GENEVA — Cambodia’s exports and economy are on a growth path, but they are built on unsteady ground and the country wants the U.S. to help make it more sturdy by giving it preferential trade status.

This story first appeared in the November 29, 2011 issue of WWD. Subscribe Today.

During a World Trade Organization review of Cambodia’s trade regime this month, Cambodian Commerce Minister Cham Prasidh told delegates that improvement in Cambodia’s export markets in 2010 allowed economic growth to resume at around 6 percent, and estimated it will remain around that level for this year and edge up to 6.5 percent in 2012. But he admitted Cambodia’s export sector is vulnerable, as it depends on a few products and relies on only a few markets.

Apparel accounts for about 85 percent of Cambodia’s exports of goods, and a small number of buyers in North America account for roughly half of its apparel exports, he said.

A report by the WTO secretariat concluded that the outlook for Cambodia’s apparel exports “is clouded by structural changes in the market as well as lagging competitiveness.” Unit prices for Cambodian apparel continue to decrease, the WTO said, as a result of aggressive competition, particularly from China, Vietnam and Bangladesh. The competitiveness of Cambodia’s apparel sector is also weighed down by lower productivity, the unreliable supply and high cost of electricity, and high transportation costs.

According to the Garment Manufacturers Association of Cambodia, total manufacturing cost is about 20 percent higher than in neighboring Vietnam, despite lower wages, with key factors being lower productivity, higher electricity costs and less developed infrastructure. However, the WTO report shows that Cambodia’s apparel exports in 2010 reached $2.9 billion, up from $2.3 billion a year earlier. The number of factories in operation totaled 262, up 19 from 2009, and employed 319,000 workers, an increase of 35,000 from 2009.

A big help for Cambodia to be more competitive, Prasidh said, would be for the U.S. to provide the same duty free and quota free access to apparel imports from the poor Asian nation as has been granted to similar goods from poor African nations under the African Growth & Opportunity Act. Prasidh said Cambodian apparel exporters have to pay U.S. tariffs of 15 to 25 percent, and noted Cambodia’s apparel industry suffers from this “unfair” two-tiered trade system.

He said Cambodia exported $3 billion in apparel, of which the majority went to the U.S. market, but stressed it paid $350 million in duties annually to U.S. customs, or the same amounts as paid by rich nations such as the U.K. and France, on export shipments of $60 billion. He also urged the U.S. to be more forthcoming in granting duty free and quota free status to most tariff lines. Cambodia would fight for an “early harvest” on the issue during the WTO ministerial conference to be held in Geneva in December, he said.

The WTO report also noted that foreign direct investment in manufacturing is largely concentrated in Cambodia’s apparel industry, with investors from China making up more than 90 percent of investment approvals in the past five years. More than 90 percent of apparel factories are foreign owned, with Taiwan accounting for a 35 percent share of the capital in the sector, China and Hong Kong 20 percent each, and South Korea 12 percent, the WTO said.

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