A Chinese garment company will be fined for illegally importing semi-finished garments for re-export to its Kandal province factory, Commerce and Customs officials said Tuesday.
The company, Lucky Sweaters, faces $40,000 in fines after customs police detained four trucks hauling sweaters from Sihanoukville to its Kandal facility Thursday, Customs Chief In Saroeun said. The sweaters were 90 percent completed.
The sweaters’ final destination was the US, In Saroeun said.
Lucky company officials could not be reached for comment Wednesday.
Lucky Sweaters was the 10th manufacturer in the last few years to be caught and fined for importing partially sewn garments to complete in Cambodia and export abroad, officials said. Analysts and industry insiders said this week, however, it is impossible to know how many such shipments go undetected.
While the process is risky, some companies take the chance to take advantage of Cambodia’s quota-free status. Some countries with large manufacturing sectors, such as China, have had quotas imposed by the US and European Union on how many garments they can export. But no restrictions have been placed yet on Cambodia, making a “Made in Cambodia” label very attractive.
“It’s an issue,” one analyst said. “The question is if it is a big problem or a little problem.”
Industry sources were reluctant to discuss the issue this week. One said no one wanted to talk about it for fear it will stir up trouble with importers and customs officials in major importing countries, such as the US.
Insiders said bringing in semi-finished goods is not hard. Manufacturers obtain the necessary documents to import raw materials, but bring in finished or partially finished goods from countries such as China or Vietnam.
The completed garments are then exported with labels stating they were “Made in Cambodia.”
Customs officials, tipped off by informants, said documents for the Lucky shipment showed the containers held raw material. An inspection, however, found men’s and women’s sweaters.
One garment manufacturer said Wednesday that factories in Cambodia are tempted to take the risk of importing partially sewn goods because garment workers here do not yet have the skills to complete complex items.
“For simple items, like T-shirts, [the practice] doesn’t exist,” the industry source said. But Lucky “was doing sweaters and those are complicated.”
An economic analyst said the lure was also financial. Garments are hit with tariffs of up to 100 percent, but under trade privileges such as Most Favored Nation tariffs they are reduced to between 10 percent and 30 percent.
The practice was popular a few years ago, the manufacturer said, but few companies now try it. Companies get “blacklisted,” and exporting gets more complicated.
The analyst said the semi-finished imports are not nearly as serious a problem as in 1995, when there were widespread forgeries of Commerce Ministry certificates that accompany exported shipments.
A joint inquiry at the time by the government and EU showed as much as 60 percent of garments actually came from outside the country and were brought to Cambodia to take advantage of its quota-free status with the EU.
In response to the inquiry, the Commerce Ministry implemented a new system to give out the certificates. In 1996, a machine was purchased that watermarks the documents to make them more difficult to forge.
There are other factors as well, said analysts, that still make Cambodia an attractive location for such practices. Customs are lax and Cambodia is close to countries such as China and Vietnam, which have either filled up their quotas, or do not have preferential trade privileges with the US and EU.
For Lucky, the experiment turned out to be an costly one. Its sweaters have been seized, along with the $40,000 fine. Commerce Ministry Foreign Trade Director Mao Thora said Tuesday the ministry is considering suspending the company’s export license.
There are also wider implications. “Ultimately they are shooting themselves in the foot,” said the economic analyst. “It is very shortsighted by manufacturers because it will eventually make countries suspicious of all the companies.”
