Labour legislation
and labour relations
Labour standards and labour relations are the most critical and controversial
elements of EPZs. The classic model of labour regulation - with a "floor"
or framework of minimum labour standards, and free trade unions and employers
(individually or collectively) coming together to negotiate binding agreements
that regulate their interaction -- is extremely rare in EPZs. The reasons
for that rarity are complex, but the fact remains that many zones are not
fully applying adequate labour standards or developing a sound system of
labour-management
relations. As a result, problematic factors such as high labour turnover,
absenteeism, stress and fatigue, low rates of productivity, excessive wastage
of materials and labour unrest are still too common in zones. This constitutes
a source of volatility they cannot afford in a global economy. It makes zones
less effective as export platforms and limits their potential to attract investment,
generate jobs, boost exports and promote broader economic growth.
Two key issues need to be considered regarding labour legislation and labour relations in zones:
In most EPZ-operating countries the national labour and industrial relations legislation are applicable in the zones. In Singapore, for example, the national labour laws apply to domestic and foreign firms alike. Singapore has a very strong tradition of tripartism and investment issues are not excluded. This tripartite approach starts at the top with trade union representation on the Board of Governors of the Economic Development Board, which oversees the investment strategy of Singapore. There is no question of the investment policies infringing workers rights, and it is interesting to note that Singapore has pursued this policy since the 1960s when it was desperately in need of investment. The strong consensus that exists between Government and the social partners offers investors a degree of social and economic stability and certainty that outweighs any concerns they may have about trade union activity. The result is an exceptionally stable and well governed investment environment which is reflected in the fact that Singapore has only experienced one strike since 1978 (and that was over ten years ago in 1986). The absence of industrial action is partly explained by the functioning of the arbitration system. The Industrial Arbitration Court in Singapore certifies collective agreements negotiated between unions and management in addition to minimum terms of employment and labour relations provided in the Employment Act and the Industrial Relations Act. In cases where the parties fail to reach agreement through negotiation the matter may be referred by either party to the Labour Relations Department of the Ministry of Labour for conciliation. If that fails to resolve the dispute it may be referred to the Industrial Arbitration Court for arbitration. Under the Trade Disputes Act, any industrial action is prohibited when the Industrial Arbitration Court has taken note of the trade dispute. Disputes related to wages arising from the implementation of guidelines recommended by the National Wages Council may be referred by either party to the Industrial Arbitration Court.
EPZ enterprises in Mauritius are covered by the labour laws and labour relations system, although the Industrial Expansion Act of 1993 has provided them with a greater degree of flexibility despite persistent criticism from the labour movement. A number of the exceptions concern hours of work. The calculation of hours of work for purposes of overtime allows for considerable flexibility. The IEA provides for 45 hours a week, but the overtime is calculated on a weekly basis, which means that supplementary hours worked on any one day will not be paid at overtime rates unless the weekly total exceeds 45 hours. A worker can be required to work up to ten hours a day, after which her/his consent is needed. Before 1984 no prior notice of supplementary hours was required, but this caused much hardship, particularly to young female workers, and led to considerable conflict. Since 1984, 24 hours' notice of supplementary work has to be given and the precise duration specified. Many enterprises now prefer to work their overtime on Saturdays, rather than at the end of any weekday. According to the 1970 and 1993 Acts a worker can be obliged to work a public holiday at normal rates of pay, receiving a day of paid leave the following week. The trade unions have always maintained that work on a public holiday should be paid at overtime rates as provided for in the national labour law. The zone legislation provides for seven days of consecutive work if required, whereas the labour law permits only six. Zone legislation only recognizes a woman's right to paid maternity leave three times, whereas the labour law imposes no such limit. Women can and do work the night shift in zone enterprises while this is prohibited in the rest of the economy. The severance pay to which a worker is entitled upon retrenchment varies considerably between zone enterprises and those covered by the national labour laws. Under zone legislation applicable up to 1993 a worker was only entitled to such compensation after three years of service, as against 12 months in the rest of the economy, and the zone worker was likely to receive less than her/his counterpart in other industries. This was subsequently amended to provide at least one week's pay for each year of service if she/he has between one and three years of continuous service, and at least two weeks' pay for each year of service if she/he has more than three years of continuous service. Zone legislation makes no provision for pension payments to zone workers whereas the national labour law provides for one-quarter of a month's pay for each year of service. Under the national labour law an employer intending to reduce the number of employees is obliged to inform the Minister four months in advance, together with the reasons for the reduction. The case is then referred to the Commission on Termination of Contract of Employment. This procedure does not apply to zone workers.
