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China’s labour law raises US concerns

By Geoff Dyer in Shanghai

Published: May 2 2007 18:45 | Last updated: May 2 2007 18:45

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

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

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.

Copyright The Financial Times Limited 2007