Business

Cambodia May Surpass India In Apparel Exports To EU

Cambodia's garment manufacturing industry has eclipsed rival Vietnam as a supplier of products to the European Union and is on course to overtake India.

"In the space of five years, Cambodia has climbed from being the tenth largest supplier of clothing to the European Union to become the fifth ranked supplier, behind China, Bangladesh, Turkey and India," said Michael Scherpe, CEO of Messe Frankfurt France, a German-based firm that organises worldwide trade fairs for the garment sector.

He cited European Union figures that showed Cambodia's garment exports to the EU grew by 14% in 2016 to reach Euro 3.8 billion, putting the country ahead of Vietnam. Given the industry's pace of growth, he added, "it is now probable that Cambodia will overtake India within two years".

Trade figures for 2016 from the EU Directorate-General of Trade, an annual bulletin, show that Vietnam exported a total Euro 3.2 billion worth of garments, at a growth rate of 6.8%. Meanwhile, India exported a total of Euro 5.6 billion worth of garments last year with a negative growth rate of 0.7%. Scherpe said. "Europe today takes up 43% of the Cambodian sector's exports as opposed to 29% taken by the US market."

He warned, however, that Cambodia's push into the EU market was largely the result of preferential treatment under the "Everything But Arms" agreement, which allows its garment products to enter the EU market duty-free. That preference is expected to end as Cambodia graduates out of Least Developed Country (LDC) status.

"If, as seems likely, this new ranking is confirmed by the United Nations, Cambodia will lose its status as LDC and, what is more, will be excluded from preferential treatment," he said. "Needless to say, Cambodia will be allowed a grace period of about three years in order to adjust to its new status."

Scherpe was speaking at a memorandum of understanding signing ceremony with the Garment Manufacturers' Association in Cambodia (GMAC), which was organised to assist Cambodian firms seeking to explore new European textiles and clothing markets.

The two-year programme will provide funding of up to US$ 450,000 for Cambodian firms to help them comply with European production development standards, of which half will come from the German government and half from Messe Frankfurt France.

Competition from Vietnam

A looming threat to the Cambodia's garment sector, he said, was the implementation of the free trade agreement between the EU and Vietnam that is set to come into force in early 2018, and which gradually reduces the current 12% import tariff to zero, in seven years.

Ok Boung, secretary of state of the Ministry of Commerce, said that while preferential treatment of Cambodian exports played a crucial role in developing the Kingdom's garment industry, improved customs procedures and the online issuance of certificates of origin had increased its competitiveness. "We have eliminated the difficulties and made shipping easier," he said. "With our online system, an exporter can now get approval in as fast as 24 hours while Camcontrol only inspects 2% of outbound shipments."

While Boung downplayed concerns about Vietnamese competition and the potential loss of Everything But Arms privileges, he raised concerns over the impact of Britain's exit from the EU, which puts approximately US$ 800 million worth of annual Cambodian garment exports in tariff limbo.

"However, we are not scared because we are expanding the market to Japan, South America and Eastern Europe," he said, adding that this, plus growing Asean trade, could offset losses. Van Sou Ieng, chairman of Garment Manufacturers Association Of Cambodia (GMAC), said garment manufacturers need to create higher value-added products to continue to benefit from preferential treatment.

He was more concerned about what he saw as more pressing issues like the high cost of production, workers' wages and the country's reliance on importing raw materials because producing them domestically was unfeasible due to the high cost of electricity. “To produce raw materials for making fabric needs lots of electricity. Garment factories spend about 1% to 2% of its production cost on electricity, but to use machines to produce raw materials will add almost 30% to existing costs,” he said.