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RUEHKT/AMEMBASSY KATHMANDU 8609
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UNCLAS SECTION 01 OF 04 DHAKA 004412 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS USTR 
 
E.O. 12958: N/A 
TAGS: ELAB ETRD ECON PHUM BG
SUBJECT: BANGLADESH RMG SECTOR LABOR UNREST - CAUSES AND 
PREDICTIONS 
 
REF: A. DHAKA 3258 
     ¶B. DHAKA 3132 
     ¶C. DHAKA 3053 
     ¶D. DHAKA 3002 
     ¶E. DHAKA 2089 
     ¶F. DHAKA 1740 
 
¶1.    Nearly two months after labor unrest exploded into 
violence outside of Dhaka, the ready-made garment (RMG) 
industry has largely returned to normal.  Agreements 
negotiated between industry and labor groups must still be 
implemented, with a decision on the most contentious issue -- 
raising the statutory minimum wage -- due by mid-September. 
Small incidents, sometimes wholly unrelated to the industry, 
continue to spark occasional conflict at individual 
factories.  All factories within the Dhaka Export Processing 
Zone (DEPZ) have resumed operation, although investors remain 
concerned about security.  International buyers' 
representatives continue to monitor developments closely, 
while resisting sellers' pleas for higher prices to offset 
expected wage increases.  End summary. 
 
¶2.    On May 22, simmering disputes at the Universal Sweater 
Factory in Savar, northwest of Dhaka, erupted into violence, 
quickly spreading to nearby factories and ultimately spilling 
into the DEPZ, roughly a mile away (Ref D).  The violence 
continued the following day, spreading to factories in and 
around Dhaka, before finally being brought under control late 
on May 23.  Sporadic outbreaks of violence continued over the 
next few weeks, at one point prompting investors to 
completely suspend their operations in the DEPZ. 
 
Underlying Causes 
----------------- 
 
¶3.    There were many theories about the causes of the 
violence, some plausible, some farfetched (Ref C).  Two 
dominant explanations have emerged, supported by several 
underlying factors. 
 
¶4.    First, worker frustration over wage issues finally 
erupted.  Although government's failure to raise the legal 
minimum wage became the rallying cry for labor organizations, 
for many workers the issue was not so much the amount of 
wages as the failure of many factory owners to pay wages on 
time and to pay required overtime rates.  In the knitwear 
sector, where most workers are paid by the piece, workers 
protested the practice of some factories of announcing the 
piece rate only at the time of payment, rather than in 
advance.  Piece rate workers were also frustrated by the lack 
of an "overtime" mechanism to reflect long hours during 
production surges.  These piece rate issues were at the root 
of the dispute at Universal Sweater (Ref B). 
 
¶5.    The second factor that has emerged is the role of 
Zahedul Islam Zahed, a leader of BNP's labor wing. Known to 
some as the "Mafia leader of Savar," he has a rough 
reputation as an illegal toll collector and labor agitator 
who plays both sides of the fence, stirring worker unrest 
then collecting bribes from factory owners to restore labor 
peace.  Many now believe that he and other "musclemen" and 
extortionists took advantage of the May 22 protests to 
generate continued worker agitation over the following weeks. 
 Zahed's role became conspicuous after he led several violent 
labor demonstrations in and around the DEPZ.  He was arrested 
June 20 and remains in custody pending a formal charge sheet. 
 Coincidentally, calm returned to the area not long after his 
arrest. 
 
¶6.    Other factors created conditions that allowed an 
otherwise routine factory dispute to turn violent.  May is 
traditionally a high volume month in the industry as 
companies rush to meet seasonal buying trends.  As a result, 
many factories were requiring significant overtime, in many 
cases operating seven days a week.  Workers understand that 
pressures on the industry during this period give them more 
leverage for pressing any demands. 
 
¶7.    Increased problems in the power sector also played a 
role.  Rolling blackouts (known locally as "load shedding") 
interrupted production at many factories, creating further 
 
DHAKA 00004412  002 OF 004 
 
 
pressures on delivery schedules.  Load shedding also affected 
workers and their families in their homes, adding to general 
irritation and anxiety.  (Note:  Lack of power had already 
triggered violence elsewhere, in Kanshat (Ref E), prompting 
concessions from government officials.  End note.) 
 
¶8.    Workers also felt under pressure from rising prices for 
everyday essentials as annualized inflation approached seven 
percent.  Although average wages are more than double the 
legal minimum wage, workers clearly felt rising prices were 
significantly undermining their standard of living. 
 
¶9.    Workers had also become increasingly concerned about 
working conditions in their factories, especially after 
several workers died in two factory fires (Ref F).  The 
collapse of a former factory undergoing renovation, 
reminiscent of the collapse of a garment factory a year 
earlier in Savar, further heightened worker concerns about 
the safety of their factories and frustrated over lax 
enforcement of workplace safety codes. 
 
