UZBEKISTAN 2007 FOREIGN LABOR TRENDS (FLT) REPORT

UNCLAS SECTION 01 OF 07 TASHKENT 001058

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SUBJECT: UZBEKISTAN 2007 FOREIGN LABOR TRENDS (FLT) REPORT

REF: STATE 40337

Per reftel, the Uzbekistan 2007 Foreign Labor Trends (FLT) Report
follows:

TABLE OF CONTENTS
Uzbekistan 2007


I. SUMMARY OF MAJOR DEVELOPMENTS

A. DESCRIPTION OF THE LABOR SCENE

B. LABOR LAW AND SYSTEM

C. LABOR STANDARDS AND WORKER RIGHTS
II. FOREIGN INVESTMENT POTENTIAL
III. DIRECTORY OF LABOR CONTACTS
IV. KEY SOURCES

SUMMARY OF MAJOR DEVELOPMENTS

With approximately 27.3 million people, an abundance of natural
resources, and a decent but weakening infrastructure, Uzbekistan has
all the ingredients needed to become a regional economic powerhouse.
Lack of macroeconomic and structural reforms, however, deter many
foreign investors, leaving Uzbekistan with one of the lowest levels
of foreign direct investment (FDI) per capita in the former Soviet
Union. Employees are legally entitled to a wide range of rights,
many on the books since the Soviet era, such as the right to social
protection and the right to join a trade union. However, in
practice, many of these rights are not properly enforced and are
left to management for interpretation.

BACKGROUND

A socialist republic was established in 1924. During the Soviet
era, intensive production of "white gold" (cotton) and grain led to
overuse of agrochemicals and the depletion of water supplies, which
have left the land poisoned and the Aral Sea and certain rivers half
dry. Independent since 1991, the country seeks to develop its
mineral and petroleum reserves. Current concerns include terrorism
by Islamic militants, economic stagnation, and the curtailment of
human rights and democratization.

Uzbekistan is an authoritarian state with limited civil rights. The
Oliy Majlis (Parliament) consists entirely of officials appointed by
the President and members of the parties that support him.
Parliament has both an Upper House or Senate (100 seats: 84 members
are elected by regional governing councils to serve five-year terms
and 16 are appointed by the president) and a Lower House or
Legislative Chamber (120 seats elected by popular vote to serve
five-year terms).

The government is secular, with no official state religion. The
government, however, shows its support for the country's Muslim
heritage by funding an Islamic University and facilitating citizens'
participation in the Hajj. The government promotes a moderate
version of Islam through the control and financing of the Muslim
Board of Uzbekistan. This Board controls the Islamic hierarchy, the
content of imams' sermons and the volume and substance of published
Islamic materials.

With approximately 27.3 million people, Uzbekistan is by far the
most populous of the five Central Asian Republics of the former
Soviet Union. The capital Tashkent has a population of 2.5 million.
Situated on the ancient Silk Road between Europe and the Far East,
the cities of Samarkand, Bukhara and Khiva have been centers of
commerce and trade for centuries and have undergone little
renovation since the dissolution of the Soviet Union in 1991.

Uzbekistan has all the ingredients needed to become a regional
economic powerhouse: a literate and entrepreneurial population, a
central location at the crossroads of Central Asia, and relatively
good infrastructure and rich mineral resources. However, the
government's extremely restrictive trade policies severely
discourage business activity and have begun to promote Uzbekistan's
accelerating economic decline. The main political factor affecting
the business climate in Uzbekistan is corruption. Another key
factor is stringent Soviet-style centralization of power, with
important decisions only made at the top. There is also societal
discrimination against women and persons with disabilities.

The failure to reform has strained relations with the International
Monetary Fund (IMF) and most other international financial
institutions. Lack of macroeconomic and structural reforms has led
to the failure to privatize state-owned enterprises, an inefficient
bureaucracy, and systemic corruption. Uzbekistan's policies have
created a multitude of problems for businesses and investors. From
1996 until the spring of 2003, the official and so-called
"commercial" exchange rates were highly overvalued. Many businesses

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and individuals were unable to buy dollars legally at these rates,
so a widespread black market developed to meet hard currency demand.
However, by mid-2003, the gap between the black market, official,
and commercial rates had been reduced to approximately 8%. From
2004 to 2007, the gap between the two rates was negligible.
Although the unification of the exchange rates was a positive
development, government restrictions in 2004 on the amount of local
currency and hard currency that could be carried across the Uzbek
border in either direction lessened the effect of currency
convertibility on the Uzbek economy. The government continues to
stifle economic growth by tightly controlling access to soum in
order to prohibit inflation and to place downward pressure on the
exchange rate.

