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THE WAL-MART EFFECT:
THE WORLD TRADE ORGANIZATION AND
THE RACE TO THE BOTTOM
Ellen Israel Rosen ∗
In the current global free-trade regime, there is no doubt that Wal-Mart Stores, Inc. is the most significant corporate player. As the world’s largest retailer, Wal-Mart now sets the rules of competition as it vies with other multinational retail corporations over control of the world’s consumer goods market. 1
However, bigger is not always better, and Wal-Mart’s method of conducting business is not good for America, nor is it good for developing nations. Rather, it is likely that Wal-Mart’s trade choices will actually lead to further extremes of wealth and poverty wherever the company does business. The winners will be Wal-Mart’s executives and large shareholders, and its corporate competitors that are able to remain in business. The losers will be those individuals, mainly women, who are employed in export processing jobs, as well as hourly workers, such as salesclerks and cashiers, working in the U.S. retail industry.
Wal-Mart’s much studied and hotly debated business model has been the foundation for a newly liberalized type of global free enterprise, e.g., “a template of 21st century capitalism.” 2 In order to truly grasp Wal-Mart’s effect on the world’s economy, it is critical to explore the strategies the company has used to dominate the marketplace. In effect, the business tactics Wal- Mart has pioneered can be used as a prism: a lens through which one can view the reemergence of “a capitalism that increasingly resembles a capitalism of 100 years ago.... It combines the
∗ (^) Professor Emeritus of Sociology, Nichols College. This article contains and expands views expressed in previous works by the author: E LLEN ISRAEL ROSEN, BITTER CHOICES : BLUE -COLLAR WOMEN IN AND OUT OF WORK (1990); ELLEN ISRAEL ROSEN , M AKING S WEATSHOPS: T HE G LOBALIZATION OF THE U.S. APPAREL INDUSTRY (2002).. 1 Andy Rowell, Welcome to Wal-World Wal-Mart’s Inexhaustible March to Conquer the Globe, M ULTINATIONAL M ONITOR, Oct. 2003, at 13. 2 Steven Greenhouse, Wal-Mart, a Nation Unto Itself, N.Y. TIMES, Apr. 17, 2004, at B7 (quoting Simon Head, author of “The New Ruthless Economy,” on Wal-Mart’s pay scale and labor practices).
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extremely dynamic use of technology with a very authoritarian and ruthless managerial culture.”^3 Wal-Mart’s sheer size ensures that it is a force to be reckoned with in global retailing, 4 particularly as it continues to grow. 5
However, Wal-Mart’s impact on the economy in general cannot be understated. When McKinsey Global Institute analyzed the increase in labor productivity in the late 1990s, it was surprised to learn that “the primary source of the productivity gains of 1995 to 1999 was.... managerial and technological innovations in only six highly competitive industries” including retail trade. 6 In fact, one study showed that in 2002, Wal-Mart saved its customers twenty billion dollars, although after factoring in the myriad of “price cuts other retailers must make to compete,” the total savings to consumers is actually closer to $100 billion.^7 It is “no wonder that economists refer to a broad ‘Wal-Mart effect’ that has suppressed inflation and rippled productivity gains through the economy year after year.” 8
Business analysts explain Wal-Mart’s success as a function of four major factors: a big box format, 9 every day low pricing, efficiency in logistics,^10 and competitive intensity. 11 Business
3 Id. 4 Wal-Mart “is three times the size of the No. 2 retailer, France’s Carrefour. Every week, 138 million shoppers visit Wal-Mart’s 4,750 stores; last year, 82% of American households made at least one purchase at Wal-Mart.” Anthony Bianco & Wendy Zellner, Is Wal-Mart Too Powerful? , BUSINESSWEEK, Oct. 6, 2003, at 101, 102. Wal-Mart’s 2002 sales reached $259 billion placing it at the top of the Fortune 500 list for the third straight year and surpassing well-known companies such as Exxon Mobil, General Motors, Ford and General Electric. Wal-Mart Tops Fortune 500 List , Mar. 21, 2004, available at http://www.msnbc.msn.com/id/4573885/print/1/1displaymode/1098. In addition, Wal-Mart’s more than a quarter of a trillion dollars in sales were four times greater than Home Depot and five times more than Target, Wal-Mart’s closest competitors in discount retailing. See T HE H OME DEPOT, INC ., 2003 ANNUAL REPORT 1 (2004) (showing 2003 fiscal sales were $64.8 billion) ; T ARGET CORPORATION, 2003 ANNUAL REPORT i (2004) (showing total revenues for 2003 were $48.163 billion). 5 Wal-Mart is the largest private employer in the United States. Bianco & Zellner, supra note 4, at 102. The retailer employs 1.4 million people, which makes it 56 times bigger than the average Fortune 500 company. David Olive, Hitting The Wall, T HE T ORONTO S TAR , Aug. 29, 2004, at E01. As one researcher stated, “[t]here’s nothing like Wal-Mart... They are so much bigger than any retailer has ever been that it’s not possible to compare.” Bianco & Zellner, supra note 4, at 102 (quoting Ira Kalish, Global Director of Deloitte Research). Also, Wal-Mart plans to hire 800,000 additional workers by 2008. Id. at 106_._ 6 Virginia Postrel, Lessons in Keeping Business Humming, Courtesy of Wal-Mart U. , N.Y. T IMES , Feb. 28, 2002, at C2. 7 Bianco and Zellner, supra note 4. 8 Id. at 102. 9 The “big box format” is the principle of how “[l]arger stores increase sales per square foot by encouraging customers to buy additional goods, often on impulse. Big-box stores also let retailers spread fixed labor costs like store management and cleaning crews across more sales.” Postrel, supra note 6. 10 One of Wal-Mart’s greatest achievement is its use and development of IT
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created a “race to the bottom,” where the lowest production price wins, regardless of the human cost.
