Cambodia's garment manufacturing industry has eclipsed rival Vietnam as a supplier of products to the European Union and is on course to overtake India, a visiting industry insider said yesterday.

“In the space of five years, Cambodia has climbed from being the tenth-largest supplier of clothing to the European Union to become the fifth-ranked supplier, behind China, Bangladesh, Turkey and India,” said Michael Scherpe, CEO of Messe Frankfurt France, a German-based firm that organises worldwide trade fairs for the garment sector.

He cited European Union figures that showed Cambodia’s garment exports to the EU grew by 14 percent in 2016 to reach €3.8 billion ($3.8 billion), putting the country ahead of Vietnam. Given the industry’s pace of growth, he added, “it is now probable that Cambodia will overtake India within two years”.

Trade figures for 2016 from the EU Directorate-General of Trade, an annual bulletin, show that Vietnam exported a total €3.2 billion ($3.6 billion) worth of garments, at a growth rate of 6.8 percent. Meanwhile, India exported a total of €5.6 billion ($6.3 billion) worth of garments last year with a negative growth rate of -0.7 percent.

“Cambodia has become a major supplier of clothing to the European markets, while advancing much faster than most of its rivals,” Scherpe said. “And I think it worthwhile to emphasise that Europe today takes up 43 percent of the Cambodian sector’s exports as opposed to 29 percent taken by the US market.”

He warned, however, that Cambodia’s push into the EU market was largely the result of preferential treatment under the “Everything But Arms” agreement, which allows its garment products to enter the EU market duty-free. That preference is expected to end as Cambodia graduates out of Least Developed Country (LDC) status.

“If, as seems likely, this new ranking is confirmed by the United Nations, Cambodia will lose its status as LDC and, what is more, will be excluded from preferential treatment,” he said.

“Needless to say, Cambodia will be allowed a grace period of about three years in order to adjust to its new status.”

Competition from Vietnam

Another looming threat to the Kingdom’s garment sector, he said, was the implementation of the free trade agreement between the EU and Vietnam that is set to come into force by the end of this year, and which gradually reduces the current 12 percent import tariff to zero.

He added that with Vietnam actively preparing to take full advantage of the falling tariffs, Cambodia must find ways to remain competitive.“I cannot advise you strongly enough to increase your efforts to improve competitiveness and international marketing,” he said.

Ok Boung, secretary of state of the Ministry of Commerce, said that while preferential treatment of Cambodian exports played a crucial role in developing the Kingdom’s garment industry, improved customs procedures and the online issuance of certificates of origin had increased its competitiveness.

“We have eliminated the difficulties and made shipping easier,” he said. “With our online system, an export can now get approval in as fast as 24 hours while Camcontrol only inspects 2 percent of outbound shipments.”

While Boung downplayed concerns over Vietnamese competition and the potential loss of Everything But Arms privileges, he raised concerns over the impact of Britain’s from the EU, which puts approximately $800 million worth of annual Cambodian garment exports in tariff limbo.

“However, we are not scared anymore because we are expanding the market to Japan, South America and Eastern Europe,” he said, adding that this, plus growing Asean trade, could offset losses.

Van Sou Ieng, chairman of the Garment Manufacturers Association in Cambodia, said garment manufacturers need to create higher value-added products to continue to benefit from preferential treatment.

“What we need to do his create better products at a higher value for the EU market,” he said. “And this comes from displaying our products internationally and being able to source raw materials domestically.”