DESCRIPTION OF THE LABOR SCENE

Government

The Ministry of Labor and Social Protection (MOLSP) is divided into
the following departments: Monitoring and Labor Regulations
Development, Demography, Job Markets and Employment, Pensions, and
Social Aid and Support. The Ministry also includes several Bureaus:
Incomes and Expenditures of the Off-budget Pensions Foundation,
Incomes and Expenditures of the State Employment Foundation,
Financial/Economic Planning and Social Protection, and Safety at
Work. Other offices in the Labor Ministry are: State Inspection of
Worker's Rights, Republican Inspection on Appraisal and
Rehabilitation of Invalids, Administration, Personnel Bureau, and
the Chancellery. The Ministry of Labor also includes regional
offices, a Tashkent headquarters, the MOLSP of the Republic of
Karakalpakstan, district (town) offices of labor, employment and
social protection and district (town) offices of social insurance.

The following ministries and governmental bodies also have labor
functions and responsibilities: The Ministry of Economy; regional
Departments of Labor and Social Protection; and regional Economy
Departments.

Unions

The most significant and all-encompassing union in the country is
the state-run Board of the Trade Union Federation of Uzbekistan.
There are regional and industrial trade union committees that
operate under this main board and have local responsibilities, all
of which are state-owned.

Employers

There is a state-run Chamber of Commerce and Industry. Employees of
either state owned or foreign owned enterprises enjoy many rights by
law, such as minimum wage and pensions. However, in practice these
laws are left to interpretation. There is no state institution
responsible for labor arbitration. The general court system, where
civil and criminal cases are tried, is responsible for resolving
labor-related disputes. This can be done on a regional or
city-level. The Supreme Economic Court is responsible for resolving
economic cases at the national level.

The Economy and Labor

There are no reliable unemployment statistics, but the number of
unemployed and underemployed is widely considered to be high and
growing. Underemployment in the agricultural sector is particularly
high, which is important given the fact that over 60% of the
population is rural-based. A stagnant economy has contributed to an
accelerated migration of workers, mainly to Russia and Kazakhstan.

The government unofficially restricts the amount of soum that banks
are allowed to release into circulation. The largest strike since
independence took place in August 2003 at the Ferghana Refinery with
more than 2,000 workers striking when they had not been paid for
more than six months and had not received other benefits since 2001.
Other large strikes have occurred in Angren and other parts of the
country. It is not believed that workers' rights organizations
organized these strikes.

Following the government's exchange rate adjustment in October 2003,
wage arrears by state-owned enterprises reached record amounts.
Despite promises to the IMF that wage arrears would all be
completely paid by April 2004, the problem persists, although at a
lesser level than in 2003-2004.

Although the official rate of inflation declined from 7.8% in 2005
to 6.8% in 2006, international financial institutions estimated it
was 25-30% or higher. In 2004, the government slashed several
thousands of civil service jobs. Foreign Direct Investment (FDI),
one of the lowest in the region, continues to decrease.

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Unemployment tied to escalating rates of underemployment and hidden
employment make the figures nearly impossible to calculate.

Women comprise 42 percent of the labor force, with more than half of
them concentrated in the health, education and culture sectors.

The accelerating economic decline in Uzbekistan has led many
laborers to migrate mostly to neighboring Kazakhstan or Russia
looking for work. Uzbek labor migrants, mostly illegal, flock to
Russia, Kazakhstan, and other countries to work in construction,
agriculture, textiles processing, and other service sectors.

Uzbekistan, along with the U.S., Kyrgyzstan, Kazakhstan and
Turkmenistan, signed a regional Trade and Investment Framework
Agreement (TIFA) in 2004. The TIFA would reduce barriers to trade
within the region and increase total regional trade figures. The
impact this agreement has on workers in Uzbekistan or on U.S.
employment is being studied.

LABOR LAW AND SYSTEM

The Labor Code establishes the following rights and guarantees:
right to fair remuneration of labor, right to holidays with pay;
right to social protection, right to have normal working conditions,
right to be a trade union member; and right to appeal to the court
if labor rights have been violated.

The Labor Code also regulates child labor. The law establishes a
right to have a part-time job beginning from the age of 14, if
written approval has been given by the parents. However, in
practice, restrictions on child labor are applied very liberally,
especially during the cotton harvest season, when schools are closed
in most regions outside of Tashkent to encourage all families to
allow their children to work in the fields. Children, many as young
as 7 or 8, routinely work in family businesses in the cities during
school holidays and vacations.

