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Logo of Phnom Penh Post newspaper Phnom Penh Post - Safeguarding the Cambodian dream

Safeguarding the Cambodian dream

The Cambodian garment industry - and the hundreds of thousands of people it

employs - faces a radically different business environment come January 1, 2005,

when the country's bilateral trade agreement with the U.S. expires. Can the

industry survive and prosper in the brave new quota-free world? Elena

Lesley weaves the various threads together.

From the time their

daughters are born, many rural Cambodians in the last decade have clung to one

dream.

"As soon as girls start walking, parents hope that someday they'll

grow up, move to Phnom Penh and work in a garment factory," said Sok Hach,

director of the Economic Institute of Cambodia. "Then they can send money back

to the family."

But the garment industry, which employs 280,000 (mostly

female) Cambodians and helps support at least one million, is due for a

shake-up. When the quota system governing international textile commerce and

Cambodia's bilateral trade agreement with the United States expire January 1,

the country will have to compete with big players in an open market.

The

good news is, the country's decent labor standards and capacity for labor

dispute resolution, as well as recent economic measures announced by China, may

work in Cambodia's favor, experts say.

The bad news: "These are all

short-term solutions," said Ken Loo, secretary general of the Garment

Manufacturers Association in Cambodia.

"If we don't make major progress

by June, we'll see a 30 percent drop in the industry, 60,000 jobless women, and

social unrest."

Longer-term prospects are even more

daunting.

Cambodia needs to work fast to bring down the price of

production before 2008, when mechanisms put in place by the World Trade

Organization can no longer restrain China's growth, said Rachel Louise Snyder,

who is writing a book on the international garment industry.

"Nothing

significant will happen in 2005," she said. "2008 is more of a concern because

that's as long as anyone can put a stopgap on China. Then we might see some of

the upheaval people are predicting for this January."

A tenuous success

In less than ten years, Cambodia's garment

industry has become a vital, yet fragile, force in the country's weak economy.

For the last several decades, a system of quotas established by the Multifiber

Agreement (1974) has restricted the amount of textile and clothing exports

produced by various countries.

Cambodia received a generous quota under

the arrangement, which allowed the fledgling garment industry to prosper,

shielded from international competition. Exports grew from nothing in 1994 to

$1.6 billion in 2004.

Today, garments make up 80 percent of Cambodia's

exports, with around two-thirds of sales to the United States and the remainder

to the European Union.

Cambodia also entered a trade agreement with the

United States in 1999. In the arrangement, America rewarded improving labor

standards in the country's factories by reserving a portion of its imports for

garments made in Cambodia. The U.S. awarded a 9 percent increase of its import

quota to Cambodia in 2002, 12 percent in 2003 and 14 percent in 2004.

But both the quota system and trade agreement expire January

1.

While employers, workers, politicians and citizens have waited

anxiously for this date, experts say the industry's long-term sustainability is

a larger concern.

"January 1 isn't a magic day when all the factories in

Cambodia disappear," Loo said. "Our orders are healthy through March, but after

that we'll have to wait and see."

Solidarity forever?

For the

most part, the mantras of "niche markets" and "labor compliance" have dominated

recent discussions of the garment industry's future. Unable to compete with

China's prices, capacity or delivery time, many think Cambodia should market

itself to name brand companies as a "labor friendly" place to buy.

In

large part, this is probably true. The results of a World Bank survey presented

earlier this month showed that key overseas buyers rate labor standards as a top

priority in making ordering decisions. Those surveyed had plans to either order

more or keep purchases steady, and said Cambodia had better labor standards than

Bangladesh, Thailand, Vietnam and China.

As a result of the 1999 trade

agreement, the International Labor Organization established a factory monitoring

system that allows representatives to periodically inspect factories and issue

reports.

Buyers find the presence of a credible oversight mechanism

attractive.

"To a large extent, big name companies have learned from

their mistakes," said Snyder, referring to sweatshop controversies that surfaced

in the last decade. "Hell, everyone's forgotten about that little snafu in the

mid-90s - no one's going to take the risk" of compromising labor standards for

price.

The rise in consumer consciousness throughout the United States

and the European Union can only help Cambodia, agreed Alonzo Suson, field

representative for the American Center for International Labor Solidarity.

"People don't go to Target and ask 'was this shirt made with child

labor?'" he said. "But if a certain brand is linked with that, it

sticks."

Still, companies and activists should do more to educate

consumers, Snyder said. In the United States - Cambodia's largest export market

- she identified three types of shoppers: "Walmart" buyers, just counting

dollars; urban educated consumers, aware of labor issues; and middle-ground

shoppers, between these two extremes.

It's the third group that activists

should target, she said.

They may not go out looking for labor-friendly

products, Snyder said, "but they wouldn't intentionally buy something they know

was made by an eight-year-old."

While many are resting their hopes on

this potential niche market, Loo cautioned that it's only a "band-aid" solution.

"We need to come up with another comparative advantage," he said.

"There's nothing special about labor compliance - it's not rocket science.

Anybody can do it if they want to; we just have a head start."

The

little guy

The labor-friendly niche also won't prevent the exodus of

mid-level buyers from Cambodia, and subsequent closures of smaller

factories.

