CAMBODIA'S LABOR AND COMMERCE MINISTERS DOING

UNCLAS SECTION 01 OF 03 PHNOM PENH 001201

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP, EAP/MLS, DRL/IL--MARK MITTELHAUSER, AND
EAP/TPP/ABT THOMAS LERSTEN
LABOR FOR ILAB--JIM SHEA AND JONA LAI
GENEVA FOR RMA
STATE PLEASE PASS TO USTR--BARBARA WEISEL AND DAVID BISBEE

E.O. 12958: N/A
TAGS: ELAB ECON PGOV KTEX KIPR CB
SUBJECT: CAMBODIA'S LABOR AND COMMERCE MINISTERS DOING
LITTLE TO PREVENT JULY 3 STRIKE

REF: PHNOM PENH 1199 AND PREVIOUS


1. (SBU) SUMMARY. During separate June 28 meetings with the
Ministers of Commerce and Labor, the Ambassador relayed
embassy efforts to encourage both unions and garment
manufacturers to negotiate a resolution to the general strike
threatened for July 3 and urged the government to do
everything possible to avoid a strike. Neither ministry has
taken a particularly active role in preventing the strike,
though the Ministry of Labor and Vocational Training
distributed leaflets urging workers to negotiate rather than
strike. The Commerce Minister complained about union
irresponsibility and enumerated factors that hamper garment
sector competitiveness: long lead times, lack of vertical
integration, and theft. The Labor Minister described
longer-term plans to increase respect for the Labor Law and
possibly revise it. END SUMMARY.

Commerce Minister: Irresponsible Unions
--------------


2. (SBU) Cambodia's unions are irresponsible, the Minister
of Commerce asserted. The Labor Law allows just three people
to start a union, and as a result, there are 900
factory-level unions for Cambodia's 270 garment factories.
Vulnerable female factory workers, many from poor rural
communities, are sometimes harassed and threatened by union
leaders, or forced to pay bribes to secure a factory job,
Cham Prasidh said. Some unions organize illegal strikes,
threaten workers with violence if they do not participate,
and intimidate workers into joining the union. Unions don't
care if their actions lead to factory closures and
unemployment.


3. (SBU) In response to the Ambassador's suggestion that the
government should take a firmer approach to ensuring that
both unions and employers comply with the Labor Law, the
Minister remarked that the government has better success
cracking down on misconduct by factories than by unions. If
the Arbitration Council rules that a worker was wrongly
terminated, for example, the Minister can threaten to ban the
factory's exports for up to three months if the worker is not
reinstated. But there is no enforcement mechanism in place
to ensure union compliance with the Labor Law, although the
government has asked the International Labor Organization
(ILO) for help in creating a sanction system for union
misconduct.

Commerce Minister: General Strike Likely
--------------


4. (SBU) The threatened July 3 strike is unlikely to be
postponed or called off, Cham Prasidh said. He predicted
that just a few workers at each factory will participate, but
these workers could prevent others from entering the factory.
If the strike spills into a street demonstration, there
could be violence, he warned.


5. (SBU) The general strike is motivated more by the FTU's
political agenda, the Minister remarked, than by purely labor
concerns. After all, the Labor Advisory Committee (LAC) is
about to reconvene after two years of inactivity, and the FTU
could raise issues there. (Note: Because the FTU walked out
of a recent meeting to select union representatives for the
LAC, no FTU members were selected to be on the committee.
End Note.) Other unions are willing to negotiate, but Chea
Mony feels like his union has little influence over the
government, so he wants to create a scene to demonstrate the
worker's power, Cham Prasidh insisted.


6. (SBU) The Ambassador urged the Minister to do everything
possible to help avoid a strike and asked if the Minister had
spoken directly with Chea Mony or other labor leaders. The
Minister said that he had not spoken with Chea Mony about the
planned strike, and remarked that this was the responsibility
of the Ministry of Labor and Vocational Training.

