Compliance, Skills Could Help Garments

By Vohar Cheat, VOA Khmer
Original report from Phnom Penh
23 September 2008

The garment industry must work to decrease illegal strikes and better train workers before the end of the year, when competition from Chinese could further damage the sector, a new analysis suggests.

Growth within Cambodia’s top industry slowed in 2008, and a recent International Labor Organization report found that of 35 labor strikes in 2007, 32 were illegal. Meanwhile, the amount of value a Cambodian worker can add to a garment is much lower than in neighboring countries.

Price competition is expected to increase when the US lifts safeguards on Chinese exports at the end of the year, according to the Cambodia Institute of Development Study, which issued a monitoring report in July.

“As price competition will likely continue to intensify…Cambodian factories will likely lean on the strategy of labor compliance in the short term and raising productivity and skills in the long term,” according to the report.

Union leaders need to be trained to understand the basics of the global economy and be ready to compete in it, said Kang Chadararoth, director of the Institute.

Workers and managers must learn to resolve their problems to keep a factory viable, he said.

“We have to take responsibility, even if we are workers depending on monthly wages. If the factory is good we get more wages,” he said. “The factory owner also has to do the same thing. If they pay the workers on time...care about working conditions, have good relationships, then the environment of the factory is good, and you are able to compete better.”

Kaing Monika, an official with the Garment Manufacturing Association of Cambodia, said Cambodia had a productivity problem, not a labor compliance problem. Nearly 90 percent of factories complied with labor laws, he said.

Commerce Minister Cham Prasidh said the government has been aware of the lifting of trade barriers with Vietnam and China and has been preparing for the competition.

“We have made a working conditions policy for all factories to respect the rights of workers, and we use this reputation to attract buyers,” he said. “We are succeeding and we are a country as a good symbol to the world.”

Cambodia's garment mills face impasse

With US help, Cambodia became the model for successful garment manufacturing and strong labor standards. (Photo: Chor Sokunthea/Reuters)

The once-favorable US tariffs that built a labor-friendly garment industry may now be its undoing.

September 05, 2007
By Erika Kinetz
Correspondent of The Christian Science Monitor
Phnom Penh, Cambodia

Not much gets made in Cambodia except clothes.

Garments account for an astonishing 80 percent of this impoverished Southeast Asian nation's exports, and the World Bank estimates that the industry, which was worth $2.5 billion last year, helps support – directly or indirectly – about 1 in 5 Cambodians, according to government estimates.

US trade policy essentially created Cambodia's garment industry, thanks to a 1999 bilateral deal that granted Cambodia preferential access to US markets in exchange for guarantees on labor standards. Now some argue that US trade policy – in the form of high tariffs – is helping to undo it.

The irony is especially acute because many observers now look to Cambodia as a model of labor-friendly manufacturing, and they say that if Cambodia fails, it will mean the death not just of one industry in one nation, but of the dream of ethical manufacturing itself.

"There was a door for small countries like Cambodia," says Cambodia's minister of commerce, Cham Prasidh. "Now there is no more door. Those who can produce cheaper and faster will sell more."

And that means China.

Shifts in the global garment industry are favoring more developed nations, like China, over the world's poorest. US quotas that benefited Cambodia have expired – or will soon – and the question Cambodia now faces is how to compete with nations that have better infrastructure, more qualified labor forces, deeper supply chains, faster productivity growth, and cheaper electricity.

One easy answer for Cambodia would be to have its major trading partner – the United States, which accounts for nearly two-thirds of Cambodia's garment exports – eliminate its tariffs. Cambodian officials have been lobbying Congress since 2004 to cut those tariffs, which last year averaged nearly 16 percent. China paid, on average, just over 3 percent on its top US exports.

Mr. Cham led a delegation to Washington in July to drum up support in Congress for the TRADE Act, a bipartisan bill introduced in the Senate in February that would slash tariffs on goods from 14 poor Asian nations, including Cambodia.

The US already provides generous trade benefits to many of the world's poorest countries through regional agreements in Africa and the Caribbean, and the EU and Canada already grant Cambodia access to their markets nearly duty- and quota-free.

Cambodian officials are hoping that later this month, House Democrats will introduce legislation that would exempt all of the world's poorest nations, including Cambodia, from tariffs.

Roland Eng, Cambodia's former ambassador to the US, maintains that legislation favoring poor countries won't affect the level of US imports, merely the pattern. "Instead of importing from China, you will import more from least-developed countries," says Mr. Eng. "We're not preventing jobs from going to the US; we're preventing jobs from going to China," he adds.

