On the sidelines of last week’s ASEAN Economic Ministers (AEM) – EU Trade Commissioner Consultations held in Chiang Mai, officials from Cambodia’s Commerce Ministry have asked European Union Trade Commissioner Cecilia Malmström to consider extending a special exemption applying to locally-produced bicycles exported to Europe.
Cambodia is one of 49 countries that benefits from the EU’s ‘Everything But Arms’ arrangement under the Generalised Scheme of Preferences (GSP) which provides tariff reductions for developing countries. The import duty for bicycles in the EU currently stands at 14%, but this is waived entirely for Least Developed Countries (LDC’s) such as Cambodia.
According to the GSP ‘rules of origin’, Cambodian bicycle manufacturers must ensure no less than 30% of a bicycle’s ex-factory price is comprised by materials originating locally in order to qualify for duty-free exemption. This must also be able to be proven by the manufacturer who is required to procure specific export documentation (Certificate of Origin Form A) on behalf of the importer so the latter can avail itself of the duty-free status.
Prior to 2014, the rules of origin allowed for ‘cumulation’ which permitted materials (or ‘inputs’) from other countries in the ASEAN region to be defined as local for the purpose of meeting country of origin criteria. This mattered immensely for Cambodian bicycle manufacturers, as Shimano (with manufacturing plants in Malaysia and Singapore) components contributed significantly towards meeting the 30% local content threshold.
However, the EU announced reforms to the GSP trade system in December 2013 in which Malaysia (until then also a GSP nation) was ‘graduated’ out of the GSP program and cumulation would also no longer be allowed from non-GSP countries.
Crucially, consideration of ‘derogation’ was also written into EU regulations, meaning any GSP country able to demonstrate a rule change would cause significant detriment to trade could apply for an exemption for an agreed period of time while it transitioned to the new regulatory settings.
Cambodian trade officials were able to successfully negotiate (in July 2014) a three year extension to country of origin criteria previously in place – meaning components from Malaysia and Singapore could continue to contribute to the local content value.
However, it now seems that Cambodia’s transition to a new normal is tracking far too slow.
A March 04 press release from Cambodia’s Ministry of Commerce stated that “(Minister of Commerce) Sun Chanthol requested that the EU should extend the derogation for another 3 years period from 2016 for the Bicycle’s part importing from Malaysia to ensure the continuity of the Bicycle industry in Cambodia. In response, she will consider this request and revert back to Cambodia in due course.”
Much is at stake; Cambodia exported 1.4 million bicycles with a value of USD364m to the EU in 2015, according to data from Cambodia’s Special Economic Zone Board – a 22% increase on the previous year.
Additionally, a 2014 trade report published by the Government revealed that 80% of growth in Cambodia’s recorded goods exports from 2007-2011 were “targeted to markets offering preferential access” such as the EU and “the share of exports other than garments and tourism during the period grew from 18% to 29%. Chief among those are bicycles, electronic and electrical components, footwear, natural rubber, milled and paddy rice, cassava, corn, and soybeans.”
New developments to this story will be shared when they become available, while Cycling iQ will publish a full-length article on the Cambodian bicycle industry in the weeks ahead.