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February 20, 2003
Chinese Toy Manufacturer Labor Standards Found Lacking
    by Paddy Manning

New report highlights structural obstacles to toy manufacturer implementation of labor codes of conduct.

Nongovernment organizations in Hong Kong released fresh research this week regarding labor issues in southern China's toy manufacturing industry. The research revealed structural flaws in the toy industry that prevent compliance with the voluntary codes of conduct that name brand companies are advocating.

Toy manufacturers in China's southern provinces supply almost 70 percent of the world's toys, including products for major U.S. brand name companies such as Mattel (MAT), Hasbro (HAS), Disney (DIS), and fast-food giant McDonald's (MCD). The export trade is estimated to exceed US$7.5 billion per annum.

The Hong Kong Christian Industrial Committee (HKCIC) this week released a second extract from its major report to be published this month on behalf of the Hong Kong Coalition for the Charter on the Safe Production of Toys. The report, titled "Unfair Trade for Unfair Toys," is the culmination of ten years' research. The first extract was released last month.

HKCIC interviewed workers directly about labor conditions at 34 toy manufacturers in Hong Kong and on the mainland, all of which were producing toys for different international brand names. The results were presented to factory managers and 24 of the managers responded.

HKCIC Associate Director Chan Ka Wai said that the toy factories in China fall into three categories. He said about five percent are good. "That's not to say they totally observe the labor law, but they pay minimum wages and try to restrict working hours to 50 hours per week," said Mr. Chan.

Mr. Chan said a further 20 to 40 percent of factories are struggling to improve. The remaining 55 to 75 percent of factories are classified as "poor."

"[Poor] means they don't pay the minimum wage, workers work up to 80 to 100 hours per week, and safety is a big problem," he said.

Mr. Chan said it was not possible to identify the toy brands that were better or worse than others on labor issues in China, because each factory produces for a range of brands.

"The manufacturers will say the buying practices of the brand names are the big problem," said Mr Chan. "They [pay] lower and lower prices and also [give] shorter production times. The manufacturer has no choice but to give less to workers."

Another problem highlighted by the report includes the seasonality of the toy industry, which translates to long overtime hours for workers during peak periods. Also, brand name company preference for just-in-time delivery tends to create peak periods of manufacturing. The report also stated that there are differences in the codes of conduct that brand name companies are imposing on manufacturers, and that makes compliance with the codes more difficult.

Manufacturers reported it is very difficult to extend compliance with codes of conduct to sub-contractors. This is despite the fact that sub-contractors are aware of the codes of conduct being imposed by western buyers.

The report concludes, "If price depression becomes a consistent pattern and yet the labor cost keeps on increasing to meet the requirement of the Chinese labor law and code of conduct compliance, the gap between the buyers' price and the real production cost will be further widened. Fair pricing is a real issue for sustainable code of conduct compliance."

Copyright 2003, Ethical Investor, all rights reserved.


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