VIETNAM'S IMPROVING LABOR CONDITIONS

UNCLAS SECTION 01 OF 04 HANOI 002778

SIPDIS

STATE FOR DRL/IL AND EAP/BCLTV
STATE PASS USDOL ILAB DUS LEVINE, LI ZHAO, BBUI
STATE ALSO PASS USTR FOR EBRYAN, BCLATANOFF
STATE ALSO PASS USAID FOR ANTOINETTE FERRARA

BANGKOK FOR USAID

E.O. 12958: N/A
TAGS: ELAB EAID ECON ETRD VM LABOR
SUBJECT: VIETNAM'S IMPROVING LABOR CONDITIONS

REF: A) HANOI 125 B) 02 STATE 53127


1. SUMMARY: In the past year and a half since the inaugural
labor dialogue (see ref A),Vietnam has seen significant
changes in labor conditions. Improved employment
opportunities due to a significant increase in trade with
the United States, amendments to the Labor Code, the growing
role of the ILO in Vietnam, and the commencement of six U.S.
Department of Labor projects and one U.S. Department of
State project have led to improved work conditions in
Vietnam. At the same time, an expansion in the number of
enterprises appears to be causing an increase in strikes.
Fully committed to continuing down the road to improved work
conditions, the Vietnamese government will be a welcoming
host of this year's labor dialogue. END SUMMARY.


2. Vietnam is a nation of 80 million people undergoing a
long-term transition from a traditional Communist system and
state-run economy to a more open society and market-driven
economy. It remains firmly under the political control of
the Communist Party of Vietnam (CPV),which is intent upon
the monopoly of power while nonetheless gradually permitting
the expansion of many personal liberties and free markets.
Vietnam has embarked upon a course of greater integration
into and cooperation with regional and international
groupings, both political and economic. Greater adherence
to international norms and standards will continue to
require some sensitive choices for the leadership about
implications for domestic stability, for party control over
major institutions, and for enhanced scrutiny by outside
influences, some of which many senior officials believe may
not be well-intentioned or benign toward Vietnam.


3. Vietnam's relatively young population _ more than half
of which was born after national unification in 1975 _ faces
challenges in seeking employment, obtaining access to
adequate education and health care, and maintaining adequate
levels of economic development. This population remains
largely rural, engaged in farming. Of Vietnam's
approximately 40 million workers, only 10 to 12 million are
industrial workers. The Vietnam General Confederation of
Labor (VGCL),Vietnam's trade union, boasts 5 million
members. Although this percentage remains small, VGCL's
membership has increased in the past 5 years from 3 million.

EXPORT LED GROWTH
--------------


4. In 2002, Vietnam continued to grow at a consistent pace,
registering a very respectable 5.8 percent growth rate in
2002 (the official government estimate of the growth rate is
7 percent). The outlook is slightly more positive for 2003
despite the economic impact of SARS, with the IMF projecting
GDP growth of 5.94 percent (pre-SARS, the IMF had projected
2003 GDP growth of 6.2 percent). This continued expansion
of the economy is largely due to a sharp increase in exports
to the United States, thanks to the entry into force of the
U.S.-Vietnam Bilateral Trade Agreement (BTA) on December 10,

2001.


5. After just 18 months of BTA implementation, the U.S. has
become the largest market for Vietnam's exports, accounting
for around 21 percent of its total exports. In 2002,
Vietnamese exports to the U.S grew 128 percent compared to

2001. This trend has continued into this year. In the
first eight months of 2003, Vietnam's exports to the U.S.
reached USD 3.2 billion, up 142 percent over the same period
in 2002. Most of this increase in exports has resulted from
the rapid expansion of labor-intensive manufactured exports,
particularly garments and footwear.


6. This brisk growth of the labor-intensive manufacturing
sector has translated into more and better jobs for
Vietnam's workers. In 2002, 1.4 million new jobs were
created in Vietnam. Although difficult to estimate due to
inadequate labor market information, experts estimate that
exports to the U.S. have directly created employment in at
least the tens of thousands. Faced with more employment
opportunities, many workers now feel like they can demand
and receive better working conditions and compensation. In
addition, in many export sectors, such as garment
production, American buyers demand socially responsible
suppliers. As a result, Vietnam has witnessed an
improvement in labor conditions and an increase in the
number of factories certified in corporate codes of conduct
such as SA8000, WRAP, and FLA. In addition, a significant
number of buyers, including Adidas, Nike, Gap, and the
Limited, are bringing their own codes into Vietnam. (See ref
A for further discussion on the expansion of corporate
social responsibility in Vietnam).

