by Paul A. Holmes
More than a decade ago, as human rights advocates in the United States and Europe increased their pressure on western companies to withdraw from South Africa, those companies had three basic options: they could ignore the protests in their domestic markets, conducting business as usual; they could withdraw from South Africa entirely; or they could remain in South Africa, but undertake actions, both through their private employment policies and their public pronouncements, that would have a positive impact on South African society.
Today, with democracy restored to South Africa, it is clear that this third course of action was the most beneficial in both pragmatic and moral terms. Those companies that continued to conduct business as usual were vilified in their domestic markets, suf­fered consumer and shareholder boycotts, and won few friends in South Africa. Those that withdrew, meanwhile, are now faced with the challenge of competing in a market­place against companies that have had more than a decade to establish their brand names in the minds of consumers.
Those that remained in South Africa and continued to work for change, it seems, have the best of both worlds. Since most of them signed on to the Sullivan Principles—a set of guidelines for ethical participation in South Africa drawn up by the Rev. Leon H. Sullivan of Philadelphia—they won the trust and respect of domestic audiences, while their continued participation in South Africa enabled them to establish a valuable pres­ence in an exciting new market.
Today, companies are faced with some of the same choices in China, a country which offers a much more exciting business opportunity, but which also boasts a human rights record more appalling than that of South Africa—a vicious police state which is respon­sible for most of the world's executions each year, many of them for crimes such as petty theft and forgery, and which routinely imprisons those who speak out against its Communist dictators.
Although the campaign against companies that do business in China has not yet stirred the fervor that marked anti-apartheid protests, it clearly has the potential to become a troublesome issue for some U.S. companies, and particularly those that market directly to the consumer. Yet most companies have approached China with little of the sensitivity they showed in South Africa, largely, it seems, because China offers so much more opportunity.
The statistics are mind-boggling. China has a quarter of the world's population—more than 1.2 billion people. It is now the world's third largest economy at $1.7 trillion, lagging only the U.S. and Japan, and foreign investment is growing at an unprecedented level, from $11 billion in 1992 to $111 billion in 1993.
China is undergoing a massive consumption boom. When the Japanese department store company Yaohan opened its first outlet in Beijing just before Christmas 1992, the store was packed with consumers. When the merchandiser for pens arranged his display, he decided that a 14-carat gold pen would attract people, and thought it would be a nice joke to have the price tag read 88,888 yuan (around $11,000) since eight is considered a lucky number in China. He didn't expect anyone to buy it, but it was the first pen he sold. Rolls-Royce sold 30 stretch limousines in China in the first eight months of 1993 alone.
"A common estimate is that there are some 16 million new ‘affluents' in China today," says Keith Sharp, chairman of the Asian operations of inter­national public relations firm Burson-Marsteller. "In the 1970s, every family dreamed of owning a bicycle, sewing machine and refrigerator. This modest wish list pales in comparison with that of 1990s: a color television, telephone, video recorder and hi-fi are all considered within reach of today's hard-working urban family."
While the opening of two giant McDonald's outlets in Beijing and Guanghzou attracted massive publicity and symbolized for many the opening of Chinese cities to western capitalism, high-end retailers such as Pierre Cardin, with 50 outlets in China, are also having little difficulty attracting customers.
"Consumers want housing, they want durables, they want health care, they want leisure products," says Serge Dumont, chairman of Edelman Public Relations China and a six year veteran of Beijing, where he has worked for companies such as M&M Mars, Procter & Gamble and Kodak. "The opportunities for a wide range of American companies are enormous."
So, of course, are the challenges. Introducing Visa to the Chinese market, Edelman had to explain to consumers what a credit card was, how it worked. Helping Kellogg penetrate China, the agency faced a more basic problem: "Milk is not part of the traditional diet in China," Dumont says.
The flip side of this economic boom is the continued repression, absence of individual liberty and draconian government policy that makes China the number one violator of human rights in the world today.
