The Budget 2022-23 may pave the way for a new Act to govern the country's special economic zones (SEZ) as the government aims to make them engines of growth as well as compliant with the global trade norms. Officials said that a new Act or a revamp of the current SEZ Act is needed after India lost a dispute to the US at the World Trade Organization on these zones violating the global agreement on subsidies and countervailing measures. The commerce and industry ministry has pushed for a new Act for SEZs to be able to sell goods in the domestic market at low duties, easier exit for loss-making units and units to be able to accept payment in Indian currency. "We are taking all issues holistically... SEZ Act may be revamped or a new Act might be put in place because SEZs go against WTO rules," said an official. While work has begun to ease the process of denotifying empty spaces of above 100 million sq ft built-up area, worth ₹30,000 crore, in the 250-plus SEZs in the country, the ministry is looking at ways for partial derecognition of existing SEZs so that areas that have no more demand can be used for industrial or other purposes. The government may also do away with a clause related to foreign exchange for SEZ units and replace it with a criterion based on investment in R&D, innovation and employment generation. The commerce department has proposed to replace the positive net foreign exchange (NFE), a primary requirement for SEZ units, with a new eligibility criteria. SEZ exports fell to $102.3 billion in FY21 from $112.3 billion in FY20. A relook at the Act comes after the government adopted a sunset clause and said that only those units that started production on or before June 30, 2020, would be granted a phased income tax holiday for 15 years. "The finance ministry is keen to push their Manufacture and Other Operations in Warehouse scheme, and its overlaps with the SEZ Act are also being looked at," said another official. A committee led by Bharat Forge chairman Baba Kalyani had in 2019 suggested SEZs to be converted into employment and economic enclaves with efficient transport infrastructure and uninterrupted water and power. It favoured swift resolution of disputes through arbitration, flexibility in dual-usage norms for nonprocessing areas in SEZs, extension of sunset clause, simplification of processes, tax benefits to services sector, and extension of MSME schemes to these zones.
Source: Economic Times
Weavers, garment manufacturers and textile mills in Tamil Nadu are struggling for the last 15 months to manage the increasing cost of raw materials. The weavers and garment manufacturers are hit by high prices of yarn and the textile mills say the reason for the yarn rates going up is the high cotton price. The garment units in Tiruppur downed shutters for two days - January 17 and 18 - demanding measures to control cotton and yarn prices. The Chief Minister also wrote to the Union government asking for removal of the 10% import duty on cotton, ban on cotton exports and calibration of cotton yarn exports. Welcoming this, Raja M. Shanmugham, president of Tiruppur Exporters' Association, told The Hindu on Thursday that of the 2,000 exporters in Tiruppur cluster, less than 10% have textile mills (backward integration). The rest buy yarn from different parts of the country. "Our buyers abroad are not ready for frequent price increases. The garment units usually have just three months stock of yarn, which is to meet the needs of the orders on hand. In the last 15 months, there is a steep hike in cotton and yarn prices," he said. Mr. Shanmugham urged the government to reconsider the permission given for export of cotton and said only excess yarn and fabric should be exported. Further, trading of cotton on commodity exchanges should be monitored, he said. Ravi Sam, chairman of Southern India Mills' Association, said the problem of price increase starts with the basic raw material - cotton. "We are not for ban, suspension or any action on any textile product. We just want the government to monitor cotton trading on the commodity exchanges and measures to ensure that prices are under control. Right now, large-scale traders, who are handling relatively less quantity of cotton, are increasing the prices. This reflects on the overall price of cotton. Indian cotton is ruling at higher price compared to international prices," he said. There is acute shortage of quality cotton and its prices are higher, too. With cotton production during the current season (October 2021 to September 2022) expected to be just about 350 lakh bales, and the domestic industry requirement estimated to be 340 lakh bales, there may be a crisis between July and October as the quality of cotton available now is poor. The association reiterated its demand for immediate withdrawal of the import duty on cotton.
