At the close of a long, hot day sewing men's shirts, hundreds of young Cambodian women waited anxiously as their British boss jumped onto a cutting table with a bullhorn, worried that he would tell them they had lost their jobs.

But instead of delivering bad news, the manager, Adrian Ross, said he would be the host at a company picnic to celebrate the Cambodian New Year on April 15 at the advanced new factory his company had built down the road. "It's been hard work this year," Mr. Ross said. "Now it's time to have fun."

Thanks to an unorthodox labor program backed by the United States and intended to improve working conditions, much of Cambodia's garment industry has been holding its own since the end of the global quota system that parceled out shares of the apparel and textile business country by country. A majority of Cambodia's factories have retained the loyalty of major retailers around the world by appealing not just to their need for low-cost production but also to their desire to avoid the stigma of exploiting poor laborers in distant sweatshops.

For 30 years the global quotas -- which were abolished on Jan. 1 -- did not just slow the loss of clothing jobs in advanced industrial nations; they also helped some destitute countries by giving them guaranteed entry into the $400 billion global trade in apparel and textiles.

But now, many poor countries are searching for ways to keep their nascent apparel industries functioning in a world of unfettered competition -- one where China has been unleashed and is trying to grab as much of the business as it can.

Cambodia, while still a very cheap place to produce apparel, has chosen to rely on outside inspectors and to foster unusually strong garment unions that have become an independent political force in a country otherwise awash in corruption and cronyism. The efforts at improvement here may point the way for other nations seeking to avoid a race to the bottom as they struggle to establish or sustain footholds in the global economy.

Despite the loss of special access to the American market with the end of quotas, the Cambodian government, many garment-factory owners and the unions here are sticking to their higher standards. All agree that these factors have helped Cambodia escape much of the convulsion that is sweeping through the global apparel industry.

Cham Prasith, the Cambodian minister of commerce who reached the deal with Washington in 1999, said the benefits had gone beyond anyone's expectations.

"We are extending our labor standards beyond the end of the quotas because we know that is why we continue to have buyers," he said in an interview. "If we didn't respect the unions and the labor standards, we would be killing the goose that lays the golden eggs."

And despite the still-unexplained killings last year of the charismatic leader of the garment workers' union and, later, one of his lieutenants, Cambodia's gamble on labor rights appears to be succeeding in keeping a $1.5 billion apparel industry afloat. Sixteen large plants are scheduled to begin production this year, more than replacing about a dozen factories that have failed.

The surge in China's clothing exports has taken business from rich and poor nations alike. In the United States and Europe, the domestic lobbies for the textile and apparel industries are powerful enough that they have prodded their governments into considering temporary limits on Chinese products.

But smaller developing countries like Cambodia are without such defenses in the face of the Chinese steamroller. So in addition to taking steps at home, Cambodia, Bangladesh and 11 other poor countries are asking Congress to enact a law that would remove all duty on their apparel exports to the United States and give them a slight edge in competing against China and greater hope of staying in business.

Muhammad Yunus, the Bangladeshi banker who invented microcredit loans, has personally appealed to lawmakers in Washington to approve the bill -- saying that for many young Asian women, the choice in today's world is either a job in a garment factory or a life on the streets as a prostitute.

Neb Vicheka, a 31-year-old union shop steward at the Sportex factory here, knows the truth of Mr. Yunus's warning. She is one of the 250,000 garment factory workers in this country, most of them female, and she has seen young women laid off from factory jobs end up as hostesses in Phnom Penh's karaoke bars or beer gardens, a variant of prostitution.

A veteran of Cambodia's young labor movement, Ms. Neb represents a modern alternative. She has worked in the garment industry since the first factories opened in 1998 and now earns $90 a month in a country where $45 is considered a living wage.

She and her sister own their own wooden house on stilts, complete with a small garden. She rides to work on her motorbike and indulges in little luxuries like diamond stud earrings.

"It is rare for two women to own their own home in Cambodia," she said, sitting on her front porch after a day at the factory. "But I want more. I want to own my own business and move back to the countryside."

