Why do trade union/s oppose Act No. 13 of 2022 concerning the Second Amendment of the Establishment of Legislation Act No. 12 of 2011?

The President of the Republic of Indonesia has officially signed Act No. 13 of 2022 concerning the Second Amendment to Act No. 12 of 2011 concerning the Establishment of Legislations. The Act, signed on Thursday, June 16, 2022, regulates the formation of rules through the universal method or omnibus. This revision was published in response to the Decision of the Constitutional Court (MK) No. 91/PUU-XVIII/2020, which annulled the Job Creation Act due to formality as the omnibus law method was not regulated in the Indonesia Establishment of Regulations system.

Amendments are made by adding a new article and article paragraph, namely Article 42A and paragraph 1 points a and b of Article 64.

Article 42A of the Act No. 13 of 2022 states:

“The use of the omnibus method in the preparation of a Draft Legislation must be specified in the planning document.”

Further, Article 64, paragraph 1 a and b explains:

“(1a) The preparation of the Draft Legislation, as referred to in paragraph (1), may use the omnibus method.

(1b) The omnibus method, as referred to in paragraph (1a), is a method of preparing laws and regulations by:

a. load new cargo material;

b. changing the content material that has relevance and/or legal requirements regulated in various laws and regulations of the same type and hierarchy; and/or

c. revoking laws and regulations of the same type and hierarchy by combining them into one legislation to achieve specific goals.”

Aside from deciding that the establishment of Act No. 11 of 2020 concerning Job Creation does not meet the formal requirements of the establishment of laws, the Constitutional Court, in the Decision No. 91/PUU-XVIII/2020 Paragraph 5, orders the legislators to improve (of Act No. 11 of 2020) within a maximum period of 2 (two) years since the Decision is pronounced (November 25, 2021), and if within that time limit no corrections are made, as consequence Act No. 11 of 2020 concerning Job Creation ..becomes permanently unconstitutional.

Legislators (House of Representatives and Government) interpreted the Constitutional Court’s Decision as an order to revise the formal requirements for the formation of laws and regulations instead of amending the materiality of Law no. 11 of 2020 or revoking Law no. 11 of 2020, in particular the Employment Chapter. 

Meanwhile, trade unions construe the Constitutional Decision as not merely covering a formality defect but also a materiality defect (thus, the Court orders a time-bound revision). Trade unions view the amendment effort as a formality justification for the omnibus law (method) to be regulated in the Indonesian legislative system. The main objective of the revision is that the contents of the Job Creation Act would remain effective without material content amended as per the Court order. Thus, trade union/s claimed that they would submit a formal and material judicial review of Act No. 13 of 2022 concerning the Second Amendment to Law Number 12 of 2011 concerning the Establishment of Legislations to the Constitutional Court. 

What needs to be considered is whether the amendment contains the principle of non-retroactive. The right not to be prosecuted based on retroactive law is a human right that cannot be reduced under any circumstances, as stipulated in Article 28I paragraph (1) of the 1945 Constitution (“UUD 1945”). This principle is known as the non-retroactive principle, which prohibits the retroactive application of laws.

Number 155 of the Annex to Act No. 12 of 2011 states that the entry into force of laws and regulations cannot be determined earlier than the time when they are promulgated.

If there is a strong rationale for enacting laws and regulations earlier than when they were promulgated (retroactive), the following should be noted (number 156 of the Annex to Act No. 12 of 2011):

a. new provisions relating to criminal matters, whether their type, weight, nature, or classification, shall not be applied retroactively;
b. details regarding the effect of the retroactive provisions on legal actions, legal relations, and inevitable legal consequences that already exist are contained in the transitional provisions;
c. the beginning of the entry into force of the Laws and Regulations is determined not earlier than when the draft Laws and Regulations become known to the public, for example, when the draft Laws and Regulations are listed in Prolegnas, Prolegda, and other draft Laws and Regulations.

Perhaps non-recroactive principle would be one the subject matters that the Constitutional Court would consider further when conducting a judicial review of trade union submission in question. Until the Constitutional Court makes its Decision, there is a lot of uncertainty regarding employment law reform and its implementation. What is almost certain is that the Job Creation Act saga continues.

