Corporate Codes of Conduct:
A Follow-up Study

by Junya Yimprasert and Christopher Candland
Thai Labour Campaign
24 July 2000

Corporate Profits Up

How have codes of conduct preformed in the year since research was completed for "Can Corporate Codes of Conduct Promote Labor Standard?" How have the codes affected working conditions? Are workers permitted to practice their right to free association?

We begin by asking whether the producers have recovered from the 1997-98 financial crisis. How did the Thai producers for transnational footwear corporations perform in 1998-99? We have followed three groups, the Saha Union, the Pan Group (which consists of both the Bangkok Rubber and Pan Asia Footwear), and the Wongpaitoon group. Each of these declared losses in 1998, largely on account of unanticipated currency exchange rate changes after the floating of the baht in 1997. These sub-contracting conglomerates, however, recovered quickly.

The Saha Union group did best, with announced net profit of 2.2 billion baht (US$ 59.46 million). [1] Shoe production within the Saha Union group increased from 4.7 million pairs in 1997 to 6 millions pairs in 1998, an increase of 47%. Shoes exports sales, at 3.07 billion baht, increased by 38% in 1997. The company also established three new subsidiary manufacturers for shoe uppers in Burirum, Khonkaen, and Nakorn Ratchasima provinces in the Northeast. [2]

Bangkok Rubber also made a strong recovery. In 1998 the group's net profit was 738.27 million baht (US$ 19.95 million). Sales increased from 4.48 billion baht in 1997 to 6.02 billion baht in 1998, as the group became a Strategic Partner of Nike and gained Partnership status with Reebok. [3] Company reports claim that European Union anti-dumping policy against Chinese products promoted its sales. [4] Bangkok Rubber produces for Nike, Reebok, Adidas, Diadora, Keds, Timberland, Pan, and its new customer K-Swiss, chiefly for the European market.

Pan Asia Footwear also recovered. Its net profit in1998 was 411.44 million baht (US$ 11.12 million), strongly higher than in 1997, which was 271.40 million baht. [5] Bangkok Rubber Group and Pan Asia Footwear are the world's largest shoe production conglomerates. Their sales in 1998 were not less than 20 billion baht. [6]

Wongpaitoon underwent heavy debt restructuring in 1998. As the group was doing very well in 1996, it borrowed US$ 100 million from Daiwa. As the company found itself facing the country's economic turmoil as well as restructuring to pay back the debt to Daiwa Securities, Wongpaitoon Group's profits in1998 was limited to 54 million baht. [7] The chief weakness of Wongpaitoon is that it produces for a single transnational corporation, Reebok. Although Wongpaitoon has a close relationship with Reebok and has signed the Manufacturer Agreement with Reebok for another five years, the group is dependent upon Reebok for orders. Therefore, the company has looked for alternative customers, including Nike, Adidas, Ryka, Yukon, and Lotte. Most of its production is sent to the United States (53%), Canada (6%), and Europe (36%).

After the crisis, each of these three Thai conglomerates reported losses on export earnings. Within a year each increased profits and expanded production significantly.

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Labour Costs Down

How have workers been affected? Have workers benefited from the company profits? Or have these companies profited by cutting workers' wages and welfare?

Although the financial crisis that began in 1997 lead to significant increases in prices for basic commodities, the minimum wage has not been increased since the onset of the crisis. The minimum wage is higher in the Philippine and Malaysia than in Thailand, nevertheless, each of the footwear producers complains that the minimum wage in Thailand is higher than China and Indonesia. They use that fact to threaten Thailand's footwear producers.

Most companies in the footwear and apparel industries in Thailand used the 1997 financial crisis as an excuse to cut wages, benefits, welfare provisions to their workers. Bangkok Rubber, for example, did not pay the promised bonus to workers in its main plant in 1998 on the grounds that the company was facing financial losses. The workers in remote factories have no other benefit except for two uniform shirts per year and bus transportation to and from the factory. The Wongpaitoon Group cut many of the benefits that it promised to workers. Those workers who protested not receiving a bonus for the past two years have been dismissed. Among the apparel workers, the Par Garment workers have not received the bonus or other benefits promised in the agreement signed between the company and the union. The Lian Thai company continues to employ workers only for four month periods and underpays new workers on the grounds that they are in job training.

