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COMPETITION & CHANGE, Vol. 9, No.

2, June 2005 181–200

Globalization and Paradoxes of Ethical


Transnational Production: Code of
Conduct in a Chinese Workplace
NGAI-LING SUM1 and PUN NGAI2
1
Department of Politics and International Relations, Lancaster University, Lancaster, UK
2
School of Social Science, Hong Kong University of Science and Technology, Hong Kong

Neo-liberal economic globalization and acceleration in information and communication


technologies have strengthened the competitiveness of transnational corporations by
making it easier for them to stretch their global commodity chains to developing countries.
Such control from a distance threatens national states’ capacity to regulate TNCs and their
impact upon environment, labour and human rights in developing countries. This has
prompted anti-TNC sentiments and campaigns that challenge brand-named TNCs on
labour exploitation in the south. These changes have triggered discussions on setting labour
standards in the international arena. With the WTO distancing itself from the ‘social clause’,
this has prompted the TNCs, NGOs and other stakeholders to self-regulate by introducing
codes of conduct. Concentrating on the clothing industry, this paper examines the emer-
gence of company and multi-stakeholder codes of conduct that require the involvement of
subcontractors and NGOs in developing countries. The moving of ethical codes to develop-
ing countries condenses and reproduces, under the twin pressures of competitiveness and
social auditing, the paradoxes of ethical transnational production in the internal organiza-
tions of local firms. These paradoxes are demonstrated from a case study of a workplace in
China. The paper ends by outlining three paradoxes and commenting on the development of
a managerialist ‘audit culture’ in workplace practices as commodification of ethical code.

KEY WORDS Audit culture, Civic activism, Codes of conduct, Commodity chains,
Corporate social responsibility, Chinese workplace.

Introduction

There is a growing trend for transnational corporations (TNCs) to introduce codes of


conduct regarding labour conditions in their global activities. This paper discusses this phe-
nomenon in general terms and then identifies some paradoxes in the implementation of such
codes through a case study of one corporation in southern China. We first suggest that
neo-liberal economic globalization and the acceleration in information and communication
technologies have enhanced the potential competitiveness of TNCs by enabling them to
stretch their commodity chains and to integrate developing countries more completely
into their operations. This poses interesting questions about national states’ capacities to

E-mail address: N.Sum@Lancaster.ac.uk

© 2005 the Editors and W. S. Maney & Son Ltd


DOI: 10.1179/102452905X45427
182 N.-L. SUM and P. NGAI

regulate TNC activities and their impact upon the environment, labour and human rights –
especially as the TNCs often exercise their powers at a distance and international bodies
such as the WTO are less committed to ‘social clauses’ (see the second section below). We
then explore how the transnational nature of these commodity chains and the dominance
of TNCs in their organization have prompted general disquiet and resistance over labour
exploitation in the south and anti-TNC sentiments in particular. This has triggered discus-
sions on setting labour standards through TNCs and/or through multi-stakeholder codes of
conduct (see the third section below). Turning to the clothing industry, we then examine this
‘code rush’ and the emergence of an arena for global business governance that is mediated
by the UN, the ILO, NGOs, TNCs and states. The emergence of this governance arena
enables large corporations to adopt their own codes and/or multi-stakeholder ones. One
possibility, which is the focus of our attention in this paper, is for TNCs to adopt in-house
codes that contain the main provisions of a multi-stakeholder code (see the fourth section
below). Next, we explore the implementation of this code in a case study in southern China.
This case reveals how the transfer of this code from the transnational arena to a specific
local site condenses and reproduces in the internal organizations of local firms some emerg-
ing paradoxes of ethical transnational production. This occurs under the twin pressures of
competitiveness and social auditing (see the fifth section below). The paper concludes by
identifying three such paradoxes and suggests that the managerialist audit culture that is
being adopted in workplace practices in developing countries can be understood as a
commodification of ethical codes (see the sixth section below).

Globalization and Transnational Production

Economic globalization has accelerated transnational production through the acceleration


of innovation in information and communication technologies, inexpensive transportation
logistics and the often-asymmetric liberalization of world trade under the WTO and other
multilateral arrangements. Together with the celebration of neo-liberalism as the highest
principle of rationality and basis for action, this has strengthened the competitiveness of
TNCs by making it easier for them to stretch their global commodity chains to developing
countries and thereby exploit new cost advantages (Dicken, 2003; Gereffi 1999; Gereffi and
Korseniewicz 1994). This involves these corporations collaborating flexibly with networks
of suppliers in developing countries to produce goods mainly sold in the developed world.
This new mode of transnational coordination rests on TNCs’ ability to control production
(e.g. delivery dates, quality standards, design specifications) over long distances without
exercising ownership. Various consumer goods, including clothing, footwear and toys, have
commodity chains in which control resides with brand name producers such as Levi-
Strauss, The GAP, Reebok, Nike, Mattel and the like (Frenkel 2001; Jenkins 2001; Jenkins
et al. 2002). Such control from a distance threatens national states’ capacity to regulate
TNCs and their impact upon the environment, labour and human rights in developing
countries.
This has prompted anti-TNC sentiments that can be seen in anti-globalization move-
ments, quasi-organized ‘corporate watch’ efforts and anti-sweatshop campaigns (Klein
2000) mainly initiated in developed countries. They challenge TNCs on labour-related
issues such as low wage levels, deteriorating working conditions, forced overtime, child
GLOBALIZATION AND ETHICAL PARADOXES 183

