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Cambodia Apparel Exports Up, But Trade Relations Could Strain Sourcing

Cambodia’s garment exports to its second largest market, the U.S., are up and growing, but so are trade tensions, which could nip some of that growth in the bud.

Exports of apparel and footwear products from Cambodia are expected to grow 5 percent this year, and the Garment Manufacturers Association in Cambodia (GMAC) says that growth should sustain in the coming years too, according to the Khmer Times.

That is, provided that trade relations remain as is—and ideally, amiable.

In recent months, the U.S. imposed visa sanctions on Cambodia for refusing to take people back who the U.S. is trying to deport. In recent weeks, Cambodian Prime Minister Hun Sen has accused the U.S. of trying to topple its government.

Cambodia’s overall export figures show its total exports to the U.S. up 5.6% to $2.28 billion, so if there’s to be any fallout in export numbers over politics and relations, it hasn’t happened yet.

And though it’s too soon for much of these tensions to have impacted the apparel and textiles sector, for the year to September the U.S. took in $2.18 billion worth of textiles and apparel from Cambodia, a 3.2% dip from the same period last year.

That indicates that the bulk of the growth expected for Cambodia’s garment exports this year will likely come from what’s going to the European Union. However, the country is facing issues there too.

A delegation from the European Parliament warned last week that Cambodia could face action that would shift the country’s aid and trade preferences over its human rights situation, which has improved far less than Western leaders and companies doing business there want.

These tensions all come as the cost of sourcing in Cambodia is set to increase, too.

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The country recently approved an 11 percent wage hike that will bring garment workers’ average wages to $170 a month starting in January. The hike, which was part of a bigger benefits package, has garment manufacturers worried that it will serve as a hit to Cambodia’s competitiveness when stacked against other low-cost sourcing countries like Vietnam and, in particular, Myanmar, where wages are a considerably lower $67 a month. Even if Myanmar approves a 55 percent wage hike that’s presently being mulled in the country, that would bring wages to $99—still a much more cost-competitive option than Cambodia.

[Read more about the wage hike: Wage Hike in Cambodia Rises Higher than Expected]

According to the Khmer Times, 25 new garment factories have started operations in Cambodia this year, but as many as 53 have closed citing costs that were too high to continue.

“When the minimum wage is raised to $170 in January, more factories will encounter difficulties if things don’t change,” Ken Loo, GMAC general secretary, told the Khmer Times. “We hope there is a change in productivity, a reduction in the cost of doing business and new governmental policies to help investors.”