VZCZCXRO4610
PP RUEHCHI RUEHDT RUEHHM RUEHJO RUEHNH
DE RUEHPF #1201/01 1801154
ZNR UUUUU ZZH
P 291154Z JUN 06
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHDC PRIORITY 6960
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHXI/LABOR COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHC/DEPT OF LABOR WASHDC PRIORITY
RUEHGV/USMISSION GENEVA PRIORITY 1503

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