
involved clear departures from the most common sense and simple 
standards of load bearing in building codes, and evacuation procedures.
    The Rana Plaza structure had more than the permitted stories, and 
could not bear its additional illegal weight. After huge cracks 
appeared in pillars and walls, workers were pressured to remain at work 
under supervisory assurances from their employers that nothing was 
wrong, and with threats of job loss.\1\ As work continued fulfilling 
contracts for major European Union and North American brands, the Rana 
Plaza building buckled and fell on top of thousands of workers. To 
date, the families of the dead, and the injured workers have not 
received anything like adequate compensation from any of the many 
wrongdoers who contributed to this outrage.\2\
---------------------------------------------------------------------------
    \1\ Hossain, Farid. ``Bangladesh: Owners' Many Failings Led to 
Collapse''. Associated Press. 23 May 2013. Web. http://bigstory.ap.org/
article/bangladesh-owners-many-failings-led-collapse
    \2\ The Rana Plaza Arrangement. ``Rana Plaza Arrangement. 
Understanding for a Practical Arrangement on Payments to the Victims of 
the Rana Plaza Accident and their Families and Dependents for their 
Losses''. 20 Nov. 2013. Web. http://www.ranaplaza-arrangement.org/mou/
full-text/MOU_Practical_Arrangement_FINAL-RanaPlaza.pdf
---------------------------------------------------------------------------
    The Rana Plaza collapse illustrates a fundamental flaw in the claim 
that multinational corporations are able to self-enforce even the most 
basic occupational health and safety codes. A current, empirically 
grounded scholarly assessment of corporate social responsibility (CSR) 
and social auditing, by Professor Richard M. Locke, makes only a most 
modest and contingent claim for CSR programs, including social 
auditing:

          . . . Private initiatives aimed at improving labor standards 
        can succeed when global buyers with their suppliers establish 
        long term, mutually beneficial relations and when various 
        public institutions help to support these . . . relations . . 
        .\3\

    \3\ Locke, Richard M. The Promise and Limits of Private Power: 
Promoting Labor Standards in a Global Economy. Cambridge: Cambridge UP, 
2013. Print. p. 17.
---------------------------------------------------------------------------
    In short, absent public, governmental pressure, including state 
enforcement of corporate, business and labor laws, voluntary corporate 
policing does not yield much good, and overlooks much evil--as Rana 
Plaza demonstrates.
    Indeed, any independent auditing of the behavior of manufacturers 
along supply chains depends on clear, comprehensive public legal and 
regulatory frameworks that establish standards and require basic 
reporting by manufacturers of compliance with those standards. To 
``audit'' at all, much less to initiate ``social audits,'' global 
brands and their lawyers and accountants must be able to investigate 
public and private records, as well as gather testimony and evidence to 
establish the facts of compliance or non-compliance with laws and 
policies. China presents many questions at even this threshold auditing 
step. This issue--whether China's environment allows any credible 
auditing--is one often openly discussed by business and regulators.\4\
---------------------------------------------------------------------------
    \4\ Lynch, Sarah. ``SEC Judge Bars `Big Four' Chna Units for Six 
Months Over Audits''. Reuters. 23 Jan 2014. Web. http://
www.reuters.com/article/2014/01/23/us-sec-china-bigfour-
idUSBREA0L28D20140123
---------------------------------------------------------------------------
    Here is a summary list of the major problems of auditing in China:

