Vol. X, Bulletin No. 10                                                     October 1, 2005

Nailing Wal-Mart for Stolen Wages
So wrote a business school professor,  S. Prakash Sethi, in his book "Setting Global Standards," published two years ago. His most telling point -- that multinational corporations (MNCs) need to make "restitution for years and years of expropriation of the wages of workers who are at the bottom of the food chain and are least able to defend themselves" -- attracted little attention,  even though it contained this not-so-sutble warning:

"Do MNCs and their local vendors realize that they are looking at huge potential liability 15 to 20 years down the line, similar to the costs confronted by tobacco companies and asbestos users?"

That costly day may arrive much sooner than Sethi expected. 

Jane Doe and John Doe in Five Countries Take Wal-Mart To Court

Last month workers in five countries employed in factories producing for Wal-Mart sued Wal-Mart for failure to take action against sweatshop conditions, including non-payment of wages due them by law and by Wal-Mart's own code of conduct and contracts with overseas factories.

In the class action lawsuit, filed in state court in Los Angeles on September 13, eleven women and four men -- identified only as John Doe or Jane Doe for protection against reprisals -- spelled out abuses described as typical in toy, garment, and other factories supplying Wal-Mart in Bangladesh, China, Indonesia, Nicaragua, and Swaziland.

Four of the plaintiffs, two men and two women, are in China, which supplies some 70% of Wal-Mart's merchandise. One serious abuse faced by all four, standing out among other abuses, is wage-cheating: above all, the failure to be paid the minimum wage required by law and by Wal-Mart's own code of conduct.  A few details from the 49-page lawsuit:
A Global Pattern of Exploitation, with Local Variations

The story is pretty much the same in the four other countries: crass wage exploitation, plus crackdowns on unions and physical punishment. In Swaziland, for example, Jane Doe VII sewed Wal-Mart pants, jackets, and shirts until she, along with several co-workers, was fired for union activities. In Bangladesh, Jane Doe III was slapped hard on two occasions for failure to meet her quota, and Jane Doe IV, pregnant, was kicked in the stomach by a supervisor who discovered her taking an unauthorized break beside her machine. 

The plaintiffs are represented by Terry Collingsworth, executive director of the Washington, D.C.-based International Labor Rights Fund, and lawyers from two California law firms as co-counsels.  This is the same legal team that in 1996, on behalf of 15 Burmese villagers, brought suit against California-based Unocal for worker rights violations in Burma. Unocal earlier this year reached a cash settlement, reportedly around $30,000,000.

Jane Doe I et al v. Wal-Mart Stores Inc. bases its legal argument on contractual obligations arising from two linked documents: Wal-Mart's code of conduct and its "Supplier Standards Agreement," which incorporates the code as a explicit condition for doing business with Wal-Mart.  Among other things, the Standards Agreement states that suppliers:
The overall goal of the lawsuit  is "to end Wal-Mart's reign over a sweatshop gulag that condemns workers around the world to provide forced and uncompensated labor," the Labor Rights Fund says in a statement.  The Fund is seeking restitution to Wal-Mart's sweatshop workers and new mechanisms to enforce Wal-Mart's code of conduct. But that's not all. Among several other demands is this one:   

"Wal-Mart is notorious for pressuring its suppliers to provide prices that could not possibly allow an ethical supplier to comply with basic labor laws on issues like minimum wages and maximum hours....Wal-Mart must reform its pricing practices to require and ensure that the prices provided to suppliers would still allow workers to receive the benefits of Wal-Mart's code of conduct, as well as all applicable laws and regulations."

Also covered in the lawsuit as a separate class are California grocery store employees who in recent years have had to accept wage and benefit concessions because of the unfair competitive advantages Wal-Mart stores in California gained by its world-wide practice of ignoring legal and other obligations on wages, hours, and benefits. 

Righting a Wrong on Job Discrimination

Surprises seldom happen in trade negotiations, but one did in a session a U.S. team had with counterparts from Colombia, Ecuador, and Peru in the ongoing negotiations for a new U.S.-Andean Free Trade Agreement.  The Andean side took the unusual step of putting a worker rights proposal on the table: that the elimination of job discrimination be added to the list of "internationally recognized labor rights" identified in the accord.

