This is an abbreviated version of the full Verite report.
Contract workers in Taiwan, mostly from Thailand and the Philippines, face labour exploitation that constitutes a significant compliance risk [to codes of conduct] for associated companies that purchase goods from unlawful factories there.
Beginning in the late 1980s, after years of rapid economic growth, Taiwan began to experience a serious labour shortage. To combat this, as well as to find lower cost production bases, Taiwanese manufacturing companies began a rapid move overseas, and to China in particular. For political reasons the government of Taiwan wished to discourage companies from shifting production to China, but at the same time was fully aware that they could not stop the shift altogether. In 1992, in addition to measures to encourage Taiwanese manufacturers to move to Southeast Asia instead of to China, the government began allowing local companies to bring foreign contract workers into Taiwan.
Workers are given a contract for two years with the possibility of having their contract extended for an additional year. At the end of the contract, they are ineligible to return to Taiwan for another contract for two years.
For the contract labour system to benefit all parties, Taiwan should receive a stable supply of labour that allows its factories to continue operations in their home base and workers could earn up to three times what they earn in their home countries. Through the use of contract workers, companies can develop a skilled work force that they can use should they decide to invest in factories later in the workers’ home countries. While these benefits have been realised to some degree, there are serious problems. Since workers from China are not allowed in Taiwan, the foreign workers coming into Taiwan from other countries generally do not speak Chinese and are unfamiliar with Taiwanese culture and management methods. In order to solve the consequential management problems workers and management must demonstrate sensitivity and flexibility. Foreign workers, regarded as temporary and therefore without prospects as long term employees, face problems ranging from insensitive management while living in a foreign country, to sexual assault and physical abuse.
A partial solution to the problems of finding workers abroad, as well as for support services in managing a non-Chinese work force, has developed whereby labour brokers in both Taiwan, and in the workers’ countries of origin, are responsible for processing their paperwork and for providing support in the form of interpreters and advice once the workers arrive in Taiwan. Brokers are licensed by both the Taiwanese government and by the governments in Thailand and the Philippines, with detailed responsibilities. The brokers in Taiwan focus on customer service and learn the needs of the factories, while those in Thailand and the Philippines work with the Taiwanese brokers to find people to fill those needs.
While the system works as a business model, it presents significant risk in the areas of labour standards and compliance with codes of conduct.
Debt Problems Incurred during Recruitment
The key problem in the contract labour system is the level of fees paid at various stages of the hiring process, which currently range from approximately US$364 to US$5,454 (amounts of money are approximate in this article). The factory pays no recruitment fees, but rather all costs are borne by the workers. In order to pay them, workers must borrow money in their home countries at interest rates of between three percent and 25 percent per month. Homes and farms are used as collateral, which means that workers, who fail to repay the loans, may lose their families’ property and be thrown into poverty with their entire families. The Taiwanese government, for a number of reasons, has failed to address this problem. The government of Thailand, on the other hand, has instituted a fee cap of US$1,700 along with US$30 per month to be deducted from workers as a management fee to cover the cost of service from the employment agency. This fee cap constitutes an initial outlay on the part of the workers of almost four months earnings on jobs that have a base salary of US$480. While the fee is still very high, it represents a theoretical improvement over the previous price structure.
The Philippine government limits fees to one month’s salary plus US$135. In reality, however, demand for the jobs generates an informal shadow fee structure that requires workers to pay the much higher actual rate in order to get a job in Taiwan. These additional payments are undocumented. The result is that workers entering Taiwan spend roughly two years of their three-year contract repaying debt and interest, and are only able to save money in their third year. It should be noted that the third year extension of the workers’ contracts is at the employer’s discretion. This virtual debt bondage of workers entering Taiwan, combined with a legal structure strongly biased in favour of the employers, creates a wide range of possible abuses of workers. Many of these other abuses are inherent in the system’s regulatory environment, but all are exacerbated by the fact that workers are so deeply in debt upon arrival in Taiwan that they live in fear of being sent home before they have completed their contract. This fear serves the needs of the Taiwanese government and the employers by making the workers easy to control and reluctant to resist any demands placed upon them.
The Contract Labour System
The contract labour system in Taiwan is strictly controlled by law and is also governed by a series of agreements between Taiwan and the countries providing workers. Factories that wish to import contract labour must apply to the Taiwanese government, and are awarded a quota of workers that they may hire. In theory, this quota acts as a control on excesses on the part of the factories because in the event of problems the quota can be reduced or removed altogether. In practice it is ineffective and encourages factories to use coercive management practices that violate workers’ basic human rights, such as freedom of movement, freedom to seek other employment, and freedom to rest, among others.
Once the factory has been given a quota, they invite Taiwanese labour brokers to bid for the job of supplying the workers. Between 600 and 800 companies are licensed to bring workers into Taiwan. Most of the market is controlled by half a dozen brokers and competition to win contracts is fierce. The result of this competition is that factories pay no fees for worker recruitment, and often collect kickbacks to award the contracts to certain brokers. These kickbacks can go to either of two places. Often staff members in the personnel office of the factory who have the power to award contracts, demand informal payments for themselves from companies bidding for the contract. In other cases, payment is demanded directly by the factory. These payments can be up to US$2,575 per employee hired, although Verite’s research shows them to be somewhat lower usually. With costs of this magnitude in the system, the Thai and Philippine governments’ limits on fees charged mean little to the system as a whole.
