Statement of ICTI CARE Foundation In Response to SACOM Report ICTI CARE Makes Big Money While Workers Continue to Suffer, Dated 8 February 2011

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1 Statement of ICTI CARE Foundation In Response to SACOM Report ICTI CARE Makes Big Money While Workers Continue to Suffer, Dated 8 February 2011 SACOM Report Ignores ICTI CARE Process Achievements and Contains Factual Errors The ICTI CARE Foundation respects the role of activists in the human rights arena and appreciates the dialogues we have entered into with them over the past few years. These include Fair spielt, Swedwatch, China Labor Watch, SACOM and the Stop Toying Around consortium (with which SACOM collaborates). As we said in our last statement (December 8, 2010), we receive communications from SACOM with a mixture of respect and surprise. With respect because we view the participation of NGOs like SACOM as a valuable, complementary check on the compliance of factories with the ICTI Code of Business Practices, as ongoing advisors and as a stimulus to our efforts to promote ethical manufacturing practices through the ICTI CARE Process. The surprise stems from the fact that SACOM consistently chooses to publicize purely negative criticism with little constructive input and essentially no recognition of what we have achieved over the past several years. Nor does it acknowledge any actions taken or process improvements made by the ICTI CARE Process as a result of situations they have called to our attention in the past. The ICTI CARE Foundation is proud of its achievements in improving the treatment of workers in factories in China and elsewhere. We are the first to concede that much more work lies ahead of us; but we refuse to accept the sensationalist, media-oriented declarations of any group, especially when they are carping and filled with incorrect information. It is simply counter-productive. The plain truth is that workers in many toy factories in China are better off now than they were before and that this is due in considerable part to the ICTI CARE Process. It is clear from the headline of their report that SACOM has not done its homework and has presented as fact erroneous information which they could have checked with public sources or with us before publishing. Here are some of the errors: 1. The ICTI CARE Foundation and ICTI CARE Foundation Asia do not make big money. We don t make any money. Both foundations are registered as not-for-profit entities and our records are publicly available. Our income is used to cover the expenses of operating the ICTI CARE Process. Any excess of income over expenses is used to improve our services and for capacity building Page 1 of 6

2 and education projects that directly benefit workers. We have no shareholders and no one is making any money. 2. SACOM completely misses the point when it talks about the ICTI CARE Process policy on wages and working hours. Our Continuous Improvement Process (CIP) is intended to move factories into full compliance with Chinese law over time. Our experience has shown that requiring full, legal compliance from the start is not productive and results in multiple sets of records. With CIP, we are making progress now as more and more factories agree to be fully transparent, enter this program and move steadily toward eventual compliance. The different levels of seals are awarded based on the level of compliance reached by each factory at the time of each audit. But there is a firm requirement that all factories currently registered in the process must achieve A level seal status by 30 June 2012, or one year after they register, whichever is later. 3. To say that ICP conceals labor rights violations is entirely untrue. What is true is that ICP does not publish the results of audits publicly. We believe the results are the property of the factory that pays for the audit. But we do use them to monitor factory compliance with the ICTI Code, to measure continuous improvement and to decide whether or not to certify a factory as compliant. Factories very often make the audit results available to the brands for which they manufacture, to demonstrate their compliance so as to receive orders. That ties audit results directly to the ability to stay in business, materially incentivising compliance, which is the intent of the program. 4. It is important to make it clear how the two foundations are funded. There is nothing unusual or hidden. Both foundations were established as not-for-profit organizations because their mission benefits the public and is therefore appropriate to that treatment. This allows them to invest all their funds in fulfilling their missions. The ICTI CARE Foundation was initially funded by donations, which served as seed money to develop the ICTI CARE Process and to operate it until it became self-funding. That was achieved during 2009 and it is now entering its second full year of self-sufficiency. As soon as it achieved self-sufficiency, ICTI CARE Foundation Asia stopped receiving donated funds and began to support itself fully with its own revenues. As its income increases, it has invested a growing portion in education and training programs and in improving its ability to do its job. For example, over the past two years it has significantly increased its roster of staff auditors, allowing greater frequency of unannounced quality control and observation audits. It is also investing in an upgrade to its information systems to better analyze and communicate the results of its operations. Both entities have provided required financial reports regularly to the government. Because Page 2 of 6