In June of last year, on the fifth anniversary of the 1989 massacre in Beijing's Tiananmen Square, the human rights monitoring organi­zation Amnesty International acknowledged that economic changes were having an impact on human rights issues, but made it clear that the Chinese government still had a long way to go.
"Despite rapid economic changes that have increased freedoms and relaxed social controls, there has been no fundamental change in the government's human rights policy," said the group. "Arbitrary arrests, unfair trials and torture continue to be widespread, and the death penalty is used extensively for a wide range of offenses." Amnesty called for an investigation into the Tiananmen Square tragedy, the release of political prisoners and an immediate investiga­tion of allegations of torture.
After the Clinton administration spurned the human rights move­ment and chose to de-link China's most favored nation trading status from its human rights record, the focus of the human rights communi­ty has shifted to workers' rights and conditions. Since companies had argued during the MFN debate that their presence in China had a positive impact on human rights by increasing economic prosperity, activists are chal­lenging them to demonstrate that this is so.
One possibility is an unfair trade practices claim under the never-before-used labor rights provision of the 1974 Trade Act. If the U.S. Trade Representative's Office found in favor of the claimants—not a probability—sanc­tions could be imposed on Chinese exports. But in any event, such a case could focus public attention of the issue and have serious reputational implica­tions for any U.S. companies involved.
One company that has already experienced a minor crisis after its joint venture partner was accused of using prison labor is automaker Chrysler. A Hong Kong newspaper alleged that Beijing jeep had links to the country's largest forced labor camp, and the issue was complicated, as many business dealings in China are, by the complex web of ownership that linked Beijing jeep to the camp.
It was then revealed that a Beijing jeep employ­ee who was detained for 35 days by authorities because he had planned a religious commemora­tion for the victims of Tiananmen Square was about to be fired for poor work attendance. The New York-based Human Rights Watch contacted Chrysler chairman Robert Eaton over the matter, and Eaton was able to intervene. In both cases the automaker said it was investigating further.
These incidents added impetus to the effort to come up with a set of "Sullivan Principles" for companies that are doing business in China, a priority of human rights groups, a notion endorsed by President Clinton but dismissed by many business leaders who believe either that human rights is not their concern or that endorsement of such principals would damage their relationship with the Chinese gov­ernment.
Typical was the statement of DuPont chairman Edgar Woolard, who met with Chinese president and Communist Party chairman Jiang Zemin in Beijing last year. Woolard said after the meeting that human rights issues had not been discussed, and that he considered it "inappropriate for business people to be involved when governments are involved in these issues."
Human Rights Watch has suggested five principles that American companies in China should voluntarily adopt:
• Companies will try not to use prison labor or buy products made   
•  Companies will not permit compulsory political indoctrination in the workplace, a practice com­mon in state-owned enterprises;
• Companies will embrace nondiscriminatory employment practices, which in this case primarily means keeping workers' political beliefs out of hir­ing and firing decisions;
• Companies will encourage freedom of associa­tion and expression concerning work-related issues in their plants; and
• Companies will have senior American execu­tives discuss human rights issues with local Chinese officials, emphasizing that human rights abuses can damage business relationships.
"I wouldn't argue that the Sullivan principles ended apartheid, but I think they were a valuable contribution," says Richard Dicker, associate counsel of Human Rights Watch. "It's not clear to me why Chinese companies can't make a similar contribution."
Most business executives in China reject both the principles and the analogy between China and South Africa.
"In China, it would be particularly inappropriate because of the nature of the Chinese economy—the economy being state-directed while moving toward some market freedom," says Robert McNeill, executive vice chairman of the Emergency Committee for American Trade, which represented business interests in the battle over MEN. "In China, companies would be seen as agents of the U.S. govern­ment, and the danger with codes of conduct that are initially volun­tary is that they can become statutory."