"The more fly-under-the-radar companies, less concerned with

brand name and more interested in the bottom line, will be the ones to leave

Cambodia," Snyder said.

Well-known companies tend to contract with larger

factories, which have more production capacity. As a result, smaller businesses

that generally receive orders from mid-level brands will likely suffer after

January 1, Loo said.

One small factory owner, who requested that her name

be withheld, has already felt the effects. In the seven years that her factory

has operated, she has received a constant stream of orders - until last

week.

Due to a lack of buyers, she had to halt production, laying off the

factory's 400 workers. If she gets more orders, she'll hire them back, but she

doesn't know how likely that is.

"Results from the survey seem to

indicate the industry will survive and prosper," said Nigel Twose, manager of

the IFC/World Bank Foreign Investment Advisory Service, which carried out the

project. "That doesn't mean all factories will survive and prosper."

But

experts say the aggregate picture is heartening.

So far, layoffs this

fall have been no more than the usual seasonal fluctuation, and the number of

workers continues to grow, said Sok Siphana, secretary of state for the Ministry

of Commerce.

Give and take

Such a large workforce highlights

the need for a labor dispute resolution process.

While still developing,

Cambodia's capacity for handling conflicts shows promise and may also help

market the country abroad.

In addition to a monitoring system, the 1999

agreement prompted the creation of an arbitration council where workers and

employers can bring their grievances.

Provided for in the 1997 labor law,

the council was established in May 2003 with assistance from the ILO and funding

from the U.S. Department of Labor.

"The council provides a fair, neutral,

transparent, independent forum for the resolution of disputes," said Michael

Learner, legal advisor for the arbitration council. "These disputes could

otherwise result in strikes which hurt workers and employers and make deadlines

hard to meet."

Although the council's decisions are non-binding, Learner

said concerned parties often follow the recommendations anyway. As a testament

to the body's success, he pointed out that cases brought before the council have

increased dramatically, from 31 in 2003 to over 100 in 2004.

Strikes have

decreased by 45 percent since the council's creation, which sends a good message

to buyers, Loo said.

"It's in everybody's interest to settle the dispute

and get back to work quickly," Learner said.

The adoption of more

collective bargaining agreements (CBAs) between unions and employers would

further improve labor relations, Suson said. Of the over 200 factories in

Cambodia, only around four have CBAs, which outline the rights and

responsibilities of labor and management and help stabilize negotiations. Plus,

they could shore up the arbitration council by making all decisions binding, he

added.

The Sabrina factory, one of the few with a CBA, has successfully

used the arrangement as a marketing tool, Suson said.

"This is just

another part of Cambodia 'selling' itself internationally as being

labor-friendly and not a sweatshop country," he said.

Beyond

branding

But image will only get Cambodia so far. Even those buyers who

listed high labor standards as one of their top priorities said the country will

have to lower prices.

In the short-term, some in the industry are pinning

their hopes on China's self-imposed export restrictions and the prospect of

preferential treatment from the United States.

The Commerce Ministry in

China announced December 12 that it will impose tariffs on some textile exports,

though it has not yet specified the rates or what categories of textiles would

be included.

This may be a preemptive move on China's part, Loo said.

Because of the fear that low-cost Chinese products would flood U.S. and European

markets after January 1, there had been rumblings that the United States would

impose new restrictions on shipments from China this spring.

When China

joined the WTO in 2001, government officials agreed to a clause allowing the

United States to impose new limits on clothing and textile exports from 2005 to

2008. The measure was created to safeguard U.S. business interests.

Inadvertently, it may aid Cambodia's economy.

Assuming the

tariffs are significant and apply to categories of goods manufactured in

Cambodia, this could help ease the transition to a quota-free marketplace. With

costs in China more closely resembling those in Cambodia, buyers would have less

reason to leave.

At the same time, momentum is building in Washington,

D.C. for a bill that would allow U.S. companies to buy Cambodian exports duty

free. Resembling the African Growth Opportunity Act, the bill would apply to 14

developing nations.

Lobbyists are collecting more sponsors and hope to

introduce the bill early next year, Loo said.

The big

picture

Still, none of these measures provides a long-term solution to

Cambodia's garment woes.

"Even if sanctions were imposed on China and we

got duty free status it would just be a buffer," Loo said. "It gives us a length

of time to work on other problems. Eventually, we will need to compete with the

rest of the world on equal footing."

After 2008, the United States can no

longer threaten China with sanctions. Cambodia will have to hold its

own.

This means the government must take speedy and aggressive steps to

cut down on corruption and bureaucracy, lowering the price of Cambodian exports,

Siphana said.

"Buyers aren't willing to pay more for corruption and

lining the pockets of individuals," Snyder said. "It's not just that it costs a

dollar more, it's where that dollar's going."

The government and

businessmen are also looking at ways to expand Cambodia's role in manufacturing

before 2008-whether that means growing cotton or producing zippers-and further

integrating with ASEAN nations.

"For example, we could buy fabric from

Thailand or Malaysia instead of China," Loo said. "We (ASEAN nations) need to

look at ourselves as a block to compete with China."

Whatever path

Cambodia chooses, the government will have to fight to stay competitive, he

added.

"If we were a car, we would need four tires full of air - not hot

air," Siphana said. "We can't afford to get a flat."

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