But with wages and conditions improving in China, the global race to the bottom may be at an end.

By DON McINTOSH, Associate Editor

U.S. companies have said for a decade that making goods in China would raise standards there and lead to improvements in worker rights.

Now, some globalization activists say, it’s clearer than ever that American companies are in China precisely because the workers lack freedom.

Earlier this year, China’s National People’s Congress made public a proposed set of changes to China’s labor law that would strengthen the power of unions and grant Chinese workers much greater job security.

Groups representing U.S. corporations notified the Chinese government that they opposed the changes, even warning of disinvestment if the government passes the law.

That stance has outraged some in U.S. Congress, and may lead to hearings when the newly elected Democratic majority takes office in January.

The proposed labor law reforms come about as China is rapidly transforming into a global manufacturing superpower. In one of the largest migrations in history, rural Chinese are making their way to cities and finding employment in mostly export-based manufacturing. Their willingness to do good work for low wages is siphoning export-related manufacturing from other poor countries, and also threatening jobs in Europe and the United States.

But a combination of workplace abuses and wage inequality approaching U.S. levels is provoking worker unrest.

“Over the past year there have been thousands of little demonstrations in China and it’s causing anxiety about public order,” said Jeffrey Barlow, a China expert at Pacific University. “So the Chinese leadership wants a union movement at local levels that will take that discord out of the streets.”

To restore harmony, they’re proposing a rewrite of the labor law to give workers more power in their relationship with employers.

On March 20, China’s National People’s Congress released a Draft Labor Contract Law that greatly strengthens the existing, largely unenforced requirement that every Chinese worker have a labor contract with their employer.

Under the proposed law, if an employment relationship starts without a written contract, a de facto employment contract favoring the worker would apply. That rule is intended as an incentive to get employers to sign contracts with workers, in consultation with China’s state-dominated unions.

China has unions, though they’re unlike unions in the West. Only unions belonging to the All China Federation of Trade Unions (ACFTU) are allowed in China, and their leaders are appointed by the Communist Party, which also controls the government. Now that so much of China’s economy is foreign-directed, there’s a move to increase the role of the ACFTU as a defender of workers.

The proposed law would also make it harder for employers to lay off workers, and it requires that newer workers be laid off before more senior workers. All workers would get severance pay upon expiration of their contracts. Bosses would have to have a “just cause” to terminate an employee before the labor contract up. If a company changed ownership, its labor contracts would apply to the new owner.

After making the proposed law public, the Chinese government solicited comment, and got it —160,000 comments came in, from workers, employers, and foreign companies.

In April, the American Chamber of Commerce in Shanghai submitted a detailed set of objections, criticizing the proposed law for “excessive strictness.”

“Our member companies have expressed reservations about the draft in its current form,” the Chamber wrote. “Many AmCham (American Chamber) Shanghai member companies are concerned that, as the draft stands, it is a step backwards for Chinese economic reforms — away from global trends of flexible labor markets.”

It would be better that the national legislation “not be too detail-oriented,” said the Chamber, and “for local authorities to work out such details according to local situations.” The proposed law is based on the practice of developed countries, said the Chamber, but “people must … not try to run before they could walk.” Proposed seniority protections would amount to a “discriminative policy toward new employees.” Instead, the Chamber said, business enterprises should “continuously apply the policy of ‘survival of the fittest’ on employees.”

If the draft becomes law, the Chamber wrote, it would put China at a disadvantage in competition with other countries and could lead foreign investors to go elsewhere.

The American Chamber represents 1,400 corporations, including 150 of the Fortune 500, such as Oregon-headquartered Nike.

Nike spokesperson Derek Kent told the Northwest Labor Press the Chamber didn’t consult the company before delivering the comments to the Chinese government. In light of Nike’s professed commitment to corporate responsibility, Kent said Nike supports governments’ enforcing and strengthening laws that protect workers. But Nike has no plans to tell the Chinese government that, and it’s “neutral” on the Chamber’s position. Nike doesn’t employ manufacturing workers in China — or anywhere else — Kent said, because Nike products are made by contractors. In the spring, Nike held an information session to let its key contract factories know about the proposed law and comment period..

The American Chamber’s comments, posted on its Web site, were reported in several foreign newspapers, including a June 24 article in the London Guardian caught the attention of staff at Global Labor Strategies, a non-profit research and analysis group that works closely with unions and other groups.

“It’s easy to blame China, but really it’s the U.S. corporations doing business in China that are the dominant players,” said GLS staffperson Tim Costello. “We tend to say we’re trading with China. We’re trading with GE and Wal-Mart.”

GLS decided to publicize the role of U.S. business in lobbying against Chinese labor law improvements. That led to an Oct. 13 article in the New York Times. Some members of Congress read that article, and were angered by what they saw.

Led by U.S. Representative Lynn Woolsey of California, 27 members of Congress signed an Oct. 31 letter calling on President Bush to support China’s moves to reform its labor law, and “publicly repudiate” the efforts of U.S.-based corporations to weaken workers’ rights in China. Oregon Congressman Peter DeFazio was one of the signers.

With Democrats in the majority come January, there’s talk of a hearing that could embarrass American companies for their China stance.