This article seeks to examine the impact of Wal-Mart on the global retailing industry. Part I will study the winners and losers in the new global economy resulting from the WTO’s quota elimination. Part II will discuss Wal-Mart’s expansion into the international market, and, in particular, into China. Part III will look at the negative aspects of Wal-Mart’s business strategy, which is leading to harsher social and economic stratification, particularly in poor countries. Part IV takes a closer look at the effect Wal-Mart is having on its female workers in China and America. Finally, Part V will conclude with a short summary and opinion on where Wal-Mart is headed.
I. THE W ORLD TRADE ORGANIZATION’ S QUOTA ELIMINATION: THE W INNERS AND THE LOSERS There is no question that the global production of garments and textiles is big business. Currently, there are approximately 40 million people around the world who are working in the garment and textile industries, which accounts for 14 percent of global employment. 16 The majority of “garment workers supplying the U.S. market – upwards of 80 percent – are young women in the developing world, 16 to 25 years old, who are already forced to work long hours for below-subsistence wages under conditions which violate internationally recognized human and worker rights standards.” 17 Unbelievably, due to a change in export policies, the lives of these women have changed dramatically for the worse.
Since the 1970s, “all textile and apparel trade worldwide has been governed by a system of quotas which were reached through bi-lateral negotiations under what was known as the multi-fiber agreement, or MFA.” 18 The underlying goal of these quotas was to guarantee “developing countries access to the major U.S. and European markets. For example, in 2003 Bangladesh knew it had enough quota to export approximately 900 million garments to the U.S., in effect guaranteeing many of the country’s 1. million apparel jobs.”^19 However, the World Trade Organization (WTO) chose to eliminate all textile and apparel quotas as of
16 NATIONAL L ABOR COMMITTEE , ELIMINATION OF T EXTILE AND A PPAREL QUOTAS IN 2005 WILL S HOCK THE DEVELOPING WORLD 1 (Sept. 2004), available at http://www. nlcnet.org/ news/publicfiles/upload.quotas2005_en.pdf. 17 Id. 18 Id. 19 Id.
