This record is a partial extract of the original cable. The full text of the original cable is not available.

100322Z Jan 06

ACTION EAP-00   

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FM AMCONSUL HO CHI MINH CITY
TO SECSTATE WASHDC PRIORITY 0214
INFO AMEMBASSY HANOI PRIORITY 
USDOC WASHINGTON DC
DEPT OF AGRICULTURE WASHINGTON DC
USMISSION GENEVA PRIORITY 
DEPT OF TREASURY WASHINGTON DC
DEPT OF AGRICULTURE USD FAS WASHINGTON DC
ASSOCIATION OF SOUTHEAST ASIAN NATIONS
AMCONSUL HO CHI MINH CITY

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 
 
 
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