China’s Union Push Leaves Wal-Mart With Hard Choice

BEIJING -- As Wal-Mart Stores Inc. pushes into China, its reluctance to allow unions into its stores here is moving the company toward a potential showdown with the government and its biggest trade-union group.

The looming confrontation has big implications for the discount retailing giant and for other Western businesses doing business in China. Wal-Mart has long resisted unions in the 15 countries in which it operates, but it cannot afford to stumble in the world's most populous nation.

The outcome is also important for the Chinese government. Former state-run companies have been shedding thousands of workers, and foreign companies like Wal-Mart are creating new jobs. The government is eager for the umbrella group of Chinese trade unions, called the All-China Federation of Trade Unions, or ACFTU, to make inroads with these private employers. Although the federation isn't a government entity, it is backed by the government and has ties to the Communist Party. Its chairman, Wang Zhaoguo, is a member of the party's Central Committee Politburo.

In 2004, the ACFTU publicly identified foreign companies that hadn't unionized. Many companies on the list bowed to pressure and agreed to allow their employees to unionize, which boosted the union group's membership significantly. Wal-Mart attracted headlines for agreeing to work with the group.

The company now says that it did not agree to unionize, but to abide by a Chinese law barring companies from obstructing workers from forming unions. Mike Duke, chief executive of Wal-Mart International, said early this month that as far as he knew, no Wal-Mart worker at any of its 58 stores in China had expressed an interest in forming a union. A company spokeswoman said subsequently that some workers may have discussed it, "but it takes more than scattered interest for the company to be required by law to respond."

Wang Ying, the ACFTU division chief in charge of organizing trade unions at foreign companies, claims that some local unions have had trouble approaching Wal-Mart workers, and that the company has warned workers against speaking with trade-union officials during working hours. According to Ms. Wang, a local union representative in Qingdao approached Wal-Mart workers by pretending to be a customer, but staffers were too scared to talk.

"We pay our workers to take care of customers," says Wal-Mart spokeswoman Beth Keck. "We clearly can't permit a situation where workers are free to engage in political discussion during the work day."

The ACFTU was founded in 1925 and claims a membership of 134 million workers. Among its goals, it says, is "to protect the legitimate interests and democratic rights" of workers. Some international labor experts, however, contend it helps China's leaders control both workers and independent unions, and that the dues it collects are mainly used to organize events. It does not take part in American-style collective bargaining over wages and benefits, although it says it does hold conferences between workers and management.

"If Wal-Mart continues to be against unions, they may not face ACFTU alone, but also the whole of China," says Ms. Wang, hinting that Wal-Mart could face pressure directly from the Chinese government.

From its inception, Wal-Mart has vehemently fought attempts to unionize its stores in the U.S. Its late founder, Sam Walton, believed unions were a divisive force and would make the company uncompetitive. Thus far, Wal-Mart has remained mostly union-free throughout the world.

Vitally Important

China is vitally important to the Bentonville, Ark.-based retailer. Chief Executive Lee Scott has repeatedly said China is the only country where it can feasibly duplicate the size and success it has had in the U.S. Wal-Mart has opened 58 stores in China and has 30,000 employees. It has stepped up store openings throughout the country and expects to open about 20 this year.

China is also a critical supplier of merchandise. Wal-Mart purchased $18 billion in goods directly from Chinese manufacturers last year. It obtained a substantial additional amount of Chinese goods through its suppliers.

John Frisbie, president of the U.S.-China Business Council, a Washington-based trade organization, says foreign companies are not required to set up unions in China unless employees request them. But Chang Kai, professor of School of Labor Relations and Human Resources at Renmin University in Beijing, notes that "companies in China can't obstruct the establishment of trade unions."

ACFTU's goal is to increase the number of foreign companies with unionized work forces. Currently, only about 30% of foreign companies in China have trade unions. Trade groups are aiming for 60% by the end of this year and 80% by 2007.

French retailer Carrefour SA, Wal-Mart's biggest rival, is 70% unionized in China. McDonald's Corp., Motorola Inc. and other Western companies have allowed union organization in areas where workers request it.

Poor working conditions and low wages are generating social unrest and represent a growing threat to China's economic progress. The government is trying to craft a new set of labor laws that give workers greater protections. These rules are likely to give additional power to the ACFTU. Government officials hope the changes will deter the development of more independent unions like those that have formed in southern China's manufacturing heartland.

The proposed rules worry some foreign companies that fear new curbs on their autonomy. The "strict regulations" could raise production costs and "force foreign companies to reconsider new investments or continuing their activities in China," says Serge Janssens de Varebeke, president of the European Union Chamber of Commerce in China, in a letter to China's National People's Congress last month.

Wal-Mart has a history in both the U.S. and abroad of resisting the involvement of any third-parties with its work force. In 2000, a group of butchers in a Texas Wal-Mart supercenter voted to unionize. Shortly thereafter, Wal-Mart announced it was switching to prepackaged beef and reassigned the store's butchers. In Canada, the United Food and Commercial Workers organized a Jonquiere, Quebec, Wal-Mart in 2004. The retailer shuttered the store last year, claiming it was losing money and that union demands would prevent it from becoming profitable.

Acquired Unions

A company spokeswoman says that because Wal-Mart has acquired some existing retailers, employees have union representation in some stores the company controls in Brazil, Argentina, Germany and Japan. In Germany, work councils made up of Wal-Mart employees negotiate on behalf of employees in individual stores.

The Chinese trade-union group has suggested there will be political pressure on Wal-Mart to unionize because Chinese President Hu Jintao and members of China's National People's Congress are placing greater importance on the issue.

In China, companies with unions must contribute 2% of their payrolls as union dues. Under some Chinese provincial regulations, local unions can collect this percentage from companies without unions as well, in order to fund the establishment of trade unions.

ACFTU has said that if Wal-Mart does not acquiesce to trade-union wishes, it may start enforcing this little-used regulation on the retailer. "We have a clear attitude toward Wal-Mart. They must comply with the laws of our country," said Ms. Wang, the ACFTU division chief.

Wal-Mart says it already collects 2% of total wages at each of its Chinese stores and sets the money aside in a fund for its employees in China. Instead of the funneling the money to ACFTU, Wal-Mart says, an employee council at each store determines how to use it. Some stores have used it for employee birthday parties, while others have donated it to charity, Wal-Mart says.

If Wal-Mart interferes with employee efforts to unionize, it could also face more stringent inspections for sanitation and worker health and safety, according to one person familiar with the ACFTU's planning. Wal-Mart says it already has many inspections of its stores and is organized to handle them.

"If Wal-Mart is smart, they should let [ACFTU] in," says Hong Kong legislator and labor union supporter Lee Cheuk Yan, who contends the trade-union group is more interested in increasing its dues-paying membership than pressing for better wages for its members.

The ACFTU acknowledges it is different from many unions in the West. But Li Jianming, a director at the ACFTU, says the organization was instrumental in negotiating 754,000 contracts covering 103 million workers by the end of 2005.

Wal-Mart's Ms. Keck declines to comment on ACFTU's effectiveness. She says Wal-Mart wants a good relationship with the government and a "direct and productive relationship" with its employees as well.