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Students & Scholars Against Corporate Misbehaviour

Telephone: (852) 2392 5464 Fax: (852) 2392 5463 Email: sacom@sacom.hk Website: www.sacom.hk

Mailing Address: P.O. Box No. 79583, Mongkok Post Office, HONG KONG

Story of Wenlock & Mandeville Begins with Sweatshops 24 July 2012

Shop floor at Dongguan Xinda Giftware Co. Ltd., a manufacturer of figurines of London Olympic mascots. The animation “Out of the Rainbow” tells the story that Wenlock & Mandeville are made by a retiring steelworker who is working on the building of the Olympic stadium in London. In fact, the adventure of Wenlock & Mandeville begins in the sweatshops of China. There, the workers have to toil 11-12 hours a day, 6 days a week in the factories to produce the London Olympic mascots. Sometimes, workers have to work from the morning till midnight, their own marathons. Yet, no one will cheer for the sweat and blood of these workers because consumers simply don’t know the realities of life at the factories supplying the London Olympics. Any Olympic Games is more than a spectacular sports event. For the organizing committees of the respective countries, the bid for the Olympic Games is a strictly business operation. More than £1 billion is expected from the sales of London 2012 merchandise. To ensure the London Olympic souvenirs are sweat-free, the London Organising Committee of the Olympic and Paralympic Games (LOCOG) issued sustainable and ethical sourcing codes in 2008. The codes aim to have the London Olympics products produced under internationally acceptable social standards. However, LOCOG's own procedures are far from transparent and they have refused to disclose a list of the manufacturers and factories supplying the products. In 2011, Students & Scholars Against Corporate Misbehaviour (SACOM) had to go to great efforts to identify the LOCOG suppliers. As a result, we investigated Yancheng Rainbow Arts and Crafts Company, a manufacturer of Wenlock, Mandeville and Pride-the-Lion goods in Dafeng City, Jiangsu Province, China. Workers there were denied copies of their labour contracts, there was no

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minimum wage for workers, overtime premiums were not paid in accordance with legal standards, salaries were paid one month in arrears and overtime work exceeded 2, or even 3, times the legal limit.1 At the same time, SACOM contributed research findings to the Play Fair Campaign on working conditions at 2 LOCOG suppliers2 at which the situation was equally awful. Underpayment, excessive overtime time, hazardous work environment and even child labour was found. The findings at these 3 factories demonstrated that labour rights were being trampled on by the LOCOG suppliers. With mounting pressure from Play Fair Campaign and other labour rights groups, LOCOG issued the supplier list in February - after much of the production of merchandise had been finished. In May and June, SACOM investigated another 2 LOCOG souvenir manufacturing factories, namely Dongguan Xinda Giftware Co. Ltd. (Xinda) and Shenzhen Baoan Gongming Jiangshi Shiwei Toys Factory (Shiwei). SACOM is disappointed that LOCOG has not cleaned up the unethical labour practices at 2 factories after several investigative reports slamming the labour rights abuses at LOCOG suppliers. The rampant rights violations reveal that the LOCOG codes are really no more than lip service with no commitment to the enforcement of labour rights standards. The following are the key labour rights abuses at the 2 factories: Meager wages and delayed payment of wages: - Both Xinda and Shiwei only pay a basic salary to workers at the level of the minimum wage. - Overtime premium constitutes 40-50% overall salary of workers. - Workers can only receive their salary at the end of the following month in both factories. Excessive overtime: - In both factories, workers have 11-12 hours shift a day, 6 days a week. - Overtime work is up to 120 hours per month. - At Shiwei, sometimes, workers have to work till midnight. Poor work safety: - Workers are exposed to hazardous working environments without adequate protective equipment. At Xinda, some workers have to bring their own masks to work. - Irritating smell in the paint-spraying department makes workers feel sick. - Workers’ hands are always tainted with paint. Some workers complain that even their saliva has the colour of the paint. Denial of social insurance: - At both factories, only a small number of workers participated in the pension scheme. - Most of the workers are not sure if their employers pay for their work-related injury insurance. Punitive fines imposed: - At Xinda, workers who doze off during work will lose 2-4 hours' wages. - At Shiwei, being late for 5 minutes will lead to half-day salary deduction; not wearing a cap will bring a fine of CNY 60. Bogus union: - Workers do not know about the existence of the union at the factory. For the details of the research findings, please refer to p.4-14 of the report. LOCOG and the licensees are not the only parties to blame. The mascot, soft toys and figurine manufacturers mentioned above have been inspected by the International Council of Toy

