New EU Trade Rules to Boost Cambodia, But Amount Is Unclear

In 2006, when A&J Worldwide opened a bicycle plant in Cambodia, it immediately became a rarity in a country with a production base essentially limited to garments.

It also immediately benefited from European Union trade preferences, which offer duty free access to some Cambodian-made products.

“[Cambodia] was already an LDC and had a trade preference too. That was a big attraction for us,” said A&J CEO Jon Edwards.

Those preferences are scheduled to be simplified in January easing the criteria for a series of products and underscoring how few companies in Cambodia produce items other than garments. The changes also raise the potential for Cambodia to expand its so far undeveloped and overshadowed light manufacturing sector.

Chan Sophal, president of the Cambodian Economic Association, welcomed the new rules, but said it’s unclear how much Cambodia’s manufacturing base will diversify because of the new incentives.

“It’s good for Cambodia. It’s just a question of whether Cambodia can make use of this opportunity,” he said.

He pointed out that much of Cambodia’s garment sector was built on trade preferences from the US, which expired in 2004.

Those preferences helped Cambodia’s garment sector overcome several deficiencies including high production costs related to electricity supplies and infrastructure.

Garments remain a major part of the economy. In the first three quarters of the 2010, only 6 percent of Cambodia’s exports were items other than shoes, textiles or garments, according to Commerce Ministry data.

Rafael Dochao Moreno, charges d’affaires for the European Delegation in Cambodia, said the amount Cambodia benefits from the trade preferences depends on how the government and private sector responds.

“The government needs to continue improving the general investment climate through further investment in hard infrastructure… and continued improvement in governance and rule of law,” he wrote in an email.

Assembly of electrical appliances, and production household goods, steel and plastic goods are all possibilities, he said.

“Targeted investment promotion will be crucial in making businesses aware of this potential and drawing them to Cambodia,” he said.

The new rules of origin will lower the percentage of a product that must be produced in a Lowest Developed Country in order to receive duty free access. For some products this has been changed for 60 percent to only 30 percent.

Edwards said A&J’s Atlantic Cycle plant in Svay Rieng will see the percentage of its products benefiting from duty free status rise from half to 70 percent because of the changes.

“We expect to be able to pick up more business, and that will lead to more people being hired and possible further investment,” said Edwards, by telephone from his headquarters in Taipei. He expects the company to produce 300,000 bikes in 2011, up 7 percent from 2010. The company produces bikes for companies like Marin, Kona, Felt, Norco, Claud Butler, and Dawes, according to Edwards.

Edwards said he wasn’t sure why more companies haven’t taken advantage of previous trade rule, though a lack of awareness is one reason.

“Maybe people are too nervous because they don’t understand enough about the country,” he said.

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