As Garment Factories Close, Motives Debated

Standing guard outside the boarded-up entrance of the Chung Fai Knitwear factory, a dozen women prepared to head out for the day.

The Hong Kong-owned sweater and sock manufacturer in Phnom Penh’s Meanchey district ceased operations in June, leaving more than 200 workers out of a job. With no sign of receiving their due compensation, a few members of Chung Fai’s former workforce began camping overnight on the factory grounds to protect what little hope they have left for reparation: the valuable equipment left inside.

Garment worker Math Halymas speaks outside the shuttered Chung Fai Knitwear factory in Phnom Penh's Meanchey district last week. (Hannah Hawkins/The Cambodia Daily)
Garment worker Math Halymas speaks outside the shuttered Chung Fai Knitwear factory in Phnom Penh’s Meanchey district last week. (Hannah Hawkins/The Cambodia Daily)

“We want the [Labor] Ministry or the court to solve the problem for us as soon as possible,” said Math Halymas, who worked at Chung Fai for about 15 years.

Now, after two months of petitioning and protesting, the women have moved their base from inside the compound to a footpath outside, where they have stood guard between 7 a.m. and 5 p.m. each day. The switch came after the factory gate—emblazoned with a crudely painted message appealing to Prime Minister Hun Sen for help—was locked by court, police and government officials who inspected the premises on August 19.

After examining and documenting the assets inside, the officials secured the factory’s warehouse and posted copies of a July 26 injunction from the Phnom Penh Municipal Court to the main gate. The injunction orders the company not to remove or sell any equipment until further notice.

About 70 garment factories have shut down so far this year, according to Ken Loo, secretary-general of the Garment Manufacturers Association in Cambodia (GMAC), already double the 35 that closed last year. He attributed the trend to a steadily rising minimum wage, making profit margins impossibly slim for some investors.

“Wages make up between 65 to 70 percent of local costs…. If you disregard the costs of utilities, like raw materials and so on, and just look at the wages, rising wages is the main factor,” he said. “What else can be the main factor?”

According to union leaders and labor activists, there is a strong incentive for factory owners to close down and skip town: to get out of financial obligations that can become an increasing burden the longer the factories stay open.

“Some factories close their doors to stop paying the money like seniority [benefits] with their workers, and then it is opened again at the same location, just with a new name,” said Pav Sina, president of the Collective Union of Movement of Workers (CUMW).

Moeun Tola, executive director of the labor rights group Central, said companies often attempted to avoid the costs of dismissing staff by effectively restarting operations, enabling them to hire new workers on lower starting wages.

Women leave the Hoyear garment factory in Phnom Penh in February. (Siv Channa/The Cambodia Daily)

“When you have operated for many years, the law requires the company to rehire people under a new system contract—un[limited] duration contract—and then you have to pay more: severance costs, higher salaries, other benefits,” Mr. Tola said. “And that’s why the company closes, reopens, rehires, gains new employment…they try to escape or drop their expenses responsibility.”

“This is a matter of unjust law enforcement in Cambodia,” he said, adding that officials were doing little to investigate or stop the practice. “I think corruption is the main issue.”

As with other labor leaders and experts, and GMAC itself, Mr. Sina and Mr. Tola said they did not have the resources to track factory owners or investors in the industry.

When companies start over with new identities, they are practically impossible to track and hold accountable, said William Conklin, country director of the Solidarity Center, a U.S.-based labor rights group.

“Basically, the owners—they’re not even owners, they should actually be called manufacturers—they don’t own the land; they rent the land,” he said. “In reality, they make their profits over their initial investment very soon, in the next two to three years.”

“It’s a vicious cycle—they decide [to close] after four or five years because they’ve made all their profits, so may as well take the money and run.”

Government tax holidays during the first few years of operations also offer an incentive for investors to regularly start anew, Mr. Conklin said.

“It can be a year or two years when the tax benefits stop,” he said. “Once they open back up, they get the benefits again.”

Whether or not they intend to open again, many of the factories closing down are not paying proper severance, Mr. Conklin said, leaving workers to turn to the courts or take matters into their own hands.

“If a company closes up suddenly, the big thing is—they have 200 or 500 or 1,000 workers—they legally have to pay severance to them and that can be a big deal,” he said. “That’s why they sneak away.”

“Sometimes they don’t even attempt to take the assets—then there’s a fight about who gets these assets,” he added. “Workers theoretically have priority at the assets. That’s where the law gets tied up.”

Mr. Loo of GMAC said this year’s factory closures—the actual number is a matter of debate among the government, unions and employers—was not due to attempts at financial manipulation, but rather falling profits.

“If the unions and so-called activists claim factories are closing down to avoid paying workers and reopening, it means our membership figures—for this year, for the year of 2016, we’ve had a total of 70 factories close, and 35 new factories open up—it wouldn’t make sense,” he said.

Workers stream out of the New Star Shoes factory in Sihanoukville in February. (Jamie Elliott/The Cambodia Daily)

Mr. Loo conceded that he could not be sure whether the practice was occurring or not “because I don’t investigate,” but said that most of the factories that registered with GMAC this year appeared to be backed by new investors.

“I’m not saying there isn’t at all—there might be a handful that have done this, I don’t know for a fact—but as far as I can see, most of the members that we have received this year seem to be brand new investors,” he said.

“What the unions claim can’t be true based on our numbers—there would be a handful at best.”

Ultimately, the government should be responsible for making sure that workers are not left in the lurch, said Mann Seng Hak, vice president of the Free Trade Union.

“It is the burden of the government, because it calls for the investment, but it does not think about compensation when the factories are closed and the bosses have run away,” Mr. Seng Hak said.

Factory owners are required to put down a deposit of about $1 million to be used in situations such as closure, but the money is rarely made available for outstanding wages owed to workers, said Mr. Tola of Central.

Labor Ministry spokesman Heng Sour declined to comment on the legal requirements of factory owners or the enforcement of those rules, referring questions to the Ministry of Commerce, which oversees company registration.

Commerce Ministry spokeswoman Soeng Sophary said she didn’t know what happened to the deposits, referring questions to the Finance Ministry’s general department of taxation. Finance Ministry spokesman Meas Soksesan referred questions back to Ms. Sophary, who then referred reporters to the Council for the Development of Cambodia, which is in charge of foreign investment. Officials there could not be reached. 

Ms. Halymas, the former Chung Fai worker, who estimates that she is owed about $3,000 by the company, said the workers’ only hope was to defend what was left behind on the factory floor.

“We need to protect all the stuff—like sewing and weaving ma­chines—in the factory, because bad people could take it secretly,” she said. “If we lose it, it means we lose our benefits.”

But the workers dare not re­move the equipment themselves, she said.

“If we get it and sell it, we could be accused of violating the law somehow.”,

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