October usually means good business for Nepal's garment industry. Not this year. Domestic labour disputes (sometimes with Maoist undertones), clients abroad losing confidence in the sector's performance, and the economic downturn in most major markets are killing the 15-year-old industry.

Last year, the garment industry, which provides some 50,000 jobs, was the highest foreign exchange earner in the manufacturing segment with exports worth $164 million (up from $126 million the previous year). This year, the picture is gloomy. The first six months saw an 8 percent drop in garment exports, and with Dasain approaching, workers are worried about getting laid off.

Garments, carpets and tourism are Nepal's highest foreign exchange earners and generate the most jobs for semi-skilled and unskilled workers. But all three sectors are also prone to labour disputes. Workers in these industries are mainly youth with generic skills who probably sense the lack of job security and advancement possibilities as they can be easily replaced. That makes them a volatile workforce. The final blow could come from their trade unions tie up with the Maoists. "These sectors are economically strategic to bringing the government to its knees," said Narayan Manandhar of the Industrial Relations Forum at the Federation of Nepalese Chambers of Commerce and Industry (FNCCI).

If the Maoist strategy is to bring the country to economic ruin, it appears to be working better than they could have expected. For their part, the carpet and garment industries are shutting shop since they feel that fulfilling Maoist demands for cash will destroy the price advantage that cheap labour gives them in the international market. "Fearing more unrest and disputes, many enterprises are not renewing orders from international customers," said Vinod Kumar Nepal of the Central Carpet Industries Association (CCIA).

In June, the Maoist-affiliated trade unions in the garment and carpet industries submitted a charter of demands to the government that included doing away with the piece-rate system of payment, in which wages are paid according to how much and how fast workers work. The unions wanted to fix a minimum wage of Rs 3000, a dearness allowance of Rs 1000 and a rent allowance of Rs 1000. They also demanded a reduction in total weekly working hours to 40, and an increase in compensation awards for accidents by 50 percent.
The management in many factories signed the agreements, but at the same time also started shutting down to avoid complying with them. In September alone, 10 garment manufacturers that employed between 300 and 700 workers pulled down their shutters. "We are told to contact them in November, but there is no guarantee that the factory will re-open and there will be work," said Tulsi Ram Karki, who was laid off from Cotton Comfort Pvt Ltd, one of the largest readymade garment manufacturers in Kathmandu.

From all indications, Cotton Comfort and its six sub-contractors, like others in the business, have closed down temporarily in the hope the situation will improve as the government-Maoist dialogue advances to Round Three. But other factors have now come into play. According to Pushkar Dev Panta, vice-president of the Garment Association-Nepal, until two weeks ago less than 15 percent of the garment factories were operating, and now more of them are heading for closure. "Earlier, we ourselves were hesitant in taking new orders because of the aggressive campaigning by the workers supported by the Maoists. Now, our clients (the Americans) are holding back on orders fearing recession following the 11 September bombing," he said.

The outlook is even bleaker for the carpet industry. Exports were already down to 2.2 million square metres in 2000/2001, compared to 2.5 million square metres in 1999/2000. The sector had been through its spate of troubles-it couldn't diversify production fast enough to cement its market reach and had also felt the effects of bad publicity about child labour and the use of environment-unfriendly chemicals. After child worker-free labelling was introduced, the market had started to revive, but was then hit hard by the Maoists demands.
The FNCCI says that all wool product exports, including pashmina, were down by 50 percent last year compared to the year before. Given the economic downturn globally, business is unlikely to pick up, which means more job cuts. In 1993/1994, when carpets were "hot", the sector employed about 300,000 weavers. Now, less than half of that-about 120,000-have jobs weaving carpets.

"If the employers had agreed to the demands of the legally recognised labour unions (which themselves comply with the Labour Act and Regulations) they could have saved both their business and our jobs," said Hari Dutta Joshi of the Independent Textile and Garment Workers' Union of Nepal.

But that may only be wishful thinking now. Tougher times are ahead post-11 September. About 80 percent of the garment exports from Nepal were to the US, and even carpet manufacturers were hoping to expand into the American market to get by. The Central Carpet Industries Association (CCIA) says that 24 export manufacturers in the Valley had closed down within 15 days last month after the Maoist trade unions pressed their demands. Almost 30,000 labourers, including weavers, spinners and carding workers, are left without jobs. If the situation does not improve in the next six months, about 100 more factories will shut down.

It is not just individual workers and investors who will be affected if these two industries grind to a halt. The majority of the labourers laid off are usually breadwinners in their families. A 1998 survey by the Centre for Governance and Development Studies says that 86 percent of garment workers support six or more family members-large-scale lay-offs will mean entire families will have to find new means of supporting themselves.

The trouble is, these workers hardly have other alternatives. Around 90 percent of garment workers have only a School Leaving Certificate or less. A 1998 survey by the CCIA found that displaced carpet workers had gone back to agriculture or opted for employment in India or West Asia. But the agriculture sector does not expand fast enough to absorb a growing workforce and so young people are being compelled to leave the country-often to work in unsavoury conditions.

Even the threat of war in the Gulf has not slowed down the flow of Nepali workers there. Last month alone more than 8,500 workers obtained permission to go the Gulf countries. They will continue to go to India, South Korea, Japan, and Southeast Asia if they cannot find employment at home. And given the present state of Nepali industry, there seems no way to reverse the trend.