Cablegate: Slow Progress in Cambodian Garment Sector Labor

VZCZCXRO5783
PP RUEHCHI RUEHDT RUEHHM RUEHJO RUEHNH
DE RUEHPF #1693/01 2611025
ZNR UUUUU ZZH
P 181025Z SEP 06
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHDC PRIORITY 7326
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHXI/LABOR COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 02 PHNOM PENH 001693

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/MLS, DRL/IL--MARK MITTELHAUSER,
EB/TPP/ABT--TOM LERSTEN

E.O. 12958: N/A
TAGS: ELAB ECON KTEX CB
SUBJECT: SLOW PROGRESS IN CAMBODIAN GARMENT SECTOR LABOR
NEGOTIATIONS

REF: A. PHNOM PENH 1204

B. PHNOM PENH 1614

1. (SBU) SUMMARY. After two rounds of negotiations, unions
and garment manufacturers have managed to reduce the gap
between their proposed minimum wage increases only slightly.
Unions--which entered the negotiations demanding USD 82--are
now asking for USD 76, to be phased in over three years.
Garment manufacturers, frustrated by what they see as
unreasonably high offers by unions, have barely budged on
their proposal, increasing from USD 51 to USD 51.50 over
three years. Meanwhile, the parties have not even been able
to discuss other important issues, including binding
arbitration and other pay increases. END SUMMARY.

Little Progress Made in Narrowing Minimum Wage Gap
--------------------------------------------- -----

2. (U) During the first negotiating session on September 11,
the two sides made little progress, but garment manufacturers
and labor observers remained hopeful that the opening session
reflected union showboating that could be ditched in favor of
more realistic proposals during the second round of
negotiations. Unions entered negotiations demanding an
increase to USD 82 per month to be phased in over three years
(i.e. a 50% increase in the first year, an additional 10% in
the second year, and an additional 10% in the third year,
leading to a final minimum wage of USD 82). Garment
manufacturers proposed raising the minimum wage by USD
2--less than 5%--each year for three years.

3. (U) During the second round of negotiations, which were
held on September 18, unions reduced their demands only
slightly, from increases of 50%, 10%, and 10% in three
successive years to increases of 40%, 10%, and 10%.
Frustrated that union demands remain at unrealistic levels,
garment manufacturers barely budged on their proposal,
offering an additional fifty cents in their first year
increase and holding their second and third year increases to
USD 2 each.

Thinking Behind Union and Manufacturer Proposals
--------------------------------------------- ---

4. (SBU) At a strategy session on Sept. 15, many unions
agreed that a realistic target was likely to be increases of
20%, 10% and 10% over three successive years. However, Ath
Thorn, the often rash president of the Cambodian Coalition of
Apparel Workers Democratic Union, told other union leaders
that that he had promised his members at least USD 63 per
month in the first year, and could not back away from this
commitment. (NOTE: In contrast, Ath Thorn has told us
privately that he would agree to a phased-in increase to USD
63 per month over three years if other unions agree, but he
does not want to publicize this. END NOTE.) After the Sept.
18 session, several leading labor leaders told Labor
Assistant that they believe that GMAC is still gauging their
tenacity and may be willing to make more significant
increases in the future. They remain hopeful that
negotiations will ultimately be successful.

5. (SBU) GMAC Secretary General Ken Loo told Poleconoff
after the Sept. 18 negotiations concluded that he has very
little room to raise the minimum wage as dropping prices for
garments have cut in to factories' profit margins. He claims
that most garment factories operate at 3-5% profit margins,
and some are losing money. Factory managers fear that an
increase in the minimum wage will lead workers to demand
higher piece rates as well, further raising labor costs.
Instead, he would prefer to see workers become more
productive and raise their incomes via increasing piece rate
bonuses. Nonetheless, he affirmed that GMAC was committed to
the negotiation process, no matter how slow.

Meanwhile, Other Issues Take A Back Seat
----------------------------------------

6. (SBU) While an increase in the minimum wage was unions'
main concern, the slow progress made on this topic means that
other important areas have not yet been addressed. Unions
have slowly realized that an increase in the minimum wage
will do little to help the majority of their members, who
already earn more than the minimum. They have asked for
attendance and seniority bonuses to be doubled--from USD 5
each per month to USD 10 each per month--as a way of raising
the incomes of all members. In addition, garment factory
owners and international labor observers have been hoping to

PHNOM PENH 00001693 002 OF 002

stem the recent surge in labor unrest by securing an
agreement to final and binding arbitration in exchange for no
strikes or lockouts. Given the slow progress on minimum
wage, these issues have not even been discussed.

7. COMMENT. While no one expected negotiations to proceed
quickly, the glacial pace of compromise has disappointed
international labor observers. The negotiating parties,
themselves, however remain relatively confident that
incremental progress can continue to be made. The real
question is, if such a slow pace continues, will the
government ask the recently reconvened tripartite Labor
Advisory Council to take up the issue? Such a move would
likely lead to a quicker--though perhaps less widely
accepted--minimum wage rate increase, but would almost
certainly leave out the binding arbitration and no strike
provisions. END COMMENT.
MUSSOMELI

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