Cambodia's garment mills face impasse
The once-favorable US tariffs that built a labor-friendly garment industry may now be its undoing.
Phnom Penh, Cambodia — Not much gets made in Cambodia except clothes.
Garments account for an astonishing 80 percent of this impoverished Southeast Asian nation's exports, and the World Bank estimates that the industry, which was worth $2.5 billion last year, helps support – directly or indirectly – about 1 in 5 Cambodians, according to government estimates.
US trade policy essentially created Cambodia's garment industry, thanks to a 1999 bilateral deal that granted Cambodia preferential access to US markets in exchange for guarantees on labor standards. Now some argue that US trade policy – in the form of high tariffs – is helping to undo it.
The irony is especially acute because many observers now look to Cambodia as a model of labor-friendly manufacturing, and they say that if Cambodia fails, it will mean the death not just of one industry in one nation, but of the dream of ethical manufacturing itself.
"There was a door for small countries like Cambodia," says Cambodia's minister of commerce, Cham Prasidh. "Now there is no more door. Those who can produce cheaper and faster will sell more."
And that means China.
Shifts in the global garment industry are favoring more developed nations, like China, over the world's poorest. US quotas that benefited Cambodia have expired – or will soon – and the question Cambodia now faces is how to compete with nations that have better infrastructure, more qualified labor forces, deeper supply chains, faster productivity growth, and cheaper electricity.
One easy answer for Cambodia would be to have its major trading partner – the United States, which accounts for nearly two-thirds of Cambodia's garment exports – eliminate its tariffs. Cambodian officials have been lobbying Congress since 2004 to cut those tariffs, which last year averaged nearly 16 percent. China paid, on average, just over 3 percent on its top US exports.
Mr. Cham led a delegation to Washington in July to drum up support in Congress for the TRADE Act, a bipartisan bill introduced in the Senate in February that would slash tariffs on goods from 14 poor Asian nations, including Cambodia.
The US already provides generous trade benefits to many of the world's poorest countries through regional agreements in Africa and the Caribbean, and the EU and Canada already grant Cambodia access to their markets nearly duty- and quota-free.
Cambodian officials are hoping that later this month, House Democrats will introduce legislation that would exempt all of the world's poorest nations, including Cambodia, from tariffs.
Roland Eng, Cambodia's former ambassador to the US, maintains that legislation favoring poor countries won't affect the level of US imports, merely the pattern. "Instead of importing from China, you will import more from least-developed countries," says Mr. Eng. "We're not preventing jobs from going to the US; we're preventing jobs from going to China," he adds.
For an underdeveloped nation, Cambodia already pays relatively more in duties than some developed economies. Edward Gresser, the director of the trade and global markets project at the Washington-based Progressive Policy Institute, said in an e-mail that as of mid-2006, the US had collected $196 million in tariffs on $1.1 billion worth of Cambodian goods, but only $199 million on $27 billion in imports from Britain.
For its part, the US Embassy in Phnom Penh says that the United States is considering trade benefits for Cambodia, but within the stalled Doha round of negotiations at the World Trade Organization. Government and garment-industry officials in Cambodia are hoping for a faster, more localized solution. They say they can't afford to wait.
Next year, US safeguards on Chinese garment imports are set to expire and international monitoring of Cambodia's factories, a cornerstone of Cambodia's 1999 trade deal with the US, may also cease. That could spell the end of Cambodia's labor-friendly garment sector, which has been held up as a model by the industrialized world.
But despite the good intentions, Cambodia's good labor practices cost money in the long term, and Van Sou Ieng, the chairman of the Garment Manufacturer's Association of Cambodia, says it will be hard to live up to those standards if Cambodia can't compete on price, which he says is impossible without tariff relief.
Eng says the social and economic costs of a garment sector slowdown would be enormous. Most garment workers are women, who have left the traditionally protective structures of family and village that govern rural life. Unemployed, Eng says they will be particularly vulnerable to HIV infection and human trafficking. "All the social efforts of the past ten years will be in vain," he says.
It wasn't supposed to be that way. Rachel Louise Snyder, author of the forthcoming book "Fugitive Denim: A Moving Story of People and Pants in the Borderless World of Global Trade," says that if Cambodia's garment industry fails, the ramifications will extend far beyond the borders of this tiny nation.
"The industrialized world has set them up as an example of great positive social change that can be achieved with political and economic will," says Ms. Synder, who lives in Phnom Penh. "What does it say to the rest of the world if we allow them to fail?"