The Textile Industry in Cambodia - Case Study Example

The Textile Industry in Cambodia The Textile Industry in Cambodia is most important and vital to the nation’s economy. According to a report published by the International Confederation of Free Trade Union in 2005, “the clothing industry is vital to Cambodia’s economy, accounting for over 80% of the country’s exports and employing 65% of its industrial labour force” (The importance to Cambodia of the clothing sector 2005, 4). Any condition that will promote growth of this industry was welcome by the Government of Cambodia. Moreover the United States had a policy of aggressive bilateralism with regard to trade with other countries. This was in accordance with protection of its own interests so that domestic industry does not suffer (Pizarro 1999, 15). In such instances, one country may state that trade is possible if only certain conditions are met. It can also be said that if the party meets certain conditions, new trade possibilities are made available. In such a case, it is beneficial for that country even though such additional conditions need to be implemented. Due to this attitude many conditions and controls are put into bilateral agreements with other countries. In most cases, the concept of ‘social chapters’ become part of such agreements. They usually refer to some clauses that are bound by the trade partners and usually refer to welfare of workers and other stakeholders. Such an agreement which has elements of aggressive bilateralism and social chapters was signed between the United States and Cambodia in 1999 with regard to textile trade. This agreement known as Cambodia Bilateral Textile Agreement had specific clauses that the country can avail of textile quotas if the companies agree to certain labor laws and policies. As per the agreement “The Royal Government of Cambodia shall support the implementation of a program to improve working conditions in the textile and apparel sector, including internationally recognized core labor standards, through the application of Cambodian labor law” (Labor Standards 1999, 4). To the Government of Cambodia, agreeing to the clause must have made good economic, political and social sense. The US government was providing exclusive quotas for companies in Cambodia if they agree to the social chapter mentioned above. This meant huge increase in business through exports to the United States which is good for the economy and the people. This increase has been so substantial that many activists even successfully tried to extend the agreement until 2004. According to one of the activist groups, the Lawyers Committee for Human Rights, “The value of textile and apparel imports from Cambodia increased by almost 200% during the first two years of the Agreement. US brands like Gap, Polo Ralph Lauren, Dress Barn, Anne Taylor Loft and Sag Harbor have increasingly relied on Cambodian workers to fill their consumer demands” (Impact of US-Cambodia agreement: Positive but unfinished 2001, 1). This made good economic sense for the government, the companies, and their employees. The average wage of textile workers in the country was higher than what was paid for even some government jobs. It made political sense because the international community and the people of Cambodia felt that the country is serious on improving and maintaining their treatment of labor. Many companies have policies that they will not buy from companies that maintain sweatshop labor. It made social sense because it provided gainful employment for a lot of people in a country where unemployment and poverty is rampant. In fact the workforce which is comprised mainly of women was filled by migration of young ladies from rural to urban areas. They were able to send money regularly to their cash starved families in rural areas. There was also overall improvement in working conditions and worker rights in the country which is another social benefit to the country. Many were benefited indirectly also by providing food, accommodation, and travel to the workers. Most of workers had their homes in rural areas and used to stay in rented accommodations and hostels. In other words, the agreement was literally a win-win situation for Cambodia whereby business improved alongside worker welfare and rights. Another factor that is good in such situations (social chapters) is that it makes more effective the standards and recommendations set forth by organizations like the International Labor Organization (ILO) and the World Trade Organization (WTO). Generally these organizations have no legal power over member countries. The ILO was selected as the monitoring and inspection agency by both the governments and it did this periodically by sending its staff verifying whether conditions were being implemented by the factory owners. The ILO has four fundamental principles regarding labor and was covered in the agreement as a set of standards that needed to be implemented by employers. The fundamental principles are rights of workers, decent employment and income for box sexes, social security and protection, facilitating dialogue between employer, employee, and other involved parties (The four strategic objectives). Multilateral trade agreements on the other hand are more complicated and involve more than two countries. Having social chapters that involve only some of them will not be acceptable. It will also be difficult to