With the European Union looking increasingly like it will refuse Cambodia’s request to extend its exemption on local content requirements for the bicycle manufacturing industry beyond 2017, Commerce Ministry officials say investors can be expected to scale up local parts production to meet the content requirements.

Bicycles produced in the Kingdom can currently enter the EU duty-free due to derogation rules in place since 2014 that exempted Cambodian manufacturers from the minimum 30 percent local content required under the EU’s Generalised Scheme of Preferences (GSP). This allowed companies to include parts from Malaysia and Singapore as local content under an EU quota of 400,000 bikes in 2014, 300,000 in 2015 and 150,000 in 2016.

However, the three-year exemption, aimed at giving Cambodia’s fledgling bicycle manufacturing industry time to mature and stabilise, is due to expire at the end of the year.

According to Bike-EU.com, a leading industry website, it is all but certain that the European Commission will ignore Cambodia’s request to renew the exemption for another three years.

Nevertheless, Khim Phally, a Commerce Ministry official assigned to the Manhattan Special Economic Zone in Bavet, the primary hub for the Kingdom’s bicycle manufacturers, said the expiry of the derogation rules would not break Cambodia’s industry. He said that while manufacturers have yet to set up dedicated production lines for bike components, plans were in the works to meet the 30 percent local content requirement.

“While EU’s policy was designed to push us toward developing an industry that could compete internationally, we will eventually gain from more from producing locally,” he said. “Regardless if we lose the duty-free access, I do not believe that our production or exports would be hurt as both the government and investors understand the benefits of making bicycles in Cambodia,” he said.

Heng Srunhy, manager of Flying Bikes 2, a local high-end bike shop, said that from his own experience of inspecting production lines of factories operating in Bavet, “Cambodia has the capabilities” to easily scale up production.

“Even if the EU restriction demands that Cambodia stops importing some parts, it will not cause any trouble as many companies can set up factories quickly to make parts here,” he said. “Factories in Cambodia are already producing high-quality carbon-fibre bike frames.”

Cambodian-made bikes have become a top competitor in the European market in recent years, with 1.4 million bicycles exported to the EU in 2015, a 22-percent increase over the previous year. The Cambodian Special Economic Zone Board valued EU shipments for 2015 at $364 million.