The United States-China Business Council, which promotes commercial links between the two countries, takes a similar position. Council president Robert Kapp says the idea of a code of conduct "simply gives credence that business is morally responsible for the human rights situation in China" and that critics of China's rights records are trying to impose their values on others, basical­ly interfering with national sovereignty.
An American lawyer based in Shanghai, Norman Givant, goes even further, describing the proposed code as "moral posturing" and adding: "The image reminds me of American missionaries in the 19th century preaching to the Polynesians to wear clothes."
Others complain thatcompanies from European and other Asian countries do not have to contend with such pressures in their domestic mar­kets, and that if U.S. firms are forced to consider the ethical implications of their decisions in China they may find themselves at a competitive disad­vantage. "A code of conduct would be viewed by the Chinese government as another attempt to influence Chinese domestic politics and would be detrimental to U.S. business," accord­ing to Zhuang Nanbin, a public affairs executive for AT&T China. "Our competitors, they don't have this problem."
The Clinton administration appears to have sided with the business community in this debate. In August an administration official told UPI: "When we met with the Chinese before, human rights was first on the agenda and business second. Now it's busi­ness first, business second and human rights if we have time." Trade secretary Ron Brown said repeatedly during his August visit to Beijing that he believed the best way to achieve progress on human rights in China was to encourage the devel­opment of a free market for business there.
Edelman's Serge Dumont says that most of his clients have thought about human rights issues, and that most of them do try to do the right thing, but that ultimately: "My belief is that the situation in China is gradually improving. Western companies a are promoting more open­ness simply by being there. They are raising income standards, which is a more important pri­ority. The aspiration for democracy is not the first priority for most people in China. They are much more concerned with where their next meal is coming from."
John Onoda, vice president of corporate communications for Levi Strauss & Co., which is withdrawing from China because of human rights concerns, does not disagree: "The idealistic concerns of activists in the west are not always the concerns of the people in overseas countries, who often have more immediate problems," he says.
There is considerable evidence that western industry is having a posi­tive impact merely by its presence.
"The growing prosperity in coastal areas—and the diminishing poverty everywhere else—is transforming China in fundamental ways," says Pulitzer prize winning New York Times reporter Nicholas Kristoff in his book China Wakes, written with his wife, Sheryl Wudunn. "The economic metamorphosis seems at least important a the two countries, fact about the country as the repression. Entrepreneurs.... seem to be springing up, as the Chinese saying goes, like bar boo shoots after a spring rain."
According to the World Bank, since the reform era began in 1978, more than 170 millior Chinese have risen from absolute poverty (defined as subsistence living with often inadequate food clothing, and shelter), representing a 60% decline in the number of destitute in China. Having said that, 100 million Chinese remain in absolute, desperate poverty.
"It seems to me the message is loud and clear," says Ashutosh Varshney, an Asia expert a Harvard University. "If American business get strongly involved in a country, human rights take second place or even less than that."
Some companies do recognize the importance of maintaining some kind of standards ii China, however. IBM, which describes China a its fastest-growing market, has contributed more than $1 million in the past two years to local hos pitals, an education initiative and the state-run Beijing Film Academy Xerox has provided financial support to a management institute in Dalian and a training center in Shenzhen, and says it contributes t4 the "overall well-being" of its Chinese employees "by offering thoroughly modern working conditions and facilities in China."
Among those who chose to remain in China, Reebok has probably been the most vocal in discussing the changes it hopes to bring to the market. Reebok, which has been a partner of Amnesty International in a wide range of activities in recent years, and which has made human rights campaigning a major element of its corporate communi­cations and philanthropy strategy, is one of the few companies with an executive, Doug Cahn, devoted to human rights issues.
"We were concerned about the reports we had heard about the use of forced labor in workplace settings," says Cahn. "We certainly didn't want to be a part of any factory that was engaged in human rights abuses. So we adopted a policy that no Reebok shoes would be manufactured in factories that used prison labor. We required our business partners to sign a statement attesting to that, and it became part of the arrangement between Reebok and the factories we con­tracted with."
