VZCZCXRO1820
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHPF #1463/01 3370846
ZNR UUUUU ZZH
P 030846Z DEC 07
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHINGTON DC PRIORITY
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 2502
RUEHKA/AMEMBASSY DHAKA PRIORITY 0120
RUEHHM/AMCONSUL HO CHI MINH PRIORITY 0125
RUEHHK/AMCONSUL HONG KONG PRIORITY 0622
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY 0701
RUEHC/DEPT OF LABOR WASHINGTON DC PRIORITY
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHMFIUU/DEPT OF ENERGY WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 04 PHNOM PENH 001463 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, H, DRL/ILCSR--MITTELHAUSER, 
EEB/TPP/ABT--CLEMENTS, EEB/ESC/IEC/ENR, OES--SALZBERG, AND 
G/TIP--LAGON AND NEUMANN 
BANGKOK FOR USAID--KISSINGER, FCS--BACHER, FAS--MEYER 
HANOI FOR FAS--WADE AND RALPH, FCS--NAY 
HO CHI MINH CITY FOR FCS--MARCHAK AND LE 
AGRICULTURE FOR FAS--RIKER 
LABOR FOR ILAB--LI 
COMMERCE FOR ITA/OTEXA--D'ANDREA, ITA/MAC--MIKALIS 
TREASURY FOR INTERNATIONAL AFFAIRS--WALSH AND CHUN 
STATE PLEASE PASS TO US TRADE REPRESENTATIVE FOR BISBEE AND 
WEISEL 
STATE PLEASE PASS TO US TRADE AND DEVELOPMENT AGENCY FOR 
WINKATES 
 
E.O. 12958: N/A 
TAGS: ETRD PREL ELAB KTEX PHUM KWMN CB
SUBJECT: ECONOMICS, HUMAN RIGHTS, AND GOVERNMENT REFORM TOP 
SENATOR CANTWELL'S CAMBODIA AGENDA 
 
PHNOM PENH 00001463  001.2 OF 004 
 
 
¶1.  (SBU) Summary:  Building the political and economic 
foundation for economic growth and development was the key 
theme of a November 25-29 visit by Senator Maria Cantwell 
(D-WA).  Cantwell, a member of the Senate's Finance and 
Energy Committees, brought her private sector experience to 
bear in her conversations with government officials, civil 
society leaders, and businesspeople.  Foreign investors care 
about human rights, trafficking in persons, and corruption in 
the countries where they invest, she told a receptive 
Interior Minister Sar Kheng.  Economic and business leaders 
described Cambodia's macroeconomic success and effots to 
reform public finances.  They thanked the Senator for her 
co-sponsorship of the TRADE Act, describing the 
precariousness of the garment industry and explaining that 
the excellent working conditions in Cambodia's garment 
factories were not enough to guarantee the survival of the 
industry.  The Senator and her delegation also visited with 
Washington State NGOs working in health, education, 
trafficking in persons, and cultural preservation; and 
visited a demining site.  With on-the-ground experience in 
Cambodia to complement her relatively large number of 
Cambodian-American constituents, Post has high hopes that 
Cantwell will promote increased U.S.-Cambodian ties in her 
home state and in the nation's capital.  End Summary. 
 
Cantwell Links Political Freedoms, Foreign Investment 
--------------------------------------------- --------- 
 
¶2.  (SBU) Political freedoms and reforms are critical in 
attracting investment and economic growth, Cantwell 
emphasized in a meeting with Interior Minister Sar Kheng. 
Some Washington State firms refused to do business in China 
until it undertook economic and political reforms, and the 
US-Colombia Free Trade Agreement is currently stalled in 
Congress due to concerns about killings of labor leaders 
there, she said.  Turning to Cambodia, Cantwell praised the 
Minister for his personal focus on trafficking in persons 
issues, which remains a critical U.S. concern, and noted that 
both the U.S. government and U.S. investors felt that 
Cambodia must make additional progress in human rights, rule 
of law and anti-corruption efforts.  While she proudly 
co-sponsors the TRADE Act, proposed legislation that would 
eliminate tariffs on apparel from Cambodia and 14 other least 
developed countries, the Senator asserted that the Act is 
unlikely to pass Congress unless the Cambodian government is 
perceived as operating transparently.  The Senator 
specifically encouraged the Cambodian government to pass the 
long-stalled anti-corruption law, and to ensure that future 
oil and gas revenues were handled transparently. 
 