Once the contract is awarded to a Taiwanese labour broker, the Taiwanese broker works with a broker based in the workers’ home country to recruit workers. The labour brokers in Thailand and the Philippines operate in slightly different ways. In the Philippines, they advertise in local newspapers and workers transact with them directly. In fact, many brokers also double as finance companies or have close relationships with finance companies to arrange payment, training if necessary, and the paperwork needed to obtain a work visa for Taiwan. Among the documentation needed are a passport and a physical examination. The workers usually pay the associated fees by borrowing at usurious interest rates. In addition, competition among workers for the high paying jobs offered in Taiwan is intense, creating an incentive for corruption. All money that flows through the contract labour system is generated at this level and passes through the brokers to its final destination, which the brokers claim is the factories, in exchange for awarding labour contracts. The factories deny this, and claim that all illegal money is collected by the labour brokers. Since the money is undocumented, there is no solid evidence for the claims of either group.
In Thailand, most workers are recruited in rural villages hundreds of miles from the offices of the labour brokers. Early in Taiwan’s contract labour program there were several well-known cases of labour brokers collecting fees without arranging jobs; thus workers are generally very hesitant to deal with the labour brokers directly. Workers are customarily recruited by familiar people in their native villages who have attained prestige through their educational or social standing and have connections with the labour brokers in the larger cities, usually Bangkok. These local recruiters called “Cow Heads” recruit the workers, cover the expenses for the workers to travel to Bangkok for interviews, and arrange financing through informal finance companies. For this service, the local recruiters collect up to US$400 per worker hired, but are responsible ‘for the interview and travel expenses of workers even if no job is offered.
Finance companies in both countries, which charge interest rates of between three and five percent per month in Thailand and up to 20-25 percent per month in the Philippines, are not banks and are not licensed, nor have they been established specifically for the purpose of financing foreign contract labour.
Instead, they are part of the traditional informal finance network that has served the poor in these countries for years. They are an established part of the local economy, and have long provided what little credit is available to the poorest of the poor, a group which has never had access to the formal banking sector. In reality, the finance companies function more like pawnshops than formal banks, and accept as collateral a wide range of items from house wares to farmland.
Loans can be of any size from a few to thousands of dollars. For the large amounts of money needed to finance the procurement of overseas employment, the usual collateral is land: either a family house or farmland. Should the worker who borrows money for employment abroad fail to fulfil his or her contract for any reason and not repay the loan, the worker’s family stands to lose their only means of livelihood. Hence, workers who become pregnant or who are sent home for any reason (employer dissatisfaction is sufficient reason in many cases) are not only plunged into destitution, they often take their entire family with them.
It should be noted that, while Thai workers often borrow locally the entire sum needed to get the job, Filipino workers often arrange for the loans to be made through salary deductions in order to minimise the amount they must borrow at local interest rates. In some cases, the workers’ entire salaries are then dispersed from their employers to the labour brokers so that the employers are unaware of exactly what deductions are made. However, all workers are responsible for all payments, and the amount of debt jeopardises their families and inhibits them against doing anything that might displease their Taiwanese employers. This leaves workers open to a wide range of abuses.
Do workers willingly and with full knowledge accept these conditions? In many cases, the workers have only an elementary level of education and are unable to understand the complex financial obligations they take on when they obtain employment in Taiwan. The workers do not understand that their debt, compounded by interest rates and fees, can exceed the term of their employment contract. They are led to believe that the amount of money they can earn in the year after they pay back the loans is substantial enough to make the proposition worthwhile. It is only after they arrive in Taiwan and see the large percentage of their income going to pay back loans (some workers actually have negative salaries at the beginning of their contract) that they fully understand the ramifications of their employment agreements, which afford them no opportunity to get ahead of their debt.
Excessive debt is not the only violation of workers’ rights that occurs in the Taiwanese contract labour system. Workers are also subjected, by law, to mandatory pregnancy testing, their freedom of movement is curtailed, and long hours are required for which foreign contract workers are often underpaid. The law states that foreign and Taiwanese workers are to be treated equally, but often this is not the case. Foreign workers generally do not know the basis for their wage calculations, and their employer can withhold up to thirty percent their wages in order to guarantee the workers’ good behaviour. These abuses are compounded by the workers’ financial obligation that prohibits them from leaving, though they suffer the threat of termination without warning at the employer’s discretion. Were the workers not heavily indebted, they would be in a much better position to resist abuse and advocate for themselves.
