September 12, 2011

Kingdom awaits US trade law


THE US House of Representatives has renewed a trade law experts said could have a substantial effect on Cambodia’s exports to the United States, as well as the future of the Kingdom’s manufacturing sector.

The Generalized System of Preferences (GSP) program waived tariffs on about US$13 million of the Kingdom’s $2.3 billion in exports to the United States in 2010, largely on more skill-intensive products.

The number represents a roughly 225% increase since 2005, which is seen as a sign Cambodia’s manufacturing industry is growing ever more sophisticated.

While the GSP law still requires Senate approval before it is passed, insiders have said it would have a significant impact on the Kingdom as its economy develops.

“GSP has been only a minor factor in US-Cambodian trade until quite recently,” Ed Gresser, president of the Democratic Leadership Council, said via email.

“It is likely to grow more important as Cambodia develops, diversifies and begins to export things like jewellery, foods and small-scale machinery.”

The GSP, originally approved by the US Congress in 1974, waives duties on certain exports from about 130 developing countries. The waivers apply largely to skill-intensive goods such as jewellery, electric wiring and wooden doors, but exclude the vast majority of Cambodia’s garment exports.

The duty-free status the Kingdom did enjoy, however, stopped late last year when the US Congress adjourned without renewing the program. GSP now awaits a review in the Senate, though a deadline for passage has not been set.

Cambodia exported $1.29 billion in garments to the United States in the first eight months of 2011, according to statistics from the Ministry of Commerce, little of which would be eligible for duty-free importation into the United States.

Bicycles, which Cambodia began exporting in 2009, were the Kingdom’s biggest GSP product, with exports reaching 40,000 a year, Gresser said. Other duty-free exports from Cambodia included mattresses and some craft products like baskets, he said.

The program pushes Cambodian manufacturers toward higher-value production in an industry sector almost wholly dependent on garments and textiles, Chheng Kimlong, a lecturer of business and economics at the University of Cambodia, said yesterday.

“We cannot rely on garments to support the export industry forever,” he said. New tariffs on goods after the expiration of GSP have worked against Cambodians hoping to export to the United States, he added.

Cambodia was declared a “least-developed beneficiary country” in 1997, qualifying it – in theory – to export some 4,300 products duty-free to the United States, US Embassy in Phnom Penh spokesman Sean McIntosh said via email.

“GPS gives Cambodia a competitive edge in the US market,” he said, adding that gold necklaces, textile headbands, plastic bags and some silk products formerly enjoyed duty-free treatment under the GSP program.

Regionally, GSP has become a major factor in trade with the United States. About 18 percent of Thai exports to the United States are GSP products, ranging from rubber tyres to microwave ovens, the Democratic Leadership Council’s Gresser said. GSP exports are also significant in the Philippines and Indonesia, he added.

While the GSP program is not highly controversial, it’s packaged with other bills likely to generate debate on the Senate floor, Gresser said. Renewal of the GSP program is linked to approval of free-trade agreements with South Korea, Panama and Columbia.

The expiration of the GSP program costs US importers $2 million per day in tariffs, according to a statement from the Coalition for GSP.

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