Myanmar: where workers pay the price for FDI


On 9 October, 2014, the contents of a factory in Hlaing Tharyar, the largest industrial zone in Yangon, Myanmar, were tentatively auctioned off.

It marked the end to a labour dispute that highlighted the topsy-turvy nature of South Korean investment abroad and Myanmar’s industrial landscape.

The building was once called the Master Sports Footwear Factory. Headed by a South Korean businessman, Bang In-ho, it produced hiking shoes. One client was Kolon Industries, a South Korean textile and apparel behemoth worth US$1.31 billion.

Bang abruptly shut the factory down on 26 June and allegedly fled the country in July without paying more than 750 of the factory’s workers.

He owed one month of outstanding wages which totalled approximately 65 million kyats (US$65,500), as well as an additional 130 million kyats (US$131,000) in compensation for terminating employee contracts without notice.

Furthermore, Master Sports is accused of pressuring workers to sign an agreement that they would receive the June salary only in exchange for foregoing their compensation.

Just 58 people reportedly signed it, with most workers taking to the streets to protest the situation both in front of the factory and the South Korean embassy in Yangon.

The successful auction of the factory’s movable contents — which is believed to have yielded 280 million kyats (US$282,000) — means that the workers can now be paid using the proceeds.

Maung Maung, Secretary-General of the Federation of Trade Unions Myanmar (FTUM) welcomed the development. “The 757 workers are due 210 million kyats (US$211,700), so we hope it will cover their wages”.

But the Master Sports saga illustrates the fact that Myanmar still lacks the basic safeguards to protect labour rights and that foreign investment comes at a cost – one paid all too often by the workers.


A questionable investor + cheap labour = a recipe for disaster

Since its transition to partial democracy in 2011, Myanmar has seen an incredible growth in foreign direct investment (FDI), particularly from South Korea.

As of late November 2013, South Korea represented US$3.04 billion (6.9 per cent) of all FDI in Myanmar, trailing China at the top (32.17 percent), Thailand (22.67 percent), Hong Kong (14.64 percent) and the United Kingdom (6.93 percent).

Multinational corporations already operating in Myanmar include Coca Cola, DuPont, and Procter & Gamble, while Colgate-Palmolive is expected to open a factory in the near future.

But the garment industry has been one of the biggest beneficiaries of FDI, with the Myanmar Industry Commission forecasting a phenomenal US$4 billion of investment in the sector this year.

Bang was one of the many foreign investors drawn to Myanmar because of its cheap labour.

According to Jeong Hae-un, who identified himself as the manager in charge of import and export at Master Sports, Bang once manufactured in Qingdao, China, but “due to the rising costs of Chinese labour and operation, it was determined that the Chinese factory would be closed. Among three possible candidates [for relocation], Myanmar was chosen.”

In addition to running the factory in China, he owned an apparel company in Gyeonggi-do, South Korea, called Masters Sports — with an extra “s” — and sold Chinese-made sportswear under different brands on the domestic market until last year, according to public records.

He then faced major financial woes: the Korea Financial Telecommunications & Clearings Institute (KFTC) recorded that his firm’s accounts were frozen on 2 October 2013 — a palpable indication of imminent bankruptcy.

Bang did not answer repeated calls to his mobile phone and messages requesting an interview with Equal Times.

Jeong, the self-identified manager at the Myanmar factory, said that the operation in China was shifted to Myanmar during this crucial moment at Bang’s company in South Korea.

“To my knowledge, the [Hlaing Tharyar] factory was leased in December 2012, and I remember the first day of normal operation — after import and installation of machinery in the factory and the office, and recruitment of workers — as 23 May 2013”.

Between rising labour costs in China and impending bankruptcy in South Korea, Bang started the factory in Yangon.

He was assisted by Jeong, a man who had lived in Myanmar since 2004 and was well-connected in the South Korean business community in Yangon through his successful entrepreneur sister, married to a Myanmar citizen of Chinese descent.

But Bang’s new venture failed and he left for South Korea after paying only the administrative and managerial staff.

Jeong claimed that the factory suffered from a cash flow problem and repeated protests by workers over wages, which in turn led to lower production quality. It was then that Kolon Industries reduced its orders to the factory.

Kim Hee-jin, a spokesperson at Kolon Industries FnC, the fashion division of the corporation, partially confirmed Jeong’s account.

During a phone interview, Kim said that the Master Sports products did not meet Kolon’s standards and were behind schedule, requiring her company to perform another round of “quality control” checks in South Korea before distribution.

She declined to reveal how Master Sports won a contract from Kolon in the first place, calling it a “trade secret”.


