COUNTRY REPORT

ILO-KLF-ITC
Workshop A357329

ON

PROMOTING DECENT WORK IN MNEs AND THEIR SUPPLY CHAINS

BY

Jathika Sewaka Sangamaya

National Trade Union Federation

Participant : Mr. Asoka Hewapathirana

Country : Seoul, South Korea
Venue : Hotel Vabien ii Suite
Time period : 18 - 21 November, 2014
Country profile :

Sri Lanka which was formerly known as Ceylon is a beautiful tropical island situated in the Indian
Ocean close to the southern tip of the Indian subcontinent.
Geographical coordinates : 7.0000° N, 81.0000° E
Total land area is 65,610 sq km.
Population is approximately 21.8 million comprising 10.544 females and 9.939 males. It is a multi
Ethnic population comprising Sinhalese, Tamils, Muslims, Burghers and others.
Sinhalese (74 %) and Tamils are the largest minority, at 18 %.
Population density is highest(3438 /Sq km) in the island's southwest corner—where Colombo
Mean population density in 324/Sq km in the country.
Main languages are Sinhala, Tamil and English.
Main religions are Buddhism, Hinduism, Christianity and Islam.
Total labour force is about 8.8 million.

The country’s rich historical and cultural heritage dates back to over 2500 years. The beautiful
sandy beaches, verdant vegetation, picturesque landscapes, tea plantations, wildlife sanctuaries
and places of cultural and historical importance have made this island nation popular tourist
destination .

The NTUF and Trade Unions (TUs):

Today Trade Unions play a key role in fighting for the rights of the labour force in Sri Lanka. The
formation of Trade Unions is recognized by the Trade Union Ordinance. However, the Ordinance
does not permit the Public Sector TUs to federate. Members of the Armed Forces, Judiciary and
Prison officials are debarred from forming TUs.

There are several TUs in the country with many affiliated to a recognized political party . The
multiplicity of TUs led to the weakening of the collective bargaining power of the workers. In
order to rectify this situation and campaign for the rights of the workers and promote decent work,
three national unions, namely the Lanka Jathika Estate Workers Union (LJEWU), the Jathika
Sewaka Sangamya (JSS) and the National Estate Services Union (NESU), took the initiative to form
the National Trade Union Federation (NTUF) in 2004. The NTUF which comprises 9 TUs at present
has grown in stature and become a force to reckon with in the country today . They are represent
plantation, mercantile, transport, health, education, public, informal, migrant and building
construction, wood and forest workers sectors. The NTUF is internationally recognized and it is a
main TU in sri lanka.

What are MNEs : Organizations owned or control productions of goods or services in one or
more countries other than the home country are known as Multinational Corporations (MNC) or
Multinational Enterprise (MNE). E.g., when a corporation is registered in more than one country or
has operations in more than one country, it may be attributed as a MNC/MNE. There is no
standard definition of a multinational enterprise (MNE) Still economists recognize some defining
principles among themselves.
Role and impact of Multinational Enterprises( MNEs ) :
In today’s fast expanding global economies MNEs have become a major player within the national
economies of most countries. Apart from their direct investment and employment effects, their
influence on employment policies and practices have made a strong impact on the economy.

Today world markets have become increasingly globalized for production, consumption and
distribution of goods and services through MNEs and their global supply chain . Many Asian
governments have started to lay out a red carpet welcome for Foreign Direct Investments (FDIs)in
order to forge ahead in the fiercely competitive global market.
With the aim of luring FDIs most governments now offer numerous benefits and concessions such
as tax reliefs, cheap labour and raw materials and as a result Asian markets have become a major
growing attraction for MNEs .It is the view of many leading economists that Sri Lanka ‘s ’FDI s
should be at least 2 per cent of the GDP if we want to focus on sustainable development. One of
the factors that has a negative impact on increasing FDIs is the new tax policy regarding the leasing
of land.

Some of the MNEs operating in Sri Lanka are : Unilever, Nestlé, British American
Tobacco, Holcim, Coca Cola, Reckitt & Benckiser,Glaxo smithkline, are among the top names.
McDonald's is an example of a multinational enterprise. It is based in Chicago, Ill. but also has
offices and production operations in Canada, Russia, India, China and Taiwan. And, of course, it has
thousands of retail operations worldwide including Sri Lanka.

