The SOMO Bulletin on Issues in Garments & Textiles is a bi-monthly on-line publication of the Centre for Research on Multinational Corporations (SOMO) that presents critical issues of interest to those working to improve conditions and empower workers in the global garment and textile industries. Each edition of the bulletin focuses on one specific topic. Unless otherwise indicated, information presented is drawn from SOMO research. All editions of the bulletin can be found at the SOMO <www.somo.nl> and Clean Clothes Campaign <www.cleanclothes.org> websites. Content of the bulletin may be freely reproduced or distributed, with appropriate attribution.

The role of multinational corporations (MNCs) in Asia has been well-documented. Many North American and European garment and footwear MNCs have had operations in Asia for decades, with governments in the region often seeking to attract foreign companies and investors to their countries. Such MNCs paved the way for international economic restructuring around the world. More recently Asian MNCs are playing an important role in international supply chains in these industries, with Asian companies investing in production operations not only in the region but as far away as Africa and Central America. These Asian MNCs generally are focused on manufacturing, serving as subcontractors for brand-name garment and footwear MNCs. While they have lower global name recognition than their customers Nike, for example Asian MNCs such as Pou Chen and Nien Hsing, with turnover of more than US $1 billion, are crucial links in these supply chains. While Western MNCs draw their own huge profits from the development, marketing, and retail of items such as clothes and sports shoes, these Asian companies have shown that the lower-profile business of producing these goods can be equally and in some cases more profitable. There are some notable examples of Asian MNCs that are involved in the marketing and retailing of their own highly-branded goods, for example the Japan-based Asics, an athletic-footwear company with 2002 sales of approximately US $972 million, and Mizuno, also a Japanese sportswear company, whose sales in 2002 exceeded US $1 billion (www.hoovers.com; www.mizuno.com). And there are large Asian trading companies that play an important role as “supply chain managers,” such as Li & Fung, the Hong-Kong based trading group (2002 turnover approximately US $4.8 billion) that facilitates the sourcing of garments and footwear (Li & Fung, 2003:3). This edition of the bulletin however, specifically focuses on the less-documented role of what have been referred to as “production MNCs” that are based in Asia.

INCENTIVES FOR GOING MULTINATIONAL

Asian MNCs ranging from small, medium, to large companies have been drawn to invest or set up operations in other countries for the same reasons that Western companies have: cost factors, the regulatory environment, possibilities for growth, and access to markets.

Incentive packages from host governments and trade agreements can help facilitate relocation to other countries. For example, recently the Vietnamese province of Hung Yen granted a foreign direct investment license to South Korea’s Beeahn company, which plans to build a US $1.2 million garment factory for export. The agreement includes a seven-year exemption from land rental fees and an exemption from corporate income tax until the venture has been profitable for four years (Just-style.com, 2003).

In Africa the African Growth and Opportunity Act (AGOA), which went into effect in 2000, authorizes the duty and tariff-free export of garments from 36 sub-Saharan African countries to the United States. This preferential access to the U.S. market, as well as low labor costs, and access to European Union (EU) markets under the Cotonou Agreement, have been a powerful lure for investors, particularly from Asia. Researchers report that southern Africa has drawn Asian investors mainly from Taiwan, Hong Kong, Malaysia, and Sri Lanka (De Coster, 2002).

In Swaziland, for example, new investment in the garment and textile industries was once primarily South African, however now investment predominantly comes from Taiwan. Investors say that it is not only the AGOA provisions, but also tax incentives (such as five-year tax holidays) that bring them to Swaziland. Further south in Lesotho, there has also been a similar increase in Asian (mostly Taiwanese) investment in the garment industry during the 1990s.

Access to the North American market and the absence of quota restrictions or easy access to new quotas due to the North American Free Trade Agreement (NAFTA) and the Caribbean Basin Initiative encouraged Taiwanese and South Korean investment in Central

America in the 1990s. In Cambodia, access to the U.S. market via a Bilateral Textile Agreement signed in 1998 with United States, as well as low wages, has drawn Chinese, Malaysian, Singaporean, and Taiwanese investors (Chen, 2003; Postlewaite, 2001).

