The Cambodian clothing industry in the post-MFA environment: a review of developments

Abstract

The period 2005–2008 provides an opportunity to examine the impact of ending the Multi-Fibre Arrangement's system of quotas on the development of Cambodia's clothing industry and the wider Cambodian economy. The question is particularly interesting because (1) Cambodia has incorporated independently monitored labour standards and trade union rights into its labour law and (2) the clothing industry plays a centrally important role in growth of exports, GDP and employment. The paper shows that with the exception of the EU market, the increasingly competitive environment did not undermine expansion of the industry prior to the onset of global recession in 2008. The reason for continued success lay mainly in improved price competitiveness through exchange rate movements and the shift of China towards more upmarket production. Productivity gains seem an unlikely source of continued rapid growth. Finally, an examination of monitoring reports indicates that labour standards did not decline as a result of increased competitive pressures. Changes scheduled to take place in the monitoring system might, however, reduce its independence and permit the growth of a sector of the industry with lower standards.

Keywords:

• Cambodia
• clothing industry
• import quotas
• labour standards

JEL classifications:

• F43
• J8
• O14

Notes

^a Factories registered with ILO monitoring project

^b Estimated by EIC. Source: Bargawi (2005); various ILO synthesis reports; EIC (2007).

Source: US Department of Commerce, office of textiles and apparel data at EmergingTextiles.com (13 August 2008).

^a Eight suspected but unconfirmed in two factories at the time of publication

^b The unionization rate in 2006 was 43% of workers in these factories and 60% in factories with over 5000 workers (ILO 2006a, p. 25). Source: ILO (2006b, 2007b, 2008).

^a In October 2007 this issue referred only to adequate staffing of the facility. Note: n.a. (not available) means that this issue did not feature in the top 10 non-compliance issues for the relevant monitoring period. Source: ILO (2006b, 2007a, 2007b); OHS, occupational health and safety.

1. From 1995, the MFA was superseded by the Agreement on Textiles and Clothing (ATC). In popular usage, however, it continued to be known as the MFA.

2. Trade unions are of particular concern, as a report on the GMAC website states: ‘several buyers expressed their concern over trade unions. A US buyer said she felt reluctant to place orders in Cambodia because she is afraid of the delay caused by strikes. There are too many trade unions in a factory, and union workers immediately went on strike for just a small problem which can be resolved through negotiations, she added. In response, we informed them that GMAC has been working with all trade unions and the Royal Government of Cambodia to improve industrial relations and compliance’ (http://www.gmac-cambodia.org/newspop.asp?newsID=37; accessed 24 December 2008; see also Chiu 2007).

3. Prior to 2000 the main ‘rest of world’ destinations for Cambodian apparel were Singapore and Vietnam. These markets all but collapsed in 2000: In the case of Vietnam the market revived slowly after 2000, but in the case of Singapore it did not begin to grow again until 2004.

4. The Asian Development Bank estimated value added in the clothing industry as slightly below this level at 28.6% (ADB 2004, p. 22).

5. Prior to 2005, successive World Bank reports had noted that the ‘investment climate in Cambodia is generally seen as unfavorable because of inconsistently enforced taxes and regulations, immature financial market, political instability, corruption, crime and poor infrastructure’ (Yamagata 2006 p. 14).

6. There was wide variation in firm size: Yamagata found that the median employment in 2003 was only 559, with the smallest at 18 and the largest at 9500.

7. Based on survey data from October 2003.

8. However, unit values of Chinese products have risen faster than can be accounted for by exchange rate movements. For further discussion see below.

9. According to Daly's analysis the major disadvantages from this result accrue to producers in low-income African countries.

10. A USAID report cites GMAC data from 2006 indicating that only 3.4% of workers were employed in factories owned by Cambodians (USAID 2007).

11. According to a more detailed study conducted in 2006, sexual harassment of workers occurred far more frequently than reported by ILO monitors, largely because workers did not understand the term well and assumed that it referred to crimes such as rape (ILO 2006a). There is considerable anecdotal evidence that Cambodian men generally regard female factory workers as ‘loose’ women.

12. The generally positive assessment of the inspection system is also affirmed by Chiu (2007) in the case of Hong Kong firms.

13. The original date for completion of the transition was the end of 2008, but the deadline has been extended.