come to an agreement and also monitor such clauses. So, most countries will not accept such clauses in multilateral trade agreements. In what ways is the US – Cambodia agreement exceptional when compared with other bilateral free trade agreements that contain a social clause? According to Sandra Polaski, who was an international negotiator for the United States on labor matters, “there is a growing body of experience and a growing variety of approaches on how to link labor rights with trade” (Polaski 2004, 14). She bases the study on two basic factors found in such agreements namely the obligations and enforcement. The former refers to the clauses that are binding on parties to the agreement. In this case it is primarily with the government of Cambodia and the factory owners in the country. The United States has to see to it that quota rights are provided to qualified companies. These are the obligations present in the current agreement. Enforcement refers to how the parties are fulfilling the obligations that are looking after labor rights and providing of quotas. In other words, unless the obligations are enforced, the whole purpose of the agreement will fail. So if Cambodia does not fulfill its labor obligations, the US can refuse to provide quotas. If Cambodia fulfills obligations and the US does not provide quotas, they can enforce the agreement through diplomatic and political means. Polaski adds there are also several underlying factors involved. They are penalties for non-compliance, incentives which can be both positive and negative, the role of the private sector and finally assistance to be provided along with capacity building. Polaski also states that the US-Cambodia textile agreement has fulfilled all the factors mentioned in her paper. There are clear cut obligations on the part of Cambodia to look after employee welfare and rights and provision of quotas on the part of the United States. There are penalties primarily for the factory owners. It is also in the form of a negative or positive incentive. There is no compulsory law that provides every factory owner in implementing the conditions. But only those who do so are provided the quotas as decided by the Cambodian government. The US also provides positive or negative incentive to Cambodia. The more Cambodia enforces its obligations, the more quotas will be provided. The Cambodian government has set a task force which is trained and staffed by local ILO employees who publish reports regarding progress made. The initial reports only provide statistics as a whole and do not name any individual company. Subsequent reports name the companies involved and those who not able to implement the obligations properly. Here again companies are provided with a list things to be done to correct problems and a time frame to do so. This is checked again in subsequent inspections. The whole process is monitored by an organization called Better Factories Cambodia. This organization “aims to improve working conditions in Cambodia’s export garment factories. It combines independent monitoring with finding solutions, through suggestions to management, training, advice and information” (Welcome to Better Factories Cambodia). This statement again underlies the fact that all the main and underlying factors in bilateral trade agreements with social chapters are being complied with. The organization’s 2007 report show that there have been marked improvement in areas like providing regular wages, leave, overtime, labor relations, allowing trade unionism etc. Areas that need improvement include better working conditions, better furniture, health and protection, crèche, health and hygiene. What is credible is that the inspection continues even after the bilateral agreement became redundant after the quota system was abandoned by the WTO in 2004. This will be dealt in more detail in the next section. The current scenario, the one after abolition of quotas will also be discussed. But on the whole, there have been tremendous improvement in worker welfare and rights and is considered to a real success story with regard to bilateral agreements that contain social chapters and other conditions and obligations. This is what makes the Cambodia Textile Bilateral Agreement special when compared to other international agreements in the country and elsewhere. It has practically all the components seen in a typical bilateral agreement with social chapters. It also has satisfied the conditions that satisfy the primary and underlying factors required to make this an agreement with social factors. Research and report on the Cambodian government’s level of support for a linkage between labour rights and free trade within the WTO since the first agreement ceased? Surprisingly, Cambodia became a member of the World Trade Organization (WTO) nearly seven years after the Cambodia Textile Bilateral Agreement. The country had seen major internal upheavals and unrest and was keen to become part of the international community. Any literature with regard to international trade with regard to the country mostly ends up mentioning its textile industry. Cambodia had asked for membership in the body by 1994, and was admitted as a member by the end of 2003. As mentioned in earlier sections, the country had made rapid progress in the area of improvement to domestic textile manufacturing due to substantial increase in exports, primarily due to the