Source: The Hindu
Front-loading of fund transfer to help states manage Covid, undertake capex The finance ministry on Thursday released double the amount of tax devolution for January to state governments as Finance Minister Nirmala Sitharaman authorised the release of an advance installment of Rs 47,541 crore. States would receive Rs 95,082 crore, or double their respective entitlement, during January. The front-loading of the fund transfer is meant to help states to carry out effective Covid management besides making the capital expenditure needed to support economic growth. The government had released the first advance instalment of tax devolution of Rs 47,541 crore to states on November 22 last year. “With the release of the second advance installment today (Thursday), the states would have received an additional amount of Rs 90,082 crore under tax devolution over and above what has been budgeted to be released till January 2022,” the ministry said in a statement. “This is in line with the commitment of Government of India to strengthen the hands of states to accelerate their capital and developmental expenditure to ameliorate the deleterious effects of the Covid-19 pandemic.” The share of states in central taxes — at the aggregate level of 41 per cent — was decided by the 15th Finance Commission. Typically, this is transferred in 14 instalments in a fiscal year. The adjustment between the Budget Estimate and the Revised Estimate of such transfers is made in March. In November, instead of devolving one instalment out of 14, two instalments were transferred. The Centre had earlier transferred the entire Rs 1.59 trillion through back-to-back loan transfers for goods and services tax (GST) compensation shortfall for FY22, with the last tranche of Rs 44,000 crore transferred in October last year. The back-to-back loan facility is the result of an agreement between the central and state governments in bridging the GST revenue shortfall of states under which the Centre borrows from the market and transfers the fund to states. This debt will be serviced from the proceeds of GST compensation cess to be collected from items like cars and tobacco.
Source: Business Standard
The negotiations between India and the UK to strike a free trade agreement (FTA), which was launched last week, will conclude quickly due to an "absolute agreement" at the senior political level, the Mayor for the West Midlands region of England has said. The negotiations between India and the UK to strike a free trade agreement (FTA), which was launched last week, will conclude quickly due to an "absolute agreement" at the senior political level, the Mayor for the West Midlands region of England has said. Andy Street, who is in charge of the West Midlands Combined Authority that covers some of England's major industrial hubs of Birmingham and Coventry, expects his region to hugely benefit from such an FTA. The UK's Department for International Trade (DIT) confirmed on Thursday that the FTA talks kick-started virtually on Monday and the first round is expected to last two weeks. Last week, UK International Trade Secretary Anne-Marie Trevelyan met her Indian counterpart Commerce and Industry Minister Piyush Goyal in New Delhi to formally flag off the negotiations. While their joint statement sets an end of the year timeline for conclusion of negotiations, there is much speculation that such discussions are likely to drag on much further. "These things tend to be rather longer than one would wish," Andy Street told PTI. "But I think there's a critical ingredient here: there seems to me to be absolute agreement at the senior political level that this has got to happen as quickly as possible. It is surprising how that can unlock these deals more quickly than otherwise. So, I think this will go very, very quickly," he said. The mayor for the region that is dubbed the automotive capital of the UK, being home to the country's largest car manufacturer Jaguar Land Rover (JLR), believes the trade talks with India hold out great tariff-free promise for the West Midlands. He said: "The big picture is that within the overall UK-India relationship there's a real opportunity for the West Midlands to build a strong trading relationship. We've already got a very good relationship because our single biggest company, Jaguar Land Rover, is owned by Tata. "So, there's an incredible Indian investment here and what we believe is that there'll be many, many more opportunities particularly in sectors where we are very strong - automotive, net zero - overlap perfectly with the Indian economy." With its automotive cluster, 50 per cent of the research and development (R&D) for the sector is done in and around Birmingham. "This is the region that will gain most. We've seen JLR turning to electric and also electric taxis being built, there's electric motorcycles. So, this sector is becoming really, really strong here. Of course, the absence of tariffs with India will enable us to really work with the innovators," said the Mayor. According to official statistics, the West Midlands is second after London and the south east of England in terms of inward investments from India. Besides JLR, some of the other Indian companies located in the region include software services major Infosys and TVS Motors, which recently acquired Birminghambased Norton Motorcycles. "We are very confident that we have got the strength that we can build on the back of that FTA. But it doesn't stop businesses developing before an FTA is done. We've got big aspirations at the moment with a number of Indian companies, Infosys being one, where we are expecting to do an investment deal well before we move to the formality of the FTA," said Street. As the force behind the creation of the West Midlands India Partnership (WMIP) last year to build on the strong Indian diaspora base of the region, the businessman-turnedpolitician flagged trade, tourism, business and academia as the areas with "huge opportunities to do more". With a firm focus on the Commonwealth Games, scheduled for July-August in Birmingham, the region's Mayor expressed his excitement at playing host as a "good part of the world" comes together with full stadiums and spectators in the wake of the COVID-19 pandemic. The baton for the 2022 Games was in New Delhi to coincide with Trevelyan's visit to flag off the FTA talks. "You think of 2022, for the West Midlands the high point will be the opening ceremony of the Commonwealth Games on July 28. I would extend an invitation to India because it will very much tell the story of a part of the world that is very proud of its links with India and other Commonwealth countries," said Street. "We are looking forward to about a million visitors and about a billion people observing this on television, the biggest audience being in India. This is a perfect way to showcase to Indians, who understand the UK very well given the strength of the diaspora, how a region not always in the limelight has developed and what it offers. I hope it encourages more leisure visits and also business visits in the future," he said.
