Export processing zones or exploiting people zones? We give the low-down.
“An 80-hour week for 5p an hour” screamed the headlines of the Guardian in December 2006, following a War-on-Want report on the conditions for clothing factory workers in Bangladesh.
“Tesco clothes made by child workers in Asia” ran the Independent’s headline just two months earlier after a Channel 4 investigation.
A few months before that an Oxfam Australia report accused the sportswear labels of not doing enough to protect labour rights in their supplier factories in Indonesia.
While the companies involved might be different, these stories are depressingly similar.
Workers are being exploited, not getting paid a living wage, and are working excessively long hours, whilst enduring unpleasant and often dangerous working conditions.
For us in the Ethical Consumer office such stories are not really news. They’re merely painting the picture of what the reality is for millions of factory workers worldwide.
The common thread to many of these headlines, other than the exploitation of workers by large multinationals, is that the factories concerned are likely to be located in areas known as Free Trade or Export Processing Zones (EPZ).
These zones are industrial areas specially set up by governments to attract foreign investment and to create employment. Incentives to companies choosing to operate within such zones include duty free imports of raw materials, flexibility of labour laws (including in some zones exemption from labour laws) and finally generous, and in some cases long term, tax concessions.
In China, EPZs are known as Special Economic Zones and in Mexico, they are known as Maquilas.
So far, so good. Companies save money twice – firstly by shifting their production to EPZs in countries where wages are already low, and secondly by making tax savings in such zones. We know what’s in it for them, but what about the countries struggling attract investment and raise people’s standard of living?
And what of those working in these zones? So far, indications are that the main profiteers from EPZs are indeed the companies.
War on Want argue that the wealth created “has made little improvement to the lives of ordinary workers” despite the creation of millions of jobs.
Research has also indicated that investments can be short term and that firms setting up in the zones can relocate “with relative ease, particularly when labour legislation is weak or not enforced”.
The price of investment
As a consequence of the desire to attract investment at any cost, unpaid overtime, forced labour, health and safety transgressions and excessive working hours (up to 15 hours per day in some cases) are common across EPZs.
This is because governments have relaxed (or sometimes even actively suppressed) labour standards in order to attract foreign investment into EPZs.
Low wages are especially common in EPZs where country minimum wages – which are often set pretty low in the first place – are sometimes not applied.
A 2004 International Labor Organisation (ILO) report gave the example of an advertisement by the Dominican Republic EPZ which had undercut the hourly wage costs of Mexico by 44 cents to 56 cents an hour in order to attract business.
The suppression of union activity is common and one of the main examples of how governments permit the relaxation of country labour laws within EPZs.
In Bangladesh, the government was actively promoting its EPZs “by citing the fact that trade unions are forbidden by law, and strikes are illegal”.
In Pakistan, legislation prohibits strikes and other trade union activities in EPZs while in countries such as El Salvador and Guatemala workers’ rights that may exist on paper just aren’t implemented in practice according to the ILO.
In Malaysia, the government actively banned trade unions in the electronics sector in order to attract foreign electronic firms to EPZs there. When, in 1988, it announced that electronic workers could establish unions of their own choosing, multinational corporations threatened to relocate elsewhere and the decision was reversed.
Effectively what all this means is that no matter if it says in a company’s “supply chain policy” that the right to join a trade union is protected, the reality is that in EPZs the majority of workers do not have these rights in the first place.
Labour rights activists argue that union membership and collective bargaining is THE most important tool for improving the wages and conditions of workers internationally. Additionally, the absence of unions means that other workers’ rights abuses often go unchecked.
Within the global labour market, but especially within EPZs, it’s generally agreed that women workers are the worst off. Women make up the majority of workers in EPZs; in countries such as Honduras and Jamaica 90% of the EPZ workforce is female.
Research has consistently found that women are paid less than men and are commonly subject to sexual harassment, violence and discrimination.
“Cases of women workers in EPZs being forced to take pregnancy tests are well-documented” claim the International Confederation of Free Trade Unions (ICFTU).
