Assistant USTR Karesh Discusses the Labor Contract Law in

UNCLAS SECTION 01 OF 02 GUANGZHOU 000415

SENSITIVE
SIPDIS

STATE PASS USTR FOR STRATFORD/WINTER/MCCARTIN/LEE
STATE PASS FEDERAL RESERVE BOARD FOR JOHNSON/SCHINDLER
STATE PASS SAN FRANCISCO FRB FOR CURRAN
TREASURY FOR MOGHTADER

E.O. 12958: N/A
TAGS: ELAB EIND EINV CH
SUBJECT: Assistant USTR Karesh Discusses the Labor Contract Law in
Guangzhou

Ref: Guangzhou 414

(U) This document is sensitive but unclassified. Please protect
accordingly. Not for release outside U.S. government channels. Not
for internet publication.


1. (SBU) Summary: China's new Labor Contract Law is forcing U.S.
companies to reassess their hiring strategies, especially with
regard to contract workers, according to executives who met recently
with Assistant U.S. Trade Representative (AUSTR) for Labor Affairs
Lewis Karesh. All of the executives -- from Procter and Gamble
(P&G),Avon, Wrigley, and Jabil -- agreed that employee unions were
not noticeably strengthened by the new law. They also complained
that government plans for implementation of new labor legislation
were unclear but commended government efforts to solicit private
sector feedback. Although a representative of the Guangzhou Lawyers
Association described the Labor Contract Law as an important step in
improving the Chinese social security system, U.S. company
executives pointed to outstanding problems and agreed that
comprehensive reform is still a ways off. End summary.

More Difficult to Use Contract Workers
--------------


2. (SBU) A number of American companies told AUSTR Karesh that the
Labor Contract Law is forcing them to reassess their HR strategies
in south China. Hide Aida, P&G's HR General Manager for Greater
China, said that his company is redesigning its operations to ensure
that full-time and contract employees do not share any
responsibilities. According to Aida, the law requires contract
workers who perform the same tasks as full-time employees to be
compensated at the same level. Aida said that a contract employee
costs P&G about 40% less than a comparable full-time staffer.


3. (SBU) Jabil's HR Regional Manager for Greater China, Tim
Noun-Sin, told AUSTR Karesh that she finds a provision in the law
preventing companies from hiring contract workers for longer than
six months to be problematic. She pointed out that Jabil, which
provides services to electronics manufacturers, often has projects
that last about a year, and replacing all the contract workers
halfway through each project would be prohibitively expensive. As a
result, she said, the company is trying to move many of its contract
workers onto the payroll as full-time employees. (Comment: this
matches what the Consulate has heard from other contacts in the
business community. Shenzhen Development Bank Chairman and CEO
Frank Newman recently told Consul General Goldberg that his bank has
been forced by the Labor Contract Law to convert most of its
contract workers into full-time employees. End Comment.)


Unions Still Weak
--------------


4. (SBU) All of the company officials who met with AUSTR Karesh
agreed that unions in south China haven't been strengthened much by
the Labor Contract Law. P&G's Aida described his company's 10-year
old union as an "employee association" that mostly organizes picnics
and similar events. Jabil's Tim described the unions that existed
in her plants similarly. Aida said that P&G management essentially
selects the union leaders by encouraging their favored candidates to
step forward. As a result, Aida said, the union has been very
supportive of management in labor disputes, so far staying neutral
in labor mediation and lawsuits pursued by P&G employees. Jabil's
Tim and Avon's HRSC Manager, Ivy Long, agreed, saying that while
their companies' unions could theoretically assist workers in
disputes with management, they've seen little evidence that this is
happening. The HR executives also told AUSTR Karesh that they are
having no more trouble terminating employees than they were before.
Jabil's Tim agreed, but noted that the reasons must be documented
and severance payments, which often become a point of negotiation,
must be made. Aida commented that non-fixed, open-ended contracts
such as the ones signed by most P&G full-time employees are little
affected by the law.


5. (SBU) Aida asserted that the Guangdong government has recently
been pushing P&G to establish collective bargaining with its unions,
but the company has so far successfully resisted this pressure.
Aida commented that P&G sees collective bargaining as a serious
threat to its labor policies in China and is trying hard to avoid
it. He added that the government is privately telling him that it

GUANGZHOU 00000415 002 OF 002


only wants "token" collective bargaining from P&G, as it primarily
wants to use their example as leverage with other international
companies.


Problematic Implementation
--------------


6. (SBU) Although the executives all gave the government high marks
for soliciting and listening to private sector feedback, they were
less enthused about implementation of recent employment laws.
Wrigley's People, Learning, and Development Director, Daniel Mo,
complained about a lack of clarity, pointing out that the Employment
Promotion Law's provision banning discrimination for medical reasons
conflicts with the Food Law, which requires companies to certify
hygiene licenses for employees. Jabil's Tim agreed, claiming that
there is currently no one in the government who can give legal
advice about the new laws. Xiao Shengfang, of the Guangzhou Lawyers
Association, agreed that implementation has been uneven but said
government regulations concerning the Labor Contract Law would be
published by the end of the year and should bring a more consistent
and clear approach. (Some implementation guidelines have been
published - see Reftel.)


Effects of Labor Arbitration Law
--------------


7. (SBU) According to the Guangzhou Lawyers Association's Xiao, the
recently promulgated Labor Arbitration Law has lowered the barriers
for workers to take advantage of arbitration by eliminating all
related fees. Xiao told AUSTR Karesh that the number of arbitration
cases in Guangdong Province has increased dramatically in the last
few months, although he sees this as pent-up demand that will
decline as the cases move through the system. Xiao further
commented that the most common arbitration cases involve disputes
about overtime payments; severance payments; social security
funding; and employers changing an employee's position or salary
without consent.


Social Security Program a Patchwork
--------------


8. (SBU) The Guangzhou Lawyers Association's Xiao also told AUSTR
Karesh that one of the benefits of the Labor Contract Law has been a
great increase in social security coverage. He explained that
social security payments typically result from having an official,
signed contract, and the contract signing rate for workers has
increased dramatically since the law came into force. The company
executives all pointed to ongoing flaws in the social security
program, however, including its poor portability between locations
and patchwork regulations. Avon's Long commented that companies
with country-wide operations typically have to adopt the highest
possible level of benefits across all areas in order to avoid
trouble. Wrigley's Mo said that unifying the social security
program will be extremely complicated and that he doesn't expect any
major changes before 2010 at the earliest.


9. (U) USTR cleared this cable.

GOLDBERG