Cambodia is stepping up its campaign to encourage the US government to drop its tariffs on Cambodian imports, a measure that could help shore up the uncertain future of the nation’s garment industry, which accounts for 80 percent of all exports.
Commerce Minister Cham Prasidh led a delegation to Washington last month to press the US Congress to pass a measure, introduced in February, that would slash tariffs on goods from Asia’s least developed nations. Now five Cambodian labor unions have joined the fight, with an Aug 2 letter urging Congress to pass the bill.
The US is by far Cambodia’s largest overseas market, accounting for 63 percent of total export revenue for 2006, according to a US Congressional Research Service report. Over 97 percent of those exports are textiles and apparel.
The tariff issue is gaining new urgency for Cambodia. Some argue that shifts in the global garment industry are increasingly favoring more developed nations, like China, over the world’s poorest. US quotas that benefited Cambodia have either expired or will soon, and Cambodia’s niche as a labor-friendly source of garments may well erode. The question Cambodia now faces is how to compete with nations that have better infrastructure, more qualified labor forces, deeper supply chains and cheaper electricity.
“In the post-quota world, larger countries are gaining at the expense of smaller ones,” Cham Prasidh told a panel of trade experts in Washington on July 21, according to a summary of the meeting prepared by the Carnegie Endowment for International Peace.
“China is able to produce products both more quickly and more cheaply than Cambodia…. If Cambodia is granted trade preferences, the country would be able to match China in terms of price, but will have better quality goods because of labor compliance,” he added.
Gregory Lawless, a spokesman for the US Embassy in Phnom Penh, said the Embassy does not as a matter of policy comment on pending legislation, but added that the US in general supports expanded international trade as a tool of development.
“The United States is committed to strengthening our bilateral economic partnership with Cambodia and seeking closer trade ties that are in our mutual interest,” he said by e-mail, adding that tariff reductions for poor nations are already being considered within the context of the Doha round of World Trade Organization negotiations, in which both Cambodia and the US are participating.
Those talks, however, broke down last summer, and some Cambodian officials are hoping for a faster, more localized resolution.
Cambodian Ambassador-at-Large Roland Eng said by e-mail that the US already provides generous trade benefits to many of the world’s poorest countries through regional agreements. He argued that the Tariff Relief Assistance for Developing Economies, also known as the TRADE Act, now before US Congress, would essentially level the field for the world’s poorest players.
The TRADE Act would give preferential trade treatment to 14 poor nations, including Cambodia, Laos, Afghanistan, Bangladesh, East Timor and Nepal.
“The jobs of literally millions of people in these countries are at stake, as is their economic and political stability,” Eng said.
“The TRADE Act,” he added, “would provide the possibility for these countries to remain competitive with China, India, Vietnam and other countries that have benefited from the end of the quota system, and will help US brands and retailers avoid becoming overly dependent on Chinese suppliers.”
The US removed textile quotas on Jan 1, 2005. It promptly imposed so-called “safeguard” restrictions on China, which domestic producers had accused of unfair practices, but those measures are slated to expire at the end of next year. Vietnam’s 2006 accession to the WTO has only added to the competitive pressure in an industry with razor-thin profit margins.
“If the tariffs are not reduced, we face high competition from other industrialized nations that will cause unemployment,” said Van Sou Ieng, the chairman of the Garment Manufacturer’s Association of Cambodia. “We will have social instability. The poor countries will get poorer and the rich will get richer,” he added.
Van Sou Ieng was part of Cham Prasidh’s delegation to Washington. He said the trip, which ran from July 11 to 22, was grueling, with up to eight meetings a day, but ultimately positive.
“The conclusion we have is quite hopeful that the US Congress will try to initiate some deals to use trade to help least developed countries alleviate poverty,” he said.
Cambodia has carved out a niche as a labor-friendly source of garments, thanks to a 1999 agreement with the US that boosted import quotas in exchange for guarantees on worker rights under the so-called Better Factories Cambodia program.
The International Labor Organization, which has been responsible for factory monitoring under the program, has been scaling back its involvement, and the program’s budget extends only through the end of next year, making the future shape of the program somewhat uncertain, Van Sou Ieng said.
Whatever happens, he added, good labor practices, taken alone, won’t save Cambodia’s garment industry. “Labor compliance alone won’t sustain the industry. Productivity, price and delivery are the most important,” he said.
Hang Chuon Naron, secretary-general of the Ministry of Economy and Finance, said US tariffs on garment exports from Cambodia average 16 percent and abolishing them would go a long way towards making Cambodia’s garment factories more competitive.
“We can’t say Vietnam’s accession to the WTO is bad for Cambodia, but it has improved the business environment in Vietnam. Cambodia needs to compete. We should not just cry,” he said.
Albert Tan, the treasurer of the Garment Manufacturers Association of Cambodia, said failure to secure lower US tariffs wouldn’t necessarily mean the end of Cambodia’s garment sector, especially if the government could deepen the domestic supply chain by drawing in, for example, trim producers and raw material manufacturers. “That would reduce the amount of imports from overseas and reduce the cost of freight,” he said.
In their Aug 2 letter, a copy of which was obtained Monday, the Cambodian Labor Confederation, the Cambodian Tourism and Service Workers Federation, the Coalition of Cambodian Apparel Workers Democratic Unions, the Cambodian Independent Civil Servants Association, and the Independent Democratic Association of the Informal Economy, which together claim to represent about 36,000 workers, said competition with Vietnam had already taken a bite out of Cambodian industry.
CCAWDU President Ath Thorn said the elimination of tariffs would help attract foreign investors who have increasingly been drawn to Vietnam. “Without the export tariff the investors will come to Cambodia because they will make profits. It will help Cambodian workers,” he said.
But Free Trade Union President Chea Mony, who did not sign the letter, said although he supported tariff cuts in principle, anti-corruption measures must first be put in place to ensure gains of preferential treatment are equitably shared.
“We are concerned because Cambodia does not have an anti-corruption law and the workers might not receive the benefits,” he said.