The subcontractor accused of mistreating workers at an iPod factory in China dropped its libel suit against two reporters and the news organisation they work for in Shanghai.

Hong Fujin Precision Industry, the largest exporter of IT products in China, withdrew the libel suit on Sunday, according to a statement. The lawsuit sought damages of 1 renminbi from the two reporters and the China Business News, over a story on 15 June that alleged employees were worked so hard at the iPod factory that three women passed out on the production line.

The dismissal of the suit comes just days after press freedom group Reporters Without Borders asked the head of Apple to step in and mediate the disagreement. It also follows a report by the Xinhua News Agency that the Chinese government ordered Hong Fujin to allow its workers to set up a trade union that would be affiliated with the All-China Federation of Trade Unions (ACFTU).

"The two sides have apologised for any difficulties created by this matter and agreed to work hand in hand to build a harmonious society and promote the hard work and rights of workers," Hong Fujin and China Business News said in a joint statement posted on the Taiwan Stock Exchange. The statement was posted by Hong Fujin's Taiwanese parent company, Hon Hai Precision Industry. The companies operate under the trade name, Foxconn Technology Group.

Hong Fujin declined to comment further on the matter.

Reporters Without Borders said Apple worked behind the scenes to resolve issue. The computer maker could not immediately be reached for comment.

Hong Fujin had sought redress through the defamation lawsuit after a whirlwind of bad publicity over allegations that it treated workers poorly. The China Business News story was one of many to follow in the wake of an article by the Mail on Sunday alleging long hours, low pay and poor working conditions at the Longhua, China site, which produces iPods as well as other IT products.

Apple Computer investigated the claims, and found Hong Fujin in compliance with the majority of its requirements despite several violations of the company's supplier code of conduct, including unsatisfactory living and transportation conditions for workers. Hong Fujin is building new dormitories for workers and seeking ways to improve the way it busses employees from factories to dormitories.