2022 Provincial and District/City Minimum Wage of All Provinces and Special Regions in Jawa

All Governors in Jawa, Indonesia have set the provincial minimum wage (UMP) and district/city minimum wage (UMK) in 2022. DKI Jakarta is still the province with the highest UMP, which amount to IDR 4,452,724, in Indonesia and Java. This figure is up 0.85% from the 2021 UMP. Central Java has the lowest UMP in Jawa, amount to IDR 1,812, 935 or up 0.78% from the 2021 UMP. Of the 2022 district/city minimum wage (UMK), District of Bekasi in Jawa Barat Provice has the higest UMK amount to IDR 4,816, 921,17. Whilst, District of Banjarnegara in Jawa Tengah Province has the lowest UMK amount to IDR 1,819,835,17.

There are 4 provinces and 2 special regions in the Island of Jawa, namely DKI Jakarta, DI Yogyakarta, Banten, Jawa Barat, Jawa Tengah, and Jawa Timur.

UMP and UMK in Indonesia are monthly based and applies for workers having less than one year period of employment.

On 16 December 2021. the Governor of DKI Jakarta issued Keputusan Gubernur DKI Jakarta Nomor 1517 Tahun 2021 , amending the previous set Rp. 4.453.935,536 per month of 2022 provincial minimum wage to Rp. 4641854 per month. The new minimum wage is effective starting from 1 January 2022.

On 31 December 2021, the Governor of Jawa Barat issued Keputusan Gubernur Jawa Barat NOMOR 561/Kep.874-Kesra/2021 that sets wages increament percentage for workers having 1 or more year of employment period.

The Constitutional Court Decision the Job Creation Act No. 11 of 2020 Judicial Review- Could it Create a Precendent of Conditionality in Future Judicial Review Decisions?

On November 25, 2021, the Constitutional Court decided the case before the Court concerning the Job Creation Act No. 11 of 2021, in particular of the Employment cluster. This decision was pronounced at 13.17 WIB, by nine Constitutional Justices namely Anwar Usman as Chairman and Member, Aswanto, Wahiduddin Adams, Suhartoyo, Enny Nurbaningsih, Saldi Isra, Arief Hidayat, Manahan M.P. Sitompul, and Daniel Yusmic P. Foekh, respectively as Members. The Constitutional Court’s decision was taken based on the concuring opinions of five judges with four dissenting opinions from Constitutional Justice Arief Hidayat, Constitutional Justice Anwar Usman, Constitutional Justice Manahan M.P. Sitompul, and Constitutional Justice Daniel Yusmic P. Foekh.

In the Principal Application, the Constitutional Court decided:

  1. To declare that the applications of Petitioner I and Petitioner II cannot be accepted;
  2. Granting the application of Petitioner III, Petitioner IV, Petitioner V, and Petitioner VI in part;
  3. To declare that the establishment of Act No. 11 of 2020 concerning Job Creation (State Gazette of the Republic of Indonesia of 2020 Number 245, Supplement to the State Gazette of the Republic of Indonesia Number 6573) is contrary to the 1945 Constitution of the Republic of Indonesia and has no legally binding force. Conditional as long as it is not interpreted as “no correction is made within 2 (two) years since this decision is pronounced”;
  4. To declare that Act No. 11 of 2020 concerning Job Creation (State Gazette of the Republic of Indonesia of 2020 Number 245, Supplement to the State Gazette of the Republic of Indonesia Number 6573) is still valid until corrections are made to the establishment per the grace period as determined in this decision;
  5. Order the legislators to make improvements within a maximum period of 2 (two) years since this decision is pronounced, and if within that time limit no corrections are made, then Act No. 11 of 2020 concerning Job Creation (State Gazette of the Republic of Indonesia Year 2020 Number 245, Supplement to the State Gazette of the Republic of Indonesia Number 6573) becomes permanently unconstitutional;
  6. To state that if within 2 (two) years the legislators cannot complete the revision of Act No. 11 of 2020 concerning Job Creation (State Gazette of the Republic of Indonesia of 2020 Number 245, Supplement to the State Gazette of the Republic of Indonesia Number 6573) then the Act – Laws or articles or material content of regulations that have been revoked or amended by Act No. 11 of 2020 concerning Job Creation (State Gazette of the Republic of Indonesia of 2020 Number 245, Supplement to the State Gazette of the Republic of Indonesia Number 6573) are declared to be re-applicable;
  7. Declare to suspend all strategic and broad-impact actions/policies, and it is also not permissible to issue new implementing regulations relating to Act No. 11 of 2020 concerning Job Creation (State Gazette of the Republic of Indonesia of 2020 Number 245, Supplement to the State Gazette Republic of Indonesia Number 6573);
  8. Ordering this decision to be published in the State Gazette of the Republic of Indonesia as appropriate;
  9. Reject the petition of the Petitioners for other than and the rest.

