VZCZCXRO9139
PP RUEHCHI RUEHDT RUEHHM RUEHJO RUEHNH
DE RUEHPF #1928/01 2980151
ZNR UUUUU ZZH
P 250151Z OCT 06
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHDC PRIORITY 7507
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHXI/LABOR COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS SECTION 01 OF 03 PHNOM PENH 001928 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, DRL/IL, EB/TPP/ABT 
STATE PLEASE PASS TO USTR FOR DAVID BISBEE 
COMMERCE FOR ITA/OTEXA 
 
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