End of Quota Brings Challenges for Duty Free Cambodia Import
BRUSSELS, Belgium – By now it’s clear; the European Commission will not be extending the quota regulations for bicycles imported from Cambodia that are in place since 2014. These ‘Derogation’ rules made it easier to comply with local content regulations in place for the duty free import of bicycles made in Cambodia under the EU General System of Preferences (GSP).
Derogation rules were applied to the Cambodian import of bicycles into the EU under GSP after it was considered that parts sourced from Singapore and Malaysia used in the Cambodian export bikes were no longer to be local content. Since January 1, 2014 it ruled out the use of parts from Shimano Singapore and Malaysia, that contributed significantly to the 30% local content of bikes made in Cambodia.
With Derogation the import from Cambodia was ‘excused’ from the new rule for a period of 3 years. This extra time was given to allow the Cambodia bicycle industry to prepare themselves for the eventual normalization of the rule.
The Cambodia Government applied for the Derogation beginning 2014. After some investigation into the justification of their case and Cambodia’s eligibility, the European Commission agreed to a derogation which was published in the EU Official Journal on July 29, 2014 (EU Commission regulation (EU) No 822/2014). It ruled that once again producers in Cambodia could include parts from Malaysia as local content. The Derogation was to last 3 years with for 2014 a quota that stood at 400,000 bikes; for 2015 at 300,000 and for 2016 at 150,000 bikes.
Request for 3 more years
Last July Cambodia requested an extension of the Derogation term and quota for another 3 years period from 2016. This, according to the government had, “To ensure the continuity of the bicycle industry in Cambodia.” Apparently this request fell on deaf ears within the European Commission and in particular at EU Trade Commissioner Cecilia Malmström. Next to that sources say that derogation rulings are usually granted only one term.
Challenges for reaching local content
These same sources indicate that with the end of the Derogation and with the use of Shimano parts sourced from Singapore and Malaysia it will be more challenging to reach the local content required on higher end bikes. It is said that some spec changes and adjustment of price points may be required. And that on lower end bikes the local content is easier to reach with frames made in Cambodia.
Lowered import from Cambodia?
The end of the Derogation rules and the quota system in place since 2014 will probably not result in a lower number of imported bicycles from Cambodia into the EU. That import totaled close to 1.4 million bicycles in 2015; up 14% on the 2014 total. With that 1.4 million units Cambodia holds a 18.7% share in the total EU import of bicycles that amounted 7.5 million units in 2015.
Production back to Europe
One of the most prominent buyers of Cambodian made bicycles is Europe’s biggest dealer cooperative ZEG. Whether ZEG will be expanding its sourcing from Cambodia’s OEM maker Strongman is the question. In particular as ZEG acquired the former Kettler bicycle facility in Germany in November 2015.
What also comes into play with regard to the import from Cambodia is that there’s a strong trend to bring production back to Europe. This has already brought about that one Taiwan bike producer – Fritz Jou – announced to start production in Portugal. Two of the Cambodian bicycle manufacturers also stem from Taiwan based companies.