          Public records concerning corporate identity are 
        often difficult to access in the many jurisdictions of China, 
        and are often not complete and/or accurate. The brands, far 
        removed, often do not know who may be subcontracting from their 
        prime contractors to fill accelerated ``just-in-time'' orders, 
        and cannot even (after-the-fact) ascertain the identities of 
        all employers in these complex supply chains. This opacity is 
        most acute where there is child, prison or forced labor in a 
        supply chain.
          Just ``which'' employer or business entity is 
        responsible for compliance with labor and environmental laws is 
        often in doubt due to a ``hugger-mugger'' of corporate entities 
        and names that proliferate without much economic rationale 
        precisely to disguise responsibility.\5\ Workers often do not 
        know the real identity of their legal employer.
---------------------------------------------------------------------------
    \5\ United Mine Workers v. Coronado Coal Co., 259 U.S. 344, 411 
(1922). (Chief Justice Taft's describing an employer's ``attempt to 
evade his obligation by a hugger-mugger of his numerous corporations . 
. .'')
---------------------------------------------------------------------------
          Manufacturers in labor intensive sectors like 
        garments or toys often do not accurately report hours of work, 
        pay and occupational health and safety matters, and are not 
        pressed to do so by the authorities.\6\
---------------------------------------------------------------------------
    \6\ Locke supra at 36, observing that factory management often 
engages ``in a cat and mouse game in which auditors uncover fabricated 
documents . . .''
---------------------------------------------------------------------------
          The brands themselves indirectly promote a business 
        and regulatory environment in which labor laws and other social 
        laws are not taken seriously by government or employers, with 
        the result that social laws are not rigorously enforced. Local 
        authorities often collude with or allow local employers to 
        evade standards. In the absence of autonomous grassroots worker 
        organizations to pressure supply chain employers to follow wage 
        and hour laws, and other labor standards, employers who comply 
        with the law end up at a competitive disadvantage with 
        employers who avoid standards and thus produce product cheaper. 
        This failure to enforce law evenly sets up fierce economic 
        incentives to flout the law, with acquiescence by local 
        government obsessed with growth targets. Brands often 
        exacerbate this corrosive process. As Professor Locke found:

                  Suppliers are asked to invest in improved labor and 
                environmental conditions but are pressured to (and 
                rewarded for) producing ever-cheaper goods . . .\7\
---------------------------------------------------------------------------
    \7\ Locke, supra, at p. 35.

          Auditing firm staff are too often wholly ignorant of 
        the context of industrial relations to know how to interview 
        workers (if workers are even interviewed). In particular, the 
        often junior and inexperienced audit staff relegated to labor 
        auditing cannot begin to engage in the type of sensitive social 
        investigation required to put workers at ease, and to prompt 
        candid and truthful responses from workers. To the contrary, 
        these auditors follow a rote checklist that workers fear must 
        be answered the ``right'' way to avoid retaliation.\8\
---------------------------------------------------------------------------
    \8\ Locke, supra, at 36-37.
---------------------------------------------------------------------------
          It takes time and considerable effort for independent 
        worker rights advocates to establish the quality of 
        relationship with industrial and service sector workers in 
        China that permits candid discussions of working conditions. 
        Many of the occupational health and safety practices in 
        factories, mills, mines and transport hubs are appalling. 
        Without some attempt to establish a more organic relationship 
        with rank-and-file workers, auditors simply will not be able to 
        assess whether safety and health standards are being maintained 
        in factories and other work sites--assuming, of course, that 
        the law and regulations are sufficiently developed to yield the 
        comprehensive set standards required to set the framework for 
        safe and healthy workplaces in many industrial environments.
          Corporate management often is compelled to engage law 
        firms and investigators to uncover wrongdoing in its ranks or 
        along supply chains when regular auditing is not sufficient. 
        Yet, China recently imprisoned the principals of a long 
        established investigation firm that had for years conducted 
        corporate investigations unimpeded. Basically, the two lead 
        investigators were convicted and imprisoned under a strained 
        interpretation of Article 253 of China's Amendments to Criminal 
        Law (VII) for ``stealing or illegally obtaining, by any means, 
        personal information.'' \9\ Where transparency is lacking, 
        resorting to experienced lawyers and investigators is often 
        necessary for corporate management to assess whether laws or 
        commitments are being violated. Even more so in an opaque 
        environment like China's. Now, lawyers, investigators and 
        social scientists looking at wrongdoing along supply chains 
        face the threat of criminal prosecution and even prison if 
        their inquiries threaten the interests of those violating the 
        law or corporate policy. Frankly, these prosecutions--against 
        the backdrop of intense security over labor issues--undermine 
        the endeavor of social auditing.
---------------------------------------------------------------------------
    \9\ Dentons. ``Conducting compliance investigations in China: A new 
regulatory environment.'' 28 Aug 2014. Web. http://www.dentons.com/en/
insights/alerts/2014/august/28/conducting-compliance-investigations-in-
china-a-new-regulatory-environment

