EU Revoke Trade Preferences? Those Who Go To Kampuchea To Build Factories Are Now In A Panic.

The construction of factories that are currently hot is in addition to Vietnam and Kampuchea. However, a recent news has made many people hesitate to go to Kampuchea to build factories.

Recently, the European Union pointed out that the Kingdom of Cambodia government destroyed the democracy and human rights of the people, and decided to formally start the cancellation of Kampuchea. Trade preferences (EBA) Status procedures. But in June 30th, the EU signed a free trade agreement with Vietnam, so that tariffs on Vietnam's exports to the EU would be substantially reduced. In 2017, Kampuchea's total exports to the EU amounted to US $5 billion 700 million, and all export products received preferential tariff treatment. If not, Kampuchea needs to pay more than 500 million of the tax to the EU market.

EU revoked preferential treatment procedures for Cambodia trade

In February 12th, the European Commission, on the grounds of "no improvement in democracy, human rights and the rule of law in Kampuchea", was made by the European Commission. It announced that it would cancel Kampuchea's "all except tax exemption" (EBA) treatment process. The treatment is the treatment given by the EU to the less developed countries including Kampuchea.

In accordance with the relevant EU rules, the EU will initiate close observation and communication with Kampuchea for 6 months after the cancellation procedure is officially launched, and then use the 6 months to form relevant reports and make a final decision. If the final decision is to be revoked, there will be a buffer period of 6 months.

The textile industry is the dominant industry of Kampuchea's exports.

Kampuchea is the sixth largest source of textile and clothing exports in the European Union. According to the Kampuchea textile and Apparel Association, If the EU cancels the EBA treatment for Kampuchea, the tax rate of Kampuchea's textile and clothing exports to the EU will increase by 12%, and the tariff of the footwear industry will increase by 8% to 17%.

Over the past decade, Kampuchea has been taking the road of "Asian factory", mainly manufacturing garments and footwear.

Clothing and shoemaking industry is a pillar industry of Kampuchea's economy. About 80% of its total exports and about 800 thousand workers are related products. At present, many brands such as UNIQLO, Adidas, Gap, H&M and so on are all set up in Kampuchea.

In 2015, the added value of clothing and footwear accounted for 11% of Kampuchea's economy and contributed nearly 2% to GDP growth. In terms of clothing exports, Kampuchea ranks ninth in the world's major apparel suppliers. In 2015, Kampuchea's exports amounted to US $6 billion, which was less than that of Vietnam's 22 billion US dollars in the same period, but we should take into account that its exports were only 1/6 of Vietnam's.

In 2018, clothing and footwear exports in Kampuchea amounted to US $10 billion, an increase of 24% over the 2017 US $8 billion. Among them, the EU is its main export destination, occupying 46% of the total exports of clothing and footwear in Kampuchea, followed by the United States 24%, Canada 9% and Japan 8%.

Once the EU implements the elimination of trade preferences, the international competitiveness of Kampuchea's clothing and footwear products will be greatly reduced. At the same time, Vietnam's accession to the CPTPP will be a greater threat to Kampuchea.

In addition, it is worth noting that in addition to the EU's official start of the preferential tariff cancellation procedures, members of the United States also began to push for the cancellation of relevant tariff concessions in Kampuchea.

At present, there are about 800 garment factories and 100 shoe factories in Kampuchea. Most of them are located in Phnom Penh, as well as surrounding provinces such as Kandal, Kampong Speu, Kampong Cham (Kampong Cham), Bang Qingyang (Kampong Chhnang), Gob (Kampot) and Sihanouk.

These factories are mainly invested by foreign businessmen, mainly from mainland China, Taiwan, China, Hongkong and Japan and Korea.

But similar to Vietnam's problems. Kampuchea also does not have good supporting facilities. The surface accessories are basically imported.

Here is a special mention of Kampuchea's export to the United States. Although most textiles and clothing are not part of the GSP scheme, other products in Kampuchea still benefit from the special trade preferences offered by the United States to the least developed countries. In July 2016, the United States expanded the GSP scheme to allow travel items made in Kampuchea, such as luggage, backpacks, wallets and other travel articles, to import tariff free access to the US market (the previous tax rate was 3%-20%).

