The development of the Cambodian economy and especially the rise of Cambodia’s cut-make-trim (CMT) based garment exports are rightly presented as success stories. Since the late 1990s, Cambodia’s open-door policy to investors and structural support from the international community have led to impressive economic expansion of roughly 7% per annum. Preferential international market access to the US and the European Union (EU) has also helped the Kingdom to become the world’s eighth-largest exporter of garments and footwear, with annual exports around US$9.2bn. Around half of these shipments – US$4.7bn – went to the EU in 2018, while one-quarter – US$2.4bn – went to the US. All of which means that today, also taking into account the numerous unregistered subcontractors, Cambodia’s textile/clothing/leather industry probably employs one million people.
Positive evolutions
Apart from employment and export growth, other positive evolutions include improved compliance, better pay, fewer worker fainting’s, and higher productivity. Cambodia is the flagship programme of the Better Work initiative jointly implemented by the International Labour Organization (ILO) and the International Finance Corporation (IFC), which also operates in Bangladesh, Ethiopia, Indonesia, Vietnam, Jordan, Haïti and Nicaragua, with plans to expand further in countries like Egypt, Myanmar and Pakistan. Sara Park, deputy programme manager of Better Factories Cambodia – which monitors more than 580 exporting factories with 750,000 workers – points out that Cambodia is the only country where the compliance programme is mandatory. In other countries the initiative – which is held in high regard by reputable brands as by independent labour unions – is voluntary. The Cambodian monthly minimum salary has surged from US$140 in January 2016 to US$182 in January 2019, and is set to rise to $190 from January 2020. Ken Loo, secretary general of the Garment Manufacturers Association in Cambodia (GMAC), explains that in 2018 Cambodia’s GDP per capita amounted to US$1,512 – which is much less than the US$2,184 a garment worker gets from the current minimum salary alone (without overtime pay and legal provisions). Mass faintings of workers in Cambodia’s clothing factories once blighted the sector, but have been falling thanks to several initiatives to enhance workers’ awareness of the importance of sufficient, safe and nutritious food. And due to ongoing training efforts, productivity in Cambodia’s garment factories is increasing. “If you set average labour productivity in China’s garment factories at 100%, I’d estimate that Cambodia is now at 60%, lower than Vietnam at 80%, but surely higher than Myanmar at 50%,” Ken Loo says. Andrew Tey, centre director at the Cambodian Garment Training Institute (CGTI) explains that CGTI has been training 1,680 short course students and 31 diploma graduates this year. CGTI is now targeting 2,000 short course trainees and 60 diploma graduates. Compared to a few years ago, more Cambodians are working in the middle management level, such as quality assurance manager, compliance officer or senior sewing supervisor, Tey explains. This is a positive step, given that around 98% of the garment exporting factories in Cambodia are in foreign hands, with investors mainly from China (70%) and Korea (10%) who tend to rely on foreign middle management.
Trade preferences threatened
But there are also dark clouds hanging above the industry, not least of which is the threat to Cambodia’s economy due to its heavy reliance on CMT-production and garment exports, which account for more than 70% of total merchandise exports. “In the last five years, our garment exports to the EU steadily increased by about 15% per year. But in the first half of 2019, these exports dropped by 7%. Apparently the threat of temporary suspension of Cambodia’s EBA status (Everything but Arms) by the EU is influencing buyers’ policies,” GMAC’s Loo worries. Apparel exports from Cambodia have enjoyed duty-free access to the EU under the Everything but Arms programme since 2001, but because of concerns about the country’s declining human rights and the rule of law, its EBA eligibility is currently being reviewed. If the EU does decide to go ahead with this suspension, Cambodia’s apparel exports from Cambodia will be subject to the most-favored-nation (MFN) rate – which averages 12% according to the resource by just-style strategic sourcing tool – as early as 2020. At the Cambodia International Textile & Garment Industry Exhibition in Phnom Penh last month, Mr. Aaron, sales manager of Southeast Asia for Jack Sewing Machine (China), remarked that the smaller garment producers in Cambodia are abstaining from investing in sewing machines amid fear of the EBA suspension. The bigger manufacturing companies seem to be at ease, he said, because they have made arrangements with buyers in case the EBA suspension occurs, and are continuing to invest as usual. GMAC’s Ken Loo is pleased that during the first seven months of 2019 Cambodian exports to the US have seen strong growth: apparel up 6.4% to US$1.45bn, footwear up 33% to US$244m, and travel goods up 138% to US$493m. The statistics also indicate the importance of favorable trade agreements, with Cambodia’s exports of travel goods (travel and sports bags, backpacks, handbags, wallets) spurred by a change in the US’s Generalized System of Preferences (GSP). In 2016, the US granted duty-free access for these goods made in Cambodia, dropping the tariffs that had ranged from 4.5% to 20%. But it is not just Cambodia’s duty-free EBA status on exports to the EU that are under threat. In February this year, two US Congressmen introduced bipartisan legislation requiring the Trump administration to review the preferential GSP trade treatment that Cambodia receives from the US. “Hun Sen and his regime must pay a price for their role in destroying the rule of law and violating the basic freedoms of the Cambodian people,” one of the Congressmen argued. EU Commissioner Cecilia Malmström said something similar: “There are severe deficiencies when it comes to human rights and labour rights in Cambodia that the government needs to tackle if it wants to keep its country’s privileged access to our market.” The moves by both the EU and US have been described as “worrying developments” for companies that source from the country. Indeed, according to this year’s ‘2019 Fashion Industry Benchmarking Study’ published by the United States Fashion Industry Association (USFIA), Cambodia is the fifth most popular sourcing base for US apparel executives after China, Vietnam, India and Indonesia. But even as they are searching for alternative suppliers to China amid the ongoing trade war with the US, survey respondents also expressed reservations over the increasing compliance risk involved in sourcing from Cambodia.
Unions sidelined
Commenting on the fall in the number of strikes and demonstrations in the country during the first quarter of 2019, the Cambodian Minister of Labour said the decline was largely due to the effective implementation of the Trade Union Law, adopted in May 2016. Union leader Ath Thorn (C.CAWDU) confirms that it has become extremely difficult for unions to organize actions. Last month, GMAC urged the EU to maintain the EBA programme, referring to the sector’s progress and compliance record with respect to national laws and ILO standards. “Everything is now in the hands of the EU. We don’t deserve being punished. Our hope is that, in case of EBA withdrawal, at least our industry is not affected,” Loo now says. Dr. Frank Hofer, executive director of the ACT (Action, Collaboration, and Transformation) living wage initiative, regrets that there is not yet a collective bargaining agreement on a living wage for the Cambodian workers. “As ACT, we are convinced that pioneering a collective bargaining agreement supported by international brands is the single most important contribution employers, trade unions and brands can make to help to secure the EU trade preferences for the garment industry,”
