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The
Australia-China Chamber of Commerce and Industry of New South Wales ACCCI
Business Letter No. 4 26 February 2001 |
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 CONTENTS Employing Local Staff Through
Employment Agencies in China What Other Nations are Doing
to Enhance Their Exports to China EMPLOYING
LOCAL STAFF THROUGH EMPLOYMENT AGENCIES IN CHINA Blake
Dawson Waldron Contact:
Michael Lester on michael.lester@bdw.com.au Authorised agencies In China a representative
office must employ local staff through an authorised employment agency. The first and best known agency
is the Foreign Enterprise Service Corporation (FESCO) which has offices in
Beijing, Tianjin, Shanghai, Guangzhou and Shenzhen. Shanghai has four other
authorised employment agencies. They
are: ·
China International Intellectech Corporation
(CIIC); ·
China International Talent Development Centre
(CITDC); ·
China International Enterprise Cooperative
Corporation (CIECC); and ·
ChinaStar Cooperation for International and
Economic and Technical Corporation (ChinaStar). We have used CIIC. Service contract The law does not allow a direct contractual
relationship between the representative office and its local staff. The representative office enters into a
service contract with the employment agency which provides the employee in
return for a management fee. The employment
agency then enters into an employment contract with the employee. The normal duties and
obligations imposed on an employer under the PRC, Labour Law (1993) including social insurance and welfare
benefits are imposed on the employment agency. These items are usually repeated in the service contract. There is no law governing
the terms and conditions of the service contract between the representative
office and the employment agency.
Most employment agencies use their own model contract, which includes
basic terms such as position, commencing date, term of employment, leave
entitlements and salary. Until recently
representative offices could employ only those candidates recommended by the
employment agency. Because the
employee's salary was paid directly to the agency, there was no guarantee
that the intended amount reached the employee. Increased competition
between employment agencies has brought about changes. Representative offices can now negotiate
terms with the agencies or include additional terms into the service
contract. Some agencies are more
flexible than others. For example,
most permit representative offices to select their candidates. Many, such as CIIC, also allow
representative offices to pay their staff directly, without having the salary
specified in the service contract. Supplementary agreement It is possible, and not
uncommon, for a representative office to enter into a supplementary contract
directly with the employee. Many
agencies' model contracts expressly permit direct supplementary contracts
between the representative office and the employee to cover such matters as
confidentiality and non-competition. However, the legal basis
for this type of contract is not clear.
Some directives from the Labour Ministry indicate that such a contract
would be classed as a "labour contract" and therefore subject to
labour rules and regulations. Other
authorities say that these types of contracts would be enforceable in
accordance with the PRC, Contract Law
(1999). Contribution to social insurance and welfare benefits All employers and
employees are required to make social insurance and welfare benefits
contributions. In Shanghai the
relevant contributions are:
The contributions are
calculated according to the employee's average monthly salary for the
previous year. The employer
contribution is not capped. However,
the employee contribution is limited to 300 per cent of the average monthly
salary of the region where the representative office or foreign enterprise is
located. Therefore, if the average
monthly salary in Shanghai is RMB1,179, the maximum contribution of the
employee is limited to RMB3,537. Any
salary over and above this amount is not included in the calculation. Representative offices
and foreign enterprises using agencies to employ local staff have remitted a
single amount for all the social insurance and welfare benefits without the
need for the agency to charge the employee directly. Practical considerations Until the late 1980s all
foreign enterprises were required to employ their local staff through an
authorised employment agency. While
this rule now only applies to representative offices, many foreign
enterprises continue to do so. They
find it easier and less expensive if the agencies manage their employee's
social insurance and welfare benefits. Furthermore, agencies
have been able to reduce the cost of social insurance and welfare
benefits. Instead of using the
maximum employee contribution base of 300 per cent of average monthly salary,
employment agencies have been able to calculate social insurance and welfare
benefits using the maximum employee contribution base of 120 to 200 per cent
of average monthly salary. This is clearly a grey
area of practice which has now been partly clarified, at least in
Shanghai. In early 2000 the Labour
Bureau notified representative offices and foreign enterprises using
employment agencies that the previous basis for calculating pension contributions
would change from 200 per cent of average monthly salary to 300 per cent,
unless the actual salary is less than the average monthly salary. While the change applies only to pension
contributions and not to unemployment insurance and medical insurance, a
uniform adjustment is anticipated. This
change has led to a significant increase in local staff costs. Any cost advantages that may have existed
for foreign enterprises in using employment agencies to employ their local
staff may soon fade. |
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WHAT OTHER
NATIONS ARE DOING TO ENHANCE THEIR EXPORTS TO CHINA The U.S.
