The challenges of China Wal-Mart will face after its first union formed in July 2006
There are certain challenges that China Wal-Mart will face after its union formed in July 2006. Thus, Wal-Mart workers in Quanzhou in south-western China, have formed a local union. As foreseen by Chinese legislation, this is a local of the All China Federation of Trade Unions ACFTU. Workers do have the right to form local unions, but until now, Wal-Mart has effectively held ACFTU outside its markets. Wang Zhaoguo, president of the All-China Federation of Trade Unions, has expressed serious concern over low trade union organizing rates in the country’s fast growing foreign enterprise sector. Wal-Mart, may need special legislation in order to ensure that also foreign enterprises allow their workers to establish ACFTU locals. The challenge will imply Wal-Mart’s lack of sensitivity when expanding in China has got an abrupt end and it did not take long before the first local trade union emerged in a Wal-Mart store in South-western and that Wal-Mart made record losses in Japan as the consumers world-wide seem to shun its social dumping and doubt its quality. ( 2006) Also, Wal-Mart lost almost half a billion USD in Japan just this year and adds to what is emerging as an embarrassing failure in trying to export the company’s operating concept abroad. Furthermore, Wal-Mart, which started doing business in China in 1996, has previously said that its employees are free to set up unions if they wish and has insisted it conforms with Chinese law. As Wang Zhaoguo, president of All-China Federation of Trade Unions (ACFTU) – which was established by the ruling Communist Party and claims some 150 million members – has been putting pressure on Wal-Mart. ( 2006)
Wal-Mart has attracted criticism in the US and Canada for its perceived anti-union stance and there have been union pickets outside its North American stores. Independent trade unions are illegal in China, with all workers belonging to ACFTU. However, labor analysts say the ACFTU has had a poor record in improving worker rights. China is a major source of cheap goods for Wal-Mart’s US operations, with bn of merchandise sourced there in 2004 but in terms of Chinese outlets it has lagged behind Carrefour of France although there are plans for Wal-Mart China to build 18 to 20 new stores during 2006. ( 2006) The ACFTU responded by setting up an office targeting a Wal-Mart in the southeastern city of Quanzhou, where employees voted July 29 to form the company’s first Chinese union since then, employees at 16 other Wal-Marts in China also have formed unions, according to the ACFTU. Thus, unions in China usually represent the workforce of a single company or outlet, rather than a whole industry. The ACFTU has described the creation of the Wal-Mart unions as a boost to its campaign to reach a target of unionizing employees at 60 percent of China’s foreign companies in its worldwide operations and would cooperate with the ACFTU to organize its Chinese employees. ( 2006) Wal-Mart miscalculated in thinking it could use the same anti-union tactics in China that it does around the world. If, like its main competitor in China, the giant European retailer Carfour, Wal-Mart had welcomed in the ACFTU to establish union branches in Wal-Mart superstores, those union branches would not have challenged management. The process would have been similar to so many other workplace union branches set up by the ACFTU in foreign-funded enterprises from the top down. ( 2006)
The district-level union would have sought management approval and cooperation to set up a union branch. Once an agreement was struck, management and the local union would have decided together on a mid-level PRC Chinese manager to serve as the union chair, without a union election, the announcement would have been made to the employees about the formation of a new union branch, or in some cases, no announcement would have been made, the union does not even perform the traditional welfare functions it does in state-owned enterprises, where it holds occasional entertainment events, distributes gifts to the entire workforce during major festivals, pays visits to the sick and injured and functions sometimes appreciated by workers. ( 2006) The image that China has become a big sweatshop has also been disturbing to union leaders. From 1999 the ACFTU became determined to expand membership in the foreign-owned sector. About three years ago, it selected Wal-Mart as a special target. The ACFTU was taking a leaf out of the global anti-Wal-Mart movement, targeting the biggest and most high-profile company: if Wal-Mart falls into line, other foreign