In short, the Constitutional Court ordered that Act No. 11 of 2020 remains in effect until improvements are made to the formation in accordance with the grace period as determined in this decision (maximum 2 years from the date of the Decision). The Constitutional Court also ordered the prohibition of issuing new implementing regulations or derivative regulations of Act No. 11 of 2020.

The Decision in question was eagerly awaited by numerous labor civil societies, trade unions, and scholars that asserted procedural and material injustice at the beginning of the formation of the Job Creation Act. The Decision, however, is widely critized as it puts a conditional order for a product of law of which the Court found contrary to the 1945 Constitution of the Republic of Indonesia and as such has no legally binding force. Further, administratively, for the Employment cluster, Act No. 13 of 2003 concerning Employement is still in effect – The Employment Cluster of Act No. 11 of 2020 only amend or omit some Articles of Act No. 13 of 2003. Judicisouly, the Court should not consider the time and efforts necessitate the Legislative Body (i.e the Goverment) to revise the Act No. 11 of 2020 in their Decision.

In criminal and contract laws, conditionality is not uncommon. Indonesia’s Criminal Code, for instance, recognizes conditional punishments, a system where judges impose criminal sentences that depend on specific situations or conditions. The conditionality principle is also not uncommon in judicial review decisions. However, the application of conditionality is typically used to narrow the construction of material decisions. In this recent Decision, however, conditionality is places on the applicability of Law in its entirety, although the Court found it non-binding.

The Constitutional Court reiterates enforcement of Law that the Court declared defective because it was asserted to be contrary to the 1945 Constitution of the Republic of Indonesia and thus unenforceable, merely on time-bound conditions. The Decision likely creates a precedent of operation of defective laws and regulations under the pretense of procedural challenges instead of the constitutionality of material laws. It also creates a legal pause or grace period where enforcement of unenforceable laws is acceptable in the eye of the Court with conditions that the Court sees fit. The principles of the material laws in this Decision appeared to take the second place.

Whether or not the recent Decision creates a precendent, the answer would be debatable in the realm of civil law system that does not recognize case law principle of precedent. The dissenting opinion of Judge Arief Hidayat and Judge Anwar Usman may provide a glimpse on what could happen in the future of judicial review in Indonesia:

Law does not only undergo evolutionary changes but, in its development, requires revolutionary changes, jumping from one method to another method that is more capable of adapting to the needs of society; such legal changes are often referred to as paradigmatic legal changes (paradigm-shift). The evolution eliminates changes in a logical and coherent order because it suddenly takes a new starting point and point of view that is different from what was previously used. Such a change is called rule-breaking, or it can also be known as a leap from the adoption of normal law to unusual law, which then returns to normal law with a new paradigm….

When a Minimum is not the Minimum: Wage Regulatory Exemption for Indonesian MSMEs

The International Labor Organization defines minimum wage as the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract. In contrast, in the recent contentious labor law reform, the Government of Indonesia allows micro and small businesses (MSMEs) to pay workers below the provincial minimum wage (UMP) and the city/district minimum wage (UMK) per the Government Regulation (PP) Number 36 of 2021 concerning Wages, a derivative of Law (UU) Number 11 concerning Job Creation. The regulatory relief may support market flexibility as well as increase MSMEs’ business opportunities. However, whether or not the regulatory exemption follows the principle of minimum wage remains to be seen. The ramification of the respective relief on decent work is also still unclear.