Trade and Development Agency Early this month
ChinaOnline (www.chinaonline.com)
reported that the U.S. Trade and Development Agency (TDA), an independent
federal organisation that helps U.S. companies pursue business opportunities
overseas, announced on 29 January that it will reopen its grant-assistance
program in China. This occurred through a
national interest waver by President Clinton, lifting the 1989 sanction that
had suspended the agency’s program in China after the Tiananmen
incident. According to TDA, China was
the “biggest customer” prior to 1989, with a total of US$24 million in grants
that resulted in US$1.4 billion in U.S. exports. This prompted the Chamber
to log unto the TDA’s Internet site (www.tda.gov)
to determine what that agency does to assist U.S. exporters. We think it is useful for Australia’s
exporters to China to know what to expect with the “reopening”. There are also broader
issues. As many readers of this
Business Letter know, the Chamber convened a roundtable discussion in
November last year for the purpose of clarifying and commenting on trade and
aid issues in Australia’s relations with China. Part of the outcome of
the discussion was the realisation among many of the participants that
current policies are difficult to assess in relation to earlier policies or
to alternative policies. We believe
that knowledge of what other nations are doing is an important element in
this assessment. Accordingly, we report
here some of the similarities and differences between TDA and counterpart
agencies of the Australian Government.
We invite comments from readers that might help in assessing current
policies of the Australian Government and in suggesting alternatives. Brief context of the U.S.
Trade and Development Agency (TDA) In 1980 the Office of Reimbursable Development
Programs was removed from the U.S. Agency for International Development (AID)
and became a separate unit, called Trade and Development Program (TDP), in
the newly formed International Development Cooperation Agency. The latter also includes AID. In 1982, the name of TDP was changed to
Trade and Development Agency when the U.S. Congress approved separate
authorisation and funding for TDA.
Prior to 1982 it was funded through AID appropriations. This makes it an
autonomous agency within the U.S. Government but retains links with AID and
other government agencies as part of the larger agency (International
Development Cooperation Agency). The
director of TDA is appointed by the President of the United States. The U.S. Omnibus Trade
and Competitiveness Act of 1988 transferred all tied aid functions from AID
to TDA, and effectively limited tied aid to grants to developing countries
for feasibilities studies and for education and training. This ruled out the use of aid funds to
support (or subsidise) exporters of products and equipment, or exporters of services
that were not part of TDA’s objectives. TDA’s contributions to
U.S. exports TDA’s Annual Report 2000
includes the statement that every tax dollar spent by TDA returned $40 to
U.S. companies. How is this achieved? The key element, according
to TDA, is financial support for feasibility studies for large infrastructure
projects in developing countries.
Feasibility studies are defined as examinations of “the technical,
legal, economic, and financial aspects of a development project in the
concept stage”. The project must benefit
the “sustainable development” of the recipient country and must have a
potential job-creating effect for the U.S.