There are no non-State workers' rights organizations in Uzbekistan.
Individual state-owned enterprises have their own inspection
services, and state-run trade unions are also responsible for safety
inspections. The General Prosecutor's office is responsible for
implementation of labor legislation, including supervision of
recovery of arrears for employees working in the private sector.

Despite constitutional provisions for an independent judiciary, the
executive branch heavily influences the courts in both civil and
criminal cases and does not ensure due process. The President
appoints or approves judges for 5-7 year terms and has power to
remove judges. Corruption among judges remains a problem.

The majority of the labor legislative framework was established
during the Soviet Union (established in 1955-1956 primarily). These
laws have been marginally updated following independence in the
early 1990s. However, the previous methodology still applies to
social security and other employee benefits. The most significant
labor laws adopted since independence include: The Labor Code of the
Republic of Uzbekistan (1996) and the Law "On Employment" (1992,
amended in 1998). No significant changes have been made to the labor
code since 1996.

Uzbekistan has ratified ILO Conventions on Forced Labor; 40-Hour
Week; Holidays with Pay; Rights to Organize and Collective
Bargaining; Equal Remuneration; Maternity Protection; Abolition of
Forced Labor; Discrimination; Employment Policy; Workers'
Representatives; and Collective Bargaining.

LABOR STANDARDS AND WORKER RIGHTS

The Right of Association

The law provides that all workers have the right to form and join
voluntarily unions of their choice, and that trade unions themselves
may associate voluntarily by geographic region or industry sector.
However, workers do not do so in practice. Membership in trade
unions is optional. The law also declares that all unions are
independent of governmental administrative and economic bodies.
(Some exceptions are made by other laws.) The law states that trade
unions should develop their own charters, structure, and executive
bodies and organize their own work. However, trade unions remained
centralized hierarchically and dependent on the government. No
alternative union structures or independent unions exist. Although
the law prohibits discrimination against union members and officers,
it was irrelevant due to unions' close relationship with the
government.

There are a few professional associations and interest groups, such
as a union of entrepreneurs, union of renters, an association of

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private physicians and pharmacists, and registered professional
associations for judges and lawyers (quasi-governmental). The
professional associations do not license members or advocate their
interests in relation to the government. They are purely for
professional development.

The law prohibits discrimination against union members and their
officers.

The law allows unions to choose their own international affiliation,
but none has done that.

The Right to Organize and Bargain Collectively

Unions and their officers are not free to conduct their activities
without interference from the government. Although laws exist to
safeguard the right to organize and bargain collectively, they are
not adequate to protect this right in practice. Trade unions are
state-organized institutions and have little influence except some
input on health and work safety issues.

Trade unions may conclude agreements with enterprises. However,
progress in privatization is very limited and collective bargaining
does not occur. As a result, there was no experience with
negotiations that could be described as adversarial between unions
and private employers. The State is still the major employer, and
union leaders are state-appointed.

The Ministry of Labor and the Ministry of Finance, in consultation
with the Council of the Federation of Trade Unions (CFTU),set wages
for various categories of government employees. In the small private
sector, management established wages or negotiated for them with the
employment officials.

The trade union law does not mention strikes or cite a right to
strike. The law does give unions oversight for both individual and
collective labor disputes, which are defined as those involving
alleged violations of labor laws, workers' rights or collective
agreements.

There are no export processing zones.

The government has ratified ILO Convention 98 on Freedom of
Association and Collective Bargaining.

Prohibition of Forced or Compulsory Labor

The Constitution specifically prohibits forced or bonded labor,
including by children, except as legal punishment or as specified by
law. However, such practices have been reported to occur. There are
reports of continued mobilization of youth for work in the cotton
harvest.

The government has ratified ILO Conventions 29 and 105 on
Elimination of Forced and Compulsory Labor.

Status of Child Labor Practices and Minimum Age for Employment

The Constitution provides for free compulsory education through
secondary school. The government's education reform program has
expanded the compulsory form of study from 9 to 12 years and has
increased the level of pre-professional training. However,
shortages and budget difficulties have led to education expenses
having to be paid privately by parents.

The Labor Code mandates that the minimum working age is 16. Work
must not interfere with the studies of those under 18. Children
between the ages of 14 and 16 may only work with written permission
of parents. They may work 20 hours per week when school is not in
session and 10 hours per week when school is in session. Children
between the ages of 16 and 18 may work 30 hours per week while
school is not in session and 15 hours per week while school is in
session. Persons under 18 must undergo an annual medical health
examination at the employer's expense. There are extensive
regulations on working conditions of the underage, including a
prohibition of night shifts and limitations on manual lifting.