companies in China that refuse to accept unions will have to follow suit. When Wal-Mart refused to let the ACFTU into its stores, as was normal practice for Wal-Mart internationally, the ACFTU made a series of unprecedented moves. ( 2006) For the first time the ACFTU openly threatened to take a foreign company to court for violating China’s trade union law by barring the union. Wal-Mart cleverly retorted that the law says joining a trade union is voluntary and that it is up to the employees to apply. Since none had, Wal-Mart was not violating any law. The ACFTU had never engaged in grassroots organizing. Going among workers to agitate to form a union instead of asking management for permission was alien to ACFTU union officials, and the ACFTU was at a loss as to how to go about it. For a long period it persisted in seeking management’s cooperation so that a union branch could be introduced in a top-down fashion. ( 2006)
Furthermore, the ACFTU realized that Wal-Mart employees would need to come forward to apply to set up a workplace union, and that to accomplish this, the ACFTU would have to resort to grassroots organizing techniques. Though widely used by “normal” trade unions elsewhere in the world, the ACFTU had no experience in this. The organizing efforts would have to be kept secret from Wal-Mart’s management, just as unions elsewhere often operate in the face of hostile management. ( 2006) According to recent Chinese newspaper reports, local union officials sought to raise Wal-Mart employees’ consciousness by approaching them after-hours away from Wal-Mart’s premises and giving them relevant literature to read, to convince them of the benefits of a trade union branch. (2006) According to the trade union law, a minimum of twenty-five signatures are needed for an application to establish a branch. Having secured the requisite number, a district union in Fujian Province sprang a surprise on Wal-Mart last July 29 and had declared that a union branch has been founded at a local Wal-Mart superstore as ACFTU and Wal-Mart executives signed a national memorandum recognizing union representation at Wal-Mart. ( 2006) The moment Wal-Mart was informed of the new trade union branches in its stores, anti-union activities went into high gear. Big meetings were called at which, according to Chinese newspaper reporters, warnings were duly announced that those who join the union would not have their contracts renewed. Wal-Mart also announced that it would not pay the union the two percent payroll union fees. It tried to discredit the ACFTU by accusing it of bribing employees to join the union. Wal-Mart also charged that the workers had not joined voluntarily, in violation of the Chinese trade union law. ( 2006)
Wal-Mart union branches will support management in exercising its management rights in compliance with the law, will mobilize and organize the employees to fulfill their responsibilities, and will cooperate on an equal basis with management in order to allow the enterprise to develop pleasantly and read as a concession by the ACFTU, but the emphasis on compliance with the law in management practices and sharing equal responsibilities and rights between the management and union may actually give the union an advantage. ( 2006) There are union officials and local unions who understand the principles of organizing and are willing to push the limits. But they are constrained by pro-capital forces within the Communist Party, the government and the ACFTU on the one hand, and domestic and international anti-union forces on the other. The ACFTU’s confrontation with Wal-Mart has opened up a means for reformers to operate in future, and has set a precedent for Chinese workers to take on their employers and to demand union branches, many workers in foreign-funded and private firms have lacked support from the union federation. ( 2006) Sometimes they have engaged in wildcat strikes or taken to the streets to demand their rights. Very seldom has it been envisioned that they could use legally-sanctioned means to set up their own union branches, or that they might be given an opportunity to work within the space provided by the ACFTU structure. The formation of trade union branches inside China’s Wal-Mart stores has created an international precedent. ( 2006) It can provide Wal-Mart workers and trade unions in other parts of the world with a leg up in their own efforts to organize Wal-Mart. To continue to dismiss the ACFTU’s efforts is not the wisest tactic, it is pertinent to comment on what specifically obliged Wal-Mart in China to concede. It was not the independent power of China’s trade union organizing efforts.
