http://online.wsj.com/public/article/SB117849173259593852-iksPXSVyWmuECE4t646qC0rO0P4_20070514.html?Mod=regionallinks

BEIJING -- China is putting the final touches on its most significant overhaul of workplace regulation in a decade, in an unusual process that has sparked debate on the trade-off between economic growth and worker protection.

China's proposed Labor Contract Law is tentatively scheduled for final passage in June -- a year and a half after it was presented to the nation's legislature -- by the standing committee of the National People's Congress.

Related stories:  Draft labor contract law tabled for third reading  New labor law aims to cap damages  Legislators set for third reading of draft labor law  Child labor must be rooted out: Experts  Draft law on labor contract submitted for second reading  How to deal with the future labor shortage?  China drafts law to boost unions and end abuseMigrant workers' rights stay firm  Jobless urbanites to hit 10m by 2010

The draft law was first presented in December 2005, and the standing committee met in April to discuss it and other pending bills. If passed in June, the measure is expected to take effect next year. The delay in passing a labor law has been because of a surprising development in China: The government solicited public comments on the draft, and it received nearly 200,000 of them.

The debate has been heated at times. Business groups that commented on the draft law became a lightning rod for criticism by international labor groups, which accused them of trying to water down much-needed protection for Chinese workers.

But the process shows how China's government is increasingly seeking to involve interest groups and the public at large in the formation of laws. The cautious steps toward greater transparency reflect both the state's desire to retain popular support of its rule and its need to tap a wider base of expertise to ensure laws are suited to the ever-more-complex economy and society.

The making of laws in China is still largely driven by the political elite. However, observers say the government has appeared genuinely responsive to concerns raised by the proposed labor law.

Alexander May, a labor lawyer with Shuang Cheng Attorneys-at-Law in Beijing, says that while the process generated heated debate among law professors, unions and companies, the relative openness was widely welcomed. "I absolutely think the comments had a large effect," he says.

China wants the new law to bring more order to the workplace. Many workers lack written contracts and often don't receive salaries on time. The government is also concerned that many workers are being unfairly trapped in short-term contracts, with little chance of advancement.

Business lobbies are worried that stricter contract requirements could raise costs and give them less flexibility to hire and fire. They are also concerned about the major role that China's officially sanctioned trade union, is playing in the legislative process.

Work on the new law began around 2004, at a time of growing official concern about worker unrest and widening income inequality. The labor ministry, aided by China's official trade-union body, drew up the first draft.

Months after the first draft was submitted, China's leaders decided to seek public comment on the draft -- a rare, if not unprecedented, step. A public-comment period of one month generated a huge reaction -- 191,849 responses. Most of the comments came from individual workers and Chinese trade groups, but there were some from foreign companies as well. Among the foreign voices was Serge Janssens de Varebeke, then-president of the European Union Chamber of Commerce in China. The "strict regulations" could raise production costs and "force foreign companies to reconsider new investments or continuing their activities in China," he warned in a letter to the National People's Congress last year.

Global Labor Strategies, an activist group based in the US, accused business groups, including the American Chamber of Commerce in China, of trying to "gut" the legislation.

April 26, the United Steelworkers, a US union, began a campaign urging some members of the American Chamber of Commerce in China to distance themselves from what the union called attempts to undermine the proposed law. Officials of the chamber deny it has sought to water down labor overhauls. Along with other business and labor groups in China, the chamber only offered constructive comments and sought clarification on some points in the original draft, a spokesman said.

One point of contention regarding Chinese labor issues: While the law doesn't differentiate between foreign and domestic companies, foreign ones are often held to a higher standard in practice. Last month, for example, media in Guangdong in southern China accused McDonald's Corp. and Yum Brands Inc., which owns the KFC and Pizza Hut chains, of underpaying their workers, even though authorities cleared them of wrongdoing.

After months of deliberation on the original draft of the new labor law, lawmakers published a new version in late December, with substantial changes.

One of the most significant appears to weaken the role of Chinese trade unions. A provision in the original draft would have required employers to submit changes in workplace rules to unions or other employee representatives for approval. Business groups strongly objected.

In the revised draft, that language has been changed so that employers are required only to consult unions or other employee groups. The requirement remains ambiguous, and some employers worry that it still gives unions an unusual amount of power over personnel decisions.

The second draft also made numerous changes to language governing more-technical issues such as probation periods, noncompete agreements, layoffs and collective bargaining.

The American Chamber of Commerce in China says it is mostly satisfied with how the draft law was revised: The second draft addressed three-quarters of the issues it raised in original comments in April 2006. There are still worries the current draft could raise costs for employers by raising requirements for severance pay.

The EU Chamber of Commerce declined to comment.

"It's still a system of selective transparency," says James Zimmerman, a lawyer who is chairman of the American Chamber of Commerce in China. He says foreign companies never got a chance to comment on some other important recent regulations, including measures governing mergers and acquisitions.