Commerce Minister: Cambodia's Garment Industry Faces
Multiple Threats
-------------- --------------


PHNOM PENH 00001201 002 OF 003



7. (SBU) Cambodia's garment industry faces several other
threats, the Commerce Minister noted. Some factories have
reported that their garments are being stolen by employees
and sold in Phnom Penh markets months before they are due to
hit the shelves in the US. Some buyers are concerned about
this threat to their intellectual property rights, and in
fact Banana Republic has stopped placing orders in Cambodia
for this reason. To combat this problem, the Ministry may
announce that any export-only goods found at local market
will be seized.


8. (U) Cambodia also suffers from longer lead times and less
vertical integration than its competitors, Cham Prasidh said.
Whereas the time from when the order is placed until it
arrives on shelves is 50 to 55 days in China and 60 to 65
days in Vietnam, in Cambodia this takes 90 to 95 days.
Getting an agreement on nightshift wages would help to reduce
this inefficiency. Retail prices for clothing have dropped
30%, Prasidh commented, and garment buyers expect
manufacturers to cut production costs. In other countries,
where the garment industry is more vertically integrated,
there are more opportunities to cut costs--at fabric
production, cutting, sewing, etc. In Cambodia, where all of
the inputs are imported, cutting these costs is extremely
difficult.


9. (U) Finally, the Commerce Minister predicted that
Vietnam's entry into the World Trade Organization at the end
of the year will "suck two-thirds of Cambodia's factories out
of the country." In response to this and other economic
threats, the Prime Minister recently decided to extend
garment factories' tax holiday by an additional two years.
However, passage of the proposed TRADE Act by the US Congress
will be critical to the survival of Cambodia's garment
industry.

Labor Ministry Distributing Anti-Strike Leaflets, Working on
Medium-Term Solutions
-------------- --------------


10. (U) After thanking the embassy for its prominent role in
promoting labor dialogue and worker's rights, the labor
minister began by noting that some of the workers'
demands--like higher wages for teachers and lower gasoline
prices--were outside the purview of his Ministry. He
re-affirmed the unions right to strike, but said that they
needed to understand unions' and factories' common interest
in promoting stable labor relations.


11. (U) The MOLVT has distributed leaflets to garment
factories urging workers not to strike, the Labor Minister
said. He also noted that lack of understanding of the Labor
Law was one factor behind the strike, and said that the MOLVT
was hoping to address this issue through training for workers
and unions. The Ministry is also in the process of
re-forming the Labor Advisory Council, and expects this
re-convened body to play a major role in mediation. The
Ministry is considering proposing amendments to the Labor
Law, he noted, but did not specify what type of amendments
were under consideration.


12. (SBU) The Ambassador responded by noting that government
engagement in this issue was crucial, and that the worst
possible response would be for the government to wash its
hands of the issue. Cambodia has made remarkable economic
and political progress in recent years, and it would be
unfortunate if this general strike frightened investors and
garment buyers away. Unscrupulous unions--like the Khmer
Youth Federation--and unscrupulous factories are a particular
threat. There is a lot of distrust and misunderstanding
between unions and factory owners now, and the government can
play an important role in bringing the two sides together.


13. (U) Vong Soth noted that while he couldn't guarantee
that the unions would be patient enough to wait for the
results, the government commitment to labor issues
demonstrated by the MOLVT's efforts would help improve labor
dialogue.


14. (SBU) COMMENT. Taking their cues from the Prime
Minister's studied inattention, the Ministers of Commerce and

PHNOM PENH 00001201 003 OF 003


Labor have done surprisingly little about a general strike
that the government readily concedes is likely to turn
violent. Instead, the Commerce Minister used most of the
meeting to air old but valid complaints about how
unscrupulous unions, inefficient factories, and intense
competition from other countries threaten the Cambodian
garment industry. Meanwhile, the Labor Minister focused on
initiatives like reconvening the Labor Advisory Council,
increasing awareness of the Labor Law, and possibly
introducing revisions to the Labor Law, that could help labor
relations in the medium term but will have no impact on the
strike threatened to start in just a few days. END COMMENT.
MUSSOMELI