High tariffs on textiles exported to America are dragging down a beleagured garment sector, with Cambodia paying more than other US trade partners

PHOTO SUPPLIED

The garment sector in Cambodia employs some 320,000 workers, making it the largest industrial employer in the country. The industry fears that a sharp fall in garment exports could put a large number of Cambodians out of work.

High tariff rates

In percentage terms, Cambodia pays the highest tariff rates of any American trading partner, according to a report by the Progressive Policy Institute in the US. In 2007, Cambodia paid $419 million in tariffs to the US, or about 20 times more than the UK.

HIGH American tariffs are hurting Cambodia's garment sector, with the industry complaining high import costs and a slow US economy could sink the Kingdom's key industry. 

In 2007, Cambodia paid US$419 million in tariffs on $2.46 billion worth of exported goods, meaning the industry is paying an average 17 percent tariff, according to a new report by the Progressive Policy Institute, a centrist US think tank.

The average US tax on imports is 1.3 percent, while Saudi Arabia pays only 0.1 percent on the goods it exports to the US.

Saudi Arabia's per capita income is $12,510, while Cambodia's is only $430.

Cambodia has already seen a US$500 million dollar drop in exports to the US in the first eight months of this year compared to the same period last year, said Kaing Monika, external affairs manager at the Garment Manufacturers Association of Cambodia (GMAC).

He added that the sector has suffered a loss of about 20,000 workers.

Garments have been hard hit by the US slowdown, with clothing sales down in 2008.

Cambodia sells about 70 percent of its clothing to the US market, making it highly vulnerable to fluctuations in the US economy and Washington's trade policies.

With American anti-dumping measures about to expire in Vietnam and China, the future of Cambodia's garment industry looks increasingly bleak, officials say.

"The future will be tough when the safeguards on Vietnam and China run out," Kaing Monika said. "China has the whole supply chain. If Cambodia is going to compete it will be difficult."

The future will be tough ... if cambodia is going to compete, it will be difficult.

Industry pressure

The garment industry is urging the US to scrap tariffs on Cambodian goods, through the The New Partnership for Development Act, a bill being considered in a subcommittee of the US House of Representatives.  

The bill  would provide duty-free treatment to least developed countries.

At the moment, the American tariff system is skewed to make developing countries like Cambodia pay a disproportionately high average tariff rate, said the PPP report.

Because Cambodia's exports to the US are dominated by garments, the Kingdom pays the highest tariff rate of any American partner.

"We are paying full taxes to the US government of 15 to 25 percent, depending on the category. The tax is very high. It makes it difficult to compete with China," Kaing Monika said.

The New Partnership for Development Act focuses on ensuring that countries have fair labour practices, which should result in lower prices for US companies buying the goods due to lower tariffs.

"We have good working conditions, but we if look at the criteria of buyers, working conditions are not at the top. Price is No 1," Kaing Monika said.

"We've tried to lobby, but there's no result yet," he added.

"It [The New Partnership for Development Act] would help the industry maintain operations and employment opportunities for many people. It would help the Cambodian economy," Kaing Monika said.

A price squeeze

Without the act, many fear that Cambodia's garment industry cannot lower its prices any more to compete with larger manufacturers.

A Cambodia Institute of Development Study from July noted "Cambodian producers have little room to lower price as a strategy to gain/maintain market share."

Kaing Monika agreed, saying, "I don't think we can lower prices. Our factories are not making money at the moment."

GMAC has sent trade delegations to Washington and hired a lobbying firm, but most of these efforts have been postponed until the new US administration is elected.

A source in the industry also said manufacturers are also working to expand sales to Japan and China.

Cambodia's total garment exports were worth $2.8 billion in 2007.

ADDITIONAL REPORTING BY GEORGE MCLEOD