Last week, Wal-Mart reached an agreement with the All China Federation of Trade Unions (ACFTU) in two Chinese cities to provide its workers with an 8 % annual raise this year and next year. At first this sounds pretty good but if you look at the political and economic context in which this agreement was negotiated, it turns out that Wal-Mart's workers are getting a pretty raw deal.

To provide some background, I should first note that yes, Wal-Mart's Chinese employees are represented by a union. However, the ACFTU is quite different from unions in the United States and other democracies. Firstly, the ACFTU is the only official, state sponsored union federation in China and it is illegal to form independent unions. Activists who attempt to form independent unions suffer harsh repression and have repeatedly been jailed. Furthermore, the ACFTU does not engage in strikes or other traditional union tactics because according to the China Labor Bulletin, an NGO based in Hong Kong, strikes in China are effectively illegal. According to the International Herald Tribune the Chinese government has been pushing to expand the ACFTU and establish its presence in foreign-owned companies in recent years. Labor activists like Robin Munro, research director of the aforementioned China Labor Bulletin, believe that the push to expand the ACFTU is basically an effort by the government to gain firmer control of increasingly militant Chinese workers, who have staged numerous illegal strikes and protests. In an interview with the Tribune, Munro stated:

"They [the Chinese government] are afraid that public protests or strikes might get out of hand. Hence the big drive to impose unions and provide greater union coverage. I think this is seen as a way of crisis management."

The recent agreements reached by the state-controlled ACFTU and Wal-Mart are their first collective bargaining agreements, which provide workers in Shenyang and Quanzhou with 8% raises in 2008 and 2009. Unfortunately for the workers, China is currently experiencing severe inflation, much like we are in the United States. According to the China Labor Bulletin,

Inflation nationally [in China] has been consistently above eight percent this year, reaching 8.5 percent in April, with food prices in April increasing by 22.1 percent year on year

As such, the entire wage increase received by Wal-Mart employees will likely be eaten away by inflation and if current trends continue, they could actually end up worse off next year than they are now. Further, being relatively low wage employees, Wal-Mart workers in China will be especially hurt by rapid food inflation.

Moreover, Wal-Mart's collective bargaining agreement with the ACFTU only covers workers at its retail outlets and excludes workers in manufacturing, who make the vast majority of products sold at both Wal-Mart's in China and in the United States. Working conditions at many of Wal-Mart's Chinese suppliers are particularly atrocious and they have made no legitimate effort to improve them.

Wal-Mart apparently does not see the contradiction between its business model which relies so heavily on Chinese labor and its utter disregard for the dignity of the Chinese people. Wal-Mart, the World's largest retailer and the largest importer of Chinese goods in the United States, can and must do better.