LABOR CODE REVISIONS
--------------


7. In March 2002, the U.S. Department of Labor (USDOL) and
the Vietnamese Ministry of Labor, Invalids, and Social
Affairs (MOLISA) held the first labor dialogue since the
signing of a Memorandum of Understanding between the two
agencies in November 2000 (see ref B). Among other issues,
the two sides discussed revisions to Vietnam's Labor Code
then being reviewed by the National Assembly. Since that
exchange eighteen months ago, the National Assembly has
passed these amendments, and MOLISA has issued a significant
number of the required implementing regulations.


8. These 2002 amendments to Vietnam's Labor Code and
subsequent implementing regulations attempt to improve
working conditions through a number of methods. In the
past, employers sometimes attempted to avoid providing
benefits by continually renewing short-term labor contracts.
Under the new amendments, a definite term labor contract may
only be renewed once. Thereafter, an indefinite term labor
contract must be entered into if employment continues. A
new labor contract must now be signed within 30 days of the
expiry date; otherwise, the existing labor contract will
remain, becoming an indefinite term labor contract. In
order to ensure that almost all employees are covered by
social insurance, regulations also now require all
enterprises to contribute to the social insurance fund for
employees on both indefinite labor contracts and labor
contracts of more than three months.


9. Previously, compensation for work-related injuries and
diseases where an employee's ability to work was reduced by
less than 81 percent was unclear. Decree 110 has now
clarified payment amounts for those whose ability to work
has been reduced by between 5 percent and 81 percent,
through no fault of their own. (Note. For those employees
who were at fault for the reduction in working capacity,
they shall be paid only 40 percent of the amount specified.
End note.) Changes to the labor code also improve the
compensation for employees unlawfully terminated, now
requiring reinstatement and payment for lost wages as well
as additional compensation, equivalent to at least two
months' salary. Additionally, the amendments remove the
previous discrimination in social insurance payments for
those women having their third or more child.


10. The GVN has also changed regulations regarding
collective labor agreements and trade union establishment.
The law now permits any enterprise to register a collective
labor agreement, removing previous requirement that a
company have ten or more employees. (Note. There is still no
obligation to have such an agreement. End note.)
Additionally, the law previously required that labor
authorities have a 15-day time limit within which to approve
or reject the registration of a collective labor agreement.
Decree 93 removed this power from the labor authorities,
making agreements effective from the date agreed by the
parties, or if no date is agreed, from the date of
execution. Regarding trade unions, the onus of creating a
union no longer rests with the enterprise but is now with
the union itself, and MOLISA is now considering a decree on
tripartism.

ILO IN VIETNAM
--------------


11. On February 17, the International Labor Organization
(ILO) officially opened its office in Vietnam. A member of
the ILO since 1992, Vietnam has now ratified four core ILO
labor conventions (Conventions 100 and 111 on discrimination
and Conventions 138 and 182 on child labor). The most
recent ratification was in June of Convention 138 on minimum
age. In addition, Vietnam is now seriously considering
Conventions 29 and 105 on forced labor. Vietnam has also
begun an active dialogue with the ILO on all core labor
standards, holding a Declaration on Fundamental Principles
and Rights at Work seminar on non-discrimination this year.
It has further indicated its willingness to host a
Declaration meeting next year when the topic is freedom of
association and collective bargaining.


12. The ILO office has not only been active in assisting
Vietnam with its efforts to ratify conventions, it has also
undertaken a large number of projects. Ranging from work
with the labor inspectorate to efforts to combat trafficking
in women in children to support for small enterprises (e.g.
business planning, microfinance, association building,
etc.),these programs are highly successful and span the
country. Always looking for new areas to operate, the ILO
is currently considering projects on social insurance, human
resource development, and corporate social responsibility.

U.S. TECHNICAL ASSISTANCE
--------------


13. Under the U.S.-Vietnam MOU on Labor, USDOL and MOLISA
agreed to establish a U.S. program of technical assistance
in a number of specific areas of cooperation, including
social insurance, employment services, disability,
industrial relations, child labor, and HIV/AIDS. Starting
in November 2001, projects in these six fields have been
successfully launched, with strong GVN support of their
successful implementation.