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The Target System

The target rate system is the new technique for labor exploitation and has become widespread among Thai producers. Bangkok Rubber introduced the target rate system to footwear manufacturing. At present every group - Bangkok Rubber, Pan Asia, Saha Union and Wongpaitoon - uses the target rate system to their production. The system is designed to undermine corporate codes of conduct and other forms of labor protection. Most the workers who produced for these companies, especially in the satellite factories in the remote villages, complained of being underpaid. Bangkok Rubber and Pan Asia Footwear have many satellite factories in remote villages, which are difficult to locate and monitor. The Bangkok Rubber groups itself has 12 major factories that produce footwear and the supply materials, which are located throughout Thailand. This figure does not include the numerous satellite factories in remote villages.

In Narai Rubber, a satellite manufacturing unit of Bangkok Rubber, the normal work shift is from 7:30 am to 4:30 pm. Typically, workers continue working until 8:00 or even 10:00 pm. Yet many of these workers received only 130 baht per day. If we calculate the overtime pay that they should receive, it is clear that they are substantially underpaid. If a worker has been working from 7:30 am until 7:30 pm, she has worked three hours of overtime. If the overtime payment is calculated, at time and a half, she should receive 203 baht. In fact, she is typically paid only for the eight hour working day, and thus underpaid by 73 baht.

The Bangkok Rubber workers in Bangkok who produce for Nike, Timberland, and K-Swiss reported that they have received less income from the target rate system when compare with the over time money they should be receiving. They have calculated their income on the target rate system and the supposed over time payment they should get in November 1999 and told us that they should get much higher than what they had received if they were paying according to over time system.

However, they said that in the beginning that the Bangkok Rubber Group applies the target rate system, in 1995 and 1996, the rate is acceptable and they received higher than over time payment. But the setting of the target rate has increasing every year, from 300 pieces to 700 or 800 pieces for the first target. Nowadays, they produce more pieces to receive the same or less amount of income.

"We have to work in a team, from 7 to 18 workers (depending on the line of producing). We have to keep pressure on our team to work hard so that we can reach the target. We have to eat very quickly sometime the hot noodle soup boil our mouth because we have to return to work as soon as we finished the meal. " [8]

In both Bangkok Rubber and Narai Rubber, workers have been ordered to clock their card at the normal working hour and return to work again to continue their work until 7 to 10 o'clock. This is to avoid being checked from violating of labor laws and codes of conduct on working hour and over time payment.

It is not surprising that Pan Asia Footwear reports an increase in profits since 1997 but a reduction in labor cost. Labor costs have been reduced from 8% of total capital costs in 1997 to 6% in 1998. The 2% reduction of labor costs is probably due to underpayment of wages effected by application of the target rate system. [9]

The workers from Wongpaitoon Groups who apply target rate system only the last two years reported of facing similar problem to that of Bangkok Rubber workers. The Wongpaitoon workers prefer the over time payment system to the target rate system.

In the footwear industry, 60 to 70% of the capital cost is on imported material, which is relatively fixed or increasing. Labor costs, on the other hand, can be changed or reduced. Therefore, while materiel costs are increasing, labor costs are under pressure.

The target rate system has to be monitored seriously as it violates labor law on payment for overtime. The target rate system must either be banned or adjusted to conform to minimum wage and overtime wage regulations. Companies should compensate workers who have been underpaid under the target rate system.

The 60 hour work week is one of the most important issues addressed by corporate codes of conduct. Overtime work creates many channels for exploitation. While companies claim that workers complain that they do not receive enough overtime work, as the working environment, including the heat and chemical fumes, can easily lead to serious physical injury, workers should not work more that 60 hours per week.

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Why is overtime so important to workers?