Per the Government Regulation No. 36 of 2021 concerning Wages, a derivative of Law (UU) Number 11 concerning Job Creation, the minimum wage provisions in Article 23 to Article 35 are exempted for micro and small businesses. However, the exception to the application of MSMEs for micro and small enterprises is enforced with several provisions. Wages in the MSMEs are determined based on an agreement between the employer and worker under two conditions: at least 50 percent of the average public consumption at the provincial level, and the agreed wage value is at least 25 percent above the provincial poverty line. In addition, Article 36 paragraph (3) of the Government Regulation No. 36 of 2021 stipulates that the average public consumption and the poverty line as referred to in paragraph (2) letters a and b shall use data sourced from authorized institutions in the field of statistics.

Micro and small enterprises exempt from the minimum wage requirement shall rely on traditional resources and not on high-tech and capital-intensive enterprises. Per Law Number 20 of 2008 concerning Micro, Small, and Medium Enterprises, micro-enterprises are businesses with a maximum net worth of Rp 50 million, excluding buildings and land for business premises with an annual turnover of a maximum of Rp 300 million per year. Meanwhile, a small business is a business that has a net worth of IDR 50 million with a maximum of IDR 500 million. The results of business sales are between Rp. 300 million to Rp. 2.5 billion per year.

The rationale behind the affirmative regulatory action to exempt a minimum to some economic groups may bring about more questions than answers. Nonetheless, the decision likely stems from a macro-financial perspective as well as the founding principle and political will that built the minimum wage setting in the first place.

Similarly, with other statutory matters regulated by the National Labor Laws, the minimum wage point of view is somewhat distorted by the manufacturing-based economy frame of reference. As such, the existing minimum wage setting relies heavily on the economic stability of labor and technology-intensive production processes, which does not always ring true in the MSMEs environment. Indonesia’s agriculture sector, for instance, is populated by approximately 70% smallholders. The industry itself depends on its continuity on how nature works. In other words, at some point, processes in a farm could not be persistently predicted due to natural distruption. This affects the ability of smallholders (MSMEs) to pay their workers at the same rate as thriving manufacture.

Varying from the eco-centric perspective above, the human-centered approach to minimum wage asserts that basic human necessities would not be contracted too far between each indicator of decent work despite the economic activity typology. A worker still needs to eat at almost the same level of quality, for instance. Paying workers working in the MSMEs lower than the minimum wage, albeit higher than the poverty line, means sacrificing the quality of food they consume to get by, which could compromise their productivity and health over time.

The question remains. How should the Government approach such a delicate matter? To find the sweet spot of balance interests is arduously challenging. Even if the balance reached, it would not be risk-free. Nonetheless, the principle is clear, affirmative action such as regulatory relief should not relinquish basic human necessity or put it in the back burner. A reform in the minimum wage setting in Indonesia should also consider a human-center approach to building the nation as a whole. After all, to put it in a very simple terms, humans build the economy instead of the other way around.

Private Social Compliance Initiative: What’s in the Name?

For more than two decades, private social compliance initiatives have been a significant part of global business. In the current years, the implementation of social compliance system is very much embedded in the soucing practices of labor-intensive consumer goods companies such as apparel and footwear. As such, it has become the norm of the industries.

The concept of social compliance stemmed from the Corporate Social Responsibility idea that has evolved since the Industrial Revolution in the 19th century, which amongst others, highlighting poor working conditions and unfair treatment at the workplace. At the earlier stage of CSR development, the State had not yet regulated or established a comprehensive and detailed regulatory strategy on labor and working conditions. Thus, in the earlier era, corporations and industries were likely the primary directors, if not at the very least the primary player, of labor and social progress.

With the continuous expansion of the State’s interference on labor compliance, cross-cutting between statutory and private approaches on the subject matter is inevitable. Due to global corporations’ financial power and economic influence throughout the supply chain, their initiatives’ efficacy is perceived higher than State policy. Nevertheless, State statutory instruments encompass the principle of rule of law, as well as justice and fairness. As such, in -depth discussions and perhaps research are still needed to determine whether or not private social compliance initiatives compete or complement the existing State labor policy.