¶10.   Rapid new investment to meet strong market demand 
following the end of the Multi-Fiber Arrangement has also 
contributed to rising worker tensions.  Our contacts in the 
industry tell us that many new factory owners, while 
successful businessmen generally, have little experience in 
the garment industry.  As a result, they are prone to under 
price their products and agree to unrealistic delivery terms. 
 This in turn creates financial pressures, leading to late 
payment of wages, pressure to work uncompensated overtime, 
and in some cases outright fraud in the accounting of worker 
hours.  Rapid expansion coupled with geographic concentration 
has also created labor shortages, particularly in the 
Savar/Dhaka area, driving up wage costs for skilled labor 
(i.e., workers who have completed their three-month 
apprenticeship) and prompting some owners to make unrealistic 
promises in order to attract labor. 
 
¶11.   Garment workers were not the only protestors; indeed, 
most of the protesters on May 22 and 23 were men, even though 
women make up nearly 80% of the workforce in the garment 
industry.  Spontaneous crowds form easily in Bangladesh, with 
simple traffic accidents enough to spark an unruly mob. 
Construction workers, day laborers and bystanders all joined 
in, swelling crowds and contributing to the violence and 
property damage.  It is also noteworthy that the violence 
remained localized to the Savar/Dhaka EPZ area, where about 
10% of the country's garment factories are located. 
 
The DEPZ Difference 
------------------- 
 
¶12.   Although labor unrest affected companies both inside 
and outside the DEPZ, deliberate agitation and provocation 
seemed to play a larger role in the EPZ.  In one case, 
workers became violent at one of four Youngone factories in 
the DEPZ when word spread that a mid-level manager had struck 
and injured a pregnant worker.  The incident never happened 
and was traced to a deliberate rumor that spread rapidly in 
the highly charged atmosphere that followed the May 22-23 
outbursts.  The situation snowballed when Youngone shut the 
factory to restore order.  Workers, who are not paid when the 
factory is closed, began agitating at the other Youngone 
plants, eventually forcing all to close for several days. 
The factories reopened a week later and there has been no 
further problem. 
 
¶13.   The protests led by Zahed were also organized outside 
the DEPZ, but then led by him to the DEPZ.  In a few cases, 
foreign investors, especially Korean owned firms, seemed to 
be singled out for agitation. 
 
¶14.   A few other plants in the DEPZ also experienced 
sporadic worker protests and were forced to suspend 
operations for a few days.  These particular factories had a 
history of worker complaints, and the issues (timeliness of 
wage payments and questionable behavior of middle management) 
appeared to have merit.  Negotiations between management and 
the workers resolved these individual disputes within a few 
days, although the press often sensationalized these disputes 
as part of a broader upheaval in the DEPZ.  Significantly, 
 
DHAKA 00004412  003 OF 004 
 
 
these disputes did not spread to other factories within the 
EPZ, despite efforts by some workers to enlist support from 
workers in other factories. 
 
¶15.   Wage demands were less of an issue at factories within 
the EPZ for two reasons.  First, the rules governing 
factories in the EPZs set wages in dollars, which has helped 
prevent erosion of real wages.  Workers did successfully 
press for the exchange rate to be calculated monthly, rather 
than yearly, to better account for depreciation of the taka 
against the dollar. 
 
¶16.   The other factor was the 2004 labor law, which provided 
for a transition to collective bargaining and freedom of 
association within the EPZs.  Under the law, the transitional 
Workers Rights and Welfare Councils (WRWC) are allowed to 
negotiate a defined set of issues with management, which do 
not yet include collective bargaining over wages.  Confusion 
among workers over the scope of their collective bargaining 
rights within the EPZs, compared to the demands of their 
colleagues outside the zone, contributed initially to worker 
unrest within the DEPZ when they felt management was ignoring 
demands which from management's perspective, were not yet 
subject to negotiation.  Intervention by BEPZA, labor groups 
and in some cases, members of the WRWCs themselves helped 
clarify worker rights and keep demands realistic. 
 
Outside the DEPZ, Agreements Buy a Respite 
------------------------------------------ 
 
¶17.   Within days, leaders of the two major industry groups 
met with various groups of labor leaders to address worker 
concerns and restore labor peace.  The Bangladesh Garment 
Manufacturers and Exporters Association (BGMEA) and the 
Bangladesh Knitwear Manufacturers and Exporters Association 
(BKMEA) signed three separate but substantially similar 
agreements on June 11, June 12 and June 22 with nine, 39 and 
16 labor unions respectively. 
 
