International Labour Standards relevant to employment security and closure of business in the context of post-MFA

1. International Labour Standards relevant to employment security and closure of business in the context of post-MFA Tim De Meyer Specialist on International Labour Standards & Labour Law, Subregional Office for East Asia (SRO Bangkok) – Thailand

2. Part IThe Situation

3. Need for “Re-adjustment” ? • IMF, so far available information • exports from China/India have increased sharply • exports from low-income Asian countries (Bangladesh, Cambodia, Sri Lanka, Viet Nam) have increased as producers hedge against bilateral quota’s imposed on China • consistent with anecdotal evidence from Cambodia and Mongolia • prices are falling by 12 – 50 %, squeezing the profits of low-income countries • U.S. Commerce Department predicts that the number of countries from which major items will be sourced will drop by 50 % in 2005 and to 25 % of current levels by 2010 • i.e. from the current 50 to about 12 • Chinese investors are prospecting Bangladeshi EPZs

4. Labour Standards & Competitiveness

5. Labour Standards Post MFA • Fair Labour Association (FLA) is is a non-profit organization combining the efforts of industry, NGOs & universities to promote adherence to international labour standards and improve working conditions worldwide • conducts independent monitoring & verification of factories to ensure that the FLA’s Workplace Standards are upheld • public reporting: FLA provides consumers/shareholders with credible information to make responsible buying decisions • FLA urge accredited companies to ensure that “they fulfill their commitment to manage shifts in sourcing in a manner consistent with the FLA Charter, Code and national law”, in the light of “attempts by some governments to remain competitive by de-regulating and lowering labor standards”. • adopting laws that guarantee decent working conditions (e.g. hours of work) represent a value to buyers (and failure to adopt such laws an indirect cost): assuring conscious consumers that the products they are buying have been produced by decently treated workers

6. World Bank Buyers’ Survey Cambodia 04 • labour standards = a top priority in their decision to source from a country and considered Cambodia to have an advantage over Bangladesh, Thailand, Vietnam and China. • ILO’s presence in Cambodia means independent and transparent monitoring is happening in the country • e.g. GAP stated that the ILO’s presence was an important factor in its decision to stay in the country. • 80% of buyers considered auditing of labour standards critical in the wake of the end of MFA quotas, given high marks to the ILO’s monitoring. • 45% of buyers said they intended to increase or maintain current sourcing levels even after the MFA expires • > 60% of buyers said that factories’ compliance with labour standards was of equal or greater importance to them than price, quality and lead-time to market. • Buyers stated that improved labour standards have a positive effect on accident rates, workplace productivity, product quality, worker turnover and absenteeism.

9. Labour Standards and Market Access • Labour standards will play a role in the competitiveness of the A/T/G industry as • observance affects the stability of a country and thus its reputation (e.g. CALPERS), as well as labour quality necessary to move into “niches” • observance determines access in particular to unilateral or bilateral preferential trading (tariff reductions) • private buyers feel the need not to tarnish their reputations • And are perceived as such … • Viet Nam, WTO access and ILO forced labour Conventions • Mongolia, EU GSP preferences and ILO forced labour C. • Singapore, US FTA (labour cooperation) and ILO C. 138 • Thailand, EU GSP and “Thai Labour Standards” • Thailand, US FTA and labour inspection (law enforcement) • Pakistan, C. 138 and the Ministry of Commerce (!!) • Sri Lanka, EU GSP and application of principles on freedom of association and collective bargaining in Free Trade Zones • trade-related character maybe gleaned from the fact that, for example, for ASEAN, ILO has registered 4 x more ratifications of (one of the 8) fundamental Conventions since 1995 than any other Convention (less known)

10. Challenges are big • Protective labour legislation is widespread, but • the fine-tuning through more flexible collective agreements is embryonic (working time) • coordination with employment policy and other countries is absent • enforcement is lacking • independent unions stifled • role of labour inspection underappreciated • labour law expertise at all levels is inadequate (if not ridiculized)

11. Labour Standards Post MFA • T&C is an entry-level industry for • unpaid women workers in household and farms • unskilled (im)migrant workers • It is expected that brands will consolidate their supply chains so that it will become easier to rationalize and to better monitor labour standards. • Competition does not always play out on costs, but on lead time and quality • Emphasis on timely delivery of quality products implies that employers can ill afford delays and disruptions in production, whatever the cause of such disruptions. The flip side of that coin is that lead firms can be reluctant to enter into contracts in the first place with firms that are located in areas known for frequent labour unrest. • Low wages and working conditions can reflect • poor distribution of excessive profits • binding minimum wages and working conditions are an appropriate strategy • high non-labour costs due to factors outside the control of the firm • may well create new barriers to the companies in question and job losses - in such cases, policy should rather focus on reducing non-labour costs.