For an underdeveloped nation, Cambodia already pays relatively more in duties than some developed economies. Edward Gresser, the director of the trade and global markets project at the Washington-based Progressive Policy Institute, said in an e-mail that as of mid-2006, the US had collected $196 million in tariffs on $1.1 billion worth of Cambodian goods, but only $199 million on $27 billion in imports from Britain.

For its part, the US Embassy in Phnom Penh says that the United States is considering trade benefits for Cambodia, but within the stalled Doha round of negotiations at the World Trade Organization. Government and garment-industry officials in Cambodia are hoping for a faster, more localized solution. They say they can't afford to wait.

Next year, US safeguards on Chinese garment imports are set to expire and international monitoring of Cambodia's factories, a cornerstone of Cambodia's 1999 trade deal with the US, may also cease. That could spell the end of Cambodia's labor-friendly garment sector, which has been held up as a model by the industrialized world.

But despite the good intentions, Cambodia's good labor practices cost money in the long term, and Van Sou Ieng, the chairman of the Garment Manufacturer's Association of Cambodia, says it will be hard to live up to those standards if Cambodia can't compete on price, which he says is impossible without tariff relief.

Eng says the social and economic costs of a garment sector slowdown would be enormous. Most garment workers are women, who have left the traditionally protective structures of family and village that govern rural life. Unemployed, Eng says they will be particularly vulnerable to HIV infection and human trafficking. "All the social efforts of the past ten years will be in vain," he says.

It wasn't supposed to be that way. Rachel Louise Snyder, author of the forthcoming book "Fugitive Denim: A Moving Story of People and Pants in the Borderless World of Global Trade," says that if Cambodia's garment industry fails, the ramifications will extend far beyond the borders of this tiny nation.

"The industrialized world has set them up as an example of great positive social change that can be achieved with political and economic will," says Ms. Synder, who lives in Phnom Penh. "What does it say to the rest of the world if we allow them to fail?"

IMF warning to Cambodia: China and Vietnam could pose increasing competition to [Cambodia's] narrowly based economy

Jun 5, 2007
IMF sees positive growth but warns of external risks for Cambodia

DPA

Phnom Penh - The International Monetary Fund (IMF) praised Cambodia's macroeconomic policies Tuesday, saying positive economic growth should continue but warning that China and Vietnam could pose increasing competition to its narrowly based economy.

An IMF delegation from Washington ended a two-week high-level visit to the country Tuesday with a rosy overall impression of the national economy, IMF Asia Pacific advisor Jeremy Carter told a press conference.

However looming competitive pressures on the vital garment sector due to a lifting of safeguards on China's garment industry at the end of next year, competition in the same area from neighbouring Vietnam following its World Trade Organisation accession and the danger of poor weather affecting the agriculturally dependent nation still loomed as risks, the IMF said in a statement.

'Prudent macroeconomic policy implementation has provided stability, in turn boosting investors' and consumers' confidence, and has underpinned very strong macroeconomic performance,' the statement said.

'Impressive rates of growth have been sustained, inflation remains low, external debt is sustainable and headway is being made in a number of important structural reforms.

'The mission noted that the environment provides ideal conditions to re-energise reforms in key areas where progress has been less rapid, and to address the key constraints to broader poverty reduction.'

It said these factors had encouraged significantly increasing Foreign Direct Investment (FDI) which augured well for the economy.

The IMF said it estimates real Gross Domestic Product (GDP) to increase by around nine-per-cent this year, fanned by increased agricultural production and 'robust growth' in the areas of tourism, garment export and construction.

'Services, in particular finance and telecommunications, are increasingly contributing,' it added.

However the domestic growth in the key industries which form the narrow pedestal of the country's economy - garments, construction, agriculture and tourism - were also subject to fluctuation due to international trends and environmental factors beyond the control of the government, it warned.

International oil price hikes had also had an influence, with inflation recently ticking up to 4 per cent, the IMF statement said, but assuming broadly stable international oil prices for the rest of 2007 it said it expected this rate to remain in the low single digits.

Carter told journalists the IMF expected oil revenues to prove a positive. These may begin trickling into the economy as early as 2009 when drilling begins on promising offshore oil and natural gas fields.

The IMF team met with a range of government officials during its visit, including Prime Minister Hun Sen and senior ministers and officials, as well as non-government representatives and union representatives.

The IMF provides technical assistance to Cambodia and has focused much of its work on reforming the rapidly developing country's banking and finance sectors.