Cambodia has 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 link 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 put the jobs in more demand, and spike the prices that many job-seekers pay in bribes to get the jobs, it said. This puts them more 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