Mauritius has a high degree of trade union activity in some sectors of the economy, but this has not been extended to the EPZ sector, although no legal barriers exist. In the key sugar industry 89 per cent of the 29,066 workers were organized in 1996, up from 71 per cent in 1992. In the public service trade union membership stood at 63 per cent of the 56,828 employees, and in local authorities and parastatal bodies the rate was 51 per cent. In the EPZ sector, however, only 9 per cent of the 79,487 workers belonged to trade unions. Trade union membership in the hotels and restaurant sector was also relatively weak at 15 per cent of 10,820 workers.(3) There are extremely few collective agreements signed in Mauritius (three, in fact), largely because a variety of government bodies regulate labour matters, including wages and disputes. It is interesting to note, however, that the number of illegal work stoppages in EPZ enterprises has been increasing, indicating that the extensive system of regulation is not entirely effective.
Barbados, Jamaica and Trinidad and Tobago all ensure that those rights provided to workers nationally apply in the zones as well. In Jamaica and Trinidad and Tobago the labour movement is represented on tripartite bodies overseeing zone operations, and the zones are covered by the normal labour laws. This has certain advantages, as described by the labour representative on the Board of Directors of the Trinidad and Tobago Free Zone Company: "The key to allaying the concerns of the trade unions, NGOs and the business sector, lies in the Ministry of Labour playing a very vigilant role in monitoring the development of EPZs. An effective monitoring role is dependent on the availability of reliable data on a regular and timely basis."(4) No trade union organization has established a presence in the zones in Trinidad and Tobago however. This is attributed partly to the weakness of the labour movement and partly to the fact that many of the workers in the zone perform skill-intensive, well remunerated functions and are not predisposed to joining a trade union. In Saint Kitts and Nevis a National Tripartite Committee on EPZs involves the Minister of Labour, Minister of Trade, officials from the Department of Labour, the Chamber of Industry and Commerce, the Saint Kitts and Nevis Trades and Labour Union and the Teachers Union. This has led to further tripartite initiatives including a Minimum Wage Committee which recommended a minimum wage that the Government adopted, a committee looking into a qualification and certification programme, and another considering the potential for implementing international labour standards in the zones.
The Philippines provides an excellent example of a zone-operating country in which no adequate system of labour regulation and labour-management relations existed in zones, but which, after years of industrial conflict, made the necessary reforms and established a stable system of labour-management relations. In 1986 the Philippines experienced over 580 strikes nationally, the highest ever recorded, and zones started to lose investment and jobs as foreign enterprises pulled out. Employment in the Bataan zone for example fell from its peak of 21,729 in 1984 to 14,101 in 1993. This prompted the Department of Trade and Industry to set up a Centre for Labour Relations Assistance (DTI-CLARA) which promoted the concept of Labor-Management Councils (LMCs) in zone enterprises. The DTI-CLARA existed in a "friendly rivalry" with the Department of Labor and Employment (DOLE) and many commentators feared that the LMCs might be an anti-union strategy. Over the years, however, the cooperation between the DTI-CLARA and the DOLE has grown and they now run joint promotional and training activities. The DTI-CLARA makes it explicit that an LMC is "not a substitute for unionism ... not a substitute for collective bargaining, and they will not cooperate with an enterprise if they have reason to believe that it intends to use the LMC to oppose the unionization of their plant. This initiative led to the establishment of the Philippine Association of Labor-Management Councils (PALMCO), which has more than 300 enterprises as members. Over 800 LMCs have been formed, many of them in unionized plants.
The steady improvement in the labour relations climate in the Philippine economic zones was reflected in the adoption in 1995 of the Special Economic Zone Act of 1995 (RA No. 7196). Section 37 states:
Except as otherwise provided in this Act, labor management relations in the ECOZONE shall be governed by the existing Labor Code of the Philippines. Employees and Personnel in the ECOZONE enterprises shall receive salaries and benefits and shall enjoy working conditions not less than those provided under the Philippine Labor Code and other relevant laws, issuances, rules and regulations of the Philippine Government and the Department of Labor and Employment.
