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The changing face of the Number One industry

The changing face of the Number One industry

Let your imagination run wild for just a minute.

Its May 2003 and campaigning for national elections is well underway.

Frustrated by lack of progress in improving pay scales and work place conditions

for the nation's garment factory workers, and faced with increased quotas from abroad

which result in hasty lay-offs, Sam Rainsy and the Free Trade Union of Workers of

the Kingdom of Cambodia (FTU-WKC) call for a general strike.

In response, 750,000 workers - mostly women - walk off the job and head for downtown

Phnom Penh to make their demands known.

The streets are swollen with demonstrators, waving banners, shouting in unison. The

city comes to a standstill as the Kingdom's largest demonstration ever chokes all

traffic to a halt.

Norodom Boulevard is one mass of humanity from Wat Phnom all the way to Independence


At the head of the procession, Sam Rainsy and FTUWKC President Ou Mary ride in a

truck with megaphones blaring. Rainsy promises that if his party wins the election

he will deliver higher wages, shorter work weeks, guaranteed health insurance, severance

and retirement packages for all workers. The experts say this is impossible: it would

crush the industry but, never mind, this is campaign season.

The crowds roar back: Chaiyo Kanakpak Sam Rainsy! Chaiyo Kamakor Khmer!!

The authorities, who try to stop the demonstration, are overwhelmed by the sheer

numbers of protesters. Many police stand aside willingly as they see their sisters,

wives, mothers, daughters, aunts and nieces participating in the protest. The cops

have heard first-hand for too long horror stories from the shop floors.

Cambodia's industrial work-force has come of age and is a serious force to be reckoned


Political pundits, noting the size of the crowds, begin speculating that Rainsy and

his SRP may capture a much larger percentage of the national vote in upcoming polls.

There are murmurs of the SRP winning a plurality in the election. The two incumbent

political parties-the CPP and Funcinpec-start to panic.

- - - - -

Sheer fantasy? Wild speculation? The government's worst nightmare come true?

Only time will tell.

At the very least, one thing is clear today. Cambodia is in the process of developing

something it has never had before: a disciplined, industrial workforce - one which

knows how to punch a timeclock, work with technology light-years more complicated

than a plow, understand what is possible to demand from an employer, and, increasingly,

organize and participate in workers' unions.

The implications of this development are profound for the King-dom's economy and

the short- and long-term outcomes uncertain, but the figures alone tell part of the


This morning, around 72,000 Cambodians went to work in one of the 111 garment factories

currently operating in the Kingdom, according to Ministry of Commerce statistics.

Five years ago the number was close to zero.

Each month factory owners pay out $3 million in salaries to these employees - cash

taken home and likely added to an extended family pot.

The extra rice and fish, or an occasional new krama and trendy pair of blue jeans,

are welcome additions to a population that is generally impoverished, unskilled and


An additional 139 garment factory approvals have been granted and should start operations

this year or next, which would mean around 90,000 new jobs, more than doubling the

existing level.

Last year garment exports earned Cambodia around $350 million.

The spin-offs in indirect employment include jobs for construction workers, shippers,

materials suppliers, transport companies, freight forwarders and even Mom & Pop

drinks shops outside factory premises.

Perhaps as many as 500,000 people - 4.5% of the entire population - are in some way

presently connected with the garment juggernaut. In 12 months this figure could top

one million.

What's the market potential for the garment industry? Nobody knows for sure.

"Hong Kong has 2,000 garment factories, maybe more," says Senior Advisor

at the Ministry of Commerce Roger Lawrence. "Cambodia has an unlimited supply

of labor. If the market is there this is an activity that could continue to grow."

The math is simple: 2,000 factories in Cambodia means about 1.2 million women and

men plugging away at sewing machines and knitting looms.

The caveats, however, to this potentially rosy scenario are complicated.

International trade is an arcane subject, the details of which are a tangled, Byzantine

web to most.

New quotas: the US position

On Jan 20 the US and Cambodia signed a new textile treaty, produced after several

months of intense negotiations.

With the US having granted Cambodia Most Favored Nation Status (which means Cambodia

is treated "normally" like "most" other countries) and GSP privileges

in 1996, exports to the US skyrocketed to the point that alarm bells started going

off Stateside.

It only takes a market share of around 1.5% by an exporter like Cambodia for American

producers to complain. And complain they did.

The result of the treaty, which Minister of Commerce Cham Prasidh hailed as a "win-win"

for both parties and USTR Ambassador Donald Johnson proclaimed "a very important

agreement", is that on 12 categories of garments, Cambodia will now be restricted

by quotas.

Minister Prasidh underplayed this fact, focusing instead on four categories of goods

for which there will be no quotas.

No one would comment on whether or not the negotiations were contentious.

The US embassy was all hush-hush, as if they were in the process of normalizing relations

with North Korea.

In the event, the parties were all smiles and sharing bearhugs at the signing ceremony.

But the bottom line is that some of the companies in Cambodia who are producing "gloves

and mittens", "underwear", "Mens' & Boys' shirts - not knit"

or "Mens' & Boys', Womens' & Girls' trousers, breeches & shorts",

may have to bite the bullet and cutback on production.

The people who export "Night-wear & pajamas" may have been toasting

with champagne Wednesday night; they still have no quota to the US market.