In some cases, Asian MNC home countries also give companies incentives to set up operations overseas. The Taiwanese government, for example, provides financial support and tax rebates to companies that invest in Central America and Africa. At a Swaziland factory producing jeans and other garments for U.S. brands such as Basic Edition and Bugle Boy, researchers were told that the Taiwanese parent company, which also had operations in Cambodia, received reimbursement from the Taiwanese government for 15 20% of wages.

When Taiwanese denim and jean giant Nien Hsing invested in Nicaragua in 1993, “the company received more than US $370,000 in support from the Taiwanese government,” reports Chen Yi Chi, editor of the Asia Pacific Labour Update. In addition to trade agreements that grant favorable market access, Chen explains that the political situation contributes to the Tawainese government’s willingness to support overseas investment. By subsidizing overseas investment elsewhere, the government hopes to discourage an overdependence on investment in China, which they see as jeopardizing national security. He also reports that because Taiwan is politically marginalized due to its relationship to mainland China, it uses Taiwanese investment as leverage to establish official diplomatic ties with other countries (Chen, 2003).

CONCERNS REGARDING SOURCING POLICIES AND LABOR PRACTICES

During the past decade, organizations such as SOMO and the Clean Clothes Campaign (CCC) have documented violations of labor rights at Asian-owned garment, textile, and sport shoe factories both in Asian and in other parts of the world. For example:

-- A study carried out by the Urban Community Mission (UCM) in Jakarta and published by the German Clean Clothes Campaign in 2000 documented ongoing labor rights violations at PT Tuntex, a Taiwanese-owned garment factory producing for Nike, adidas, Gap, and others. Researchers found forced overtime, wages below the legal minimum, long working hours that violated local law, physical and verbal insults. A UCM researcher testifying during a November 2000 European Parliamentary hearing on labor conditions spoke in detail about the serious rights violations at the Indonesian factory. Follow-up research carried out in 2001 and 2002 showed that significant labor rights violations continued to occur at Tuntex. Meanwhile, Tuntex Textile is one of the leading Taiwanese investors in Swaziland, having invested more than US $10 million since it came to the country in 1998 (Wick, 2002; Du Ling, 2003).When researchers visited one Tuntex facility in Swaziland in 2002 interviews with workers revealed a variety of problems, including forced overtime, low wages, and unhealthy and unsafe conditions (including locked exits). Though management told researchers they had signed a collective bargaining agreement with the union, workers reported that management had in fact refused to recognize the union even though membership exceeded the 50% mark necessary for recognition.

-- In 2001 workers at the Kuk Dong factory in Puebla, Mexico went on strike to protest a variety of labor rights abuses (forced overtime, low wages, verbal abuse, failure to give legally mandated benefits). The factory, which produced for Nike and various U.S. universities, was owned by Kuk Dong International, a Korean-based company with large factories in Indonesia, Brazil, and Mexico. Labor disputes had also been reported at the company’s Indonesian facility, including failure to pay the minimum wage. The Mexican Kuk Dong workers entered into a difficult nine-month struggle to form an independent union. The Workers Rights Consortium (WRC), Verite, and a Mexican labor lawyer were each called in to investigate conditions at Kuk Dong surrounding the alleged rights violations, generating considerable evidence to support the workers’ claims. An international campaign to support the Kuk Dong workers was mounted, with organizations in North America, such as United Students Against Sweatshops, the Maquila Solidarity Network, the Campaign for Labor Rights, and the AFL-CIO putting enormous pressure on Kuk Dong clients Nike and Reebok to take responsibility for improving conditions and settling the dispute at their Mexican supply facility. The Korean House for International Solidarity, a Seoul-based NGO, put pressure on Kuk Dong in the company’s home country. European organizations and consumers participating in the Clean Clothes Campaign network also responded to the appeal to help the Kuk Dong workers, putting pressure on Kuk Dong’s European clients, such as Pierre Cardin, to push their supplier to settle the dispute in Mexico. Finally, in September 2001 the workers succeeded in gaining recognition of their union. A collective agreement was signed by the union, known as SITEMEX, and the company (by then operating under a new name, MexMode). Campaigners continued to pressure Nike and other Kuk Dong clients to continue to place orders with the factory now that workers were represented by the union of their choice. This was a precedent-setting victory for the Mexican maquiladora sector, where independent unions had not been able to operate. The KukDong/MexMode victory is said to have had a positive spillover effect on worker organizing in the Puebla region (Maquila Solidarity Network, 2001-2002).