Only in the garment industry could Ms. Neb entertain such dreams. In every other sector of the country's economy, the poor are losing ground. Since an international peace agreement signed in Paris in 1991 formally ended Cambodia's two-decade plague of violence -- as a battle zone in the Indochina war, followed by the nightmare of the Khmer Rouge revolution and, with the Vietnamese invasion of 1979, another round of civil strife -- foreign nations and international organizations have spent more than $7 billion to help put Cambodia back on its feet.

But all that money has failed to stop the deterioration of literacy rates and health care. Except for the garment industry, the epidemic of official corruption here has mitigated nearly all the efforts at improvement, according to new studies by the World Bank, the International Monetary Fund and the United States Agency for International Development.

"The labor program in the textile industry is more important to Cambodia than any other development program because we know the wages go directly to Cambodian workers and raise their standard of living," said Roland Eng, Cambodian ambassador at large in charge of development issues.

Charles Ray, the American ambassador to Cambodia, said the unintended consequences of the labor activism in Cambodia's garment industry were political as well as economic. The union movement, which now includes teachers and workers in the tourism industries, is fast becoming the most democratic and independent group in the country.

"The labor unions for the textile workers are some of the best institutions this country has ever had," Mr. Ray said. "The exploitation of workers cannot be a path to development -- on the contrary, workers have to be treated with respect for development to work."

But the price for creating these unions has been steep. Chea Vichea, the leader of the garment workers' union, was shot to death in January 2004. Four months later, one of his top assistants was killed. Chea Mony, the fallen leader's brother, now heads the union.

Mr. Chea said that the workers were still frightened and that without the involvement of the United States, which helps underwrite the program, and the International Labor Organization, which monitors the factories, his union would have trouble remaining independent.

"Our successes are unheard-of in countries like El Salvador or Guatemala," he said, "but we could lose it all if the I.L.O. doesn't stay to protect us."

For all the self-congratulation in this country over the labor situation, there are critics who say that the typical $45-a-month wage is inadequate, given the value generated by Cambodia's garment exports.

"Those wages are so low," said Kate Frieson, a foreign expert working at the Ministry of Women's Affairs, "that all these girls can afford after sending home half their paychecks to their family is to crowd into a single room without electricity with four other girls." One of every 13 Cambodians depends on these women's wages to survive.

With the end of quotas, the Garment Manufacturers Association of Cambodia said that one of its great fears was that the unions would demand higher wages just when the industry had to keep costs under control. The factory owners also complain that the unions are overstepping their bounds with wildcat strikes and need to be reined in.

According to Van Sou Ieng, president of the association, higher labor standards have increased the quality of workmanship and won the attention of international retailers and clothing makers like the Gap, Levi Strauss and Abercrombie & Fitch. Marks & Spencer, the British retailer, buys all the shirts produced by one plant, the New Island factory, in an outlying district of Phnom Penh.

Gap is by far the biggest buyer of Cambodian garments. Dan Henkle, a vice president of Gap Inc., attended an economic and trade meeting under World Bank auspices here earlier in February and assured Cambodians that his company would remain. Gap officials made it clear, though, that they would continue buying garments from Cambodia only as long as it continued to follow the special labor program.

"The presence of the I.L.O.," said Kris Marubio, a spokeswoman for Gap," was an important factor in our decision to remain in Cambodia."

But the biggest problem for the industry today may be all the palms demanding to be greased. With the apparel industry providing nearly 90 percent of the country's export earnings, the factory owners are starting to wield their considerable political influence to push the government into tackling the corruption that has been driving up costs.

In the last six months, the government has eliminated bureaucratic rules that fed corruption, reducing production costs to $1.10 for each dozen T-shirts, from $2, according to industry officials.

"With the high labor standards here," Mr. Van, of the manufacturers' association, said, "you can't be a slave driver so we're limited on cutting labor costs. So why should we have to pay for more corrupt bureaucracy and less reliability?"