The Fair Labor Association said on Tuesday local labor laws require the companies -- which have come under fire over conditions at the plants -- to reduce hours by almost a third by 2013 for the hundreds of thousands working in Foxconn plants across Southern China.

Foxconn said on Wednesday it would continue to cut overtime to less than 9 hours a week from the current 20, even though that could raise labor costs while also making it difficult to attract workers who often seek jobs with overtime so they can maximize their pay.

"It is a challenge. When we reduce overtime it means we need to hire more people and implement more automation, more investment on robotic engineering. More workers also mean more dormitories and recreational facilities; it takes time," said Louis Woo, special assistant to the CEO of Foxconn.

"But I expect more loyalty from workers as a result, and then we can save more costs on recruitment and retainment," he told Reuters in an interview on Wednesday.

"Yield rates will also improve. Efficiency in terms of productivity, yield gain, retention and lower turnover rates should be able to improve next year."

Earlier this year, the FLA -- of which Apple is a member -- found multiple violations of labor law, including extreme hours, after launching one of the largest investigations ever conducted of an American company's operations outside the United States.

Apple, the world's most valuable company, and Foxconn -- the trading name of Taiwan's Hon Hai Precision Industry whose clients also include Dell Inc, Sony Corp and Hewlett-Packard Co -- agreed to slash overtime, improve safety, hire new workers and upgrade dormitories.

Woo said Foxconn not only wants to do "the right thing" for its one million employees, it also wants to serve as a model for other companies.

In a report tracking the progress of those commitments, the FLA said it had verified that agreed-upon changes had been instituted and that Apple was trying to hold its partner, the world's largest contract manufacturer, accountable.

Auret van Heerden, president and CEO of the FLA, said in an interview that Foxconn faces a challenge from workers' expectations.

"A lot of workers have clearly come to Shenzhen to make as much money as they can in as short a period as they can, and overtime hours are very important in that calculation," he said.

"We are picking up concerns now on the microblogs about what's likely to happen as hours gets changed, and whether their incomes will be shaved as well."

Many people would leave Foxconn if there is no overtime, according to a post by "Shenzhen MarS" on China's Twitter-like Weibo.com message system.

Foxconn's Woo said the company has been constantly communicating with workers and telling them about the importance of the quality of life and health.

"This is the thing we need to continue to communicate with workers, especially young migrant workers, that anyone who works more than a certain number of hours will feel tired and not well. If we can improve the work environment and benefits, they can enjoy their life better."

PROTESTS

Global protests against Apple swelled after reports spread in 2010 about a string of suicides at Foxconn plants, blamed on harsh working conditions and alienation felt by migrant laborers, often from impoverished provinces, in a bustling metropolis like Shenzhen, which is home to two of the three factories the FLA inspected.

Apple has tried to counter criticism that its products and profits are built on the backs of mistreated Chinese workers. The FLA's progress report comes a day after Apple's market value climbed past $623 billion, surpassing the record set by Microsoft Corp during the heyday of technology stocks in 1999.

Protesters in the past year have kept up a small but regular presence at Apple events from iPad launches to shareholder meetings, holding up placards urging the $620 billion corporation to make "ethical" devices.

The latest report card on Apple-Foxconn comes after first findings and a timeline for improvements were announced in March, though some industry observers said the original agreement was not entirely independent because of close ties between the FLA and corporate members.

Since that March audit, rights groups including China Labor Watch have conducted their own studies.

The group said in a statement on Wednesday that Foxconn workers were still unhappy and urged other Apple suppliers to be scrutinized as well.

"Workers have to complete the workload of 66 hours before within 60 hours now per week. As a result, the workers get lower wages but have to work much harder and they are not satisfied with the current situation," it said.

Apart from health and safety enhancements, Foxconn is offering up a few enhancements to employee morale. For instance, Van Heerden said it is increasingly giving workers a choice of accommodation, such as by providing an allowance for housing and food if the workers choose to live off-site.

Foreign companies have long grappled with working conditions in China, dubbed the world's factory because of its low wages and efficient coastal transport and shipping infrastructure. In the 1990s, investigations targeted shoe and apparel maker Nike Inc, which eventually agreed to institute changes.

The FLA's audit could have wider implications for foreign multinationals that enlist Chinese manufacturers. Foxconn alone is estimated to make half the world's consumer electronics.

Apple CEO Tim Cook, who took over from the late co-founder Steve Jobs last year, has shown a willingness to tackle the criticism head-on.

"We've been making steady progress in reducing excessive work hours throughout our supply chain. We track working hours weekly for over 700,000 workers and currently have 97 percent compliance with the 60-hour maximum workweek specified in our code of conduct," spokesman Steve Dowling said in a statement. (Additional reporting by Sabrina Mao in Beijing; Editing by Edwin Chan, Matthew Lewis and Ken Wills)

• A Permanent Economic Emergency