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Cambodia Sees Export Lift From US-China Trade War, But Faces Headwinds

Cambodia is one of the key Asian countries that is benefiting as companies shy away from China as an apparel supplier and work to at least diversify to limit risks created by the trade war with the U.S.

The potential for 25 percent tariffs on Chinese apparel and textiles come January, as threatened by the Trump administration, plus the overall aggressive trade policy emanating from the White House has boosted countries like Cambodia, Vietnam, India and Bangladesh that already had a strong foundation for apparel sourcing.

U.S. apparel imports from China bounced back in September after months of declines, increasing 5.99 percent in value to $3.13 billion, according to the Commerce Department’s Office of Textiles and Apparel (OTEXA).

At the same time, U.S. apparel imports from Cambodia increased 13.09 percent for the year-to-date through September to reach a value of $1.83 billion, according to OTEXA. Cambodia now represents 2.88 percent of the U.S. apparel import market, rising 11.58 percent for the 12 months through September.

Among the top product categories supplied by the Southeast Asian nation are cotton knit shirts and blouses, bottoms, night wear and underwear, and man-made fiber blouses, shirts, dresses, pants and lingerie. Much of the cotton bottoms are denim jeans, a sector where Cambodia has become a key supplier. U.S. imports of denim jeans from Cambodia were up 30.85 percent to $88.34 million in the nine months, while China’s shipments grew just 1.36 percent to $683.08 million.

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The increase in exports to the U.S. is a result of the country’s industrial capacity and good bilateral trade relations, Chap Sotharith, research director for the Cambodian Institute for Cooperation and Peace told the Phnom Penh Post.

“The recent trade war between the U.S. and China could potentially benefit Cambodian exports to the U.S.,” Sotharith said. “A lot of manufacturers in China are struggling with the tariff surge in the U.S. market and they might think of Cambodia as a new production base.”

A recent World Bank report noted that Cambodia’s economy remained strong during the first half of 2018, with garment exports reaching a two-year high. The Cambodian economy is expected to grow 7 percent in 2018, compared to 6.9 percent in 2017, thanks to upbeat investor sentiment and rising government spending.

However, Cambodia does have some headwinds to face as it looks to increase its apparel exports, with labor and political problems persisting. Last month, garment workers in Cambodia received a $12 monthly minimum wage increase, to $182, following the controversial July election of Hun Sen as premier, which now adds to costs for manufacturing. Last year, the country raised the minimum monthly wage for workers in its textiles and footwear sector by 11 percent to $170, following months of labor unrest that sparked concern among U.S. importers.

The European Union (EU) has also threatened to withdraw Cambodia’s special trade status over human rights concerns. Cambodia enjoys tariff-free access to the European market for most products and its exports to European countries account for roughly 40 percent of Cambodia’s foreign sales and generate nearly $6 billion, according to EU data. The majority of Cambodia’s exports come from its textile, garment and footwear industry, which employs an estimated 800,000 people.

Ina recent blog post regarding Cambodia, European Commissioner for Trade Cecilia Malmström wrote, “Our recent EU mission to the country demonstrated serious and systemic violations of, for instance, freedom of expression, labor rights and freedom of association. This comes on top of longstanding issues as regards workers’ rights and land-grabbing.”

Malmström said the country’s market access status “is not without conditions” and “comes with a responsibility to uphold and respect the values enshrined in 15 fundamental conventions of the United Nations and the International Labor Organization.”

The EU has plans to conduct a six-month review of Cambodia’s duty-free status, and “without clear and evident improvements on the ground, this will lead to the suspending of the trade preferences that they currently enjoy.”

Cambodia’s Ministry of Foreign Affairs responded that the action would set back years of progress. The ministry said, “By implementing these withdrawal measures, the European Commission risks negating 20 years’ worth of development efforts.”