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Drop in US exports seen as a wake-up call

Employees at a garment factory in Phnom Penh’s Dangkor district take finished items of apparel to a storage warehouse in 2014.
Employees at a garment factory in Phnom Penh’s Dangkor district take finished items of apparel to a storage warehouse in 2014. Pha Lina

Drop in US exports seen as a wake-up call

The industry body for the nation’s garment and footwear manufacturers said new trade data showing a decline in Cambodian exports to the US during the first half of the year was a sign that the Kingdom was losing its competitive advantage, threatening the future of its $6 billion garment industry.

The latest US government census trade data indicate that Cambodian exports to the US from January through June totalled $1.3 billion, down from nearly $1.5 billion during the same period a year earlier. The 8 per cent decline represents the first contraction in US-bound exports in five years.

While the census data did not provide a breakdown, garments comprise the largest component of Cambodia’s export basket to the United States, the country’s biggest single-country export market. In 2015, garment shipments accounted for $1.7 billion of the country’s total $3 billion exports to the US.

Vann Sou Ieng, chairman and president of GMAC, said the figures were unsurprising and offered further evidence that Cambodia was losing its competitive advantage.

“We have brought this issue to the government for the last two years and have constantly said that Cambodia’s chief export could move to other countries,” he said. “Now the figures are finally showing that.”

He projected that the decline in exports would continue through the end of 2016 as garment and footwear manufacturers shift their production to more competitive countries such as Vietnam, China and Bangladesh.

“I don’t believe there will be any more increases in garment exports to the US in the future,” he said. “Cambodia is becoming less competitive. We can’t compete with countries like Vietnam.”

Sou Ieng said the US government’s recent decision to grant Cambodia a tariff exemption on travel goods under its Generalised System of Preferences (GSP) program could boost its local garment industry.

However, investors could be wary of setting up factories here as the Kingdom’s reputation as a low-cost production base has been deeply damaged by strikes, labour unrest and wage hikes.

“The travel goods exemption should provide some hope, but it needs to be supported by the government and civil society if it is going to take hold because we still have to compete with other least developed countries and our image as a country is already damaged,” he said.

As a result, in the short term at least, Sou Ieng recommends that the government and civil society focus on securing employment for the garment sector, which employs about 700,000 workers, as “there is no other alternative industry that can support these jobs”.

The US Embassy declined to respond to questions about the downturn in exports, but emphasised that Cambodia has a clear competitive advantage in terms of producing travel goods.

“The new GSP expansion to include travel goods made in Cambodia has the potential to greatly increase exports to the US and create tens of thousands of new jobs for Cambodians,” an embassy spokesperson said in a statement.

“The travel goods industry in the US is a $10 billion import market, and Cambodia is the only significant producer of these goods to benefit from this duty free trade preference under GSP.”

Additional reporting by Hor Kimsay

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