labour, unsafe working conditions, and lack of the right to free association (organizing
unions) in developing countries (Taplin and Winterton 1997; Waddington 1999). In particu-
lar, such criticisms have been directed against major brand-name producers by consumer
associations, non-government organizations (NGOs), international trade unions, and the
media concerning labour issues in these countries. Such public allegations of labour exploi-
tation have triggered a discussion, especially from the early 1990s onwards, on setting
labour standards in the international arena.1
The World Trade Organization (WTO) and the International Labour Organization
(ILO) are important international economic institutional players in these discussions. In
April 1994, during the final stages of GATT/WTO’s Uruguay Round, there was intense
debate over a proposal to link labour standards with trade – the ‘social clause’ – as part
of the international trade regime (Wilkinson 2002). Seeing the ‘social clause’ as ‘disguised
protectionism’ by developed countries, negotiators from developing countries opposed its
inclusion in the Uruguay Round. The issue of a social clause protecting workers was raised
again in the WTO’s first Ministerial Meeting in Singapore in December 1996 and, as before,
was deeply divisive. Nonetheless, the meeting did articulate the WTO’s and ILO’s positions
on labour standards. The WTO renewed its commitment to observe labour standards and
the ILO was accepted as the appropriate body to deal with these standards. Reflecting its
neo-liberal orientation, however, the WTO only committed itself to continue its ‘existing
collaboration’ with the ILO – whilst leaving unclear the nature of such ‘collaboration’
(Wilkinson 2002: 217). This ambiguity was reinforced in subsequent WTO summit meetings
in Seattle and Doha in 1999 and 2001, respectively.
This distancing from the ‘social clause’ and the resultant marginalization of labour
compared with the golden years of the (international) postwar settlement has prompted
alternative ways of introducing labour standards into the international agenda. There is a
shift from harder methods, such as enforcing ILO conventions through national courts, to
softer methods (e.g. codes of conduct) suggested by non-state actors such as TNCs, NGOs
and other stakeholders. This occurs as global commodity chains in the consumption sector
come under the increasing scrutiny of consumer activism from developed countries.

Global Commodity Chains and Civic Activism

With the drive to cut costs and maintain competitiveness, brand-named TNCs such as Levi-
Strauss, Nike and The GAP have subcontracted their production processes to developing
countries in search of cheaper labour and lower environmental standards. Gereffi’s work on
global commodity chains is very helpful in understanding such developments in global capi-
talism (Gereffi 1999; Gereffi and Korseniewicz 1994). For him, each commodity chain
has three main dimensions: (1) the structure of inputs and outputs that links products and
services in a sequence so that each activity adds value in turn; (2) the territorial aspects of the
networks among enterprises – networks may be spatially dispersed or concentrated; and (3)
the structure of governance, with its vertical and horizontal relationships of power and
authority, which determines the flow and allocation of resources in the chain. This paper is
mostly concerned with the third dimension, especially in the case of buyer-driven chains (see
Figure 1). The latter are chains in which brand-name retailers and trading companies are
dominant buyers and collaborate flexibly with networks of suppliers in developing countries
to produce consumer goods for sale in developed markets.
184 N.-L. SUM and P. NGAI

Fig. 1. An ideal-typical buyer-driven global commodity chain: directions of supply and control
(context: neo-liberal globalization and debates on ‘corporate social responsibility’).

As dominant buyers, TNCs in buyer-driven chains are able to control production (e.g.
delivery dates, quality standards, design specifications) over long distances without exercis-
ing ownership. Non-ownership of suppliers also enables them to collaborate flexibly on
their terms with subcontractors (e.g. global sourcing allows them to order flexibly to suit
changing consumer demand and flexible labour and overtime enables them to adapt to fluc-
tuating demand and fashions). A variety of labour-intensive consumer goods, including
clothing and footwear, are characterized by buyer-driven commodity chains in which
control resides with brand-name producers such as Levi-Strauss, The GAP, Reebok and
Nike (Barrientos 2002: 64–68; Jenkins 2001). These kinds of control from a distance and
in-built flexibility are some of the many factors undermining the capacity of national states
to regulate TNCs and to limit their adverse impact upon labour and human rights in
developing countries.
GLOBALIZATION AND ETHICAL PARADOXES 185

These developments have contributed in turn to the rise of anti-TNC sentiments that
fuelled anti-globalization movements, quasi-organized ‘corporate watch’ efforts and anti-
sweatshop campaigns (Klein, 2000). Civic activism along these lines and their related NGOs
began to operate on the global level and, indeed, to cooperate on different scales, to check
TNC activities or hold them more accountable. Based on guidelines formulated by ILO and
OECD, the TNCs have responded by formulating their own codes of conduct. These corpo-
rate codes of conduct are written statements of ethical standards that TNCs claim to adopt
and that apply to their suppliers and trade partners as well as themselves. They often contain
a variety of clauses measured against ILO conventions, in particular those concerned
with the respect of human rights at work. As documents initiated by corporations, codes of
conduct are not legally binding and standardized in the same way as governments are bound
by the international conventions that they sign and ratify. They amount to what is called
‘soft regulation’, which consists of ‘declarations, resolutions, guidelines, principles and
other high-level statements by groups of states such as the UN, ILO and OECD that are
neither strictly binding norms nor ephemeral political promises’ (ICHRP 2002: 73).
The proliferation of multilateral and firm-level codes of conduct was a response to the
growing multilateral challenge from a wide range of actors on different scales to the deterio-
rating conditions in the labour market and labour process in developing countries and to the
limits on workers’ efforts to organize to improve these conditions (Taplin and Winterton
1997; Waddington 1999). As dominant buyers in the chain, these TNCs are few in number –
this makes them susceptible to political pressure and charges of condoning sweatshop
conditions. They are especially vulnerable to charges leveled against them by consumer
associations, NGOs, international trade unions, religious organizations, student coalitions
and the media concerning labour issues in industrial zones in Asia, Latin America and the
United States.
Civic activism of this kind can be seen in a number of anti-sweatshop campaigns world-
wide. Well-known campaign and civic groups that target the garment industry include
Clean Clothes Campaign (Europe), Maquila Solidarity Network (Canada), United Stud-
ents Against Sweatshops (the USA), Oxfam’s Clothes Code Campaign, and the Interfaith
Centre on Corporate Responsibility (the USA) (Lipschutz 2002; 2003). They participate in
the new politics of consumption to end sweatshop abuses and urge TNCs to take on more
responsibility for the workers in their employment; for consumers to look behind the label
and think about the products before they buy; and in general, the concern for global and
local inequality. For example, the Clean Clothes Campaign uses a mix of activities to
promote political consumerism and civic activism. These include alternative fashion shows,
emails to corporations, e-newsletters, on-line dissemination of research reports, fair trade
evaluations in retail stores, in-house training of voluntary workers and demonstrations.
These kind of campaigns, together with the media’s strategies of ‘naming and shaming’
highly visible companies and celebrities, has created a transnational resistance space against
corporate power. For example, the Washington Post in 1992 exposed Levi-Strauss’s exploi-
tation of Chinese indentured labour to make jeans on the Island of Saipan (Sajhau 1997).
This was followed by a series of other cases, including the CBS reporting in 1996 on sweat-
shop conditions in a factory in Vietnam that supplied Nike products. This strategy of
subverting high-profile symbols was also directed against celebrities. For example, Michael
Jordan, who signed a $20 million multi-year endorsement deal with Nike in 1996, was
condemned by the Daily News in New York as the ‘Pontius Pilate of American sports’
(Dwyer 1996).
186 N.-L. SUM and P. NGAI

