Cambodia's garment sector confronted by rising costs and falling orders

A quarter of Garment Manufacturers Association in Cambodia (GMAC) are looking to partially suspend operation in September or may require their workers to work less hours. - Phnom Penh Post/ANN

PHNOM PENH, Oct 12 (Phnom Penh Post/ANN): After Covid-19, Cambodia’s garment, travel goods and footwear makers and workers are faced with new issues that threaten each other’s rice bowl

Signs of an impending recession in the US and Europe are starting to show in the East, where demand and purchase orders have seen “significant drops” in the second half of 2022.

The result – a quarter of Garment Manufacturers Association in Cambodia (GMAC) are looking to partially suspend operation in September or may require their workers to work less hours. That’s roughly 170 factories, though the exact number of workers are not known.

As of August 3, 2022, official data for the whole year revealed that operations in some 100 factories are still suspended, affecting around 10,000 workers.

The entire sector, consisting over 1,200 garment, travel goods and footwear manufacturers, employs about one million workers, making it the largest employment segment in the country.

According to Ken Loo, GMAC secretary-general, an internal survey showed that some have started to temporarily suspend or reduce operations, sparking a serious concern in export orders in the second half.

The US is Cambodia’s main importer of garment, travel goods and footwear (GTF) sector, representing nearly 42 per cent of overall exports between January and July this year.

In that period, Cambodia exported 47.3 per cent more than last year, for a total value of $5.7 billion.

This was indicative of a recovery in the sector on the heels of Covid-19 despite the absence of the generalised system of preferences (GSP) for travel goods, such as luggage, handbags and purses, which has yet to be reinstated by the US.

“We have been coping well since the expiration of the GSP. However, we are currently impacted by the economic slowdown as well as an inventory glut in the West. We hope that the GSP will be renewed soon,” said Loo.

Without the GSP (introduced in Cambodia in 1997), buyers are taxed between 10 and 30 per cent on travel goods to the US. Garment and footwear, which have never benefitted from GSP, are taxed between 13 and 19 per cent.

Following its expiry on December 31, 2020, Cambodia has been lobbying the US Congress to reauthorise the duty-free trade scheme.

At the time, Cambodia had just lost 20 per cent of EU’s trade preference treatment under the Everything but Arms (EBA) due to alleged human and labour rights violations.

However, not all is lost. “We have received some response from the US Congress that they are pushing and reviewing the GSP renewal,” said Ministry of Commerce under-secretary of state Penn Sovicheat.

He said the review process benefits not only Cambodia but other least developed countries as well.

“We have been told that although we are exporting without GSP now, once it is reauthorised this year or next year, the US will refund the taxes paid until then,” said.

In the another development, there is also a lot of uncertainty over world growth, with rising risks, opined economist Jayant Menon.

Citing International Monetary Fund’s revision of global growth forecast to 3.2 per cent from 3.6 per cent in July, Jayant said the IMF had warned that a “gloomy” scenario was possible with growth falling to 2.5 per cent. - Phnom Penh Post/ANN