The industry makes up approximately 80 percent of the country's total exports and employs a large number of people. Some estimates claim that up to a million people -- out of a population of 13 million -- are either directly or indirectly dependent on the industry.
"What happens in the garment industry in Cambodia matters far beyond the country's borders," argues Phnom Penh-based author Rachel Louis Snyder. "Whether it succeeds or fails is important because this is the one country that has tried to eradicate sweatshops in an organized way."
"If it does not work here, where is the impetus anywhere else?"
Snyder is the author of ‘Fugitive Denim: A Moving Story of People and Pants in the Borderless World of Global Trade,' which was recently published in the U.S.
The Cambodian chapters focus on the situation that arose when Phnom Penh and the Clinton administration inked a trade deal that linked Cambodia's export quota for the textiles to the U.S. to efforts to eradicate sweatshops.
Under the deal, Cambodia had to rewrite its labor laws, welcome the formation of trade unions and allow the International Labor Organization (ILO) to monitor factories and publish their findings.
"This made Cambodia a giant experiment," said Snyder. "The big question was whether it would work and it did. The industry grew and labor and social conditions improved enormously."
The trade deal expired in January 2005 when Cambodia joined the World Trade Organization.
A series of transitional quotas, what Snyder calls ‘the quota system lite' where then put in place by Washington to ensure that China could not export more than a certain volume of textiles in certain categories.
These measures, designed to safeguard Cambodia's textile industry, will finish at the end of 2008, provoking fears that the industry, still young by international standards, could be swamped by powerhouses such as China and Vietnam where labor and social conditions are not as good.
"These are expiring at a time of potentially global recession when consumers will be looking for cheaper gear," said Snyder.
"Wherever you have economic pressure, the first things to go are labor laws and social conditions. This is a crucial time for Cambodia. They are at risk of losing this incredible experiment."
Observers agree that linking trade quotas to labor standards was the major impetus for Cambodia to work on improving labor conditions. Another has been an innovative program run by the ILO called ‘Better Factories Cambodia.'
In order to get an export permit textile factories must sign up to the program and agree to be monitored by ILO teams on a regular basis.
This monitoring process, which the employers help pay for, includes surprise spot checks and in-depth audits that assess the factory's performance in up to 500 areas.
Although the detailed reports are confidential factories will release at the request of buyers.
According to Tuomo Poutiainen, Chief Technical Advisor for Better Factories Cambodia, the program currently monitors 298 export garment factories and involves buyers representing approximately 60 percent of Cambodia's textile exports.
While Poutiainen admits that they do not get everyone, particularly smaller sub-contractors that are not covered by the program, he stresses that it "is enforced (by the government) quite rigorously, there are some time delays but all exporters get drawn in."
"When the quota system was in place the increased incentives for factories to be involved were explicit," said Poutiainen. "Cambodia's share of exports to the U.S. was conditional on progress made on working conditions."
He believes the leverage now comes from the buyers, who request the detailed reports, including big name brands such as Nike, Columbia, Gap and Levi Strauss.
"Labor conditions are now part of the reputation niche of Cambodia," particularly for companies keen to prove their socially responsible credentials," said Poutiainen. "Ignore this and the industry will suffer."
As the assassination of high-profile labor leader Chea Vichea in 2004 graphically demonstrated, there is still a long way to go in terms of upholding labor standards in Cambodia.
Cambodian Union leaders list a number of issues that need attention, including failure to payment of entitlements and politically motivated attacks on union representatives.
Poutiainen agrees, adding issues such as double book keeping, unpaid overtime and occupational health and safety.
"It is obvious that we don't think backsliding on labor conditions is a solution to the problem," said Loo. "Rather we want to increase productivity."
Most observes agree that the ILO program has helped stave off the crisis that many believed would happen after the original U.S. trade deal signed by the Clinton administration expired in 2005.
It has also helped Cambodia to build a solid base in the face of significant disadvantages facing the industry.
Cambodia has to import virtually all raw materials relating to the textile industry. Power costs are high, there is a lack of extensive port facilities and corruption adds significantly to overheads.
Loo agrees that while selling Cambodia as a niche market on labor conditions has been important, the main factors for international buyers remain price, lead times and quality.
"The ILO program is definitely a plus in that it has brought Cambodia to the surface and given us a lot of visibility to buyers all over the world."
"But compliance alone is not enough to sustain the industry. If compliance were really that important everyone would be in Cambodia. The image has its advantages. It is one of many things the buyers look at but it is not the only thing that buyers look at."
While business is supportive, publicly and privately, of the ILO's monitoring program, Loo says they do have concerns about how it is administered.
In the lead-up to 2010, when the ILO is scheduled to reconfigure and possibly reduce its involvement in the Better Factories program, GMAC wants the government to make monitoring voluntary.
"If it was a purely voluntary system, most manufacturers would not sign up to it," he admits. "But the manufacturers would face pressure from the buyers. You would also weed out factories and buyers whose priority is not compliance. Those that remained would be fully supportive of compliance."
He says that GMAC has put the argument to government. "They have made it clear they want it to be compulsory.'
"One cannot expect that the industry will grow but what appears likely to happen is a consolidation, smaller, less productive producers will suffer, others will prosper," said Poutiainen. "This will effect the industry but it is not a crash."
"The buyers have worked for a long time with this program and have invested a great deal of time and social capital in Cambodia and have a lot of relationships. They have an interest in continuing to invest in Cambodia."
"No growth in the garment industry this year in fact the industry will see a slight shrinkage of 5-10 percent," is Loo's blunt assessment.
"I would say that in our existing state we are not well placed to compete but one factor that could turn this around is our efforts to get duty free access to U.S. markets,' Loo said. "The U.S. has given this to all least developed countries except those in Asia, I don't know why."
The Cambodia government and textile industry has been lobbying the U.S. on this issue for a number of years. Loo is hopeful that an agreement will be reached this year. "The impact of the recession will be worse this year if duty free does not happen,' Loo said.
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Albion Monitor April
30, 2008 (http://www.albionmonitor.com)
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