Not for Children: Toy Production in China Part II

By Theresa

Have you ever wondered how your toys, those you played with as a child, were made? Part I has shown how the value added in the global toy supply chain is distributed among the German market for toys, the Chinese home state to toy suppliers and the four biggest toy brands which dominate the German toy market: in an extremely unfair manner. Who could be the three key actors responsible and capable to start a new game in the toy industry?

Starting a New Game

“No criticism without suggestions how to improve a situation” remains my motto. The paper from which this blog post originates required me: firstly, to list three important actors in the global supply chain of toys and, secondly, explain their role and responsibility in advancing workers’ rights and fair distribution of value. Any complex issue with multiple factors contributing to the problem needs more than three actors to create steps towards a solution. But it is a start, at least for a simple blog post.

If our desired objective is an improvement of Chinese workers’ daily lives, my desk-based research suggests taking multinational companies like Mattel, the Chinese state and German consumers as key actors. They have a particular responsibility and role to play in starting a new game.

Please note: I do not argue that our first priority should be to create new laws. I am wary of this reflex to call for new laws to improve the respect for human rights. I am wary for three reasons:

#1 Legislation includes a process of give-and-take where interests like economic profits versus human rights are negotiated among often unequal partners.

#2 Legislation often takes years.

#3 A law is only worth the weight of its implementation. Unfortunately, human rights laws currently play in the lightweight class while corporate liability laws have a longstanding history as heavyweight champions.

Where Do We Start?

Companies’ Responsibility to Respect Human Rights

Multinational companies like Mattel have enormous power and influence over their workers, states’ representatives and how global value chains are run. Their role comes with a specific responsibility – the corporate responsibility to respect human rights. The corporate responsibility to respect human rights as stipulated in the United Nations Guiding Principles (UNGPs) is not a law, but a concept. This concept stipulates that companies should go further than respecting laws to ensure respect for human rights – and this includes workers’ rights (Principle 12) – enjoyed by their own workers and by those people who work for business partners and entities in a company’s value chain (commentary to Principle 13).

The UNGPs say: Mattel has a responsibility for the working conditions in the Chinese factory where the toys were made which Mattel sells in Germany.

Some issues arising from this responsibility are thornier than others. Supporting trade unions in its Chinese suppliers would bring any foreign company in conflict with local law.

“The hardest part […] is the countries where it’s illegal to do the things you’re telling them to. Establishing independent unions in communist countries.” [the author describes as “you” the human rights person who speaks to “them” i.e. corporate lawyers]

from Michael Hobbes’s Saving the World, One Meaningless Buzzword at a Time

In other regards, companies have more leeway and seem to use it. Long before the UNGPs were declared in 2011, international toy brands founded the International Council of Toy Industries (ICTI) in 1975.

Among some other, more explicitly economic objectives, the ICTI is also dedicated to

“the advancement of social responsibility in the industry with programs to address environmental concerns, fair and lawful employment practices and workplace safety”.

This objective is pursued by the ICTI CARE Process.  On 9 March 2017, I attended a webinar organised by ICTI Care on “Supply Chain Solutions to China’s Left-Behind Children Problem”. Target audience were toy companies. They may decide to join the ICTI and pay towards an ICTI Care program to alleviate the problems arising from working parents leaving their children far away in their rural home villages.

photo_webinar_exemple

© Screenshot from the ICTI Care Webinar

As stated by an article in The Guardian, it is difficult to test the presented advantages for workers, and to find out in an impartial way how many workers and children were reached.

But maybe we are getting lost in the details of a sidetrack? Facing the overwhelming evidence of excessive overtime, minimal and often withheld wages and serious health and safety hazards, I would have wished ICTI Care to direct its efforts to one of these salient issues.

One may counter-argue that the audits conducted by ICTI Care to check on these workers’ rights ensure that these rights are not abused by companies. In contrast, non-governmental organisations (NGOs) have  criticized the ICTI Care standard because it is purely voluntary and below the standards of the International Labour Organisation.

Instead of delving into a theoretical debate on these arguments, news from China point towards another worrying development: Guangdong Toy Association, the association of Chinese toy producers, has officially complained in summer 2016 that the ICTI audit requirement for contracts with foreign buyers has increasingly opened its doors to corruption. Instead of checking on workers, auditors seem to check for envelopes filled with money. This means that Chinese factory owners have higher up-front costs before they get a contract with a foreigner, and before they are paid. In practice, this financial burden is likely to be shouldered by the workers who are most vulnerable. In consequence, China Labour Watch

“suggests that people do not use the criterion of ICTI because it is invalid, at the same time, the audit will increase the financial burden of toy factories.”