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It is likely that the inevitable efforts by retailers, including Wal-Mart, to take advantage of the new no-quota rule means that clothing production will move to countries that can produce the largest volume of apparel for the lowest cost.^21 The U.S. Association of Importers of Textile and Apparel anticipates that its members, some of the largest retailers in the world, will “react to the WTO’s lifting of quotas... by slashing the number of countries they source production in from 50 today to just five or six countries by 2007_._ ”^22 This will ensure that retailers like Wal- Mart can purchase their desired goods for the lowest production price without regard for the standards under which it was produced. As a result, countries such as Costa Rica, Haiti, Jamaica, South Africa, Mauritius, Malaysia, Indonesia, Philippines, Kenya, Lesotho, Madagascar, Bangladesh, Cambodia, and, arguably, Mexico, are likely to be huge losers in this race to the bottom.^23
For example, Bangladesh’s “economy has improved significantly during the last decade, driven primarily by the garment sector, which brought in US$6 billion in export earnings in 2001-2002.”^24 The country’s garment production industry currently employs nearly two million people, eighty percent of whom are women, “and generates almost $2 billion worth of economic activity in areas such as banking, transport, insurance, packaging, real estate, utility services, and consumer goods.”^25 However, the United Nations estimates that upward of one million garment workers in Bangladesh will lose their jobs as a direct result of the WTO’s quota elimination.^26 Simply put, like many other poor countries, Bangladesh cannot compete with the state-of-the-art logistics of quota-elimination beneficiary China:
20 Id. 21 See Jenny Strasburg, American Shoppers Could Find Wider Selections; Flood of China-made Garments Means Job Losses for Millions in Other Countries, S.F. CHRON., Jan. 18, 2005, at A7 (explaining that the end of a WTO quota system will cause a shift in production to China, a country known for producing low-cost goods). 22 NATIONAL L ABOR COMMITTEE , supra note 16, at 2. “Gary Ross, Vice President of Worldwide Operations for Liz Claiborne asked, rhetorically: ‘Would we be in 35 countries if quotas didn’t exist?’ Answering his own question, he said, ‘We’d probably be in as few as ten or fifteen countries.’” Id. 23 See id. at 6; UNITED NATIONS D EVELOPMENT P ROGRAMME, L OOMING T RADE CURBS P UT BANGLADESH J OBS AT RISK (Jun. 18, 2003) [hereinafter UNDP ], available at http://www.undp.org/dpa/frontpagearchive/2003/june/18june03/; Peter S. Goodman, Pinning Hope on Fair Labor Standards, WASH. P OST, Nov. 17, 2004, at A19. 24 UNDP , supra note 23, at 1. 25 Id. 26 Id. But see Keith Bradsher, Bangladesh Survives to Export Again, N.Y. T IMES, Dec. 14, 2004, at C1. (quoting Wal-Mart’s vice president for global purchasing who stated, “Bangladesh is very competitive because the labor cost in Bangladesh is only half of what China is, and maybe less than that”).
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Free Trade Agreement (NAFTA) in 1994, “few anticipated the massive rush to the region that followed the December, 1994, peso crash, when Mexican wages plunged 40% in dollar terms.” 34 As a result, in 2001, the maquiladora “industry sold $77 billion of goods abroad... almost half Mexico’s total exports.” 35
Retailers were among those who originally found the low “wage, rent, and electricity costs” extremely attractive, as they amounted to only one-fourth of that charged in the United States. 36 Recently, however, many factories have begun to leave Mexico, many of them heading for China. 37 There are two major reasons for this phenomenon. First, Mexican maquiladora wages are between $2 and $2.50 per hour, which is a rate much higher than in some other countries, including China.^38 Second, “[f]or years, a cheap peso had masked inefficiencies in Mexican manufacturing, including high employee turnover and unwieldy logistics. But since the currency began appreciating in 1999, costs have risen some 30 percent.”^39 As a result, the maquiladora industry lost 287,000 jobs – a twenty-one percent drop – between October 2000 and March 2002. 40
Thus, the quota elimination has some analysts wondering whether Mexico will be able to compete in the new global economy. One recent study opines that, in spite of its higher wages, Mexico has a distinct advantage over other countries in its proximity to the United States, 41 because “Wal-Mart Stores Inc. and other U.S. chains prefer North and Central American and Caribbean suppliers who are closer to home for products like jeans and T-shirts that must be quickly replaced on store shelves as stocks run out.”^42 However, even such optimists point out that in order “[t]o stay competitive [in the new economic environment], Mexico will need to develop its strengths.”^43
Despite the grim outlook for many of the world’s poorest countries, other nations – like China and India – are expected to
34 Geri Smith & Elisabeth Malkin, The Border, B USINESSWEEK , May 12, 1997, at 64,
35 Elisabeth Malkin, Manufacturing Jobs Are Exiting Mexico, N.Y. T IMES, Nov. 5, 2002, at W1. 36 Smith & Malkin, supra note 34, at 65. 37 Malkin, supra note 35. 38 Id. 39 Id. 40 Id. 41 Andy Mukherjee, Wal-Mart and Distance Can Save U.S. Textiles , Dec. 21, 2004, available at http://www.tradealert.us/news_item.asp?NID=1344203 (citing a study by the Harvard Center for Textile and Apparel Research). 42 Id. 43 Malkin, supra note 35.