A. Development of Corporate Social Responsibility Concept

The origin of the concept of Corporate Social Responsibility (CSR) can be traced back to the industrial revolution in the late 19th century, the time when the proliferation of business and manufacturing was conspicuous. The emergence of various business sectors raises concerns and criticisms about working conditions, especially of women workers and children. At that time, reformers in Britain and America perceived processing processes or manufacturing as the primary source of various social problems, including labor unrest, poverty, child labor, as well as unfair treatment of women in the workplace. Business and industry at that time were not familiar with social concepts. In the industrial revolution, even today, employers sometimes find it difficult to determine what is the reason and objective of establishing business, that is, to make workers more productive or of social reasoning such as to meet the needs of workers, make their lives better and increase the number of individuals who can contribute in society (Carroll, 2008).

According to Daniel A. Wren, CSR during the industrial revolution was an unbalanced mixture of humanitarianism, philanthropy, and business intelligence (Carroll, 2008). Wren also argues that since philanthropic concepts were known earlier than the CSR concept, it is hard to tell whether the philanthropic activities committed by famous entrepreneurs of the time were personal philanthropy or business philanthropy. Nevertheless, entrepreneurs’ financial or charitable contributions with social objectives such as giving charity to an orphanage can essentially be considered as socially responsible activities.

Since the industrial revolution up to the 1950s, the concept of CSR varies according to organizational needs. It focuses more on actions and activities that benefit the company or shareholders with minimal consideration of the interests of (external and internal) stakeholders. In this period, the existing two concepts of CSR are known as profit-maximizing management. CSR action is a way that companies maximize profits by concentrating donations or financial aid on specific communities or charities that support the company’s business progress. The second concept, named trustee management, emerged in the 1920s to 1930s. In this concept, the company is responsible for maximizing shareholder wealth and creating and maintaining a fair balance for other stakeholders such as customers, workers, and the community.

The idea of business philanthropy from the industrial revolution period until the late 1940s spearheaded the development of modern CSR. According to H.R. Bowen in his book Social Responsibilities of the Businessman published in 1953, which later became the label of the CSR concept in the 1950s, CSR is the obligation of employers to pursue policies, to make decisions, or follow the desired line of action in the sense of as (end) goal and (obey) the values of society. The definition of this concept is also explained by K. Davis and William C. Frederick, who define CSR as a business contribution to the community (UN ESCAP, 2012). When carrying out its operations to achieve the economic objectives of corporate profits, a company has an obligation or responsibility to pay back to the community. In other words, within the economic goal, there are social goals that fulfilment becomes the company’s responsibility as part of the community. William C. Frederik summarized the development of CSR in the 1950s into three core ideas: corporate managers as a public trust through shareholding systems, balanced claims from stakeholders for corporate resources, and the acceptance of business philanthropy within CSR (UN ESCAP, 2012).

The development of CSR in the 1960s and 1970s is distinguished by the rapid growth of the labor advocacy movement, consumer protection, and environmental conservation. During this period, labor issues transitioned from special interest status to the object of formal government regulation (Carroll, 2008). The concept of CSR became more comprehensive by incorporating ideas on corporate responsibility, stakeholder interests, social issues in business conduct, and legal rules and ethical values. In 1979, Archie B. Carroll proposed a three-dimensional conceptual CSR model consisting of corporate responsibility, social business issues, and corporate action. Furthermore, corporate responsibility is manifested into four types of economics, law, ethics, and philanthropic, where the order of the four types of responsibility indicates the relative importance of each type (Carroll, 2008). Meanwhile, according to H. L. Johnson, instead of only striving for greater returns to shareholders, corporations are also responsible for calculating the interests of their employees, suppliers, dealers, local communities, and the nation as a whole (UN ESCAP, 2012).