The ‘Code Rush’ and the Emergence of Global Business Governance

The emergence of this transnational resistance towards corporate excesses has triggered
self-regulation based on the drawing up of in-house codes of conduct (Culter et al. 1998;
Haufler 2001). Since the early 1990s, there has been a proliferation of company codes
initiated by the brand-name traders and corporations. Levi-Strauss was among the first to
draw up a code on labour standards, entitled Business Partner Terms of Engagement and
Guideline for Country Selection, in 1991 (revised in 1994). It covered issues such as working
conditions, minimum wages, environmental standards and child labour (see Table 1). It
broke new ground in terms of the transnational scope of such codes by covering 600 suppli-
ers and subcontractors in developing countries.2 Nike also unveiled a corporate code of
conduct in the same year; but the external auditors were subsequently criticized, including
PriceWaterhouseCoopers, for weak implementation (O’Rouke 2003). Seeing Nike’s prob-
lems, Reebok improved its practices by instituting a policy of not buying soccer balls from
factories using child labour. In Europe, C&A has been the focus of many actions in the
Netherlands and the UK since 1990, and in Belgium, Germany and France since 1995. Otto
Versand was been the first action target of the German Clean Clothes Campaign since 1995,
and developed codes to be sent to its suppliers. In 1999, the Italian newspaper Corriera della
Sera revealed that Benetton was using child labour in Turkey and a code of conduct was
adopted in the same year. By 2003, it was estimated there were about 10,000 codes that were
accompanied by varying management systems for implementation (Global Unions 2003).
For illustrative purposes, the following are three well-known codes of conduct, namely
Levi-Strauss, Nike and The GAP (see Table 1).
A detailed discussion of these codes is beyond the remit of this paper. However, outlin-
ing these codes does serve to illustrate the ‘code rush’ by TNCs since the 1990s. They
contribute towards the making of the discourse on ‘ethical corporations’ that is being thick-
ened by the emergence of narratives on Corporate Social Responsibility (CSR). Many
TNCs have begun to pledge that they will assume social responsibilities in their trans-
national activities. Business schools and business consultancies started to construct ideas
such as ‘corporate citizenship’ and tie ‘doing good’ to profit since the mid-1990s. Concepts
such as capital are narrated in terms of companies’ reputation – reflected in the new notion
of ‘reputational capital’ – that is essential for building corporate names and hence profit.
This linkage between ‘capital’ and ‘reputation’ is also narrated as part of ethical corporate
strategy in a global age (Bossone 1999; Fombrun 1996; Jackson 2004; King and
MacKinnon 2001). This revival of talk on business ethics and its role in capital accumula-
tion is narrated mainly in an instrumental manner, i.e. corporate culture and ethical
obligations are seen as ‘good for business’.
In spite (and perhaps because) of this company ‘code rush’ and discourses on CSR,
trade unions, consumer groups, NGOs and international organizations continued to criti-
cize these ‘soft’ self-regulating codes as public relations tools or window-dressing exercises
to deflect consumer/community inquiries about workplace conditions and to project an
image of a ‘caring company’ when in reality business carried on as usual. These complaints
from trade unions, NGOs and UN-related organizations have pushed some TNCs to move
the CSR agenda forward by entering into negotiation with international labour unions,
NGOs and trade/industry organizations in formulating industry-wide or multi-stakeholder
codes of conduct. This change in the balance of social forces has led to an emphasis
on multi-stakeholder codes (Utting 2003) and the emergence of an arena for global
business governance. Multi-stakeholder codes involve dialogues and negotiations between
GLOBALIZATION AND ETHICAL PARADOXES 187

TABLE 1
Labour standards in three TNC codes of conduct

Selected labour Levi-Strauss (business Nike The GAP (sourcing


standards in each code partner terms of (Code of conduct) guidelines for vendor
engagement) selection)

Child labour Use of child labour is In accordance with Subject to all applicable
not permissible local regulations. laws, rules and
regulations.
Levi- Strauss
encourages
apprenticeship
programmes.
Forced labour No use of prison or Forced labour – Prohibited.
forced labour. prison or otherwise –
must not be used at
any stage of
production.
Working conditions • Working hours in In accordance with Prevailing industry
accordance with local trade legislation standards in the
local standards. as regards minimum surrounding
• Maximum: 60 hours wages, overtime, leave, community.
a week. public holidays.
Health and safety Business partners must In accordance with Employees must not be
provide good health local regulations. exposed to conditions
and safety conditions. dangerous to their
health.
Implementation of Internal methods: Internal methods: Internal methods:
codes and evaluation • Evaluation carried • For each plant, a • The plants of
out by a Levi- representative of subcontractors are
Strauss team. Nike is responsible selected and
• A 20-page evaluation for the day-to-day inspected by
document reviews application of the representative of the
practices in Memorandum. management of The
production and • Obligations on GAP and/or by a
working conditions. suppliers/ commercial
• Workers are also subcontractors to representative
directly concerned retain and to make responsible for
and unannounced available to Nike all purchasing.
visits to enterprises documentation External methods:
are sometimes concerning ethical • An independent
carried out. criteria contained monitoring
External methods: in the Memorandum. working group set
• The assessment is • The Memorandum up in cooperation
also based on is posted up in all the with NGOs and
opinions about the plants of Nike’s unions
subcontractors.
188 N.-L. SUM and P. NGAI