12. Part IIILS Relevant to the Post-ATC Restructuring

13. ILS relevant to post-ATC restructuring • “Representatives of the persons affected by the measures to be taken, and in particular representatives of employers and workers, shall be consulted concerning employment policies, with a view to taking fully into account their experience and views and securing their full co-operation in formulating and enlisting support for such policies” (Employment Policy Convention, 1964 (No. 122)) • i.e. before a Govt. takes any decision affecting employment in T&C (e.g. as a result of trade liberalization), it must consult E & unions in good faith • A worker whose employment is terminated is entitled to • a justification • a (reasonable) opportunity to defend him or herself • an opportunity to appeal against termination • advance notice • severance allowance or some other form of income protection • pre-retrenchment consultations and notification of the competent authority (Termination of Employment Convention, 1982 (No. 158))

14. ILS relevant to post-ATC restructuring • With regard to retrenchments, it is also recommended that • no efforts are spared to avert, minimize or ultimately mitigate termination for reasons of an economic, technological, structural or similar nature (and that the Govt. promotes solutions) • restriction of hiring, spreading the workforce reduction over a certain period of time to permit natural reduction of the workforce, internal transfers, training and retraining, voluntary early retirement with appropriate income protection, restriction of overtime and reduction of normal hours of work • temporary reduction of hours with compensation for loss of income • alternative employment, (re)training with compensation for loss of income and expenditure • unions/workers’ representatives are consulted in good time about major changes planned in the undertaking on the basis of relevant information • criteria for termination are pre-determined and priority for rehiring is established (when desired) (Termination of Employment Recommendation, 1982 (No. 166))

15. ILS relevant to post-ATC restructuring – C 95 • In the event of the bankruptcy or judicial liquidation of an undertaking, the workers employed therein shall be treated as privileged creditors either as regards wages due to them for service rendered prior to the bankruptcy or judicial liquidation (possibly subject to certain limitations) • Wages constituting a privileged debt shall be paid in full before ordinary creditors may establish any claim to a share of the assets (Protection of Wages Convention, 1949 (No. 95))

16. ILS relevant to post-ATC restructuring – C. 173/R. 180 • In the event of an employer's insolvency, workers have the right to be paid out of the assets of the insolvent employer before non-privileged creditors can be paid their share for • claims for wage arrears of at least 3 months • claims for holiday pay for at least the insolvency year and the preceding year; • claims for amounts due in respect of other types of paid absence (for at least 3 months) • claims for severance pay (recommended) • wages, overtime pay, commissions and other forms of remuneration relating to work performed during a prescribed period prior to the insolvency or prior to termination of the employment. This period should not be less than 12 months; • holiday pay for at least the insolvency year and the preceding year; • amounts due in respect of other types of paid absence, end-of-year and other bonuses relating to a prescribed period (not less than 12 months) • payments due in lieu of notice of termination of employment; • severance pay, compensation for unfair dismissal and other payments due to workers upon termination of their employment; • compensation payable directly by the employer in respect of occupational accidents and disease (Protection of Workers’ Claims (Employers Insolvency) Convention, 1992 (No. 173) and Recommendation (No. 180))

17. ILS relevant to post-ATC restructuring – C. 173/R. 180 (recommend to extend this further to) • contributions due in respect of national statutory social security schemes, where failure to pay adversely affects workers' entitlements; • contributions due in respect of private, occupational, inter-occupational or enterprise social protection schemes independent of national statutory social security schemes, where failure to pay adversely affects workers' entitlements; • benefits to which the workers were entitled prior to the insolvency by virtue of their participation in enterprise social protection schemes and which are payable by the employer. • The same system should apply (a) where the enterprise has closed down or ceased its activities or is voluntarily wound up; (b) where the amount of the employer's assets is insufficient to justify the opening of insolvency proceedings; (c) where, in the course of proceedings to recover a worker's claim arising out of employment, it is found that the employer has no assets or that these are insufficient to pay the debt in question; (d) where the employer has died and his or her assets have been placed in the hands of an administrator and the amounts due cannot be paid out of the estate.

