Cablegate: Cambodian Garment Sector Worried About Dramatic

VZCZCXRO9954
PP RUEHCHI RUEHDT RUEHHM RUEHJO RUEHNH
DE RUEHPF #1124/01 1661038
ZNR UUUUU ZZH
P 151038Z JUN 06
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHDC PRIORITY 6864
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHXI/LABOR COLLECTIVE PRIORITY
RUEHGV/USMISSION GENEVA PRIORITY 1481
RUEHC/DEPT OF LABOR WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS SECTION 01 OF 03 PHNOM PENH 001124

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/MLS, DRL/IL--MARK MITTELHAUSER, AND
EAP/TPP/ABT ED HEARTNEY
COMMERCE FOR ITA/OTEXA MARIA D'ANDREA
LABOR FOR ILAB--JIM SHEA AND JONA LAI
GENEVA FOR RMA
STATE PLEASE PASS TO USTR FOR BARBARA WEISEL

E.O. 12958: N/A
TAGS: ELAB ECON KTEX PGOV CB
SUBJECT: CAMBODIAN GARMENT SECTOR WORRIED ABOUT DRAMATIC
INCREASE IN LABOR UNREST

REF: A. PHNOM PENH 526
B. PHNOM PENH 814
C. PHNOM PENH 998
D. PHNOM PENH 1035

1. (SBU) SUMMARY. Following several months of increased
garment sector strikes, the number of working days lost to
strikes reached 87,000 in May--more than four times typical
levels. These strikes are largely the result of two
irresponsible unions, but also reflect growing union rivalry,
workers more assertively pushing for wage increases, and less
effort expended in negotiation. In addition, a major
pro-opposition garment sector union and the teachers' union
have called for a general strike starting July 3 if demands
about wages, workweek, and gasoline prices are not met.
Garment factory managers and buyers are increasingly
concerned--some have canceled plans for expansion, though the
largest buyer, the Gap, plans to expand orders in Cambodia by
5%. We will continue to encourage more responsible behavior
among problem unions, and have helped end the largest illegal
strike. Nonetheless, the immaturity of union leadership and
membership may slow progress. END SUMMARY.

Record-Breaking Numbers of Working Days Lost to Strikes
--------------------------------------------- ----------

2. (SBU) After several months of increased labor unrest in
the garment sector (Ref A), May has shown unprecedented
levels of garment sector strikes: nearly 87,000 working days
lost due to a total of nearly 18,000 workers participating in
13 strikes during the month. Strike activity is often
somewhat more intense during the busy May through September
garment production season, but working days lost to strikes
generally range from 2,000 to 20,000 per month during this
period, and only once before--in June 2003--rose above 50,000.

Two Irresponsible Unions Share Much of the Blame
--------------------------------------------- ---

3. (SBU) Much of the strike activity centers around two
problematic unions--the Coalition of Cambodian Apparel
Workers Democratic Union (CCAWDU) and the Khmer Youth
Federation Trade Union (KYFTU). CCAWDU was formerly one of
Cambodia's most well-respected unions, but its behavior has
become increasingly rash following the ouster of former
President Chhorn Sokha (Ref B). More than half of the
working days lost in May are due to a single strike at the
Goldfame Factory which involved 5,700 workers striking for 8
days. After CCAWDU ignored back to work orders from the
Arbitration Council and the Municipal Court, the embassy
stepped in to persuade the union to return to work pending
further negotiations.

4. (SBU) The Khmer Youth Federation Trade Union (KYFTU), led
by Yun Rithy, is perhaps Cambodia's most notorious union,
with a reputation for extortion, violence, and abandoning its
workers mid-strike. After leading no strikes in January and
two each in February, March, and April, KYFTU led strikes at
seven factories in May, involving a total of 9,000 workers.

5. (SBU) The Garment Manufacturers Association of Cambodia
(GMAC), pro-opposition union leaders, and pro-government
union leaders have all reported that KYFTU factory level
union leaders create labor disputes in order to extort USD
3000-5000 payments for resigning from their jobs. (Note:
Cambodian labor law restricts the firing of factory-level
union leaders. End Note.) KYFTU demands are often numerous
and unrealistic, serving mainly as a pretext for a strike or
extortion. In some cases, KYFTU representatives disrupted
completed or nearly completed negotiations with lengthy lists
of additional demands, despite having no previous presence at
the factory in question. Yun Rithy told Poleconoff on June
14 that the strikes are driven by his workers, that there is
no corruption in his union, and, most outlandishly, that the
spike in strikes is due to a GMAC-International Labor
Organization (ILO)-union conspiracy. Yun Rithy reportedly
has ties to some CPP leaders, is well-armed, and is protected
by a police general.

PHNOM PENH 00001124 002 OF 003

Union Competition, Ineffective Negotiation Also At Play
--------------------------------------------- ----------

6. (SBU) Several other factors also seem to be involved in
the increased garment sector strikes:

--Increase in intra-union rivalry, both across and within
federations: Pro-opposition Free Trade Union (FTU) leader
Chea Mony accused a pro-management union leader of hiring
thugs to attack a Bright Sky garment factory worker with
machetes. Pro-government union federation leader Chhuon
Momthol reports that there is rivalry even within his
pro-management Cambodian Confederation of Trade Unions.

--Disputes turn into strikes more quickly: Unions and
employers accuse each other of being unwilling to negotiate
and pushing disputes to strikes more quickly than in the
past. Unreasonable demands by KYFTU designed to elicit
bribes seem to be muddying the waters, as there is an
increasing perception that unions in general are unwilling to
negotiate. Chea Mony has asserted that increased police
intervention in suppressing strikes has led factory
management to put less effort into negotiations. There is
also an increasing frustration among unions with the
arbitration process, and, for the first time, two unions
recently defied Arbitration Council orders to return to work.

