Recently, Guangdong Toy Association published an open letter that criticizes the corruption audit of International Council of Toy Industries (ICTI) to increase the cost of Chinese toy industries. China labor Watch (CLW) also criticized this issue in 2009, and our research shows that the audit cannot efficiently improve the condition of toy factories in China. Therefore, CLW suggests that people do not use the criterion of ICTI because it is invalid, at the same time, the audit will increase the financial burden of toy factories.
A report regarding the ICTI-ICP Audit which affects the development of China’s toy industry
June 20,2016 Guangdong Toy Association
In the past two years, companies have again expressed that the ICTI-ICP audit has made it difficult for them, with some auditors receiving bribes, adding to the burden of companies. As such, the Guangdong Toy Association has undergone a research, and has made the research and responses of companies into a written resource, distributing the report to the Ministry of Commerce, Ministry of Industry and Information Technology, General Administration of Quality Supervision, Inspection and Quarantine, and the Certification and Accreditation of the People’s Republic of China, in order to protect the interests of China’s toy industry and companies. The content of the report is below:
The International Council of Toy Industries (ICTI) has promoted the so-called “Business operations standard”, the “ICTI Care program” (referred to as the ICP audit below) in China. This has evolved into an organization which controls the country’s companies who export toy products, and who have also means to gain large sums of profits. Auditors privately gain profits day by day, with companies expressing their grievances, this in turn, harms the development of the toy industry. Below is a report on the situation and related issues:
1. The origin and status of ICP audits
ICTI began promoting ICP audits from 2004, with the intention for toy companies who export products, to gain ICTI certification. This means that they have gained approval from Disney, Walmart, Toys “R” Us and a group of international brands and retail multinational corporations in relation to their environmental responsibility and sustainability. This relieves the burden that the industry has in which respective foreign companies have repeated audits regarding their environmental responsibility and sustainability. This was originally a welcome move, as it is beneficial in decreasing the burden where companies are to possess various types of factory certifications. However, this has evolved, where toy manufacturing companies who would like to receive orders from retail multinational corporations such as Walmart or Toys “R” Us, must first pass the ICP Audit, leading to a situation where one “has the emperor in one’s power and orders the dukes about in his name”. This has allowed ICTI-ICP to have a firm grasp on whether the Chinese toy companies are able to receive foreign orders, which in turn, means they effectively hold the companies in a life or death situation. Every year, the ICTI receives around $1 million USD in earnings. In recent years ICTI-ICP assigned external auditors who hold companies accountable to “life or death”, have been receiving earnings privately, and this has been increasing.
2. Companies have reflected on issues in the ICP audit for some time
Regarding the chaos of ICP auditors, companies have expressed their grievances for quite some time. In 2011, the Hong Kong Toys Council which was led by the Toy Manufacturers’ Association of Hong Kong, the China Toy Association (now renamed China Toy and Juvenile Products Association), Guangdong Toy Association, Shenzhen Toy Industry Association, Dongguan Toy Association and other major toy production organizations participated in a dialogue with ICTI management, stating serious issues in the ICP audit. During the meeting, representatives from each side expressed their opinion regarding the issues on the ICP audit. The incumbent president, Li Zhuo Ming of Guandong Toy Association who was vice president at that time, reflected on issues in the industry. At the meeting, he sharply pointed out that ICP auditors are seriously damaging the interests of the industry in China, have violated human rights and mentioned 7 other widespread issue areas. This caused a shock for participants of the meeting and also the ICTI management, who at that time, promised to make changes according to the views of the organizations present. Since then, the situation has improved. However, ICP auditors in the audit process have deliberately magnified issues, become overly critical, and this has not improved, instead, is worsening.
3. ICP has evolved into a monopolistic tool, becoming a huge burden for the Chinese toy industry
The ICP operations department, ICTI Care (ICTI Foundation), claims that they are an independent, not-for-profit organization, with” the aim to safeguard and promote ethical and sustainable production standards in the supply chain of the global toys and recreation production industry”. But the reality is far from this, the 2014 Financial Report revealed that the foundation received $3 million USD of income, solely from audits. Companies not only have to pay a fee to the ICTI foundation. They must also pay auditors who have been assigned to audit the factory, a fee of $500 USD per day, per person during the auditing period as well as costs associated with “assessment and written examination”. Every year, the Chinese Toy industry pays costs amounting to $10 million USD, which seriously harms their interests.