Source: Economic Times
Issues like the WTO's response to the COVID-19 pandemic, proposed pact on fisheries subsidies and reform measures will figure in a virtual meeting of key members of the World Trade Organization tomorrow, an official said. The meeting, which is happening at the sidelines of the World Economic Forum summit in Davos, is called by Switzerland. Director-General of World Trade Organization (WTO) Ngozi Okonjo-Iweala is also participating in the deliberations. The official said that the ministers would be sharing their assessment of the current state of the negotiations in the WTO and how pragmatic and tangible outcomes could be reached. India and South Africa are pushing for a decision on their proposal for a temporary waiver of certain provisions of a WTO agreement on intellectual property rights to deal with the coronavirus pandemic. In October 2020, India and South Africa had submitted the first proposal, suggesting a waiver for all WTO members on the implementation of certain provisions of the TRIPs (Trade-Related Aspects of Intellectual Property Rights) Agreement in relation to the prevention, containment or treatment of COVID. In May 2021, a revised proposal was submitted by them. On fisheries subsidies, while developed nations are pushing for prohibitions on these subsidies, India wants an equitable and balanced outcome, as the country provides support to its small and marginal fishermen, who depend on the sector for sustenance. The meet assumes significance as the 12th ministerial conference, the highest decision making body of the WTO, was postponed for an indefinite period due to an outbreak of a particularly transmissible strain of the COVID-19 virus. This was the second time the event has been postponed due to the pandemic. The WTO is a 164-member multilateral body, which formulates rules for global exports and imports and adjudicates disputes between two or more than two countries on trade-related issues.
Source: Economic Times
The RBI has allowed all non-deposit taking NBFC-Investment and Credit Companies (NBFC-ICCs) with asset size of ₹1,000 crore and above to carry on with factoring business The RBI has allowed all non-deposit taking NBFC-Investment and Credit Companies (NBFC-ICCs) with asset size of ₹1,000 crore and above to carry on with factoring business, significantly boosting the number of such companies to 182 from seven earlier. Factoring companies offer bill discounting facilities to MSMEs. These can trade their receivables online and get immediate payment from factoring companies at a discount. This enables them to get immediate liquidity instead of waiting for the bills to be honoured by the customers. However, if the customer doesn’t honour the bills, the MSME may still be liable for repayment to the factors. The had amended the Factoring Regulation Act, 2011 in July last year, widenig the scope of companies that can undertake factoring business. The act permitted Trade Receivables Discounting System (TReDS) platform to file the particulars of assignment of receivables transactions with the central registry on behalf of the factoring forms for operational efficiency. The act also empowered the central bank to form regulations for factoring companies. The central bank said in a gazette notification dated January 14 that eligible companies can apply to the Reserve Bank for seeking registration under the Act.