-- In American Samoa, where garments bearing “Made in USA” labels enjoy tariff-free entry to the U.S. market, South Korean factory owner Lee Kil-soo was found guilty of human trafficking in the largest such case ever brought to court in the United States. Lee employed 251 workers from Vietnam and China in appalling conditions that were described by the US attorney general as “nothing less than modern-day slavery.” Beaten, deprived of food and wages, and forced to pay (illegal) recruitment fees to get their jobs, the workers who were making garments for US retailers Sears and JC Penney successfully pressed their claims in court. In April 2002 they were awarded a total of US $3.5 million by the High Court of Samoa (Fickling, 2003; Greenhouse, 2002).

-- In Saipan, an island that is part of the Commonwealth of the Northern Mariana Islands, a U.S. territory located in the Western Pacific, garment factories received more than 1,000 citations for violating U.S. Occupational Safety and Health Administration standards, many of which were characterized as "capable of causing death or serious injury." These manufacturers, predominantly Chinese, South Korean, and Japanese-owned, as well as the well-known U.S. retailers they were producing for (such as Gap, Levi Strauss, The Limited, and Target), were charged with using indentured labor -- predominantly young women from Asia -- to produce their goods. The immigrant workers (30,000 participated in the class action suit) alleged that they had to sign contracts that denied them their basic human rights; pay exorbitant recruitment fees that keep them in a state of indentured servitude; work up to 12 hours a day, seven days a week, often without overtime pay; and live in overcrowded housing in unsanitary conditions. After more than four years, a U.S. Federal judge approved a settlement in the Saipan cases in April, establishing a US $20 million fund to pay back wages to the workers and create an independent monitoring system of Saipan garment factories (Branigan, 1999; Sweatshop Watch 1999-2003).

Drawn by trade agreements and other incentive programs to countries desperate for foreign investment and jobs, investors, including Asian investors, have been able to circumvent local labor laws (for example, minimum wage and social security requirements) as well as the standards for good labor practices set out by the International Labor Organization (ILO). In Swaziland, for example, where violations documented at Asian-owned factories include forced overtime, verbal abuse, sexual intimidation, unhealthy and unsafe conditions (including locked doors), unreasonable production targets, and union repression, the department of labor admits that in an attempt to keep investors happy it does not pursue labor law violations to its fullest ability. They say they “can’t push investors too hard,” but instead are “very gentle and persuasive.” While investors see profitable returns on their investments, critics wonder if workers and their communities really benefit when wages and conditions are substandard and tax abatements and subsidized infrastructure mean little money goes back into the community.

Asian investors in the garment and textile industries have proven to be as mobile as Western investors, “cutting and running” from one location to another as suits their interests. For example, Mauritius developed a significant clothing export industry directed to the EU, fueled by investment from Hong Kong companies. Now that wages in Mauritius have gone up, this location is less attractive to investors (De Coster, 2002).

When confronted with labor rights violations or with a workforce that increasingly demands the enforcement of labor rights, companies sometimes suspend or cut their orders to factories in the spotlight to distance themselves from such negative publicity. Companies that own factories embroiled in labor disputes sometimes close down their operations, either temporarily or permanently, to put an end to worker organizing efforts.

In El Salvador for example, when workers at the Taiwanese-owned Tainan factory organized a union, the company responded by suspending workers and diverting orders to other factories. The workers had faced forced overtime, harassment, and low wages. When they sought a collective bargaining agreement in 2002, Tainan (which owned factories in China, Cambodia, and Indonesia) said they would have to close the factory due to a lack of orders (Campaign for Labor Rights, 2002).

In Indonesia, increased worker organizing since independent unions became legal in 1998 is said to contribute to the exodus of investment out of the country in search of an environment where workers are less able to voice their demands, for example China and Vietnam. In 2002 eight garment factories (six owned by Korean investors, one Chinese, and another Japanese-Indonesian) shut down leaving thousands of workers jobless and without sufficient compensation. PT Elaine, a garment factory in East Jakarta abruptly shut down this February, relocating to Taiwan, leaving workers without jobs or income (Simanjuntak, 2003; Asia Today International, 2002).

