The U.S. In China: Profit Over Principles

When critics accuse U.S. companies of moving jobs to China to exploit cheap labor and sweatshop conditions, businesses always argue that their presence has helped improve labor standards and even forward democracy. Now the same companies that pat themselves on the back are lobbying to weaken a draft Chinese labor law—and workers' rights activists are calling them hypocrites.

The proposed law would require employers to sign contracts with all workers and to pay severance to fired employees, and tighten job protection for older workers and sole breadwinners. It would also give the party-run union more power in contract negotiations and setting workplace rules. Designed to quell unrest over working conditions, withheld wages and long hours, the law has already been amended to make it more acceptable to foreign firms and is due to be approved as early as this summer. Critics say efforts to water it down further show how U.S. firms put profits ahead of principles in China while staying mum on sensitive issues, from Internet censorship to the repression of lawyers.

Companies such as Microsoft and General Electric and lobbies like the American Chamber of Commerce and the U.S. China Business Council object that the bill would make it difficult to fire employees on probation, while giving too much power to the official union. They also fear the law would hit foreign firms hardest, because Beijing tends to be toughest on foreign companies. GE asked the Chinese government for five specific changes, including greater penalties for intellectual-property theft and union consultation, rather than union approval, of new workplace rules. The U.S. business lobby says China should enforce existing labor laws, not write new ones. "People have raised concerns that we're opposing workers' rights. That's not true," says James Zimmerman, chairman of the American Chamber of Commerce in Beijing. "What we want is uniform and objective application of the law for everybody."

Labor activists and scholars disagree. Some say the law is too weak to protect workers because it relies on the party-run union, which generally favors management even as unrest rises. (The number of labor-arbitration cases on such issues rose 20 percent in 2005, the last year for which data are available.) Liu Cheng, a law professor at Shanghai Normal University who helped craft the law, says the reason multinationals are "so angry" is that the law threatens their ability to run "sweatshops" in China.

Critics find the efforts to change the law particularly galling given how quiet companies have been on other issues, like Internet censorship. "The argument that the business community has no voice in Chinese policy circles has been bankrupt for some time," says Nicholas Bequelin of Human Rights Watch in Hong Kong, but the labor-law battle brings "the hypocrisy to the forefront."

The battle is heating up into what Steve Mallory, the European Union's general counsel in Asia, calls a "very vibrant" debate on the future of labor in China. Much of the struggle now centers in Washington, where late last month officials from the American Chamber of Commerce in China arrived to make their case, after 20 members of Congress asked President George W. Bush to admonish business organizations that try to weaken the law. Timothy Costello of Global Labor Strategies, an advocacy group in Boston, calls this "a pretty open-and-shut case of what we think is unacceptable corporate behavior." The United Steelworkers union urged companies to stop trying to "undermine" the draft law.

In response, Alcoa steel said it was not "directly involved" and was "setting the right example" in China for human rights. Nike distanced itself, too, saying it has worked "aggressively" to make sure Chinese subcontractors comply with fair labor standards. "It's not that we opposed the original American Chamber of Commerce comments. It's just that we weren't involved," says Erin Dobson, a Nike spokesperson.

Others attack the law as doomed to backfire, saying it could force firms that obey labor laws to subcontract more work to those that evade them. If the reform makes it too costly for companies to operate legally, "the sweatshop problem in China will become more serious," says Dong Baohua, a professor at East China University of Political Science and Law who is advising Beijing. Given that one quarter of the world's workers live in China, the new law will resonate globally, gutted or not.

Editor's Pick