Given the hazardous working conditions, why is overtime work so important to workers? Workers ask for overtime work because they can not live on the minimum wage. At 60 hours per week, one month's work at the minimum wage is only 3,380 to 4,212 baht (between US$ 91.35 and US$ 113.83). This is not enough to support oneself, much less ones family. As overtime pay can increase ones monthly income by 50% to 100%, overtime work is very important to workers. Workers do not want to work over time; they want the overtime income. The minimum wage in Thailand is set below a living wage. It has not been increased since the financial crisis. The minimum wage must be increased.

The 60-hour work week regulation leads manufacturers to use techniques to pressure workers to work harder or, in company parlance, to work "more efficiency." The application of the target rate system is one such technique and has been quite effective for companies. Other techniques include requiring workers to punch in and punch out their time cards at 9 am and at 5 pm, even if they start earlier and finish later, so as to avoid traceable violations of working hours and overtime payment regulations.

Codes of conduct can be affective in some circumstance if they are implemented and monitored closely by those who understand labor law. Monitors who seek to find loopholes in the labor law can easily render codes of conduct meaningless.

One of the areas that corporate codes of conduct have seemingly improved working conditions is in the area of health and safety. Codes can improve fire prevention systems, promote cleaner working environments, and provide protective equipment. However, there are many aspects of the codes that cannot be implemented effectively, especially those pertaining to working hours, wages, benefit, welfare, and especially freedom of association. Further, codes are only applied in the main manufacturing units but not in the sweatshop or subsidiary manufacturers.

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Did workers benefit from Codes of Conduct?

Have apparel workers benefit from the codes of conduct? In footwear industries, the transnational corporations who have its codes of conduct can influence its producers to follow codes of conduct in some circumstance, especially in health and safety. In the apparel industries, however, the application of corporate codes of conduct is limited and has failed to improve the working condition. In the garment industries, orders for many name brand products have been transferred to home based workers, sweatshops, and small factories in remote villages. The names of these sub-contractors are kept secret, making it difficult to locate them and monitor labor practices therein. Workers in the home based enterprises and sweatshops are not protected by law and have no benefits. Many workers have been laid off or dismissed under pressure to work in the informal sector without benefits or protections, where they work harder to earn the income that they used to receive.

Many of the garment manufacturers closed down their main plants and order production from sub-contractors and sweatshop. The closing down of Eden group without paying compensation to 700 workers is still causing pain to those workers. Many of Eden workers are now work under sub-contract from manufacturers to produce for Nike, Adidas, and the Gap. Par Garment reduced it workers from over 800 workers to only 200 workers while operating 4 subsidiary factories.

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The effect of Codes of Conduct on Unions

Are workers permitted to exercise their right to freedom of association and freedom of expression under codes of conduct? One of the major focuses of codes of conduct is the right to unionize. Most of the companies failed to comply on this issue. For example, the Tactic Company of the Wongpaitoon group dismissed 11 workers who tried to organize a union early in 1999. Bangkok Rubber Company dismissed workers who protest against the company and blacklisted the workers, denying them employment throughout the footwear industry. The Saha Union group is infamous in Thailand for its virulent anti-union activities. Several groups of workers in the Saha Union group who attempted to organize a union were dismissed as soon as the company learned of their intention to form unions.

Many workers in the footwear industry become terribly frightened when asked about union activities. In one interview with Bangkok Rubber workers, workers pretended that they did not know what a union was, and became afraid to talk to us. Later, they told us of their experience of seeing fellow workers dismissed and blacklisted for attempting to organize a union.

In the apparel sectors, the experience of the Par Garment union provides strong evidence of the anti-union activities of the producers. The union has had to undergo many court cases and still many cases are pending. The six union committee members lost their case in the labor court in January 2000 and made an appeal of their case to the Supreme Court. Other pending cases include compensation for underpayment from misuse of Article 75, unpaid bonus payments from 1997 to 1999, and dismissal of 24 union members. Further, the company has cut many services to workers, violated agreements with the union, provided no uniforms to workers, terminated transportation services in some area, and cancelled meetings between the management and workers.