3 they are organized as non-profit foundations, the financial results are freely available to the public. 5. Because there seems to be some confusion, it s appropriate to discuss how the ICP operates in relation to Chinese law. Our Code calls for us to require compliance with local law. That is precisely what we have been doing in all aspects of our monitoring, and especially as regards wages and working hours. Our clear objective is for factories to reach full compliance with the law and we are moving steadily in that direction. We meet regularly with Chinese government officials to ensure they know how we are working and to understand their thinking as regards regulation of treatment of workers. As is clear to everyone, the Chinese government has made significant, positive changes to its labor laws over the past two years and is expected to implement additional changes in the future. The ICP will monitor for compliance with those new laws and regulations as they come into effect. SACOM Demands to ICTI CARE Foundation Turning to some of the demands made by SACOM: 1. ICF should...revise its standards. Living wage, grievances mechanism, the right to collective bargaining and the right to remedy, including policy of back payment, should be incorporated into the standards. We respect SACOM s desire to ensure a living wage, for workers and that will no doubt be achieved in time. At the moment we are focused on ensuring that wages required by law are paid (this includes minimum compensation and correct payment of overtime premiums), as the ICTI Code requires. The Chinese government is expected to raise the minimum wage in Guangdong Province by about 20% March 1st, 2011 and we will enforce compliance. Recently a number of media reports were published showing that the Chinese Government is working towards establishing collective bargaining in factories. We sincerely hope that such a mechanism will be introduced in due course. As soon as this goes into effect we will monitor for compliance with this requirement in our program. Regarding back payment of wages, we had a number of successes in 2010 and many workers did receive back wages. However we fear that your demand for a 24-month back payment period would result in less transparency from the factories. As far as grievance mechanisms are concerned, our audit protocol checks for the existence and effective operation of a factory s internal grievance mechanism. We have also begun a program that requires distribution of What You Should Know cards to each worker and placing of supporting posters in factories. The cards include a hotline number for complaints that is set up and monitored by a mainland Chinese NGO. So far about 600,000 cards have been shipped to factories for distribution and compliance with this requirement is now part of the audit protocol. The grievance hotline to date has received well over 1,000 calls or s since we Page 3 of 6

4 launched this service in April 2010, with the numbers trending upward each month. Of those, the hotline provider judged about 150 to be emergencies and referred them directly to our staff auditors for resolution. A series of three training videos have been produced one on Occupational Safety & Health, one on Labor Standards and one on Communications and Grievance channels. We are moving these into the factories through train-the- trainer programs throughout this year. 2. ICP is asked to disclose to public the statistics of violations in the global toy industry and publish its financial report... One of the reasons we are updating our IT systems is precisely to allow us to provide summary statistics on audit results in the geography where we conduct audits. At the present time, there is no reasonable way to collect and analyze all the data for publication. However we can and will publish summary data on child labor and corruption findings and the outcomes of our interventions. We expect we will be able to provide a full analysis by the end of the year. With regard to financial reporting, we have already pointed out that the information we provide to the US and Hong Kong governments is both independently audited and open to the public. Nevertheless, we have been considering publishing a summary on our website to enable easier access and expect to do so soon. 3. ICP should release information of the ethical performance of the supply chain of each of the 711 companies supporting it. What you ask is complicated but we are and have for some time been working on a solution to this issue, which we intend to find. It is complicated because there are so many companies involved and because we are at least two levels away from management of those companies. ICTI s members are national toy associations and the brands are members of those associations. Also, the toy industry is a very competitive and creative business, whose members do not wish to make public the names of their suppliers for fear of disclosure of competitively valuable information that may lead to intellectual property theft. Remember that each of these Date Certain companies has committed to source only from ICP certified suppliers in the geography where the ICP operates. So we are now in the position of asking them to reaffirm their commitments on an annual basis and to advise on their progress toward that goal. We are pursuing two avenues of approach: 1) encouraging trial of a program through which brands provide summarized audit reports on their websites; 2) put into place a continuous improvement process mechanism, similar to our approach to working hours, through which brands can periodically report their progress. This is an ongoing and important program for the ICP. 4. ICTI CARE should disclose the number of the cases of bribery and child workers found, on a regular basis. Page 4 of 6

