Vietnam plans union reform to avert trade woes, risking foreign firms’ unease

HANOI – Communist-ruled Vietnam is expected to ratify this year the UN convention for the free establishment of trade unions, UN officials and diplomats said, in a move meant to cut risks of trade disputes but likely leaving some foreign companies uneasy.

The long-delayed measure would be a major formal step in the tightly controlled one-party nation where the only existing national trade union operates within the Communist Party structure, although it is unclear how and when the convention, once ratified, would be actually applied.

The Southeast Asian manufacturing hub, which is home to factories of international companies including Samsung Electronics, Intel, Foxconn and Canon, is highly reliant on commerce, which last year exceeded 160% of the $415 billion domestic economy.

It is required to apply UN standards on workers rights to avoid disputes over ‘social dumping’, which refers to the practice of countries competing unfairly with others over labour costs, under its multi-billion-dollar trade deals with the European Union and Pacific partners.

“We are confident Vietnam is committed to ratifying Convention 87 as early as possible,” Ingrid Christensen, the head in Vietnam of the International Labour Organization, the UN agency responsible for labour rights, told Reuters.

Convention 87 on the “freedom of association and protection of the right to organise” was adopted in 1948 and is one of the fundamental texts protecting labour rights worldwide.

In a meeting in December with foreign experts, Vietnam’s labour ministry officials said the ratification of the convention was expected in October 2024, according to a Hanoi-based diplomat. Other diplomats confirmed plans to ratify this year.

The Vietnamese Prime Minister’s office, the labor ministry and Vietnam General Confederation of Labour, the country’s only national union, did not reply to requests for comment.

After a decade of talks, parliament was expected to ratify the convention last year, just before the expiry of a January deadline agreed with Canada. With the deadline missed, Ottawa has in theory an additional argument to seek sanctions under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Canada, whose trade with Vietnam is worth over $10 billion, is reviewing a complaint about whether Vietnamese labour laws are in compliance with CPTPP’s obligations on workers’ rights, a Canadian government spokesperson said.

The EU, which had bilateral trade with Hanoi amounting to nearly $65 billion in 2022, sees the ratification of Convention 87 and amendments of relevant laws as “crucial” to comply with the existing agreements, EU Ambassador to Vietnam Julien Guerrier said.

SOME COMPANIES UNHAPPY?

However, “if the ratification leads to more real power for trade unions, some companies may be unhappy,” said Nguyen Hung, a specialist in supply chains at RMIT University Vietnam, warning that could impact foreign investment, including from Samsung, the largest investor in the country.

Freedom of establishment would “result in a disorderly proliferation of unions” and deterioration of industrial relations, according to notes seen by Reuters for a 2016 speech by Samsung’s former deputy head in Vietnam, Bang Hyun Woo. The notes said Bang’s views did not reflect Samsung’s.

Samsung declined to comment about Vietnam’s possible ratification and whether that could change its investment plans.

Vietnam will also raise by 6% the minimum wage in the business sector in July, following other hikes in the past. It will also increase from this year levies on large multinationals under a new global tax deal.

Vivie Wei, who leads investment consultancy Dezan Shira & Associates in Vietnam, said she saw no significant impact on foreign investors’ interest from enhanced unions rights or wage hikes.

Vietnam “does not position itself as the cheapest option” but has still been able to attract investments even after recent increases in salaries, she said. — Reuters