By Brian Dumaine

(FORTUNE Magazine) – Clearly, one hot issue this election year is the thousands of manufacturing jobs that U.S. employers are exporting overseas. Few Americans, however, stop to ask exactly how workers now holding down those jobs are treated in low-wage countries. While U.S.-owned factories in places like China, Indonesia, and Thailand are often well run, some independent contractors and suppliers there and in other countries provide working conditions that are dismal even by Third World standards. At least that's what Levi Strauss found. The company, which now makes about 50% of its jeans and shirts overseas, is investigating its 400 foreign contractors and so far has discovered that about 25% of them treat their workers badly. According to Levi, its contractor in Bangladesh was routinely using child labor, for example. Concerned with such abuses, Levi Strauss has adopted strict guidelines for its foreign contractors. Among them: Suppliers must now provide safe and healthy conditions that meet Levi's standards and must pay workers no less than prevailing local wages. Company inspectors will make surprise visits to ensure contractors toe the line. The Bangladesh outfit has stopped using children. Other rules imposed by the company seem more akin to turn-of-the-century standards in the U.S. For example, Levi limits foreign labor's workweek to 60 hours. But that's enlightened compared with a contractor on the island of Saipan, a U.S. territory near Guam, that allegedly refused to pay employees back wages, often worked them 11 hours a day, seven days a week, and paid below the local minimum wage. Levi terminated that contract. The exploitation issue raises some tough moral dilemmas for U.S. managers. Can a company priding itself on enlightened attitudes toward employees at home turn its head when some of its foreign contractors abuse their workers? Should U.S. companies justify paying near-starvation wages because that's what the market will bear? Beyond altruism, Levi Strauss VP Bob Dunn suggests a practical consideration: ''There's the matter of protecting our brand identity,'' he argues. ''Increasingly, consumers are sensitive to goods being made under conditions that are not consistent with U.S. values and fairness.''