    The validity of social auditing depends on its independence. CSR 
programs with a high degree of independence and participation by 
autonomous labor organizations and networks, such as the Worker Rights 
Consortium and the Accord \10\ in Bangladesh, can contribute much to 
enforcing labor standards even in the absence of governmental pressure 
to abide by labor standards. Yet, staging supply chain 
compliance without sustained robust pressure by grassroots workers and 
their networks in China will ultimately prove to be akin to staging 
Hamlet without the Prince of Denmark.
---------------------------------------------------------------------------
    \10\ Both the Worker Rights Consortium and the Accord are binding 
agreements to enforce labor standards with robust trade union 
participation.
    Worker Rights Consortium. ``The Designated Suppliers Program--
Revised''. 17 Feb. 2012. Web http://www.workersrights.org/dsp/
DSP%20Program%20Description,%202012.pdf
    As of this date, the Accord has been signed by 186 apparel 
companies from Europe, America, Asia and Australia, two global unions 
(IndustriALL and UNI Global Union), eight Bangladeshi trade union 
organizations, and four campaign organizations (Worker Rights 
Consortium, International labor Rights Forum, Clean Clothes Campaign 
and Maquila Solidarity Network).
    The Accord on Fire and Building Safety in Bangladesh. ``Official 
Signatories.'' Bangladesh Accord. 9 Dec 2014. Web. http://
www.bangladeshaccord.org/signatories/
    Also see the testimony given by Scott Nova of the Worker Rights 
Consortium to: US Senate Committee on Foreign Relations ``Prospects for 
Democratic Reconciliation and Workers' Rights in Bangladesh.'' 11 Feb 
2014. Web. http://www.foreign.senate.gov/hearings/prospects-for-
democratic-reconciliation-and-workers-rights-in-bangladesh. In China, 
few worker rights organizations are part of the auditing process or CSR 
programs.
---------------------------------------------------------------------------
                                 ______
                                 

