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Chinese firm promoted its low-wage, low-tax liability to investors shortly before Mitt Romney made investment

WASHINGTON – Less than two weeks before an investment firm controlled by Mitt Romney decided to invest in a China-based home appliance company, the company put out a detailed document to investors promoting itself as a low-wage, low-tax firm that would not be subject to taxes in the United States.

It used “inexpensive labor,” Global-Tech Appliances wrote in a prospectus meant to attract investors on April 8, 1998. Its location in China meant “an overall effective tax rate that may be less than that of US corporations.” It said its current operations would not be subject to “material US taxes because it should not be considered to have significant income effectively connected with a trade or business in the US.”

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The company also noted its working conditions: peak production periods required six-day work weeks, and two 10-hour shifts per day in the case of the metal stamping department. The main manufacturing facility, located in Dongguan, China, included 14 buildings that served as dormitories accommodating up to 3,700 workers.

Nine days after the document was released – on April 17, 1998 -- an affiliate of Bain Capital called Brookside Capital Partners Fund acquired about 6 percent of Global Tech, according to Securities and Exchange Commission documents that were first reported by Mother Jones magazine.

Romney was listed as the “sole shareholder, sole director, President and Chief Executive Officer of Brookside Inc. and thus is the controlling person of Brookside Inc.”

Romney’s decision to invest in Global Tech has become of greater interest in the wake of a controversial fundraising video that shook the political world last week when it was released in full by Mother Jones. The Globe reported on a shorter clip of the video – and on some of Romney’s investments in China – on Sept. 15, before the full video emerged.

In the video, Romney is seen at a fundraiser in May describing how, “When I was back in my private sector days, we went to China to buy a factory there.”

“It employed about 20,000 people,” he said. “And they were almost all young women between the ages of about 18 and 22 or 23. They were saving for potentially becoming married, and they work at these huge factories.”

Romney said the women were packed into dormitories, 12 per room in bunk beds, and only earned a “pittance.” He said there was a large fence with barbed wire surrounding the factory – not to keep the women in, Romney said he was told, but to keep other eager workers away. During the Chinese New Year, the women went home and some didn’t return – not because they were afraid, Romney said, but because they had earned enough money. Long lines of hundreds of women would then wait outside the gates, hoping for work.

Romney’s campaign has refused to say whether or not it was Global Tech that Romney was referring to, and would not comment on the record for this story. Top campaign adviser Ed Gillespie last week referred questions about the factory to Bain. Alex Stanton, a Bain spokesman, didn’t have any comment on Tuesday and said he couldn’t shed light on what Romney’s activities in China involved.

Several news organizations – including ABC News and CNN – last week cited anonymous sources saying that Bain did not buy the Chinese factory that Romney refers to in the fundraising video. Romney in the video says he and a Bain partner “went to China to buy a factory there,” although what Bain ended up doing was investing in a Chinese company that runs factories -- rather than actually buying the factories themselves.

Around the same time that Bain was investing in Global Tech, it also purchased nearly 6 percent of the total shares in a competing company called the Holmes Products Corp., a Milford, Mass.-based company that operated its own factories in China, according to SEC documents filed March 13, 1998.

Global Tech has been controversial for some of its business practices. In a legal case that began in 1998 a French appliance manufacturer called SEB successfully sued the company in the United States for copying its patented deep-fat fryers. The case was ultimately decided by the Supreme Court.

Global Tech was also tied with a Florida company called Sunbeam, through a four-year agreement that required Sunbeam use Global Tech as its sole supplier for certain products. Sunbeam was run by Albert J. Dunlap, who was so controversial for outsourcing American jobs that his nickname was “Chainsaw Al.” Sunbeam announced at least 6,400 layoffs in 1998, putting it among the top 10 in the country.

Bain ended up selling its investment in Global Tech in August 2000. Romney took a leave of absence from Bain in February 1999, to run the Olympics.

Romney also described touring Chinese factories during a panel discussion held Feb. 11, 1998, at the Federal Reserve Bank in Boston. During that discussion -- which also featured Andrew Cuomo, who was then-secretary of Housing and Urban Development and is now governor of New York -- Romney didn’t discuss the images of the factories he toured.

Instead, he said that he had been struck by the hard-working Chinese and how the children in the United States “are not educated to compete in a worldwide marketplace.”

“I just came back from a trip to China, and I went to a factory of 5,000 workers making bread makers and mixers and so forth,” he said. “And 5,000 Chinese, all graduated from high school, 18 to 24 years old, were working, working, working, as hard as they could, at rates of roughly 50 cents an hour. They cared about their jobs; they wouldn’t even look up as we walked by.”

“We’re competing globally, and our kids aren’t ready, and we’re turning kids out who haven’t even got high school educations,” Romney added. “What are they going to do? How are we going to employ these people? We have massive concerns as we look at the future of the work force for our citizenry. And cities - our whole country -have to wake up, and wake up quickly and aggressively.”

While Romney discusses 20,000 workers in the May fundraising video, his citing of 5,000 workers in the Boston forum could mean that he was talking about two different Chinese factories. Global Tech employed about 5,700 during peak periods in 1998, according to its prospectus.

Matt Viser can be reached at maviser@globe.com.
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