The proposal is now "bracketed" in the draft text -- meaning that it is set aside for future decision.  On September 29 and 30 I emailed and phoned the office of  the U.S. Trade Representative in unsuccessful efforts to learn the U.S. position.

It is hard to know why the U.S. would fail to accept the idea.  For one thing, "the elimination of discrimination in respect of employment and occupation" is one of the core labor rights in the Declaration of Fundamental Principles and Rights at Work adopted by the UN International Labor Organization (ILO). It is a right that the United States and the Andean countries, being members of the ILO, have an obligation to uphold, as Human Rights Watch said in a September 6 letter to U.S. Trade Representative Robert Portman.

In that letter, Human Rights Watch's Business Program Director Arvind Ganesan pointed out that, as the most recent State Department human rights report revealed, on-the-job discrimination against women, particularly sexual harassment, is a pervasive problem in all three Andean countries.

Oddly, the Trade Promotion Authority Act of 2002 does not list the elimination of employment and workplace discrimination as among the internationally recognized labor rights that the Act requires to be incorporated in trade agreements.  Congress should correct that oversight.  In the meantime, however, since the 2002 law does not prohibit including the non-discrimination provision, the U.S. negotiators should show some good sense and leadership to embrace it.
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Spotlighting Persistent Labor Abuses in Ecuador

Despite being a signatory to key international labor conventions, Ecuador has an "egregious" worker rights record.  For that reason, the United States should suspend Ecuador from the trade benefits that it receives under the Andean Trade Promotion and Drug Eradication Act, the AFL-CIO said in a petition filed September 19 with the U.S. Trade Representative.

Human Rights Watch and U.S./LEAP (U.S./Labor Education Project in the Americas) have also petitioned USTR to suspend Ecuador's benefits because of failure to comply with the worker rights requirements of U.S. trade law and even of Ecuadorean law. USTR is "sitting on Human Right's previous petitions" on Ecuador, filed in 2003 and 2004, says Carol Pier, the Watch's labor rights and trade researcher.  In 2002 Human Rights Watch published a revealing report titled "Tainted Harvest: Child Labor and Obstacles to Organizing on Ecuador's Banana Plantations."

Toothless Guidelines, But Biting BITs

In opposing proposed UN Global Norms for Multinational Business, some business groups and governments (including the United States) argued last year that existing international documents, especially the "Guidelines for Multinational Enterprises" of the Organization for Economic Cooperation and Development (OECD), were enough to promote corporate social responsibility..  But a five-year study released last month by an international NGO coalition, OECD Watch, concludes that "the [OECD] Guidelines are simply inadequate and deficient."

The core deficiency, according to OECD Watch, is this: "Without the threat of effective sanctions, there is little incentive for companies to ensure their operations are in compliance with the Guidelines."

Compliance  is in the hands of governmental "national contact points" in each of the 30 OECD member countries, but these "points," according to the study, have done very little to resolve complaints or investigate them, or even to "impress on companies the importance of adherence."

In the United States the contact point is the State Department's Office of Investment Affairs, a unit in the Bureau of Economic and Business Affairs.  How vigorously does it try to promote implementation of the Guidelines?  On its webpage, the investment affairs office notes, limply:  "The U.S. National Contact Point seeks to raise awareness of the Guidelines."   An information booklet prepared by the business bureau explains the Guidelines' own limitations: "The Guidelines are not intended to override local law nor to expose [multinationals] to conflicting expectations based on the Guidelines or the law."

The mission of  State's investment affairs office, after all, is to "promote market-based investment standards," not labor standards. Toward that end, jointly with the U.S. Trade Representative, it negotiates Bilateral Investment Treaties (BITs), 46 of which are now in force or about to go in force. Unlike trade agreements, these treaties get little attention outside the business community, and are routinely rubber-stamped by Congress.

It is enlightening, therefore, to take a look at the "model" BIT for its broad scope and for what it omits.

A Model of Protectionism -- for Multinational Corporations

After paying nominal respect to a set of  internationally recognized labor rights, the model says that each government in the two-party agreement "shall strive to ensure" that it doesn't weaken its labor laws and regulations in order to attract foreign investment.  Nothing, however, happens when a government fails to "strive" or even if it reduces labor standards.  Nor is there a provision to encourage improving worker rights in countries where they are abused.