The Ministry works with the ILO's program on child labor in
Uzbekistan. The government has not yet ratified ILO Conventions 138
on minimum age of employment or 182 on the worst forms of child
labor.

The large-scale compulsory mobilization of youth and students to
help with the cotton harvest during the fall-a practice that dates
back to Soviet days-continues in some areas. Students in cotton
fields are poorly paid and are sometimes required to pay for their
food. There have been reports that local officials beat some

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teachers who objected to their students being removed from class to
participate in the harvest. A joint legal resolution issued by the
Ministry of Labor and Ministry of Health, and registered by the
Ministry of Justice in September 2001 (No. 1040),lists cotton
picking and other forms of child labor in the national list of
unfavorable working conditions prohibited to workers under 18 years
of age.

The Ministry of Labor and the Prosecutor's office are the principal
bodies responsible for reporting violations to the Prosecutor's
office. The law provides for criminal and administrative sanctions
to punish violators. Sanctions were not adequate to punish or to
deter violations related to the cotton harvest, or were not
enforced. There were no reports of prosecutions or administrative
sanctions resulting from such inspections.

Discrimination in Employment

The law does not prohibit sexual harassment. Social norms and the
lack of legal recourse make it difficult to assess the scope of the
problem. Although the law prohibits discrimination against women,
traditional, cultural, and religious practices limited their role in
society. Women are severely underrepresented in high-level
positions. However, women who open businesses or seek careers are
not hindered legally. Women are underrepresented in the industrial
sector, but well represented in the agricultural and small business
sectors. A deputy prime minister is charged with furthering the
role of women in society.

The law provides for support for persons with disabilities; however,
little attempt is made to bring the disabled into the mainstream.

Ethnic groups other than Uzbeks, particularly Russians, complain
about job opportunities being limited for them. Senior positions in
the government bureaucracy and business generally are reserved for
ethnic Uzbeks, although there are exceptions. The requirement to
speak and read the Uzbek language in government jobs is often cited
as a limiting factor for ethnic Russians.

The government has ratified ILO Conventions 100 and 111 on the
Elimination of Discrimination in Respect of Employment and
Occupation.

Acceptable Conditions of Work

The Ministry of Labor in consultation with the CFTU sets the minimum
wage. In 2005, the minimum wage was approximately 9,400 soum
($8.25) per month. In October 2006 the minimum wage was raised to
12,420 soum ($10) per month. The minimum wage does not provide a
decent standard of living for a worker and family. Average
government salaries are approximately $35 to $40 per month, but
slightly higher in Tashkent.

The standard work week is set at 40 hours with a required 24-hour
rest period. Some factories reduce work hours to avoid layoffs.
Overtime pay exists in theory but not in practice. Payment arrears
of four to six months are not uncommon for workers in state-owned
industries and government offices, though the problem is less severe
than in 2003-2004.

The MOLSP establishes and enforces occupational health and safety
standards in consultation with the unions. The local press
occasionally publishes complaints about the failure of unions and
government officials to promote worker safety. Workers in hazardous
jobs often lack protective clothing and equipment. Workers are
permitted to leave jobs that are hazardous without jeopardizing
their employability in other jobs. There are high rates of
underemployment.

Trafficking in Persons (TIP)

Uzbekistan is primarily a source, and, to a lesser extent, a transit
country for trafficking. Typically, women are trafficked for sexual
exploitation and men for labor exploitation. The main destination
countries for female trafficking victims are the United Arab
Emirates, Israel, Turkey, South Korea, Thailand, Malaysia, Western
Europe, and other former Soviet states. Men are trafficked to
Russia and Kazakhstan for exploitation in construction, agriculture
and service sectors. Uzbekistan's 2005 entry into the Eurasian
Economic Community (EurAsEc) could help to harmonize migration
legislation. The government has taken some steps to address
trafficking, including cooperating with a local NGO to facilitate
repatriation of victims.

Social Safety Net

The legal framework covering the social security system has been

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changed very little since the Soviet era when unemployment was rare,
and everyone received free healthcare and some sort of pension. The
reality today, however, is that these regulations are not followed,
or, due to the declining economic situation, benefits have
unofficially decreased. The pension system, for example, has not
changed since the Soviet era and is calculated by the number of
years the person has worked. Females over 55 and males over 60 are
supposed to receive their pension monthly. However,
government-inflicted cash shortages have delayed these payments, in
some cases for more than 5-6 months. The 2006 minimum pension is
24,600 soum ($20) per month, while the maximum pension is
approximately 40,000 soum ($35) per month. The legal framework also
covers benefits for the disabled and surviving dependents.