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benefit greatly from the WTO’s quota elimination. 44 “Within their vast borders, the two countries – the most populous in the world – can offer the low wages of poor nations along with the efficiencies of modern economies.”^45 As one writer points out, “[t]he advantages are perhaps most evident in the textile and apparel industry, which requires large pools of unskilled laborers but also depends on fast delivery and the ability to change production specs on a dime.”^46 In particular, China is seen as the biggest threat to the well being of poorer countries in the textile and apparel industry because it “sets the standard for efficient, low-cost production.”^47 Whereas the pre-2005 quota restrictions “protected millions of jobs in countries that lacked China’s huge low-cost workforce, manufacturing know-how, willing investors and efficiencies of scale[,]”^48 now that big retailers, such as Wal- Mart, “aren’t bound by import quotas, it’s far easier to funnel orders to the factories that produce the most, the fastest and the cheapest.”^49
Currently, the WTO estimates that “China produces about 17 percent of all apparel and textiles [worldwide].... Within three years, the country is expected to own 50 percent of the $400-billion-a-year market.” 50 Wal-Mart has played a significant role in China’s hold on the industry. In fact, in pre-quota 2003, Wal-Mart alone was responsible for nearly 10 percent of China’s total exports to the United States.^51 However, one of the major concerns surrounding the WTO’s quota elimination is that “huge multinationals such as Wal-Mart... can make or break entire economies with their orders.” 52 For example, whereas Wal-Mart currently “buys as much as one-third of the clothes made in Bangladesh,” the corporation’s predictable attempt to capitalize on China’s low production costs will result in job loss or, at a minimum, a further lessening of factory labor conditions.^53
44 Tyler Marshall et al., A World Unravels: Clothes Will Cost Less, but Some Nations Pay , L.A. T IMES, Jan. 16, 2005, at A1. 45 Id. 46 Id. 47 Strasburg, supra note 21. 48 Id. 49 Marshall, supra note 44. 50 Strasburg, supra note 21. 51 Id. In 2003, Wal-Mart exported $15 billion from China. Id. 52 Marshall, supra note 44. 53 Id. Already, gains in wage levels and working conditions are starting to unravel. In Lesotho, the government has agreed to give apparel and textile factory owners an exemption from paying a mandatory cost-of-living increase. Salvadoran business leaders want to reduce the nation’s $5.04-a-day maquiladora minimum wage in rural areas to stay competitive with China and its lower-cost neighbors in Central America.
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productivity and low-cost merchandise will increasingly depend on logistics and technology, which is extremely disadvantageous for the world’s poorest countries.
II. W AL-M ART AND CHINA In 1991, after two decades of dramatic growth in the U.S., Wal-Mart executives began to look toward the future, recognizing that international sales would someday be needed to sustain the company when domestic profits slow down. 62 As one Wal-Mart executive noted: “[t]he United States is 37 percent of the world’s economy, which leaves 63 percent for international. If we do our job, international operations should someday be twice as large as the United States.” 63 With that goal in mind, Wal-Mart began its foray into the international market. Between 1991 and 1995, the company opened its first non-U.S. stores in “strategic countries in the Americas,” including Mexico, Puerto Rico, Canada, Argentina and Brazil.^64 The company’s success in those countries encouraged further global growth, and as of January 2005, Wal- Mart owned 1,355 discount stores, Supercenters, Sam’s Clubs, and neighborhood markets abroad.^65
Then, in 1996, Wal-Mart opened its first Chinese store outlet in Shenzhen.^66 However, Wal-Mart’s plan was about more than just selling goods to China – it had already begun to buy from them, too. In the 1980s, as China began to focus more on capitalistic ideals, it already had the benefit of more than 30 years of industrial development. Thus, though the country still had a collectivist state-run economy, it was in a position to compete with the West and learn the principles of capitalist growth. In addition, unlike poorer countries, which were encumbered with structural adjustment programs, China adopted export processing, in part, as a way to develop its free market economy. Accordingly, by the 1990s, the Chinese government was strongly encouraging foreign investment, which, by 2003, totaled approximately $52 billion.^67
Over the past decade, the symbiotic relationship between Wal-Mart and China has become one of the most significant in the retail industry, and certainly the best example of Wal-Mart’s foreign business dealings. Despite its famous, “Buy American,”
62 Rowell, supra note 1, at 13. 63 Id. 64 Id. 65 WAL -M ART S TORES , INC ., 2004 ANNUAL REPORT 55 (2005). 66 Rowell, supra note 1. 67 Marshall, supra note 44.
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slogan, 68 Wal-Mart is “the single largest buyer of Chinese products (if Wal-Mart were a nation, it would be China’s eighth- largest export destination).”^69 In addition, China plays a critical role in Wal-Mart’s operations – the country currently produces more than 70 percent of merchandise sold in Wal-Mart’s stores. 70 Wal-Mart’s preference for China stems from the country’s rare combination of production factors, e.g. low wage labor and increasingly advanced technology, which enable its manufacturers to make quality goods at an extremely low cost – something few other countries, including the United States, can claim.
