Preliminary response to Worker Rights Consortium Assessment re PT Panarub (Indonesia)

Herzogenaurach, 27 May 2004 - Over the last five years, PT Panarub has been monitored continuously by members of the adidas-Salomon Social & Environmental Team. There have been some improvements in working conditions in the factory, particularly in workplace health and safety and a reduction in working hours. Nonetheless, problems still exist at PT Panarub, some of which have remained unresolved for several years and constitute serious non-compliance with the adidas-Salomon Standards of Engagement ('SOE').

Despite the very best efforts of adidas-Salomon compliance and production staff to assist the factory in action plan development and implementation, not enough has been done for the workers at the factory. After discussions with Oxfam Australia, and based on previous experience of working with the WRC (Worker Rights Consortium), adidas-Salomon decided that an independent investigation should be conducted to identify 'root causes' and develop a strategy for immediate remediation. This approach is in keeping with both our philosophy of transparency - the WRC reports publicly on its findings - and our internal policy to exhaust all avenues of enquiry and remediation, before any action to reduce orders or terminate business is considered.

We have had an opportunity to review the findings and recommendations set out in the WRC summary report. The findings provide feedback not only on the current level of compliance with the SOE and Indonesian labour laws, but more importantly they reveal the history of labour relations at the factory and identify the causes of chronic non-compliance. There are a number of problems which we believed had been addressed several years ago that have resurfaced. There are also a number of 'new findings' which will need to be verified and then resolved.

Specifically, in relation to the cost of remediation, which the WRC has raised in the final section of the summary report, adidas-Salomon believes that the cost of legal compliance must be borne by the manufacturing partner, ie the employer. Therefore, we expect that costs relating to proper implementation of social security and health care coverage for the workforce in accordance with Indonesian law should be the responsibility of factory management. Nonetheless, as is our usual practice, where specific projects and consultancies are required as part of the remediation process, adidas-Salomon will provide financial support. For example, we will be funding a programme which provides training and capacity building for factory clinic staff in occupational health and safety. Similarly, we propose engaging an independent consultant, with expertise in the areas of industrial relations and electoral reform, to oversee the process of union membership verification.

All these issues will be discussed in detail and agreed with PT Panarub management. A meeting between senior adidas-Salomon operations and sourcing staff and the management of PT Panarub has been scheduled for early June 2004. Following that meeting, it will be up to the management at PT Panarub to carefully review the findings and recommendations of the WRC and develop a remediation plan which demonstrates the commitment and willingness of management to resolve the critical issues as quickly as possible. adidas-Salomon will continue to support this process and do all it can to cooperate with the WRC and assist factory management to develop long-term solutions. We will also commit to providing quarterly updates on the progress of remediation at the factory, to be posted on the adidas-Salomon website.