14. The social insurance project has and will continue to
work on cost projections, social marketing, unemployment
insurance, legislative drafting, and general principles of
social insurance. The employment service center project has
been helping to strengthen staff capacity effectively to
provide employment services, establish a strategic
management system to monitor each center's performance, and
implement technology to allow the exchange of Labor Market
Information. The program on employment of persons with
disabilities has reviewed Vietnam's legislation, made
recommendations for future changes to the Labor Code,
remodeled a number of employment service centers, trained
staff at these centers, and is now raising public awareness
on employing persons with disabilities. The most
controversial of the projects -- the industrial relations
program -- has started by undertaking tripartite,
conciliation, and arbitration training. The child labor
project has raised awareness on the role of education in
preventing child labor, discussed problems associated with
returning children working in cities to their homes, and
identified the needs of working children in project sites.
The HIV/AIDS workplace prevention program, SMARTWork, has
conducted national and provincial level workshops and
presentations, completed a comprehensive needs assessment,
and begun the process of developing policies and individual
programs at the enterprise level.


15. Given that several of these projects have hit their
halfway point, the labor dialogue provides USDOL with an
important opportunity to discuss the GVN's plans to sustain
their work into the future. Although some efforts, such as
capacity building, will not need continued financial
support, parts of most projects will need a financial
commitment from MOLISA. In addition, USDOL may wish to
ensure that the policy recommendations being made by the
programs are incorporated into the GVN's long-term strategy.


16. The GVN will be looking to discuss future projects. In
addition to these six areas of cooperation, the MOU laid out
a number of other potential areas for cooperation, including
labor market information systems and labor statistics,
promotion of employment for women, occupational health and
safety, labor inspection, and migrant labor issues. Given
Vietnam's extremely low-level of capacity, MOLISA may ask
for much-needed assistance with labor market information
systems. (Note. The EU may currently be considering a
project in this field. End note.) Such help in this field
could build on the training provided to two Vietnamese
participants in a two-week Bureau of Labor Statistics
course. Another potential area for future cooperation could
be on migrant labor issues, an area that the ILO office in
Hanoi believes is especially in need of assistance.


17. In addition to these six USDOL-funded projects, U.S.
Department of State is funding a program with Social
Accountability International (SAI) to ensure a transparent,
comprehensive program for promoting the implementation of
SA8000 corporate code of conduct. In order to achieve this
goal, SAI is working with the private sector, civil society,
trade unions and government actors in an attempt to identify
and address potential challenges to implementing its
standard according to its original intent. More
specifically, it is conducting research, evaluation, public
education, training, and business development. One of the
most interesting outcomes of this project is a cost-benefit
analysis on undertaking the SA8000 accreditation process.

STRIKES
--------------


18. According to the Vietnamese Ministry of Labor, 72
strikes have taken place, primarily in the southern part of
the Vietnam, in the first six months of the year. Of these,
51 were against foreign-invested enterprises, 18 involved
domestic private enterprises, and 3 affected state-owned
firms. In 2002, 88 strikes occurred, an increase of fifteen
over the previous year. Foreign-invested enterprises
experienced 54 incidences, domestic private enterprises were
affected by 29 strikes, and state-owned firms had 5 strikes.


19. Experts in Vietnam attribute this continuous increase
in the number of strikes to a number of factors. First,
between 2000 and 2002, the number of enterprises in Vietnam
rose from 14,000 to almost 50,000. Although most of these
are small operations, the ever-growing number of businesses
means that there are more places of work and, therefore,
more places to strike. Second, the increasing size of the
economy also means that both employers and employees are
feeling the stress of competitive pressures. This situation
has both positive and negative effects on labor conditions,
with workers feeling freer to leave a job or go on strike if
another employer offers better conditions and companies
feeling the need to produce better goods at cheaper prices.
Third, workers are becoming increasingly aware as to their
rights and are striking when those rights are violated.


20. Overall, labor conditions in Vietnam continue to
improve every year. A combination of government,
international, and private sector efforts are reaping real
rewards for Vietnam's workers. Still, the GVN acknowledges
that real problems exist in this field and that gains are
not uniform. It has, therefore, actively engaged the
international community in assistance and dialogue. Fully
committed to continuing down the road to improved work
conditions, the Vietnamese government will be a welcoming
host of this year's labor dialogue.
BURGHARDT