TABLE 1
Continued
Selected labour Levi-Strauss (business Nike The GAP (sourcing
standards in each code partner terms of (Code of conduct) guidelines for vendor
engagement) selection)

enterprise by trade • Nike reserves the • Work towards the


unions officials and right at all time to improvement of
local associations. have an independent codes and
monitoring carried propose solutions.
out of the plants of
suppliers/sub-
contractors.
Sanctions Termination of trade In the event of non- Termination of trade
relations with respect of the relations with suppliers/
partners who do not Memorandum, Nike subcontractors who do
respect guidelines. may insist that the not respect the code of
situation is redressed conduct.
or it may cancel its
trade commitments.
Basic ethical principles Business partners Principles that govern Learning from NGOs,
of the corporation should respect a code the conduct of human rights leaders,
of ethics that includes: business development experts,
• Respect for include trust, factory personnel and
employees, suppliers, teamwork, honesty from garment
clients, consumers and mutual respect. workers.
and shareholders; Nike expects Open dialogue gener-
• Respect for basic compliance with the ates fresh ideas and
human rights. same principles by its stakeholders learn
trading partners about The GAP’s
commitment to creating
sustainable progress in
the workplace.

Source: Adapted from information derived from Sajhau (1997).

governments, TNCs, trade unions and NGOs. They work together to improve the quality of
standards, reporting and auditing procedures of corporate subcontracting activities. Alto-
gether, there are 11 major codes. Here, we will concentrate on four prominent ones related
to the garment/sportswear industry (see Table 2). Let us start with the Fair Labor Associa-
tion code in the USA.
In 1996, the Clinton Administration, in response to the sweatshop movement, launched
the Apparel Industry Partnership (AIP), which consisted of 18 garment makers, unions and
NGOs. Controversy arose when several unions and NGOs withdrew because they disagreed
with the design of the monitoring system, unionization and the concept of the living wage.
After their withdrawal, the AIP created a code of conduct with the Fair Labor Association
as a permanent organization to implement it. The code stipulates a minimum wage,
worker’s age, working hours and so on (see Table 2). This led to a split among the organi-
zations. Two apparel firms withdrew, feeling the provisions were too strict. The unions
GLOBALIZATION AND ETHICAL PARADOXES 189

TABLE 2
Main features of selected multi-stakeholder codes of conduct

Main Fair Labour Workers Rights Social Accountability Clean Clothes


features Association Consortium (WRC) International (SAI) Campaign (CCC)
(FLA) (SA8000)

Year of Clinton US-American US-American Dutch Research


foundation Administration Students’ consumer Institute SOMO
1996. Organization 2000. organization 1997. 1990.
Membership/ Members: Members: Board: 2 NGOs, More than 250
governance 13 companies, 110 universities, 1 lawyer, NGOs and unions
6 NGOs, USAS. 3 companies. in 14 CCCs in 12
3 universities, European countries.
1 chair.
Labour Freedom of Freedom of Freedom of Freedom of
standards association association association association
Collective Collective Collective bargaining Collective
bargaining bargaining No forced labour bargaining
No forced labour No forced labour No child labour No forced labour
No child labour No child labour No discrimination No child labour
(except 14 years if No discrimination Living wage No discrimination
legal) Living wage Occupational health Living wage
No discrimination Occupational and safety Occupational health
Legal minimum health and safety Hours of work and safety
wage including Hours of work Management Hours of work
benefits Establishment of systems (reference to Establishment of
Occupational employment relation ILO and to UN Employment
health and safety No harassment or Human Rights Relationship
Hours of work abuse Women’s Conventions)
(exceptions from rights (reference to ILO)
ILO – 48 hours
plus 12 hours
overtime/ week
possible)
Overtime pay
possible at normal
rate
No harassment or
abuse
Methods/ Independent • More SA 8000 Standard, • Code of Labour
instruments verification, complaint-driven. independent Practice.
certification by • No certification; verification, • Independent
third-party but spot-check certification of verification and
auditing firms that inspections in producers/ suppliers. certification.
cover the whole whole supply • North-South
supply chain. chain. . solidarity.
• Networking • Information of
North-South consumers (sic)
campaigns.
190 N.-L. SUM and P. NGAI

TABLE 2
Continued
Main Fair Labour Workers Rights Social Accountability Clean Clothes
features Association Consortium (WRC) International (SAI) Campaign (CCC)
(FLA) (SA8000)
Scope of The whole supply The whole supply Emphasis on The whole supply
application chain of garment chain of garment factory/farm, chain of garment
products. products. but also products.
recommendations
for supply chains.
Monitoring/ • Brand • Brand orientation. • Factory/farm • Brand
verification certification. • Investigations certification. certification.
• Annual rather than • 9 SAI accredited • Verification
monitoring monitoring or audit companies institution
and certification. certification verify producers with board of
• As from second • Spot-check according to 50% company
year onwards, inspections. SA8000 guidance and 50% NGO/
internal • Local NGOs in document union
monitoring of all joint investigative • SA8000 certificate representatives,
facilities in teams. is valid for 3 years. contracts with
supply chain, audit company
independent possible.
verification of
5% of all
facilities.
• 13 accredited
audit companies.
Reporting/ • Internal and • WRC verification • Certified factory • After each
disclosure independent and remediation listed on website. inspection audit
monitoring reports go to all • Audit reports go reports go to all
reports go to the parties involved. to SAI and to the parties.
FLA staff. • Full disclosure of companies. • The verification
• The FLA all reports from • Other parties can body informs the
evaluates audits, investigations. get audit reports public.
jointly develops after having signed
remediation a confidentiality
plan, and then agreement.
publishes
summary reports
of remediation
results.
Complaints/ • Third party • The WRC Agency Complaints/appeals Complaints/
appeals/ complaints go examines the can go to: appeals go to the
corrective to FLA, which complaints. • the management foundation, which
actions then to informs • Appeals, initiates of the factory, then initiates
those who filed and corrective • the certifying body corrective action.
the complaints. action in • the accreditation
• appeals about cooperation with agency,
the outcome of labour or
corrective action. ganizations.
GLOBALIZATION AND ETHICAL PARADOXES 191