Wal-Mart has ambitious plans for a long-range course of development in China. Most recently the company, along with Singapore’s CapitaLand, invested $120 million for the purchase of six new shopping malls where Wal-Mart will be the largest tenant. 71 In addition, CapitaLand also has an option to acquire 14 more malls with Wal-Mart outlets, and Wal-Mart plans to open between 20 and 30 new Supercenters in the next four years.^72 Wal-Mart has also joined with the Chinese-owned CITIC Pacific and is expected to open hundreds of stores in China over the next five years.^73 Significantly, Wal-Mart’s venture into China will likely be hastened by a recent change in China’s foreign retail investment policy. As of December 11, 2004, foreign firms will be able to invest without forming joint ventures with Chinese partners.^74 Thus, companies like Wal-Mart will no longer be limited by location – they will be able to build production facilities anywhere in the country.
Wal-Mart is certainly not alone in its enthusiasm for China. In fact, in the past ten years, many of the world’s retailers have
68 Interview with Jon Lehman, former Wal-Mart manager (June 4, 2004 and Oct. 7, 2004), available at http://www.pbs.org/wgbh/pages/frontline/shows/walmart/interviews/ lehman.html. 69 Rowell, supra note 1. 70 Jiang Jingjing, Wal-Mart’s China Inventory to Hit US $18b This Year , CHINA DAILY, Nov. 29, 2004, at http://www.chinadaily.com.cn/english/doc/2004-11/29/content_ 395728.htm. 71 Dai Yan, CapitaLand Cashes in on Retail Property Sector , CHINA INVEST, Dec. 24, 2004, at http://www.chinainvest.com.cn/E/invest/spotlight/S20041224-03.html; Chan Sue Ling & Linus Chua, CapitaLand to Invest in Chinese Malls , INT’L. H ERALD T RIB ., Dec. 24, 2004, available at http://www.iht.com/articles/2004/12/23/bloomberg/sxmall.html. 72 Yan, supra note 71. 73 Wal-Mart, CITIC Pacific Plan Expansion , CHINA DAILY, Jan. 20, 2005, at http://www.chinadaily.com.cn/english/doc/2005-01/20/content_410802.htm; Wal-Mart, CITIC Pacific Plan Big on Mainland Shops , W ORLD BUSINESS NEWSWIRE , Jan. 20, 2005, at http://en.icxo.com/htmlnews/2005/01/20/7741.htm. 74 Julie Walton, At Your Service: Foreign Service Providers are Starting to Make Inroads in the China Market – With Some Exceptions , CHINA B US. REV ., at http://www.chinabusinessreview.com/public/0409/walton.html (last visited on March 1, 2005).
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the government seems to “welcome[] the disruptive impact of Wal-Mart’s business model,” which is “already having a transformative effect on everything from supply chains, to distribution networks, to customer service.”^85
This “transformative effect” results from the fact that Wal- Mart’s growth plans are complementary to China’s industrial needs. For example, Wal-Mart’s way of doing business changes the way that its suppliers produce, which, in turn, raises productivity and accelerates China’s transition from a state- planned economy to a free market system. 86 In addition, many of Wal-Mart’s Chinese suppliers like this new system because they find it superior to the Chinese way of doing business, which consisted mainly of personal relationships and bribes. 87 The Chinese are also eager to expand the number of production jobs that multinationals like Wal-Mart can provide, particularly as China’s increasing number of impoverished migrant workers, most of them women, continue to emigrate from the Chinese countryside to its industrial zones in search of work.^88
III. W AL-M ART AND THE H UMAN COST OF LOW-PRICE CONSUMER GOODS There is a serious downside, though, to Wal-Mart’s relationship with China. The company uses its power to drive down prices among American suppliers, which are often encouraged to relocate to China as a method of reducing wages and pricing.^89 As a result, thousands of U.S. workers lose their jobs. 90 Even America’s largest producers, Procter and Gamble, and Gillette, have been unable to avoid Wal-Mart’s demands. In fact, they have recently merged in an effort “to take back some pricing power from Wal-Mart and other retailers, who have increased their leverage by consolidating, and eliminating rivals.”^91
China also feels pressure from Wal-Mart to cut prices and has responded by forcing employees to work longer hours –
85 Id. 86 Id. 87 Id. 88 China Offers More Jobs to Migrant Workers, X INHUA NEWS A GENCY, Mar. 3, 2005, at http://www.china.org.cn/english/government/121631.htm. 89 Pete Engardio & Dexter Roberts, The China Price , BUSINESS WEEK , Dec. 6, 2004, at 102; George Stalk & Rob Lachenauer, Playing Hardball with Wal-Mart, F ORBES GLOBAL, Oct. 18, 2004, at 18; Charles Fishman, The Wal-Mart You Don’t Know, F AST COMPANY , Dec. 2003, at 68; Frontline, Is Wal-Mart Good for America? , PBS Documentary, at http://www.pbs.org/wgbh/pages/frontline/shows/walmart/ (posted Nov. 16, 2004). 90 Fishman, supra note 89. 91 Constance L. Hays, What’s Behind the Proctor Deal? , N.Y. T IMES , Jan. 20, 2005, at C1.