                  Prepared Statement of Brian Campbell

                           december 11, 2014
    Thank you, Chairmans Brown and Smith for providing me the 
opportunity to share some ideas for tools the U.S. Government can 
employ that will help bring an end to the terrible abuses facing 
factory workers in China and in other countries.
    As was well documented in China Labor Watch's report and testimony, 
though sweatshops are the result of complex, modern business practices 
by Multi-National Enterprises (MNEs), the reasons sweatshops exists are 
not complicated. Sweatshops are the result of high-stakes, intense cost 
and production pressures placed on local companies by multi-national 
enterprises. Unfortunately, during peak production season, the demands 
of the buyer can lead directly to coercive management policies, and, in 
many cases, forced labor to meet production demands. For example, in 
the case of Mattel Electronics Dongguan and Zhongshan Coronet 
factories, CLW documented how workers who initially voluntarily \1\ 
came to work for the company eventually found themselves unable to 
leave during the peak season without having to leave behind wages they 
were already legally owed. International law and U.S. law prohibit any 
person, including companies and MNEs, from exacting labor from any 
person ``under the menace of a penalty'' and ``for which they did not 
offer themselves voluntarily.'' Faced with the prospect of losing more 
than a month's wages, which is often the difference between dire 
poverty and making ends meet, some workers will simply walk away; 
others grudgingly accept that they have no choice but to keep working 
or lose their already hard earned pay. Migrant workers are particularly 
vulnerable, as they also risk losing their social insurance payouts, 
pensions, and health insurance payouts if forced to return to their 
home province. For many others, the menace of management's wrath and 
the loss of their wages lead to total loss of hope and suicide. In all 
situations, while the initial decision to work making, assembling, or 
packaging toys for MNEs such as Mattel was voluntarily, this voluntary 
labor was transformed into more sinister labor during the peak season 
in order to meet the contractual demands established by the buyers.
---------------------------------------------------------------------------
    \1\ ILO Convention No. 29.
---------------------------------------------------------------------------
    With such dire consequences for workers, it is vital that the U.S. 
and Chinese government work closely together using all the tools at 
their disposal to bring an end to the root causes these labor abuses. 
In doing so, it is important that we remember two immutable facts that 
must inform any course of action.
    First, unless workers can access a legally-biding remedy, they 
stand to lose if they raise complaints, use grievance processes, or 
take other actions to protect their rights. As is clearly demonstrated 
in China Labor Watch's report, workers are the most vulnerable person 
in the supply chain; they are simultaneously unable to protect 
themselves from management retaliation and from the economic hit caused 
by loss of business when companies use CSR policies incorporated into 
supplier contracts to rescind the contracts.
    Second, Global Multi-national Enterprises and the companies that 
comprise them, like Mattel and Fisher-Price, exist by virtue of a grant 
of authority from governments and legislatures like our Congress, which 
endowed them with one overarching legal duty defining the very nature 
of the corporate ``person's'' character: a fiduciary duty to maximize 
profits on behalf of shareholders. As a result, business practices 
employed by companies like Mattel, such as lean production times and 
CSR programs, are designed primarily to achieve the singular legal duty 
to protect shareholders interests, even if other ancillary benefits may 
result from time to time. Viewed through this lens, it is no surprise 
that workers are treated as commodities, and high wages are viewed as a 
threat to MNEs everywhere.\2\
---------------------------------------------------------------------------
    \2\ Bama Athreya and Brian Campbell. ``No Access to Justice: the 
Failure of Ethical Labeling and Certification Systems for Worker 
Rights'', in Workers' Rights and Labor Compliance in Global Supply 
Chains: Is Social Label the Answer?, ed. Jennifer Bair et al. 
(Routledge 2013).
---------------------------------------------------------------------------
    In order to strike a new balance between the myopic, profit-
maximizing nature of the corporate ``person'' and the human beings 
impacted by their business practices, the U.S. and Chinese governments 
have already taken an important step by endorsing the United Nations 
Guiding Principles on Business and Human Rights. In line with OECD 
Guidelines for Multi-national Enterprises, the Guiding Principles 
provide a mutual framework for addressing human rights violations in 
global supply chains that cross national borders that are based on 
three core principles. First, governments have a duty to protect human 
rights by ensuring the fulfillment of ``fundamental freedoms'' \3\, 
which include freedom from forced labor; Second, MNEs have a 
responsibility to respect human rights and all ``applicable laws'' \4\, 
which are, significantly, enforceable in courts; Third, victims, such 
