HCMC STRIKES FORCE AN INCREASE IN VIETNAM'S MINIMUM WAGE

UNCLAS HO CHI MINH CITY 000031 SIPDIS DEPARTMENT FOR EAP/MLS AND DRL DEPARTMENT PLEASE PASS DEPARTMENT OF LABOR DEPARTMENT PLEASE PASS TO USTR, ELENA BRYAN AND GREG HICKS E.O. 12958: N/A TAGS: ELAB ECON ETRD PGOV VM SUBJECT: HCMC STRIKES FORCE AN INCREASE IN VIETNAM'S MINIMUM WAGE REF: 05 HCMC 1146 ¶1. (SBU) Summary: A rash of strikes in foreign-owned factories in the Ho Chi Minh City (HCMC) area since December 28 has led local authorities to urge the GVN to raise the national minimum wage for employees in Foreign-Invested Enterprises (FIE) by as much as 40 percent. The strikes started in factories where employees were only paid a minimum wage of as little as VND 600,000 (about USD 38) per month, but then spread to companies that paid their employees wages significantly above the minimum. In most cases, factory owners were forced to accede to worker demands to raise salaries an average of 40 percent regardless of whether or not the wage already exceeded the minimum wage before police and local authorities would intervene to stop the strikes, many of which caused significant property damage and some personal injury. In response to the strikes the GVN announced Decree 03/2006/ND-CP on January 6 which will provide for a 40 percent increase in the national minimum wage level for FIEs. If implemented, this increase will exacerbate the already dramatic difference between minimum wage levels mandated for Vietnamese companies and those mandated for foreign-invested enterprises, which would appear to be a violation of national treatment principles mandated by the WTO and BTA. End Summary. ¶2. (SBU) Since December 28 striking workers at as many as two-dozen companies in HCMC and neighboring provinces have demanded an increase in their minimum, or base, wage. The strikes mostly have involved Taiwanese and South Korean-owned textile companies in a few industrial parks located in Ho Chi Minh City and Binh Duong province. HCMC DoLISA reported that these strikes are illegal. However, MOLISA clarified that employees have the right to strike, but only if the Vietnam General Confederation of Labor (VGCL) approves and a majority of the employees at a worksite support the strike. According to MOLISA, none of the nearly 1,000 strikes since 1995 has met this requirement. Thus, all the strikes in Vietnam have been "illegal." The HCMC demonstrations varied in size from 300 to 18,000 workers at a time. Local police were unable or unwilling to provide protection against the strikers, who caused property damage and even physical injury, in some cases. An unconfirmed press report said that one footwear factory suffered USD 700,000 in damage to its sewing machines and factory while another such report said that one management labor liaison officer was badly beaten and hospitalized. ¶3. (SBU) The minimum salary for employees at foreign-invested companies has been VND 626,000 (about USD 39) per month in urban districts of HCMC and Hanoi; VND 556,000 (USD 35) in the rural districts of HCMC and Hanoi, and in Hai Phong, Bien Hoa City and Vung Tau City; and VND 487,000 (USD 30) elsewhere in the country. These wages were set in March 1999. Since then, consumer prices have risen 28 percent. Vietnamese companies are required to pay employees a minimum of VND 350,000 (about USD 22) per month, but every employee at State-owned enterprises (SOEs) receives more than the minimum wage. DoLISA noted that these minimum wage levels are meant to be a base salary for untrained workers and commented that many managers have kept salaries permanently at these levels. In Vietnamese companies a common practice is to have a base salary and then various "allowances" (similar to US employee benefits) for things such as meals. These allowances can significantly increase an employee's real income. For SOE employees, an employee's monthly salary is calculated by multiplying the minimum wage by the wage threshold. The existing wage threshold is a rate determined by factors such as the responsibility and education level rated from 1 to 8.5. ¶4. (SBU) Though the strikes started in Asian-owned companies that seem to have pegged their salaries to the government-mandated minimum wage, the strikes spread to other foreign-owned companies that pay their employees more than the base wage. Scancom, a Danish furniture manufacturer that employs more than 5,000 people at its factory in Binh Duong province, reported to Econoff that after watching neighboring factories get hit with strikes all week, 2,000 of its employees went on strike late on January 6. Local police and labor officials would not remove the strikers from the factory until Scancom raised worker salaries by 40 percent. Having had all the windows in the factory broken and narrowly avoided injuries, Scancom gave in to these demands. Scancom had paid its workers a base wage of VND 950,000 (about USD 60) per month, well above the minimum VND 600,000 (about USD 38) per month mandated by Binh Duong province. Not only did the police decline to assist Scancom during the strike January 6, but they had visited the company a couple days before and warned that Scancom would also experience strikes if it did not raise its wages, the Managing Director of Scancom told Econoff. ¶5. (SBU) Scancom's Managing Director and other factory managers in Binh Duong opine that provincial authorities have wanted to raise the minimum wage, unchanged since 1999, but have been reluctant to do so because they believed such a move would be unpopular with employers, domestic and foreign. Instead, over the past month they have engaged in a whispering campaign to the media and in business meetings about the need to increase the minimum wage. The factory managers believe Binh Duong authorities quietly endorsed the strikes in the hopes that the strikes would force employers to raise their wages (which has been happening) and then the local government could "correct" the minimum wage after the fact. ¶6. (SBU) In response to these events, the People's Committee of Ho Chi Minh City January 3 submitted a memo to the GVN asking for an increase in the minimum salary at foreign invested companies. On January 6, 2006 Prime Minister Phan Van Khai signed Decree No. 03/2006/ND-CP on minimum wage for FIEs, which take effect on February 1, 2006. According to the decree, the monthly minimum wage for foreign-owned businesses will be VND 870,000 (USD 54.70) in the urban districts of Hanoi and HCMC; VND 790,000 (USD 49.60) in the suburban districts of Hanoi and HCMC, as well as in the districts of Hai Phong, Bien Hoa, and Vung Tau (Ba Ria - Vung Tau),Thu Dua Mot town, Thuan An, Di An, Ben Cat and Tan Uyen districts of Binh Duong province; and VND 710,000 (USD 44.60) for the remainder of the country. The minimum wage level regulated in the decree would become the basis for calculating salaries, payrolls and allowances. The decision also stated that the lowest salary paid for trained workers must be seven per cent higher than the minimum rate. The minimum salary set by the decree will be adjusted in accordance with the country's economic growth, CPI and labor market. However, the decision encouraged companies to offer salary levels that are higher than the minimum wages. ¶7. (SBU) Comment: Separate minimum wage levels for local and foreign companies appears to be a long-standing violation of the national treatment principle of Article 2, Chapter IV of the U.S. Bilateral Trade Agreement. The further increase of 40 percent to the minimum wage level at foreign firms will only exacerbate the gap between local and non-Vietnamese firms. It is interesting that the official minimum wage seems to be treated not as a minimum at all by many firms but as a pegged, regulated wage level. In our view, the old minimum of USD40 per month was in fact a highly exploitative wage. Most of the better plants that we have visited, including plants producing for, or owned by Western interests have wage levels more closely in line with Scancom's $60 per month. However, once violent strike action at the lowest wage foreign invested firms proved effective, it is not surprising that the strikes spread to better employers as well. In some cases, a base wage of USD 85 per month will make plants uncompetitive. The garment industry, in particular, is already struggling to compete with Cambodia and Bangladesh, as well as China (reftel). MOLISA unofficially commented that these strikes were not only about raising the minimum wage, but also highlight the problems that many industries face with industrial and worker relations. WINNICK NNNN