The Bataan zone, previously wracked by labour-management conflict, is now setting an example for labour-management cooperation and has established a Labor Union Presidents Association (LUPA) with representation from all the 24 unions organized in the zone. The LUPA and the Department of Labor and Employment have the use of office space in the central zone administration building. Enterprises are voting with their feet and returning to Bataan, which now has 60 firms employing 24,381 people. Mitsumi and Paramount Footwear (Reebok), among others have won awards for their labour-management relations in their Bataan plants. Not all zones in the Philippines enjoy such constructive labour relations however, and a number of private zones appear to have adopted a "trade union-free" policy which conflicts with the labour laws. The Cebu Mitsumi plant in Danao City for example, part of the same Mitsumi group which is setting standards in Bataan, was the object of a complaint to the ILO Governing Body Committee on Freedom of Association procedures.(5)
Like the Philippines, the Dominican Republic went through a period of labour unrest before instituting reforms which have gone a long way towards enhancing respect for labour standards and improving labour relations in the zones. Section 41 of Act No. 8-90 states that all zone enterprises must observe the provisions of the Labour Code and other labour laws, including those concerning social security and training. A new Labour Code was adopted in 1992 which provides trade union rights and collective bargaining in free zones. Today there are some 14 trade unions operating in the zones, but they still face considerable difficulties in negotiating collective agreements. The seven collective agreements which have been signed to date are relatively limited in scope and content and do not cover wages for example. An interesting example of labour-management cooperation was the signing in April 1994 of a tripartite accord to harmonize labour relations in the free zones and to resolve conflicts through mediation. The agreement was brokered by the Catholic Church and signed by the association of free zone employers (ADOZONAS), the trade unions and the Government.
EPZs in Costa Rica are covered by the national labour laws. As far as labour-management relations are concerned, however, trade union activity is not well developed in Costa Rica as a whole, and the free zones are no exception. This is in large measure due to the existence, as in other Central American countries, of "solidarity associations" which bring together workers at enterprise level in a mutual savings and assistance scheme based on a percentage of their wage supplemented by an employer contribution. These associations enjoy strong support from the employers, who see them as a means of promoting harmonious relations and obviating the need for workers to form trade unions. Workers appreciate the practical support the associations offer, notably the interest-free credit and housing loans. In order to attenuate the anti-trade union aspect of the solidarity associations the Government adopted Law No. 7360 which prohibits anti-trade union practices and extends protection to persons forming or leading a trade union, or representing workers in the absence of a trade union. It also prevents the solidarity associations from exercising the functions of a trade union, such as collective bargaining. Despite this reform only ten trade unions have been registered in the free zones in Costa Rica and no collective agreements have been signed.
China is still in the process of opening up to the market economy and developing the labour laws and labour relations system to go with it. The Labour Law of the People's Republic of China was adopted in 1994 and entered into force in January 1995. It provides the framework for the promotion of employment, individual and collective contracts, working hours, wages, special protection for female and juvenile workers, vocational training, social insurance and welfare, labour disputes, inspection and occupational health and safety issues. The provincial and city authorities are free to develop, within the given guidelines, their own labour regulations and practices. Together with the labour administration provisions for foreign-funded enterprises, the labour law leaves foreign investors considerable flexibility in establishing terms and conditions of work. Enterprises may decide on how and where to hire and fire staff and set rates of pay themselves. Social security contributions must be paid from medical treatment, unemployment insurance and compensation for injury at work. Housing subsidies must also be paid by enterprises. Hours of work in foreign enterprises must conform to the national maximum of 40 hours per week and overtime work must be compensated at premium rates according to local regulations. However, a number of issues, including collective bargaining and strikes, are not properly covered, and detailed provisions remain to be worked out. Many of the provisions of the new law are yet to be fully implemented and further legislation can be expected.
China has an official trade union movement closely linked to the Communist Party: the All China Federation of Trade Unions (ACFTU). The trade union federation does not play an adversarial role and the situation in the zones is no different. The ACFTU facilitates the formation of enterprise trade unions inside and outside zones. The emphasis is placed on the dual objectives of cooperating with investors and protecting workers. In this way they hope to create a stable industrial relations environment and promote economic development in the zones. Trade union services to the membership are provided at enterprise level. Zone-level trade unions deal with labour relations and human resource issues. Human resource development takes place through joint activities with city colleges and night schools. The unions run campaigns to promote employee loyalty to the enterprise and to encourage employers to treat workers well. Dispute resolution is also handled by zone-level unions, although the workers may form dispute resolution committees at enterprise level as well. In Shekou, for example, there is a 24-hour trade union dispute resolution service. Foreign-funded enterprises are obliged to allow the formation of a union during the start-up phase and the trade union must be registered at the time the business becomes operational. According to the ACFTU, the rate of organization in the older, more established zones such as Dalian, Tianjin and Shekou was between 80 and 98 per cent, but on the whole only about 30 per cent of the foreign-invested enterprises in the zones were unionized. Almost 100 per cent of state-owned enterprises were unionized.