as exploited migrant workers, have a right to a meaningful, 
``effective'' remedies.\5\
---------------------------------------------------------------------------
    \3\ United Nations Guiding Principles on Business and Human Rights, 
General Principles. Accessed December 2014: http://www.ohchr.org/
documents/publications/GuidingprinciplesBusinesshr_en.pdf
    \4\ Ibid.
    \5\ Ibid.
---------------------------------------------------------------------------
    However, in order to implement the ``respect, protect, and remedy'' 
framework, Congress must pass necessary laws and regulations, including 
amending already existing legislation, to reflect these principles and 
ensure that effective remedies are in place for victims. And every 
agency of the U.S. government must take on their share of this work. 
This includes such agencies as the Securities and Exchange Commission, 
which is partly responsible for ensuring corporations fulfill their 
legal duties to shareholders, and the Department of Homeland Security, 
which ensures that companies in violation of labor laws like the 
prohibition against forced labor, do not profit from those crimes.
    First, Congress must ensure that all companies, including companies 
under contract by the Department of Defense or the State Department to 
supply video games, toy games, and other electronics, are prevented 
from importing goods made with forced labor into the United States. 
Currently, the Tariff Act of 1930 prohibits the importation of goods 
made with forced labor, however most products made outside of the 
United States are exempt from the law because they are not also made 
domestically in sufficient quantities to meet consumptive demand. As a 
priority, Congress must remove the ``consumptive demand exception,'' to 
the Tariff Act of 1930, which is a significant hurdle to enabling the 
Department of Homeland Security to work with their Chinese counterparts 
on bringing an end to the routine use of forced labor during peak 
production times, as described in the China Labor Watch report. When 
doing so, DHS must also update its regulations and procedures to 
improve internal coordination between Immigration and Customs 
Enforcement, which investigates the crime, and Customs and Border 
Protection, which enforces the law at the port.
    Second, Congress should pass H.R. 4842--Business and Supply Chain 
Transparency Act.\6\ This important piece of legislation is a vital 
first step toward ensuring that MNEs implement their responsibility to 
respect, or ``do no harm'', by legally mandating companies to report on 
their diligence requirements, to include clear remedies for communities 
and populations impacted by a company's business practices.
---------------------------------------------------------------------------
    \6\ H.R.4842--Business Supply Chain Transparency on Trafficking and 
Slavery Act of 2014, Accessed December 2014: https://www.congress.gov/
bill/113th-congress/house-bill/4842/text
---------------------------------------------------------------------------
    Third, as the largest consumer of goods in the world, the U.S. 
Government must enact strong protections for its own supply chains to 
ensure that tax dollars do not support sweatshops and, if they are 
found to do so, that companies provide effective, legally enforceable 
remedies to victims. Soon, the Obama Administration will be issuing 
new, stronger procurement regulations requiring certain companies that 
supply goods to U.S. government contractors to abide by compliance 
plans in order to prevent as well as remedy any abuses.\7\ It is 
important that Congress ensure that the Obama Administration issue the 
final regulations and that when implemented, the regulations will 
provide our government the tools necessary to stop not only forced 
labor but also sweatshop conditions and other business practices often 
accompanying or enabling forced labor.
---------------------------------------------------------------------------
    \7\ Proposed Rule. 78 FR 59317 (September 23, 2013).
---------------------------------------------------------------------------
    Fourth, Congress must ensure that the U.S. Department of State's 
National Contact Point for the OECD Guidelines has the mandate and the 
resources to fully implement the recommendations of the NCP's 
Stakeholders Advisory Board, which are necessary to ensure the office 
is providing effective mediation and other forms of dispute resolution 
when requested through complaints brought by victims of human rights 
abuses caused by business practices of U.S. Multi-national 
Enterprises.\8\
---------------------------------------------------------------------------
    \8\ Report of the U.S. State Department Stakeholders Advisory Board 
(SAB) on Implementation of the OECD Guidelines for Multinational 
Enterprises, February 24, 2014. Accessed December 2014: http://
www.state.gov/e/eb/adcom/aciep/rls/225959.htm
---------------------------------------------------------------------------
    Finally, it is vital that Congress work closely with human rights 
victims, their advocates, the business community, and the President 
toward the administration's goal that was announced this past September 
to build a comprehensive National Action Plan of laws, regulations, 
policies, and programs that to implement the UN Guiding Principles and 
the OECD Guidelines.
                                 ______
                                 