ASIAN MNCS AND CAMPAIGNS TO IMPROVE WORKING CONDITIONS: NIEN HSING

The Taiwan-based Nien Hsing Textile Co., a denim and jeans manufacturing giant, reported US $56.3 million profits in the last year period, up from the year before. Nien Hsing, which is reportedly the world’s biggest jeans supplier, has just two small factories in Taiwan, employing approximately 700 people, however in factories in Central America and Southern Africa the company employs many thousands more. Nien Hsing has come into the spotlight in recent years due to high profile cases linking the company to serious labor rights violations. In both cases, organizing efforts at the factory level were coupled with sustained international pressure to successfully pressure Nien Hsing to make concessions to workers’ demands.

First in 2000 management at Nien Hsing’s Chentex factory, in the Las Mercedes Free Trade Zone in Nicaragua, was charged with union repression and illegal dismissal of union members. A year-long campaign ensued to press for reinstatement of the fired unionists and an end to the company’s anti-union stance. Activists throughout the United States, where the jeans produced at Chentex were sold, carried out more than 400 actions to protest conditions at the factory. In Taiwan a coalition of organizations came together to form “Taiwan Solidarity for Nicaragua Workers,” to put pressure on Nien Hsing in their home country. The Taiwanese activists held rallies and spoke at Nien Hsing’s shareholder’s meeting, drawing media attention to the reality of working conditions at the Chentex factory, where mostly young single mothers were earning an average of 20 cents per pair of jeans that retailed for US $30. Legal battles were launched in Nicaragua and lawsuits against Chentex and Nien Hsing were filed in the United States, while in Europe CCC activists and others also took up the case. A trade union leader from Lesotho, where Nien Hsing also has factories, came to Nicaragua to express solidarity with the Chentex workers. In 2001, the Chentex union signed an accord with management and the union leaders and workers were reinstated. This precedent-setting victory reportedly was instrumental in encouraging union organizing drives at other factories in the Las Mercedes zone.

In 1991 Nien Hsing had opened its first jeans factory (C&Y) in Lesotho. With the African Growth and Opportunity Act (AGOA) opening up more possibilities to access the U.S. market via Africa, a second factory was opened 10 years later right across the street. By 2002 Nien Hsing employed approximately 7,500 people at its Lesotho facilities which produced jeans for U.S. and Canadian clients, including Kmart, Sears, Gap, and Cherokee. A third facility, a textile mill, was under construction at a cost of US $8.6 million. In September 2004, those seeking to take advantage of the provisions of AGOA requirements, fabric will have to be sourced from southern Africa; with this new mill supplying fabric to their factories Nien Hsing will be in compliance with the AGOA requirements.

A variety of problems were reported at the Nien Hsing facilities: taking advantage of Lesotho’s high unemployment rate workers were employed on a “casual” basis, at a lower minimum wage. This is legal for casuals employed for less than six months, however at C&Y some workers had been employed as casuals for ten years. Workers also reported verbal harassment, physical abuse, unsafe conditions (including locked emergency exits) and non payment of benefits. The Clean Clothes Campaign took up the case, as did unions and NGOs in the United States and Canada. In July 2002 the ITGLWF-Africa and the Lesotho Clothing and Allied Workers Union (LECAWU) started an organizing campaign at the two Nien Hsing factories. With increasing pressure on all these fronts, LECAWU and Nien Hsing signed a memorandum of understanding in mid-July that committed the company to recognize the union and enter into collective bargaining negotiations once the union recruits a majority of workers at each facility (just.style.com, 2003b; Chen, 2003; CLR, 2001; de Haan and Philips, 2002; Workers College and ITGLWF Africa, 2002).

LABOR RIGHTS CAMPAIGNING IN RELATION TO ASIAN MNCS

Pressuring Asian garment, textile, and footwear multinationals to take responsibility for their role in respecting workers rights can present special challenges. Because many of these companies are not “brand name” companies they are less visible. This means that labor rights advocates will get less leverage from the threat of tarnishing brand image (something which holds considerable value for brand name companies -- one 2002 survey attributed 71% of a company’s worth to “intangible assets” such as reputation) (Ethical Corporation, 2002). However, pressuring manufacturing multinationals via their relationship with the companies they produce for can yield results. Some Asian manufacturing MNCs however have a broad base of clients and therefore are less susceptible to pressure or threats of canceled orders made by individual buyers.

