Garment exporters in Cambodia are having sleepless nights over the recent US-Vietnam

trade agreement that could put Vietnam in a far more competitive position in exports.

US Congress passed a landmark trade agreement October 4 lifting punitive tariffs

on exports and granting Vietnam most favored nation (MFN) status.

Once the Vietnamese government ratifies the agreement, US tariffs on garments imported

from Vietnam will be slashed from 60 percent to around 5 percent. That will place

Vietnamese exports on a par with Cambodia.

Although the agreement has been hailed by business communities in Vietnam and the

US, garment manufacturers here fear it will prove a major setback to their business,

particularly if the two countries follow up with a separate agreement on textiles

exports.

Van Sou Ieng, chairman of the Garment Manufacturers' Association of Cambodia (GMAC),

said if Vietnam manages to obtain sanction for quota free textile exports, that could

seriously damage Cambodia's export market.

"[Vietnam's] inherent strengths over Cambodia, such as superior production capabilities,

better infrastructure and a more skilled labor force, make it more attractive,"

he said. Those who did not relocate risked losing new orders to Vietnamese-based

manufacturers.

Sok Siphana, secretary of state in the Ministry of Commerce, dismissed such concerns

saying that well-established companies with a strong client base "who have got

used to the pattern of business here" would not abandon their production base.

"Let's face it, the US is yet to sign a textiles agreement that is linked to

factors like labor rights and working conditions. Once these are imposed on Vietnam

as well, it will be a different ball game. Companies in Cambodia have already established

their credentials and raised wages up to $50 a month," he said.

"However this [development] is another reason for us to work harder in making

our business atmosphere more conducive and creating investor harmony."

Bruce Levine, first secretary at the US embassy in Cambodia, said the agreement was

designed to normalize trade relations with its former foe. He said the tariffs being

offered to Vietnam had long been enjoyed by Cambodia.

"If it makes the country more competitive than Cambodia, there is little that

we can do," Levine said. Although garment exports here could be affected, he

said the cost of doing business in the Kingdom was very high and it was for the Cambodian

government to take necessary steps to prevent any flight of investment.

"Poor infrastructure, high bureaucratic and power costs, and general unpredictability

are already neutralizing the advantages of doing business in Cambodia. For manufacturers

here it takes a long time to get government sanctions and clearances," Levine

said, adding that the manufacturers would try to relocate where such constraints

can be avoided.

Garment manufacturers here enjoy a fixed percentage of the US garment market under

a quota system that is negotiated yearly, depending on Cambodia's record on labor

rights and working conditions. Manufacturers are worried that if a quota system does

not apply to Vietnam, it could end up having access to the huge US market without

many encumbrances, making exports from Cambodia unattractive.

Cambodia's garment manufacturers have already scaled down production after the Sept

11 attacks. World Bank chief, Bon-aventure Mbida-Essama, said that slack consumer

confidence in the US would have a major impact on garment exports.