1 Please refer to SACOM’s report titled LOCOG’s Empty Promise to Respect Labour Rights: Olympic mascots made in sweatshops. The report is available at http://sacom.hk/archives/922. 2 For the details of the report, please see Play Fair Campaign’s report, Toying with Workers’ Right, January 2012, http://www.ituc-csi.org/IMG/pdf/play_fair_en_final.pdf.

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Industries (ICTI) CARE Process and have passed the audits. However, the certification programme fails to guarantee even legal compliance at these LOCOG suppliers, let alone decent working conditions. Even worse, the blatant violations at ICTI-certified factories are not individual incidents but systematic problems. The factory inspections, without the presence of genuine trade unions, are only window-dressing measures. The opening ceremony of the London Olympics will be on 27 July 2012. There is now little point in pushing for reform of LOCOG. To stop the repetition of these unethical labour rights practices, the International Olympic Committee (IOC) should establish a policy and action plan for future Olympic Games. SACOM demands that the IOC: - adopt a code of conduct for the suppliers which should include terms like living wages, freedom of association and the right to remedy; - publish the full list of suppliers to its license holders; - conduct selective investigations at the licensees' suppliers to examine the level of compliance and publicise the reports; - require the licensees to ensure that every worker, at every supplier, receives a copy of this code; and - work with the licensees to launch remedial actions in any factory where rights violations are found.

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Dongguan Xinda Giftware Co. Ltd.

Entrance of Dongguan Xinda Giftware Co. Ltd. Introduction Xinda is a production facility of Zindart Manufacturing Limited. Founded in Hong Kong in 1978, Zindart is an OEM manufacturer which produces die-cast and plastic toys for markets in America and Europe. In 2006, Chris Franklin, a British engineer, became the owner of the factory. Xinda is based in Dongguan City, Guangdong Province, China. The factory has a workforce of 3000. The major production departments are die casting, paint spraying, tampo printing and assembly. It is certified by the International Council of Toy Industries (ICTI) CARE Process. During December 2011-April 2012, Dongguan Xinda Giftware Co. Ltd. produced the plastic mascot figures and die-cast toy cars for the London Organising Committee of the Olympic and Paralympic Games (LOCOG). According to Chinese media reports, Xinda has exported 25 million Olympics souvenirs to London. Besides LOCOG, Mattel and Disney are the major clients of Xinda. Factory Profile Address: Xincheng Industrial Zone, Hengli Town, Dongguan City, Guangdong

Province, China Telephone no.: +86 759 83375750 Email: info@zindart.com Website: http://www.zindart.com/ Estimated workforce: 3500 Clients: LOCOG, Mattel, Disney, etc. Products: Die-cast and plastic toys

Research Methodology SACOM carried out an investigation at Xinda in June 2012. Over 50 workers were interviewed outside the factory compound.

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Findings Labour rights abuses at Xinda are widespread. There are many infringements of different aspects of labour laws including wages, working hours, occupational health and safety and social insurance. The following are the key findings at the factory: Poverty Wages The minimum wage in Dongguan is CNY 1100 per month. The monthly basic salary at Xinda is set at this minimum level. For some positions with higher work intensity and more hazards, like paint-spraying, workers have a monthly allowance of CNY 100. The overall salary of production workers is about CNY 1800-2300 per month, which includes the overtime premiums. “Even though I cook for myself, I have to spend CNY 10 for food a day. And the rent for a single room costs CNY 200 a month. There are other daily expenditures I have to spend,” complained one middle-aged worker at the tempo printing department, explaining that the basic salary is too meager. For those workers who have to support their families, the basic salary is not enough for basic needs. Besides low wages, Xinda systematically delays payment to the workers. The Labour Law states that wages should be paid on a monthly basis and cannot be delayed without reason (article 50). Xinda workers only receive their wages at the end of the following month which is a blatant violation of the Labour Law. Excessive Overtime and Squeezing on Overtime Premiums During the production of Olympic products, Xinda workers frequently worked excessive overtime. A respondent showed researchers his pay slips for February and March 2012, the overtime worked was 110 and 120 hours respectively. Workers toiled in the factory for 11-12 hours a day, 6 days a week. Chinese Labour Law stipulates that monthly overtime should not be more than 36 hours (article 41) on the top of a

