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