This process is further complicated because Cambodia is not a member of the World

Trade Organization (WTO), the successor to GATT, responsible for regulating global


The WTO has a whole set of procedures in place to eliminate quotas worldwide over

the next ten years, but, lacking membership, Cambodia can't benefit from this.

The US, for its part, is gradually eliminating quotas on an agreed schedule.

By the January 1, 2002, 51% of all products imported will have their quotas axed

but only from WTO-member countries.

Steps are underway for the Kingdom to join, and Prasidh is said to be totally in

favor of membership, but the process may take up to two years.

The World Trade Organization

The process for joining WTO involves two steps.

First, Cambodia must submit a document explaining its own trade regime in enormous

detail. A 115-page draft of this report has been completed, produced by an Inter-Ministerial

Coordinating Committee chaired by the Ministry of Commerce. It now must be approved

by the Council of Ministers.

The second step is more problematic, as it requires Cambodia to make "concessions"

on duties charged for imported goods and services.

Tackling this process will take time and may cost the Kingdom much needed revenue

from import duties.

The process is further complicated because so much of Cambodia's government budget

is derived from customs.

"Any failure to move rapidly to become a member of WTO will pose a danger to

the garment industry," says Lawrence.

"If Cambodia does not become a WTO member quickly, it will be left with quotas

on some items while other exporters are free of quotas."

But the clock is ticking.

... and now, VAT

And then, add a new wrinkle: the recently introduced Value Added Tax (VAT). Factory

owners are up in arms about VAT, a 10% duty on imports.

Says Garment Manufacturers Association of Cambodia (GMAC) president Roger Tan: "We

are not prepared for it. We never expected it to happen."

GMAC, fearing that factory owners won't be able to re-coup the tax from the government,

have submitted an official protest to Commerce, asking for a total exemption or a

six months waiver before VAT is imposed.

They argue that VAT will deter companies from setting up shop in Cambodia and may

force some to close.

Tan also pointed out that many companies were enticed to Cambodia with the promise

of eight-year duty free status on imports. There is confusion among some owners as

to why the rules of the game are being changed now.

Sam Rainsy argues that lacking a nationwide, accepted method of accounting among

companies, the tax will be unfairly applied and that the tax was imposed "hastily

under international pressure".

He notes that only a handful of companies pay existing taxes and that it would be

better to enforce current laws across the board before introducing new measures.

Workers' conditions

The final hurdle to the smooth development of an industrial class is the one which

draws the most headlines and sends pictures of striking young female workers pitted

against water cannons and reams of news copy around the world - that being the plight

of workers and allegations that Cambodia is only developing a "sweatshop"

industry which exploits poor peasants.

When members of the USTR trade delegation visited FTUWKC offices on Jan 19 they were

presented with a litany of woes by factory workers who said they were too afraid

to give their names and who took the day off from work under false pretenses to avoid

getting fired.

The list of abuses cited ranged from worker beatings, sackings for complaining, forced

overtime without pay, delayed salary payments, intimidation, reduction of wages below

the $40 per month minimum, and fines for going to the toilet more than twice a day.

"The situation of workers is worse and worse," said one work-er. "The

main issue is the number of hours of work.

"It is done without respect to the labor law."

"When workers complain... their rights to press demands are denied," added

FTUWKC's Ou Mary.

Garment factory owners argue that with the Asian economic crisis Cambodia has become

less competitive as salaries are paid in dollars while, with depreciated bahts, ringgits,

and rupiahs, labor costs in the region have gone down.

Their logic is falling on deaf ears for many workers who say they can barely survive

on $1.60 per day.

At the heart of the issue is who enforces the labor law, which Rainsy says is "on

the whole" a good statute.

At present, the government is in charge.

But critics argue that with a judiciary known for its partisanship and the rule of

law more a myth than reality, factory owners can get away with what they want and

the government will turn a blind eye to abuses.

Minister of Commerce Cham Prasidh no doubt has strong opinions on the subject but

had to cancel an interview with the Post at the last minute due to schedule conflicts.

Other Ministry officials were unavailable for comment.

Rainsy would like to see some kind of independent body set up - an ombudsman involving

not only the government but trade unions and NGOs as well.

But for the moment he plans to use the system.

"The fact that the (FTUWKC) is recognized, the fact that the opposition party

is recognized... maybe the need to organize demonstrations is not that strong,"

he said on Jan 20.

"We will use other means of protest, use new channels first...then (if they

don't work) we can resort to demonstrations."

What's in the cards short-term for the SRP and its Free Trade Union allies?

Rainsy says he will start issuing a list of workers who have been fired unjustly.

"We will expose the hidden suffering... (sacked workers) will be named like

soldiers who fall in battle and we will point the finger at factories."

In the end, and its only still the beginning of an issue that will be on the Kingdom's

front burner for years to come, the question remains: Can rags produce riches for

hundreds of thousands of Cambodians thirsty for a better standard of living?

At the Cambodian-US treaty signing ceremony Minister Cham Prasidh exuded the confidence

and optimism of a man in the driver's seat, a witness to an historic process that,

as Roger Lawrence points out, is having "a very, very significant (impact on)

poverty alleviation."

Sam Rainsy, for his part, is not so bullish.

When asked if the May 2003 massive demonstration scenario with him at the lead was

realistic, he chuckled while replying: "Sooner than that... sooner."


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