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usually for less pay. 92 Further, Wal-Mart’s procurement centers in Shanghai and Shenzhen, which are in close proximity to China’s factories, give it up-to-the-minute information on prices. 93 Thus, Wal-Mart can leverage its enormous merchandising power to squeeze concessions from suppliers. These firms are asked to cut their production costs deeper and deeper, and, in some cases, even open their books, so Wal-Mart executives can find “unnecessary costs.”^94 However, Wal-Mart’s employees, whether in retail stores in the U.S., or supplier factories in China, are most negatively impacted by Wal-Mart’s actions.
In China, Wal-Mart’s business methods have made a dire economic situation even worse. Already, the company’s migrant workers in the Guangdong Province, a primary area of development encompassing the industrial areas of Guangdong near the Southeast of China, are paid wages that remain far below that needed for subsistence. 95 Thus, Wal-Mart’s ability to wring out lower costs is not merely due to newfound efficiencies in its supply chains – the reduced prices come primarily from the sweated labor that Chinese manufacturers impose on their workers. Unfortunately, the Chinese government, which is too concerned with needed jobs and revenues from exports, often does not enforce, or is unable to enforce, the country’s current employee protection laws.^96
For example, the legal workday in China is eight hours a day, and the required minimum wage is thirty-one cents per hour. 97 However, many of the employees receive only half of the minimum wage and work twice the legal number of hours – up to sixteen hours per day – without overtime pay, and sometimes without any pay at all.^98 In fact, according to the All China Federation of Trade Unions (ACFTU), China now has an estimated ninety-four million migrant workers who are owed over 100 billion yuan in back wages. 99 Moreover, Chinese factory
92 Jim Jubak, Jubak’s Journal: 3 Big Threats to China’s Economic Miracle, May 7, 2004, at http://moneycentral.msn.com/content/P82353.asp. 93 Id. 94 Fishman, supra note 89. 95 Jon E. Dougherty, Free Trade v. Slave Trade, May, 24, 2000, at http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=15367. 96 CONGRESSIONAL EXECUTIVE C OMMISSION. ON CHINA , 108 TH^ CONG., ANNUAL REPORT 2003 1 (Comm’n. Print 2003). 97 National Labor Committee & China Labor Watch, Toys of Misery 2004, Feb. 2004, available at http://www.nlcnet.org/campaigns/he-yi/he-yi.shtml [hereinafter Toys of Misery 2004]. 98 Id. 99 Trade Unions Help Workers to Recover Unpaid Wages, P EOPLE ’S DAILY , Dec. 30, 2003, available at http://english.people.com.cn/200312/30/eng20031230_131489.shtml.
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another four hundred suppliers had their contracts suspended for overtime violations.^108
Thus, Wal-Mart clearly has all the institutional components to effectively do these inspections. It even has “labor supervision departments” in Shenzhen, Donguan, Putian City, Guangdong, and the Fujian Province.^109 However, a major study of Wal- Mart’s monitoring operations showed that PwC missed significant labor problems in the company’s contracting firms, such as hazardous chemical use and other safety hazards, barriers to freedom and collective bargaining, and violations of wage and overtime laws.^110 In addition, there were instances of employers falsifying time cards in order to simulate compliance with labor regulations.^111
Although Wal-Mart has claimed that it does its audits unannounced, evidence from its factory inspections showed that the monitors’ visits were revealed well beforehand, which gave the factory owners time to “fix” any abuses prior to any visit. 112 Thus, employers were able “prepare” for these audits by cleaning up, creating fake time sheets, and briefing workers on what to say if they were questioned. 113 For example, in a memo entitled “Instructions on Inspections from Wal-Mart,” workers at one factory were told to wear their uniforms and work “carefully,” “keep clean” and ensure that they “hav[e] [their] Health Certificate and Training Certificate on them;” and wear their gauze masks and earplugs.^114 The memo also directed that the kitchen dormitories and public space should be cleaned and food cooked “strictly according to the requirements.” 115 In addition, factory personnel were told to unlock the fire exits (presumably closed before the inspection), and unlock the first aid or medical boxes (presumably locked prior to the audit). 116 Workers told those conducting the study that they were paid substantially better than usual for cooperating with the ruse. 117
In order to remedy this situation, the auditors must conduct
108 Id. 109 Condemnation of Wal-Mart Sparks Labor Rights , CHINA L ABOR WATCH , available at http://www.chinalaborwatch.org/en/web/article.php?article_id=50045 (last visited Mar. 1, 2005). 110 DARA O’ROURKE , M ONITORING THE M ONITORS : A CRITIQUE OF P RICEWATERHOUSE COOPERS (P W C) L ABOR M ONITORING 1 (Mass. Inst. of Tech., 2000), available at http://web.mit.edu/dorourke/www/PDF/pwc.pdf. 111 Id. 112 Id. at 3. 113 Id. at 6. 114 Toys of Misery 2004, supra note 97, at 3. 115 Id. 116 Id. at 1. 117 Id. at 2.
