Remarks by Ambassador William A. Heidt at the Industrial Relations Conference

Improving Labor Dispute Resolution System – Harmonizing Industrial Relations

Raffles Hotel Le Royal
February 27, 2017
(as prepared for delivery)

Your Excellency Ith Sam Heng, Minister of Labor and Vocational Training;
Ambassador Maria Sargren and other distinguished members of the diplomatic community;
Mr. Men Nimmith, Executive Director of the Arbitration Council Foundation;
Distinguished colleagues from the Royal Government of Cambodia, the Garment Manufacturers Association of Cambodia, and the private sector,
Distinguished representatives of Cambodian trade unions, ladies and gentlemen.
I am honored to be here with you today for this important discussion of Cambodia’s labor dispute resolution system.

I would like to take this opportunity to thank the Arbitration Council Foundation and the Ministry of Labor and Vocational Training for organizing this conference and for inviting me to say a few words.

My interest in Cambodia’s garment sector dates back to my term as the U.S. Embassy’s Economic and Labor Officer in the late 1990s, right when Cambodia’s garment industry began its explosive growth thanks to some farsighted entrepreneurs and government officials, two powerful trade agreements between Cambodia and the United States, and, of course, tens of thousands of very capable Cambodian workers.

After I left Cambodia, I worked on the garment sector in many different countries—in Indonesia, where there were also deep concerns about dispute resolution, in the Central American countries, and more recently in Sri Lanka and Bangladesh, where I was involved in the creation of the Alliance for Bangladesh Worker Safety.

After I returned to Cambodia 18 months ago, I was delighted to see that in the intervening years, the garment sector had really taken off. Today, it employees approximately 700,000 Cambodians at 700 factories, and represents at least 10 percent of Cambodia’s gross domestic product. Since I’ve returned, I’ve visited quite a few factories, and believe me, there has been profound improvement on shop floors as well.

But it’s not just exports, employment, and the number of factories that have grown since the 1990s. There has also been a very impressive development of the underlying legal and institutional framework for the garment sector. Let me give just a few examples:

  • The Labor Ministry’s capacity and ability to regulate the sector has grown substantially. There is much more interaction with development partners as well.
  • A large number of new laws and regulations in various areas that have provided more certainty to participants in the industry, several of which I’ll talk about later.
  • GMAC has developed significantly as both a voice of the industry and a as partner in attracting investment to the garment sector.
  • The Better Factories Program, now 15 years old, has become a model partnership for improving shop floor working conditions – and reducing risk for buyers.
  • The Arbitration Council – another example of a creative partnership between the Government, civil society, and international partners – has also created an important new channel for effective dispute resolution.
  • And most recently, the Ministry of Labor and Vocational Training has set out a proposed method for determining the minimum wage in the garment sector. I would encourage the Ministry to continue its work with all stakeholders on this issue and to consider setting a minimum wage in other viable economic sectors.

Taken together, these developments have created Cambodia’s most important economic success story since the Paris Peace Agreements 25 years ago.

But there are also challenges. The international garment industry is intensely competitive. And for all its growth, Cambodia is still basically a middle sized garment producer today, definitely a significant player but not as large as, say, Bangladesh, Vietnam, or China.

The excellent report Better Factories Cambodia commissioned last summer outlines very effectively the challenges facing the industry—growing competition from Vietnam and other producers, the lack of vertical integration in the industry, stubbornly high electricity and logistics costs, undeveloped industrial relations, and the need to upgrade workers’ skills are just a few.

This isn’t the right event to discuss all of these issues. But if our goal is that Cambodia’s garment sector continues to grow, diversify, and provide good employment opportunities to Cambodian workers – and compete successfully with other countries – this conference is a terrific opportunity to reflect on the steps Cambodia’s industrial relations system will need to take to ensure that Cambodia meets this goal.

Key Issues for Buyers, Investors, and Analysts

In my discussions over the years with private sector participants in the international garment trade, including buyers, investors, and analysts, three issues have come up again and again. They all reflect, to one degree or another, the critical importance of reducing the reputational risk to international buyers of sourcing in Cambodia, or any developing country.

The first issue is the need for a strong commitment by the government to improve and develop the industrial relations system, hopefully through a transparent and open regulatory process.

Second, is the importance of a strong partnership between the Government, manufacturers, workers representatives, and if appropriate, development partners and international institutions as well. When it works, such a partnership gives the opportunity for the government to show leadership, and adopt a practical approach to problem solving that supports further development of the industry.