Campaigns, as in the Kuk Dong and Nien Hsing cases mentioned above, that have utilized an approach that mobilizes stakeholders at the various levels of the garment industry supply chain for example, where the clothes are produced, where the production multi-national is based, and where the garments are sold have demonstrated a potential to open up space for workers to successfully voice their demands.

A challenge to workers’ rights advocates will be to raise awareness of the role of these less-visible multi-national corporations and develop strategies for pushing them to take up their responsibilities for improving working conditions in the industry and respecting workers’ rights. Because these Asian production MNCs occupy a space in the production chain that is often closer to workers then the brand name companies they produce for (ex. sometimes they are direct employers of garment workers) they have an important role to play in implementing workers rights. Attempts to seek better compliance with labor laws, international labor standards, and voluntary codes of conduct will need to consider the role these important actors play in shaping labor practices throughout global garment supply networks.

Monitoring Asian MNCS

Increasingly, more research is being done to understand and assess the role of Asian MNCs in global supply chains and in the regions where they operate.

Acknowledging the growing importance of manufacturing multinationals from such countries as Taiwan, South Korea, and Hong Kong, the CCC, at their March 2001 international evaluation and strategizing meeting, concluded that there was a need for more information on (including tracing production chains) and campaigns on such manufacturing multinationals, based on links between regions. The CCC network agreed to address this need in planning future activities (Ascoly and Zeldenrust, 2001, 48).

In 2001 Asia Monitor Research Center (AMRC), a Hong-Kong based coalition advocating for workers’ rights for more than 25 years, launched Asian Transnational Corporations Monitor (ATNC Monitor) to focus attention on such companies, both in the region and beyond. ATNC Monitor brings together organizations from Hong Kong, Japan, Korea, Taiwan, Thailand, the Philippines, Sri Lanka, and New Zealand that are examining the way Asian companies, including garment and textile companies, operate overseas. The group notes that apart from a small number of well-known and powerful brand-name companies, such as Sony, Toyota, and Samsung there are many other Asian MNCs that are small and medium-sized firms that play a supplier or subcontractor role to North American or European companies. Their role in the supply chain often puts them in immediate contact with workers as their employers, therefore NGOs and trade unions should be monitoring their activities.

Through a program of research, education, training, exchange projects, and solidarity action ATNC Monitor hopes to build awareness of labor practices among these companies.

“Although TNCs from Japan, Korea, Taiwan and Hong Kong are violating labor rights and environmental law in the region, the public awareness of this in Asian countries is very low. Even workers and labor groups show almost no interest in domestic capital investment overseas…Home countries’ protectionist stand has to be broadened to international solidarity,” according to ATNC Monitor (2002).

Other initiatives focusing attention on Asian companies in this sector include the International Textile Garment and Leather Workers Federation (ITGLWF) investigations into Asian multi-national companies operating in southern Africa.

RECOMMENDED READING & REFERENCES

Ascoly, Nina and Ineke Zeldenrust (2001) Clean Clothes Campaign International Meeting 2001, July, 66-page report, CCC International Secretariat, Amsterdam. Available at the CCC website <www.cleanclothes.org>.

Asia Today International (2002) “Investors walk as assets are seized,” Special Online Report, Oct/Nov, <http://www.asiatoday.com.au/jakarta.htm>.

ATNC Monitor (2002) “Introduction.” Includes general information on Asian MNCs and the motivation for forming this network. <http://daga.dhs.org/atnc/introduction.htm>. Also available on this site, which is hosted by Documentation for Action Group in Asia (DAGA), is the “ATNC 2002 Annual Report,” which includes the network’s plans for the next three years.

BharatTextile.com (2003) “President Yoweri Museveni officially launches Apparels Tri-Star (Uganda) Limited,” January 27,
<www.bharattextile.com/newsitems/1981179>.

Branigan, William (1999) “Top Clothing Retailers Labeled Labor Abusers:
Sweatshops Allegedly Run on U.S. Territory,” Washington Post, January 14.

Chen, Yi Chi (2003) “Taiwanese Suppliers: Supporting the Big Brands,” Clean Clothes Newsletter, no. 16, February.