¶18.   Key points of the agreements were: 
 
-- Establishment of a minimum wage board to revise the 
existing minimum wage and address other wage related issues, 
including overtime and piecework.  The board must complete 
its work within three months. 
 
-- Amnesty for workers picked up in blanket arrests (cases 
against those actively involved in property damage would not 
necessarily be dismissed); job reinstatement. 
 
-- Immediate reopening of factories; issuance of appointment 
letters and IDs for all workers. 
 
-- Acknowledgment of workers' right to form trade unions. 
 
-- Paid maternity benefits. 
 
-- At least one day off each week. 
 
-- Improved workplace facilities, including improved health 
clinics; better monitoring and enforcement by BGMEA/BKMEA. 
 
¶19.   Although the agreements have bought a temporary 
respite, unrest could resume if workers decide the agreements 
are not being implemented in good faith.  Already, two worker 
groups have held public forums to complain that not all 
workers have been rehired and to demand a taka 3000/per month 
minimum wage (about $43). 
 
¶20.   Clearly the actions of the wage board will be critical 
to the direction of the industry.  Rising consumer prices and 
the perceived success of their May protests have raised 
worker expectations for a significant increase in the minimum 
wage.  Disappointment could well trigger further protests. 
 
¶21.   While even a 150% increase in the statutory minimum 
wage would barely bring the statutory minimum in line with 
the prevailing minimum wage, factory owners fear it would 
likely have a ripple effect on their entire wage structure, 
adding to their overall costs.  Given the thin margins in the 
industry, owners worry that they will be unable to pass these 
 
DHAKA 00004412  004 OF 004 
 
 
cost increases through to their buyers. 
 
New BEPZA Leadership Engages 
---------------------------- 
 
¶22.   As the crisis unfolded, the BDG quickly settled on 
BEPZA as the prime scapegoat, and replaced the executive 
director (Ref A).  In typical government fashion, the new 
director, Brigadier General Ashraf Abdullah Yousuf, learned 
of his appointment from television reports at his home in 
Chittagong. 
 
¶23.   Ambassador and EconOff met with BG Yousuf a few weeks 
after his appointment.  Although he has no experience in the 
industry, he seemed to quickly understand the important role 
he could play by example.  While BEPZA's authority is limited 
to oversight of the EPZs, the Executive Director is accorded 
significant respect by the industry associations.  Yousuf 
held a series of meetings with investors, labor groups and 
members of the WRWCs first to understand each side's concerns 
and then to facilitate solutions.  Unlike his predecessor, 
who was perceived by labor to be biased in favor of 
investors, Yousuf seems genuinely to view his role as that of 
an honest broker.  He told Ambassador he would like to reach 
out to international labor organizations for assistance with 
training labor representatives and expressed a willingness to 
meet with AFL-CIO's Solidarity Center when its director 
returns from leave later this summer. 
 
Buyers Help Concentrate Attention on Solutions 
--------------------------------------------- - 
 
¶24.   Major international buyers were quick to express their 
concerns over unrest in the industry and the social 
responsibility and worker welfare issues it highlighted. 
Buyer concerns were at least a contributing factor in the 
speed with which the BDG, BGMEA and BKMEA moved to address 
worker concerns.  Buyers did not panic, however.  The largest 
buying groups maintain offices in Bangladesh, and understood 
the context surrounding worker unrest.  For now, at least, no 
buyer has reduced orders to Bangladesh as a result of the 
unrest. 
 
¶25.   Buyers have also rebuffed industry suggestions that 
they help support higher wages through higher prices for the 
products they purchase.  At a buyer's conference organized by 
BKMEA to promote its actions to address worker concerns, 
buyers representatives were blunt that the industry must 
confront the core issues affecting its margins and 
competitiveness: unreliable and inadequate power, roads, 
ports and other infrastructure, corruption, and political 
unrest that disrupts production. 
 
Comment 
------- 
 
¶26.   Bangladesh and its garment industry will remain 
volatile as the current government's term expires and 
interest groups and political parties gear up for elections 
in January 2007.  In this context, should government and 
industry fail to deliver on their promises to labor, 
especially on the issue of wages, further labor unrest is 
likely. 
 
¶27.   Industry's somewhat naive request for price support 
from buyers to offset wage increases is understandable, if 
misplaced.  The industry's strong comparative advantage in 
labor costs, even with wage increases, is substantially 
undermined by structural weaknesses in the broader business 
environment over which individual businesses have little 
control.  These structural issues, rather than labor 
relations, are the bigger threat to the industry in the 
medium term and will be a significant factor in determining 
whether Bangladesh can continue to compete globally when 
safeguards against China are removed by the US and EU in 2008 
and if upcoming revisions to the EU's GSP system remove 
benefits currently enjoyed by Bangladesh. 
BUTENIS