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New trade regime in textiles and clothing How Cambodian factories improved their image

With the end of the global textile quota system last year, the textiles and clothing (TC) sector has been experiencing another global revolution. While many observers saw the lifting of restrictions as a potential catastrophe for the domestic textile and clothing industry in a number of countries, the overall picture is more contrasted than expected. This is one of the findings of a new ILO study prepared for a meeting ( Note 1) to be held in Geneva from 24-26 October which will also examine ways to ensure a fair globalization process in the TC sector. ILO Online reports from Cambodia where an ILO project helped the garment industry to deal with the phase-out of the Multi-Fibre Arrangement (MFA).

Article | 26 October 2005

PHNOM PENH, Cambodia (ILO Online) - The Walt Disney Company banned manufacturers from making its branded clothing in Cambodia after textile companies were accused of violating international labour standards. But Disney has now allowed production with a limited number of factories due to the ILO's Better Factories Cambodia project, and expects to make a decision on lifting the ban in mid-2006.

The project has improved working conditions for Cambodia's 270,000 garment workers and boosted the value of exports to the United States by 17 per cent between January and April this year. Next year, the project will receive its first financial support from big western companies, including Gap Inc., Nike Inc., Reebok International Ltd., Adidas Group, Levi Strauss & Co., Sears Holdings Corp., Wal-Mart Stores Inc., Hennes and Mauritz (H & M), the Children's Place Retail Stores Inc. and The Walt Disney Company.

The foundation for the unique programme was laid in 1999 through a trade agreement between the United States and Cambodia which promised greater access to the US market if Cambodian factories improved working conditions, through the application of Cambodian Labour Law and international labour standards.

The project takes a multi-faceted approach to ensuring a cycle of improvement, including monitoring, direct remediation and capacity building. The most well-known aspect is the monitoring. Factories submit to surprise inspections by ILO monitors the results of which are made public. The recently published synthesis report, the 13th in a series, finds no evidence of forced labour or child labour in any of the 60 factories covered and notes significant progress in improving working conditions.

"Clearly bonus quotas supplied the initial motivation for improvements in working conditions in Cambodia's garment factories. However, with the end of the quota system, Cambodia has chosen to continue to take the high road to improving working conditions and applying labour standards, since this has proven to been beneficial to all concerned: workers, manufacturers, the Cambodian economy, and international buyers", comments Sally Paxton, ILO Executive Director for the Social Dialogue Sector.

The Royal Government of Cambodia requires all export garment factories to register with Better Factories Cambodia for monitoring. The Government, employers' organizations, unions and international buyers have all agreed to a sustainability strategy which includes that they will increasingly pick up the costs of the project until it is fully self-financing.

Winners and losers

Other Asian countries, often cited as potential losers under the new regime do not seem to be greatly affected by the end of the quota system, according to the study. In Bangladesh, garment exports declined in January 2005 by US$ 52 million but strongly recovered in February by US$ 157 million and slightly increased again in March. Two components of the country's Post-MFA Action Plan are socially oriented.

On the other hand, India, regarded as one of the major potential beneficiaries of the new trade regime, presents a more complex picture. The country recorded a 28 per cent growth in textiles exports for the first three months of the year compared with the same period in 2004, but also experienced a 24 per cent fall in garment exports losing market share to China in TC products.

Pakistan, by contrast, has largely benefited from the elimination of quantitative restrictions. TC exports during the first four months of 2005 reached a record level and underwent average monthly growth of 22.1 per cent when compared with the same period in 2004.

According to the study, China is reinforcing its penetration of the major TC markets. As anticipated in most of the post-quota scenarios, employment in the United States and European Union (EU) TC industry fell at the end of 2004 and during the first months of 2005, declining by 6.5 per cent between May 2004 and May 2005 in the United States and by 5 per cent between February 2004 and February 2005 in the 25 member States of the EU.

While most Asian countries seem to be on the winners' side, Africa and Latin America are the continents most affected by the end of quotas. During the first three months of 2005, TC exports to the United States under the terms of the African Growth and Opportunity Act (AGOA) fell by 25 per cent compared to the same period in 2004. Of the 39,000 jobs generated by the TC industry in Kenya, some 6,000 have disappeared since October 2004 and half of all TC employment is estimated to be at risk.

With increased competition from Asia, most Latin American TC producers have also lost market share in the recent past. The study cites Mexico which has failed to compete efficiently and lost much of the revenue once generated by its TC industry.

Promoting fair globalization in the TC sector

The ILO tripartite meeting will examine various innovative approaches in a number of countries and TC enterprises, including the Cambodian experience, in their search for improved competitiveness. The experiences are expected to provide useful material for debate and discussion, with the aim of elaborating a global strategy to promote fair globalization in the TC sector.

In 2002, the ILO and the Government of Morocco launched a Decent Work Pilot Program focusing on the TC sector. The action plan has two components: the first relates to the improvement of social dialogue at enterprise and industry level; the second focuses on measures to boost competitiveness through enhancing the quality of employment.

"It is our strong conviction that industry restructuring and upgrading must be based on strengthening the social dimension, which has to be promoted in an integrated way, coordinating it with the economic dimension… it is with men and women that we intend to give the industry a new face", explains Salah-Eddine Mezouar, former President of the Moroccan Textile and Apparel Manufacturers Association, Minister of Industry and Economic Upgrading.

The ILO has implemented similar programmes in Romania and the Philippines. In Madagascar, a project launched in 2004 uses a similar approach to improve the productivity of export-processing zones through decent work promotion.

In their search for improved competitiveness, a number of countries and TC enterprises have developed innovative integrated approaches.

Sally Paxton notes that, "As global competition increases, countries need to find ways to keep and develop their markets. Working with the ILO, Cambodia has elected a holistic strategy through improving working conditions and compliance with labour standards, increasing productivity and promoting dialogue. This strategy has proven to be the country's key to competitiveness. Cambodia's success in attracting international buyers and increased orders has provided an example of how compliance with labour standards is good for business".

"The experience of Cambodia is one example of a successful strategy, the underlying principles of which could provide inspiration for the elaboration of a global strategy to promote fair globalization in the post-MFA environment", she concludes.

Note 1 - Promoting fair globalization in textiles and clothing in a post-MFA environment. Report for discussion at the Tripartite Meeting on Promoting Fair Globalization in Textiles and Clothing in a Post-MFA Environment, International Labour Office, Geneva, 2005. ISBN 92-2-117495-6 (print). ISBN 92-2-117496-4 (web pdf).