Cambodia Hopes to Benefit from WTO Membership
What might be bad for China could be good for Cambodia.
As the newest member of the World Trade Organization, Cambodia is hoping that restrictions on Chinese-made apparel coming into the United States will have a trickle-down effect for its own growing apparel industry.
In September, Cambodia became the 10th-largest apparel supplier to the United States. China is No. 1.
“There will be a lot of people looking at Cambodia because even after Jan. 1, there will be quotas on China in some key categories,” said Bruce Berton, director of international business consulting at Stonefield Josephson Inc., an accounting agency in Santa Monica, Calif., that advises apparel companies.
In the past, China’s misfortunes have had a beneficial effect on Cambodia. When import restrictions were placed on Chinese- made nightwear, Cambodia was able to pick up the slack. Now almost 50 percent of Cambodia’s apparel exports to the United States are in cotton pajamas and synthetic nightgowns.
Those restrictions on China are set to expire on Dec. 23, but several U.S. companies and trade organizations are lobbying the federal government to extend these safeguard measures into next year.
Also, the Committee for the Implementation of Textile Agreements, part of the U.S. Department of Commerce, announced recently it will consider placing restrictions next year on imports of cotton trousers, cotton-knit shirts, men’s and boys’ woven shirts, underwear, manmade-fiber knit shirts, and manmade-fiber pants from China. Cambodia, which has strong trousers and tops factories, could benefit.
Hurdles to come
But there are challenges to growing Cambodia’s apparel industry, a major economic powerhouse for the Southeast Asian country, which still has not recuperated from the civil war in the 1970s that left millions of residents dead or in exile.
In 2003, the garment industry’s $1.5 billion apparel exports made up 90 percent of the country’s export earnings. About 75 percent those exports went to the United States. The rest was exported to the European Union.
But still, the country has a hard time competing with China, which is becoming the apparel factory to the world.
While Cambodia’s average wage of $40 to $50 a month is about the same or slightly lower than the wages found in China, Cambodia’s labor pool is not as abundant or as educated.
China has a population of 1.3 billion. Cambodia has a population of 13.3 million. Nearly 40 percent of Cambodians are under the age of 14.
Electricity costs in Cambodia are three times higher than in neighboring Thailand and Vietnam.
When Cambodia signed a three-year Bilateral Textile Agreement with the United States in late 2001, it allowed the International Labor Organization (ILO) free access to monitor working conditions in garment factories. This condition, which benefits U.S. companies concerned about labor violations in overseas apparel factories, has been both a help and a hindrance to Cambodia’s apparel industry.
“By complying with the ILO, it makes labor costs in Cambodia much higher,” said Richer San, a member of the Cambodian- American Chamber of Commerce in Long Beach, Calif. “No one can tell China what to do about labor inspections. But the U.S. can tell all the small countries what to do.”
Still, China weighs heavily on Cambodian entrepreneurs’ minds. “Cambodia must confront more challenges with other countries, especially China, because all the product which are produced there are of the best quality and direct labor cost and factory overhead is cheaper than in Cambodia,” noted Kim Puthkiry, a shipping supervisor at Cheer View Textiles in Phnom Penh, in an e-mail. “The environment of its government is better than here because there is a lot of under-table money.”
San noted that politics and bribes often get in the way of doing business efficiently.
Foreign ownership
Most of the apparel factories in Cambodia are owned or operated by Chinese, Taiwanese or Korean businesspeople who are taking advantage of the relatively advantageous apparel quotas for Cambodia.
But as apparel quotas on Chinese apparel are due to expire next year, several Chinese and Taiwanese business owners have shuttered their factories and moved back to China.
Nicole Bivens Collinson, vice president of trade negotiations and legislative affairs at the East Coast law firm of Sandler, Travis & Rosenberg PA, has been a garment trade advisor to Cambodia for the past five years. She has seen the number of factories in the Garment Manufacturers Association of Cambodia decline recently from 200 to 180.
“People are moving to China,” Collinson said. “I think everyone wants to make sure they have some manufacturing in China.”
Some have chosen to move to countries where free-trade agreements with the United States have reduced quotas and tariffs and made apparel manufacturing more attractive.
For five years, John Paul Richard Inc., a womenswear company in Calabasas, Calif., manufactured skirts in Cambodia. But the Korean-owned factory it worked with moved this year to Madagascar to take advantage of the African Growth and Opportunity Act. The act, signed in 2000, gives duty-free and quota-free status until 2015 to some apparel items made in qualifying sub-Saharan countries.
“We used Cambodia because of the quota issue, and the labor rate is low. The Korean-owned factories are well run there,” said Ed Redding, executive vice president of importing and sourcing at John Paul Richard.
But Redding noted that manufacturing in Cambodia requires more lead time than importing apparel from China. “Cambodia has a tiny little airport. You have to ship goods down the Mekong Delta to Singapore,” he explained.
On average, it takes about 15 days to ship goods from China to the United States and 25 days to ship them from Cambodia.
Also most of the raw materials, from zippers to fabric, have to be imported from China to Cambodia, which takes about one week. “But depending on the category, it can save you as much as 30 percent in cost,” Redding said.
That has not been lost on many mass merchandisers—including Gap Inc., Ann Taylor Stores Corp., Eddie Bauer Inc., Jones Apparel Group Inc., Phillips-Van Heusen Corp., Sears Roebuck and Co. and Wal-Mart Stores Inc.—that have chosen this small Southeast Asian country the size of Oklahoma to produce some of their items.
Facts About Cambodia
Median Age: 19.5 years
Life Expectancy: 58.4 years
Literacy: 70 percent
Capital: Phnom Penh
Gross Domestic Product: $25.6 billion
Per-Capita GDP: $1,900
Language: Khmer
Religion: Theravada Buddhist