Official maternity benefits are extended for 70 days before
childbirth and until 56 days after. For up to two years after the
child is born, the employers frequently pay a small salary to women
of around 12,240 soum ($10) per month, although law does not mandate
this. The mahalla (neighborhood) committees pay a small allowance
monthly on a case-by-case basis for low-income families receiving
less than minimum wage. A woman is entitled to three years of
unpaid leave after childbirth. Paternity benefits are not covered
in Uzbek law. Anecdotal reports indicate that the majority of
employers abide by maternity benefit regulations.

On paper, all Uzbek citizens are covered by a universal healthcare
system, with free medical care and medicines. However, the reality
is that the majority of patients pay an average of $5-10 for a
doctor visit. Women have reported that, for certain doctors, they
have had to provide sterile gloves and paper for the examination
table before they would be seen. Since 1996, there has been an
increased privatization of medical services. There are now many
private clinics, with more modern equipment, where Uzbeks can pay
for improved care.

FOREIGN INVESTMENT POTENTIAL

It is the declared policy of the government to attract foreign
investment. Direct foreign investors have in the past been granted
a host of incentives on a case-by-case basis, including tax
holidays, duty-free capital goods imports, and protection against
expropriation. However, legislative requirements for these benefits
are ambiguous, processes and procedures are cumbersome, and the
regulatory environment is capricious. While these conditions
provide opportunities for companies in a position to turn special
decrees and privileges to their advantage, most potential investors
are deterred. As a result, Uzbekistan has so far attracted less
foreign direct investment per capita than other countries in the
region despite its strategic location and considerable economic
potential. There are no official limits on foreign ownership or
control of enterprises in Uzbekistan, although the government keeps
a controlling share in a number of strategic industries (such as
mining, agriculture, machinery manufacturing). Local companies
frequently seek international registration in order to receive
better treatment in tenders with the government.

Literacy in Uzbekistan is reportedly almost universal, and workers
are generally well educated and trained. Most local technical and
managerial training does not meet international business standards,
but foreign companies engaged in production report that Uzbek
workers learn quickly and work effectively. In the past the
government emphasized foreign education, sending students to the
United States, Europe and Japan for university degrees. Several
hundred studied on Presidential scholarships requiring a five-year
commitment to work for the government upon their return home. Some
American companies have offered special training programs in the
U.S. to their local employees. With the closure or downsizing of
many foreign firms, it is relatively easy to find qualified,
well-trained employees, and salaries are very low by Western
standards. However, many skilled workers have left the country to
find higher paying jobs abroad, particularly in Kazakhstan. Salary
caps, implemented to prevent firms from circumventing cash
withdrawal restrictions, prevent many foreign firms from paying
their workers as much as they would like.

Labor market regulation in Uzbekistan is similar to that of the
Soviet Union, with all rights guaranteed but many rights unobserved
or under-enforced. Past cases of workers striking included: Turkish
construction workers striking against their Turkish employer over
working conditions, textile workers who picketed in front of the
Ministry of Light Industry due to nonpayment of wages, large-scale
bazaar strikes in light of stark increases in stall fees, an
increase in taxes on imported products, and strikes due to wage
arrears.

DIRECTORY OF LABOR CONTACTS


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GOVERNMENT

Acting Minister of Labor and Social Protection (MOLSP)
Mr. Aktam Akhmadovich Haitov,
Phone: 139-88-20; 139-43-88

Deputy Minister of Labor
Kozimjon Fozilovich Komilov

Deputy Minister for Labor Issues
Botir Alimukhamedov

Chief of the Agency on Labor and Migration Affairs
under the MOLSP
Mr. Gafur Shavkatovich Usmanov
Phone: 152-33-79

EMPLOYERS (Government-run)

Chairman, Chamber of Commerce and Industry
Mr. Alisher Shaikhov

TRADE UNIONS (Government-run)

Chairwoman, Council of Federation of the Trade Unions
Ms. Dilbar Nabievna Jahongirova
Phone: 152-21-18

KEY SOURCES

Country Commercial Guide, Uzbekistan, prepared by U.S. Embassy,
Tashkent, July 2003.

Country Report on Human Rights Practices, 2005. U.S. Department of
State (www.state.gov),published March 8, 2006

Key Indicators of the Labor Market-3rd edition, International Labor
Organization, Geneva 2003

Common Country Assessment, United Nations, 2003

Social Security Programs throughout the World. Social Security
Administration (www.ssa.gov)

Uzbekistan Country Profile. World Bank (www.worldbank.org)

Ministry of Labor and Social Protection, Tashkent, Uzbekistan

Index of Economic Freedom. Heritage Foundation (www.heritage.org)

HANSON