174-hour regular work shift per month. The overtime worked at Xinda, therefore, was more than three times the legal limit. Prior to June 2012, the factory adopted a 6-day working week system for a 40-hour regular shift per week. That means workers have a 7-hour regular shift on weekdays and a 5-hour regular shift on Saturdays. In this way, the factory avoided paying double overtime premiums to workers for working on Saturdays. Recently, Xinda introduced a 5-day working week system. Workers do not have to work on Saturdays unless there is an influx of orders. The following is the work schedule of the workers at Xinda:

Olympic mascots figurines at Xinda.

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Work shift begins 07:15* Lunch break 12:15 Work shift resumes 13:15 Dinner break 18:15 Work shift resumes 19:15 Work shift ends 21:15 * Workers are divided into several groups. The first group of workers go to work at 07:15, the second at 07:30 and so on. Under the new arrangement, the daily work shift at Xinda is 12 hours long, with 8-hour regular shift plus 4 hours overtime work. Workers begin work at 07:15 and finish their work at 21:15. There are 2 un-paid meal breaks in between. Overtime hours are 80 hours a month, which still exceeds the legal limit on overtime work by a factor of 2. Some workers complained that the factory reallocates their rest days in order to pay less overtime premium to them. In theory, the factory has to pay double overtime premium to workers for work on Sundays. In practice, during the peak season, workers work consecutively for 13 days. Instead of getting double payment for Sunday work, they only get a day off on a weekday as compensation. The contract designates “comprehensive working hours”, that means that instead of calculating the wage on a monthly basis, working hours are calculated over a “season”. It states that the working hours are 608 for one season. Such “comprehensive working hours” should be implemented only with the permission of the authorities and for a limited period of time. Apparently, the factory is attempting to save money from overtime premiums by using this wording in the contract.

On the contract, it states the factory adopts comprehensive working hour system and calculates working hours in a season. Poor Occupational Health and Safety The major production departments are die casting, paint spraying, tempo printing and assembly. Xinda does not adhere to the legal requirements on work safety and puts workers’ health at risk. The Law on the Prevention and Treatment of Occupational Diseases spells out that employers must adopt preventative measures and provide effective personal protective equipment to employees to prevent occupational diseases (article 20). The employer should indicate the nature of the chemicals used in the workplace and inform workers of any potential harm and provide instructions on the safe usage of chemicals (article 26). The law also requires employers to provide training for workers before they take up their posts (article 31). Regrettably, Xinda infringes all the above legal requirements.

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In the paint spraying department, there are about 1000 workers. About 60% are male workers. The female workers are responsible for paint refinement, removing the excessive paint and adding paint to the toys. The temperature on the shop floor is high and a strong smell fills the department. The visibility in the room is impaired by a fine mist of paint hanging in the air. Although there are electric fans in the department, these do not solve the problem. Protective equipment is inadequate. Workers can only have new masks once or twice a month. Sometimes, workers buy the masks for themselves. It is very common for workers’ hands, hair and clothes to be tainted with paint. Xinda provides detergent powder for workers to wash their hands. Nevertheless, the detergent powder is sometimes taken away by the management for washing clothes. Owing to lack of knowledge about usage of chemicals, workers use the solvents on the

Workers without mask or gloves. Chemical no indication of ingredients and potential harm.

Boxes of inflammable chemicals stacked on the shop floor.

