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Logo of Phnom Penh Post newspaper Phnom Penh Post - Duty-free garment access bill faces opponents in US Senate

Duty-free garment access bill faces opponents in US Senate

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Trade Act of 2009 would eliminate tariffs on Cambodian garments entering America, but might not escape committee in its current form, analysts say.

Photo by: TRACEY SHELTON
Officials and analysts in the United States suggest that the Trade Act of 2009 has little chance of being passed.

ABILL that would provide a major boost to Cambodia's beleaguered garment industry is stuck in the US Senate's finance committee, and analysts fear it has little chance of seeing the light of day. However, some are optimistic that a revised, broader bill benefitting the Kingdom could yet pass under the Barack Obama administration.

"This bill is really important to Cambodia in the midst of the economic crisis," said Mean Sophea, director of the trade preferences system at the Ministry of Commerce. "Cambodia is a poor country with poor human resources and infrastructure, so access to trade is vital."

The Trade Act of 2009, which was introduced by Democratic Senator Dianne Feinstein, would provide duty-free access for textiles and apparel goods to 14 least developed countries (LDCs), one of which is Cambodia. When Feinstein introduced the bill, she said it would reduce poverty and improve relations with some of the world's poorest countries.

"Despite the poverty seen in these countries and the importance of the garment industry and the US market, they face some of the highest US tariffs in the world," she said in a May 21 statement. "This legislation will help these countries to compete in the US market and let their citizens know that Americans are committed to helping them realise a better future for themselves and their families."

There are a number of high-priority issues facing the US Congress ... which may take greater precedence over this bill.

Cambodia pays the highest tariffs, in percentage terms, of any US trading partner because of its dependence on garment exports. The Progressive Policy Institute (PPI), a US think tank, says Cambodia paid US$419 million in tariffs on $2.46 billion worth of goods in 2007. That works out to a 17 percent import tax, compared with an average of 1.3 percent for other countries.
"[The US tariff system towards Cambodian goods] is not fair at all," said Edward Gresser, director of the project on trade and global markets at PPI. "This is not meant to target Cambodia per se. It is the reality of the US tariff system, which singles out cheap clothes and shoes for the highest tariff rates - but I can't see how anyone could call it fair."

This is third time that a bill to cut tariffs for LDCs that include Cambodia has been introduced in Congress. The previous two attempts failed, but there was some hope that under the new administration the third effort would succeed.

A 2007 report from the Economic Institute of Cambodia estimated that permitting duty-free access to the US would boost the Kingdom's garment exports by a quarter to US$626 million. That would add 77,000 jobs to the garment industry and another 69,000 jobs in supporting industries.

"Undoubtedly, the effect of duty-free access to the US market is not limited to the industry, as it would also impact the country's overall economy. The measure would translate into a 4.6 percent" increase of real GDP growth, the report said.

But the garment sector - one of the Kingdom's four pillars of economic growth - has slumped in the past year. The Ministry of Commerce's trade preferences systems department estimates that garment exports fell 26 percent year-on-year in the first quarter to US$534.6 million.

The World Bank believes 63,000 workers have lost their jobs.

Industry players say that passing the bill is crucial to pulling the garment industry out of its depressed phase.

"As we have seen over the years with various preference programmes, designated countries receive a strong economic boost," said Nate Herman, senior director for international trade at the American Apparel and Footwear Association.

And market access gained from this bill would boost the appeal of the Kingdom as an investment-friendly destination, said Nicole Bivens Collinson, a trade negotiations lawyer with US firm Sandler, Travis and Rosenberg.

She said in an emailed statement that although the current bill is unlikely to pass, it shows that Congress is debating the issue, and that LDCs such as Cambodia could one day gain duty-free access to the US market.

"It is a very opportune time to get preferences for the LDCs, given the Democratic majority in both Congress and the administrative branches of the US government," she said.

Some lobbyists see the bill as a zero-sum game in which gains for Cambodia mean losses for others. Latin American and African nations that already enjoy preferential agreements for garments are actively working to torpedo the bill, as is the American Manufacturing Trade Action Committee (AMTAC).

Lloyd Wood, the director of membership and media outreach at AMTAC, said that textile exports from countries that have signed the Central America Free Trade Agreement are "losing market share hand over fist" to other nations, particularly China. A statement on AMTAC's Web site claimed that removing garment tariffs on Bangladeshi and Cambodian imports would cost US producers US$800 million annually.

"Cambodia and Bangladesh are already superpowers in the apparel world. Cambodia is enormously competitive in the market now," said Wood, noting that the Kingdom has 3.8 percent of the US apparel market.

And Rosa Whitaker, CEO and president of the Whitaker Group - a pro-Africa development agency - said that because Bangladesh and Cambodia have already developed competitive apparel industries, neither needs further beneficial access.

"Extending preferential treatment to all LDCs would be like putting an Olympic runner in the same race as a man with a broken leg," Whitaker said. "Once Africa's apparel industries develop under AGOA [the African Growth and Opportunity Act - US legislation that provides trade preferences for sub-Saharan Africa] to the point where they can be competitive on the global market, then we can talk about a level playing field and similar treatment for both regions."

It certainly seems as though the chances of the bill passing are bleak. Of the previous two bills that failed, the Trade Act of 2005 had 21 co-sponsors, while the Trade Act of 2007 had five. This bill has just one co-sponsor: Kit Bond, a Republican Senator from Missouri who does not have a seat on the Senate Finance Committee.

Low priority in Washington
US Embassy spokesman John Johnson said in an emailed statement that the administration had bigger priorities that made it difficult to predict the bill's chances.

"There are a number of high-priority issues facing the US Congress, including responding to the economic crisis and tackling health care reform, which may take greater precedence over this bill," he said.

And Kaing Monika, the external affairs manager at the Garment Manufacturers Association of Cambodia, told the Post that the private sector here had given up lobbying for the bill.

Regardless of the outcome, said Gresser at the Progressive Policy Institute, beneficiary countries would be better off in the long run by improving their own competitive advantages.

"Ultimately the best guarantees of success are well-trained workers, efficient ports and roads, and good governance," he said.

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