18. ILS relevant to post-ATC restructuring – C. 173/R. 180 • Even better is when workers’ claims are guaranteed by a guarantee institution independent from the employer (public institution or insurance company) • claims may then be limited to a prescribed amount, but not below a socially acceptable level • where the claims protected are limited, the prescribed amount must be adjusted so as to maintain its value • Operating Principles for Guarantee institutions • they should be administratively, financially and legally independent of the employer; • employers should contribute to financing these institutions, unless this is fully covered by the public authorities; • they should assume their obligations vis-à-vis protected workers irrespective of whether any obligation the employer may have of contributing to their financing has been met; • they should assume a subsidiary responsibility for the liabilities of insolvent employers and should, by way of subrogation, be able to act in place of the workers to whom they have made payments; • the funds managed by guarantee institutions, other than those from general revenues, may only be used for the purpose for which they were collected.

19. Part IIIILO Fundamental Principles and Rights at Work

20. As of 1 September 2005 - ILO = 178 Member States AdoptedNo.TitleRatifications 1930 29 Forced labour (168) 1948 87 Freedom of Association and Protection of the Right to Organise(144) 1949 98 Right to Organise and Collective Bargaining(154) 1951 100 Equal Remuneration (162) 1957 105 Abolition of Forced Labour (165) 1958 111 Discrimination (Employment & Occupation)(163) 1973 138 Minimum Age (141) 1999 182 Worst Forms of Child Labour (156)

21. Percentage of Asian Pacific countries having ratified fundamental ILO Conventions: 1 September 2005

22. Freedom of Association C. 87 • Employers and Workers must be free • to defend and further their work-related interests through organizations independent from both Government and employers • to select the type of organization they think is appropriate for the representation of their interests • to elect competent representatives • to join national / international federations • not to see their organizations dissolved than by an independent judicial authority on the basis of a specific legal provision • to have their organizations protected against any arbitrary application of law and order • to organize the activities of their organizations (including going on strike, when considered necessary)

23. Collective bargaining C. 98 • the law must protect workers against acts of anti-union discrimination by employers • the law must protect workers against acts of interference by employers • the Government must operate machinery to ensure that the protection is effective • the Government must promote collective bargaining to determine terms and conditions of work (wages, working time, leave, …)

24. Collective bargaining C. 98 • States must promote voluntary collective bargaining to regulate terms and conditions of employment by means of collective agreements • i.e. the State must facilitate the negotiating process, not the outcome of the negotiations • CB = freedom to trade on the labour market under +/- equal conditions of strength • wages and what an employer gets in return (e.g. hours of work) must be determined on the basis of only 2 considerations • what the employer thinks is affordable • what the workers thinks is a fair share of the wealth they are generating • Further standards are laid down in the Collective Bargaining Convention (No. 154), 1981

25. FLA Benchmarks on FoA/CB • Workers will have the right to establish and, subject only to the rules of the organization concerned, to join organizations of their own choosing without previous authorization. The right to freedom of association begins at the time that a worker seeks employment, and continues through the course of employment. • The employer will not interfere, to the detriment of worker’s organizations, with government registration requirements regarding the formation of workers’ organizations. • The employer will not dismiss, discipline, or otherwise coerce or threaten workers seeking to form, join or participate in workers’ organizations. • The employer will not interfere with workers’ exercise of the right to freedom of association through intimidation, including illegal or unreasonable searches. • The employer will not use force, or the presence of police or military, to intimidate workers, or to prevent peaceful organizing or assembly.

26. FLA Benchmarks on FoA/CB • The employer will not interfere with the right to freedom of association by controlling workers’ organizations or favouring one workers’ organization over another. • The employer will not discriminate against workers who seek to exercise their right to organize and bargain collectively. • In cases where a single union represents workers, the employer will not interfere in any way in workers’ ability to form other organizations that represent workers. • Employers will comply with all national and local laws and regulations concerning collective bargaining and free association. Where conflicts are known to exist, employers will use the standard that provides the greatest protection for workers. • The employer will not shift production or close a factory for the direct purpose of retaliating against workers who have formed or are attempting to form a union.

27. FLA Benchmarks on FoA/CB • Workers’ organizations have the right to elect their representatives and conduct their activities without employer interference. • The employer will not dismiss, discipline, or otherwise coerce or threaten workers because of their exercise of the right to freedom of association. When union officers are dismissed, demoted or otherwise suffer a loss of rights at work, a monitor should look with special attention at the possibility of anti-union discrimination. • Employers will negotiate in good faith with any union that has been recognized, by law or agreement between the employer and that union, as a bargaining agent for some or all of its employees. • Employers and employees will honor in good faith, for the term of the agreement. the terms of any collective bargaining agreement they sign. Employees shall be able to raise issues regarding CBA compliance by the employer without retaliation

28. FLA Benchmarks on FoA/CB • In any case where the industrial relations system specifies certain unions as the exclusive bargaining agent, employers will not be required to engage in collective bargaining with other worker groups or organizations on matters covered by the collective agreement. • Trade unions not recognized as bargaining agent of some or all of the workers in a facility should have the means for defending the occupational interests of their members, including making representations on their behalf and representing them in cases of individual grievances, within limits established by applicable law. Workers' representatives should have the facilities necessary for the proper exercise of their functions, including access to workplaces. • Employers will not use blacklists of any kind. • Employers shall not offer or use severance pay (or “ indemnicization” in Latin America) as a means of restricting union formation or union operations.