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shop floor, like thinners and “paint-diluting water”, to wash their hands. Some workers even told researchers that their saliva has the colour of the paint because they constantly breathe in the paint particles. There is no clear indication about the nature of the chemicals used, although this is required by law. The labeling of a chemical is based on the purpose of the solvent, like “mould-cleaning water”. Although there is an icon showing the chemical is toxic and inflammable, workers cannot get any information about the effect of the chemical on their health or the emergency measures for treating unintended exposure. Storage of chemicals is another problem. Boxes of inflammable chemicals are stacked on the shop floor, which is a serious fire hazard. Some workers reported that industrial injuries often happen at Xinda. There were seven cases of industrial injuries in May 2012. Unreasonable factory rules and an alleged bribery case On the job advertisement on the factory wall, it states that job applicants should be healthy and obedient to superiors. All workers receive a 2-page list of factory rules when they start at the factory. The content is mainly about disciplinary measures. Forty-seven items are listed with details of the punishments for different kinds of offence; verbal warning, written warning, demerit record or dismissal. The serious “offence” of disclosing wages to others will lead to dismissal and no financial compensation will be offered. Sleeping on the shop floor during a shift is also considered a serious offence. Interviewees confided in researchers that if a worker is caught for dozing off, up to 4 hours' wages will be deducted. However, this punitive fine is not mentioned in the factory rules. Workers alleged that a low-rank manager at Xinda abused his power by pressuring workers to give him favours. Workers have to give him “red packets” (of money) for his birthday. In August 2011, a worker gave a CNY 100-red packet to that manager, but the manager thought that was too little and made trouble for the worker concerned. The worker made a complaint on this case afterwards – and the company blamed him for bribing his superiors! Deprived of Social Insurance Pension, medical insurance and industrial injury insurance are the basic elements of the social insurance scheme (article 3, Labour Law). Most of the workers do not have a decent salary and so have few savings. Without the protection of a pension scheme, the life of workers after retirement is very precarious. At Xinda, the overwhelming majority of the interviewees do not participate in the pension scheme. Even worse, many interviewees do not even know if the factory pays for their work-related injury insurance. And not all the workers have bought medical insurance. 20% of Basic Pay Goes on Food and Dorm A meal at the factory canteen costs CNY 5. If a worker has both lunch and dinner at the factory, it costs around CNY 200 a month (depending on the number of working days in a month). In other words, workers have to spend 20% of their basic salary at the factory on food.

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A worker has to pay CNY 30 a month for a bed space in a dorm. Additional money will be charged for the consumption of water and electricity. Xinda has 7 blocks of dormitory buildings. A room can house 8 workers. In a room there are 2 electric fans. Lockers are provided for the workers. On each floor, there is a TV room for workers. However, there is no access to hot water in the bathroom. A drinking water room is available at Block 3. Hot drinking water is available there. Workers who collect hot water there for bathing are fined CNY 200.

Credibility of ICTI’s Certification in Question Xinda is a certified factory under the ICTI CARE Process (seal no. C0090). It should be surprising to find that a factory which systematically violates the laws on wages, working hours, work safety and social insurance can, nonetheless, pass the ICTI audit. However, in the past 2 years, a number of ICTI-certified factories which SACOM investigated have failed to meet the basic legal requirements on these issues. ICTI CARE has issued a “Care Card” which lists the essential rights workers should know. According to the ICTI CARE annual report, 83% of factories have delivered the card to the workers. At Xinda, researchers observed that workers carry the “Care Card” everyday. What is ridiculous is that workers cannot tell what ICTI CARE is and how it is relevant to them. Even though it could be a good policy, the card is no different from a code of conduct posted in a corner of the factory, which workers do not understand.

Xinda is certified by ICTI CARE Process. Source: ICP Factory Database A Sham Union and No Confidence in Factory Inspections On a notice board next to the basketball court, there is some information about the union at the factory. There is a list of 45 committee members of the union posted on the board. And there are the minutes of a union meeting on 20 April 2012 which reported that the assembly department would buy some stools and that the air conditioner in another department would be repaired. Most of the interviewees do not know about the existence of the union in the factory. Even for those who have heard about the union, they neither know the functions of the union nor have any trust in the union.

A dormitory room at Xinda.

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According to the factory rules, inciting other workers to leave the factory or having a meeting that causes disruption in the factory are serious offences which will lead to dismissal. This means that strike and collective action in the factory are banned. Moreover, these rules are a denial of freedom of association. Workers who have experienced factory inspections do not trust the system. Before the factory inspection takes place, workers are asked to put on personal protective equipment, like masks, earplugs and gloves. After the investigation, everything goes back to “normal”. Workers can rarely have new masks and gloves and they are not required to wear them. “The factory inspections are artificial and superficial. The clients and bosses only care about their interests. If there were higher transparency in the factory, it might be better,” a male worker from the die casting department said.