bilateral agreement with the United States. The agreement which was to end in three years starting 1999 was extended up to 2004. In effect the agreement ran without break until quota abolition by the WTO. As per an article by the WTO, “though initial reforms have produced some positive results, the country is still plagued with major socio-economic problems. Its engine of growth for the past few years — the garment industry — is facing uncertainty and is looking towards the WTO for solutions” (Chea and Sok). What must be noted here is that the problems which now face the industry had come up after the abolition of quota by the WTO. Till that time, the government was assured of export orders from the United States and European countries as long as the government assured that labor was looked after. But there have been some areas of marked decline after the quota regime had ceased to exist internationally. It should be noted that Cambodia has been made to (through aggressive bilateralism) to reduce its own tariff on imports on fibers and yarns especially from the United States. The country was dependent on other markets for these primary raw materials and the US had made this as a mandatory requirement in the agreement. There are two specific time frames with regard to the agreement. One is when it was extended for a period of three more years up to 2004 and the period when the quota system was abolished. But it is creditable that Cambodia continues its inspection on textile factories in the country even today. A report by the Better Factories Cambodia in 2007 is testimony to this fact. Relevant parts from the report are given here for reference which covers a period of six months starting from November 2006 to April 2007. The momentum has continued during the period when the agreement was valid and has even extended even after that. According to the Better Factories organization, “better Factories Cambodia has now developed a world-first information management system (IMS) for monitoring and reporting on working conditions. The IMS is a totally computerized system for collecting, storing and analyzing data. It enables the generation of reports tailored to user needs, and provides enhanced security, easy access to information, and greater transparency” (Information management systems 2007, 1). Before going into the specifics of the report, it is to be mentioned that there are many criticisms from various organizations and trade unions about the problems faced by textile workers in the country after the quota system has been abolished. They shall be provided after a review of the said report. This is because the report is by a government organization and independent opinions by others related to the field should also be taken into account. The number of factories inspected rose to 287 from 270 six months back and the number of employees in all the factories combined was over 330,000. The number of employees in each factory ranged from under five hundred to more than five thousand. But one year later (2008 report) the size of the factory according to number of workers had come down marginally in all the above categories. In fact the total number of workers had come down from a high of nearly 360,000 had come down to under 325,000. This means nearly 35,000 people have lost their jobs. Depending on the date of registration under the Better Factories, the number of inspections on factories ranged from one to six. By 2008, the highest number of visits had gone up to ten and one factory had closed down. Most of the factories were in compliance with the following factors ranging from 84% to 90% and had also shown improvements. The factors are contracts, payment of proper and regular remuneration, proper working hours, improved labor relations, safety and health factors etc. The figure for 2008 also shows the same trend. Factories having unions rose from 43% in 2007 to 79%. Allowing unions was very poor in the country prior to the agreement. One indicator of good labor relations is the existence of unions because they can ensure and bargain for better working conditions. Areas where most factories were found wanting in 2007 was day care for children, working conditions, lack of proper chairs and furniture, infirmary facilities, overtime salaries etc. The 2008 report indicate that not much improvement had occurred over the year. In both reports child labor usage was very low which means compliance with international laws. On the whole both reports show a good picture of the labor welfare and rights situation in Cambodia even after the agreement and quota system was withdrawn. This is reflected in a statement that appeared in the Comparative Labor Law & Policy Journal, “between 1999 and 2004, Cambodia went from one of the worst violators of core ILO labor standards to ranking ahead of all its regional competitors in compliance” (Don 2006). The negative side: According to the Workers Rights Consortium, “As many observers have recognized, gains made for the rights of workers in the global apparel industry are very often of the “two steps forward, one step back” variety” (Nova 2009). This came about primarily due to the stopping of the quota and controlled exports system by the World Trade Organization. Now importers of cloth could look for markets that could provide garments at cheaper rates without looking at social clauses and quotas. This was good news especially for