Source: Business Standard
Stating that Apco management's decision to enter into the wholesale market is a big leap to make its mark on the national and international footprint, industries, handlooms and textiles minister Mekapati Gautam Reddy observed that it would help weavers grab a big market share across the country. He said Apco's innovative marketing strategies will make it the destination for handlooms. He said the Apco management has done a commendable job by launching a special operation to capture wholesale business at the national level. Mekapati Gautham Reddy on Wednesday unveiled the catalogue of Apco clothing range at his camp office in Vijayawada. He said Apco is entering the wholesale market for the first time. Apco chairman Chillapalli Mohanarao said Apco has compiled a list of handloom garments popular in Telangana, Karnataka, Chhattisgarh, Maharashtra and Gujarat. "We are developing different handloom products in line with the current trend in collaboration with the department of handloom and textiles," said Chillapalli. Apco managing director Chadalawada Nagarani told the minister they have already made door and window curtains available to customers so that innovations can be made. "Honeycomb towels and handkerchiefs in the form of turkey towels will be launched soon. Embellished handloom textiles printed with natural vegetable colours are now available to consumers," said Nagarani.
Source: Times of India
There is tremendous potential for Indian engineering MSMEs to be integrated into the Global Value Chain due to their manufacturing cost advantage, said Mr B. B. Swain, Secretary, Ministry of MSME. Addressing the inaugural session of MSME Conclave organized by EEPC India yesterday, Mr Swain said that for the MSMEs to achieve high growth the two most significant interventions required are related to credit assistance and technology upgradation. He noted that the Ministry of MSME has been working closely with other Ministries and Departments to facilitate the ease of doing business for MSMEs. "The Atma Nirbhar announcements have focused on easing access to registering as MSMEs, easing their access to credit and providing them the much needed protection as far as global tenders are concerned," Mr Swain said. He informed the participants that MSMEs engaged in manufacturing of engineering products are about 29% of the 67 lakh MSMEs which have registered since 1st July, 2020 on the Udyam registration portal. "MSME units are together capable of constituting a complete supply chain and being globally competitive because of their diverse products ranging from intermediate to final products," Mr Swain said. In his welcome address, EEPC India Chairman Mr Mahesh Desai said that MSMEs need to catch up a lot on the technological front as this is crucial to increase India's share in the global value chain. "Make-in-India initiative has brought ample scope for the Indian MSMEs to work with the large scale global manufacturing firms and get access to their upgraded technology and efficient marketing techniques. Following the onset of the pandemic, large corporations in the developed world have been looking at India as an alternative destination for manufacturing," Mr Desai said. He noted the crucial role of MSMEs in the economy saying that the sector contributes around 30% to India's GDP and has 50% share in the country's exports. "The significance of the MSME sector in India has long been recognized and its potential has also been identified. In the National Manufacturing Policy, manufacturing output has been targeted to increase to 25% of GDP," he stated. EEPC India, with nearly 60% of its members coming from the MSME sector, has been playing an instrumental role in developing the engineering MSMEs of India. It has been working closely with the government to promote the MSMEs producing engineering products and in line with the initiative of the Department of Commerce for technological upgradation, set up two technology centers in Bengaluru and Kolkata to address the problem of technological backwardness of the engineering MSMEs. "We promise our best endeavor towards higher integration of this sector in the global value chain through continuation of our strategic activities for the upgradation of engineering MSMEs and we believe that such summits fully dedicated for MSMEs will help us to achieve our goal," said Mr Desai. A Knowledge Paper titled 'Integrating Indian MSMEs to Global Value Chain' was also released in the inaugural session of the Conclave. The paper has suggested that India’s trade regime should promote value addition in the country. "Hence, the general tariff structure should be low on raw and primary goods, slightly higher on intermediaries and the highest on final products," it said. It further recommended that both direct and indirect tax structure should be neutral and not discriminate between the nature of firms. "Banks and the financial institutions should be more willing to discern genuine exporters and demand less of collateral. Finally, stability in policy measures with less intervention and emphasis on neutrality on behalf of the government will be necessary," it listed among some of the broad pointers.
