Sweating It Out

By Bruce Gilley, Far Eastern Economic Review, 10 May 2001

As consumers in the United States cry foul, an international effort to improve factory conditions stumbles in China

FULLY IMPLEMENT SA8000 read the banner fluttering against the concrete wall of the Lizhan Footwear Factory in southern China's Guangdong province. It was a stirring sight for New York-based labour rights group Social Accountability International, or SAI, which designs and oversees the SA8000 factory conditions standard.

But the banner soon proved an embarrassment. Investigators from the United States-based National Labour Committee who visited the Taiwan-owned factory last year found dormitory rooms packed with up to 28 people and work shifts that normally ran to 12 hours. When workers in the factory's polishing section went on strike over long hours and low wages, the NLC investigators heard, they were all fired. Workers had also been coached to lie to SA8000 inspectors.

SAI hastily removed Lizhan, a major contractor for Boston-based sports shoemaker New Balance, from its list of approved factories. But the story does not end there. Rather than pressure Lizhan to clean up its act, New Balance has since shifted its production in Guangdong to a new uncertified factory right next door called Likai Footwear, according to company officials. It is owned by the same Taiwan investor that owns Lizhan.

He set up the new factory with a new name to escape the Lizhan incident, says Nicki Hwang, a Taipei-based production manager for New Balance. That was fine with us. We don't mind that the new factory is not SAI-certified.

The stumble of SA8000 in China is a worrying sign. The scheme was launched in 1998 by a broad coalition of rights activists, governments, and foreign multinationals in the U.S. They hoped to take the politics out of the factory issue in China, the key battlefield of the global anti-sweatshop war. As an independent body, SAI would set standards and appoint inspectors, solving the credibility problems of corporate-run schemes. Corporate members included cosmetics brand Avon, foods giant Dole, and toy retailer Toys 'R Us.

But enforcement and consumer indifference have dogged the scheme; especially in China, which is home to 28 of the 58 factories certified worldwide. That matters because it comes against a backdrop of growing protests in the U.S. about factory conditions in China. The U.S. government, which gave SAI $1.6 million to help underwrite the costs of the SA8000 programme, set up a commission to monitor labour conditions in China last year as part of giving Beijing normal trade status. If conditions worsen, the commision can recommend trade sanctions.

In many ways, the enforcement problems of SA8000 reflect the toughness of the standard. It limits work time to 48 hours of regular shifts and 12 hours of overtime per week. Wages must be sufficient to meet basic needs. Workers must have a say in setting factory rules. Meeting and staying on the list of approved factories means submitting to half-yearly inspections, while outside groups can file complaints about a certified factory's performance.

We wanted something which was not just anecdotal, says SAI executive director Eileen Kohl Kaufman in New York. Even so, factory managers apparently have learned to avoid detection by putting on shows for inspectors or doctoring their records in areas like pay and work hours.

Take the Taiwan-owned Chung Hoo Shoes Factory, also in Guangdong, which makes sports shoes for U.S. brands Converse and Skechers. SAI stripped it of its SA8000 rating last December after investigators from the Hong Kong Christian Industrial Committee, or HKCIC, found that factory managers there had forced the 3,000 workers not to punch their time cards in order to conceal the huge overtime they were clocking up. Overtime averaged three hours after each eight-hour day, according to HKCIC, and in peak periods some workers toiled for three to four months without a day off.

Jack Sommers, marketing manager for C.D. Star, which owns the factory, confirms that the factory regularly exceeds the 60-hour-per-week limit, putting the workers through 65-70 hours in peak seasons. The shoe business is very seasonal, he says. That's the one part of the standard that is hard to meet. He refutes the other charges. Still, the incident shows how easily a scheme like SA8000 can be fooled.

One reason for the enforcement problems in China may be the watering down of SAI rules to acccommodate China's ban on independent unions and collective bargaining. A clause in the SA8000 standard says factory managers can appoint worker representatives to carry out these roles, without the need for formal worker organizations. Kaufman says the compromise was made so that the standard could be used in China. Yet critics say it makes it easier for factory managers to fabricate evidence of worker participation.

SAI supporters say its too early to throw in the towel on enforcement. Michael Santoro, a business professor at Rutgers University, in New Jersey, believes the situation will improve as inspectors gain more experience. If a group of inspectors goes around visiting factories all over the region, over time they will have a sense of which regions, which owners, which industries or which Chinese government units have problems, he says. This informal knowledge will help them to inspect factories with greater sophistication and awareness.

Until then, however, labour groups will remain wary of SA8000. There are so many tricks to avoid monitoring, says Alice Kwan of HKCIC. Not many of our partners joined SAI because they were sceptical about this.

Just as intractable is the issue of demand. The SA8000 standard remains little known by U.S. consumers, who bought 35% of China's exports last year. As a result, retailers and wholesalers are not willing to pay the extra costs of certification, which can add from 1%-5% to manufacturing costs.

That presents SAI with the challenge of popularizing the SA8000 standard among buyers. Only when a large proportion of consumers are willing to pay more for certified goods will the proper economic incentives be in place to solve the sweatshop problem, says Santoro.

Kaufman says SAI alone cannot make the standard a success if companies are unwilling to give it a try. Seattle-based golf- and leisure-apparel maker Cutter & Buck, for example, will put tags on clothes explaining its adherence to SA8000 this year. David Weinberg, chief financial officer of Skechers, says his company is looking at making the standard mandatory for its 15 factories in China in order to keep its record clean. But some major U.S. retailers remain hostile to SAI and its standard.

One solution is to encourage factories to seek certification independently to gain an advantage in selling to multinationals. Chris Cheung, of factory inspection specialist Det Norske Veritas in Hong Kong, which certifies most of the SA8000 factories in China, says the standard is not well known in China. If it was, we could easily sell it to our clients there, he says.

To that end, SAI held a conference in Shenzhen last month, aimed at introducing the standard to factories in the Pearl River delta. But for the time being, factories like Chung Hoo that sought SAI certification early are finding it a bigger challenge than they expected. The irony, says Sommers of C.D. Star, is that being SAI-certified has not helped us win a single new customer. Instead, it has made us a target.

In the long run, the SAI would love to be put out of business by the Chinese government's own improvement of labour conditions in the country. Anita Chan, a research fellow specializing in labour in China at the Australian National University, believes that groups like SAI should be working harder to ensure governments in China are on board. Monitoring is an imperfect substitute for governments, or government-backed schemes, she says, because the resources are limited. Governments, by contrast, have vast resources to make improvements.

Locking a few multinationals into high-profile confrontations can spotlight the issues, but the impact in terms of improving the conditions of workers can only be limited, she says. A government that enforces good labour laws can accomplish far more than the movement's campaign against individual manufacturers.