TABLE 2
Continued
Main Fair Labour Workers Rights Social Accountability Clean Clothes
features Association Consortium (WRC) International (SAI) Campaign (CCC)
(FLA) (SA8000)
• Also possible each of them being
complaints able to initiate
direct to brand corrective action.
companies.
Costs/ Administration • Administrative Annual fees for • Participating
financing costs are paid by costs are paid by member companies companies and
annual company the fees of vary between US$ organizations
fees and member 1,500–15,000 contribute to the
contributions by universities: 1% according to administrative
universities. of annual revenues. costs of the
licensing independent
revenues. verification
• Funds from body.
foundation. • Pilot projects
mainly paid for
by companies.

Source: Adapted from Wick (2003: 68–79).

involved in AIP, including UNITE (a major US garment and textile labour federation),
also withdrew, charging that some provisions were too lenient. The NGOs in the AIP
also split, with the Interfaith Center on Corporate Responsibility leaving the original
Clinton initiative. Nonetheless, the FLA advances a monitoring and certification system
(see Table 2).
Current members of the FLA include some major branded apparel and sports shoe
companies (e.g. Levi-Strauss, Nike, Adidas, Reebok, Liz Claiborne and Polo Ralph
Lauren), as well as 131 universities whose licensed apparel is produced by US manufactur-
ers. FLA members are moving toward implementing a monitoring and certification system
based on a monitoring sample of 30% of the company’s suppliers. It also announced a US
non-profit monitoring organization (Verité) and three commercial compliance certification
firms (Intertek Testing Services, Merchandise Testing Labs and Global Standards) as its
‘external’ monitors to carry out code compliance verification for members. Monitors’
reports will be made available to FLA staff and summary reports of remedies published.
As the FLA were approving companies and accrediting auditors for its external moni-
toring programme, two US-based initiatives were also moving ahead in certifying factories.
First, the Worker Rights Consortium (WRC) is an initiative by the United Students Against
Sweatshops. When several trade unions and NGOs withdrew from the AIP, claiming that
the provisions were too weak (no standard for living wage), some student activists from the
United Students Against Sweatshops sided with them and established the WRC in 2000.
With support from the AFL-CIO and the Union of Needleworkers, Industrial and Textile
Employees (UNITE), the WRC draws on its social logic and advocates a living wage,
independent unions, women’s rights, and unannounced factory investigations and full
disclosure of factory conditions (see Table 2) (Gereffi et al. 2001: 4; Jenkins 2002: 22–25). It
192 N.-L. SUM and P. NGAI

does not certify factories or brands; instead, it carries out investigation (both pro-active and
in response to worker and third-party complaints) of factories. Investigations are carried
out by joint teams made up of WRC members and local NGO and labour organizations.
It makes all its investigation reports public and develops an on-line database for public
dissemination.
Second, Social Accountability 8000 (SA8000) was created in 1997 by the Council on
Economic Priorities, a US NGO which specializes in corporate responsibility. It outlines the
workplace standard for producers and suppliers on the commodity chain. It is administered
by Social Accountability International (SAI), with an advisory board (see Table 2). Brand
name companies become ‘SA800 Signatories’ and they are audited by one of its nine accred-
ited Certification Auditors. Apart from accrediting auditing firms, the SAI also provides
training for SAI auditors. The audit reports go to companies and other parties after signing
a confidentiality agreement. The SA8000 system differs from the FLA in a number of
regards, most notably on issues of wages and certification. SA8000 requires factories to pay
workers a ‘basic needs’ wage and not a prevailing wage, which is a weaker requirement. It
also certifies manufacturing facilities and not brands or retailers.
Concurrent with these developments in the USA, there were several initiatives in
Europe. The Dutch Clean Clothes Campaign (CCC) exists in 12 European countries. The
resulting activities are coordinated by an international secretariat in Amsterdam that
organizes a network of over 250 unions and NGOs. The campaign aims to improve labour
conditions in the garment and sportswear industry by informing consumers, influencing
companies and supporting workers’ organizations. Its Code of Labour Practices for the
Apparel Industry including Sportswear was adopted in February 1998 (see Table 2). Some
TNCs’ in-house codes contain the main provisions of the CCC code and the relevant verify-
ing body can be composed of companies, industry associations and employers’ associations,
on the one hand (50%), and trade union organizations and NGOs, on the other (50%). After
each inspection, audit reports go to all parties. The CCC also lobbied the European Parlia-
ment and the EU Commission concerning their recent initiatives on codes of conduct and
corporate social responsibility (Wick 2003: 27–30).
The same emphasis on codes of conduct and corporate social responsibility can be
found in the UN Global Compact project. In Summer 2000, UN Secretary General Kofi
Annan officially launched the UN Global Compact, which, in addition to environment
protection and human rights principles, invites companies, large and small, to promote the
principles in the ILO Declaration. The Compact is not a regulatory instrument but it does
seek to promote institutional learning and social dialogue between business, unions and
NGOs. Within the Global Compact, corporations are called upon to support the nine basic
principles derived from the universal declaration of human rights, the ILO declaration on
fundamental principles and rights at work and the 1995 Copenhagen social summit and the
Rio Declaration of the UN conference on environment and development. It became the
UN’s attempt to deal with CSR and entered into partnership with TNCs. By October 2001,
approximately 400 companies from 30 countries had associated themselves with the Global
Compact.3
The co-existence of two types of code – TNC and multi-stakeholder – has two impor-
tant effects. First, it has created an arena for global business governance in which actors as
varied as the UN, the ILO, TNCs, industry associations, employers’ organizations, NGOs,
labour unions and states all participate (albeit with unequal impact) in the shaping of the
international political economy of production. Second, it enables some TNCs to create
room for manoeuvre in this ethical minefield, with its double potential for them to gain
GLOBALIZATION AND ETHICAL PARADOXES 193