In 1992, Reebok broadened its standards to include child labor and the length of the working week, and a company task force devised a system for auditing its business partners. Reebok also formalized a set of human rights protection standards including provisions on nondiscrimination, forced or compulsory labor, fair wages, freedom of association and a safe and healthy work environment.
In one incident last year, Reebok forced a contractor in Guangdong province to move its workers out of unsafe dormi­tories, where they were housed in contravention of provincial regu­lations.
Cahn admits, however, that there are limits to his company's impact on government policies: "We are not a government, not an all­knowing, all-powerful force in the world," he says. "But I strongly believe that corporations have a responsibility to the consumers who purchase their products to assure that those products are manufac­tured in ways that are consistent with the values of those consumers."
Only a handful of companies, including Timberland and Levi Strauss & Co., have chosen to withdraw from China entirely, until the situation there improves.
In 1992, Levis Strauss, recognized as the leader in formalizing the way it deals with human rights issues overseas, formulated a series of global guidelines that established the standards its contractors and suppliers must meet.
"For instance, our guidelines ban the use of child and prison labor," says chairman and ceo Robert Haas. "Working hours can't exceed 60 hours a week, with at least one day off in seven. Workers must be present voluntarily, have the right of free association, and not be exploited. At a minimum, wages must comply with the law and match prevailing local practice.
"We also recognize that there are issues beyond the control of our contractors in some countries, so we developed a list of country selec­tion criteria. We will not source in countries where conditions such as the human rights climate run counter to our values and have an adverse effect on our global brand image. Our decision to undertake a phased withdrawal from China was due largely to human rights con­cerns. We remain hopeful that the human rights climate will improve so we can return."
To establish its guidelines, Levi's management formed a working group made up of 15 employees from a broad cross-section of the company. The working group spent nine months researching the views of key stakeholder groups—vendors, contractors, plant managers, shareholders, consumers, even sewing-machine operators—and used an ethical decision making model, designed to balance the interests of these stakeholders, to reach its conclusion.
Once guidelines were in place, the company invested in training ses­sions for more than 100 in-country managers who would have to enforce the guidelines with 700 contractors. Training included case studies, exercises in decision-making and an explanation of the nega­tive impact supplier behavior could have on corporate reputation. The managers were then able to conduct on-site audits of suppliers.
In Bangladesh, the company dis­covered that a contractor was using underage workers. Rather than instructing the contractor for fire the child laborers, which would have removed the only means of support for many families, the com­pany persuaded its supplier to pay the children their salaries and bene­fits while they attended school, and itself paid for books, tuition and uniforms. When the children reach working age, they are offered full­time jobs at the plant. Levi's, says Haas, was able to retain three qual­ity suppliers and maintain its values and its image.
"Our approach has helped us identify contractors who really want to work for Levi Strauss, gain customer and consumer loyalty, attract and retain the best employees, improve the morale and trust of employees, initiate business in estab­lished and emerging markets because government and community leaders have a better sense of what we stand for, and maintain credi­bility during times of crisis," Haas says.
The evidence, meanwhile, supports the contention of most American and multinational corporations that their very pres­ence in China is having a positive impact on conditions there. As the economy improves, more and more Chinese are no longer liv­ing on subsistence wages, have access to western news and literature, and demand greater individual liberties.
That does not, however, remove the obligation to consider human rights factors in China. The argument that "the business of business is business" ignores the reality that activist groups in this country still have the power to make life difficult for companies that are laggards in this area, and that all it would take for a company to take a major reputational hit would be one 60 Minutes report on the death of a ten year old worker at one of its factories.
If the principles suggested by Human Rights Watch are not practi­cal, business leaders with a stake in China have an opportunity sit down with the activist community and draw up a set of guidelines for business that is.