In response to numerous problems in the system over the years, the governments of Thailand and the Philippines have put regulations in place to try to protect their workers in Taiwan, but their leverage is limited by the fact that they have no jurisdiction in Taiwan. This means that they are limited in the actions they can take toward abuse; rather than impacting the system as a whole, they can only effectively respond to specific incidents after they occur. They can, however, license brokers that bring workers into Taiwan. In recent months, the government of Thailand has revoked the licenses of several brokers for alleged abuses. A key obstacle faced by the Taiwanese, Thai and Philippine governments in eliminating abuses is that much of the money borrowed by workers is borrowed in the informal banking sector. No receipts are issued, and the amount borrowed is difficult to confirm or trace. Hence, while the large sums paid for jobs in Taiwan are no secret, knowing exactly who collects what amount is nearly impossible. Each potential perpetrator of abuses: Taiwanese labour brokers, overseas brokers and the factories themselves, claims that the excess fees generated by this system go to someone else. Given that the fees are undocumented, it is impossible to determine which players make how much, necessitating that the problem be addressed systemically rather than on a case-by-case basis.
The government of Taiwan is in a position to eliminate abuses in its labour system, but at the same time, social forces in Taiwan are not in favour of the foreign contract workers. Contract workers are seen by society at large as an undesirable but necessary factor in the economy, and are viewed with outright hostility by local labour organisations. Furthermore, to prevent a flood of illegal immigration, Taiwan places strict control on the workers that encourage abuse. Worker indebtedness further serves the interest of the Taiwanese government by making workers easy to control. While the Taiwanese government is well placed to improve the system, it is in their interest to maintain the status quo, and their actions reflect this. With the exception of a few international NGOs, there is no source of pressure for change within Taiwan.
In fact, some of the most outstanding human rights violations that occur are legislated by the Taiwanese government. Among these is mandatory pregnancy testing. Taiwanese law states that before workers can enter Taiwan, they must have a physical examination that proves that the worker is free of HIV, other sexually transmitted diseases, intestinal parasites, illegal drugs and is not pregnant. After arrival in Taiwan, the workers must be examined every six months. If they test positive for any of the above they are considered to be in violation of their contract, and are immediately repatriated at their own expense; pregnant workers also lose the guarantee money that has been deducted from their salaries. The purpose of this regulation with regard to pregnancy is to prevent a worker who has a baby by a Taiwanese father from gaining residency rights in Taiwan. This practice is contrary to international human rights norms, and imposes fertility controls on already heavily indebted workers.
Other violations that occur, while not directly legislated for, are allowed by regulations that are non-specific and open to manipulation by factory management. Again it must be stressed that high levels of debt on the part of the contract workers mean that the workers are reluctant to resist abuses by factory management. Among these is the provision that allows up to 30 percent of a worker’s salary to be withheld as guarantee money. Regulations state that money may be withheld, but do not say that it must be withheld. Workers are aware of the fact that if their employer is at all dissatisfied with their performance, they can be sent home and this money will be forfeited. In many cases, the money is not returned even when the contract is completed. Once workers leave Taiwan, it is very difficult for them to use legal means to seek redress.
Additionally, workers who are paying off high-interest loans are often surprised by the deductions, which present a serious hardship, because repayment schedules are calculated on a significantly higher income than is realised.
Workers’ restricted freedom of movement is another area of concern. Factories claim to have a legal responsibility for all damages caused by their contract workers when the workers leave the factory. While this is possible, Verite has been unable to find any references that confirm this in the regulations.
Regulations do state that workers must sign out whenever they leave their place of employment. While the rules do not specifically require workers to get permission to leave, in practice this is often the case. Given that workers are easier to monitor in the factory than outside, employers severely restrict their contract workers’ freedom of movement. Workers are usually required to sleep in the dormitory every night and usually have a curfew. Many workers have friends and relatives working in various parts of Taiwan and would like to visit them occasionally during holidays, but this is rarely permitted. They generally accept the restrictions without resistance. Although the regulatory environment would be the ideal focus for change, as a democracy Taiwan presents several obstacles to basic reforms. General social apprehension toward contract labourers in Taiwan means that legislative momentum toward reform would be hard to establish, and lengthy to implement. Furthermore, from Taiwan’s standpoint, the key issue with regard to foreign contract labour is how to control it, while preventing any social disruption.
Unhindered competition for jobs in the countries that supply contract labour to Taiwan allows excessively high fees to be charged to workers wanting employment.
This problem is complicated by a system of labour recruiters and brokers that creates many potential centres for the accumulation of excess profit, and encourages the exploitation of workers to the point that they are reduced to virtual debt bondage though they maintain the hope of saving a sizeable sum of money to take back home. While the governments of Thailand and the Philippines have made efforts to ease the situation, they are limited in the mount of reform they can institute, while the social inertia surrounding Taiwanese authorities makes their assistance unlikely. The ideal solution to the problem would require a radical re-thinking of the entire process of supplying needed workers to Taiwan’s economy. This re-thinking can only be brought about with the help of organisations from outside Taiwan, namely foreign companies that purchase products made with contract labour. Although this complex problem has not been widely publicised, it is severe enough to merit the immediate, thoughtful consideration by U.S. and European companies doing business within the current system of labour recruitment in Taiwan.
Report by Verite, August 1999. Verite is an independent monitoring organisation; functions include auditing factories for compliance with codes of conduct.