The Board of Investment (BOI) of Sri Lanka informs incoming investors that the labour laws of the country apply to all zones and other enterprises receiving BOI incentives. Amongst the 11 laws mentioned are, notably, the Trade Unions Ordinance, Industrial Disputes Act, Wages Boards Ordinance, the Factories Ordinance, the Maternity Benefits Act and the Termination of Employment of Workmen Act. The provisions include details on hours of work (51.5 hours per week in one-shift operations), wages (the national minima apply), leave (14 days' paid vacation leave after one year of continuous employment), public holidays (9 paid, plus every full moon day is a paid holiday), paid maternity leave, contributions to the Employees Provident Fund (12 per cent of the total wage per month paid by the employer and 8 per cent by the worker) and the Employees Trust Fund (employer-only contribution of 3 per cent of total wage). Workers have the right to associate, to organize and to bargain collectively. The Trade Unions Ordinance provides for the registration and control of trade unions, and includes stipulations regarding the constitution of a trade union, the election of its officers and the handling of its finances. However, trade union representatives interviewed in the course of the preparation of the report noted that, while freedom of association was recognized in Sri Lanka and should apply to the free zones as well, it was difficult for trade union organizers to enter the zones as the security personnel would not grant them access. The BOI has developed a system of Workers' Councils in its free zones. These are meant to consist of five to ten members elected by workers in secret ballots. The guidelines published by the Board of Investment state that the objective of the councils is to "secure the mutual cooperation of the employees and the employer in achieving industrial peace and greater efficiency and productivity in the workplace". A Joint Committee of Workers Councils coordinates the activities of councils, provides legal assistance where necessary and undertakes awareness-raising programmes aimed at informing workers of their rights and privileges. It has an Organizing Committee and an Advisory Committee. The Joint Committee, in a letter to the ILO in 1995, pointed out that zone enterprises were not keen to form workers' councils and that the BOI did not intervene in such cases. Representations had also been made by the Joint Council to the Minister of Labour but no response had been forthcoming. Under the circumstances the trade unions were sceptical of the ability of the workers councils to represent and defend workers interests.
Some countries have not excluded their zones from national labour legislation and the labour relations system but have modified them to a certain extent. In Namibia, for example, section 8 of the 1995 Export Processing Zones Act stated that the Labour Act of 1992 would not apply in the zones but that the Minister of Trade and Industry, in consultation with the Minister of Labour and Human Resources Development, could regulate issues such as minimum standards of employment, termination, health, safety and welfare. Freedom of association and collective bargaining were not covered however. After negotiations with the labour movement, section 8 was subsequently amended to state that the Labour Act of 1992 would apply to the zones but that strikes and lockouts would be prohibited for a period of five years. Labour conflicts were to be referred to compulsory arbitration instead. It should be noted that mandatory arbitration of interest disputes, which thus denies workers the right to strike, is contrary to freedom of association principles. The Committee of Experts on the Application of Conventions and Recommendations has requested that the Government take appropriate steps to further amend the Export Processing Zones Act to ensure that workers in export processing zones, like other workers in the country, are not denied the right to strike.
The Employment Act, 1955, is the principal law regulating the terms and conditions of employment in Malaysia, including foreign firms. It sets out minimum conditions of employment such as contracts, payment of wages, leave and maternity benefits. The Employees Provident Fund Act, 1951, provides for employers and workers to contribute to a provident fund (12 per cent and 10 per cent of the total wage, respectively), the contributions being payable to employees in full on reaching the age of 55 years. The Employees Social Security Act, 1969, provides for the Employment Injury Insurance Scheme (employer contribution of about 1.25 per cent of the wage) and the Invalidity Pension Scheme (joint employer-worker contribution of about 1 per cent of the wage). There is no national minimum wage law in the manufacturing sector in Malaysia. The Trade Union Act, 1959, and Trade Union Regulations, 1959, provide for the registration of trade unions, the limitation of their membership to a particular trade, occupation or industry, the organization of strike ballots and inspection of trade unions. The Industrial Relations Act, 1967, provides for the regulation of labour-management relations and the prevention and settlement of disputes. In terms of the Act the scope of representation of trade unions and collective bargaining may be limited and trade unions' may not negotiate on matters relating to promotion, transfer, recruitment, retrenchment, dismissal, reinstatement and allocation of duties. Strikes on any of these matters are prohibited. Although the Act encourages direct negotiation between employers and workers or their trade unions, it also provides for conciliation or arbitration in cases of deadlock or when the Minister of Human Resources decides to intervene and to refer a dispute to the Industrial Court for arbitration. There is a prohibition on strikes and lockouts after a dispute has been referred to the Industrial Court and on any matter covered by a collective agreement or by an award of the Industrial Court.
