Union leaders and aid agencies questioned the overall benefit of export processing zones this week as they again voiced their concerns over a draft law to create them.
“In its current form, the draft Industrial Zones Law contains no guarantee that the Labor Law of the Kingdom of Cambodia shall apply,” Lean Chinda, a lawyer and head of the labor unit at Legal Aid of Cambodia, said at a seminar on Monday.
“We are told that Cambodia’s reputation for encouraging fair conditions for its workers will attract foreign investors,” she added. “But if there is no protection for its workers in the IZs, Cambodia may lose this reputation.”
Sixteen unions and aid groups signed a joint statement on Feb 28 that called on the government to implement 10 changes to the current draft law. They included compliance with the Labor Law and allowing NGOs and unions to research working conditions in the industrial or export processing zones, which are expected to fill up with garment factories and other light manufacturing operations.
The exclusion of labor rights protection tops a number of arguments from unions and aid groups that the country will not reap significant economic benefits from the industrial zones. Government representatives continued to say the Labor Law already applies to the proposed zones and defended their overall benefit.
“The Labor Law protects the rights of workers in and out of industrial zones,” Chap Sotharith, a government economist at the Council of Ministers, said Wednesday.
Major export processing zones are expected to be created in Sihanoukville, Koh Kong and Poipet, to encourage foreign investors open companies on Cambodian soil. Cambodia’s status as a least developed country allows it to export its goods to Europe duty-free. Foreign companies who set up inside the export zones will be allowed take advantege of Cambodia’s special export status in the EU market.
To attract the maximum amount of investors, the zones plan to offer businesses one-stop shopping for relevant documents and tax free imports and exports. In return, companies are expected to pay a 20 percent profit tax.
The government plans to include the suggested amendments to the draft law made by unions when they hand the law to the National Assembly, Chap Sotharith said.
“The zones,” he said, “will provide a big help to government and poor people around the zones.”
Not everyone agrees.
The zones simply employ unskilled workers at low wages, and generous tax breaks will starve government revenue, Keir Jorgenson, acting field representative for the American Center for International Labor Solidarity, said Monday.
“If a country does enact a law establishing [Industrial Zones] or [Export Processing Zones], it must have positive language in the law that worker rights will be recognized and enforced,” he said. “The law must not be silent on this under the assumption that, by remaining silent, the national labor laws will automatically apply.”
Some of the rhetoric opposing industrial zones has been confusing however, such as a paper titled “A talk on the EPZ in Cambodia” circulated this week by Oxfam Hong Kong, which pinned the creation of the zones on the International Monetary Fund.
“The idea to [create EPZs] is not solely that of the Cambodian government but part of the broader schemes and policy prescriptions of the IMF and [World Bank] in an attempt to attract investment and provide more corners of the globe whereby Western companies can exploit cheap labor and secure even greater profits,” the paper said.
In fact, as Robert Hagemann, the IMF’s resident representative, explained in an e-mail received Wednesday, “the IMF has not been an enthusiastic supporter of EPZs.”
In its comments on the second draft of the government’s National Poverty Reduction Strategy delivered in 2002—which Oxfam was aware of, Hagemann wrote—the IMF said: “It is disturbing that the government is contemplating to develop several EPZs as part of the pro-poor strategy. The poverty alleviation aspect of EPZs is questionable…international experience with EPZs is very mixed and suggests EPZs cannot substitute for in-depth reform in transparency and administrative capacity, especially establishing a sound legal framework.”
But the IMF is not opposed to creating the zones under the right conditions.
“We could see the potential benefit to creating EPZs if no further tax incentives are provided, the same labor standards are applied as in the rest of the country, and if an EPZ reduces costs of production,” Hagemann wrote Wednesday.
The production costs that could be reduced in a zone, he added, included transportation expenses and eliminating unnecessary red tape.
Labor leaders, including Jorgenson, argued that the government should not need to create a special zone to improve transparency, eliminate corruption and increase predictability for investors.
“A country wanting to attract investors,” he said, “may well do better by addressing the basic needs for improved functioning of the economy rather than looking to zones to provide a magic solution to the problems.”