The enterprises provided workers with an iron rice bowl including lifetime employment and welfare benefits. There was no necessity for the union to organize. Thus, today the ACFTU has no ideological underpinnings nor any independent capacity or tools to counter capital. Its victory over Wal-Mart depended upon the clauses in the Chinese labor laws and the power of the Chinese state to enforce them. Thus far, despite the great efforts by American trade unions to organize Wal-Mart employees, not even one union branch has been set up. (2006)
The challenges of China Wal-Mart face if the proposed Labor Contract Law finally be enforced in 2007
The Chinese labor laws are the fulcrum around which the discourse on industrial relations is anchored. The laws are the tools used by all sides to argue their positions. Wal-Mart used the Chinese trade union law to refuse to let the ACFTU set up unions and the ACFTU in turn used the procedures stated in the law to set up union branches. In recent years, workers too have become accustomed to use the law to fight for rights, demand justice and compensation, as seen in a rapidly mounting number of court cases. According to the clauses of the Chinese labor law, setting up a trade union branch and getting recognition for it is, legally speaking, as easy as ABC, given the desire by China’s unions to expand membership, if groups of Chinese workers in the coming years use this method to set up trade unions branches and then affiliate them to the ACFTU, it might well provide the workforce with a voice. (2004)
Aside, under China’s labor law and the present political situation, they may find this politically feasible and more productive than fighting to set up autonomous trade unions as advocated by China Labor Bulletin and some Western trade unions that call on China to permit autonomous trade unions. Aside, Wal-Mart’s infamous wage cap seems to apply only to greeters, cashiers, cleaners, guards and ordinary people. The law would impose heavy fines on companies that do not comply. And the state-controlled union the only legal union in China would gain greater power through new collective-bargaining rights or pursuing worker grievances and establishing work rules. Over the past several years, the PRC government has tried to improve the protection of workers’ rights. (2004) In particular, the State Council and MLSS have issued directives to clear wage arrears for migrant workers whose previously ambiguous legal status and inadequate access to legal channels made them susceptible to abuse. The problem of unpaid wages for migrant workers may be particularly important because of their large numbers as estimated to be 120 million and because the problem appears to be widespread which has launched a campaign to promote the use of labor contracts in all enterprises, with the goal of ensuring that at least 90 percent of all employees in China have contracts by the end of 2007. Two responses have caught the attention of foreign investors: the draft Labor Contract Law and the renewed ACFTU campaign to unionize workers in FIEs. Observers have widely noted that many provisions in the draft Labor Contract Law appear to favor workers. For instance, the draft law would require employers to seek the permission of the trade union before terminating any labor contract and to negotiate the terms of mass layoffs that involve more than 50 employees. (2004)
The draft law also indicates that if an employer and an employee disagree over the interpretation of a labor contract, the ambiguity should be resolved in favor of the employee. Meanwhile, some labor experts have noted that as more Chinese are finding employment in private and foreign invested companies, ACFTU may have undertaken this campaign to boost its membership and revenue. The ACFTU leadership presumably recognizes that it must make itself useful to the millions of workers in FIEs and private Chinese enterprises or perish as state-owned enterprises are reformed. In an apparent reflection of this new attitude, at the 2003 annual ACFTU congress, the federation made a direct appeal to a multinational retail corporation, Wal-Mart Stores, Inc. Union spokespeople urged Wal-Mart to establish trade unions and stated, ‘’For companies depriving the rights of employees to establish trade unions, we reserve the right of resorting to lawsuits.’’ The union federation leadership is surely aware that the actual employers they must deal with are not only Wal-Mart staff in retail outlets, but also a wide range of contractors and subcontractors as the union recognizes that the power to change conditions among the subcontractors is in the hands of the multinational retail giant (2004). There suggests that Wal-Mart should mirror Carrefour’s strategy of mixing up its store formats to quickly penetrate both large and small markets in China, rather than focusing on opening more big-box supercenters that are primarily skewed toward larger cities. Moreover, Wal-Mart can emulate Metro’s strategy by joining forces with local developers as a means to bypass local bureaucratic traps and procure prime locations. The Chinese market presents unique cultural, infrastructure and bureaucratic hurdles not just for Wal-Mart but for foreign retailers, multinational corporations has used to operating at national and multinational levels, face unfamiliar supply chain fragmentation and local protectionism within China. Wal-Mart confronts the consequences of centuries of provincial autonomy and self-sufficiency. But modernization, which brings with it the potential for the application of advanced communication and infrastructure, diminishes the rationale for regional self-reliance. (2004).
Indeed, such self-reliance hinders inter-provincial cooperation, particularly inter-provincial trade. Local administrative bodies and physical infrastructure built to protect local interests pose difficulties for road transportation, private and commercial trucking, Furthermore, regional or local governments may not operate in concert with central-government mandates or laws. Local governments can pass rules and regulations at any time without notice. This situation creates a confusing and costly business environment for companies trying to operate on a national level. Today in China, regional fragmentation of the supply chain due to local protectionism decreases efficiency and increases costs resulting in fewer choices or higher prices for consumers. Wal-Mart does not require local suppliers that sell products exclusively to local stores to use its distribution center, but encourages suppliers that sell nationwide to use the distribution center because it is more efficient for a supplier to deliver to one location than to all the Wal-Mart stores across the country. (2004). The Labor Contract Law, scheduled for enactment by the end of 2006, contains much that would affect the operations of multinationals concern over the draft legislation is high given a variety of its provisions. For example, under a recent draft, if an employee was hired under a thirty-six month contract and terminated for cause after six months, the firm would still need to compensate him for another thirty months of pay. There acknowledges China’s need and desire to target unethical employers, for which provisions such as these may be targeted, but the impact of these and other equally onerous provisions on responsible FIEs serve to undermine the attractiveness of China’s labor market, one of the key factors that make China such an enticing place to do business. (2004).
