Trading Up Read this article at The New Republic Online
by Sheridan Prasso
Post date 08.05.04 | Issue date 08.16.04

It is a Saturday afternoon on the industrial outskirts of Phnom Penh, capital of Cambodia, on the eve of a holiday. Thousands of Cambodia's 250,000 garment workers are boarding open-air trucks bound for their home provinces. They pile in excitedly, standing hip to hip for their long journeys, carrying jewelry, scarves, and other gifts for families and friends--items purchased by sewing clothes for Abercrombie & Fitch, Adidas, Ann Taylor, Gap, Kmart, The Limited, and other lesser-known multinationals. 

But these are not sweatshop workers. By local standards, they are well-paid, and they enjoy working conditions certified by the International Labor Organization (ILO) as being in "substantial compliance" with the highest labor standards. "God has blessed me," says Chean Vanna, a 34-year-old widow who feeds her three children and elderly mother on the $50 per month she earns drawing fabric patterns. "It is better to work in a factory than a rice field." 

Five years ago, these jobs didn't exist: Cambodia is the testing ground for an unprecedented trade experiment. In 1999, the United States and Cambodia signed an agreement linking U.S. garment quotas to ILO-certified improvements in working conditions in Cambodian factories. The more Cambodia improved its labor conditions, the more access it would have to U.S. markets. Nothing so explicitly linking market access to good labor practices had ever been tried before. And it has not been tried since: The Bush administration opposes such linkages, so Cambodia was the last of such trade deals. Agreements signed by the Bush administration with Morocco and with five Central American countries merely have each side pledging toothlessly to "strive to improve" their labor standards without any specific incentives or penalties. That's a shame, because Cambodia's test case has been, for the most part, a success story--not only economically, but morally as well. 

When Cambodia inked its deal with the United States, many trade experts doubted whether it was wise policy to force a poor country to undertake a drastic overhaul of its labor standards. In the trade deal's early years, in fact, it seemed more destabilizing than beneficial. As emboldened workers organized into unions, Cambodia suffered a dramatic increase in labor-management acrimony, resulting in strikes and violence that damaged the country's reputation with foreign investors. In addition, making the improvements in working conditions required by the ILO increased manufacturing costs. The garment manufacturers' association had to cover part of the cost of paying for ILO monitors (with their initial start-up fee of $200,000), and factories were required to spend the money to bring operating lines up to higher standards. Such problems may have deterred investors desiring cheaper, more compliant labor forces, and some built factories in Indonesia, Vietnam, or Bangladesh instead. 

But, for other garment manufacturers, the value of a good labor practices certification was worth the slightly higher costs. Brands like Nike and Gap, both of which came under fire during the 1990s for selling clothes made in sweatshop conditions, wanted to overcome their negative reputations with consumers. And buying from Cambodia brought better p.r. "The beauty is that we're the only ones who can walk up to corporate America and say, ... 'We don't have five million laborers like China, but we have a safe haven for labor, we don't have sweatshops,'" says Cambodia's Secretary of State for Commerce Sok Siphana. Indeed, with huge volumes of garment purchases from companies like Nike, Cambodia has tripled these annual exports since the agreement was signed. According to government figures, 97 percent of its exports in 2003 were garments, accounting for one-third of its gross domestic product, and 66 percent went to the United States. The government reports that Cambodia's economy grew by 6.3 percent in 2001 and by 5.2 percent in 2002. 

This growth has helped average Cambodians. Two hundred fifty thousand former poor rice farmers like Vanna now have jobs paying between $45 and $90 per month in a country where civil servants make, on average, $34.50. The money Vanna and others send back to their home provinces sustains entire families; today, government statistics show that 25 percent of Cambodia's population depends on the $15.8 million per month in wages paid to these garment workers. 

Labor disputes still remain a problem and spill over into other industries: In April, the Raffles hotel chain, which owns two luxury hotels in Cambodia, fired some 300 striking workers who are currently agitating for job reinstatement. Still, the garment pact has helped teach Cambodians how to stand up for their rights--the country now has more than 200 labor unions--and many managers have gotten used to workers being organized. In general, although there is some agitation for wage increases, labor-management relations are better than they were when the agreement was inked. On the whole, says Siphana, the trade experiment has benefited Cambodia. "It does work for us," he says. "But it was not a walk in the park. ... Other countries who want to do this had better think hard about how they will manage. If they don't have the [ability] to manage strong labor, it will fail." 

Cambodia still faces obstacles. In January 2005, the World Trade Organization (WTO) will remove all quotas on textiles. Cambodia hopes to join the WTO by then. If it does, it will face direct competition for Western markets with textile giant China--without the protection of quotas. "The garment sector here has maybe three to five years before the good things are swamped by all the other things going on here," says one Western diplomat in Phnom Penh. "Unless Cambodia makes long-term changes to its infrastructure, its roads and ports, its power grid, its bureaucracy and corruption, all this is going to go away." 

He has a point. Infrastructure problems and corruption in Cambodia increase costs to manufacturers. The country has just one narrow road leading to its sole deep-water port in the city of Sihanoukville. It costs roughly $2,000 more in Cambodia to export a container by sea, the diplomat says, more than in most other Asian nations, and it takes six times as long. Worse, Cambodia's electricity rates are among the highest in the world, and the country still suffers from political instability. Elections held in July 2003 resulted in a stalemate that left the country without a functioning government until earlier this summer. These difficulties have scared off some foreign investors. In 2001, they pledged $150 million; in 2003 they pledged only $135 million. 

And Cambodia has another looming problem: 60 percent of its 12 million people are under 20 years old. "Stasis is not going to work when you'll have several hundred thousand people seeking to join the job market year after year after year," argues the diplomat. "In 2008, you might have as many new job seekers in that year alone as you have current employment in all of the garment sector. Where are they going to work?" 

That's a question with no easy answer, especially if garment manufacturers fed up with Cambodia's other problems decide to go elsewhere. "We want these factories to continue here for a long time," says Hum Srey Neun, a 21-year-old garment worker from central Cambodia. If they do, the Cambodian model could one day transform the garment industry around the world.

Sheridan Prasso recently completed a Knight International Press Fellowship in China, and is a contributing editor for BusinessWeek .