Just a question of tariffs

[PHNOM PENH POST]

At a gathering of garment buyers in Phnom Penh this week, Commerce Minister Cham Prasidh highlighted the differences between Cambodia’s trade relationships with the United States and China.

Speaking to representatives from international brands such as Nike, Adidas and Puma, the minister decried American tariffs while touting China as an export destination.

He said the US had yet to honour its pledge to eliminate duties on Cambodian exports. Although the US had opened 95 per cent of its tariff lines to African countries, Cambodia paid the same amount in tariffs as France and the UK, which of course are much larger economies: about US$400 million a year.

“I think members of the US Senate still think this is a communist country,” he said on Tuesday.

When asked about the potential for those duties to be removed, Sean McIntosh, public affairs officer at the  US embassy in Phnom Penh, said only:  “We continue to talk to Cambodia regarding bilateral issues, including trade.”

Cham Prasidh noted that cash-rich China, in contrast, offered a much safer market for Cambodian garments than the US. As a result, the Kingdom had sought, and been  granted, duty-free status by  the Chinese government.

He also said Cambodian comp-anies should ship to China in order to capitalise on that country’s rising trend in domestic consumption.

He reasoned that garments made in China are largely shipped overseas, leaving a piece of the domestic market to foreign players.

The minister’s juxtaposing the US against China seemed to echo other government statements that have played the world’s top two economies off each other for the benefit of Cambodia. Regardless, it’s worth considering the veracity of Cham Prasidh’s arguments.

As a recent Economist Intelligence Unit (EIU) report shows, the US remains – and will remain – dominant in Cambodian trade for quite some time, tariffs or not.

Cambodian merchandise exports to the US in 2010 reached US$2.2 billion, or 47 per cent of total export earnings, according to IMF figures the report cited.

At the same time, exports to the European Union hit the $1 billion mark. That means the US and EU together accounted for 69.6 per cent of Cambodia’s exports that year.

Cambodian shipments to mainland China last year did soar 430 per cent over 2009. However, they totalled just $86.1 million, or 1.9 per cent of total exports.

“Despite Cambodia’s fast-growing exports to other Asian economies, the country’s  main export market by far remains the US,” the report says.

Admittedly, the EIU pointed out the percentage growth of Cambodian exports this year is stronger in Europe, where the Kingdom has enjoyed duty-free preferential treatment since January 1.

According to the EU data office Eurostat, the report said, EU imports from the Kingdom between January and May rose about 54 per cent year-on-year, compared to 24 per cent for the US.

Also, China is no doubt an attractive market, given the West’s problems, whether they are the standard and poor's downgrade of American debt or austerity measures in the EU.

Surely, Cambodia would feel the effect of another downturn in those countries, just as it did in 2009. Still, it will be years, if not decades, before China’s consumption matches that of the West.

Cham Prasidh did say the Kingdom continued “to cross our fingers” that the US would honour its pledge, though he may be waiting a while.

There’s always an appetite for protectionism among politicians and the public when times are tough, and America is still struggling.