Technology / Semiconductor (Not-Rated): US watch list risk for Malaysian electronic products

Technology / Semiconductor (Not-Rated): US watch list risk for Malaysian electronic products

• What's New?  In a news article last Friday, it was reported that Malaysian manufactured electronic products may face restriction in entering the United States should the country be placed on a watch list by the US authorities on 1 December 2014. The potential restriction stemmed from a report dated September 2014 by Verite, an agency funded by the US Labour Department, who claims that 28% of a sample of 501 workers in Malaysia’s electronics industry were caught in a situation of forced labour.

The issues highlighted were:

·         Recruitment fee charging and indebtedness compelled workers to work

·         Deceptive recruitment

·         Passport retention, constrained in freedom of movement

·         Poor living conditions, in housing provided by employers or third party employment agents

·         Foreign workers difficult to leave before the end of their work contracts

Verite’s report: http://www.verite.org/sites/default/files/images/VeriteForcedLaborMalaysianElectronics_2014_0.pdf

·         Our findings? We checked with 3 Penang-based technology/semiconductor companies, Inari Amertron (BUY; TP: MYR4.20), Globetronics Technology (Not-rated), ViTrox Corporation (Not-rated), and found that of the 3, Inari and Globetronics has a bigger foreign worker exposure.

Inari management claims that the survey might have been done on a minority group of worker and it was unreasonable for Verite to make the conclusion. They have engaged Ministry of International Trade and Industry (MITI) to seek the evidence and rebut the allegations published in Verite’s report.

Both Inari and Globetronics management claims that they have frequent audit checks by their clients and that they are compliant with international labour requirements and practices.

However, if Malaysia is placed on the watch list, we believe that there will be a probation period for electronic companies to comply. It is also unlikely for US companies which have outsourced to manufacturing processes or purchased electronic parts from Malaysia cut all ties immediately.

Electrical and Electronics (E&E) exports accounts for 33% of Malaysia’s total exports of MYR569.7b in 9M14.