Source: PIB
However, the Reserve Bank of India’s (RBI’s) Consumer Confidence Survey shows that sentiments have yet not recovered to the pre-Covid levels, Sinha said. Wage growth both in the rural and urban areas has been declining since mid-2020. India Ratings and Research on Thursday forecast the real gross domestic product (GDP) to grow 7.6% on year in FY23, against an estimated expansion of 9.2% in the current fiscal upon a sharply-contracted base. The real GDP in FY23 will be 9.1% higher than the pre-Covid (FY20) level. However, the size of the economy in the next fiscal will still be 10.2% lower than the FY23 GDP trend value (had the Covid-19 pandemic not slammed the brakes on economic growth), it added. Persistent weakness in private consumption and investment demand is estimated to contribute 43.4% and 21%, respectively, to this shortfall, it reckoned. Elevated imports, as witnessed in recent months, will continue to pressure current account deficit (CAD) in the next fiscal and the drag-down impact of net exports on GDP growth in FY23 would be higher than in FY22, India Ratings’ chief economist DK Pant said. Consequently, the CAD could worsen to 2.3% of nominal GDP in FY23 from 1.7% this fiscal. The agency flagged continued risks to growth from tepid private final consumption expenditure, which is expected to drop from the pre-covid level in FY22. Robust pick-up in the PFCE, stressed the agency’s principal economist Sunil Kumar Sinha, is a must for a sustained recovery in economic growth. However, the Reserve Bank of India’s (RBI’s) Consumer Confidence Survey shows that sentiments have yet not recovered to the preCovid levels, Sinha said. Wage growth both in the rural and urban areas has been declining since mid-2020. More importantly, real (inflation-adjusted) wages are indicating an erosion of household’s purchasing power. Another important factor that has hurt consumption demand lately is an abrupt rise in the health expenditure of households in the wake of the pandemic. “These trends may be cyclical in nature, but the picture even at the structural level is not healthy for households. Household savings have declined and their leverage has gone up significantly since FY12, suggesting that a large part of the consumption demand in the past has been financed through either reduced savings and a higher debt or both,” Sinha said. At the same time, while the government has renewed its focus on reviving growth through increased capex, private investments haven’t quite picked up and any increase in this critical segment is limited to a few sectors like steel. However, the silver lining is merchandise exports will likely grow 18.3% on year in FY23, even on an inconducive base, supported by a global trade resurgence, the agency has estimated.
Source: Financial Express
As production for the upcoming summer season is set to begin, traders in north India are expecting better demand for cotton yarn. While no significant trade took place on Thursday due to very weak demand, trade enquiries in Panipat and Ludhiana markets were encouraging, giving an indication of better demand in next week, according to traders. In Ludhiana, spinners were trying to pass on additional cost on yarn buyers, and quoted prices higher by around ₹5-10 per kg. However, poor demand did not support price rise. “Fabrics and garment manufacturers were sceptical about demand from end users amid uncertain economic conditions. But traders were hopeful for better sentiments in the days to come,” a source told Fibre2Fashion. Surinder Jain, president of Ludhiana Yarn Merchants Association also expects demand to pick up in next 3-4 days. “Summer clothing season is set to begin next week, so traders expect better trade movement.” Cotton yarn of 20 and 30 counts in combed variety were traded steady at ₹355-365 per kg and ₹375-385 per kg respectively in Ludhiana. Carded yarn in 30 counts was quoted at ₹360-370 per kg. In Delhi, cotton yarn of 30 count combed was traded steady at ₹345- 355 per kg, 40 count combed at ₹410-420 per kg, 30 count carded at ₹320-340 per kg, and 40 count at ₹335-355 per kg, according to Fibre2Fashion’s market analysis tool TexPro. 10 count weaving (O/E) yarn was quoted at ₹125-130 per kg, while 16 count weaving (O/E) was at ₹165-170 per kg. In Panipat also, yarn prices were ruling at previous level as trading activities remained very limited. The market recorded price of 10s recycled yarn (white) at ₹95-100 per kg, 10s recycled yarn (dyed) at ₹90-100 per kg, and 20s recycled yarn (dyed) at ₹100-125 per kg. 10s optical yarn was traded at ₹90-100 per kg in the market. Delhi market also witnessed bearish tone on Thursday. Meanwhile, cotton prices surged by ₹850-950 per candy of 356 kg in the markets of North Indian states for the second consecutive session on Thursday as stockists continued to remain active, while daily arrivals recorded a decline. In Punjab, the spot delivery prices were quoted at ₹71,100-72,200 per candy, as per TexPro. In Haryana, the spot delivery prices were quoted at ₹69,200-71,200 per candy. In Upper Rajasthan, the spot cotton was priced at ₹71,100-72,500 per candy. In the global market, ZCE cotton yarn May 2022 futures traded up by CNY 105 to CNY 28,990 per ton, while September 2022 traded lower by CNY 5 at CNY 28,350 per MT today. ICE cotton futures posted triple digit gains on Wednesday, following a rally in the commodities market. Cotton contract for March 2022 closed at 123.95 cents, up 287 points; May 2022 closed at 120.45 cents, up 274 points; December 2022 closed at 99.18 cents, up 134 points. “Cotton is up as it has been mirroring the price movements of the crude oil market. There is also support coming as other commodities are also moving upwards,” said an analyst.