A final issue, because industrial disputes are part of life in every country, is access to fair and reliable dispute resolution mechanisms. Nothing is worse for a country’s business reputation than violence between workers and the police or military, or lengthy strikes with no hopes of resolution.

Government Leadership Critical

On the first of these points, there are a lot of positive developments to report. As I mentioned earlier, the government has taken many positive steps to both improve Cambodia’s industrial relations system and make Cambodia a friendly environment for outside investment.

On the legislative side, in the wake of last April’s passage of the Trade Union Law, stakeholders have begun discussing new legal frameworks such as a draft law on labor disputes and tribunal procedures and a draft law on the national minimum wage.

These are potentially important and very complex laws that will have a strong impact on international perceptions of Cambodia’s international relations system.

I would urge our friends in the Government to approach both draft laws through the most open and consultative process possible, involving all stakeholders, so that the result is a shared commitment and understanding by all players in the sector.

In particular, I believe it is very important that the draft law on labor disputes and tribunal procedures strengthens industrial dispute resolution at all levels and sets out clear roles for alternate dispute resolution including the ACF.

Importance of Strong Industry Partnerships

One of the key strengths of Cambodia’s garment industry is the strong partnerships that have developed over the years between the government, private sector, and the international community. The cooperation between industry associations, including GMAC and CAMFIBA, and the Ministries of Commerce and Labor has been excellent.

This partnership has extended to international institutions as well. The International Labor Organization, the Better Factories Cambodia program, and various international development agencies, including USAID, have partnered with the Cambodian government in support of the garment industry. Of course, the Arbitration Council Foundation is one of the most creative and impactful outgrowths of this partnership.

These partnerships demonstrate that it is possible for government and industry to come together in productive ways that help workers and make the industry more competitive.

But just as importantly, they show international buyers that the government is taking an open, outward looking, and proactive approach to modernizing the industry that fully recognizes the international challenges that Cambodia’s industry faces. This of course reduces risk for all involved with the sector.

Modernizing the Industrial Relations System

My final point is that in a labor intensive business like garments, it is critically important to build mechanisms that can resolve labor disputes without disrupting value chains. For more than a decade, the Arbitration Council Foundation has been such a mechanism, and has played a key role in building an environment of confidence for investors.

In 2016, more than 87,000 workers benefited from the Arbitration Council services, providing resolution to employee complaints and protecting value chains. In addition to its arbitration services, the ACF has also played a lead role in establishing the jurisprudence on Cambodia’s labor law.

Looking forward, the ACF’s role will be all the more important as the Government considers how to implement a system of labor courts in Cambodia. Realistically speaking, once the necessary laws are passed, it will take some time – probably years – to develop high functioning labor courts in Cambodia.

Training, new regulations, and new resources will all be required. At first, the capacity of the courts will be limited. But all the while, disputes will inevitably continue to happen.

In this context, it will be critical for the Government to send a strong signal of support for the long term independence and sustainability of the Arbitration Council, which will provide a critical element of stability in Cambodia’s industrial dispute resolution system as the labor courts are implemented.

And as Cambodian industry expands into new sectors, we also need to have a discussion of expanding the role of the Arbitration Council and how to make it sustainable for the future as an integral part of Cambodia’s industrial relations system.

Longstanding U.S. Support for Cambodia’s Garment Sector

As I reflect back on the last 20 years, I am proud of the U.S. Government’s support for both Cambodia’s garment industry as well as the development of Cambodia’s industrial relations system.

USAID has supported the ACF for many years as it has developed into the very impressive institution it is today. We have also supported the Solidarity Center to strengthen the voice of the workers through effective, independent, and democratic unions, as well as the Community Legal Education Center.

The U.S. Department of Labor has supported BFC since its creation. I myself traveled to Hong Kong last September with the Minister of Commerce and the Chairman of the CDC to promote Cambodia as an investment location for the travel goods industry. And more recently, USAID has initiated several programs to improve health care for the largely female workforce in the garment sector.

Very honestly, I don’t think there is any work I do as Ambassador that gives me as much satisfaction as supporting Cambodia’s economic development and competitiveness in such a direct way with such a direct impact on peoples’ lives. We are honored to be partners with the Government and all of you as we look together for ways to take this process to the next level.

I wish all of you continued success as you work to promote industrial relations and peaceful labor dispute resolution in Cambodia. Thank you very much.