High tariff structure detrimental to garment producers

08 Oct '08

3 min read

Among countries, exporting textiles and garments to the US, there exists a tariff structure which is beneficial to a few and detriment for others. While the average tariff on imports is 1.3 percent, countries like Saudi Arabia pays only 0.1 percent on its shipments to the US.

This differential duty structure is playing havoc with the garment industry in Cambodia which is already is already reeling under the impact of rising prices of raw materials and recurring strikes by workers of garment units.

Cambodia exported US $2.46 billion worth of textile and garment goods in 2007, on which the country's exporters paid a tariff of $419 million, which averages to 17 percent duty. When compared with the average tariff on imports of 1.3 percent it is 13 times higher.

Since 70 percent of all garment sales are done to US, the country's exporters are paying a very high price to ship their products to that country. Secondly o add fuel to the fire, there has been a noticeable slump in shipments in the current year due to the economic turmoil in the US.

At present the duty structure is highly skewed against Cambodian exports which forces it pay a high rate of tariff and since Cambodian exports are dominated by garment shipments it is the apparel industry which has felt the full brunt of this distorted duty structure.

The garment industry of Cambodia is trying hard to secure a preferential tariff structure given to countries like Peru, through the new “Partnership for Development Act”, a bill which is under the consideration in the House of Commons.

The bill provides for zero duty access of goods from least developed countries like Cambodia though it also focuses on the touchy issue of fair labour practices.

Experts say it is a lose-lose situation for Cambodian garment exporters. On one hand they have to compete with low cost producing countries like China, Vietnam, Bangladesh and India, along with carrying the burden of paying high tariffs.

On the other hand these duties if not paid, would have accrued to these exporters in form of higher profits. These profits in turn would have helped these manufacturers to raise the wages of their workers, who have been on perennial strikes since the beginning of this year demanding higher wages.

If it wants to increase its exports to the US, the country will have to still lower its prices. But experts aver that manufacturers have little or no room to maneuver prices as a strategy to gain or at the very least maintain its market share.

Fibre2fashion News Desk - India

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