¶3.  (SBU) The Interior Minister accepted the Senator's link 
between political reform and economic growth, saying 
"Strengthening the rule of law is the gateway to 
development."  Sar Kheng praised areas of past U.S.-Cambodian 
cooperation, including counterterrorism and labor, and 
acknowledged that human rights and rule of law warranted more 
attention.  The government has undertaken efforts to 
decentralize and reform itself, he said, but the process has 
been difficult, with the various line ministries displaying 
varying attitudes towards that effort.  The Minister 
expressed anxiety over the State Department's next tier 
ranking of Cambodia's trafficking in persons efforts, saying 
that although bilateral cooperation remained strong, he still 
could not predict how the State Department will rate 
Cambodia.  Sar Kheng also acknowledged that drafting and 
passing a sound anti-corruption law was important, but said 
 
PHNOM PENH 00001463  002.2 OF 004 
 
 
that ensuring that the law would be properly implemented was 
equally important. 
 
¶4.  (U) Senator Cantwell emphasized her desire to not only 
strengthen the relationship between the U.S. and Cambodia, 
but also specifically between her home state and Cambodia. 
Washington State has the third largest Cambodian population 
in the U.S. and is home to the Gates Foundation, World 
Vision, and PATH (a health NGO)--all of which are active in 
Cambodia.  In addition, Washington State has some of the 
cheapest electricity in the country because 72% of its 
electrical supply comes from hydropower.  Cantwell suggested 
that some Washington State hydropower firms may be interested 
in investing in energy-starved Cambodia.  Sar Kheng welcomed 
the humanitarian and health assistance from Washington State, 
and was particularly eager to get Washington expertise in 
developing hydropower. 
 
Macroeconomic Growth Strong, Government Revenues Rising 
--------------------------------------------- ---------- 
 
¶5.  (U) During a lunch with economics and business experts, 
IMF Resident Representative John Nelmes summarized Cambodia's 
overall economic good health, comparing the nation's 
double-digit growth rate to recent estimates of 2% growth in 
the U.S.  Cambodia's macroeconomic policy was sound and 
consistent, he said.  However, with a highly dollarized 
economy, Cambodia essentially has no monetary policy of its 
own and instead adopts U.S. monetary policy. Although this is 
stable, it is geared toward the slow-growing U.S. economy 
rather than the rapidly expanding Cambodian one, Nelmes 
noted.  (Note:  In other forums, Nelmes has promoted the 
medium-term de-dollarization of the Cambodian economy.  End 
Note.)  Brett Sciaroni, a prominent lawyer and head of the 
American-Cambodian Business Association, cited legal reforms 
and a track record of political stability as increasing 
investor interest and helping to spur economic growth. 
Sciaroni proudly cited next week's inauguration of a bottling 
plant owned by U.S. firm Crown Holdings, the second largest 
can producer in the world, as evidence of increased interest 
among multinational corporations.  Sciaroni also praised U.S. 
efforts to promote commercial and legal reforms via the Trade 
and Investment Framework Agreement. 
 
¶6.  (U) Nelmes highlighted Cambodia's efforts to improve its 
public financial management, and Aun Porn Moniroth, Secretary 
of State at the Ministry of Economics and Finance, explained 
that Cambodia is in the second stage of a three-stage public 
financial management reform effort.  The government first 
focused on increasing revenue collection, a very successful 
effort in which targets were exceeded by 10-20% each year and 
government arrears of USD 200 million were nearly eliminated. 
 Nelmes noted that customs duties were growing faster than 
imports--a signal that Cambodia is making progress in curbing 
the smuggling of goods and a very positive sign in a country 
where more than half of the government revenue comes from 
customs.  The current focus, according to Moniroth, is on 
strengthening the procurement capability and accountability 
within the line ministries.  Seven ministries--including the 
Ministries of Health, Education, Agriculture and Rural 
Development--have begun pilots of this program this year. 
Moniroth hopes that the government will complete the third 
phase--ensuring that financial resources are matched to 
government priorities--by 2015 so that the government can 
meet a pledge of creating an international-standard financial 
management system by that date. 
 
PHNOM PENH 00001463  003.2 OF 004 
 
 
 
Cambodia's Labor Standards Positive, But No Silver Bullet 
--------------------------------------------- ------------ 
 
¶7.  (U) Attention next turned to the intertwined issues of 
the garment industry and labor.  Former Cambodian Ambassador 
to the U.S. Roland Eng and representatives from the 
International Labor Organization (ILO) and Garment 
Manufacturers Association of Cambodia (GMAC) described how 
the survival of Cambodia's garment industry remains perilous, 
even in the face of Cambodia's well-deserved reputation for 
good working conditions.  Excessive illegal strikes, which 
many believe stem from the high number of factory-level 
unions, cause production delays and increase costs.  Unlike 
in the U.S. and most industrialized countries, the average 
Cambodian garment factory has 2-3 unions competing to 
represent the same workers and, according to GMAC Secretary 
General Ken Loo, some factories have five or more unions. 
The multiplicity of unions breeds harassment and intimidation 
as well as worker unrest.  Econoff detailed the embassy's 
efforts to address this issue by encouraging government 
efforts to certify one union per factory as "most 
representative."  In line with international labor standards, 
only the most representative union has the right to engage in 
collective bargaining.  Other unions can be active at 
factories, though typically worker interest tends to unite 
behind the more popular, and now more powerful, union, 
further facilitating collective bargaining. 
 