prestige (and protection) by adopting their own codes as well as using their involvement in
multi-stakeholder codes to integrate themselves into the state–TNC–NGO circuit. There
are two distinct types of TNC–NGO links. In the direct-link type, TNCs, even if they have
their own in-house code, subscribe to one of the multi-stakeholder codes (e.g. Nike and
Levi-Strauss have both adopted the FLA code and its monitoring system). The indirect-link
type involves the TNCs’ adoption of in-house codes that contain the main provisions of a
particular multi-stakeholder code backed up by the commissioning of particular NGO
project teams to monitor their compliance with the code (e.g. the case study in the fifth
section, below, illustrates this type). Whether direct or indirect, these codes are implemented
in specific sites through the setting up of monitoring and verification systems at the
local level. This typically involves the participation of local NGOs in pilot schemes that
monitor selected supply factories in the commodity chains. For example, the FLA in March
2001 designated the Guatemalan Commission for the Monitoring of Code of Conduct
(COVERCO) and the Bangladesh-based NGO, Phulki, for monitoring projects. They were
the first southern NGOs to carry out external monitoring for companies affiliated with the
FLA. Similarly, the WRC contacted NGOs in a number of countries (e.g. India and
Mexico) concerning their participation in joint investigations. The various national Clean
Clothes Campaign groups also involved southern NGOs in piloting similar projects (SOMO
2001). In 2003, the Swedish Clean Clothes Campaign in conjunction with a local NGO – the
Hong Kong Christian Association – finished a pilot study on monitoring labour standards
in China.
In general, the implementation of these codes has prompted various concerns in devel-
oping countries. There is growing recognition that these codes have been driven primarily
by actors and interests in developed countries that have paid insufficient attention to the
culture and concerns of workers in developing countries (e.g. female workers having to work
alongside men and the lack of a place to pray). These workers are often portrayed as
‘victims’ to be studied by outside organizations rather than as potential agents of change. It
has also been questioned whether monitoring constitutes a public relations gimmick that
may usurp the regulatory role of national governments and unions by privatizing the
enforcement of labour standards through codes of conduct. Furthermore, some worry that
smaller firms in developing countries will be displaced because they are less able to comply
with the codes than larger ones (Utting 2001: 20–21). These are important questions that
reflect the struggles and worries that are involved when codes are transferred to developing
countries.

Paradoxes of Ethical Transnational Production in a Chinese Workplace

Most studies in this area concentrate on how these codes affect workers’ wages and con-
ditions, labour organization, and the forms and extent of unionization (Ascoly and Zelden-
rust 2003; Lum 2003; Scharage 2004). This paper does not aim to cover this familiar ground
but, instead, concentrates on how codes create and reproduce the paradoxes of trans-
national production in the internal organization of subcontracting firms in developing
countries. This case study enables us to identify at factory level three paradoxes in the
adoption and implementation of a code of conduct, which we will discuss in our concluding
remarks. Bur first we present our fieldwork in China.4
This case was based on empirical research conducted between 2002 and 2003 in a
large Hong Kong-invested company located in an export-processing zone of Dongguan
194 N.-L. SUM and P. NGAI

in southern China. This company, which we shall call SSG, produced sportswear for a
European brand-name corporation that adopted an in-house code of conduct in 1995.5 This
contained the main provisions of labour standards in the Conduct for the Apparel Industry
including Sportswear formulated by the Clean Clothes Campaign (see Table 2 and the
fourth section, above). The management of SSG had some knowledge of company codes
and international labour standards such as SA8000 (see Table 2). Five years later, in 2000,
SSG was also supposed to introduce a new European Corporation Code to its production
workers. Of some 800 employees in SSG, about 700 were production workers, and most
of them were rural migrant workers mainly from Hunan, Hubei and Sichuan provinces.
Almost all the workers had received at least primary education, 80% had junior secondary
schooling, and a few had senior secondary schooling and technical tertiary education. They
should have had no problem in understanding the provisions of the Code.
During the three visits to the firm in 2002 and 2003, a two-page Chinese summary of the
Code was displayed on the wall of each shop floor. The font was so small that workers could
hardly read the content. Even if it was legible, the clauses lacked details concerning child
labour, discrimination and overtime pay/work. No full Code was posted on the noticeboard
in the workplace, canteen or dormitories. The use of a two-page summary indicated
that SSG was not serious in promoting the Code. However, the management insisted that
every worker had been provided with a full written copy (in Chinese) of the European
Corporation Code when they signed or renewed their contracts. They also claimed they had
introduced the Code to the workers during morning briefing meetings.
Yet all workers interviewed denied that they had received a written copy of the Code.
They also said that they were coached to provide standard answers to the code inspectors or
auditors, especially on the issues of wages, working hours and rest days. Thus, when the
issue of overtime work was raised, the workers replied as follows:
We work eight hours each day. No compulsory overtime work. We have Sunday off. We get
1.5 times pay for evening work, double for weekends and triple for public holidays.
The ‘willingness’ to repeat this standardized answer was secured from the workers
through a tactical quid pro quo. The company told the workers that giving the ‘wrong’
answers about the Code would undermine the company’s reputation and, hence, the firm’s
prospects for production orders and the workers’ chances of work. A social instrument that
aims to inform and empower workers about their rights has been turned into an economic
narrative that interpellates ‘workers as (loyal) employees’ who should not upset the manage-
rial apple cart both for their own sake and that of the firm. In this regard, workers’ consent
to management hegemony was traded for a little tale of profit and opportunity. The tactical
alliance between the workers and the management in the face of the Code inspectors reflects
how this little tale suppresses (without resolving) the contradiction between the social and
the economic in the workplace.
In most cases, the economic seemed to dominate the everyday practices of the factory.
Further interviews with some workers revealed that they had to work up to 12 to 14 hours a
day, and they were only paid an overtime bonus for evening and Sunday work. The workers
said that, for normal work, the hourly rate was RMB 2.5, and for overtime work, only RMB
3.2 rather than the 3.75 RMB (1.5 times the normal rate) specified in the Code. Regarding
the practice of payment, the workers were provided with wage slips, the format and details
of which they did not understand. Despite this, they were still expected to show the slips to
the inspectors for the purpose of auditing.
GLOBALIZATION AND ETHICAL PARADOXES 195