4. Opportunities for ICP auditors to make gains is increasing
Other than the fees as outlined above, companies have to pay auditors high commissions. Some ICP assigned external auditors who can hold companies accountable to “life or death”, make the situation difficult for companies, by placing a huge burden and creating losses for them. It is difficult to calculate the cost which Chinese companies have had to pay. Last year in May, the president of the China Toy and Juvenile Products Association was elected as the ICTI chairman, for a term of 3 years. Domestic toy companies thought that the issues prevalent in the ICP audits would receive attention and be resolved. Unfortunately, this year, companies have expressed that cases where ICP auditors are receiving bribes is becoming more serious, and this is summed up below:
1. ICP auditors receiving individual envelopes of money has quietly become a trend. In some production sites, there is the unspoken rule that ICP auditors only have to enter the factory, and they will be handed an envelope with $1,500 USD, or else, it would be hard to pass the audit.
2. As the financial regulations for large manufacturers are rather strict, it is harder to have unspoken rules. As such, large manufacturers will usually not pass the ICP audit, whereas small scale manufacturers will not have any issues.
3. Company owners confessed: “Currently in Dongguan, ICTI-ICP audits have 3 prices. The yearly audit is $12,000 USD which is a fake certificate which you can use; if you pay $20,000 USD then you don’t receive a certificate but it is guaranteed that you can receive orders; if you pay $27,000 USD then you will receive the formal certificate”. Companies only have to go online and contact these inspection consulting companies, and you will often receive these promises. If you are willing to pay costs, then you will definitely pass the ICP audit.
In reality, ICTI themselves are well aware of the issues regarding the rise in cases where ICP auditors are dishonest and unfair. If we look at the data in the ICTI Care 2013 Company research report which was made public, 12% of companies believed that the audits lacked objectiveness and honesty.
5. Opinion and Recommendations
The Chinese Toy Industry is a big industry, and has nearly 10,000 manufacturing companies, employing 2 million workers. In 2014, there were 6000 companies who have export records, and in 2015, exported products amounted to $30 billion USD. It is a traditional industry which is export-oriented and closely related to people’s livelihoods. However, currently, the lifeline of the industry has been grasped by the ICTI and ICP audit, and has seriously harmed Chinese interests. We propose the following recommendations:
1. In light of ICP auditors rent-seeking behavior which has caused complaints from companies, we recommend relevant government officials and departments to urge ICTI-ICP to undergo changes for the issues, and supervise activities and operations within China. Any violation of rules, laws or policies, should be punished severely.
2. The ICTI Foundation claims that they are an external NGO, and profits is not a part of its objective. However, companies commonly state that the “Business operations standards” inspection project, receives high costs and is a monopolistic business. We recommend that relevant government departments assess whether fees are reasonable, and to review and approve fee standards.
3. The ICP audit is a monopolistic business, and as some foreign companies will continue to request for industry audits, we recommend that the Standardization Administration of the People’s Republic of China and other authorities develop a “Business operations standard” for the Chinese industry. This is to be applicable to foreign buyers and strictly enforced, to prevent damages which could be made on the development of the Chinese Toy Industry by the ICP Audit.
4. In the field of certification and accreditation, there is the “Regulations on the People’s Republic of China on Certification and Accreditation”. This specifies that organizations who are engaged in certification must receive supervision and approval from relevant departments in the country. However, the ICTI foundation cannot be found in either the Chinese or in the records of the international directory of approval and registration organizations. We advise relevant government departments to approve whether the activities of the organization are legal.
5. The ICTI Foundation head office is currently located in Hong Kong. However, the Chinese Toy Manufacturing industry has already launched ICP audits as part of its de facto management activities. We recommend relevant government departments to strictly examine the legality of ICTI in their certification activities in China.
Contact: Huangman Chen, Secretary General of Guangdong Toy Association
Phone: +86-020-66842011
Cell Phone: +86-13902271866
Address: 2/F, 1 Zheng Ping Street South, Taojin Road North, Guangzhou, China, 510095
(Translate by China Labor Watch)