5 As stated in paragraph 2, above, this is something we plan to do. 5. ICTI should release information about the violations and remediation actions of the probation factories and have a deadline with milestones for full compliance. As indicated in our response in paragraph 2, above, our new IT system is expected to provide us with the ability to provide summarized information about Code violations and actions taken to correct them. As regards the probationary process, there very definitely is a specific Corrective Action Plan (CAP) that includes a deadline. There are also surveillance audits conducted every three months along the way, which check for progress specifically in the areas found to be deficient. It should be noted that these surveillance audits are not full audits, but always include verification of correct wage payments and working hours. If we find that the factory has indeed corrected the deficiencies earlier than the time allowed by the CAP, we will end the probationary period early and issue a seal. At the same time we have extended probationary agreements when the factory had made some progress, but needed more time to achieve full compliance. We should note that all factories on probation are required to distribute the What You Should Know cards to their workers; and we check this as part of the CAP. 6. A democratically-elected workers committee should be formed in factories to monitor the working conditions at the factories by themselves. To facilitate the formation of a workers committee, labor rights training should be conducted at factories. Our Code requires, in paragraph 1e...that all workers are entitled to freely exercise their rights of employee representation as provided by local law. We monitor for compliance with this section of our code during factory audits. We also know that the Chinese government is making changes in this area and we will require compliance with changes in the law a purchasing model of brands must be reviewed. The brands must raise the unit price and provide a reasonable delivery time when they place order. Also, the brands should make living wage a condition when they buy toys. ICTI should work with companies to provide a living wage for workers. There is a lot contained in this demand. We have addressed the question of living wage in paragraph 1, above. We fully appreciate the effect that buyer pressure for lower prices and faster delivery has on factory management, which is then tempted to reduce compensation and increase working hours. We have already talked about some of what we do with the factories to make sure this doesn t happen. There are two other programs we have undertaken to address this issue. First, we are providing training to factory management in both effective management and productivity improvement, to help them improve their performance. Second, we are working with a major retailer to develop buyer training programs to raise buyer awareness of the effect of their price and timing demands on supplying factories and consequently on the workers. Page 5 of 6

6 8. ICTI CARE should have representatives from international independent trade unions to be its executive board members, so as to ensure that the international labor conventions, workers rights to remedy, collective bargaining and organizing are genuinely respected in the ICTI CARE Process. We are addressing this concern and have just added Auret van Heerden, head of the Fair Labor Association, to our Governance Board. This increases civil society and NGO representation on our board to 7 members. Demands to Toy Companies Although we are not able to speak on behalf of toy companies, we can comment from our point of view on what we are doing to assist toy companies in the areas you mention: 1. Toy companies should reform its buying practice to make living wage feasible. As mentioned above, we are working with the toy industry to conduct buyer training programs. In terms of compliance monitoring, as we have said, our initial focus is on compliance with Chinese law in terms of wages and working hours. 2. Toy companies should not evade its responsibility by outsourcing the monitoring task to ICTI. Brands and retailers must monitor the performance of ICTI CARE to ensure that the effective and credible audits are conducted. We can assure you that brands, licensors and retailers monitor our activities quite closely. ICTI and the ICP were initiated by toy companies, which provided our seed funding, watch closely how we operate and provide their input regularly. Far from evading their responsibilities, they created us to ensure that factory workers are treated fairly. 3. To increase transparency, brands should include the details of level of compliance to their suppliers in the CSR reports respectively. This issue has been discussed in paragraph 3 in the Demands to ICTI CARE Foundation, above. As we have in the past, we reiterate our desire to maintain a continuing dialogue with SACOM and welcome the opportunity to meet regularly to understand better each other s points of view. We are both helping to create positive change, going out into the factories and amongst the workers to understand how they are being treated and to ensure that their treatment becomes fairer and complies with the law. Our goals are the same to protect the health and welfare of factory workers. It would be good if we could do a better job of working constructively together to this end. Read the SACOM statement: ICTI CARE Makes Big Money While Workers Continue to Suffer. Page 6 of 6