Overall, investment in Kampuchea's textile industry must pay attention to the following:

First, the rise in labor costs has left Kampuchea's workforce no longer an advantage.

In the past few years, many international enterprises set up factories in Kampuchea. The most important thing is to look at the relatively low labor costs in Kampuchea. The following is a picture of the change in Kampuchea's artificial wages from 1997 to 2019.

In 1997, the labor wages in Kampuchea were about $40. By 2017, the official salaries of employees in Kampuchea had risen to $153 a month, and by 2018 wages had risen to $170. Well, 2019 has risen to $182. If employees' benefits and subsidies are included, the average cost of a typical employee in Kampuchea is about $210 a month, and some employees can earn about 500 dollars a month.

Compared with manual wages in Kampuchea, the cost of labor in Southeast Asia and some countries in South Asia is relatively low. For example, in January 2018, it is also the garment industry. The monthly labor cost in Bangladesh is 67 dollars, 67 in Sri Lanka, 77 to 143 dollars in India, 79 dollars in Burma, 134 in Pakistan, and 110 dollars in Laos.

That is to say, the cost of labor in Kampuchea is almost two times that of other South Asian and Southeast Asian countries. Under such circumstances, it is justifiable for some enterprises to escape from Kampuchea to cheaper countries.

Two, the supply chain is imperfect, and logistics is weak, which increases the production cost of enterprises.

At present, the infrastructure and supporting facilities of Kampuchea's industrial manufacturing industry are relatively weak, and many basic facilities are lacking, such as local hydropower facilities. Most of the fabrics and other raw materials needed by the garment industry can not be supplied. Therefore, many garment factories in Kampuchea are imported from China. From China to Kampuchea, the cost of freight and customs duties is even higher than that of China, resulting in high overall cost.

Three, low efficiency of workers, so that low-cost labor wages did not turn into advantage.

Manual labor efficiency in Southeast Asia is relatively low, which is a common aspiration of many Chinese bosses who invest in Southeast Asia. According to industry analysis, the productivity of Vietnamese and Indonesian factories is about 80% of that of China, and the productivity of Cambodian garment factories is only about 60% of that of China. Without contrast, there is no harm.

At present, a garment factory in China is also paying about 3000 yuan in the central and western regions. If the labor wage in Kampuchea is 200 yuan (about 1400 yuan), and their efficiency is only 60% of that of the Chinese workers, if the cost of the supply chain is included, the cost of production in Kampuchea is not lower than that in China, which is why some factories prefer to move the production base back to China. For example, since 2008, many Japanese companies have moved Chinese factories to Southeast Asia, but in recent two years, many Japanese companies have moved factories back to China.

Four. Workers' strike and protest increase the difficulty of business operation.

Southeast Asian workers are not only inefficient, but also have high awareness of rights protection, coupled with the support of the government, so many workers are often on strike and protest. Some workers protest slightly or even go on strike. And even if workers strike out of work, manufacturers will have to pay wages.

Besides, workers in Kampuchea are not as hard-working as Chinese workers. Some workers may faint when they are in a bad environment. For example, if they smell gasoline, they may faint. Even such a sentimental worker can not be casually dismissed, because casually dismissed workers will face great punishment.

Because of this, the normal production of many factories has been greatly affected, and even can not be delivered on time, resulting in the continuous reduction of orders.

Five, uncertainty, whether the export price advantage will remain in the future remains questionable.

An important reason why Kampuchea attracts many manufacturers to invest is that Kampuchea's products have certain advantages in exporting to the European Union and the United States. There are two more important tariff preferences, namely, the EU's "all tax exemption (EBA)" except the weapon and the United States generalized system of preferences (GSP). These tariff preferences have great advantages for Kampuchea's export products, just the preferential tariff treatment provided by the European Union. Kampuchea can save about 600 million to 700 million dollars of customs duties every year.

However, in October 2018, the European Union considered the case of the lifting of preferential tariffs between Kampuchea and Burma. The EU believes that Kampuchea and Burma have violated human rights and workers' rights and interests seriously. This means that Kampuchea will lose the preferential tariff treatment granted by the European Union (EBA) except for weapons.

If the EU finally cancels the preferential tax treatment, the export of Kampuchea's products will be greatly affected, because at present, Kampuchea's garment industry exports a large market share, mainly for the European Union.