The garment industry is keeping a close eye on the US-Vietnam Bilateral Trade Agreement pending approval in the US Congress, which could lure textile manufacturers away from Cambodia.
The agreement would sharply lower tariffs between the US and Vietnam and make it easier to invest in the communist country. Vietnam would also be able to increase its exports of manufactured goods to the US, including garments.
Economic observers and those in the garment industry have said the agreement would likely make Vietnam a more attractive place to set up textile factories, promp manufacturers established in Cambodia to move and cause potential future investors to ditch the country for Vietnam.
“If Congress approves the Vietnam-US trade agreement, it could hurt Cambodia a lot,” said Paul Freer of International Management & Investment Consultants Ltd. “And it’s difficult for Cambodia to make inroads in other industries, so certainly the country would not want to see the garment industry leave.”
Vietnam has the double advantage of a cheap but skilled labor force, observers say. Per hour production wages in Cambodia are $0.28, $0.04 more than Vietnam, according to the latest figures. Burma and Laos are even cheaper at $0.08.
Cambodia is also a dollarized economy, while Vietnam mainly does business in its own currency, the dong, which makes the communist country cheaper for doing business.
It wouldn’t be costly for garment factories here to close and open up in Vietnam. Because the garment industry is light in capital investment, it is easy for businesses to leave and set up shop elsewhere.
Nike already produces 20 million pairs of shoes a year at its five plants in Vietnam.
CK Chang, deputy general manager of June Textiles Co Ltd, said garment factories in Cambodia are already considering moving to Vietnam once the agreement is official.
“If I’m an investor, I now have choices of where I want to go in Southeast Asia,” he said. “The likelihood is I will go to Vietnam.”
And for the moment, the US does not have a quota system set up with Vietnam, as it has with Cambodia. Cambodia is limited in the amount of garments it can export to the US, as part of a system to reward Cambodia if its working conditions improve.
Cambodia has a chance if it joins the World Trade Organization. In 2005, an agreement covering the textile industry will expire under the General Agreement on Tariffs and Trade, making a quota-free world, said Sok Siphana, secretary of state for the Ministry of Commerce.
If Cambodia were a member of WTO, the US would have to treat it like all the other member nations and would not be able to impose a quota. But if Cambodia did not manage to join WTO by 2005, then the US can still impose a quota unilaterally.
“The ultimate challenge, the breaking point, comes in 2005,” Sok Siphana said. “We will see where we can go from there.”