Sri Lankan conglomerates such as Carson Cumberbatch, Aitken Spence, John Keells Holdings,
Brandix Group, Expolanka, Ceylon Tea Services, Ceylon Biscuits, Dipped Products, Haycarb, MAS
Holdings have also expanded operations worldwide to become MNCs.The Hayleys Group’s
multinational activated carbon business Haycarb PLC, is a coconut shell based activated carbon
manufacturer and exporter, with manufacturing facilities in Sri Lanka, Thailand and Indonesia
supported by marketing offices in the UK, Australia and USA.

MNE’s impact on the economy :

Multinational Enterprises (MNEs) have played a vital role in the economies of developing countries.
However the problem of moral and legal guiding behavior of MNE's, is one of the urgent global
socioeconomic problems that emerged during the late twentieth century.

MNE policy towards production and labour :

Employment generation, whilst it can be pro-actively improved, is an outcome of enhanced
investment along a wide range of sectors. But importantly, without a focus on ensuring that
development has employment generation as a core priority, it will benefit only a few, and a large
section of the country will be left behind. Indeed, development through private investment is a
fundamental prerequisite to make Sri Lanka the ‘Wonder of Asia’ along with government-led
infrastructure initiatives to create the appropriate environment for this investment. This policy
document will be the basis on which human resource development and employment generation
can be placed within these economic initiatives to ensure economic prosperity to all.
Thus, the National Human Resources and Employment policy document lays down key policy
priorities for human resource development and employment in a broad spectrum of areas from
macro-economic and sect oral policies, MNEs development, labour market policies for specific
groups to training, management and career guidance. They are based on lengthy consultations
amongst government, employers’ organization, workers’ organization, professional bodies and
academia.

What is the concept of Decent Work :

Decent Work refers to opportunities for women and men to obtain work in conditions of freedom,
equity, security and human dignity. The Decent Work concept has been created around a strategy
to achieve people-centered sustainable development.

Decent work and negative impacts of MNEs :

Anti-corporate advocates criticize multinational corporations for entering countries that have
low human rights or environmental standards. They claim that multinationals give rise to large
merged conglomerations that reduce competition and free enterprise, raise capital in host
countries but export the profits, exploit countries for their natural resources, limit workers' wages,
erode traditional cultures, and challenge national sovereignty.
The ILO similarly recognizes that multinational operations can foster abuse (for example, exploiting
cheap labor or skirting labor laws in a multinat's home country). In 2006 the ILO drew up its
"Tripartite Declaration of Principles for Multinational Enterprises," aimed at fostering positive
regional contributions, rather than exploitation.

Most MNEs in Sri Lanka generally abide by the laws governing MNEs laid down by the Government
of Sri Lanka . Even though MNEs are required to operate within the framework of decent work
there are instances where the four pillars of the Decent Work Agenda are not observed ,especially
when it comes to their rights .This is so, especially in the FTZ . The FTZs were established from
1978 onwards. Initially the government considered free trade zones as “trade-union-free” zones, in
which the labour laws of the country would not apply and the freedom of association principles
were suspended; investors were promised a docile and hard-working labour force. However due to
continuous agitation by trade unions outside the zones and also the workers within it, employers
and the state had no option but to allow workers to organize themselves for better working
conditions and fair wages.
Where MNE Facing problems :

It seen the needs and demands of different groups being set up against each other. This
undermines solidarity and policy consistency, and colours the attitudes of both the political
authorities and the social partners.

Many people have lost their jobs, their homes and fundamental rights. Labour migrants, women
and children are particularly vulnerable groups. We see an increase in the use of child labour, in
cases of social dumping, and worst of all – human trafficking.

Women’s rights and gender equality are a high priority for the Government, and are high up on the
decent work agenda. There are strong economic reasons – as we know – for promoting gender
equality..

Gender equality is about equal pay, anti-discrimination efforts, schemes that make it possible to
meet both family and work commitments, the right to leave of absence, paid leave, and the right
and opportunity for working mothers to breastfeed their babies.

