Threat to Cambodia’s garment industries after Vietnam’s WTO Accession

Even though, Civil Society, Non-governmental organizations and Garment Manufacturers Association in Cambodia (GMAC) expressed their deep concerns after Vietnam was formally invited to become WTO’s 15^th member. It will affect Cambodia’s garment sector but the government officials maintained that there will not be bad effect to garment industries in Cambodia because the Cambodia’s factories are stable and moving towards development as well.

The Kingdom of Cambodia became a member of the World Trade Organization on October 13, 2004. Joining WTO, Cambodian expected to gain an enforceable, contractual relationship with almost every other nation significantly engaged in trade.

Ken Loo, secretary-general of GMAC, quoted by the Phnom Penh Post, said on November 14 that “The imminent accession of Vietnam to the World Trade Organization (WTO) posed as increased threat to Cambodia’s garment manufacturing industry.” He added that “We are so much alike in cost structure and geographical location, se we’re direct competitors.”

Vietnam’s potential accession to the WTO means that maintaining the Cambodian garment industry’s high level of growth over the last five years “is going to be a huge question mark that I think nobody can answer.” He said.

Ministry of Industry’s official said that in 2006 investors contacted to open their garment industries in Cambodia. He added that Cambodia has better investment law and other international standard norms in compliance with WTO rule. On the other hand, Cambodia was offered Generalized System of Preferences (GSP) and Most Favored Nations (MFN), which are good opportunities to attract all kinds of domestic and foreign investors. Local-Khmer Newspaper- Kampuchea Thmey Newspapers reported.

According to Sok Hach, director of Economic Institute of Cambodia (EIC), the tourism and garment industries are not the answer to eliminating poverty or creating jobs for the 200,000 Cambodians entering the labor force each year. He estimated that the two industries are absorbing only about 25 percent of the new labor force each year. The Phnom Penh Post reported.

On Tuesday, World Bank and EIC reported separately the prediction of a high level of GDP growth 8.6 percent and 8.5 percent in Cambodia for 2006.

Sok Hach was quoted by the Cambodia Daily saying that “the industrial sector likely contributed 14 percent growth in 2006 on the back of the garment sector. Garment exports are expected to increase 40 percent this year based on data from the first nine months, although prices for garments have declined dramatically.” He added that “Overall, we see revenues increase between 10 and 20 percent in the garment industry in September 2005 to September 2006.”

As Cambodia’s major export sector, the garment sector depends greatly on future developments in the WTO. The special conditions applied to the global textiles and garment sector for forty years terminated in January 2005. Without guaranteed quota access to the US market, it is feared that Cambodia, like most other low-cost producers, will be eliminated by China. In reality, the situation is more complicated. There are sings of a strong reaction to the dominance of China in the United States (US) garment market. China’s special WTO accession terms allow for its textiles and clothing exports to be controlled by importing countries. Other WTO instruments exist that may also be used to create obstacles to continued growth in market penetration by Chinese producers. Given those possibilities, importers and retailers in developed markets will need to diversify their suppliers. Cambodia has some advantages: it has a positive record on labor rights, and may be able to secure preferential access in major market. But, Cambodia needs to meet origin conditions for duty-free access to the EU. This means developing an indigenous textiles sector, or evolving a coordinated ASEAN approach to garment production. Encouragingly, Chinese garment manufacturers are increasing their investment in Cambodia. (Cambodia and WTO: A Guide for Business, page 5).