The Lian Thai Union was selected as one of the five pioneer companies under the Global Alliance for Workers and Communities Development Project. It is the only factory within the Global Alliance that has a labor union. However, the Lian Thai union can not provide much protection to workers. The company accused the union treasurer of stealing a T-shirt from the company, reported her to the police, and had her imprisoned. The union collected 100,000 baht from workers for her bail. The case is still pending. The chairman of the union reported that the treasurer, who has worked in the position for several years, has an impeccable reputation. Usually the company fines or fires alleged thieves, but does not bring these cases to court. Lian Thai union committee members believe that the company wants to show its power over the union. The company knows that the union's resources can be easily exhausted in a legal defense.

Because of the economic crisis, the Thai government has been very flexible and made many compromises with producers. This attitude has also influenced judges. The Par Garment workers told us about their experience in court.

"The judge tried to persuade us to compromise with the employers, when we refused, the judge got angry and told us that we are stupid and hard-headed. If she were the employer, she said, she would not only dismiss us but would hire someone to kill us. … However, we confirmed our intention to continue the court case. The judge then told us to build the coffin and to wait. … She said that we must have already been blacklisted by our employers." [10]

As judges hold workers contempt, it is not surprising that most workers lose their cases in the labor courts.

Transnational corporations do not need to pressure their producers on the issue of union and freedom of expression. If a transnational corporation wants to prevent the formation of a union, it can stop placing orders with the manufacturers in question. This is not the way to solve labor problems and encourages manufacturers to violate workers' rights. Transnational corporations should pressure the manufactures to stop harass and prevent unions, rather than stop placing orders. Indeed, transnational corporations should communicate directly with workers.

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Conclusion

After a year of study, each of the companies recovered from their 1997 losses and obtained significantly higher profit in 1998 than they had secured before the financial crisis. Rather than benefiting workers, these profits have been extracted from workers, through increased working hours, lower pay and benefits, and continued suppression of union activities. The cycle of exploitation in the footwear and garment industries continues. The application of the target rate system is an effective tool for increasing labor exploitation and is now widespread throughout the footwear industry. Workers interviewed claimed that the target rate system leads to over time and underpayment.

Many techniques have been used to avoid being caught violating codes of conduct. Many company fund community and social work to promote a good public image but fail to respond to labor problems in the manufacturing units which supply their products. The suppression of union members continues, especially in the Par Garment and Lian Thai companies. The dismissal of those workers who protested or tried to organize a union is unacceptable. The use of sub-contractors under sweatshop conditions continues. Sub-contracting workers are not protected under law. Transnational companies refuse to publish their lists of producers. This has made it very difficult for independent monitoring. The names of subcontractors do not appear in the company's producer lists. Thus, many cases of labor law violations are kept within the company. The codes of conduct are only respected at the main manufacturers but fail to be applied in the satellite subsidiary manufacturers, including many sweatshops.

1. Saha Union Public Company Limited, Annual Report 1998, (Bangkok: Saha Union Group, 1999), 1.
2. ibid., 7
3. Bangkok Rubber Public Company Limited, Annual Report 1998, (Bangkok: Bangkok Rubber Group, 1999), 6.
4. ibid., 9
5. Pan Asia Footwear Public Company limited, Annual Report, (Bangkok: Pan Asia Footwear, 1999).
6. Bangkok Rubber Public Company Limited, Annual report 1998, (Bangkok: Bangkok Rubber Group, 1999), 10.
7. Wongpaitoon Public Company Limited, Annual Report, (additional version), (Bangkok: Wongpaitoon, 1999), 7/1-1.
8. Anonymous Bangkok Rubber Group workers, interviews, 30 March 2000.
9. Thai Labour Law of 1997 section 5 article 61, states that overtime payment should not be less than 1.5 time the normal working wage.
   
10. Anonymous Par Garment union member, interview, 1 January 2000.