presentation trade policy_final

8/4/2019 Presentation Trade Policy_final

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CHINA PLUS ONE Production Network: A Case Study

on Cambodia and Vietnam

Final

Presentation

for

Trade

Policy

ByYOUNy,M1

4010R362

3

22July2011


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Objectivesofthestudy

MotivationBehindCHINAPLUSONE

ac ors n uenc ng ro uc on e wor

Movement

of

Apparel

Industry

SituationofGarmentIndustryinCambodiaandSWOTanalysis

SituationofGarmentIndustryinVietnamandSWOTanalysis

ComparativeSnapshotBetweenVietnamandCambodia


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CHINA 1

finding locations that can lower the costs of production through establishing or

expanding Asia bases outside China.


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Amount of FDI inflows 2007 2008 2009

World 2099973 1770873 1114189

China and Hong Kong 137862 167933 143449

Percentage of FDI inflows

ASEAN share 3.522093 2.668232 3.301684

China and Hon Kon Share 6.564942 9.483063 12.87475

Source:UNCTAD,onlinedatabase


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ofproductionthroughcheaplabour,rawmaterials,

taxincentiveandfavorableinvestment olic .

DiversifysuppliersnottoheavilydependonChina

Chinamakesinvestorstoconsidermoving

Risin riceofrawmaterialsandlandtoo erate

factoryevenmakesChinamoreexpensive

Labour shortageinlabour intensiveindustry


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Internationalcompetitionkeepsthewageincoastal

areas

as

same

as

inland

areas

although

the

living

cost

is

different.

pprec a ono ma es neseexpor esscompetitiveandaffectsunskilledlabour intensive

industry.

Socialinfrastructure,energysupply,corruption

Unpredictablepolicychange in2007unifiedits

corporateincometaxandraiseditto1525percentanddisappearedtaxincentive

egmen a ono pro uc onprocess


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Chinaisabig 2010 2050

consumer

market

due

toithugepopulationUSChina

Japan

ChinaUS

India

A growingnumberof

skill

labourers

Germany

France

Brazil

Brazil

Mexico

Russia

Rising numberof

middleclass

Korea Japan

UK

Germany

Economic linkagewith

chinaSource:GoldmanSachsReporton

GrowthProjectioninthefuture


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Factors Influencing Location of Production

Networ

networks

and

trade

pattern

in

East

Asia

identified

rapid

economicgrowth,labour supplycondition,wageand

makeEastAsiaacenterofglobalproductionsharing

Hiratsuka(2007)inaresearchpaperonIntraAsianFDIflows,foundthatJapansoutwardFDItoAsiancountriesthathave oodinvestmentenvironment free

flowofforeigncapital,taxincentives,exportprocessingzone,betterinfrastructureandcheaptransportation

.


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Factors Influencing Location of Production

Networ

manufacturingrelationshipbetweenfirmsinChinaand

CLML revealedthatChinese overnmentsGoGlobal

Policy haspromotedChinesefirmsinvestmentin

developing

countries.

Chinese

FDI

aims

at

preferential

accesstothirdcountriesmarketthroughGSPandFTA

thatarenotavailableinChina.


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Movement of Apparel Manufacturing

Industry

Fromthe

ove o

ChinaandSouthEast

Japan

1980s

From the West to Hon

Kong,SouthKoreaandTaiwanin1960s


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Movement of Apparel Manufacturing

Industry

, ,

Taiwanhaschangedtheirrolesofbeingmanufacturers

intobein middlemenlinkin EUandUSbu ersto

manufacturersinlowercostcountries.

MotivationoftheboomofgarmentindustryinLaos,

CambodiaandVietnamwasdrivenbypreferentialtrade

arrangementandpreferentialstatusofLDCcountriesto

export

texti es

an

c ot ing

pro uct

to

US

mar et.


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Situation of Garment Industry in

Cambodia and SWOT Analysis

RecentDataonCambodia'sGarments

andTextilesStarted in1995

Totalworkforcein2010 319000

.