The research by China Labour Watch indicates that corruption exists already for several years. This leads me to assume that ICTI Care is unlikely to have solved this structural problem since summer 2016. My desk-based research has its limitations, but I have yet to find ICTI Care publications showing that they acknowledge corruption in their auditing processes and take meaningful steps to counter it. Declaring a zero tolerance policy in their FAQs is insufficient.

Whilst transnational companies buying from Chinese toy companies cannot change Chinese laws on trade unions and the hukuo system, the ICTI clearly has the responsibility and power to find ways to support its members in taking measures to combat corruption which incites and/or facilitates human rights abuses.

Update: On 25 March 2017, ICTI Care has launched a new online tool which

“offers factories a clear channel to anonymously assess auditor’s behavior, share feedback, and report any concerns they may have. All feedback is shared anonymously and the identity of the factory is protected. This direct feedback from factories will help us ensure that all audits by ICTI CARE accredited audit firms are of a consistently high quality. The auditor assessment functionality will also act as a deterrent against unprofessional auditor conduct.”

As an outsider, I cannot use this tool or see what toy factories report, but the launch indicates an acknowledgment that auditors have engaged in very problematic conduct.

Although I welcome this step, I wish to caution against euphoria. As long as auditors are paid either by the toy supplying or by the buying company, there is a clear dependence: auditors are likely to confirm what their client wants to hear – otherwise another auditing company will get the money to conduct the next audit. This means there is always a conflict of interests. The expert on social audity, Dr Gisela Burckhardt argues that the only real solution is provided by multi stakeholder initiatives. There, different stakeholders, e.g. buyers, suppliers, trade unions and non-governmental organisations form a body which then commissions and pays the auditors.

The Chinese State

The Chinese State is the second key actor. The state as primary duty-bearer for human rights is responsible for issues such as workers’ representation and access to medical care and education. As the sources I have cited in this blog posts show, the Chinese government already experiments with different modifications of the household registration system.

Workers’ protests and wildcat strikes may increase with the threat of unemployment when foreign companies announce that they relocate to other countries. This may risk political stability. The Chinese state is said to have invested on an impressive scale to support its domestic electronics industry. According to the German study (see the information paragraph at the end) 226 million Chinese citizens are children but only 8 Euro per child are spent on toys. The state may discover this market and try to develop it independently from foreign corporations’ mercy.

German Consumers

Recalling the evidence about the global supply chain of toys, we ascertained that

  • foreign corporations like to benefit from low labour costs by buying their toys from very dependent Chinese suppliers;
  • the Chinese state (and many other states) has allowed an economic development where its citizens worked for low wages. It has good reasons to fear that companies source from other, even cheaper countries if workers start earning too much.

This situation can aptly be described as a chase for profits by corporate and state actors in the toy industry. They seem to be in a never-ending quest for competitive advantages leading to a race to the bottom of wages.

How can we interfere with this insane race and start a new game?

So far in this post, I have called on human rights and legal concepts applying to the big players in the toy industry and to the Chinese state. In theory that is very nice, but in practice calls such as mine need some steam to become effective. Campaigning on corporate misconduct is one of the factors which has led to the UNGPs. Citizens’ protests in China is another factor which continues to impact politics.

The paper from which this blog post originates required me to write starting from my home country. Since Germany represents a key market in the global toy industry, I focused on its role as a consumer market. Changing consumption patterns is one of the most efficient ways to influence companies. Consequently, I chose the German consumer as the third key actor.

Side note: I deliberately did not choose Chinese activists fighting for the right to form associations and independent unions. They do incredibly important and, often, very dangerous work. I wanted to show where there are options to act for Western consumers.

Existing Campaigning on Fair Toys

There was a German campaign targeting toy sellers and traders in Germany to respect workers’ human rights and core working rights 1999-2012. Unfortunately, it remains unclear why Aktion fair spielt (translated: Action Fair Play) has lost funding and support.

Currently, the follow-up is a project carrying the name “fair spielt” affiliated with the NGO Werkstatt Ökonomie. Once a year, they publish a list of companies to inform German consumers which toy companies selling in Germany are certified by auditors in accordance with the standards by the ICTI codex. ICTI does not publish this information. Therefore, “fair spielt” asks companies to give the information and show copies of their certification.