Source: Fibre 2 Fashion,
The Bangladesh Textile Mills Association (BTMA) recently expressed fears that the sector might face a crisis of raw materials, primarily cotton, in February and March as shipping lines are not ready to carry containers headed to Bangladesh due to a shortage of feeder vessels for timely unloading. Millers said if they failed to get cotton on time, production in many mills would stop and yarn prices would rise. Though the letter of credits had already been opened for importing cotton needed for February-March, importers would not get the consignments on time due to the reluctance of shipping lines to enter the country’s channel, BTMA office bearers told a press conference. Along with shortage of feeder vessels, inefficiency of port has also been discouraging shipping lines to carry Bangladesh-bound cargo as loading and unloading take more time, causing additional anchoring charges for the mother vessels, BTMA president Mohammad Ali Khokon said. Khokon said Bangladesh has to pay additional 4 to 5 cents for a pound of cotton due to the higher freight cost as container clearance in the country takes more than a week due to the complex customs procedures while other countries take a maximum of four to five days, according to Bangla media reports. More than 100 members of the trade body verbally informed its president that shipping lines were unwilling to enter the Bangladesh channel. Due to the trade war between the United States and China, many containers remained stacked in the ports of the two countries, he said. Khokon also demanded duty-free import of all types of fibres to ensure product diversification as different types of fibres with cotton are being used in the primary textile sector to produce yarns as per the demand of global buyers. BTMA senior vice-president Md Fazlul Hoque and director Md Saleudh Zaman Khan, among others, were present in the briefing.
Source: Fibre2 Fashion
The European Apparel and Textile Confederation Euratex has looked at the latest trade data from January to September 2021 and found a “dramatic drop” of imports and exports of textile goods between the EU and UK, with exports falling by 44 percent to almost 2 billion euros and exports by 22 percent, corresponding to 1.6 billion euros. This means significant losses for companies on both sides. “The situation is likely to get worse, as the full customs regime between UK and EU has entered into force on 1 January 2022,” warns the Confederation. Thus, Euratex calls on the European Union and the United Kingdom to effectively cooperate to remove the issues in the EU-UK trade agreement that prevent smooth trade flows. Billion euro losses on UK and EU side The most impacted EU countries on the export side are Italy, the Netherlands, Belgium and Germany according to the data, while on the import side, the most impacted countries are Germany, Ireland and France. Among the textile and clothing sectors, clothing articles are facing the most severe drop in both imports and exports, corresponding to a total trade loss of more than 3.4 billion euros over the nine months period. “Despite these alarming figures, the UK continues to be the most important export market for EU textiles and clothing,” states Euratex. On the UK side, things are not looking any better: According to a survey by the UK Fashion and Textile Association’s (UKFT) in May 2021 among 138 businesses, including leading UK fashion brands, UK textile manufacturers, wholesalers, fashion agencies, garment manufacturers and retailers, most of them were negatively impacted by the new Brexit trade conditions. Increased trade costs will ultimately be passed on to consumers The results of the survey showed that 71 percent of the participating businesses currently rely on imports from the EU and almost all (92 percent) are experiencing increased freight costs as well as increased costs and bureaucracy for customs clearance (83 percent). In addition, more than half (53 percent) of the 138 businesses surveyed are experiencing cancelled orders as a result of how the EU-UK agreement is being implemented and 41 percent have been hit by double duties. In the end, it will be the consumers who will have to front as the bill as the vast majority of the surveyed companies declared that they are looking to pass the increased costs on to consumer in the next six to twelve months.
