Assessing the Effects of U.S. Trade Policies on the Garment Industry in Cambodia
Keywords:
Cambodia, Trade, Investment, Garments, Global Value ChainAbstract
International trade and foreign direct investment (FDI) in the garment sector contributed to the rapid growth of the Cambodian economy during the post-conflict period. The major export partners are mainly developed countries such as the U.S., whereas the major import partners are mainly East Asian countries such as China. Fabrics and manmade staple fibers are the major import commodities, while apparel, clothing and footwear constitute the major exports. Garment exports increased substantially after Cambodia obtained MFN status in 1996 and was designated as a LDC under the U.S. GSP in 1997. Empirical analysis shows that U.S. trade policies since the mid-1990s correlate significantly and positively with exports in knitted and woven apparel from Cambodia to the U.S. market. This result suggests that preferential trade access to large export markets is critical to export industry development in developing economies. Additionally, preferential market access and low labor cost in Cambodia help promote direct investment by foreign investors from neighboring economies such as Thailand. As rising labor costs reduce international competitiveness in labor-intensive industries in the Thai economy, the Cambodia economy is a key investment market for Thai firms to maintain the competitiveness.
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