--Wage demands supplant rights issues as main cause: The
American Center for International Labor Solidarity and GMAC
report that in the past most strikes were due to labor rights
violations, e.g. failure to pay wages or overtime, but now
workers are striking to increase wages via higher minimum
wages, more generous piece rates, and more generous
attendance bonus policies.

Free Trade Union and Teachers Union Threaten General Strike
--------------------------------------------- --------------

7. (SBU) Meanwhile, the FTU and the Cambodian Independent
Teachers Association (CITA) have continued their calls for a
general strike and set a deadline: FTU factory workers will
lead sit down strikes at their factories on July 3 if the
issue is not resolved before then. Garment workers from
other unions and teachers will be invited to participate in
the strike action as well. If the dispute is still not
resolved, workers may take to the streets on July 6 or 7.
(Note: The general strike threat originated in a May 1
speech in which Chea Mony and CITA leader Rong Chhun called
for higher wages for garment workers and civil servants,
shorter working hours, and reduced gasoline taxes.) On June
15, Chea Mony told Poleconoff that the general strike is "a
test for me...whether I can command the workers" in advance
of the 2007 local elections.

Little Government Action So Far
-------------------------------

8. (SBU) So far the government has taken few steps to
address these concerns, aside from their on-going and not
terribly effective attempts to mediate labor disputes and
worker/employer education efforts. The Ministry of Labor and
Vocational Training appears to still be organizing itself
following the approval of a new Minister of Labor on May 23
(ref C). Minister of Commerce Cham Prasidh was very alarmed
by the increasing numbers of strikes and warned Charge on May
30 that the combination of labor unrest and Vietnam's entry
into the WTO could ruin Cambodia's garment industry (ref D).
Prime Minister Hun Sen mentioned FTU and CITA's demands for
higher wages for civil servants in a May 27 speech. Saying
that the demands were made by "people with no knowledge of
financial management," the Prime Minister said that raising
civil servant salaries would require canceling infrastructure
development plans or taxing farmers, things he would not do.

Garment Manufacturers Association Willing to Negotiate
--------------------------------------------- ---------

9. (SBU) GMAC, which initially dismissed these threats, has
become increasing concerned and told Poleconoff on June 12
that it is willing to accept a higher minimum wage and will

PHNOM PENH 00001124 003 OF 003

approach the ILO for negotiation assistance. Nonetheless,
GMAC is extremely frustrated that the government has so far
failed to address the issue, but suspects that the World Bank
corruption scandal is distracting the relevant officials.
GMAC recently sent a highly inflammatory letter to the Prime
Minister suggesting that the trade and labor linkage (code
language for the highly successful USG-funded Better
Factories Cambodia factory monitoring project) should be
scrapped as labor was now more of an impediment than a help
to the industry. After stern words from the ILO and the
embassy, GMAC has agreed to issue a revised letter expressing
their continued support for Better Factories despite its
frustration with the increase in labor disputes.

Some Garment Buyers Scale Back Planned Expansions...
--------------------------------------------- -------

10. (SBU) GMAC and other labor observers are very concerned
that late delivery and bad press related to the ongoing
strikes will lead garment buyers to shift production out of
Cambodia. Garment sector unions--which had to be prodded to
contact buyers following the December 2005 crackdown on union
and human rights activists--have now embraced the power of
the internet and are bombarding buyers and socially
responsible consumer groups with details of even the most
routine labor disputes. Ken Loo, Secretary General of GMAC,
reported that Levi Strauss, which bought 8 million pairs of
Cambodian-made jeans in 2004 and 10 million pairs in 2005 had
planned to buy 13 million pairs in 2006 but instead has
downscaled their Cambodia purchases to 8 million. Loo also
reports that Nike and Puma have shelved earlier decisions to
expand purchases from Cambodia. Several large garment
factories have considered moving to Vietnam, and some have
concrete plans in place. Other large factories may either
downsize, limit overtime, or go from two shifts to one to
cope with reduced orders, Loo speculated.

But a Concerned Gap Goes Ahead with Order Increase
--------------------------------------------- -----

11. (SBU) During a June 13 meeting with Charge and Emboffs,
the Gap told us that they are quite concerned about the
expanding labor turbulence in Cambodia, but that they still
plan to go ahead with plans to increase their purchases from
Cambodia. The Gap--which single-handedly accounts for about
12% of Cambodia's GDP--has added new Cambodian factories to
their base of suppliers and anticipates at least a 5%
increase in orders from Cambodia. However, they also said
that they had been on the phone frequently to their
Cambodia-based vendor compliance officer learning the details
of various disputes and that they had been deluged with "mail
from all of Sweden" regarding at a dispute at a factory that
makes Gap products. Senior Director for Global Compliance
Deanna Robinson warned that once investors leave, it is very
difficult to get them back.

COMMENT
-------

12. (SBU) This huge increase in labor unrest--timed to
coincide with the peak garment production season--has already
drawn the attention of garment buyers and led some of them to
scale back planned expansion of garment production in
Cambodia. While KYFTU seems to be motivated by short-term
goals of extorting money from garment factory owners, other
unions seem to be just sophisticated enough to know when to
time strikes and how to use the internet for maximum effect,
without being savvy enough to realize that their actions are
already having damaging consequences. The fact that two
irresponsible unions--KYFTU and CCAWDU--are responsible for
the bulk of the working days lost is good news, showing that
most Cambodian unions are acting more responsibly. However,
garment buyers may not look closely enough at the strike
action to realize this. The increased labor unrest has
already slowed this year's garment sector growth, and could
even lead to net decreases in jobs and exports if it
continues unchecked.
MUSSOMELI

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