¶8.  (U) Both ILO and GMAC representatives agreed that 
Cambodia's high labor standards have given them some edge in 
the competitive apparel market.  Loo noted that Disney 
removed Cambodia from a blacklist of garment producers after 
the Better Factories Cambodia factory monitoring program was 
implemented, and ILO representative Tuomo Poutiainen said 
that Cambodia's labor reputation anchors the presence of a 
few retailers, such as the Gap and Nike, in Cambodia. 
Nonetheless, all present agreed that the labor standards are 
only one of many factors buyers use when deciding where to 
source orders.  Price, quality, and delivery time are likely 
even more important than working conditions.  Loo noted that 
while Cambodia's garment industry is set to grow by 13% this 
year, the garment industry in Bangladesh--renowned for poor 
working conditions and large-scale strikes--was growing by 
25%, with China and Vietnam also growing by 20% or more.  Loo 
also detailed an emerging practice known as "internet reverse 
bidding" where suppliers compete on-line at an appointed time 
in hopes of securing a garment contract.  This practice 
encourages further cuts in already low prices paid for 
garment production and often precludes working conditions 
from being considered in the bidding process. 
 
¶9.  (U) Lack of vertical integration also hampers the garment 
industry's competitiveness.  Ken Loo explained that 
Cambodia's garment industry is purely a "cut and sew" 
operation, with fabric, zippers, buttons, and other inputs 
imported from overseas.  China, however, is a "one stop shop" 
where fabric and necessities are produced in the same region 
as the factories, allowing fast transport and easy 
re-ordering.  While Loo has tried to entice fabric 
manufacturers to produce in Cambodia, they balk at Cambodia's 
high electricity prices. 
 
Tariff-Free Access or Bust...Literally 
------------------------------------- 
 
 
PHNOM PENH 00001463  004.2 OF 004 
 
 
¶10.  (SBU) Given these structural impediments, tariff-free 
access to the U.S. is critical to the survival of the garment 
industry, the participants noted, thanking Senator Cantwell 
for her co-sponsorship of the TRADE Act.  Cambodia now pays 
15 to 33% tariffs on the goods it exports to the U.S., Ken 
Loo said, meaning that in total dollar terms, Cambodia pays 
more in tariffs to the U.S. than does France.  Economist Sok 
Hach stated that his think tank has estimated that if U.S. 
tariffs on garments were eliminated, the number of garment 
factories in Cambodia would increase by 30%, creating 100,000 
new jobs and causing wages to rise.  Ambassador Eng painted a 
somber picture of one potential outcome of a garment industry 
collapse or contraction.  Eng cited a survey which showed 
that 93% of garment factory workers--most of whom are young, 
rural women--did not want to return to rural areas.  "If 
their jobs were taken away, how would these poorly-educated, 
low skilled women employ themselves in the city?," Eng asked, 
and then hinted that many would turn to prostitution and 
potentially reverse Cambodia's progress in battling HIV and 
trafficking in persons. 
 
Comment 
------- 
 
¶11.  (SBU) It would have been hard to identify a Senator more 
likely to find common cause with Cambodians than Senator 
Cantwell.  With her working class background and interest in 
energy issues, representing a state filled with 
Cambodian-Americans and NGOs working in Cambodia, Cantwell 
found multiple avenues for connections with Cambodian 
officials, civil society, and business.  Offline, the Senator 
and her staff shared ideas with Emboffs designed to further 
increase ties between Cambodia and Washington State, 
including encouraging a Washington State University 
agricultural outreach program to expand into Cambodia, 
eliminating tariffs on outdoor garments--which are not 
produced in the U.S.--so that Cambodian factories could 
supply Washington companies such as REI, and even promoting 
the use of Kampot pepper in high-end Washington State 
restaurants.  Post hopes that Cantwell will return to 
Washington State and Washington, D.C. as an effective 
ambassador for U.S.-Cambodian relations.  While many 
Americans' perceptions of Cambodia remain stuck in the 1970s, 
Cantwell's experiences underline the great strides the 
country is making in moving into the twenty-first century. 
MUSSOMELI