TCS Daily

Conning the Cambodians

By Alan Oxley - February 26, 2004 12:00 AM

The Cambodian people have had it tougher than most. Ruled by the murderous dictator, Pol Pot, for five years in the 1970s, one in seven of seven million Cambodians were systematically slaughtered. He conned them into believing that he was creating a new society. Nearly a decade ago, they were conned by the temporary benefits of special access to the US market. Now US NGOs and labor unions are conning them that there is a no-obligation, no-down-payment path to prosperity. This is another cruel trick.

Small nations can have a tough time in world politics. Cambodia was the home of the Khmer Empire, which dominated Southeast Asia between the 10th and 14th centuries, building the massive, ancient complex at Angkor. It declined in political influence over the next 500 years, leaving a cultural legacy throughout modern Southeast Asia.

By the time France entered Southeast Asia to build a colonial empire in the mid-19th century, Cambodia was a small country, at risk of being overrun by the Burmese, the Thais or the Vietnamese. France's offer to make it a protectorate (read: colony) saved it from Asian absorption at the expense of European colonization. It became a pawn in big power politics.

The rest is history, as they say. A minor supporting player in the first Indochina war between France and the communist Vietminh, then the US war in Vietnam, Cambodia was ultimately bombed then invaded by US forces in the concluding phase of the Vietnam War. Out of that chaos the Khmer Rouge, lead by Pol Pot, took power. He threatened Vietnam and they invaded and drove him from office. Cambodia today is still somewhat beholden to Vietnam and, like the other Asian communist states, is making the transition to free markets. It is also making the transition to democracy and in that is more advanced than its communist neighbors.

The basic industry in Cambodia is rice cultivation. With a per capita income at around $300, and most of the working population as rice farmers, Cambodia needs development. As it has opened its market, like other Asian economies, garment manufacturing has started to generate higher paying jobs. It has the been the traditional, first step in the transition from agricultural to industrial economies ever since the loom was mechanized in Britain in the late 18th century.

The result has been spectacular. In 1994, Cambodia exported $3.6 million worth of garments. Last year, these exports topped $900 million. There are now more than 235,000 garment workers, mostly women. They earn between $480 and $960 a year, well above the national average. But there is a catch. Seventy percent of the exports are courtesy of a quota which gives Cambodia protected access to the US market. Next year, that will be removed. Cambodia will have to face competition from garment manufacturers in China, where costs are estimated to be 25 percent lower.

What to do? In the world of trade, business changes all the time. Currencies rise and fall, demand rises and falls as markets go in and out of recession. Manufacturers adapt. When they lose competitiveness, they work to restore it. It has been known for a decade that the US quota would be removed next year. Be assured the garment producers have a strategy. They will relocate their factories to cheaper sources of production if they can't sell from Cambodia. The sources of the high costs, reputedly including poor transport and port facilities, have to identified and changed.

But now Cambodia is being told there is a simpler route. NGOs are telling the Cambodians that if they subscribe to their mantra of "Corporate Social Responsibility", developed around board rooms with silver service in New York, Cambodian garment producers will qualify to label their products as "fair trade" or "responsibly produced" products. With Cambodian garments so labeled, this will create advantage over competitors and the garment industry will flourish.

There is more to this. As Cambodia's exports to the US expanded, it faced consistent pressure from US unions and NGOs who consistently label any low-cost producer as a "sweatshop" economy. Through Congress, they tagged the import quota with an obligation on Cambodia to adopt certain labor standards in return for the right to export. WTO rules do not permit such linkage of non-trade conditions to trade, but Cambodia was not then a member and anyway it wanted the special access. NGOs and unions then sent the International Labor Organization into Cambodia in 2000 to examine labor standards. To their disappointment the ILO found no child labor or systematic abuse of workers. Now they want make Cambodia a "fair trade" garment producer showcase.

There is only one problem. Not one major garment company will agree that consumers in rich countries will pay more for "fair trade clothes". Oxfam has cajoled Starbucks into selling "fair trade" coffee. Starbucks usually does not sell this product more than once to each customer. It is too expensive and they don't like it. Consumers buy on price, quality and fashion, not political correctness. Someone should tell Cambodia's trade minister. The New York Times reported last month that even he believes there is such a future for Cambodia.

It was bad enough that Cambodia was encouraged to build a garment industry that was not fully globally competitive because it was given special access to the US market. To be fair, they did have a decade's warning that the preference would be removed. But to tell them now that there is a soft option instead of being globally competitive and that there is a marketing niche when there isn't demonstrates that NGOs are more interested in seeing their own values adopted through ghastly experiments than supporting action to build solid economic foundations to eradicate poverty.

The solution to Cambodia's problem is to take the market as the reference point and send the NGOs packing.

Alan Oxley recently wrote for TCS about China's economic rollercoaster.


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