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.

History of Donor Activity in Cambodia

Although it received support from the Soviet Union, Cambodia was practically isolated from external assistance throughout the 1980s by virtue of the international embargo imposed by the West during the People’s Republic of Kampuchea (PRK) years. Hence, there was widespread hunger, malnutrition and poor health.
But since the signing of the Paris Agreement in 1991, the international donor community has been active in development work providing financial and technical assistance to Cambodia. By the end of 1990s, Cambodia received close to $ 2.5 billion in foreign assistance. (CDRI 2002).
Much of the foreign support extended by development partners in Cambodia since 1991, were targeted towards the country’s social sectors including education and health, primarily to help Cambodians meet their basic needs in the short run. It was much like a first aid response of donors for the deprived population of Cambodia, which heavily suffered from the international aid embargo previously imposed.

Aside from the provision of the basic needs, the restoration of democracy and economic growth were also given emphasis. In fact, the bulk of assistance from numerous donors in the 1990s, not only for Cambodia but for most developing countries were concentrated only on three major sectors - social infrastructures and services, general aid program, and economic infrastructures. Combined, these three sectors took up about 60% of the total aid funds of key bilateral and multilateral donors from 1990 to 1992. (see Thiele et. al. 2006).

Today, Japan, France, Australia, and the United States are among the major bilateral donors of Cambodia. Currently, Japan is the country’s largest donor. Meanwhile, China provides substantial bilateral aid. Economic links between the two countries have also increased in the recent years.

With substantial support from the international community, Cambodia made significant progress within the first half of the 1990s in terms of financial stability and economic recovery. However, future prospects of socioeconomic development for Cambodia depend on the country’s ability to effect reforms towards good governance, including control of corruption, and revision of investment policies among others. The donor community recognizes this, hence has started prioritizing crucial areas such as good governance, control of corruption, local capacity building and private sector participation.

Article by: D.Medrana, 2007
References:
Cambodia Development Resource Institute (CDRI). 2002. Economy Watch – Domestic Performance. Cambodian Development Review. Cambodia: CDRI


Thiele, Rainer, Peter Nunnenkamp and Axel Dreher. 2006. Sectoral Aid Priorities: Are Donors really doing their best to achieve the Millennium Development Goals?. Working Papers. No. 124. Swiss Federal Institute of Technology Zurich.