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Shenzhen Baoan Gongming Jiangshi Shiwei Toys Factory

Entrance of Shenzhen Baoan Gongming Jiangshi Shiwei Toys Factory. Introduction Shenzhen Baoan Gongming Jiangshi Shiwei Toys Factory (Shiwei Toys) is a production facility of Key Pine Limited, a Hong Kong toy company founded in 1984. Shiwei produces plastic toys and electronics for brands like Hasbro. In 2011, it was a supplier to the London Organising Committee of the Olympic and Paralympic Games (LOCOG). Currently, the factory employs 600-700 workers. The factory is certified by the International Council of Toy Industries (ICTI) CARE Process. Factory Profile Address: Jiangshi Industrial Zone, Gongming Sub-district, Baoan District,

Shenzhen City, China Telephone no.: +86 755-2712 8222 Estimated workforce: 600-700 Clients: LOCOG and Hasbro Products: plastic toys and electronic toys

Research Methodology In May and June 2012, SACOM researchers conducted off-site interviews at Shiwei Toys Factory. About 40 workers were interviewed. The production of Olympic products was in 2011. Interviewees shared information on the current working conditions and recalled the situations in 2011 when they produced the Olympics products. Turnover rate in the factory is high, especially in the paint-spraying department, which is a major challenge of the research. Findings Despite a certification granted by the ICTI CARE Process, labour rights violations at Shiwei are found in a number of areas including wages, working hours, occupational health and safety and social insurance. The followings are the key findings at Shiwei Toys:

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Meager Wages The minimum wage in Shenzhen is CNY 1500 per month. The basic salary at Shiwei Toys is set at this level. The factory withholds the wages of workers for up to 3 weeks. On the contract, it states the employee can receive their salary on every 7th of the following month. In reality, workers can only get their salaries between the 20th and 30th of the next month. Shiwei pays workers an hourly rate. Workers mainly rely on overtime premiums to make a living. In the low season, the monthly salary is around CNY 2000 because there is very little overtime work. In the peak season, workers can earn more than CNY 3000 a month. Excessive Overtime Work Workers recalled that during the production for London Olympics last year, they usually had 4 hours overtime work a day. And they also had to work on Saturdays. On some occasions, workers even had 6-hour overtime shifts. In the most extreme cases, some workers said they had to work till 03:00 because of the short delivery lead time, but could take a rest in the following day. Last June, the assembly department was very busy. Workers could only finish their work at 22:00-00:00. The next day, workers had to start work at 08:00. Excessive overtime work makes workers extremely tired. On Saturdays, workers also have to work. The work shift on Saturdays is slightly shorter than the normal days, i.e. an 8-hour day. On 28 June, some workers on a production line of the assembly department worked till midnight. On this basis, the overtime work is estimated at 120 hours a month. The legal limit for overtime work is 36 hours a month. In other words, the overtime work at Shiwei Toys in the peak season exceeds the legal requirement 3 times over. Work schedule at Shiwei Toys 08:00 Work shift begins 12:00 Lunch break 13:30 Work shift resumes 17:30 Dinner break 18:30 Overtime shift begins * Workers finish their work at 21:00-00:00 depending on how much overtime work they have. Hazardous Working Environment In the paint-spraying department, chemicals are heavily used. The department has 4 production units. The workforce is about 300 for the whole department. Most of the workers in the department are male. The temperature on the shop floor is high. The smell of paint is irritating. Some workers complain that the smell makes them sick so they want to vomit. The particles of paint float in the air around the shop floor. According to the respondents, there is a ventilation system in the department, but it is not used most of the time. Workers use “074 paint diluting water”, thinners and other chemicals without knowing what they are. Also, there is inadequate personal protective equipment provided to the workers. And there is no proper training on health

Wenlock figurine from Shiwei.

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and safety delivered to the workers. Workers’ hands, arms and clothes are always tainted with the paint. Problems at the plastic injection department are similar to those in the paint-spraying department. The temperature is high, the smell of plastic is unpleasant, there are lots of dust particles in the air during production, and the shop floor is noisy.

