Bicycles find new paths to EU
Bicycles find new paths to EU
Local bicycle exporters are adopting strategies to swerve around barriers that would impede their access to the lucrative European Union, which increased its orders for bicycles assembled in Cambodia by nearly 10 per cent last year.
For years the Kingdom’s bicycle manufacturers have enjoyed continued growth to the European market owing to their duty-free export status under the Generalised Scheme of Preferences (GSP), which exempts their shipments from the EU’s 14 per cent import duty.
The exemption has allowed Cambodia’s bicycle assembly industry to flourish and become the second-largest supplier of bicycles to the EU after Taiwan, shipping 1.7 million units in 2015.
But as the tax exemption expires for some Cambodian companies, they have sought to piggy-back on the entitlements of other exporters, according to Sam Serei Rath, undersecretary of state at the Ministry of Commerce.
Atlantic Cycle Co Ltd, whose export tax exemption expired, has shifted its operations to work under its subsidiary, A&J Cambodia Co, allowing the company to continue exporting locally assembled bicycles using the latter’s exemption. Similarly, Bestway Industrial Co Ltd has merged with Speedtech Industrial Co to share its privileges.
“Their tax exemptions have expired and their incentive to the EU has ended, so they changed [their structure] to be under other companies,” Serei Rath said yesterday.
“But these [merged] companies cannot change their name again, as they are also reaching the end of the tax exemption incentive based on EU’s quota. Then they will have to pay duties.”
Last May, the EU Commission slapped a 48.5 per cent import tariff on Cambodian manufacturers it accused of shipping cut-rate Chinese bicycles to circumvent the EU’s duties on bicycles originating in China.
A nine-month investigation by the Commission found several companies had “no economic justification” for establishing a presence in Cambodia other than to circumvent duties on Chinese-made bikes.
Three Cambodian manufacturers – A&J, Smart Tech and Speedtech Industrial – were excluded from the anti-dumping duty in return for their cooperation with investigators and no evidence of Chinese sourcing.
Meanwhile, punitive tariffs were imposed on two companies – Asia Leader International (Cambodia) Co Ltd and Opaltech (Cambodia) Co Ltd.
The hefty tariffs proved too much for Opaltech, which has since shuttered its operations, according to Serei Rath. Asia Leader, however, continues to operate and has counterintuitively managed to increase its unit sales to EU buyers by 320 per cent over the past year, according to newly released data from the Cambodian Special Economic Zone Board (CSEZB).
When asked why Asia Leader’s sales have skyrocketed despite the 48.5 per cent import tariff, Serei Rath suggested it might be the result of the young company scaling up production to full capacity.
“In the beginning they didn’t have many activities, but when they began to export their activity grew quickly because they started from a low base,” he explained.
Serei Rath noted that Asia Leader has not only focused on the European market, it has also reported strong performance in export sales to the Asia and Oceania region, where shipments increased 278 per cent last year.
He added that the Commerce Ministry is responsible for the company’s licence but does not involve itself in its internal procedures. Asia Leader may have negotiated a special arrangement with its buyer in the EU that exempts it from import duties.
“We don’t know whether they pay the import tax,” he said. “They have their own lawyer to protect them, and it depends on their buyer’s contacts and EU customs.”
Teng Delux, an economics professor at Build Bright University, said the EU’s 48.5 per cent anti-dumping tariff would not necessarily drive a bicycle manufacturer out of business.
If its production costs were low enough, the company could absorb the tariff and continue to operate at a profit. Some bicycle exporters might also look for loopholes in the GSP scheme.
“Sometimes a company produces but does not export directly to the EU,” he said. “Instead, they ship their products to another company or country that has the tax exemption.”
Cambodian firms shipped over 1.7 million bicycles valued at $364 million to the European Union in 2015, compared with 1.5 million units valued at $333 million a year earlier, according to updated CSEZB data.