The development of CSR in the 1980s and 1990s adopted the previous concept related to the principles and practical processes in social performance, which is in line with industry demands and challenges faced by stakeholders. For example, S.L Wartick and P.L. Cochran adopted the three-dimensional concept of CSR proposed by Archie B. Carroll in 1979 with a focus point on the process by taking more action to address various social problems and simultaneously responding to changes in the community’s challenges (UN ESCAP, 2012). D.J. Wood then continued the three-dimensional concept of CSR in 1991 with an emphasis on the results or performance of CSR initiatives. Wood introduced the concept of four types of corporate responsibility: economics, law, ethics, and philanthropy related to the three institutional levels of legal, organizational and individual, while at the same time extended corporate actions for assessment, shareholder management, and implementation management (UN ESCAP, 2012). This CSR concept is known as the institutional framework and extended corporate activities.

CSR idea development in the 2000s was dominated not by a new idea but by the empirical research linking CSR to other relevant variables and implementing CSR initiatives (Carroll, 2008). In 2003, M. S. and A.B. Carroll introduced the concept of three domain approaches: economics, law, and ethics (UN ESCAP, 2012). This concept is a subtraction of Carroll’s earlier vision of introducing four domains of approaches: economics, law, ethics, and philanthropy. In this period, the definition of CSR is simplified, but the processes and implementation of CSR initiatives are expanded. The European Commission (2011) defines CSR as a process to integrate social, environmental, ethical, human rights, and consumer concerns in business operations and core strategies through close collaboration with stakeholders.

B. Private Social Compliance Initiatives

Economic globalization has led to the shift of supply chains to less developed countries where lower prices and cheap labor are abundant. In the past 30 years, the garment industry, for example, significantly expanded its production and distribution to less developed countries such as China, Bangladesh, and Turkey (Turker and Altuntas, 2014). This has its own risks associated with weak regulation and labor inspection in the supply countries, primarily of issues such as working conditions and human rights violations.

The Social Compliance Initiative of the global garment supply chain was fueled by the emergence of media campaigns and the demands of non-governmental organizations, trade unions, and customers towards unethical sourcing practices in the supply chains. External stakeholders argued that numerous successful global apparel and fashion corporations had exploited workers by hiding behind the absence of national regulations and weak State control over labor compliance. They also argued that multinational corporations are responsible for ensuring that workers who make their products are protected and that their fundamental rights are recognized even if they were other companies within a specific corporation’s supply chains.

In essence, private social compliance initiatives aim to encourage ethical sourcing, transparency, and compliance across the supply chain (Mayer and Pickles, 2010). Efforts outside these state institutions are voluntary to extend corporate responsibility to the global supply chain. Due to pressure from stakeholders significantly affecting the company’s image that impacts customer confidence and sales volume (O’Rourke, 2003), international garment companies establish an integrated corporate responsibility system in their global sourcing practice and cover all production chains. Opponents of the system argued that numerous initiatives were established only to protect the corporation’s image and alleviate the pressure of the external stakeholders. However, the proponents asserted that the system encourages compliance to the state regulation and fosters a socially responsible market on which sometimes state regulation falls short.

At the beginning of the formation of the social compliance system, international apparel companies based their design on the concept of three-dimensional model principles, policies, and processes that evolved as the idea developed. A private social compliance system generally consists of assessment standards, audits/assessments, and remediation. In general, the assessment standard or better known as Code of Conduct (CoC), is a summary of the International Labor Organization’s international core labor standards comprising values of child labor protection, recognition of workers’ right to freedom of association, anti-discrimination, anti-forced labor, working time and rest periods, compensation and safe and healthy working conditions (Esbenshade, 2004). Environmental protection is also one of the main concerns of some international garment buyers and is covered by their CoCs. The CoCs also include a norm of respecting the National Labour and Environment Regulations.

CoC becomes the primary reference in conducting audits or assessments. Assessment can be done by an external party that is an independent audit company or internally by the corporation employees (Welford and Frost, 2006). Assessors and auditors use the triangulation method when conducting their work. The method includes document and records checks, interviews with workers and management, and production floor observation. The data obtained during the assessment process are then construed and synchronized with the CoC and concerned National Regulations to determine the compliance level of a specific supplier within the supply chain. The auditees use assessment reports to determine remedial measures. In comparison, their buyers use the reports to weigh their current and future orders, as well as their production strategies at the assessed suppliers or sourcing country.