In contrast, the model could hardly do more to lay down protections for foreign investment. In fact, the word "investment" alone scarcely captures the immensity of its scope.  The word has a full description: "Investment means every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including...the commitment of capital or other resources, the expectation [my emphasis] of gain or profit, or the assumption of risk,"...as well as such forms as shares, stocks, bonds, debentures, loans, futures, options, other derivatives, intellectual property rights, licenses, turnkey contracts, and other contracts.

There is "no strive to ensure" about this wholesale protection.  It is enforceable by stringent sanctions, including compulsory arbitration.

And nowhere in the 40-page text is there any direct or indirect reference to the OECD Guidelines for Multinational Enterprises.

Confusing U.S. Angles on Responsibility

More than 50 federal programs in 12 U.S. agencies deal in some way (often small) with corporate social responsibility (CSR), the General Accountability Offfice found in a year-long study released last month.  Without a defining Federal mandate, these programs operate from perspectives that range from cool to warm.

Here's a paraphrase of how the GAO classifies the different perspectives 1) free market, holding that government should be cautious about CSR, lest it interfere with profit making; 2) free-market too, but holding that voluntary CSR efforts are bound to add to corporate profits and prestige; 3a) pro-active on CSR in the belief that corporations can and should contribute more to global social goals, but in a manner chosen voluntarily by the corporations; and 3b) same as 3a, but in a manner reinforced by some type of mandatory requirement.

"As a result [of these different perspectives]," the House's Human Right Caucus commented last month, "the U.S. government sends confusing signals to corporate actors.  It is in the U.S. foreign policy interest to ensure that our firms act responsibly everywhere they operate."

The report is titled "Globalization: Numerous Federal Activities Complement U.S. Business' Global Corporate Social Responsibilities" (GAO-05-744).

World Bank's Rare Positive Note on Unions

The World Bank's 2006 World Development report, titled "Equity and Development: Equity Enhances the Power of Growth to Reduce Poverty," has some nice things to say about unions.  The main positive points are all from a long paragraph on "What Works?" in the report's chapter on Markets and the Macroeconomy:
The world trade union body, the International Confederation of Free Trade Unions, welcomed the report as "a major step forward in acknowledging the valuable role trade unions play in society."  It also praised the report for stressing the importance of respecting core labor standards in the global economy.  "There is an international consensus that CLS [core labor standards] have such intrinsic value that they should always be pursued," the Bank report said.

But the ICFTU headquarters in Brussels did not pop open champagne bottles in celebration.  For two reasons.

 "Like many Bank publications," said ICFTU General Secretary Gus Ryder, "the 2006 WDR [World Development Report] includes some stereotyped and negative references to trade union actions that simply aren't realistic."   Among the objectionable features identified by Peter Bakvis, director of the Global Unions' Washington office: "unflattering references to public sectors ('poorly trained and rude medical staff who frequently fail to come to work,' p.143) without adequately mentioning the chronic under-funding of public services which generally underlie staff quality problems."  (Bakvis helped me locate the above quotations in the 336-page WDR.)

The more important reason why the WDR merits only subdued praise is that it is basically a research report, not a policy paper.  A World Bank publication that actually formulates policy and influences its application is "Doing Business in 2006."  Ryder characterized that document's perspective as "narrow pro-business, anti-union."  Among other things, it "ranks countries according to their friendliness to business, based on criteria that penalize countries for enforcing any sort of labor regulation."

The Economist: 'Dominent Elites' Protect the Elite

In its September 26 Economics Focus column, the Economist highlights the WDR's limitations.  Excerpts from a fascinating analysis headlined: "The World Bank cannot go where its research is leading it":

[The WDR] argues that the best policies for fighting poverty might involve "redistributions of influence, advantage, or subsidies away from dominant groups."...But even when they [expropriations from the rich] are desirable, such usurpations are not necessarily feasible.  A dominant group is, by definition, one that tends to guard its influence, advantage, and subsidies jealously and, on the whole, successfully....

The Bank is in no position to overturn dominant elites.  These are, after all, the people with whom the Bank must deal....The Bank cannot do much about many of the deep-seated injustices and inequities it analyses in its report.  But with its charts, tables, and numbers, it paints an arresting [Diego Rivera-type] mural nonetheless.

Of course, the Economist always goes where the truth should lead it.


Human Rights for Workers: Bulletin No. X-10     October 1, 2005
Robert A. Senser, editor
Copyright 2005
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