Bounceback for Cambodia’s textiles but sparkling labour image not enough

PHNOM PENH – Cambodia’s crucial garment sector has bounced back after the end of a global quota system saw orders dip due to competition from China, but experts warn the industry’s socially responsible image will not ensure its long-term survival.

The 1.9-billion-dollar sector, which provides the destitute kingdom with more than 80 percent of its export earnings and employed 270,000 workers at the end of 2004, feared the fallout from the end of the quota system in January.

Under the 30-year-old multi-fibre arrangement (MFA), Cambodia was given special access to the US market through a 1999 trade deal that granted quotas in return for improved labour conditions monitored by the UN’s labour agency.

The arrangement was hailed by international buyers, such as US company Gap Inc., which helped local manufacturers to mould an image of themselves as responsible corporate citizens who eschewed sweatshop labour.

With the end of the system, the industry hoped its labour-friendly image would help it stand the onslaught of competition from Asian giants China and India, but sector employment spiralled about 10 percent lower to less than 250,000.

"In the first four or five months, orders shifted to China because they were able to export freely," said Ken Loo, secretary general of the Garment Manufacturers Association of Cambodia.

In May, the United States, which buys more than three-quarters of Cambodia’s exports, invoked safeguards contained in China’s WTO accession agreement, which allowed it to impose quotas on seven types of textiles from China.

The European Union, which purchases most of the rest of Cambodia’s production, took similar action in June.

"Now that the safeguards have been reimposed, orders are slowly coming back to Cambodia," Loo said.

Employment is back up to about 268,000 and of the more than 200 factories in the kingdom, 25 have closed but 24 new ones opened.

The International Labour Organisation’s Better Factories Cambodia Project continues to carry out independent monitoring — factories must agree to be monitored to get an export licence — in a bid to help the industry survive.

"What we’re increasingly doing is looking at how do we provide industry, both unions and employers, with support services to help them improve working conditions," Ros Harvey, chief technical adviser to the project, told AFP.

Improved conditions — which growing evidence suggests helps to also improve productivity and quality and therefore bottom lines — are however just one of a slew of issues Cambodia needs to work on to remain competitive.

"Labour standards are obviously a component but other pressing issues to deal with include things like trade facilitation, business environment, backward linkages, improving productivity and improving quality," she said.

"Improving labour standards contributes to the industry strategy but it needs to be part of a holistic policy response."

GMAC’s Loo described the project as "important" but not enough on its own to lure extremely price-sensitive manufacturers to the kingdom, arguing rampant corruption must be reined in.

"I wouldn’t say we’re upbeat but I think the industry will still be around for the next couple of years because of the safeguards," Loo said.

"But we see certain difficulties along the way, (such as) the reduction in the cost of doing business in Cambodia not going down as quickly as we had hoped. In fact, in certain areas it’s gone up."

GMAC is up in arms over government plans to implement outbound scanning of all containers by a private company which will add up to three million dollars a year to the industry’s costs — or 100,000 dollars a year for a big factory.

"A factory in Cambodia would be good if it can make a couple hundred thousand dollars. So taking 100,000 dollars for scanning would erode what, 20, 30 or 40 percent of its profits?"

GMAC is negotiating with the company to lower the price.

Cambodian unions said their conditions have worsened this year with the government cracking down more harshly on strikes. They estimate 47,000 workers have lost jobs without receiving compensation.

Chea Mony, president of the prominent Free Trade Union of Workers of the Kingdom of Cambodia, supports the monitoring system but said buyers should be more proactive in improving conditions.

"The ILO can report but not enforce, and the ministries are corrupt. To help the labour law in practice, the buyers should work closely with the unions," said the unionist.

The ILO’s Harvey said the industry was undergoing a structural adjustment.

"I don’t think we should gloss over that — there is a genuine structural adjustment happening in the industry that is hurting people," she said.

Sok Siphana, who attributed the bounceback in employment primarily to the safeguard measures kicking in, said they had bought Cambodia time to reform.

"We have until the end of 2007 for the end of the US and EU safeguards, meaning that we have two and a half years’ more breathing space. We have to work on costs," he said.

But he described Cambodia’s labour-friendly image as the top ace up its sleeve.

"It will put us one step ahead of the game. The safeguards are of benefit to everyone across the world producing, but here we are one step ahead of the game."

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