By Steven Schwankert
Before Hewlett-Packard Company decided it would be fun to re-enact the Watergate scandal within their own corporate confines, the scandal of the summer centered on the labour practices of Foxconn.

A division of Taiwan-based Hon Hai Precision Industry Limited, Foxconn was taken to task over allegations that it mistreated its workers at its facility in southern China where it manufactures the iPod Nano, among other products for Apple and top IT companies.

Foxconn was the big loser in the scandal. Apple was slapped about a bit in the media, but in the end, people seem to want smaller digital music players more than fair working conditions at overseas factories. On the other hand, Foxconn seemed to fall out of the frying pan and into the fire, and then make its way back into the frying pan to repeat the process, especially after it sued two Chinese journalists for defamation in a case that was ultimately settled out of court.

In some ways, the story is just getting started, not just for Foxconn, but also for many foreign companies doing business in China across numerous industries.

Being pilloried in the international press is one thing, but getting the Chinese government sufficiently upset that it felt the need to do something is another.

A glimpse of what may eventually be imposed upon many multinational companies in China came in late 2004, Wal-Mart was making its push into that country. The retailing giant suddenly faced a forceful request from the Chinese government that it hadn't expected: it would have to allow its employees there to form a union.

You have to hand it to the government–they are predictably unpredictable, and sometimes they just do something no one expects.

Officially in China, trade unions are legal, but not in the way that, say, the National Union of Mineworkers is. Although organized labour is normally lumped on the liberal or leftist side of the political spectrum, China is sufficiently far to the left politically that after the Communist Party of China took control of the country in 1949, it banned independent unions and brought all others under direct government control. During the Chinese revolution, the communists had won thousands, perhaps millions to their cause by campaigning and agitating through the unions, and did not want that used against them now that they were in power.

In the U.S., Wal-Mart has vigorously resisted the unionization of its employees, giving it a low-cost source of labor for its numerous megastores. It has also been criticized for indirectly contributing to poor working conditions in China, due to the price pressure it places on its suppliers, many of whom do their manufacturing there.

It seems Wal-Marts chickens have come home to roost. Wal-Mart was forced to accept a branch of the state-run All-China Federation of Trade Unions (ACFTU). It's one thing to have to negotiate with a powerful union and suffer the threat of work stoppages. It's another thing to compound that by knowing the government is behind the union and will not act as an independent arbiter should the need arise.

This is an exceptionally creative new tool for the Chinese government to wield. While it's been lying there in the toolbox all along, only now has it made its appearance, and already the Chinese press is mentioning the possibility that Foxconn will also have to accept a union. It could be a powerful weapon for the government to wield against multinationals, although it would clearly resist any such labour practice implementation for domestic companies. If any entity recognizes the need for low-cost labour in China as an engine for growth, it's the Chinese government.

What would seem to be a victory for organized labour in China is the opposite. Chinese workers in certain sectors may happen to receive better benefits or working conditions as a by-product of the government's clash with foreign corporations. But when neither the unions' organizers nor their employers have their true interests at heart–and with independent unions still banned–can it be declared a win for the workers?

About the author:
Steven Schwankert has worked on CSR-related issues in China for many years and has been a writer, editor and entrepreneur in China since 1996. He is a founder of ChinaCSR.com and frequent contributor to this site.

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One Response to “Trade Unions, But Not What You Think”

1. By C. Mil – October 5th, 2006 at 1:36 am

   what other companies build iPods for Apple? Does Foxconn only build the Nano, or does it also make the bigger ones like the video iPod?

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