Cambodia pitches sweat-free wear

With overtime, Miss Om brings home $70 a month. She's seen the price tag that goes on these US-bound shirts: $40.

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"I used to wonder how people could pay so much for these shirts," she says, laughing at the question. "But I realize the factory has to make a profit."

But keeping Cambodia's garment factories profitable in the face of global competition isn't easy. Oeung Samol, the supervisor at Archid Garment Factory, says orders are down sharply this year and about 100 of 700 workers have been laid off. Like other manufacturers, he blames the downturn on surging Chinese exports following the abolition of a decades-old quota system on Jan 1.

Prodded by domestic textile companies, the European Union has joined the US government in launching an investigation into the sharp rise of garments from China that could trigger import curbs. But analysts say long-term trends in the garment trade favor large producers like China and India, as buyers place bigger orders and demand lower prices.

That leaves small garment producers like Cambodia, which ships most of its output to the US, facing potential ruin, as the industry employs 65 percent of its manufacturing workforce.

But Cambodia may have a trick up its sleeve. In an industry often accused of exploiting sweatshop labor, Cambodia says it offers the opposite: unionized workers paid fairly in safe conditions. Regular inspections by a third-party watchdog keep managers on their toes and give companies with a conscience an incentive to buy Cambodian.

The monitoring is the result of a 1999 US-Cambodia trade deal that rewarded garment exporters who improved labor conditions. It's a model that some say could be adapted by other countries seeking to stay ahead of cutthroat competition under the new trade laws.

"If I was a developing country trying to promote my textile industry, I'd be finding ways to say, 'look, we also have this advantage [of high labor standards].' It's been shown that buyers do respond to this," says Sandra Polanski, a former State Department official who helped negotiate the Cambodia trade pact and now works at the Carnegie Endowment.

Proponents point to a World Bank survey of international buyers in 2004 that ranked Cambodia above its competitors in terms of its treatment of workers. More than 60 percent of companies who sourced Cambodian apparel said compliance with labor standards was of equal or greater importance than price, quality, and speed of delivery.

The reason: 86 percent of the buyers reckoned that labor standards mattered to their customers, underscoring the risk to retailers of being called out by anti-sweatshop activists. Among the brands sourcing Cambodian garments are Gap, H&M, and Levis.

But garment factories here must still compete on price. "You've got to be in the game to play. If you're not price-competitive, then you're not even in the game," says Magdi Amin, a regional private-sector development specialist at the World Bank in Washington.

Wages make up about 15 percent of the cost of Om's $40 shirt. What hobbles small countries are the price of importing cotton and other fabrics and the rickety infrastructure that slows delivery times. China pays higher wages, but has greater productivity as well as faster roads and ports.

Then there's corruption: according to the Garment Manufacturers Association of Cambodia (GMAC), kickbacks to government officials add between 10 and 12 percent to production costs. In response to complaints, the government has begun to cut red tape by reducing the number of approvals needed for exports.

Still, the surge in Chinese exports is beginning to hurt. Since Jan. 1, 12 factories have closed and 24 have suspended operations, says Ken Loo, secretary general of the GMAC. Some foreign investors are switching to China.

The closures have cut about 20,000 jobs and angered unionists who say workers are being denied adequate protection. Last year a prominent union leader, Chea Vichea, was gunned down in public and labor relations are often tense, with almost daily strikes.

The International Labor Organization (ILO), which monitors Cambodia's garment factories, says that while conditions are improving, some factories force workers to do overtime and underpay them. "This is not a workers' paradise. There are still violations - serious violations - of the labor law," says Ros Harvey, chief technical adviser to the ILO.

Some manufacturers remain skeptical as to whether they can leverage Cambodia's record on complying with labor standards. "Most buyers are not willing to pay more for compliance," says Loo. "There's only a select group of buyers that have come out and shown that they are willing to pay more."

On the other hand, 14 new factories have opened this year, and others are adding new lines. Among those keen to buy Cambodian is British chain Marks & Spencer. In April, New Island Co., a Cambodian supplier, opened a $1.5 million factory near Phnom Penh's airport.