Source: Fashion United
In a statement on Thursday, the chamber cited the importance of the Philippines being a part of the RCEP as soon as possible to boost the post-pandemic economic recovery efforts and bolster public-private sector collaboration to ensure that the country continues to be an attractive investment destination. "We see RCEP as a platform for our members to source cheaper local goods for production and manufacturing, as well as benefit the country's vital sectors, such as the creative sectors, financial services, research and development, IT-BPM, professional services and energy, given the transparent, stable and predictable rules that the agreement provides," said Ebb Hinchliffe, AmCham executive director. "The entry into force of RCEP for the Philippines complements the country's programs and policies for the resurgence of manufacturing sectors, including incentives provided for by the Create Act, wherein in addition to the lowering of corporate income taxes, additional tax incentives in the form of tax deductions are included, which includes power, local materials, research and development, among others. Such initiatives are very much what our members look for when investing in the country," Hinchliffe added. RCEP represents 50 percent of the global manufacturing output; 50 percent of global automotive output; 70 percent of electronics; 26 percent of global value chain (GVC) trade volume; 60 percent GVC for electrical/machinery, petroleum/chemicals, textile/apparel, metal and transport equipment; 35 percent contribution to global exports of electronics and machineries; and the main GVC hubs of big economies such as South Korea, Japan and China. The agreement entered into force on Jan. 1, 2022 following instruments of ratification/acceptance deposited to-date by 11 signatory states, which include Brunei Darussalam, Cambodia, Lao People's Democratic Republic, Singapore, Thailand, Vietnam, Australia, China, Japan, Korea and New Zealand. AmCham hopes that the Senate immediately concurs the executive ratification of the agreement before the end of the 18th Congress. "We would like to emphasize the need for the Senate concurrence of RCEP as soon as possible in order for Philippine and American businesses based in the country to fully utilize the agreement and maximize its benefits," said Hinchliffe.
Source: Manila Times
Experts say long-term prospects rest on training management talent Cambodia's garment industry is on the hunt for graduates as part of a campaign to see local staff take over senior positions in factories. With a recently-aired television advertisement, the industry-funded Cambodian Garment Training Institute (CGTI) hoped to convince local talent the sector can offer careers that rise above the factory floor. Student testimonials spliced with classroom clips tout the benefits of studying subjects like industrial engineering and apparel merchandising and learning skills "in high demand" by employers in the country's largest industry. "Start your career with us, now," the advert, which ran late last year, concludes. Cambodia's garment industry already employs over 750,000 people and generates more than a third of the country's gross domestic product. But it also suffers from a wider problem plaguing the economy: it is built on low-skilled, low-cost labor, a model that some say will eventually catch up with the nation. In the short term, the stars have aligned for local garment factories. After weathering the economic fallout from the pandemic, which first hit the supply of fabric from China and then collapsed global demand, Cambodia's apparel manufacturers emerged with a tailwind, thanks in part to the state's successful vaccination campaign. Regional trends have also given Cambodia a boost. Supply chain rerouting because of U.S.-China trade frictions, the coup in Myanmar, and severe COVID-19 outbreaks in rival garment producing countries Vietnam and Bangladesh led to increased orders in 2021, effectively neutralizing the impact of European Union trade sanctions levied on the Southeast Asian country in 2020. Garment exports have risen 11% year-on-year, according to Customs Department figures from October. U.N. Comtrade data shows the country has increased its market share in most of its export destinations. Garment Manufacturing Association in Cambodia (GMAC) secretary-general Ken Loo said the nation had enjoyed a temporary edge over competitors. "It's been a combination of what's happening elsewhere with other countries negatively impacted, coupled with the fact that we've had a very successful vaccination program. It's really helped the industry bounce back from the slump in global demand," Loo said. "Obviously this won't be a long-term situation. We're already seeing Vietnam starting to recover in terms of their COVID situation." Looking ahead, analysts see in Cambodia short-term opportunities but long-term challenges, as well as acute exposure to supply chain disruptions and external forces. To address the latter, industry expert Sheng Lu said Cambodia's post-COVID agenda needed to focus on diversifying its export destinations beyond the EU and the U.S. In 2020, Europe, plus Britain, received 35% of the garments, footwear and travel goods exported from Cambodia, while the