The SEZ blues

July 22, 2018 01:30 AM Saurabh Shah


Policy gaps in employment and dispute resolution mechanisms in SEZ Act and Labor Act could lead to a difficult situation for workers in Nepal

Special Economic Zones (SEZs) in Nepal promote export-based industries for good reason. They allow Nepali industry to better access demand in the global supply chain which can generate more jobs and income. Participation can lead to gradual industrial advancement through technology transfer which then may improve jobs and income for workers. But whether all this will happen will depend on policy and efficiency with which it can capture and transfer participation benefits to workers. But this sounds like a slim prospect in Nepal given the employment-related exemptions provided to industries working in SEZs.

Wider evidence has shown that export-based industries in developing countries faced with fluctuating global demand prefer a wage competitive productive workforce that can be flexibly hired or fired based on need, resulting in practices such as piece rate payments where workers get paid based on number of pieces they produce. Wages per piece are often low which pushes workers to put in long hours for minimum wages. 

Contract based employment is another common feature that allows employers to swiftly remove workers in case of disputes or lower global demand, making work precarious. Governments allow such behavior in SEZs as they reason it is a short-term trade-off for long term economic benefits. Bangladesh, for example, did not allow workers to organize in SEZ based industries until the gross work rights violations found in Rana Plaza incident eventually led to a rethink. 

These factors disproportionately shift power to the employers, allowing them to capture benefits of global demand while passing on more risks to workers—a situation that, if neglected for long, could lead to a race to the bottom in worker wages and benefits.

Policy gaps 

Policy gaps in employment and dispute resolution mechanisms in SEZ Act (2017) and Labor Act (2017) could lead to a difficult situation for workers in Nepal’s SEZs. Industries located within the SEZ are given exemption from the Labor Act with SEZ Act taking precedence on employment provisions. The SEZ Act stipulates that employment in SEZ is “as per contract” or duty hours to benefits are determined by a contract between employer and employee, followed by a vague provision that “facilities and benefits must not be less than guaranteed by law.” 

As such the writing guarantees benefits, but leaves working hours open to contract and creates a potential backdoor for increasing work hours beyond 48 hours per week as stated by the Labor Act. Unscrupulous contracts stipulating exploitative working hours could easily exclude workers from access to overtime related pay.

Contractual employment is not permanent employment as contracts are term based. Workers can become reliant on employers to extend their contracts which reduce their bargaining power, which, in turn, may result in poorer pay and longer working hours. The carrot of contract extension or stick of cancellation could also be used as a tool to prevent workers from organizing, infringing upon their freedom of association. These issues are more pressing concerns given that implementation of minimum rights guaranteed by the Labor Act, especially with regard to permanent employment, has been difficult in Nepal.

The new Labor Act (2017) states that mandatory arbitration should be followed in SEZs for all collective disputes where an arbitration council provides final decision on disputes. This could be interpreted as a potential reaction to political history of industrial strikes in Nepal and failure of recent strikes in export-oriented industries to produce optimal outcomes. From an industrial relation perspective, it limits options for dispute resolution by removing strikes as an option for workers. This shifts more power to employers as workers are less eager to bring up issues if they know their options are limited. 

Given the need to participate in a highly competitive global market, it is easy to see how this power imbalance can lead to negative outcomes for workers. Yes, there is a provision for a tripartite grievance handling committee (SEZ, trade union and employers’ representatives) in the SEZ Act. This can be a platform for mediation on disputes. But without official experience in mediating disputes or authority to enforce decisions, its capacity to resolve disputes remains to be seen.

The author is a graduate from London School of Economics and Political Science with experience in business and development consulting

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