Issues in Cambodia's Garments Industry

2006

 

The garments and textiles industry is a rapidly rising manufacturing industry in Cambodia that raked in a high revenue rate of US$1.9 Billion in year 2004. To date, the garments industry is the country’s largest source of export revenues. A total of 270,000 rural-based garments workers are directly employed in the country’s 226 clothing factories, almost ninety percent (90%) of whom are women aged between 18 and 25 years. Cambodia’s garment industry accounts for 98% of its exports, a most promising industry after the country has been stricken by poverty while recovering from the vestiges of the Khmer Rouge genocide.

 Cambodia, being the newest member of the World Trade Organization (WTO), enjoyed free and ready access to the US and European markets, thereby embracing globalization and gearing up toward global competition. Cambodia, as a developing country, enjoyed being covered by the 1974 Multi-Fiber Agreement or MFA, a US protectionist measure safeguarding the US apparel Industry. The agreement that set the stage for a quota system limited the volume of garment exports from various countries. The MFA was drafted under the oversight of the General Agreement on Tariffs and Trade (GATT).

 

The end of the 40-year existence of the Multi-Fiber Agreement (MFA) in 2004 signaled the onset of free trade that has put Cambodia’s garment and textile industry at a relatively disadvantaged economic position. The phase out of the quotas left some countries dangerously exposed with few comparative or competitive advantages. The MFA was replaced by the Agreement on Textiles and Clothing (ATC) since the former violated principles of fair multilateral trade by discriminating against developing countries especially in Asia. The ATC mandates a transitional and gradual phase out of quotas within a ten-year period by year 2005. 

In lieu of the MFA, the Agreement on Textiles and Clothing (ATC) allowed the quantities of imports under quotas to grow annually. It is an agreement that implements the phasing out of quotas under the MFA.

For a country that has been under a communist rule for 25 years, integration into the free market opens Cambodia up to a new economic system where global competitiveness may mean alteration of work practices and institutions in relation to factory labor conditions and standards. Concurrently, Cambodia possesses very few competitive advantages such as cheap labor costs and the industry’s respect for workers’ rights. However, the threat of bureaucratic problems concerning widespread corruption and its dependence on total importation of raw materials for garments production may render the future of the industry quite bleak if these constraints are not finally addressed.

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