The ACFTU has always asked Wal-Mart to permit the formation of unions in its China stores. As an alternative to Wal-Mart’s traditional policy of intense resistance to unions, the ACFTU has repeatedly stated its goal of creating a harmonious, win-win labor relationship at Wal-Mart that will both promote the development of the enterprise and defend the rights and interests of Wal-Mart workers. There involves doing the hard work necessary to obtain a breakthrough. (2006) Local trade union officials assembled at areas near the Wal-Mart stores in order to carry out an education campaign. When staff got off work, organizers provided them with union literature to read and mobilized them to join the union. They also pledged to provide powerful protection to those who joined the union at Wal-Mart. Such procedures yielded tangible results. The staff began to know the trade union, which strengthened their consciousness and their will to unite, and also reduced their fear of retaliation. (2006) Moreover, it is an important achievement for the ACFTU to have set up trade unions at a foreign-funded enterprise. Over the past two decades, China’s policy of reform and opening up to the outside world, to speed up industrialization and urbanization, has fueled a boom in both the private and foreign-funded economy. Meanwhile the ranks of workers, mainly migrant workers and workers in non-public-funded enterprises and unregulated sectors, have kept on growing. (2006) Therefore, it has become more and more urgent for the ACFTU to set up grassroots unions and organize these workers. To meet the challenge, the ACFTU has greatly expanded its grassroots organizing efforts, with special emphasis on migrant workers and workers in unregulated sectors like the private and foreign-funded enterprises within the fact that these workers are always on the move and geographically dispersed, trade unions at all levels have made a series of innovations in their organizing methods, exploring ways to organize workers wherever they might be working, whether in an office, at a construction site, in the community or hiring site, in a bid to recruit the vast majority of them into trade unions on a regional or industrial basis. (2006)
The success in organizing Wal-Mart is a reflection of the new focus of the ACFTU aimed at safeguarding labor rights. Trade unions are the product of social-economic contradictions, chiefly of contradictions in labor relations. In the tide of globalization and market-oriented reform, trade unions in China have seen drastic and profound changes in economic and labor relations, along with a serious encroachment on workers’ rights and interests. This has added to pressure on trade unions to provide workers with better protections. In 1994, the ACFTU advanced the idea of giving further prominence to the safeguarding function of trade unions. (2006) The achievement at Wal-Mart is also due to the superior position enjoyed by Chinese trade unions. Since conditions for the labor movement vary country by country, trade unions in various parts of the world have developed their own characteristic features. In China, the working class is the leading class of the state. The Communist Party of China (CPC) is the party of the working class; and under the leadership of the CPC, trade unions are the voluntary mass organizations of the working class, serving as the bridge by which the CPC keeps in contact with the masses of workers. (2006) Thus, the ACFTU is an important pillar of state power as the representative and defender of workers’ interests. The ACFTU is established as a unified national organization under the provisions of Chinese law. The CPC and the government have always attached importance to trade union work and given full support to trade unions in carrying out their work independently and creatively in accordance with the Trade Union Law and the Constitution of the Chinese Trade Unions. Wal-Mart stores in China have continued in stable operation since the trade unions were formed. (2006)
Finally, the Wal-Mart union drive was a crucial part of an attempt by the Chinese unions to transform their mode of action. The determining factors in the birth of the Wal-Mart union were the employees’ aspirations and the necessity for legal compliance on the part of Wal-Mart. The guidance and assistance provided by the ACFTU leadership helped foster a positive outcome. Before the formation of the union, many Wal-Mart employees contacted the ACFTU and local trade unions for instructions and help in setting up grassroots trade unions. (2006) The success of the Wal-Mart organizing experience is very important to consider in terms of the fundamental change that has occurred in the approach of the ACFTU. This is quite different from the previous method of asking management for permission. It not only will influence other foreign and private investors to allow unions to be established, but it also gives trade unionists a new way to organize workers in the circumstances of a market economy by focusing their efforts on advancing, educating and reinforcing the aspirations of employees and actively mobilizing them to join the union. (2006)
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