Maternity leave is often non-existent and pregnant workers may be sacked without warning.
The fact that working hours are often so excessive also makes it difficult for women to both work and care for family members. Additionally, the very low wages mean that many women just don’t earn enough to feed themselves or their families.
Changing definitions of ‘success’
The ICFTU concluded in a 2004 report that the value of EPZs to their host nations was “unclear”.6 It argued that they are costly in terms of the infrastructure they require, use few local inputs and provide little or no tax revenue for the host countries.
It also argued that other criteria for assessing the success of EPZs shouldn’t just be economic. Instead, a definition of success should also include the extent to which firms operating in the zones are providing decent wages and decent working conditions, and show respect for trade unions.
Something which, at this time, seems a long way off.
In recent years we’ve seen an increase in awareness by companies of their responsibilities towards workers in the overseas factories that they are using, even if they don’t own the factory themselves.
This is largely as a result of consumer pressure and high profile campaigns. In response, corporate social responsibility departments have been created, and supply chain policies or codes of conduct implemented. But this isn’t enough.
If companies are operating in EPZs, they need to go further to ensure decent working conditions and wages. Critics argue that “transnational companies could pay a living wage, enforce environmental and occupational health standards and still make a huge profits”.
In other words, the desire for profits must not eclipse a company’s responsibility to implement and enforce decent labour standards and wages across its supply chain wherever those workers are employed.
What can you do?
War on Want argues that boycotting companies which use EPZs is not the answer. Indeed at this time, it’s extremely difficult to avoid buying from companies who are using free trade zones as it’s so widespread. It’s important, however, to inform the companies that you buy from that you want them to take labour rights issues seriously.
This must include paying their workers a ‘living wage’, and not just allowing, but facilitating, union membership. At this time, the majority of company supply chain policies that Ethical Consumer receives don’t include a commitment to the payment of a real living wage.
Meanwhile, wording about trade union membership is essentially meaningless in areas where they are suppressed or forbidden, such as China and in some EPZs.
You can also continue to use Ethical Consumer’s ratings to put pressure on companies where workers’ rights violations have been found, as the majority of these will have occurred in factories contained within EPZs.
International unions are also working towards persuading governments to integrate Free Trade Zones into their national economies – and ensure that national labour and social legislation is respected.
You can also contact one of the organisations below and get involved or financially support their campaigns.
What is a free trade zone / export processing zones?
A ‘free trade’ or ‘export processing’ zone is an industrial area, set up by countries in order to attract foreign investment. Financial incentives include exemptions on import and export duties, capital gains taxes, property and land taxes, sales and consumption taxes. Additionally there may be tax holidays – a period of no tax obligations.
What sort of industries use EPZs?
Textiles, clothing and electronics were traditionally the main industries established in EPZs. Today, “the product mix can include almost any sector” and include everything from call centres to toy factories.
How many EPZs are there?
In 1975 there were 79. By 2004, the latest ILO estimate was 5,1746
How many people worldwide are employed in EPZs?
The last ILO estimate in 2004 was 42 million people worldwide.
1 Guardian, 8/12/06
2 Independent 11/10/06
3 Offside! Labour Rights and sportswear production in Asia May 2006, Oxfam Australia
5 War on Want website, www.waronwant.org visited Feb 07
6 Working Conditions and labour rights in export processing zones, ICFTU report, December 2004
7 TUAC discussion paper, Foreign Direct Investment and Labour Standards, viewed at www.tuac.org/Default.htm in February 2007
8 ILO database on EPZs, 2003
9 Sewing for the world market: Women’s work in Export Processing Zones and in the informal economy January 2005 SÜDWIND Institut für Ökonomie und Ökumene
10 International Labor Rights Fund, “Sexual Harassment in the Export Processing Zones of the Dominican Republic”, May 2003.
11 Engendering Change, The Long, Slow Road to Organizing Women Maquiladora Workers, Julie Light, CorpWatch 26/6/99
From Ethical Consumer, Issue 106, May/June 2007