U.S. received 37%, according to the World Bank. Having most of its eggs in only two baskets has become increasingly precarious for the country. Penalized in 2020 by the EU for the oppression of political opponents, it now faces a review into its eligibility for important trade benefits with the U.S., which has expressed concern about Cambodia's close ties with China. At the other end of the supply chain, Cambodia also faces the vulnerability of being entirely reliant on imported fabric, more than 60% of it from China. Without investment in domestic textile production, Cambodia remains exposed to costly supply chain shocks. It will also struggle to comply with new trade conditions should it graduate from United Nations-assessed least developed country (LDC) status in 2024. "Should Cambodia lose its LDC status, its apparel exports must contain more locally made textiles before enjoying duty-free market access to key markets like the EU, Japan and Canada," said Lu, an associate professor at the University of Delaware's department of fashion and apparel studies. "In other words, should Cambodia fail to strengthen the local textile manufacturing capacity or move up the value chain, it could negatively affect the competitiveness of its garment exports in the long run." Economist Intelligence Unit analyst Imogen Page-Jarrett said that, as production costs rise in China and Vietnam, the country would become an "increasingly popular destination" for low-cost, labor-intensive manufacturing such as the lower-end of the electronics assembly supply chain. But, in the medium term, it would struggle to move up value chains because of a lack of skilled labor. "Additional investment in training and education (an area which was damaged during the Khmer Rouge era) would be needed, and even then it could take a decade or longer to produce the workforce needed," Page-Jarrett said. Cambodia's Minister for Labor last year pledged to spend $500 million on technical and vocational education and training (TVET) over the next five years. "TVET is the fast track of skill accumulation in the country," said Labor Ministry spokesman Heng Sour. "Lately, the government has doubled funding for upgrading the public TVET institutes in Phnom Penh, Kandal and Kampong Speu province." The sector, including 38 state-run TVET schools and over 100 private centers, has been the focus of a decade-long Asian Development Bank program to improve Cambodia's workforce. The bank, which has spent $45 million, has faced an uphill battle. According to a 2018 ADB report, TVET centers lack qualified teachers, rely on outdated equipment and are seen in a negative light, leading to a cycle of low enrollments and persistent image problems. "Young people still view TVET as a second option, or as education meant for the poor, marginalized groups, or school dropouts," it read. The overall poor quality of primary and secondary education is another limiting factor. While Cambodia has improved enrollment rates and boosted teacher salaries in recent years, a 2020 World Bank report found it has so far failed to produce a substantial improvement in learning. Its students perform lower than the ASEAN average in disciplines like reading, mathematics and science. "The grim truth is that poor accountability in public schools magnifies Cambodia's longstanding low-quality learning," the report stated. Labor rights advocate Khun Tharo said he was concerned the government had come to equate competitiveness with keeping labor costs cheap and lacked the vision to improve the quality of the workforce. "The problem is about the political will of the government to make the necessary reforms,'' he said. The road ahead for the garment industry is set to be addressed in a five-year development strategy which, although announced last year, is yet to be released. Vocational training efforts for the important sector are being led by CGTI. Set up in 2017 with help from Singapore's Textile and Fashion Industry Training Center, the institute receives funds via dues paid by GMAC members, who can redeem some of the payments as credits to train their workers. It has held largely on-site short courses for almost 6,000 factory workers with subjects ranging from technical sewing to management skills, and has provided scholarships for 75 students to pursue diplomas. It is these longer courses, which include six months in a classroom and a year guaranteed job placement, that CGTI center director Andrew Tey hopes will produce the first Cambodian to run a factory. Tey said Cambodian workers were increasingly in supervisory roles and the lower rungs of management, but had largely failed to penetrate top jobs, which were still held by expats, mainly from places such as Malaysia, Taiwan, Singapore, South Korea, Thailand and China. Part of the problem was perception, he said, with job hunters unaware that the sector offered above average salaries for management positions. Some recent diploma graduates from the institute were earning $600 per month, he said. The median salary for a household in Cambodia is about $400 a month, according to the Cambodia SocioEconomic Survey 2019/20. "We pay well, a lot of people don't realize," Tey said, "We're targeting high schools, we want to change their mindset."
Source: Nikkei Asia
