May 2, 2007 6:45 pm

China’s labour law raises US concerns

Fake DVDs and the undervalued renminbi have been the main points of discussion in the US about the rise of the Chinese economy. But another issue is gathering steam in the US – a new law that seeks to boost the employment rights of Chin­ese workers and give trade unions more influence.

While the bill was discussed behind closed doors by legislators in Beijing last week and the latest version is still a secret, the law is the subject of an increasingly bitter war of words in the US between business groups and trade unions unhappy about outsourcing jobs to Asia.

Last week the United Steelworkers, one of the biggest industrial unions, came out in favour of the law and accused US business groups of trying to block reforms. Leo Gerard, the USW president, criticised what he called the American Chamber of Commerce’s “immoral campaign to undermine Chinese workers rights”.

In a sign of the increasingly complex relationship between two countries with closely linked economies but vastly different political systems, Chinese supporters of the bill have even toured the US to rally opinion. Liu Cheng, a law professor at Shanghai Normal University, visited members of Congress and unions last month. “I told them that the business groups just want to maintain their sweatshops to protect their low-price strategy,” he said on his return.

Business groups fiercely deny strong-arming China into weakening its legislation. The Shanghai office of Amcham insisted it “has never lobbied against, and is not lobbying against, the draft labour contract law”.

Aside from the furore in the US, the bill is a delicate issue in China. The government has pledged to reduce income inequality and supporters say 200,000 Chinese sent in opinions on the first draft of the labour bill, a sign of intense public interest. Yet policymakers do not want to deter investment by companies in sectors such as textiles, some of whom are already shifting production to Vietnam and Bangladesh because of rising labour costs.

The new labour law is designed primarily to prevent abuse of migrant workers by establishing stronger employ­ment contracts and giving trade unions more say. Supporters say it will reduce the number of people employed as vulnerable temporary staff but companies argue it will make it too hard to dismiss workers.

When the first draft was released last year it prompted opposition from foreign business groups, who argued it was a return to the communist “iron rice bowl” of guaranteed jobs and benefits and could discourage foreign investment.

Since then western business groups have moderated their public criticism and a second draft released in December watered down some provisions. “Along with lots of other businesses, we put forward our position and the government listened,” says the head of a western business group.

But multinational compan­ies operating in China remain worried. A survey of 436 companies conducted this year by law firm Baker & McKenzie and consultants Hewitt Associates found more than half thought the bill would have a negative or very negative impact.

While some of the precise terms of the new law are still fiercely contested, there are two broader areas of debate. Amcham and the European Chamber of Commerce say labour abuse in China is due to poor implementation of existing rules rather than an absence of laws. “The biggest criticism that I have personally is that they are trying to use a law to solve a political issue,” says Andreas Lauffs, a partner at Baker & McKenzie.

Supporters accept this is a problem but say an im­proved law would be easier to implement. “The point of the new law is to increase the cost of violating,” says Professor Liu.

The other issue concerns the official Chinese trade union federation, the All-China Federation of Trade Unions. Industry executives say they are reluctant to see it win more power because it is, in effect, an offshoot of the Communist party.

After the 1989 Tiananmen Square massacre foreign trade unions took a similar view and cut ties. However, with the Chinese economy becoming more important the ACFTU has gained some credibility, especially since its successful campaign to open trade union branches in Wal-Mart stores in China.

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