Cambodian trade officials are calling on the European Union to extend an exemption on local content requirements that has allowed the Kingdom’s bicycle manufacturing industry to flourish and become the second-largest supplier of bicycles to the EU after Taiwan.

Minister of Commerce Sun Chanthol addressed the nascent industry’s future during a consultation with EU Trade Commissioner Cecilia Malmström during a meeting in Chiang Mai, Thailand late last week.

The clock is winding down on an exemption that allows Cambodia to ship bicycles to the EU duty-free despite falling short of the import agreement’s minimum local content requirement, the ministry said in a release on Saturday.

The Generalised Scheme of Preferences (GSP) stipulates that 30 per cent of a bicycle must be manufactured with local materials in order to qualify for duty-free entry to the EU. In July 2014, Cambodia successfully negotiated a three-year extension to the local component requirement that allows it to utilise Malaysian and Singaporean materials.

The exemption has fuelled the growth of Cambodia’s bicycle manufacturing industry and made it a top competitor in the European market.

Cambodian factories exported about 1.4 million bicycles to the EU last year, a 22 per cent increase over 2014 shipments, according to the Cambodian Special Economic Zone Board. Total shipments to the EU were valued at $364 million last year.

But with the minimum local component exemption due to expire in 2017, the government is seeking a three-year extension to protect one of its most promising non-agricultural industries.

Sam Serei Rath, undersecretary of state of the Ministry of Commerce, insisted the request was not intended to allow Cambodian factories to import more bicycle components from Malaysia, but rather to use up their existing stock.

“The government is pushing for this with the EU so that companies can use up their existing imports,” he said, adding that the government was aware of the GSP’s Rule of Origin clause, but was simply “trying to find a balance.”

Serei Rath said that domestic production was difficult as Cambodia still lacked the ability to manufacture many of the parts needed to fulfil the 30 per cent rule.

“Without this it will be very difficult for companies, especially as market demand from countries like the US and India increases,” he said.

Cambodia’s bicycle industry has come under close scrutiny in recent years as manufacturers in other countries seek to take advantage of the Kingdom’s privileged access to the European market.

Last May, the EU Commission slapped a 48.5 per cent import tariff on Cambodian manufacturers it accused of shipping cut-rate Chinese bicycles to circumvent the EU’s duties on bicycles originating in China.

A nine-month investigation by the Commission found several companies had “no economic justification” for establishing a presence in Cambodia other than to circumvent duties on Chinese-made bikes.

Three Cambodian manufacturers – A&J, Smart Tech and Speedtech Industrial – were excluded from the anti-dumping duty in return for their cooperation with investigators and no evidence of Chinese sourcing.

In the meantime, in response to Chanthol’s request, Malmström said the EU would consider it and revert back to Cambodia in due course, the ministry release stated.

Representatives from the EU could not be reached for comment yesterday.