VZCZCXRO9902
RR RUEHLMC
DE RUEHLM #2105/01 3541222
ZNR UUUUU ZZH
R 201222Z DEC 06 ZDK
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC 4985
INFO RUCPDOC/USDOC WASHDC
RUEHNE/AMEMBASSY NEW DELHI 0395
RUEHKA/AMEMBASSY DHAKA 9716
RUEHIL/AMEMBASSY ISLAMABAD 6652
RUEHKT/AMEMBASSY KATHMANDU 4712
RUEHKP/AMCONSUL KARACHI 2082
RUEHCG/AMCONSUL CHENNAI 7216
RUEHGV/USMISSION GENEVA 1625
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP

UNCLAS SECTION 01 OF 03 COLOMBO 002105 
 
SIPDIS 
 
SENSITIVE, SIPDIS 
 
DOL/ILAB FOR TINA MCCARTER 
 
DRL/IL FOR LAUREN HOLT 
 
STATE FOR SCA/INS 
 
MCC FOR S GROFF, D NASSIRY AND E BURKE 
 
GENEVA PASS USTR 
 
 
E.O 12958: N/A 
TAGS: ECON ELAB EIND ETRD PHUM SOCI EAID CE
 
SUBJECT:  Agreement Ends Tea Plantation Strike For Most 
 
 
¶1.  Summary: Sri Lankan tea trade unions have been striking for the 
last two weeks to demand an increase in wages.  On December 19, most 
unions, representing 80-90 percent of the tea plantation workforce, 
entered into an agreement for a moderate increase in wages.  Some 
unions, however, did not call off the strike, continuing to demand a 
larger increase in wages.  As tea is one of Sri Lanka's most visible 
export industries, continuation of the strike and increased 
international awareness of the terms under which the tea estate 
workers labor, could jeopardize current exports and the country's 
reputation for having acceptable labor standards. 
 
TERMS OF THE AGREEMENT 
----------------------- 
 
¶2.  On December 19, the Plantations Collective Agreement was signed 
between 21 regional plantation companies, and the following trade 
unions: Ceylon Worker's Congress (CFC), Lanka Jathika Estates 
Workers' Union (LWEWU), and the Joint Plantation Trade Union Center 
(JPTUC).  The terms of the agreement includes a wage increase of 33 
percent amounting to Sri Lankan Rupees (Rs.) 65 (USD 0.60), for a 
total wage of Rs. 260 (USD 2.40) per day.  This constitutes a Rs. 
1,625 (USD 15.04) increase for each 25 working-day month.  The 
inclusive-package of Rs. 260 includes the basic salary of Rs. 170 
(USD 1.57), guaranteed price share supplement of Rs. 20 (USD 0.18), 
and an attendance incentive of Rs. 70 (USD 0.65) for those who 
report to work not less than 75 percent of the 25 working-day month. 
 The agreement, backdated to November 1, 2006, will be effective for 
the next two years.  Following the agreement, President Mahinda 
Rajapaksa reiterated his intent to appoint a commission to look into 
the problems of the estate workers. 
 
¶3.  To meet the extra expenditure of the wage increase, the 
companies will incur a cost of Rs. 3 billion (USD 27.7 million) per 
year.  The 21 regional plantation companies maintain a direct 
employable workforce of approximately 400,000 persons.  This amounts 
to approximately 50 million man days, and thus an increase of Rs. 1 
amounts to Rs. 50 million.  According to the Employer's Federation 
of Ceylon (EFC), due to the wage hike, the cost of production per 
will rise to Rs. 21 per kilo, increasing all costs to approximately 
Rs. 200 (USD 1.85) per kilo. 
 
NON-PARTICIPANTS OF THE AGREEMENT 
--------------------------------- 
 
¶4.  A total of 12 unions, representing 80 to 90 percent of the total 
plantation workers, participated in the December 19 talks.  The GSL 
expects that six other trade unions will follow suit and call off 
the strike.  The JVP-led All Ceylon Estate Workers Union, the 
National Union of Workers and the Sri Lanka United Workers Front, 
however, chose not to rescind their demand for a Rs. 300 wage 
settlement.  The strike action over the last two weeks has produced 
a growing rift between the trade unions. 
 
BACKGROUND OF THE DISPUTE 
------------------------- 
 
¶5.  Since December 4, trade unions representing over 250,000 tea 
estate workers have been on strike.  Wage negotiations between 
employers and trade unions, which were under a three-year collective 
agreement, broke down in late November 2006 when workers began a 
go-slow that hampered production in the mid- and up-country estates. 
 The crux of the issue between the tea estate workers, the 
plantation companies, and the GSL was the demand to increase the 
daily wage of the estate workers which was set at Rs. 195 (USD 
1.80).  As this wage included the Rs. 60 allowance that was tied to 
attendance, workload, and prices for tea, many workers did not 
receive the full Rs. 195 even on days they worked the entire agreed 
24 working-day month.  According to the Central Bank, however, the 
average daily wage in the informal private sector in tea cultivation 
was Rs. 304 (approx USD 2.81) in 2004 and Rs. 300 (approx USD 2.77) 
 
COLOMBO 00002105  002 OF 003 
 
 
in year 2005. 
 