In booming Sri Lankan economy, foreign investment is being encouraged and therefore
presence of Multinational Companies (MNCs) is inevitable. One of the major constraints for MNCs
for implementing their global strategies is HRM in the host countries. Is it either local isomorphism
(subsidiaries of a MNC act and behave as local firms) or internal consistency(HRM practices of a
subsidiary of a MNC resemble those of the parent company or some other international standard)?
It is a general principle that the more an HRM practice contradicts the existing social norms of Sri
Lanka, the more likely it will fail. Tailor-made HR policies and practices to fit Sri Lankan culture are
needed for MNCs and also they need to have a right balance between tailor-made HR practices to
fit our culture and the need to integrate global consistency with local adaptability. In this regard a
well-known general theory is Prof. Geert Hofstede’s five dimensions of difference (power distance,
individualism & collectivism, masculinity & femininity, uncertainty avoidance, and long-term &
short-term orientation)
.
Application of HR practices which match these dimensions enables the MNCs to deal with the issue
of transferability of HRM practices. How this is done specifically is not presented here due to reason
of space.

Situation of Women workers :

Women play a critical role in the Sri Lankan economy and are the backbone of several of the most
economically important sectors for the country – tea, garments, and migrant workers. Roughly a
third of those employed in the country are females. Since the opening of the first Free Trade Zone
(FTZ) in the country in 1978, many FTZs have opened across the country, with the objectives of
attracting foreign direct investments, expand exports, earn foreign exchange and generate
employment. Another sector that benefitted from the liberalization of the economy in 1977 was
the hotel and hospitality sector. It is also a sector with the longest working hours in Sri Lanka. More
than 65% of workers in the hotels and restaurants sector work for more than 50 hours a week.
More than half the workers in some hotels are variable workers who are hired for a short period.
Some measures adopted by enterprises include reducing the permanent workforce and offering
more contractual and temporary working arrangements, making employment more unstable and
uncertain to workers. Along with this, there was greater demand on the workers to meet targets
and sustain quality, creating a more intense working environment and raising issues concerning the
health and safety of workers. Such work arrangements are beneficial to the employer; as such
workers are easier to terminate during economic downturns. These workers also cost less, as short
term employees are not eligible to receive some social protection benefits such as gratuity. As
employment contracts are continuously renewed, workers do not benefit from experience related
salary increases. Work is precarious not only due to the nature of the contractual arrangement
between the worker and the employer, but also because of the nature of work.

Many Sri Lankan female workers, who are largely in the light manufacturing and the services
sectors, are in ‘precarious work’. While recognizing the contribution of female workers to the Sri
Lankan economy, it’s time to recognize and address these emerging challenges faced by them.

Trade union membership :

Membership in trade unions has been declining steadily over time, and it is estimated that only
about 15 per cent of wage-earners are members of a trade union. On the other hand, the number
of trade unions have increased, pointing to the possibility of a movement away from large national
level unions to smaller, more enterprise based trade union. employees and trade unions
Mr Rasideen, General Secretary of the National Association for Trade Union Research and
Education (NATURE) said the trade unions were currently up in arms against government’s plans to
overhaul the labour laws, particularly in the special investment and export processing zones (EPZs).
The government is also more interested in promoting a separate set of labour guidelines for special
investment and export processing zones to deal with industrial relations issues the EPZs. This, the
unions felt, was being done to ensure that foreign investors’ demand for “docile” labour are met.
The multiplicity of unions due to the ease of registering trade unions, poaching of members from
rival unions and continued disunity inthe trade union movement; the increasing policy of employers
of dealing directly with workers and not with unions; the increase in the use of contract labour,
temporary employment, out–sourcing, casualization, and recruitment through labour contractors
have all made union organization that much more difficult;

Trade unionism :
No clear data is available on trade unionism in MNEs as no surveys have been conducted in this
connection. Labour unions in state-owned enterprises are often opposed to privatization and
restructuring and seem paticularly averse to foreign ownership. In the past, this made the
privatization of government entities problematic for new foreign owners. The Sri Lankan
constitution grants as a fundamental right for every person to join a trade union, while the Trade
Union Ordinance permits any seven people to form such an organization.