Malaysia pursues a policy of imposing a five-year moratorium on collective bargaining in "pioneer industries", which are enterprises in the manufacturing, agricultural, hotel, tourist or other industrial or commercial sectors which undertake promoted activities or produce promoted goods. An additional restriction is that, although trade unions may be formed in the electronics industry, they may not affiliate to national unions.
There are very few countries which openly and officially exclude zones from the national labour legislation and system of labour-management relations. In Bangladesh section 11A (Power to exempt zones from operation of certain laws) of the Bangladesh Export Processing Zones Authority Act provides that:
The Government may, by notification in the Official Gazette, exempt a zone from the operation of all or any of the provisions of all or any of the following enactments, or direct that any such enactment or any provision thereof shall, in its application to a zone, be subject to such modifications or amendments as may be specified therein, namely: the Employment of Labour Act 1965, the Industrial Relations Ordinance 1969, the Boilers Act 1923, the Factories Act 1965.
The EPZs are excluded from the scope of the Industrial Relations Ordinance (1969), which provides for organizing and bargaining rights in other sectors, and the Guide to investment in Bangladesh published by the Board of Investment states that the law forbids the formation of any labour union in EPZs. These measures are sometimes defended as interim provisions that could be lifted at an appropriate time when sufficient investment has been attracted and the trade union movement and foreign investors are ready to begin a sound bargaining relationship. The ILO Committee of Experts on the Application of Standards and Recommendations and the ILO Governing Body Committee on Freedom of Association have both found this provision to be incompatible with the terms of Convention No. 87, which recognizes the right of workers to form and join organizations of their own choosing.
The fact that EPZs in Bangladesh have been excluded from the scope of labour laws does not mean that there are no labour regulations in force in zones. The BEPZA issues Instructions to investors which specify standards relating to the classification of employees, minimum wages, leave and holiday periods, termination of employment, welfare facilities such as clinics and canteens, contributions to the provident fund and zone medical centre and grievance procedures. One such Instruction states that the relevant laws of the country apply in cases of compensation for injury sustained while on duty.
Pakistan has also excluded its zones from the scope of the Industrial Relations Ordinance and prohibited all forms of industrial action.(6)
Panama is the only country in Central America to have adopted special labour legislation for the EPZs, replacing the Labour Code. Chapter VII of Act No. 25 of November 1992 provides inter alia for flexibility of contracts and functions in zone enterprises and permits retrenchment for economic reasons. An Executive Legislative Decree to facilitate the establishment of enterprises in EPZs was promulgated(7) in 1996. This tried to limit the influence of trade unions in its EPZs by stipulating inter alia that zone enterprises were not obliged to negotiate or sign collective agreements during their first five years of operation and limiting the right to strike by providing for lengthy administrative, conciliation and arbitration processes before workers may declare a strike. The opposition to this Decree was pronounced and the Government has been forced to amend it a number of times(8) to restore the recognition of trade union freedoms. However, the controversy has not been fully resolved and freedom of association is not well established in zones in Panama. There is only one trade union and one collective agreement in existence in the zones. Act No. 3 of January 1997 also established certain minima for zone workers, including a minimum wage, a weekly rest-day and the payment of overtime.
In Zimbabwe section 56 of the Zimbabwe Export Processing Zones Act (1994) states that the Labour Relations Act (1985) shall not apply to the zones. This has the effect of denying zone workers the right to freedom of association and collective bargaining and removes protections against discrimination and unfair labour practices. The EPZs also fall outside the jurisdiction of the Ministry of Labour, Manpower Planning and Social Welfare, the Labour Relations Board and the Labour Relations Tribunal. These provisions drew a lot of criticism from the labour movement and there was an in-principle agreement with the Government that they should be amended.
There can be little doubt that the increased competition in investment and product markets as a result of globalization will put more strain on labour-management relations in EPZs. Enterprises are having to constantly improve their performance, which heightens their dependence on the human factor. Most enterprises are responding by intensifying work, and this clearly puts more pressure on workers, many of whom may have been less than satisfied to begin with. In instances where those workers have a channel through which to express themselves and to negotiate a working environment acceptable to all the stakeholders, the pressures building up in the workplace may be released. Too many zone enterprises, however, have no such pressure valve, and they could well see an increase in labour unrest in the years to come. Enterprises which have already switched to a consultative or participatory approach through which they develop a consensus on the measures to be taken in response to increased global competition are more likely to remain stable. Those zones which have put in place a proper system of labour-management relations and provide labour relations services such as dispute resolution may find themselves gaining investment as enterprises come to place a premium on stability and efficacy.