For 2017, “fair spielt” reports a continuation of the trend that ICTI Care auditing is losing customers. Since 2012 an increasing amount of toy companies and traders do no longer use this standard to show they respect human rights and workers’ rights in their supply chains. Compared to 2009, only half of the listed companies – all of which sell on the Germany market – have suppliers or production facilities in China. This supports the evidence that companies relocate. Noteworthy, only 14 percent of all companies approached for information by the NGO replied.

The latter fact is very lamentable because there is no other way to obtain information on the ICTI audit certification. I am not sure that the other news are really that bad after learning that China Labour Watch call on people – assumingly also consumers – to no longer use the ICTI standard.

Five Reasons for a Consumer Campaign in Germany

Whilst I do not (yet) know why there is no current consumer-driven campaign for fair toys, I have found five good reasons why Germany is a good campaigning target:

#1 Toys are an end-consumer product with high brand value

A toy is a visible product which ordinary people can see, hear, touch and feel in the course of their daily lives. Very often, they have strong, if not even fond memories and emotions about specific toys produced by particular brands. This established contact with toys renders it easy to start a conversation about its production. Extra plus: there are truckloads of beautiful pictures and videos which campaigners can hijack to transport their message.

#2 German consumers already show signs of being open for considering workers’ treatment

Consumers in Germany consider aspects such as pedagogical value, safety and sustainability when buying toys. This is fertile ground for planting the seed of social sustainability considerations.

#3 Germany is a central market for international toy brands

Brands and retailers cannot ignore the German market. Whatever preferences German consumers develop, big brands will need to consider them.

#4 Only four multinational companies own half of the German market

By properly researching only four companies, campaigners can put under pressure the four key brands most Germans know: Mattel, Hasbro, Lego and Playmobil. These multinationals have the leverage to set new standards in the industry because they are least under competition.

#5 There are alternatives products available

Knowing that 80 percent of all toys are made in China, it is clear that high-value brands are unlikely to produce in Germany. If you are not set on a brand product, shop with small, fair and alternative-trade importers. They buy toys produced abroad under fair working condition and offer them in alternative shops such as so-called Weltläden  (One World Shops) for sale.

One of the countries where these toys are made is Armenia where Homeland Development Initiative Foundation creates sustainable jobs for women. This shows that toys can be produced without needing to abuse workers’ rights.

Standard Challenges

Is everything going to be rosy-posy then? Unfortunately, reports by China Labour Watch and others show the very same abuses of workers’ rights and human rights recurring year after year.

Spring Miow

Rosy-posy cat doubting that the campaign will be as easy as it sounds. © Tanakawho

Truth is: toys cannot tell the story of their production. You cannot see whether workers were subjected to excessive overtime and deprived of fair wages when you look at a toy. But this applies to any product, and represents a regular challenge in campaigning.

A similar standard challenge exists with the argument that companies are unlikely to agree with higher labour costs. Corporations are generally structured to take each and every bit of an inch of profit margin they can get their hands on. Only if that inch of profit generated by cutting labour costs – achieved by, for instance, excessive overtime – translates into reputational and/or legal damage – i.e. higher costs than benefits – then companies are incited to change. If the damage caused to the company by requiring excessive overtime is greater than the labour costs saved, it is no longer profitable to cut labour costs. The same applies to countries which also fall for the idea that economic competitiveness is the ultimate objective even if it comes as a disadvantage to great parts of the population. This is why wildcat strikes and other measures by Chinese workers to target state representatives are so important.

Side note: I am not painting a black and white picture of companies and state bodies. Fact is that if consumers start asking questions about workers’ rights to high value brands, they also support the tiny group of employees within the company in their attempts to influence corporate strategy. The same applies when citizens start asking state bodies about their enforcement of existing laws, or, if necessary, show interest in groups lobbying for new laws.

In contrast to these standard challenges, I am more concerned about the reasons why there is not yet an ongoing campaign for fair toys – be it in Germany or another European country. Please email us if you know about one, or if you know about reasons why there is no such campaign.

You Want to Learn More?

The US-American Non-Governmental Organisation China Labor Watch has conducted undercover research in Chinese companies to find out about working conditions there since 2001.

General background information about workers rights, wages and unions in China are provided by the China Labor Bulletin. General background knowledge on the toy business in Europe is provided by this practical guide.

The idea to write a paper on the international toy production came up when I read this report by the German Non-Governmental Organisation World Economy, Ecology and Development.

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