Whoever invented the system of tipping (a voluntary gift given by the customer, graded on satisfaction provided) would have found it hard to imagine that it would freeze the entire range of labour-management relations in Nepal's hotel industry, and threaten the nation's economy.

The demand is not new, but it went into high gear when the two hotel unions affiliated with GEFONT (General Federation of Nepalese Trade Unions) and NTUC (Nepal Trade Union Congress) united in August 2000 to push for their one and only demand: the introduction of a ten percent service charge in tourist rated hotels and restaurants in Nepal. They were threatening the tourism industry at a time when it would hurt the most-the peak tourist season in the autumn of 2000. The managements, which never imagined matters would come to a head, was in for a rude shock. The first deadline was 19 November, 2000. Hotel owners and the government bought time by having the threatened strike postponed. A month later, on 11 December when the unions refused to back down, hotel managements took the unprecedented step of throwing out their own guests.

Again, the unions agreed to put off action for another two months allowing the Ligal Committee headed by the National Planning Commission vice-chairman Prithivi Raj Ligal to carry out the necessary study. But a distracted government and the distrustful attitude of the two sides meant no headway was made in negotiations until the new deadline for strike action, 15 March, loomed. The hotel owners sought to avoid the strike by going to the Appellate Court but the Court's verdict was against them. The consequence: the hotels closed, senior management waited on tables and cleaned rooms for one day until the government enforced the Essential Services Act (ESA) and effectively declared the strike illegal. The unions went back to work, vowing to challenge the government decision in court.

The government has classified four sectors of the economy to be most prone to labour disputes: garments, carpets, transport and hotels. While the carpet industry is gradually recovering from knocks by the international publicity over child workers in the early nineties, the garment industry is nervously waiting for 2005 when the multi-fibre agreement will lapse. It's best not to comment on the public transport sector, which is careening from one crisis to another to do with fares and emissions.

That leaves us with the hotel industry, the lifeblood of the economy, bringing in $70 million every year, and given the uniqueness of Nepal's tourism product, has the potential to do much better. Long before the service charge dispute hit the headlines, a large number of court cases were piling up at the Labour Court. In fact, the hotel industry is second only to textiles in the number of labour-related cases registered. There are several reasons for this: being a service industry, hotels are labour-intensive, the workforce is relatively more literate and has the greater bargaining power that comes from being unionised.

Labour disputes tend to erupt in sectors going through a crisis. In Nepal, we saw the telltale signs of a problem brewing when the number of hotels and hotel-beds after 1993 showed a sharp spurt in anticipation of a tourism boom that never materialised (see graph). As competition heated, undercutting led to a fall in revenue, trapping hotel owners in a vicious spiral. Worker frustration rose. The management in Nepal has never been able to see the "positive power" of unions, and fears their power to say "no". This has led to an adversarial relationship between management and unions not just in the hotel industry but in the country as a whole.

By passing the buck of the service charge issue to the government (which had already proved its inaction and inefficiency) the management has now transformed an enterprise-level problem into a national crisis. And the government, by imposing the ESA, has instigated the unions to file a case with the International Labour Organisation citing violation of Convention 98, which guarantees their rights to organise and bargain collectively. In 1996, Nepal signed Convention 98, one of the ILO's declaration on Fundamentals Principles of Rights at Work. It is not necessary for a country to ratify the convention- simply being a member of ILO it has a moral obligation. This is what the government has ignored while imposing the ESA.

If the issue is internationalised by the hotel unions by turning to the ILO, it could have far-reaching consequences for Nepal when the issue of our WTO membership comes up. There were enough provisions built within the Labour Act for government intervention in labour disputes-it need not have declare hotels essential services. So what can, or should, the government now do? Here are some pointers:

Persuade the unions not to lodge a complaint with the ILO

Get the prime minister (he must find the time) to directly intervene

Ask the parties to negotiate in good faith

If the management and unions cannot arrive at a consensus, ask the parties that they abide by the decision made by the PM- whatever it may be

One technical compromise would be to scrap the present two percent tourist service fee (TSF) and replace it by ten percent to be shared by government, hotel
management and the unions.

(Naryan Manandhar is the Executive Director of the Industrial Relations Forum, and was also a consultant for the Ligal Committee formed to study the service charge dispute)