It must also pass an environmental test. Projects that are
initiated by developing countries include grants from TDA to cover part or
all of the cost of the feasibility study, with the condition that the study
is conducted by a U.S. company. This
enables installation procedures and specifications for equipment to follow
U.S. standards. It facilitates loans
from the U.S Import-Export Bank and almost certainly makes bidding easier for
U.S. suppliers. Priority is obviously
given to projects for which both of these are relatively certain. Projects that are
initiated by TDA or by other government agencies require approval from the
recipient country and the same conditions apply for U.S. companies to supply
the required services. Projects that are
initiated by U.S. companies generally involve a “sharing” arrangement through
which TDA does not fund the full cost of the feasibility study, and some or
all of the grant from TDA may be returned if the bid is successful. The initial proposal includes a brief
summary (2 to 3 pages) and consultation with TDA staff. This is followed by a “definitional
mission” to the recipient country or by a ”desk study” before the grant is
approved. Information is not
available on the proportion of projects from each of these three
sources. It is nevertheless apparent
in the annual report that company-initiated “sharing” arrangements are
expanding. In addition to funding
for feasibility studies, TDA also sponsors conferences and reverse trade
missions called "orientation visits." Both of these activities “familiarise foreign decision makers
with American-made products and services, build business relationships, and
encourage U.S. companies to export to developing and middle-income
countries”. A chapter in the annual
report devoted to the orientation visits highlights the contributions these
“reverse trade missions” made to small businesses in the U.S. In certain regions, TDA also funds trade-related
training, which enables host country project personnel to receive technical
and managerial training when a U.S. firm is selected to implement a
project. Technical assistance is
funded by TDA in some situations where the complex demands of a given project
require expertise that is unavailable from the host country. A final contribution of TDA emerges through its
trust funds at 6 multilateral development banks, including the World
Bank. These funds are available for
U.S. companies that conduct feasibility studies on behalf of those lending
institutions. Final procurement of
equipment for the project is normally open to international competitive
bidding, but the basic rationale for TDA-funded studies is that “when U.S.
companies compete in project development, they are likely to be selected when
the contracts are awarded to supply goods and services to implement the
project”. Comparison with
Australian practices Australian Agency for
International Development (AusAID) is more similar the U.S. AID prior to the
separation of TDA into an autonomous unit.
Austrade is more similar to the International Trade Administration of
the U.S. Department of Commerce. Specifically, AusAID’s current objectives are to advance Australia's
national interest by assisting developing countries to reduce poverty and
achieve sustainable development.
“National interest” includes a number of considerations that are
linked to the reduction of poverty and achieving sustainable
development. These include benefits
to Australia from increased security within the Asian region (mainly but not
exclusively), as well as longer-term benefits from stronger regional
economies. Implementation of
AusAID-funded development projects is carried out exclusively by companies
that are registered in Australia or New Zealand. This includes feasibility studies as well as training and
technical assistance. It is generally hoped
that participation in AusAID projects by Australian companies adds to the
level of expertise and experience of these companies and that economic
development of the recipient nations enhances their international trading
capacity. However, AusAID projects
are not chosen specifically for their contribution to Australian companies or
for the trade enhancement benefit. Austrade is
concerned exclusively with export and investment facilitation. It has no involvement in “sustainable
development” or in foreign aid policy or strategy. Austrade’s advisory service concentrates on Australian
companies that are “ready to export” and provides assistance to those
companies through export marketing grants. Through its global
network of offices, Austrade provides a range of “in-market services such as
setting up appointments with distributors or other useful contacts, providing
on-the-spot briefing on the local business culture and environment,
organising interpreters and office facilities, attending meetings to help
overcome language or cultural barriers, organising product launches and
seminars, and preparing publicity material”. Austrade does not support
feasibility studies or training programs for overseas buyers. It organises and supports Australian
participation in international trade exhibitions, but does not organise
reverse trade missions. The U.S. Trade and
Development Agency therefore has no direct counterpart in Australia. Its objectives and main functions are not
replicated here. Is that gap
important? We invite comments specifically
about perceptions of the value to Australian businesses of the following: ·
Funding for feasibility studies in relation to
infrastructure projects that do not fall into the normal range of AusAID
projects. This would include grants
to foreign project sponsors on the condition that an Australian or New
Zealand company performs the feasibility study. It would also include infrastructure projects that are likely
to be considered commercially viable and eligible for normal trade finance
through EFIC. ·
Funding for managerial and technical training for
host country personnel for projects using Australian equipment or services,
but which are not included in AusAID-funded projects. ·
Reverse trade missions. Stated differently: Do Australian exporters suffer a competitive disadvantage in
China or elsewhere as a result of TDA’s support for U.S. exporters in the
activities mentioned above? ------------------------------------------------------- For more information about
AusAID, various reports, including the aid strategy with China, are available
from their Internet site: www.ausaid.gov.au For information about
Austrade: http://www.austrade.gov.au A brief report on the
roundtable discussion organised by the Chamber last November on Australia’s
trade and aid strategies with China can be obtain from Online Publications. |
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Send comments to: j.zerby@accci.com.au |
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