  Prepared Statement of Hon. Sherrod Brown, a U.S. Senator From Ohio; 
         Chairman, Congressional-Executive Commission on China

                           december 11, 2014
    Today is the last hearing for this Congress. It has been an honor 
to chair this Commission with my counterpart Congressman Chris Smith, 
over these last three and a half years. I want to thank our other 
Commissioners for their participation and support. Finally, the great 
work of this Commission would not have been possible without our 
incredible staff.
    It is fitting that we end this year on an issue that hits so close 
to home this holiday season.
    As parents, grandparents, aunts, and uncles, we care deeply about 
the toys we buy our children. We care about their safety. And we should 
care about who makes these toys.
    It used to be the case that toys were made in America, in proud 
towns across this country.
    Towns like Bryan, Ohio, where for 40 years, workers at the Ohio Art 
Company made Etch A Sketch, a toy many of us played with as kids.
    In Bryan, the company was a family. Etch A Sketch was the town 
mascot.
    But then Walmart told the company that in order keep its business 
they would need to sell the product for less than $10. And so what did 
Ohio Art do? In 2001, they moved production of Etch A Sketch to 
Shenzhen, China. A hundred people lost their jobs. A community lost its 
pride.
    Today, some 85 percent of our toys come from China.
    They will be made by factory workers like the ones investigated in 
China Labor Watch's most recent report.
    Some of them are temp workers or students, making as little as 
$1.23 an hour and working more than 100 hours of overtime a month, in 
blatant violation of China's overtime laws.
    They live in crowded dorms, as many as 18 people to a room. They 
stand for long hours at work. Emergency exit doors are locked.
    At the base monthly wage they are making, it would take nearly two 
months for one of these workers to afford the Thomas the Train mountain 
set that sells for $400 and is made in China.
    We've seen this story repeated over and over again - American 
companies moving production to China to take advantage of cheap labor 
and poor labor enforcement and then resell these goods back to the 
United States. This business model is unprecedented in human history.
    Eight years ago I introduced the Decent Working Conditions and Fair 
Competition Act to expand the Tariff Act of 1930 to prohibit the 
importation of goods made with sweatshop labor. But private industry 
said it didn't need a law, that members could deal with the problem on 
their own through codes of conduct, certifications, and audits. But 
eight years later, the problem hasn't gone away.
    What I want to know today is, are corporate codes and self-policing 
sufficient, or do we need a new approach?
    Does the toy industry in China need something like the legally-
binding Bangladesh Accord, which I urged companies like Walmart and 
Target to join last year, or an anti-sweatshop law like the one I 
introduced eight years ago?
    Something must be done. We need to be able to tell our children 
that the person who made their toys--perhaps the mother or father of 
another child--worked in a good place where she made a decent living.
    We can't say that now.
    I look forward to hearing from our witnesses and turn it over to my 
co-chair Congressman Smith for his statement.
                                 ______
                                 

  Prepared Statement of Hon. Christopher Smith, a U.S. Representative 
  From New Jersey; Cochairman, Congressional-Executive Commission on 
                                 China

                           december 11, 2014
    Thank you, Chairman Brown, for calling this hearing and for your 
leadership the past two years as Chairman of the CECC. Your leadership 
has made this bipartisan Commission an effective one. You came to the 
Commission primarily interested in trade issues (we share those 
concerns). But I have noticed you taking a greater interest in human 
rights issues more broadly this past year, recognizing that U.S. 
interests in issues like food safety, fair trade, the environment, and 
regional security depend on human rights improvements in China. It has 
been an honor working with you.
    I would like to welcome our witnesses and thank them for agreeing 
to testify today.
    As Americans head to the stores this holiday season it is important 
to lift the curtain on an industry that has a history of labor 
problems. Last year, Americans bought an estimated $22 billion in toys, 
80 percent of them made in China. The American consumer has a right to 
know how these toys are made and weigh the true costs of buying toys 
made in China.
    This Commission has for several years documented the appalling 
state of working conditions and worker rights in China. In its most 
recent Annual Report, the Commission found that China continued to 
violate the basic human rights of its own people and seriously 
undermine the rule of law. Workers in China are still not guaranteed, 
either by law or in practice, fundamental worker rights in accordance 
with international standards.
    The toy industry has had its share of labor problems, despite 
efforts to address these problems with voluntary codes and ``social 
auditing,'' there continue to be serious problems. As our witnesses 
today will attest, Chinese workers are routinely exposed to a variety 
of dangerous working conditions that threaten their health and safety.
    The deplorable state of worker rights in China hurts U.S. workers 
as well, by giving profoundly unfair advantages to those corporations 
who benefit from China's poor labor practices. The pursuit of lower and 
lower cost goods places tremendous pressure on factories to cut corners 
on worker pay and safety in order to remain competitive.
    What are the human costs and economic consequences of this global 
race to the bottom of the cost curve? Are toy brands doing an adequate 
job in monitoring working conditions in their supply chain or is 
something else needed to ensure labor rights? As good corporate 
citizens, shouldn't toy companies ensure that international labor 
standards are being implemented in their factories?
    I am also interested in answers to these questions and other issues 
of labor rights. This year I introduced with Representative Carolyn 
Maloney a bill that seeks to limit products made globally through 
forced or child labor. The Business Supply Chain Transparency on 
Trafficking and Slavery Act would require companies to describe 
measures they are taking to identify and address forced labor, human 
trafficking, and child labor in their supply chains. The use of forced 
and child labor continues to exist within the toy industry in China and 
as consumers we all have the right to know whether or not we are buying 
such items.
    Again, Mr. Chairman, thanks for your leadership on this Commission 
and I look forward to working with you in the next Congress.