In our interviews with management representatives, the production manager directly


criticized the Code of Conduct. She described it as a ‘paradoxical’ and ‘hypocritical’ act by
the TNCs to assuage the ‘inner sins’ of the ‘rich western countries’. She stressed that, when
pressed to meet production orders by the TNCs, she had to give up ‘labour rights’ and
violate the Code in favour of pushing workers to work faster and longer. Severe global
competition for low-cost, just-in-time and fashion-conscious products imposed structural
limits on the implementation of the Code of Conduct, revealing its ‘hypocritical’ nature.6
The ability to comply was undermined by TNC sourcing practices such as cutting order
times, reducing prices and changing fashion constantly. Likewise, the company director
summed up this paradox by pointing out that production order prices continuously dropped
but the requirement for labour codes had become more stringent. He also remarked that the
code required by the European Corporation involved a change in its ‘market behavior’ – it
demanded huge investment to meet the labour standard in order to secure production orders
from European and American retailers. He also complained that TNCs were unwilling to
share this investment cost so that the whole burden fell on local producers. ‘To survive in the
world market, we have no choice but to do as we are instructed,’ said the director. In this
regard, from the company’s viewpoint, the Code of Conduct had less to do with protecting
labour rights than with its own and the buyer’s business strategies. For the subcontractor
and the TNC alike, the Code has become a marketing device to enhance their respective
positions in a global commodity chain. This is a far cry from the original intention behind
‘corporate social responsibility’, at least as seen by consumer groups and NGOs, namely, to
entrench and protect labour rights.
In July 2002, an inspector from the European Corporation produced a report that
directly and forcefully identified SSG’s non-conformities with the Code. In order to protect
its ‘reputational capital’, the Corporation formulated a corrective action plan for SSG to
address its non-conformities within a specified timeframe that included child or juvenile
workers as well as wages and contractual arrangements. In September 2002, a Social
Compliance Officer (SCO) who would be solely responsible for implementing the Code in
the workplace was employed. The responsibility of this SCO was ambiguous because she
had to report her activities to the European Corporation as well as to SSG’s management.
The major role of this SCO, a local graduate, was to set up a task force to implement the
Code standards in SSG. Under the instruction of the task force, she devoted all her efforts
to building up filing and documentation systems. During the visits, she was keen to show
the inspectors freshly constructed files and records in order to prove the institutionalization
of labour standards. Thus there were files on Code of Conduct Training Procedures,
Code of Conduct Test Records, New Workers’ Assessment Forms, Workers’ Complaint
and Handling Records, Guidelines on Admission and Dismissal, and the like. Being
pro-management and proud of this documentation system, she said:
We now learn how to build up a filing and reporting system. We learn this from other
companies. The code monitors came for a few hours only for every inspection. They like
tables, figures and data, don’t they?
This way of implementing a code of conduct was further applauded and confirmed by
professional auditors, who played an indispensable part in advising the Code’s implementa-
tion in SSG as well as other companies. The auditors’ role was particularly important in
institutionalisation, insofar as almost all their recommendations reiterated the importance
of setting-up registers and filing systems. They taught the company how to revise the Code
provisions, and to design recording systems on code training, wages and working hours,
196 N.-L. SUM and P. NGAI

contracts, and non-discrimination employment policies, hoping to satisfy the corrective


action plan. A two-page summary of the Code in Chinese was then distributed to all workers
who were asked to sign their new contract and the copies of their signature were properly
filed. Training sessions on the Code provisions were organized for new workers who had
to pass a test covering, most importantly, the Code provisions, basic information on
the company and their contract provisions. Sample test papers were shown to the team
and all had a full mark. However, interviews with workers continued to indicate that the
workers did not actually understand the reasons for having such a Code and its benefits
for themselves, although some did mention ‘human rights’ and ‘labour rights’ such as non-
discrimination and no compulsory work. In fact, except for the new workers, training
sessions were only provided to the upper and middle managerial staff, such as supervisors
and line leaders, who in turn disseminated the information on the Code to their work units
or production lines.
This process of institutionalization was further crystallized in the redrafting of a new
contract and a new wage register by the task force. In March 2003, the whole workforce was
provided with a new contract that was re-written according to the China Labour Law, and
the workers again had to sign to confirm receipt of the copy of their contract. A new wage
register system had also been set up. The wage calculation sheets distinguished normal
workdays, rest days and holidays. The register could now show that the net monthly wages
of the workers for a 40-hour week corresponded to the legal monthly minimum wage. The
workers could also receive a wage slip each month. The slip, however, did not explicitly list
normal and overtime hours worked in a month. Nor did it detail the piece-rate and the
payment of statutory holidays. Thus the workers were still unable to work out by themselves
whether they had received the correct wages.
Recruitment policy was also reformulated by implementing a written non-
discrimination policy in the summary of the Code, in particular with respect to age and
gender. The workers, however, did not fully understand the issue of discrimination but
noted that it was common knowledge that new jobs were only open to the 18–25 age group.
The deposit system had been discontinued: all the deposits were refunded to the workers
who had signed the receipt and new workers hired were no longer required to leave a
deposit. The system of salary deductions for disciplinary reasons had also been discontin-
ued. However, on closer inspection, it had been re-categorized as ‘performance reward’,
which meant that disciplinary fines would still be deducted from it.
Thus, the contradictions between the formal requirements of the Code and actual prac-
tices in the Chinese workplace seemed to have been resolved through this rapid process of
‘soft’ institutionalization. Documentation, registers and filing were seen as a must in order
to implement the Code, and at least as having records to demonstrate their compliance with
it and Chinese Labour Law. The trouble of unannounced inspections could be easily dealt
with if piles of files were available for show. In this regard, the implementation of the Code
of Conduct, if it really happened, was actually a process of institutionalization of paperwork
with little improvement in working conditions, as shown by SSG. It is, after all, a window-
dressing practice without real commitment from either local or transnational companies.

