VZCZCXRO6890
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0415/01 1970317
ZNR UUUUU ZZH
R 150317Z JUL 08
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 7410
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASH DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHNSC/NSC WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC

UNCLAS SECTION 01 OF 02 GUANGZHOU 000415 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR FOR STRATFORD/WINTER/MCCARTIN/LEE 
STATE PASS FEDERAL RESERVE BOARD FOR JOHNSON/SCHINDLER 
STATE PASS SAN FRANCISCO FRB FOR CURRAN 
TREASURY FOR MOGHTADER 
 
E.O. 12958: N/A 
TAGS: ELAB EIND EINV CH
SUBJECT: Assistant USTR Karesh Discusses the Labor Contract Law in 
Guangzhou 
 
Ref: Guangzhou 414 
 
(U) This document is sensitive but unclassified.  Please protect 
accordingly. Not for release outside U.S. government channels. Not 
for internet publication. 
 
¶1. (SBU) Summary:  China's new Labor Contract Law is forcing U.S. 
companies to reassess their hiring strategies, especially with 
regard to contract workers, according to executives who met recently 
with Assistant U.S. Trade Representative (AUSTR) for Labor Affairs 
Lewis Karesh.  All of the executives -- from Procter and Gamble 
(P&G), Avon, Wrigley, and Jabil -- agreed that employee unions were 
not noticeably strengthened by the new law.  They also complained 
that government plans for implementation of new labor legislation 
were unclear but commended government efforts to solicit private 
sector feedback.  Although a representative of the Guangzhou Lawyers 
Association described the Labor Contract Law as an important step in 
improving the Chinese social security system, U.S. company 
executives pointed to outstanding problems and agreed that 
comprehensive reform is still a ways off.  End summary. 
 
More Difficult to Use Contract Workers 
-------------------------------------- 
 
¶2. (SBU) A number of American companies told AUSTR Karesh that the 
Labor Contract Law is forcing them to reassess their HR strategies 
in south China.  Hide Aida, P&G's HR General Manager for Greater 
China, said that his company is redesigning its operations to ensure 
that full-time and contract employees do not share any 
responsibilities.  According to Aida, the law requires contract 
workers who perform the same tasks as full-time employees to be 
compensated at the same level.  Aida said that a contract employee 
costs P&G about 40% less than a comparable full-time staffer. 
 
¶3. (SBU) Jabil's HR Regional Manager for Greater China, Tim 
Noun-Sin, told AUSTR Karesh that she finds a provision in the law 
preventing companies from hiring contract workers for longer than 
six months to be problematic.  She pointed out that Jabil, which 
provides services to electronics manufacturers, often has projects 
that last about a year, and replacing all the contract workers 
halfway through each project would be prohibitively expensive.  As a 
result, she said, the company is trying to move many of its contract 
workers onto the payroll as full-time employees. (Comment: this 
matches what the Consulate has heard from other contacts in the 
business community.  Shenzhen Development Bank Chairman and CEO 
Frank Newman recently told Consul General Goldberg that his bank has 
been forced by the Labor Contract Law to convert most of its 
contract workers into full-time employees. End Comment.) 
 
 
Unions Still Weak 
----------------- 
 
¶4. (SBU) All of the company officials who met with AUSTR Karesh 
agreed that unions in south China haven't been strengthened much by 
the Labor Contract Law.  P&G's Aida described his company's 10-year 
old union as an "employee association" that mostly organizes picnics 
and similar events.  Jabil's Tim described the unions that existed 
in her plants similarly.  Aida said that P&G management essentially 
selects the union leaders by encouraging their favored candidates to 
step forward.  As a result, Aida said, the union has been very 
supportive of management in labor disputes, so far staying neutral 
in labor mediation and lawsuits pursued by P&G employees.  Jabil's 
Tim and Avon's HRSC Manager, Ivy Long, agreed, saying that while 
their companies' unions could theoretically assist workers in 
disputes with management, they've seen little evidence that this is 
happening.  The HR executives also told AUSTR Karesh that they are 
having no more trouble terminating employees than they were before. 
Jabil's Tim agreed, but noted that the reasons must be documented 
and severance payments, which often become a point of negotiation, 
must be made.  Aida commented that non-fixed, open-ended contracts 
such as the ones signed by most P&G full-time employees are little 
affected by the law. 
 
¶5. (SBU) Aida asserted that the Guangdong government has recently 
been pushing P&G to establish collective bargaining with its unions, 
but the company has so far successfully resisted this pressure. 
Aida commented that P&G sees collective bargaining as a serious 
threat to its labor policies in China and is trying hard to avoid 
it.  He added that the government is privately telling him that it 
 
GUANGZHOU 00000415  002 OF 002 
 
 
only wants "token" collective bargaining from P&G, as it primarily 
wants to use their example as leverage with other international 
companies. 
 
 
Problematic Implementation 
-------------------------- 
 
¶6. (SBU) Although the executives all gave the government high marks 
for soliciting and listening to private sector feedback, they were 
less enthused about implementation of recent employment laws. 
Wrigley's People, Learning, and Development Director, Daniel Mo, 
complained about a lack of clarity, pointing out that the Employment 
Promotion Law's provision banning discrimination for medical reasons 
conflicts with the Food Law, which requires companies to certify 
hygiene licenses for employees.  Jabil's Tim agreed, claiming that 
there is currently no one in the government who can give legal 
advice about the new laws.  Xiao Shengfang, of the Guangzhou Lawyers 
Association, agreed that implementation has been uneven but said 
government regulations concerning the Labor Contract Law would be 
published by the end of the year and should bring a more consistent 
and clear approach.  (Some implementation guidelines have been 
published - see Reftel.) 
 
 
Effects of Labor Arbitration Law 
-------------------------------- 
 
¶7. (SBU) According to the Guangzhou Lawyers Association's Xiao, the 
recently promulgated Labor Arbitration Law has lowered the barriers 
for workers to take advantage of arbitration by eliminating all 
related fees.  Xiao told AUSTR Karesh that the number of arbitration 
cases in Guangdong Province has increased dramatically in the last 
few months, although he sees this as pent-up demand that will 
decline as the cases move through the system.  Xiao further 
commented that the most common arbitration cases involve disputes 
about overtime payments; severance payments; social security 
funding; and employers changing an employee's position or salary 
without consent. 
 
 
Social Security Program a Patchwork 
----------------------------------- 
 
¶8. (SBU) The Guangzhou Lawyers Association's Xiao also told AUSTR 
Karesh that one of the benefits of the Labor Contract Law has been a 
great increase in social security coverage.  He explained that 
social security payments typically result from having an official, 
signed contract, and the contract signing rate for workers has 
increased dramatically since the law came into force.  The company 
executives all pointed to ongoing flaws in the social security 
program, however, including its poor portability between locations 
and patchwork regulations.  Avon's Long commented that companies 
with country-wide operations typically have to adopt the highest 
possible level of benefits across all areas in order to avoid 
trouble.  Wrigley's Mo said that unifying the social security 
program will be extremely complicated and that he doesn't expect any 
major changes before 2010 at the earliest. 
 
¶9. (U) USTR cleared this cable. 
 
GOLDBERG