F OLLOWING reports of widespread forgeries of Cambodian certificates of origin accompanying
garment shipments to the European Union, the Ministries of Commerce, Industry and
Finance have formed a joint committee to tackle some of the problems facing the industry.
Labor relations were brought up initially, but have been effectively sidelined for
the time being.
A joint inquiry carried out by the government and the EU in early 1996 found that
during 1994 and 1995 as much as 60 percent of Cambodian garment exports actually
came from elsewhere on forged certificates of origin. Cambodia enjoys quota-free
status for garment exports to Europe, making it tempting for manufacturers in other
countries to put "Made in Cambodia" on labels and shipping documents.
"The main object of the committee is to look at rules applied by the Cambodian
government to textile manufacturers to make sure clothes are really made here,"
said an advisor to the Commerce Ministry.
"The committee's job is to make sure our house is in order. Another objective
is to make sure that the rules are as little a burden as possible. We don't want
to hamstring the industry with regulations if possible," he said. One aspect
brought up at first, but subsequently shelved, was having the committee look into
The prevailing fear is that if Cambodia can not clear up the matters of fraudulent
shipments from other countries and defining regulations for what constitutes local
origin itself, its biggest markets for garments may impose quotas to control the
Manufacturers also complain that Customs officials are seizing shipments of inputs-items
like pre-sewn sleeves, collars and waistbands-and levying duties on them. They maintain
that the goods should be classified as raw materials-therefore duty-free under the
Cambodian Investment Code-but are being considered semi-finished products in customs
valuation procedures, therefore liable for duty.
The Commerce Ministry has formed the Joint Committee on Garment Exports with representatives
of the Cambodian Development Council, the Customs Department, manufacturers and the
Ministries of Industry and Finance.
"It is the first time that the government has attempted to formalize cooperation
between government and industry. Indeed, liaison between government departments is
also something of a rarity.
Inter-ministerial matters are usually carried out at the Council of Ministers
level," said the advisor. "So the joint committee is new in two ways. However,
one can say its appointment is implicit in a liberal economic system that the government
is constitutionally committed to."
One of the tasks of the commission is to determine how much items have to be transformed
to be considered of Cambodian origin. It depends on varying regulations of the receiving
countries or blocs, which becomes even more complicated when several producing countries
may be involved. Commerce Minister Cham Prasidh brought this up when he introduced
the committee in early May.
"When transformation takes place in two countries rather than one, what will
our trading partners accepts as minimum levels of transformation in this country
for securing Cambodian origin for the finished garments," he said. "The
USA has extremely complex rules for deciding this sort of issue and I have no doubt
that our friends in the European Commission can match them in complexity and obscurity."
Importing partially sewn garments and doing final assembly in a second country
for export falls under a practice called Outward Processing Arrangements (OPA). "This
means that cut goods or knitted panels are prepared in another country - for instance
China or Vietnam - and also partially assembled there into the final garments,"
said Prasidh. "The partly-assembled garments are then shipped to Cambodia to
be finished here, packed and shipped to their final destinations."
"The object of this exercise is to enable manufacturers in quota-restricted
countries, such as PR China and Vietnam, to make maximum use of their investment
in manufacturing facilities in those countries while securing Cambodian origin by
legitimate means so that they can, quite legally, avoid quota limitations,"
Some manufacturers who have attempted to do this have been stymied by Customs
officials unaware of the complexities of the process. Wing Tai managing director
Van Sou Ing, who is also the Garments Manufacturers Association chairman, complained
that his company lost money trying to import components in the past.
"Customs considered our inputs semi-finished goods, not spare parts. Everything
must be imported there including buttons," he said. "There is no OPA agreement
in force now in Cambodia, but such agreements are authorized by the US and the EU."
He says that the inputs have since cleared, but that orders were canceled or delayed
as a result of the confusion.
He maintained that OPA garment manufacturing is wide spread around the world and
predicts that the committee will help his business. "All countries in the region
have a commission, because the trade is so complicated you must have specialists,"
he said. "It is normal for Cambodia to have such a commission to deal with these
issues. Major importers allow this process. Cambodia has little knowledge about it.
It is new in the trade."
On this matter, Prasidh observed: "We do not need more than one instance
of material which is needed for an urgent order being held up in the docks because
the local Customs office has no idea whether it is needed for the manufacture of
legitimate export goods or is part of an illicit attempt to secure Cambodian origin
for nearly-finished goods by doing some minimum processing here," he siad. "The
country cannot afford to risk the loss of export sales for this sort of reason."
He urged Customs to clear import shipments within 24 hours if everything is in
order and called for broad systematic reform of all regulatory agencies, including
the Ministry of Commerce. "The Royal Government will no longer accept that shipments
can be held up because the only officer authorized to do a job set down in the regulations
has gone to the country for his aunt's funeral or his daughter's wedding..."
he said. "The machinery of the Royal Government must NOT be dependent on the
individuals that comprise it."
He also chided officials for accepting money to clear shipments. "The Royal
Government is aware that this is a problem," he told the committee members.
"I do not have to say that "grease" to speed up regulatory procedures
is not a legitimate fee. I expect you to make it difficult for officials to demand
such payments. And for garment companies to offer them."
He maintained that the current regulatory process is not prepared for increasingly
complicated trade patterns and called on the committee to come up with a plan. "The
basis on which we issue certificates of origin.. is at present rather hazy. You should,
therefore, examine ways in which the legal position can be clarified and, if necessary,
" I do not care how soon you want to begin work," he concluded. "If
I have given you the impression that considerable urgency attaches to this matter
then I have been successful."