Denial of Social Insurance It is mandatory for both employer and employee to participate in the social insurance scheme according to the Chinese labour laws. Most of the interviewees have not participated in the pension scheme. A few workers confided in researchers that the factory asked them to sign an agreement to decline participating in the pension scheme. Apparently, Shiwei Toys understands the legal requirement on the pension scheme but tries to evade its obligations by asking workers to “give up” their rights. Arbitrary Punitive Fines Workers feel that the frontline supervisors are not too harsh on them. In contrast, the managers are fierce. Workers say the attitude of the factory owner is even worse than the managers. Some workers are annoyed that they have to submit their bags to the security guards for checking when they finish their work. Workers complained that the fine system in the factory was arbitrary. “In the staff handbook, it does not mention punitive fines. However, the factory keeps our salary. It can do whatever it likes. If you cannot accept it, you can leave here.” a male worker in his twenties said. At Shiwei Toys, workers are required to arrive in the factory 10 minutes before the work shift begins to punch the work card. Everyday, many workers gather at the gate of the factory early to avoid being late and fined. The followings are a few examples of punitive fines in the factory. - Being late up to 5 minutes will lead to a half-day salary deduction. If a worker is late by 5 minutes or more, it is regarded as a “work stoppage” and 1.5 day salary will be deducted. - Two such “Work stoppages” will lead to a 6-day salary deduction. - A female worker lost her cap and did not wear it during work. She was fined CNY 60. - A male worker was fined CNY 100 because he smoked in the toilet.

Paint-spraying unit. “562 Paint-removing Water” is labeled on the bottle

of chemical.

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Poor Food and Limited Access to Hot Water in Dorm Workers have to pay CNY 270 a month (18% of the basic salary) for meals in the factory. Workers do not have confidence in the hygiene of the factory canteen. Some others complain that the food at the canteen is tasteless. They believe the canteen owner is under pressure to make a profit and does not care about the quality and taste of the food. Shiwei Toys charges workers CNY 30 a month for the dormitory. Besides the dormitory fee, workers have to pay about CNY 15 a month for water and electricity. A dormitory room can house 8 workers. There are fans in the room. No lockers are available. Access to hot water is very limited. There is only one room which supplies hot water for all the workers in the dormitory. ICTI Doesn’t Care about Labour Rights ICTI CARE fails to inform workers about their rights. In the paint-spraying department, there is an A5-size ICTI CARE leaflet posted on the door. Nonetheless, none of the workers who SACOM interviewed knew about ICTI CARE. Furthermore, Shiwei Toys is a certified factory of the ICTI CARE Process (seal no.: C0104). Yet, a wide range of labour rights violations were found in the factory.

Shiwei has passed the factory inspections by ICIT CARE. Source: ICP Factory Database Company-controlled Union and Deceptions in Factory Inspections Near to the recruitment room, the word “union” is printed on an A5 size paper and posted on the wall. However, none of the workers know about the existence of the union. Additionally, none of them understand the functions of a union and do not feel it is relevant to them. Workers do not believe the factory inspections can make any changes on the working conditions. Before the factory inspections, the management will ask workers to clean up the shop floor, put on masks and carry the factory tag. Workers reported that there was a factory inspection on 25 May. A manager bellowed at a worker who did not carry the factory tag. “I have seen foreigners and Chinese inspectors come to the factory. The factory has prepared for the inspections, how can they know about the real situation in the factory?” a female worker who works on paint-refinement in the paint-spraying department said. “Factory inspections are bogus. We only get new masks when the visitors came. I only hope that the factory can deliver new protective equipment to us every day,” another female worker in the paint-spraying department said.

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Conclusion Over the years, labour rights groups and unions have been campaigning for sweat-free Olympic products. Workers who produce Olympic products deserve respect from the International Olympic Committee (IOC) and the respective organising committee of the host country. SACOM regrets that the London Organising Committee of the Olympic and Paralympic Games (LOCOG) has ignored its sustainable and ethical sourcing codes. To prevent exploitation in the supply chain of Olympic products in the future, SACOM urges the IOC to adopt a code of conduct for the suppliers and to provide workers with a copy of the code, to publish a full list of suppliers to its licensees, to conduct investigations at a number of the licensees’ suppliers to examine levels of compliance and to take remedial actions if gross violations are found at the factories. ### Contact Persons CHAN Sze Wan, Debby Project Officer Email: debby@sacom.hk Tel: +852 2392 5464 or +852 6756 8964 CHENG Yi Yi Project Officer Email: yycheng@sacom.hk Tel: +852 2392 5464 or +852 6012 0312