                       Submission for the Record

                              ----------                              


  ICTI CARE Process Response to China Labor Watch's November 18, 2014 
                      Report on Five Toy Factories

                           december 18, 2014
    This provides the ICTI CARE Foundation's\1\ response to allegations 
raised by China Labor Watch (CLW) in its recently-issued report on its 
investigation of five toy factories in China. It is based on a thorough 
investigation of the allegations.
---------------------------------------------------------------------------
    \1\ The ICTI CARE Foundation is a non-profit industry association, 
chartered in the State of New York and headquartered in New York City.
---------------------------------------------------------------------------
Summary
    ICTI CARE takes seriously any concerns raised from any source 
regarding working conditions in ICTI CARE certified facilities. As part 
of our normal process, whenever complaints are voiced, we promptly and 
thoroughly investigate each allegation. This procedure involves a 
careful review of the most recent prior audits of the factories to 
determine if the alleged violations were present, and, if so, were the 
subject of a corrective action plan, followed by rigorous investigative 
audits conducted by our Quality Control team as well as outside 
auditors.
    With respect to the recent claims made in China Labor Watch's 
November 18, 2014 report, we have completed audits of the facilities in 
the report and share the results of those here.
    There was no support for a substantial majority, 67 out of 118, of 
the claims reported by CLW.
    Three of CLW's 118 claims were validated and constituted actual 
violations. None of three violations were critical violations. The two 
factories immediately agreed to a corrective action plan to address 
those violations, and implementation of the corrective action plan will 
be verified in the next audit of those two factories.
    Ten of CLW's claims were only partially validated. They often 
constituted simple documentation errors and the factories agreed to 
correct them at once. Again, the next audits of those factories will 
verify that they have done so.
    The remaining 25 allegations made by CLW's report were supported 
but none of them constituted a violation of ICP's Code of Conduct and/
or Chinese legal guidelines. For example:

         It is permissible under local legal requirements for 
        workers to receive a copy of their contract a month after the 
        commencement of their employment.
         Switching day and night shifts every two weeks 
        violates neither ICP's Code of Conduct nor China's legal 
        requirements.
         Some factories made copies of job applicants' personal 
        IDs to conduct criminal background checks. That is 
        understandable. No factory intentionally or illegally detained 
        prospective workers' personal IDs.

