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Statement on the Oxfam Report and the current situation at PT Panarub, Indonesia

May 26, 2006

Herzogenaurach, 26 May 2006 - On 23 May 2006, Oxfam International released its report, Offside! Labour rights and sportswear in Asia. The report focuses on the issue of freedom of association in supplier factories within the international sporting goods industry in Asia. The report is based on research work conducted by Oxfam Australia Labour Rights Advocacy staff, and includes information provided by international sporting brands in consultation with Oxfam Australia. 

The adidas Group utilised considerable resources in providing detailed and comprehensive information as requested by Oxfam Australia in the development of the report. As a result, there is specific acknowledgement and recognition of the amount and quality of information disclosed by the adidas Group. The report also acknowledges the proactive measures taken by us in developing and executing effective remediation practices in certain factory cases as they are listed in the report.

In relation to the specific allegations made about PT Panarub, please see the comments directly below.

PT Panarub Industry is a major football boot manufacturer for adidas and is located in Tangerang, Indonesia. The factory employs over 10,000 workers. Of these, approximately 5,600 are members of SPN (Serikat Pekerja Nasional or National Labour Union), the majority union in the factory, and 2,380 are members of Perbupas, the minority union.

At Panarub there is a history of poor relations between the two unions, and between the management and the unions. Because of this, the factory has been the subject of adverse publicity and close monitoring by adidas Group’s Social and Environmental Affairs (“SEA”) Team and by an independent NGO, the Worker Rights Consortium (WRC). In early 2004, based on agreement between adidas, WRC and Oxfam Australia, the WRC was invited to visit the factory in order to improve transparency and develop acceptable remediation plans.

WRC’s report on investigations conducted at PT Panarub in 2004 can be found on the website of the Worker Rights Consortium. WRC highlighted a number of issues relating to worker-management communications and infringements of union rights, in particular, freedom of association. At that time, the key issue was verification of union membership to the satisfaction of both unions and the management. Despite exhaustive efforts, including the involvement of the International Labour Organization and independent facilitators, agreement could not be reached on the principles or mechanisms for conducting a factory wide ballot on union membership. Despite significant improvements in health and safety conditions and general management of labour issues, tension between the two unions, and between the management and the minority union, Perbupas, continued to grow.

This tension spilled over into a series of strikes held at the end of 2004 and again in 2005. In October 2004, Perbupas lead a strike at the factory in protest of the annual bonus structure. The strike was unlawful (ie, the organisers failed to register the strike with the Indonesian Manpower Department), and some of the participants acted in a manner dangerous to themselves and other workers. adidas had lengthy discussions with management about whether legal action could reasonably be taken against the organisers of the strike. Our recommendation was that the participants who had acted dangerously should be disciplined according to the company rules and collective bargaining agreement, ie receive warning letters, rather than management becoming embroiled in protracted legal action against workers.

Again, on 12 October 2005, Perbupas lead another strike. On this occasion the union provided the factory management with advanced notice and registered the strike with Manpower, indicating that the strike would be held outside the main gates of the factory. On the day of the strike, the union mobilised workers (using loud hailers) and sought entry to individual factory buildings to call out the workers. Physical and verbal confrontations occurred with the plant managers on at least two separate occasions, and a fire alarm was set off. The strikers continued on to a location outside the factory where banners and a loud speaker system had been set up, as part of the protest action.

The factory management argues that the union’s activities inside the factory grounds were unlawful, as they did not take place at the time and place designated in the union’s strike notice. On these grounds, and on the grounds that the strikers had breached specific provisions of the collective bargaining agreement – through the alleged use of violence, rude behaviour, inciting others to act illegally, damaging company property, and placing themselves and others in danger – the company dismissed 33 workers engaged in the strike. According to law, the dismissed workers were placed on suspension, including the entire union leadership of Perbupas, pending a decision by the Indonesian Manpower Department.

Based on ILO convention principles, and the adidas Group Standards of Engagement (the company code of conduct which includes requirements for suppliers in relation to respect for freedom of association), on three separate occasions, we requested that factory management review the dismissals. The SEA Team provided detailed guidance on fair dismissal practices and engaged in lengthy debate with the factory management about the management of this particular case. On each occasion we rejected the internal review as inadequate. On the third review, the factory conceded that they would reinstate 2 workers, out of the 33 who had been dismissed.

Rather than directly intervene in the dismissal procedure for the remaining workers, we waited for the factory, the workers, and their union to enter into mediation, and for the case to be adjudicated by the Manpower Department. At the time, the International NGO’s monitoring this case expressed concern that the Indonesian Manpower Department is unreliable and subject to corruption. As a basic business philosophy, adidas strongly believes that due legal process should be followed and supported, in all the locations where we have operations. In this particular case, this was particularly true, given that the grounds for dismissal centered on the interpretation and application of the factory’s collective bargaining agreement, and the definition of what constitutes a strike under Indonesian law.

Regardless, to our surprise, the Manpower Department supported the grounds for dismissal of 30 of 33 workers. Perbupas has indicated that it will appeal the decision. However, the union has yet to lodge its appeal, and has a 3 month period only in which to do so, following the P4P (the Manpower appeals body) decision, made public earlier this year. Nonetheless, Perbupas, also approached the National Commission of the Ombudsmen (Komisi Ombudsman Nasional) and the Indonesian Human Rights Commission (Komnas HAM) to review the Manpower decision. In late February, adidas wrote to both independent bodies to offer its full support. Since then, adidas has held several discussions with the Human Rights Commission. We also sought an assurance from the factory that management would continue to pay the wages of the dismissed workers, pending the ultimate resolution of their case.

Despite its vast caseload, the Indonesian Human Rights Commission has conducted an in-depth investigation into the current case, which has necessitated a complete review of the industrial relations in the factory. We understand, based on preliminary assessment and feedback, that the Commission finds no grounds for the dismissals (based on international and local laws), and will recommend the reinstatement of all 33 workers. We are waiting on formal notification from the Commission, at which point we will be able to re-enter formal discussions with the factory management about its intended course of action.

PT Panarub is an important and valued supplier. Nonetheless, the standards and expectations of the adidas Group, its shareholders and other key stakeholders and, most importantly, the rights and welfare of the workers who make our product, are paramount. adidas Group will provide an update on this case as soon as it becomes available.