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surprise visits and longer inspections. Additionally, independent auditors might be more effective in reporting the true conditions of these workplaces.^118 Charles Kernaghan of the NLC commented:
It is impossible that Wal-Mart is still so totally ignorant of the common practice in China for factories to keep two sets of time cards and payroll sheets, and to clean the factory, unlock emergency exits, provide safety gear and take whatever other steps are necessary in preparation for Wal-Mart’s announced visit. No company could be that shallow and gullible – unless of course it were consciously acting out a role with the full intent of achieving the desired result – a whitewash.^119
Robert J. Rosoff, a writer for The China Business Review, the official magazine of the U.S.- China Business Council, similarly noted:
In practice, however, the rights of Chinese workers are routinely violated. Workers are often required to work far more than 40 hours a week, have few days off, are paid below the minimum wage, and are not paid required overtime. Improper deductions from wages are common. Some Chinese workers must pay a large sum of money as a “deposit” to their employer, and they may have to pay a “recruitment fee” in order to be hired. These payments can prevent workers from leaving jobs where their rights are violated. Physical abuse of workers, and dangerous working conditions, are also common.^120
The tragedy is that these labor violations are inevitably repeated because no one takes responsibility by punishing those who break the law.^121 Even other multinationals, such as Hasbro and Mattel, which have made much broader commitments than Wal- Mart to the remediation of working conditions in China, agree that there is a long way to go to make things right.^122
Chinese workers are not alone, though, in suffering labor violations at the hands of Wal-Mart. On the contrary, if the company saves costs by contracting with sweatshops in China, it also saves money by developing policies and practices that make employees in its U.S. retail stores work under sweatshop-like conditions. 123 Although Wal-Mart may not be the only store to
118 Steven Frost, China: Chinese Workers Pay for Wal-Mart’s Low Prices , ASIAN L ABOUR NEWS, Feb. 8, 2004, at http://www.asianlabour.org/archives/000795.php. 119 Toys of Misery 2004, supra note 97, at 1. 120 Robert J. Rosoff, Beyond Codes of Conduct: Addressing Labor Rights Problems in China , CHINA B US. REV ., Mar. - Apr. 2004, at 44. 121 Bama Athreya, China’s Changing Labor Relations , CHINA B US. REV ., Jan. - Feb. 2004, at 20, 21. 122 See generally Abigail Goldman, Mattel Struggles to Balance Profit with Morality , S EATTLE T IMES, Nov. 28, 2004, at A1; Toh Han Shih, Time for Toy Industry Rogues to Sweat , S OUTH C HINA M ORNING P OST, Jan. 31, 2005, at 4. 123 Audit Details Violations at Wal-Mart , L.A. T IMES, Jan. 14, 2004, at C3. The
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Wal-Mart is also accused of multiple violations of the National Labor Relations Act, which gives employees the right to organize. 132 The company shows all new employees a video describing its anti-union position, and a handbook which instructs management how to fend off efforts by employees who even discuss forming a union.^133 A telephone number is given to all store managers to alert company executives about such behavior, and a team from national headquarters is then sent to the store to discourage union activity. 134 The company has been brought up on a number of charges by the National Labor Relations Board and has been fined multiple times for violating workers’ right to organize.^135
In addition, Wal-Mart’s systematic practice of understaffing stores, e.g. to keep costs low, is extremely problematic because employees, and even management, have to do more work than is possible during the hours of their officially paid employment.^136 Thus, they face a Hobson’s choice – either work off the clock or face losing their jobs. This type of behavior is permitted because Wal-Mart’s unique culture is designed to legitimize its authority by routinely disciplining its employees using shame and intimidation. 137 Unfortunately, because women are sixty-five percent of Wal-Mart’s hourly workforce, they are the worst victims of these abuses. 138