In Sri Lanka, there are 2,074 registered trade unions, of which 54.5 % are in the public sector,
27.5 % in public corporations and 18 % in the private sector. The number of members covered by
the trade unions amount to 9.5 % of the total workforce of Sri Lanka.
Sri Lanka’s country priorities with regard to its Decent Work Agenda :
Poverty reduction is the overall theme and in order to achieve this Sri Lanka has identified the
following outcomes:

Outcome 1: Enhanced access to more and better jobs in economically disadvantaged and crisis
affected areas.

Outcome 2: Enhanced labour administration and promotion of equitable employment practices.

Outcome 3: Improved tripartite cooperation on initiatives linking job security, productivity and
competitiveness.

Sri Lanka’s stand on MNEs :

Sri Lanka has opened its doors to a new era of economic opportunities and rebounding
economic growth following the end of the civil war in May 2009 The Government has set
very ambitious goals for economic development, aspiring to have GDP growth rates over
8%, It also aims to develop economic hubs in ports, aviation, commercial, knowledge and
energy. Mega developments projects have been initiated to promote tourism and also develop
the infrastructure facilities in the country,
The Government of Sri Lanka has invited the international investors for productive
investment in the country . Sri Lanka has established strong economic ties with Asian
countries such as China and India. The safety of foreign investments is guaranteed by the
constitution.

Investment Protection :
In principle, foreign investments are guaranteed protection by the Constitution of Sri
Lanka. The government has entered into 24 investment protection agreements with foreign
governments (including the United States) and is a founding member of the Multilateral
Investment Guarantee Agency (MIGA) of the World Bank. Under Article 157 of the
Constitution of Sri Lanka, investment protection agreements enjoy the force of law and
no legislative, executive or administrative action can be taken to contravene them. The
government has ratified the Convention on Settlement of Investment Disputes, which
provides the mechanism and facilities for international arbitration through the World Bank’s
International Center for the Settlement of Investment Disputes (ICSID).The U.S. Sri Lanka Bilateral
Investment Treaty (BIT) was ratified by both governments in 1993.

Sri Lanka encourages foreign investment in information technology, electronics assembly,

light engineering, automobile parts and accessories manufacturing, industrial and information
technology parks, rubber based industries, information and communication services, tourism
and leisure related activities, agriculture and agro processing, port-related services, regional
operating headquarters, and infrastructure projects.
Incentive for the new investors :
Traditionally incentive schemes and subsidies had been a common practice in Sri Lanka .
The incentives offered by the Government by way of tax and other benefits vary between
industries and may include tax holidays, VAT exemption, Custom duty exemption etc. .
The Government has promised many incentive for the new investors.
As all foreign investments in Sri Lanka, come under the purview of the BOI.
It has a firm regulatory framework providing a wide range of benefits to the foreign
investors.
The Board of Investment specifies certain minimum investment amounts for both
local and foreign investors to qualify for incentives.
The range of benefits include tax holidays for the first five years of operation, establishment
of investment promotion zones at state expense, allocation of state lands at concessionary
prices for setting up of production plants in investment promotion zones, capital investment
incentives for all tax purposes for acquisition of production machinery and duty free
allowances for imports of production machinery and other equipment including vehicles.
The incentives finally given may vary according to the type of investment and the benefits
that would be accrued to the country form such investments.

Some incentives and concessions given to MNEs :

No restrictions on repatriation of earnings, fees, capital, and on forex transactions relating
to current account payments. No foreign exchange control but capital account transactions are
controlled Income tax holiday and other exemptions to companies that relocate any international
or regional headquarters into Sri Lanka .Allow a deduction for the cost of acquiring intellectual
property related to international brands Extend the cut-off date for the concessionary tax rate for
shares listed on the Colombo Stock Exchange from 1 April 2014 to 1 April 2017
Reduce the corporate tax rate by 50% for a five years, for entities established by
professionals to provide international services in BPOs engaged in Human Resource
Management, Finance & Accounting, Law and Procurement…Etc.

Conclusion with an Inspiration :

What is the recipe for successful achievement? To my mind there are just four essential
ingredients: Choose a career you love, give it the best there is in you, seize your opportunities, and
be a member of the team.

References : ilo.org , ntufsl.org , Wikipedia.org

Cbsl.gov.lk ,statistics.gov.lk ,salary.lk
Unions.lk , island.lk

ASOKA HEWAPATHIRANA. # 02/11/2014.