    Again, all of the factories agreed immediately to correct the few 
violations that were validated, and ICTI CARE will use its normal 
process to ensure that factories are living up to their commitments.
    All of the investigative audits included documentation review, 
management interviews, visual inspects of the physical property, and 
worker interviews conducted in the absence of management. All five 
audits were unannounced and were scheduled as soon as possible after 
release of the CLW report.
    ICTI CARE is always interested in ways to improve its processes and 
Code and will consider whether adjustments need to be made with respect 
to any of these issues. While there is always room for improvement--our 
Code of Conduct, for instance, is periodically reviewed and 
strengthened--ICTI Care even now is far better positioned to determine 
whether violations have occurred than CLW's undercover investigators.
    Our trained auditors have access to factory records and all of the 
factory areas, the ability to interview management in depth, and the 
opportunity to interview workers selected by the auditors outside of 
the view of management. In fact these are aspects of all our audits.
    In contrast, CLW's undercover workers are not trained auditors, and 
they interview only those workers who agree to an interview outside of 
the factory. The undercover workers, for example, have little to no 
access to management or to the factory's books and records. They 
accordingly have incomplete information that hampers their ability to 
assess reliably whether violations have actually occurred.
The ICTI CARE Foundation and Its Process
    The ICTI CARE Foundation was created in 2004 as an ethical 
manufacturing initiative of the toy industry. It operates principally 
through an independent audit program, known as the ICTI CARE 
Process.\2\
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    \2\ The ICTI CARE Process is the worldwide toy and children's 
products industries' ethical manufacturing program.
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    ICP auditors independently monitor supplier performance to make 
sure they meet their responsibilities in the areas of health and 
safety, child and forced labor, working hours and wages, discrimination 
and disciplinary practices, and social benefits.
    The auditors currently are drawn from seven qualified, independent 
audit firms that undergo a rigorous technical review and approval 
process every two years. As part of the audit process, they interview 
management and a sample of workers, they review the factory's books and 
records, and they inspect both the factory itself and factory-owned 
adjacent areas, such as dormitories and cafeterias.
    The independent auditors issue a report for each factory. The audit 
report serves as the basis for recommendations from the auditors to the 
ICP on whether a factory has earned certification and, if so, its level 
of certification. Areas for improvement identified by the audit report 
are also the subject of a Corrective Action Plan adopted by the factory 
with the approval of the independent auditor.
    Periodic re-audits are conducted to determine that a factory 
continues to qualify for certification, to determine whether the level 
of certification should be upgraded or downgraded, and to ensure that 
any past corrective action plan has been appropriately implemented.
    The ICP is the core of our initiative. To date, thousands of 
independent factory audits have been conducted. Through November of 
this year alone, about 7,000 man-days of audits have been conducted.
Action Taken in Response to Complaints
    Whenever complaints about a certified factory are received from any 
source--an e-mail, a call from our worker hotline, or an anecdotal 
report based on a non-governmental organization's undercover 
investigation-we conduct an audit that focuses on the substance of the 
complaint. This entails:

          1. A thorough review of factory records to determine its 
        current certification status and past audit results and 
        corrective action plans.
          2. An unannounced investigative audit of the factory, 
        including interviews, examination of books and records, and 
        visual inspections of facility premises.
          3. Allowing client representatives to accompany our audit 
        team to be able to observe (but not participate) in the audit.
          4. A review of issues with factory management and 
        establishing a Corrective Action Plan (CAP), as needed, during 
        the audit exit interview.
          5. Preparing an audit report with recommendations.
          6. Following ICP management review, taking appropriate action 
        (e.g., change certification level, place factory on probation 
        or terminate it from the program, re-audits to ensure 
        implementation of any corrective action plan, and so forth).
Conclusion
    We take complaints about labor conditions in certified factories 
from any source seriously. Our record of placing factories on probation 
and terminating the certification of factories that are repeatedly non-
compliant attests to this. These are not measures we take lightly, as 
they may have an effect on the factory's viability and on worker 
employment; however, such action may be necessary when facility 
management repeatedly fails to implement improvements.
    Through our core ICP auditing program and corrective action 
process, as well as our Continuous Improvement Program and confidential 
worker hotline, we believe that we have helped achieve real progress in 
improving labor conditions at toy factories in China and elsewhere. We 
recognize that there is an opportunity for improvement and, as we have 
for years, we continue to invite CLW and other parties to work with us 
collaboratively to realize better working conditions in toy factories. 
For real, sustainable improvements to be made, it will require the 
constructive engagement of many parties--workers, factory managers, 
buyers and brands, social compliance auditors, civil society, 
governments, international institutions, consumers, and industry 
initiatives.

ICTI CARE Foundation
New York, December 18, 2014