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Can H&M Push Cambodia Into Compliance?

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Agitated by contentious disputes over workers and labor conditions, Cambodia has became the center of great controversy. Now, retailer H&M is stepping up to assume a leading role in helping to improve the lot of Cambodian workers, especially with respect to wages.

H&M is partnering with the International Labor Organization, the Swedish Union IF Metall and the Swedish Embassy in order to push for a less dysfunctional labor market. At least in its preliminary stages, this would translate into pushing the Cambodian government into convening a board to subject the minimum wage to an annual review, overseeing contractual agreements between workers and factory owners and superintending collective bargaining.

To some, H&M’s new advocacy indicates a change of sentiment after it opposed a plan by Better Factories for Cambodia (BFC), an auditing organization sponsored by the UN, to inspect factories and then publish the names of those it deemed in violation of compliance regulation. The BFC estimates that fifteen of the roughly 450 factories it currently oversees would qualify for that level of public disclosure.

H&M was among a band of Western retailers that criticized the BFC initiative, openly expressing concern that the BFC’s new self-assigned role affords it too much power, violates pre-existing trade arrangements with Western brands and could counterproductively makes matters even worse. A group of some of the biggest companies that contract business in Cambodia–the Gap, Nike, Puma, and Levis Strauss among them–have taken to candidly voicing their objections. H&M reported that its policy is to continue to use factories that suffer from compliance issues as long as their is a demonstrated effort to resolves them in the proximate future. Spokesperson Andrea Roos said, “H&M is aware of the challenges the factories in Cambodia face.”

Many worry that such an uncompromising approach could undercut future incentives to improvement and hurt innocent workers. Sat Samoth, undersecretary of state at Cambodia’s Labor Ministry, complained the public disclosures would violate the existing relationship between the UN International Labor Organization and Cambodia, impinging upon the nation’s sovereignty. He also claimed the program would be counterproductive: “If we disclose the names of the factories, and then the buyers stop purchasing the products, what will happen to the workers? They will lose their jobs.”

Some retailers that do business in Cambodia were quick to endorse the new BFC measures. A spokesperson for Wal-Mart said, “We know that transparency is vital to make progress in improving factory conditions throughout the global supply chain, and can only be accomplished by working with stakeholders across the industry.”

The secretary general of the Garment Manufacturers Association in Cambodia (GMAC) angrily denounced the plan as “vigilante justice.” He argued that any practicable solution to Cambodia’s labor conditions had to be “demand driven.” He said, “Consumers talk, talk, talk. But at the end of the day, they just buy the cheapest thing on the shelf.”

Recently, GMAC has escalated its rhetoric, urging factory owners to refuse access to either the BFC or representatives from the International Labor Organization’s unless accompanied by government officials.

Ken Loo, secretary-general at the GMAC, said, “BFC has gone beyond its mandate. Their job is to monitor and report, not to enforce; that is the government’s job. And now they are going ahead and trying to implement new practices without involving two of the three stakeholders. We feel like it is being shoved down our throats.The only mechanism we have to express our displeasure is to call on factory owners to demand that the government and GMAC are involved whenever Better Factories comes for an inspection.”

Adding fuel to an already hot fire, last February Stanford Law School researchers released a report that actually implicated the BFC in contributing to workers’ woes. The study stated the organization’s lack of transparency, and general ineffectiveness, actually made it easier for factories out of compliance to conceal their violations. In essence, the researchers argued the auditor stands in dire need of an audit of its own.

Recently, Cambodia’s garment factories have suffered under the weight of heavy criticism for inadequate structural stability and safety. A recent report issued by the BFC purports to show that general condition of these factories has markedly declined since 2011. This is especially striking since the same study detected improvement int he eight years prior to 2011.

Cambodia has become a major garment exporter and experienced a robust 22 percent jump in shipments of clothing to foreign customers for the last fiscal year. The total value of the exported apparel during the nine-month period hit $4.1 billion, substantially higher than the previous period last year of$3.44. As is typically the case, the US was Cambodia’s best customer for their apparel, importing about $1.21 billion in goods.

Apparel manufacturing is a major component of  Cambodia’s economy, with more than 500 factories operational and a labor force of more than half a million. The entire garment sector represents roughly 80 percent of Cambodia’s total exports in all sectors. Cambodian exports have been growing year by year, with 2011 exports valued at $4.24 billion.  Exports for 2012 exceeded 2011 by 9 percent.

In fact, Cambodia’s powerful growth has actually contributed to its worsening labor conditions. Part of Cambodia’s problem has been an inability to quickly adapt to the infusion of new foreign orders, saddling it with inordinate pressure to absorb more business before its infrastructure can catch up to the new demand. Between 2012 and 2013, Cambodia increased the number of its factories by a hefty 8 percent to 412. This is partly due to the changing topography of sourcing created by the increasing expensiveness of China, once a prime destination for retailers and brands looking for bargain manufacturing.

H&M has been manufacturing in Cambodia since 1998, among the first major Western retailers to invest heavily in the emerging nation. it has come under intense criticism for turning being insufficiently proactive in pushing for labor reform in Cambodia.

The BFC recently reported that more than 15 percent of the Cambodian factories surveyed failed to maintain unlicked emergency doors during normal working hours, that 45 percent did not fulfill their legal obligation to conduct fire drills every six months and that 53 percent had key fire exits illegally obstructed. Still, Cambodia continues to show signs of steady improvement in other areas. For example, minimum wage was recently raised $14 to $75, from $61. According to the BFC, a $5 health care allowance per worker was also instituted as part of the same legislation.

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