Duty-Free Access to U.S. Market for Travel Goods Made in Cambodia
Cambodia has a golden business opportunity in the export of travel goods to the U.S. market. Effective 1 July 2016, travel goods made in Cambodia will have duty-free access to the U.S. as a result of the recently-expanded the Generalized System of Preferences (GSP).
For travel good exports that were subject to an average 17.5% duty prior to the passage of the GSP, the new zero-duty privilege is expected to substantially enhance the competitiveness of the exports of such goods from Cambodia relative to the export of the same goods from other non-preferred countries.
According to the Garment Manufacturers Association in Cambodia, the duty free privilege is expected to raise Cambodia’s competitiveness on travel goods exports, attract more foreign investment, create thousands of new jobs for Cambodians, and further strengthen the national economy.
What are considered “travel goods”?
A large basket of articles (approximately 27 items) are considered travel goods, including handbags, suitcases, container bags, containers, bags, wallets, and other travel items.
What is the value of Cambodia’s travel goods to the U.S. market?
The value of travel goods imported to U.S. from Cambodia was approximately US$25 million in 2014; the figure doubled to over US$50 million in 2015, according to the data of the United States International Trade Commission. As mentioned, prior to the new expansion of the GSP program, Cambodia’s travel goods were subject to a 17.5% average duty; that duty has now been reduced to zero.
What are the main countries exporting travel goods to the U.S., according to the data of the United States International Trade Commission?
Main Countries Exporting Travel Goods to the U.S. | Approximate Value in 2014 (in million) | Approximate Value in 2015 (in million) |
| China | US$7,257 | US$7,404 |
| Vietnam | US$906 | US$1,050 |
| Philippines | US$164 | US$273 |
| India | US$215 | US$242 |
| Indonesia | US$103 | US$116 |
| Thailand | US$100 | US$110 |
What are the likely impacts of the GSP status on the investment in travel goods manufacturing in Cambodia?
Duty free privileges significantly increase the competitiveness of export travel goods produced in Cambodia, and are expected to spur new investment in manufacturing, and diversification of the economic base as a whole. Companies that are able to recognize and achieve the comparative cost advantages of producing goods in Cambodia can be expected to shift their foreign production bases to the country.
What other countries in the region benefit from the same GSP privileges for travel goods?
Cambodia is one of only two countries in the Asia-Pacific region – Nepal is the other – granted the new trade privileges. Nepal is not a major producer of travel goods. None of the other CLMVT countries (Lao, Myanmar, Vietnam and Thailand) are eligible. Also, although Bangladesh fits the category of least developed countries which the GSP targets, it was suspended from the GSP in 2013 due to its failure to address serious worker rights issues. While countries may become eligible in the future, the granting of zero-duty privileges to Cambodia gives it a distinct advantage over other exporting competitors which do not have such preferable access.
What are the key factors investors in travel goods manufacturing should consider when investing and doing businesses in Cambodia?
Investors should consider the overall investment climate for doing business in Cambodia, as well as understand key legal and commercial challenges and opportunities.
Investors in Cambodia will enjoy favorable investment incentives offered by the Government of Cambodia, including:
- No discrimination against foreign investment and no nationalization;
- No requirement for local participation;
- No foreign exchange controls;
- No restrictions on capital repatriation: free repatriation of profits and free remittance of royalty, interest, loan repayment, dividend, and investment capital; and
- No trade restrictions.
Further, investors should pay attention to of the following key issues in Cambodia.
Tax Incentives: Investment in the production of travel goods is eligible for tax incentives as Qualified Investment Projects (QIP) under the Law of Investment of Cambodia. Benefits of QIP include:
- Tax holidays of 6 to 9 years, and
- Full import and export duty exemption.
Special Economic Zones: Consideration should be given to locating export manufacturing facilities inside an authorized special economic zone for the following benefits:
- Tax on profit and import duties identical to fiscal benefits under QIPs that are located outside the SEZ as illustrated above.
- Non-fiscal incentives: streamlined one-stop service by SEZ administration, including representative of the General Department of Customs and Excise, Representative of Cambodia Import Export Inspection and fraud Repression Directorate-General (CAMCONTROL), representative of the Ministry of Commerce in respect of GSP and Certificate of Origins services, and Representative of the Ministry of Labor and Vocational Training.
Land: For foreign investors, occupation of land for factories requires particular caution in conducting due diligence and documentation in order to avoid entanglement in land disputes. From a legal stand point, investors can occupy land through a special purpose vehicle (SPV) formed to control the land or through land lease. Particular attention should be paid to the structuring of the SPV or lease to account for associated risks.
Labor-Intensive Workforce and Labor Relations: Factories manufacturing travel goods are labor-intensive. Based on labor relations experiences in Cambodia’s existing garment and footwear sector, the travel goods sector should be prepared to manage complex and dynamic labor relations especially with the country’s active trade unions. To minimize production disruptions caused by labor conflicts and strikes, investors can formulate and implement appropriate systems and tools for the effective management of human resources, labor relations, and workplace communications.