¶6.  Discussions between the respective parties initially broke down 
as trade unions refused to accept the GSL's proposed daily wage of 
Rs. 165, plus an increased allowance of Rs. 87 that would include 
the infrequently-received attendance allowance of Rs. 60.  The trade 
unions maintain that their wages should reflect increasing commodity 
prices and the high cost of living.  The tea companies, represented 
by Sri Lankan business chamber Colombo Tea Traders Association 
(CTTA), contend that the increase in wages would cost Rs. 5 billion 
annually, making the industry unviable.  As wages comprise 70% of 
production costs, CTTA argues that such a wage increase would make 
Sri Lankan tea uncompetitive in the international market. 
 
 
NGOS ALLEGE WAGE DISPUTE REFLECTS HUMAN RIGHTS ISSUE 
--------------------------------------------- ------ 
 
¶7.  Several NGOs argue that the low wage rate is a human rights 
issue rather than exclusively a labor problem.  On December 15, the 
Asian Human Rights commission issued a statement on Sri Lanka's tea 
plantation workers calling for a resolution.  They contend that 
current daily wages do not reflect the rising inflation and that 
workers are not given the access to the GSL's 2005 Budgetary Relief 
Allowance of Workers Act.  According to national data, 30 percent of 
the estate population lives below the poverty line, as compared to a 
national average of 19.2 percent of households.  A representative 
from the American Center for International Labor Solidarity stated 
that the plantation workers are among the lowest paid and most 
oppressed sectors of Sri Lankan laborers.  A majority of the tea 
workers are descendants of "hill country Tamils" who were brought by 
the British in the 19th century to work in the plantations.  This 
subgroup is looked down upon by other Sri Lankan Tamils, who trace 
their roots to the Jaffna region and arrived centuries before the 
cultivation of tea in Sri Lanka and the resulting migration of hill 
country Tamils. 
 
BACKGROUND ON THE SRI LANKAN TEA SECTOR 
--------------------------------------- 
 
¶8.  Sri Lanka is presently the world's largest tea exporter, with 21 
percent global export market.  It is a supplier of bulk teas to the 
world and competes primarily on the basis of price.  The CTTA warns 
that the strike has a number of serious implications for the tea 
industry and the economy as a whole.  These include a loss of 
several million dollars revenue to the government and the tea 
companies; significant loss in export earnings; negative impact on 
the quality of teas; adverse impact on the cash flow of plantation 
companies; difficulty in meeting employee wage commitments; and 
ultimately, jeopardy to the country's credibility as a major 
international tea exporter and its reputation for good labor 
practices. 
 
¶9.  The losses incurred to date will make it difficult for the tea 
industry to reach production export targets set for 2007.  When the 
2007 budget was announced in mid-November 2006, the GSL proposed key 
initiatives that would enable the industry to reach a revenue target 
of Rs. 150 billion (approx USD 1.39 billion).  The tea industry is 
the country's second highest exports earner after apparel with 92% 
of tea exports going to Russia, U.K., Japan and the U.S.  The 
industry will face major setbacks in the beginning of 2007, due to 
production losses incurred during the strikes.  Further, the 
industry will face an increasing challenge from rival tea producing 
nations such as India and Kenya, and new competitors such as 
Vietnam. 
 
 
ADDITIONAL CHALLENGES FOR THE TEA SECTOR 
---------------------------------------- 
 
 
COLOMBO 00002105  003 OF 003 
 
 
¶10.  In addition to the strike action, the tea industry is faced 
with other challenges.  Heavy rains hampered the November 
production.  Further, companies struggle to cope with high 
fertilizer prices and escalating power rates, with the former 
adversely affecting the quality of the crop as planters are less 
inclined to apply the right dosage of fertilizer to the estates. 
Other increases in the cost of production include the process of 
upgrading their factories to meet high international standards and 
other quality assurance practices. 
 
¶11.  Comment:  Although Sri Lanka is famous for its "Ceylon Tea," 
which is recognized for its quality, the global market is largely 
price-based, and significant increases in costs could have a 
negative impact on Sri Lanka's competitiveness in this sector. 
Despite the compromise on the already-low compensation for the tea 
workers', it is encouraging that the government and many key trade 
unions were able to agree on a wage increase.  Further, the contract 
appears to eliminate the prior requirement that laborers work 24 
days in order to receive a significant portion of their paycheck, 
replacing it with a comparatively generous requirement of working 
75% of the up to 25 days that work is available. 
 
BLAKE