Cambodia enjoyed a garment sector boom that is still being discussed from here to Geneva, building from scratch a $1.2 billion industry in just five years. Nearly 200 companies have moved in, employing 180,000 people and creating an average monthly income of $12 million, according to Commerce Ministry figures.
Most of that was due to the US, and to a lesser degree the European Union. Both of them opened their restricted markets to Cambodian producers, creating a boom of factories looking to take advantage of Cambodia’s status as a lesser developed country and the bonuses it receives to tariffs.
“As the industry grew at an exponential rate of 2,000 [percent] to 5,000 percent per year, the USA hurried to impose quantitative restrictions on Cambodia’s garment exports in 1998,” according to a report the ministry presented to international donors in June this year.
Negotiations over a linkage between trade incentives and labor standards ensued.
“The negotiations were not easy when the records showed that no country in the world has ever agreed with the US position regarding this linkage between trade and labor standards,” the report says. “The reason is very clear: no one trusted the US altruism. “Some people might agree that there could be some genuine interests from the US aimed at protecting the workers rights in sourcing places, but everybody sees this linkage as a clear attempt to create another technical barrier to trade,” it says.
Cambodia agreed to the linkage, but soon found that despite “substantial” improvements to labor standards, it was not given the potential 14 percent annual increase that it could have, and instead saw an increase of just 9 percent of the US garment export market.
“This is a situation that raised eyebrows and made people wonder whether the US was really sincere in [its] commitments,” the ministry said.
Manufacturers still say the costs of business remain high.
Cambodia’s labor law requires companies to pay workers overtime or double-time wages for work on shifts during the evening or night. The heavy wages on these extra shifts make it more difficult for companies to compete with factories in other countries that have no such requirements for second or third shifts.
“I still don’t understand why we discourage second-shift or third-shift labor,” said Van Sou Ieng, president of the Garment Manufacturers Association of Cambodia. “I don’t understand the reason behind [it], to pay double payment for a third shift, for example.”
To change the pay scale would require a change by parliament to the labor law.
Another problem faced by companies is the relatively high minimum wage they must pay for work done in Cambodia. An investment strategy report compile by the Ministry of Commerce and six international agencies including the International Monetary Fund and the UN Development Project, puts the average monthly salary of Cambodian workers at $61 per month, just about even with Vietnam, well below China, but still higher than Bangladesh ($40) and Indonesia ($46).
Data from developing countries that have applied minimum wage legislation “provide a growing body of evidence that setting minimum wages close to or above the market-clearing wage does have an adverse effect on employment growth in the modern sector,” the authors wrote.
Minimum wages, while helpful to those who already have jobs, can create a rigid industrial sector, thereby hurting the growth of the entire industry, the report said.
High minimum wages, because it puts the jobs more in demand, spike the prices that many job-seekers pay in bribes in order to get the jobs, it said. This puts them farther in debt than those who came before them, offsetting some of the advantages of the minimum wage.
“A recent study estimated the effect of rapid increases in minimum wages on different types of workers [in developing countries] and found substantial unemployment effects for women, young people and unskilled workers,” the report said. “A 10 percent increase in the minimum wage reduced employment of women and young workers by 3 percent, unskilled workers by 2 percent and factory workers…by 1.4 percent.”
However, wages aren’t the top priority for potential investors. The costs of doing business or the costs of shipping are more important to the business plans of manufacturing companies, labor expert Jason Judd said.
Higher wages are not likely to hurt the industry, he said.
When manufacturers argue they can’t afford high prices, it’s just not true, he said.
“It means they don’t want to pay it.”
Worker unrest, too, will become a heavier factor against potential investment after 2005. Strikes occur often enough that the “seasonal strike” has become something of a tongue-in-cheek statement for factory owners.
Earlier this month, a Phnom Penh municipal judge sought for questioning and possible arrest at least five leaders of the Cambodian Federation of Independent Trade Unions. So far two Independent Trade Union leaders have been arrested in connection with the theft and destruction of property at Tommy Textile Manufacturing in March 2001.
Workers over-turned one car, lit fires, and looted the factory, while holding up placards splashed with death threats against the Taiwanese management, a member of management said at the time, providing pictures as evidence.
However, just last week, Cambodia’s strike-prone Free Trade Union of Workers of the Kingdom of Cambodia announced that, considering the 2005 quota deadline, it would be shifting away from strike tactics, and toward union contracts, or collective bargaining agreements.
It was a sign of “maturity” from Cambodia’s most active, most strike-prone union, said Commerce Ministry official Sok Siphana. And the move was welcomed by management and rights advocates as well.
So the concerns of each side is starting to be addressed by the others. The only question is: Will it happen soon enough?
To some extent, each side of the industry blames the other for its problems. Workers strike too much, managers say. Factories demand too much, workers say. The government doesn’t enforce the laws enough, advocates say.
But words won’t stop the ticking clock, and everyone, in less than three years, will undoubtedly be facing a new kind of garment industry.
And then, someone will have to answer the simple concerns of workers like 19-year-old Neth Sophy.
“I can’t give it up because here it is much more comfortable than at my home,” she said. “If the factory shuts down, I would only be sorrowful.”
(Additional reporting by Kuch Naren)