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
"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.
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
Longer-term prospects are even more
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.
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
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."
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.
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
Buyers find the presence of a credible oversight mechanism
"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
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
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 labor-friendly niche also won't prevent the exodus of
mid-level buyers from Cambodia, and subsequent closures of smaller
"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
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."
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
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.
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
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.
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
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.
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.
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
Lobbyists are collecting more sponsors and hope to
introduce the bill early next year, Loo said.
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
This means the government must take speedy and aggressive steps to
cut down on corruption and bureaucracy, lowering the price of Cambodian exports,
"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."
Cambodia chooses, the government will have to fight to stay competitive, he
"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."