IV. CHINESE AND AMERICAN W OMEN : THE REAL LOSERS There is no doubt that female workers in developing countries will suffer most from the changes wrought by the WTO’s quota elimination. Nevertheless, it is critical to focus on the convergence that is occurring between women who produce for export, e.g. for Wal-Mart and other multinationals, and Wal- Mart’s female retail workers in the U.S. There are signs that conditions in China may actually improve, whereas, in the U.S., all signs point to a worsening situation. Under President George W. Bush’s administration, there is currently no active movement to improve or enforce existing wage and hour or labor laws for
=all_reports_view&websys_id=18; E VERYDAY L OW WAGES, supra note 125, at 3. 132 EVERYDAY L OW WAGES, supra note 125, at 3. 133 Id. at 4. 134 Id. 135 Elizabeth DiNovella, The True Costs of Low Prices: Selling Women Short: The Landmark Battle for Workers’ Rights at Wal-Mart , T HE P ROGRESSIVE , Jan. 1, 2005, at 44. 136 Seth Slabaugh, ‘Off-the-Clock’ Work Allegations Bring the Heat on Giant Retailer, T HE S TAR P RESS , Oct. 17, 2004, at 5A. 137 Ellen Rosen, Untitled , in W AL-M ART: T EMPLATE FOR 21 ST^ CENTURY C APITALISM (Nathan Lichtenstein ed., forthcoming 2005) (on file with author); Ellen Rosen, Wal-Mart: The New Retail Colossus and Women Workers , 6 GEO. J. G ENDER & L. (forthcoming 2005). 138 Drogin, supra note 131, at 11.
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workers in American companies, e.g. Wal-Mart. 139 In addition, there has yet to be any action by the U.S. Equal Employment Opportunity Commission to try and reduce the degree of sex discrimination in American workplaces.^140 Further, President Bush has urged Congress to pass tort reform legislation that will “do away with... frivolous and costly lawsuits,” a proposal that his critics say is “meant to protect big companies [like Wal-Mart] and their insurers.” 141
In contrast, in China, awareness of labor abuses is growing. While the country does not publish an official number of factory protests, one Hong Kong labor rights group suggests that the number has grown dramatically, reaching 300,000 in 2003.^142 Many stories about these protests are now published by the Western press and Chinese newspapers. Since the latter are censored, some believe that the coverage reflects the Chinese government’s desire to see these problems aired and resolved.^143 Because protests are illegal, protesters continue to be arrested and beaten. 144 However, China may nevertheless be offering signs that it is ready to engage in reform, lest the legitimacy of the Party’s authority be questioned.^145
In addition, salaries for Chinese workers, which have risen sharply in recent years, are fast approaching ninety cents an hour on average, which is thirty percent higher than Bangladesh, and more than double the wages paid in Indonesia.^146 Recently, the government of the Guangdong Province has increased wages and incorporated a medical and social security program.^147 It remains to be seen how well this new plan will be implemented.
There is also the possibility of worker representation in China. The ACFTU has traditionally been allied with the
139 David Moberg, Under the Microscope: An Aggressive Audit of Labor Unions is Only One Front in Republicans’ Multi-Pronged Attack, IN T HESE T IMES, Mar. 28, 2005, at 22; Obstacles Grow for Workers Facing Discrimination , LRA O NLINE, at http://www.laborresearch.org/story2.php/378 (last visited May 1, 2005). 140 Ellen Chesler, A Progressive Agenda for Women’s Rights , 2 NEW DEMOCRACY P ROJECT NEWSLETTER 8, Oct. 1, 2004, available at http://www.newdemocracyproject. org/newsletter.cfm?nl_id=88&nla_id=213. 141 Stephen Labaton, Bush’s Calls for Tort Overhaul Face Action in Congress, N.Y. T IMES, Feb. 3, 2005, at A16. 142 Dexter Roberts, China: A Workers State Helping the Workers? , BUSINESSW EEK, Dec. 13, 2004, at 61. 143 Robert Marquand, In China, Stresses Spill Over Into Riots , CHRISTIAN S CI. M ONITOR , Nov. 22, 2004, at 1. 144 Kathy Chen, Chinese Protests Grow More Frequent, Violent , CHINA L ABOR W ATCH , May 11, 2004, available at http://www.chinalaborwatch.org/en/web/article.php?article_id=
145 Id. 146 Wehrfritz & Seno, supra note 27. 147 Guangdong Raises Minimum Wage Level , CHINA L ABOR WATCH , Dec. 4, 2004, available at http://www.chinalaborwatch.org/en/web/article.php?article_id=50226.