29. Forced Labour - C. 29 • Defined in C. 29, identical for C. 29 / C. 105 • does not cover one specific situation, but potentially every working (or even non-working) relationship • people work because they want to, because they think it will be of benefit to them, not because someone else forces them to • Contains three elements • “all work or service … • … which is exacted from any person under the menace of any penalty … • … and for which the said person has not offered himself voluntarily”

30. Is NOT Forced Labour - C. 29 • compulsory military service for work of a purely military character • minor communal services • normal civic obligations • prison labour: work or service exacted as a result of a conviction in a court of law • … provided the convict is not forcibly employed for any private interest • emergency

31. No Forced Labour, never -C. 105 • Forced labour for political “mainstreaming” • Forced labour for purposes of economic development • “as a means of labour discipline” • “as a punishment for having participated in a strike” • “as a means of racial, social, national or religious discrimination”

32. Equal Remuneration - C. 100 • 1. To bring member States to promote and to ensure equal remuneration for men and women workers for work of equal value • 2. To promote acceptance that the contents of the job, and not the sex of the worker, is the correct basis for judging the value of a person’s work

33. Equal Remuneration C. 100 • C. 100 requires action & acknowledgement • that indirect and direct discrimination does occur against women, • because the burden of child-bearing and family care is not borne by society (as it should be), but by women • because of other pre-existing inequalities (lower educational attainment, emerging access to the labour market, lower health care…) • because of bias • that discrimination must be eliminated, • and that the correction entails an analysis of pay systems and establishment of corrective mechanisms

34. Equality at Work C. 111 • States must declare & pursue a national policy designed to promote equality of opportunity & treatment in employment & occupation • Promoting equality at work means promoting the idea that people’s potential and performance must be judged and rewarded on the basis of objective criteria, without interference of criteria irrelevant to potential or performance (e.g. sex, religion …) • Employment & occupation essentially means the sphere of economic activity • access to vocational training • access to credit • access to employment or occupation • conditions of employment • remuneration for work of equal value • career progression in accordance with experience, ability • job security

35. Equality at Work C. 111 • Purpose of this policy is to eliminate discrimination based on race, colour, sex, religion, political opinion, national extraction or social origin • Discrimination is not a distinction, exclusion or preference if it is based on • inherent requirements of the job • justifiable suspicion of activities threatening the security of the State (provided the suspect can defend him or herself) • special measures of protection or assistance provided for in other Conventions • “affirmative” measures for persons who, for reasons such as sex, age, disablement, family responsibilities or social or cultural status, are generally recognized to require special protection or assistance

36. Minimum Age System C. 138 • Commitment towards gradual, but total elimination of child labour • Enactment and enforcement of a system of minimum ages • Compulsory Schooling • General • Light Work • Hazardous Work

37. C. 138 – Minimum Ages

38. Priority for Worst Forms C. 182 • Give priority to the prohibition & elimination of the worst forms of child labour • slave-like work (including trafficking) • sexual exploitation • illicit activities (e.g. drugs trafficking) • hazardous work (to be determined) • Action must not only include law and its enforcement, but also • monitoring mechanisms (e.g. data collection) • programmes of action • time-bound measures in three categories • prevention • withdrawal • rehabilitation • special attention for girls & the vulnerable (e.g. ethnic minorities) • international cooperation

39. Part IVInternational Labour Standards as Emerging Market-Access Requirements

40. “Non-Tariff Barriers” • Trade between countries is traditionally hampered by “tariff barriers” … • taxes levied upon or as a result of import (“tariffs”) • taxes levied after import weighing more heavily on products not traditionally produced in the country (“measures equivalent to tariffs” / “beer-wine syndrom”) • … and “non-tariff barriers” • quota’s (“quantitative restrictions”) • measures equivalent to quota’s : regulations governing a public concern (public health, public safety (e.g. electricity), public morals, equality/dignity of workers, maintenance of a particular competitive environment…) but effectively prevent the marketing of goods/services that have not been produced in conformity with those regulations

