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Stanching The Flow Of China's Gulag Exports

International Business


Last year, after BUSINESS WEEK uncovered evidence that goods made in Chinese prisons were winding up in the U.S. consumer market, many American companies said flatly that their products were legit (BW--Apr. 22, 1991). But suddenly, they are gripped by a case of the jitters, as more and more prison-produced goods make their way to the U.S. To reassure customers, pressure groups, and management itself, some blue-chip U.S. companies are facing the issue head-on. They are unveiling bold plans to ensure that no foreign prison goods are in their inventories.

Heavyweights such as Sears, Levi Strauss, and Nike are establishing corporate codes of conduct for their buyers, suppliers, and contractors, as well as instituting tough new procedures for auditing their imports. "More image-conscious companies are going to have to take similiar steps," says William Patterson, director of corporate affairs at the Amalgamated Clothing & Textile Workers Union (ACTWU), which prodded Sears, Roebuck & Co. into action. For the first time, some companies are sifting through their global supply networks to try to determine who is really providing them with goods. In many cases, that's not so easy, because some Hong Kong intermediaries are expert at keeping their Chinese supply lines secret.

HIGH PRICE. The cost of being on the wrong side of the issue is rising. Labor unions are leading the charge and targeting other retailers besides Sears. As consumers return to the stores, no company wants to be tainted by charges of doing business with the Chinese gulag. Importing prison products is illegal, and Congress is poised to impose crippling penalties on importers of forced-labor goods. The U.S. Customs Service is conducting its own tough investigation.

Alarmed by reports of prison goods from China reaching the U.S., the ACTWU began taking aim at Sears in November, 1991. The union, which holds several thousands of dollars in Sears stock, noticed that the company was selling Chinese-made toys, tools, clothing, ceiling fans, and audiocassettes--the kind of goods known to be made in Chinese prisons. They requested that Sears' board of directors produce a report on the company's practices of buying Chinese-made goods.

Instead, on Mar. 31, Sears announced that all contracts with Chinese suppliers will include written guarantees that their goods don't come from prison factories. The company will cross-check its suppliers with a list of Chinese prison facilities and will conduct surprise inspections of mainland plants. While Sears' Senior Vice-President and General Counsel David Shute says the company has no reason to believe it has purchased any prison products, the new guidelines will shine a brighter light on the web of Hong Kong intermediaries Sears uses to place some Chinese orders.

`AT RISK.' Levi Strauss & Co. also is banning forced-labor goods in a new set of guidelines that reflect "the company's values," says Robert H. Dunn, vice-president for corporate affairs. The jeansmaker has launched an audit of all its global operations, involving 600 contractors in more than 30 countries. In China, Levi officials plan visits to every supplier to inquire about the use of prison labor. It will be costly, Dunn says. "But if the image of our brands is at risk, the cost could be far greater." Recently, Levi severed ties with its supplier in the U.S. territory of Saipan following revelations that it was employing imported Chinese workers under slavelike working conditions.

Shoemaker Nike Inc. now spot-checks all of its Chinese facilities, where 10% of its shoes are made. And Reebok International Ltd. has audited all of its suppliers in China. Hong Kong-based Odyssey International, maker of such brands as North Face parkas and Head skiwear, assures U.S. customers that none of its clothing is made in Chinese prisons. CEO William N. Simon has hired inspectors at 75 Chinese factories supplying Odyssey with some 6 million garments each year.

Congress is jumping on the bandwagon. Representative Frank R. Wolf (R-Va.) is proposing to jack up fines for U.S. companies that knowingly import prison goods from $1,000 to $250,000. "Right now, the fine is so low that it's almost an incentive to import," Wolf says. His bill has the backing of Customs and the Treasury Dept.

Even stiffer regulations could be coming. Representative John Miller (R-Wash.) has proposed that all U.S. companies doing business in China be required to file yearly reports with the State Dept. certifying that they are not buying from prisons. Many business executives object to this proposal, but if they don't start policing themselves, Congress may do it for them.Amy Borrus in Washington and Joyce Barnathan in New York, with Pete Engardio in Hong Kong

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