China whose employee welfare rights are not very good, but could provide garments at competitive rates. It became a reality and many countries began to see fall in exports in favor of China. Slowdown in the industry due to cancellation of quotas and the general global economic crisis has had repercussions in Cambodia also. One of the major ones was the laws proposed the Government which allows indefinite renewal of contract workers. This means that factories can keep employees for as long as they like on a contract basis without making them permanent. There is no job security in such a situation. This has also brought down the power of the unions because those who object may not get their contracts renewed as a punishment. Employers can also save on other social guarantees that are due only to permanent workers because employees can now be treated as contract (temporary) workers (Sokha 2009). The closure of factories (permanently and temporarily) has also resulted in loss of jobs. Now factories can dismiss employees without paying compensation as per rules because they are contract workers. In 2008 alone, “more than 30 garment factories were closed, leaving thousands jobless. Five factories shut down in Jan. 2009 alone, according to leaders of garment worker unions” (Cambodians, face job losses, hardship 2009). Incidence of violence against trade union leaders and activists also exists. Since 2004 three leaders of the Free Trade Union of Workers of the Kingdom of Cambodia were killed (FTUWKC). According to a joint statement released by the union, “this pattern of violence, and the climate of fear it creates for trade union leaders and workers must be stopped (Call for justice - Joint statement 2007). Conclusion: It can be seen that Cambodia has mixed results with regard to labor relations especially after 1999. The country has made great improvements in employer welfare and rights since the agreement with the United States and is still continuing in most areas. Many jobs have been created and the garment industry thrived for a period of five to six years. The situation is not too bad because part of the slowdown in business is partly due to global recession. But security and trade union freedom has come down and violence against its activists is present. Employees are not in a position to bargain for their rights for fear of job loss. Factories are being forced to close down permanently or temporarily creating unemployment. Many workers are not sure when or if their factory will reopen creating confusion and uncertainty. But on the whole, the labor welfare and rights in the country in the garment industry has improved dramatically when compared to the 1990s. One factor that must be improved to maintain this is to improve worker productivity like in China where it is very high. This can help the country to compete with China and other nations where productivity is high. But for this, the government and factory owners have to have good labor relations, welfare, and job security. References Call for justice – Joint statement. 2007. Free Trade Union of Workers of the Kingdom of Cambodia. http://www.ftuwkc.org/Joint%20Statement%20and%20BSR%20on%20the%203%20killing%20cases.pdf (accessed September 5, 2009) Cambodians, face job losses, hardship. 2009. Radio Free Asia. http://www.rfa.org/english/news/cambodia/cambodiagarmentworkers-02122009174750.html (accessed September 5, 2009) Chea and Sok. Cambodia’s Accession to the WTO: ‘Fast Track’ Accession by a Least Developed Country. World Trade Organization http://www.wto.org/english/res_e/booksp_e/casestudies_e/case8_e.htm (accessed September 5, 2009 Impact of US-Cambodia agreement: Positive but unfinished. 2001. Lawyers Committee for Human Rights. 1. Provided by student Information management systems. 2007. Better Factories Cambodia. Provided by student Labor standards. 1999. Cambodia Bilateral Textile Agreement, US Embassy Cambodia. 4. http://cambodia.usembassy.gov/uploads/images/M9rzdrzMKGi6Ajf0SIuJRA/uskh_texttile.pdf (accessed September 5, 2009 Nova, Scott. 2009. Workers Rights Consortium. http://www.workersrights.org/university/memo/051209.html (accessed September 5, 2009) Pizarro, Ramirez. 1999. International Trade and Development Finance Division, United Nations. 15. http://www.asiayargentina.com/pdf/211-pizarro.pdf (accessed September 5, 2009) Polaski, Sandra. 2004. Protecting labor rights through trade agreements: An analytical guide, University of California, 14. http://www.carnegieendowment.org/files/2004-07-polaski-JILP.pdf (accessed September 5, 2009) The four strategic objectives. International Labor Organization. http://www.ilo.org/global/About_the_ILO/Mission_and_objectives/lang--en/index.htm (accessed September 5, 2009) Sokha, Duong. 2009. Cambodia Ka-set. http://cambodia.ka-set.info/economics/news-employment-job-insecurity-unions-work-confederation-unionists-amendment-workers-090303.html (accessed September 5, 2009) The importance to Cambodia of the clothing sector . 2005. Trade Union World Report. The International Confederation of Free Trade Unions. Provided by student) Welcome to Better Factories Cambodia. Better Factories. http://www.betterfactories.org/ILO/default.aspx?z=1&c=1 (accessed September 5, 2009) Wells, Don. Best Practices in the Regulation of International Labor Standards: Lessons of the U.S.-Cambodia Textile Agreement. Comparative Labor Law & Policy Journal. 27(2006). 357- 371 Read More