Concluding Remarks

The increasing inability of nation-states to control TNCs’ activities has promoted the rise of
‘corporate watch’ efforts and anti-sweatshop campaigns. Transnational civic activism of
GLOBALIZATION AND ETHICAL PARADOXES 197

this kind began to operate on the global level in order to hold these brand-named corpora-
tions more accountable through corporate and multi-stakeholder codes of conduct. At first
sight, these codes of conduct as initiated by TNCs and NGOs seem to open up an arena that
holds out the promise of rebalancing the social obligations of dominant market players in
transnational production. There are numerous attempts by TNCs and NGOs to move these
codes to developing countries. Our case study in China adds to the critical literature
on implementation of these codes in two ways. First, it reveals three paradoxes regarding
business ethics and just-in-time competition in transnational production. Second, it high-
lights the difficulties in introducing ethics in a new-liberal environment and this leads to a
commodification of the codes of conduct.
The first main conclusion from our case study is the three paradoxes regarding
transnational ethical production. First, the pressures from just-in-time, low-cost and
fashion-conscious production for the world market structurally constrain the forms and
extent of compliance with the Code. The firm faces the paradox of lowering production
order prices at the same time as adopting more elaborate labour codes. This paradoxical
combination of pressures to engage in business ethics and maintain just-in-time competitive-
ness has led the subcontractor to prioritize the market logic over ethical principles in the
workplace. Thus, the subcontractor reacts in terms of its market logic and sees the Code as
an opportunity to enhance ‘reputational capital’ and thereby promote its competitiveness in
the global market. ‘Advancement of labour rights’ is translated into ‘compliance with
labour code’ as business strategy. Second, the introduction of an ethical code for worker
protection leads paradoxically to the firm using the Code to encourage workers to cooperate
with the management to avoid the loss of contracts and hence future employment opportu-
nities. This is achieved by narrating a little management tale that links workers’ employment
with the firm’s profits and opportunities. This tale not only encourages the workers to enter
into tactical alliance with the management in the face of social auditing; but also suppresses
(without resolving) the increasing contradiction between the social and the economic in the
workplace. Third, the incorporation of the labour code as part of its business strategy has
lead the firm to build elaborate managerial and audit/documentation systems to defend
the subcontractor against charges of infringing the Code. This institutionalization of ‘soft’
procedures and systems produces the paradoxical result that more effort goes into paper-
work than into actual advancement of labour rights protection. Based on the advice by
auditors, management showcases its files, registers and records as proof of compliance.
The second main conclusion concerns the commodification of ethical codes in work-
place practices. Our case study suggests that there is a tendency towards the manageria-
lization of the social agenda so that codes of conduct and CSR become marketing devices
and commodities that mask the contradiction between global capitalism and social inequal-
ity in the workplace in developing countries. This managerialization/economization of
codes of conduct is what leads to the above-mentioned focus on paperwork, records and
documents. This raises the question of whether such initiatives have created a ‘market for
ethics’, a ‘market in ethics’ or an ‘ethics for the market’. The first market would involve the
recognition by TNCs, service-oriented NGOs, monitors, and southern subcontractors that
ethics can become the basis for accumulating reputational capital. Thus they seek to turn
politically-sensitive global labour questions into profitable managerial-ethical knowledge
and auditing practices such as constructing codes, monitoring performance, writing reports,
setting up task forces, filling in forms and keeping files/records/documents. This in turn
creates a ‘market in ethics’, that is, opportunities for business (e.g. auditors, lawyers, ethical
officers) and for service-oriented NGOs (to demonstrate their effectiveness and raise funds).
198 N.-L. SUM and P. NGAI

Together, the primacy of managerialized ethics and the routinized practices of the emerging
code-of-conduct industry are giving rise to a neo-liberal globalization with an audit (and not
a human) face. These managerialization and auditization7 practices regarding codes may
foster reputational/material benefits for the TNCs, service-oriented NGOs, monitors, and
subcontractors. But this occurs at the expense of diverting attention from the workers’ wel-
fare and undermines the original motivation behind labour codes, namely, to develop and
institutionalize an ‘ethics for the market’. This would advance the rights of workers in devel-
oping countries on an equal footing with those of transnational capital. On the basis of the
present study, this aim of civic activism in developed countries is still far from being realized
in developing countries.

Acknowledgements

We are grateful to the two anonymous reviewers for their insightful and helpful comments
and to Bob Jessop, Jeff Henderson, Julie Froud and Alvin So for making this article
possible. The usual disclaimer applies.

Notes

1 The UN proposed an international code in 1980 but it never reached consensus and finally failed
after a decade of unsuccessful negotiations. The ILO has had a Declaration of Principle on Multi-
national Enterprise and Social Policy since 1977 but it failed to endorse an agreed international
code of conduct for all industries and companies.
2 Women Working Worldwide (2000) Company Codes of Conduct, available at http://www.poptel.
org.uk/women-ww/company_coc.htm.
3 There is mounting criticism of Kofi Annan’s Global Compact on the grounds that the United
Nation has provided moral legitimacy for TNCs. It has thereby helped to ‘bluewash’ the TNCs,
which means the use of the reputation of the United Nations to present a more humanitarian
image for the profit-oriented TNCs.
4 The reason why China is chosen is because China is increasingly being seen as the ‘factory of the
world’. With China joining the WTO since December 2001, it has become a major player in the
international garment industry. In March 2002, the Financial Times predicted that after the 2004
phase-out of apparel export quotas currently in place under the Multi-Fibre Agreement, global
apparel chains will stretch to China so that it will become the producer of half the world’s garments
by 2005 (Brandsma 2002).
5 The Code of the European Corporation required all its ‘contractors, their sub-contractors, princi-
pal suppliers and licensees to observe the standards when producing or distributing products or
components of products for XXX’. Moreover, the Corporation demanded from all its suppliers
that they comply with applicable labour laws in the countries where they operate.
6 The production manager often referred to the Corporation Code as ‘paradoxical’ and
‘hypocritical’.
7 The idea of ‘auditization’ stems mainly from Michael Power (1997).

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