41. What are International LS ? • The only coherent set of LS, globally agreed upon by G, E & W in the ILO • Designed to be universally applicable, i.e. leaving much concrete application to national authorities in consultation with the social partners • Take the form of Conventions (to be ratified) and Recommendations (not to be ratified, but equally authoritative)

42. What are MARLS ? • « Market access requirements related to labour standards » (MARLS) are positive or negative measures that target a certain level of respect for labour standards by a producer (or service provider) as a condition for the producer/provider to sell goods or services, particularly on foreign markets • conditionality can extend to the ability of the producer to raise capital (e.g. CalPERS) or sustain intangible assets (e.g. reputation)

43. (1) 19 USC 1307 - Dong Fang • On November 28, 2000, U.S. Customs issued a detention order against a Chinese-owned company in Mongolia, Dong Fang International, for the alleged use of forced child labour in the manufacture of textiles. Charges included employing workers as young as 14, requiring employees to work 14-hour shifts 7 days a week, deducting unreasonable sums from paychecks for miscellaneous expenses, and requiring 16- to 18-year-old workers to work excessive hours. However, the detention order was quietly revoked on 23 July 2001, indicating that conclusive evidence was not found. There are approximately 10 large factories in Mongolia and 30 small operations. Overtime compensation is not always correctly paid.

44. (2) Debt bondage in Taiwan • An article in the Danish daily Jyllandsposten (6 June 2004) reveals that a number of Danish companies use suppliers from Taiwan, who use bonded labour. Asian guest workers from e.g. the Philippines and Thailand pay agents money, sometimes amounting to around DKK 40,000, to receive a job. With interest rates of more than 40% per year, the workers are forced to work for several years in order to repay their debts and to begin to earn some money for themselves and their families. In addition, workers often have to pay high amounts of money for housing and food provided by the employer. For many workers, the only way out of the debt trap is to work overtime for extensive periods of time. • Interestingly, the majority of the Danish companies confronted with the issue were not aware of the fact that the problem existed at all. Therefore, they had no overview of the situation, among other things because this parameter was not included in their criteria for selecting suppliers.

45. (3) CalPERS and China • The California Public Employees Retirement System (CalPERS) is among the largest investment funds in the world, with a portfolio (Aug 04) of USD 165.3 billion • Investment policy is to manage risk by choosing international equity markets in function of • financial criteria (“market factors”) … • market liquidity and volatility • market regulation and investor protections • capital market openness • settlement proficiency • transaction costs, as well as • … but also “stability” criteria (“country factors”) • political stability • financial transparency • labor standards • Wilshire (a US-based pension consultant) puts together an Overall Scoring Framework of permissible equity markets

46. (3) CalPERS and China • In 2000, CalPERS contracted with US-based Verité “to provide a quantitative ranking of 27 countries based on labour conditions, adherence to United Nations’ standards and governmental efforts to address problems in the following five areas: • Freedom of Association and Collective Bargaining • Forced Labour • Child Labor • Equality/Discrimination • Conditions of Work” • “Verité is an independent, non-profit social auditing and research organization established in 1995. Our mission is to ensure that people worldwide work under safe, fair and legal working conditions. Where Verité auditors identify exploitation of workers or health and safety violations in the workplace, we develop concrete steps to correct them through a combination of trainings for management and workers, education programs and remediation programs.”

48. Verite 03 Overall Rank

49. Verite 03 - Category Scores

50. (4) US S. 301 - China Petition • In March 2004, the AFL-CIO (US ICFTU affiliate) petitioned the USTR, charging that “China’s brutal repression of internationally recognized workers’ rights constitutes an unfair trade practice under Section 301(d) of the Trade Act, and that such repression “burdens or restricts U.S. commerce”” • More specifically, the petition claimed • that China suppresses freedom of association and the right to bargain collectively.“China prohibits strikes, and relentlessly represses attempts to organize unions that are independent of the All-China Federation of Trade Unions (ACFTU)” • that China encourages forced labour. “Most of the workers in China’s export sector are temporary migrants from the countryside. They work under bonded labour, a form of forced labour. China enforces a system of internal passports that deprives migrant workers of the most fundamental civil, legal, and political rights when they work temporarily in factory towns and cities. Upon arrival to the factories from their rural villages, migrant workers become heavily indebted in order to pay large “deposits” and other fees to their employers.They lose the deposit if they quit without the employer’s consent.They are thereby turned into bonded labourers.” • that China does not enforce its own laws with respect to wages, hours, and occupational safety and health • that these practices give China manufacturing a cost advantage of between 10 - 77 percent, and deplace 727,000 US jobs • The petition requested • trade remedies commensurate with the cost advantage • … to be laid down in a binding agreement • no new trade agreements until WTO can enforce workers’ rights