Government “also to blame”

Workers started demonstrating in July after Bang’s disappearance, but their anger was directed not only at Master Sports but also the Myanmar government.

In a clip posted on YouTube by Mizzima, an independent media outlet, Master Sports workers made several demands during their protest on 17 July 2014: they wanted the government to sue and blacklist Master Sports, but also insisted that government officials who had allegedly taken bribes from the South Korean operator also be punished.

U Htay, a lawyer representing the workers, said: “In Myanmar these problems are happening because there are no national laws and the government and company owners exchange kickbacks.

“That is why one of the workers’ demands is the punishment of officials who have received bribes”.

The claim that bribery might have been involved in the opening of the Master Sports factory has not been substantiated.

But in 2013, Transparency International ranked Myanmar 157th out of 177 countries in its corruption perceptions index, and the BBC country profile of Myanmar put it far more bluntly: “Key industries have long been controlled by the military, and corruption is rife”.

The Master Sports scandal was especially bad publicity for the government just weeks after it signed a key agreement on investment promotion and protection with South Korea on 5 June 2014 in the hope of attracting more money from abroad.

Economic relations between the two countries are expected to become even closer as a result of the pact.

The South Korean embassy, on its part, heralded the signing on its website as “being expected to contribute to the advancement and expansion of our [South Korean] corporations into Myanmar”.

To assuage popular anger, the Ministry of Labour, Employment and Social Security announced on 19 July that it was suing Master Sports for failing “to fully implement social security terms for their workers”, reported The Democratic Voice of Burma, a non-profit media organisation.

The government also charged two company officials — Jeong being one of them — for violating labour laws.

Additionally, the ministry made repeated requests to the South Korean embassy to summon Bang In-ho, the fugitive CEO of the factory, back to Myanmar for questioning, but to no avail.

Choi Won-hyung, a South Korean embassy official, told Equal Times: “Regarding the matter of summoning Bang In-ho, we do not, and cannot, provide assistance. This is not a criminal case and there is no legal ground for our involvement”.

Choi added, however, that the embassy did attempt to reach Bang on his South Korean mobile number on several occasions but was “not able to establish contact”.

The situation escalated mid-September when the workers and Myanmar government officials on an inspection tour of the factory engaged in a physical confrontation that resulted in nine injured policemen and a claim — denied by the workers — that U Win Shein, Director-General of Factory and Employment Inspection, was briefly held hostage.

After the factory failed to offer its former workers unpaid salaries and compensation for the sudden termination, the ministry finally announced on 19 September that the factory had a legal obligation to produce the funds.

An auction of its contents was scheduled for 9 October, and a single buyer purchased the entire lot at a price high enough to compensate all workers and diffuse the standoff.


Preventing future abuse

That may be good news for Master Sports workers, but it is still the case that Myanmar does not do enough to vet foreign investors who express interest in establishing operations in the country, nor do its labour laws (dating back to 2011) fully protect worker rights.

Jinyoung Park, a South Korean labour activist and researcher, wrote that when an employer terminates a contract with an employee, “the custom recommended and practiced by labour authorities is a package of one month notice and severance payment according to years of service,” but “there is no legal regulation on termination and severance payment”.

US President Barack Obama, who in May extended some economic sanctions against Myanmar for one more year due to what he saw as slow progress of reform, is expected to make a second visit to Myanmar in November.

And efforts, headed by the United States, are underway to improve Myanmar’s labour practices, though it is unclear what impact they will ultimately have on the lives of ordinary workers.

More importantly, the main providers of FDI in Myanmar may be of a different mind.

South Korea, for one, has shown limited interest in reining in its companies that do not act in accordance with foreign laws or norms.

An official at the Korea Trade-Investment Promotion Agency (KOTRA)’s office in Myanmar referred all questions in connection with Master Sports to the South Korean embassy, stating: “We were not involved in the situation and we did not support this company”.

The South Korean embassy similarly disavowed responsibility for handling the crisis.

Lack of legal recourse, endemic corruption and a repressive political system, all mean that the circumstance of workers in Myanmar cannot be improved without significant advances in the democratisation of the country as a whole.

Mikyung Choe, executive director of the Korean House for International Solidarity (KHIS) — an NGO that monitors the behaviour of multinational corporations — agrees:

“Korean companies go to countries with extremely low levels of democracy and take complete advantage of the situation. This requires a discussion of the democratisation of Burma as a priority so that local people can develop their own standing and fight the abuse”.


Raphael Rashid and Nay Tun Naing contributed to this report from Seoul.