The management of garment suppliers generally undertakes corrective action actions under the supervision of international buyers’ representatives. In other words, the plan and implementation of remedial measures are solely the employer’s responsibility, without the involvement of their stakeholders. In this improvement stage, the buyer establishes the time standard of corrective action, provides essential information about acceptable corrective action, and monitors and periodically measures the improvement results. Nike, for example, has teams in countries where the production of goods is conducted that monitors compliance levels and improves working conditions (Carroll, et al., 2013). In a certain period, audit or assessment will be conducted again to measure compliance levels and the latest working conditions improvement at the suppliers.

C. Private Initiatives vs. State Labor Regulatory Regime

The highly acclaimed impact of the business approach to working conditions improvement is a debatable topic. Some argue that private approaches ensure sufficient progress of regulatory compliance because the leading player is taking responsibility for its practices through a voluntary corporate social responsibility system. However, others argue that although positive results should be acknowledged, the liberal approach to regulated labor could not replace the State Regulatory measures because of the objective division. Also, as more and more drawbacks are noted in the private established system and its implementation over time, some argue that the impact on working conditions in the supply chains is insignificant.

Reliance on state regulations is undoubtedly superior compared to the voluntary Corporate Social Responsibility system because of interests and objective disparities. A private system’s objective is anchored by the corporation’s business interests and market perception of its products.  The decision to adopt a voluntary private compliance system is likely influenced by economic interests such as brand image, mitigation of business risks, increased competitiveness, or merely share value. In contrast, State regulatory instruments are established to create order in the society based on the argument that all citizens are equal in the eye of law. For instance, the State Regulations ensure a level playing field for all by protecting disadvantaged groups in society. Another example is that State Law regulates corporation conduct, assuring that pervasive corporation practices do not outplay citizens’ fundamental human rights.

The criticism on private approaches to regulates labor does not end on the objective divergent only. It also comes in full force on the system mechanism itself. Critics argue that reports on the impact of private compliance initiatives are negligible because compliance monitors only capture isolated issues of poor labor practice instead of endemic and structural problems. As a result, it limits the ability of the supply chains to comprehend deeper processes necessary to create a sustainable improvement strategy to achieve significant impact (Locke, 2007; Posthuma, 2010). Further, the system agency overlooks direct and indirect contributing factors when quantifying the level of improvement in the supply chains. In terms of conducting a comparative study on the level of compliance amongst their suppliers, international brands often disregard country effects, factory characteristics, and business relations between them and each particular supplier (Locke et al., 2007).

The opponents of private labor compliance monitoring also argue that global corporations should improve their private compliance monitoring methods. The long-standing practices have created monitoring fatigue, leading suppliers to cheat the system instead of improving working conditions and enhancing their compliance motives. Suppliers are overwhelmed with constant monitoring; thus, they take shortcuts and falsify records to be perceived as complying with the codes to maintain the business. They have to adhere to several standards and host frequent monitoring depending on the number of customers. At the same time, numerous private labor initiatives and measures have different focal points and methods that lead to uncertainty in the improvement priority (Kok et al., 2001). Moreover, monitoring is costly – this cost could be funneled to finance genuine improvement instead of merely hosting visits and passing audits. Apparel suppliers in Asia reported that the less expensive cost of one-day monitoring is at least US$ 300 per person day, and they host more than 50 visits per annum (Welford and Forst, 2006).

Numerous studies conducted by the proponents of the private sector compliance initiatives show that the private sector approaches may significantly improve working conditions in the supply chains. However, the system has its drawbacks. The methods adopted omits several direct and indirect contributing factors in the research and data analysis. Numerous audits are costly in terms of finance and resources. Also, it creates system circumvention and habitual cheating that damages genuine improvement.

Furthermore, corporations’ primary rationale behind establishing and implementing social and labor standards compliance likely focus on economic interests alone. Thus, it is questionable to push the idea that a voluntary private system could replace the concept of a robust State Labor Regulatory regime in totality.  Instead, private compliance initiatives may complement the State regulatory approaches to enhance State actions in improving working conditions.  Private compliance initiatives could also fill in the gaps, at situations when sourcing countries are either have no specific labor policy or the State compliance agency cannot improve supply chain compliance due to lack of capacity and resources