CLR (2001) “Chentex Accord Signed An update on this unprecedented, anti-sweatshop victory,” Labor Alerts, Campaign for Labor Rights, May 11,

CLR (2002) “Tainan Gap Factory El Salvador,” Labor Alerts, Campaign for Labor Rights, June 27,
<http://campaignforlaborrights.org/alerts/2002/juneindex.html#1_1>.

De Coster, Jozef (2002) “Africa attracts Asian investors,” Textile Asia,
September, pgs. 8-9.

De Haan, Esther and Gary Phillips (2002) Made in Southern Africa, SOMO, Amsterdam. Includes information on Asian investment in several countries, as well as profiles of Asian-owned factories in those countries. Also available at the CCC website <www.cleanclothes.org>.

Du Ling (2003) “Taiwanese Investment in South Africa, Swaziland and Lesotho: A Case Study by Ambassador Du Ling,” speech given by Taiwanese Ambassador Du Ling to the African-Asian Society, Balalaika Hotel, Sandton, June 12.

Roberts, Sarah, Justin Keeble, and David Brown (2002) “Reputation Management and the Business Case for Corporate Citizenship,” Ethical Corporation, March 1.

Fickling, David (2003) “Misery of rag-trade slaves in America’s Pacific outpost,” The Guardian, March 1.

Fortune (2002) “Global Most Powerful Women in Business,” October 14.

Greenhouse, Steven (2002) “Apparel Maker in Samoa is told to Pay Workers $3.5 Million,” New York Times, April 20.

INB (2001) “Major Garment Manufacturer Tri-Star Apparel Opens West Coast Headquarters,” September 10, <Internet News Bureau.com>.

Just-style.com (2003a) “Vietnam: Korea’s Beeahn Co to Build $1.2 m Garment Plant,” February 7.

Just-style.com (2003b) “Taiwan: Denim Giant Nien Hsing Says FY Profit Up,” March 26.

Li & Fung (2003) “Li & Fung Limited Annual Report 2002,”
<http://www.lifung.com>.

Maquila Solidarity Network (2001-2002) various appeals and updates posted on the Maquila Solidarity Network website. Other resources include the two WRC reports on Kuk Dong, as well as the Verite report on Kuk Dong that was commissioned by Nike and Nike’s remediation plan for Kuk Dong <http://www.maquilasolidarity.org/campaigns/nike>. See also the Clean Clothes Campaign website <http://www.cleanclothes.org/appeals> for information on the CCC’s involvement in this case.

Merk, Jeroen (2003) “The International Production of Branded Athletic Footwear,” paper presented at Sussex Conference on Global Regulation, Centre for Global Political Economy, University of Sussex, Brighton, May.

Musa, Zazali (2003) “Ramatex to expand globally,” The Star online, July 2,
<http://thestar.com.my>.

Postlewaite, Susan (2001) “As Unions Grow, an Industry Booms,” BusinessWeek online, October 22, <http://www.businessweek.com>.

Ramatex.com.my (2003)

Reuters (2003) “Shoemaker Yue Yuen may consider HK production unit,” June 17.

Simanjuntak, Tertiani (2003) “Shortchanged workers face uncertain future,” The Jakarta Post, March 26.

Sunday Observer Magazine (2003) “Tri Star signs up with Grasshopper,” March 23, < http://www.sundayobserver.lk/2003/03/23/bus22.html>.

Sweatshop Watch (1999-2003) updates on the three Saipan lawsuits can be found at the Sweatshop Watch website <www.sweatshopwatch.org>. Sweatshop Watch was one of the organizations that took legal action against the U.S. retailers for their role in rights violations in Saipan garment factories.

WGSN Daily (2003) “Hong Kong: Yue Yuen to grow through acquisition,” June 17.

Workers College and ITGLWF Africa (2002) Organising to End the Slave Trade: Building Organising Campaigns in the Lesotho Garment Sector, Workers College Research and Pulications Union and ITGLWF Africa Region, Durban.

Wick, Ingeborg (2002) “Labour rights violations at PT Tuntex, Indonesian garment supplier of adidas-Salomon 1999-2002,” April 24, <http://www.cleanclothes.org/companies/adidas02-04-24.htm>.

Wu, Tiffany (2003) “Newsmaker Taiwan’s shoe king stays out of the limelight,” Reuters, June 9.

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