Cambodia’s crucial garment industry braces for end to quota system

Cambodia’s crucial garment sector is bracing for the end of a 30-year-old global textile quota system in December, hoping to position itself as a labour-friendly alternative to China.

The highly mobile garment manufacturing industry contributes more than 90 percent of Cambodia’s export earnings and employs an estimated 240,000 mostly female workers, making it the linchpin of one of the world’s poorest economies.

The expiration of the multi-fibre agreement (MFA), which allocates textile quotas to developing nations for export to rich countries and gave Cambodia its entree into the global market, is expected to see giant China elbow out competitors.

"We are very worried that by the end of the year when the agreement expires, a lot of workers will lose their jobs and see their living standards fall," says Sam Srey Mom, acting president of the prominent Free Trade Union of Workers of the Kingdom of Cambodia.

Workers, most of whom have uprooted from villages in this predominantly agricultural country in the hope of finding work, have few employment options with no other established industry here.

They earn a minimum wage of 40 to 45 dollars per month under conditions monitored via a unique factory inspection system set up by the UN’s International Labour Organisation (ILO).

The system was put in place following a 1999 agreement between Cambodia and the United States which required the sector to improve working conditions in return for receiving quotas to the US market.

Ken Loo, secretary general of the Garment Manufacturers Association in Cambodia (GMAC), envisions survival in some form for the industry and says Cambodia’s reputation could help give it an edge.

GMAC is working alongside the government in pushing for the United States, the destination for two-thirds of Cambodia’s exports, to reduce tariffs on garments exported from the impoverished country.

"With the abolishment of quotas we see that the only way they can continue this system of reward and encouragement is by giving us preferential treatment on tariffs," Loo says.

The gold star may also help the industry in its lobbying for a reduction in the 50 percent local content requirement by the European Union — Cambodia’s other major importer — for garments to be duty exempt.

Fabric and yarn used here is imported, due to a lack of local supply, meaning local content is now 40 percent at the most, Loo says.

More generally, as demand in the West grows for goods produced under decent conditions, investors could be attracted to the Cambodian scheme.

"Certainly the industry sees its compliance with international and national labour law as a significant factor in its positioning in the post-MFA world," says Ros Harvey, chief technical advisor for the ILO garment sector project.

"What the industry’s hope is, is that compliance will mean the industry is attractive to buyers who are concerned with this issue."

Harvey also says that the ILO has collected strong evidence that improving working conditions is more than just a marketing strategy. "It is a way for a factory to improve its productivity," she says.

Importantly, the system may give Cambodia an edge as it seeks to sell itself as an alternative to China for investors nervous about a US "safeguard mechanism", in place until 2008 under World Trade Organisation rules, which if activated would restrict China’s garment exports.

"If buyers are afraid and they want to diversify, they do not want all their orders to be in China just in case something like this happens, then they have to choose another country to place their orders," says Loo.

"We hope we can position Cambodia to be in that position, to be their number one choice."

It is possible that some drift may have already occurred, with around 30 factories operated mostly by investors from China, Hong Kong and Taiwan opening in Cambodia in the past year to bring the total number of active factories here to 209.

GMAC has also been calling on Cambodia’s government, infamously riven with corruption and entangled in red tape, to get its act together or risk seeing investors flee as early as September, when buyers place orders for next year.

"The industry has been shouting, screaming our heads off, at the government over the past two or three years, and we have not seen much movement," Loo says.

"It’s only this year that we’ve seen the hustle and bustle…. We just hope it’s not too little too late."

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