GOVERNMENT PREEMPTS BILATERAL LABOR NEGOTIATIONS

UNCLAS SECTION 01 OF 03 PHNOM PENH 001928

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E.O. 12958: N/A
TAGS: ELAB ECON KTEX CB
SUBJECT: GOVERNMENT PREEMPTS BILATERAL LABOR NEGOTIATIONS
WITH NEW MINIMUM WAGE



1. (SBU) Summary: After more than a month of slow progress,
the government preempted the final round of negotiations
between garment factories and workers by increasing the
minimum wage from USD 45 to USD 50 per month. After the
fourth round of negotiations on October 13 left the two sides
still USD 10 apart, the Ambassador met with union leaders on
October 19 to urge flexibility. The new minimum wage, which
is less over three years than the last offer from the garment
factories, will be applicable only in the garment and shoe
industries and will be in effect for three years starting
January 1, 2007. While factory owners were relieved and many
unions angered by the decision, the two sides decided to
continue their bilateral negotiations by focusing on illegal
strikes, binding arbitration, and other issues. The
negotiating process has forged new partnerships between more
legitimate pro-government unions and their independent and
pro-opposition counterparts, while isolating pro-government
unions who show little real concern for the workers they
represent. End summary.

More Slow Progress in Minimum Wage Negotiations
-------------- --


2. (U) During four hours of negotiations on October 13,
unions reduced their proposed first year minimum wage
slightly, from USD 63 per month to USD 62 per month. More
significantly, they dropped their demands for 10% increases
in two subsequent years, meaning that under their new
proposal the minimum wage would have stayed at USD 62 for
three years, rather than rising from USD 63 in the first year
to USD 76 by the third year of the agreement. The Garment
Manufacturers Association of Cambodia (GMAC) responded with a
token raise in their proposed first year increase, from USD
47.75 to USD 48, and retained their earlier proposals for USD
50 in the second year and USD 52 in the third year. (Note:
The current garment sector minimum wage is USD 45 per month.
End Note.)


3. (SBU) International Labor Organization Chief Technical
Advisor John Ritchotte had urged GMAC to break the month-long
virtual impasse by placing their best offer on the table,
giving the unions a realistic proposal they could take back
to their workers. GMAC's customary 25 cent increase was a
disappointment. However, GMAC Chairman Van Sou Ieng told
Pol/Econ Chief that some factories felt that GMAC's current
offer was already too generous, and that he had little room
to maneuver.

Ambassador Urges Flexibility
--------------


4. (SBU) During an October 19 meeting with union leaders
participating in the bilateral negotiations, the Ambassador
said he was disappointed in both unions and GMAC for failing
to make more progress in their negotiations. He described
the unions' demand to raise the minimum wage by 38% as
unrealistic, noting that prices for Cambodian garments have
fallen by 20% since January 2005, and Cambodia faces stiff
competition from low-cost garment factories in Vietnam and
China. Union leaders were receptive to the Ambassador's
message, but said that it was very difficult for them to
determine what a fair wage would be for both workers and
factories, and asked for embassy advice. Moreover, the
opening of new factories made them dubious about GMAC's
claims that profits were down sharply. The labor leaders
also called for increased government anti-corruption efforts,
saying that the money lost to unofficial fees should instead
be used to increase salaries. The Ambassador agreed that
more progress should be made on battling corruption.


5. (SBU) In continuing discussions with Poleconoff and LES
Labor Assistant, the labor leaders said they feared that a
recently announced meeting of the Labor Advisory Committee
(LAC) would be an attempt to impose a minimum wage before the
unions and GMAC could reach an agreement. (Note: Several
weeks ago, the final round of negotiations had been set at
October 20, with unions saying they would not strike or take
other action until October 30 or later. The Ministry of
Labor sent out notices on October 18 that it would hold a LAC
meeting on October 19. End Note.) Some union leaders with
seats on the LAC proposed boycotting the meeting, but emboffs
convinced them to attend and urged them to voice their
concerns. The unions also decided to draft a joint letter
from the negotiating unions asking the government not to
intervene while negotiations were ongoing.

