News Article

Cambodia’s Duty Free Export Status for EU in Jeopardy

Laws & Regulations

PNOM PENH, Cambodia – The country’s bicycle export to the EU was up by a huge 22% in 2015 and counted some 1.5 million units. The for years continued growth in export from the Kingdom of Cambodia has all to do with the fact that the country enjoys the GSP duty free export status that safes exporters the EU’s 14% import duty. That status is now (again) in jeopardy.

Cambodia’s Duty Free Export Status for EU in Jeopardy
That Cambodia’s request for the extension of the derogation term to the EU will fall on deaf ears is becoming more likely since the initiatives for bringing production back to Europe. – Photo Bike Europe

It has all to do with the changes in the local content regulations that came into force at the start of 2014. Under the regulations of the Generalised Scheme of Preferences (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.

Meeting the 30% local content threshold

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.

Singapore and Malaysia

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. With that components used in the Cambodian export bikes which are sourced from Singapore and Malaysia are no longer considered to be local content since January 1, 2014.

‘Derogation’

The EU regulations have a system of ‘Derogation’ which basically means where a developing country can demonstrate that a new rule or a change in rules will detrimentally affect their development, they are able to apply for a derogation and actually be ‘excused’ from the new rule for a period of time. This extra time is given to allow any fledgling industries to prepare themselves for the eventual normalization of the rule.

Young and growing bicycle industry

The Cambodia Government supported its young and growing bicycle industry by applying for the Derogation in the start of 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 official journal on July 29, 2014 (EU Commission regulation (EU) No 822/2014).

Quota

The derogation means that once again producers in Cambodia can include parts from Malaysia as local content, the assistance will last 3 years and as is normally the case is based on an quota with a sliding scale. For 2014 the quota stands at 400,000 bikes; for 2015 at 300,000 and for 2016 at 150,000 bikes.

Further development

The derogation quota is only used on those bicycles which cannot pass the rule of origin without major spec changes. CEO Jon Edwards of A&J, which is a major bike producer and exporter in Cambodia, said: “For the general low to mid-range bicycles from Cambodia, the derogation (and its eventual expiry in 3 years’ time) has little or no effect. The derogation is helpful for the further development of the mid to high end business, and to give more time to prepare more parts production in Cambodia.”

End of derogation term and quota

Because the derogation term and quota ends in July this year Cambodia is now requesting extension of the special EU duty exemption for bikes. That took place at last week’s ASEAN Economic Ministers (AEM) – EU Trade Commissioner Consultations held in Chiang Mai, Cambodia. Here 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.

Request for derogation for another 3 years

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, EU Trade Commissioner Cecilia Malmström said she will consider this request and revert back to Cambodia in due course.”

Official export data

According to according to data from Cambodia’s Special Economic Zone Board the country exported 1.4 million bicycles with a value of USD 364 million to the EU in 2015;  a 22% increase on the previous year. Data from Eurostat covering the first 8 months of 2015 shows a 16% rise in the import of bicycles from Cambodia to 992,000 units.

Bringing production back to Europe initiatives

That Cambodia’s request for the extension of the derogation term to the EU will fall on deaf ears is becoming more likely since the initiatives for bringing production back to Europe. That 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. What also counts here is that Cambodia had three years to set-up local parts production. That did not happen, according to sources. And what also comes into play is that the most prominent buyer of Cambodian made bicycles, the Germany based dealer cooperative ZEG, recently acquired the former Kettler bicycle facility in Germany.

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