PHNOM PENH 00001928 002 OF 003



Labor Advisory Committee Sets Minimum Wage at USD 50
-------------- --------------


6. (SBU) At a hastily convened LAC meeting on October 19,
Minister of Labor Vong Soth listened to now-familiar
arguments from unions, GMAC, and government commerce
officials about the minimum wage: rising cost of living in
Cambodia, comparisons to minimum wages in neighboring
countries, and fear of competition from China and Vietnam.
After an hour of discussion, Vong Soth proposed a one-time
increase to USD 50 per month, to be in effect from January 1,
2007 through the end of 2009. The minister did not entertain
a union attempt to counteroffer USD 55 per month. The vote
on the proposal passed 17 to 20, with all of the eight
government representatives and six private sector
representatives voting in favor. Three labor representatives
from pro-government unions also voted in favor, while three
labor leaders from independent and pro-opposition unions
voted against the proposal. (Comment: While it is a
tripartite body, the LAC is dominated by pro-business and
pro-government representatives from the private sector, the
government, and some unions. End Comment.)


7. (SBU) GMAC had been in discussion with the Ministry of
Labor for several days about the feasibility of various
minimum wage levels, according to Ken Loo, Secretary General
of GMAC. Loo told poleconoff that GMAC had indicated that it
could go no higher than USD 52 spread out over three years,
but subsequently agreed to a Ministry proposal of a one-time
increase to USD 50.


8. (SBU) Pro-opposition unions were extremely frustrated
both by the government's intervention and by the new wage
level. However, they offered little explanation for their
failure to voice their concerns about LAC intervention
preempting the on-going bilateral negotiations.

Factory Owners and Unions Continue Negotiations
-------------- --


9. (U) GMAC leaders and about 12 of the 17 unions went ahead
with the planned October 20 negotiations despite the newly
set minimum wage. The group discussed illegal strikes,
binding arbitration, maternity leave benefits, and possible
increases in seniority and attendance bonuses. Ritchotte
noted that none of the unions mentioned the possibility of a
general strike. Notably absent from the negotiating group
were several pro-government unions who had urged the group to
abandon negotiations and invite the government to intervene.
Discussions are set to resume in November, when GMAC Chairman
Van Sou Ieng returns from an extended trip overseas.


10. (SBU) Comment: Government intervention in the bilateral
labor negotiations is disappointing, but hardly surprising.
Emboffs, ILO, and the American Center for International Labor
Solidarity had been warning unions for weeks that the
government was likely to intervene if negotiations failed to
progress, and that such intervention would favor the garment
industry. The GMAC Chairman told Pol/Econ Chief on October
17 that he anticipated government intervention as the gap
between unions and GMAC was unlikely to be resolved through
negotiation. Nonetheless, the unions have achieved an 11%
increase in the minimum wage, a real achievement at any time,
but all the more significant given falling garment factory
profit margins. Factories will have to absorb a fairly steep
increase come January, but have gained what factory owners
and buyers want most: predictability.


11. (SBU) Comment Continued: The surprise side benefit to
this process has been the creation of unprecedented levels of
trust among independent unions, pro-opposition unions, and
the more legitimate pro-government unions. Two
pro-government union leaders--Chuon Mom Thol, President of
Cambodian Union Federation and leader of the pro-government
federation, and Som Aun, President of the Cambodian Labor
Union Federation--have isolated themselves through their
thinly veiled attempts to undermine the negotiation process
and throw the minimum wage decision to the government. As a
result, other pro-government unions have started to set aside
their historical animosity with their pro-opposition
counterparts and are cooperating in their attempt to secure a
favorable agreement with GMAC. Given the bitter and
sometimes violent relationships among rival unions, improved
relations could mean a safer environment for workers and

PHNOM PENH 00001928 003 OF 003


fewer strikes and other delays for factories. End Comment.
MUSSOMELI