Averagewage USD$77

Numberofgarmentfactoriesin2010 273


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Situation of Garment Industry in

Cambodia and SWOT Analysis

manufacturingsector

2/3ofgarmentexportsgotoUSand22%gotoEU,

,

Mostofthefactoriesareownedbyforeigninvestors

, ,


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Strengths: Weaknesses: , ,

Japanthroughtradeagreements+Abundantcheaplabour (230,000young

workersjoininglabour marketeachyear)

Lackofskilledworkerswithexperiencein

Technology,fashionandmanagement Cut,MakeandTrimproduction

+Highcomplianceoflabour standardon

workingcondition

foreigninvestment.

Highelectricitycost,andcorruption

Toomanyunionsinthefactories

Opportunities:

+FreeTradeAgreementwithChina,South

KoreaandJapancanenlargemoremarket

Threats:

RelianceonrawmaterialimportandFDI

makesCambodiavulnerabletoexternalshock

access.+Improvingproductivitythroughnew

technology,skillstrainingandprocess

im rovement

ompe on rom e naman ang a es

Risingcostofrawmaterials

LiftingsafeguardonChinesein2009

+CambodiacanbecheaperthanChina

+EconomicIntegrationinASEANwillallowCambodiatorealizeeconomiesofscale


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Situation of Garment Industry in Vietnam

and SWOT Analysis

RecentDataonCambodia'sGarments

andTextiles Startedin1980s

Totalworkforcein2010 2million

Totalgarmentexportin2010 USD$9.082billion

verage

wage

n

Numberofgarmentfactoriesin2010 morethan1000


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Situation of Garment Industry in Vietnam

and SWOT Analysis

export,contributingto17%ofGDPin2009 '

afterChina.EuropeandJapanarealsoimportant

destinationsforVietnamsgarmentexport Foreignowned,privateownedandStateowned.State

ownedconglomeratecalledVINATEXTaccountsfor

over1/3ofallgarmentexports.


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Strengths: Weaknesses: ,

atcompetitivecost+Canproducequalityandcomplicatedstyles

+Goodrelationshipwithmajorimportersand

Lackofskilledworkerswithexperiencein

Technology,fashionandmanagementStilldependonimportedrawmaterials such

retailersinthe US

+Stablesocial,economicandpolitical

environmentandbetterinfrastructure

Corruption

Nolocalbrandnameclothingproduct

Opportunities:

+FreeTradeAgreementwithChina,South

KoreaandJapancanenlargemoremarket

Threats:

Increasingtechnicalbarriers

CompetitionfromChina,India,Cambodia

access.+Largedomesticmarketof87million

population

+Vietnamcanbechea erthanChina

an ang a es

Risingcostofrawmaterials

LiftingsafeguardonChinesein2009

+EconomicIntegrationinASEANwillallow

Cambodia

to

realize

economies

of

scale


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Comparative Snapshot between

Cambodia and VietnamStructureofEconomy Cambodia Vietnam

PercentageofGDPAgriculture 43.3 35.3 25.4 20.9

n us ry . . . .

Manufacturing 14 15 20.3 20.1Service 37.6 42 40.1 38.8

Averageannualgrowth

Agriculture 5.2 5.6 3.9 1.8

Industry 13 2.5 6 5.5

Manufacturing 12.5 6 9.8 2.8

Service 9.5 1.4 7.4 6.6

Source: World Bank Country Report, online database


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Cambodia and VietnamValue

Share in economy's total

merchandise exports

19902000 2007 2008 2009 2000 2009 a

World 108129 | 197570 347059 364914 315622 3.1 2.6

Bangladesh b, c 643 5067 8855 10920 10726 79.3 71.1

Cambodia c ... 970 2851 2985 2974 69.8 70.8

Canada 328 2077 1586 1271 1005 0.8 0.3

China d 9669 36071 115516 120399 107261 14.5 8.9

intra-EU (27) exports - 43286 80579 86573 75115 2.6 2.5

extra-EU (27) exports - 12954 24795 27741 21682 1.7 1.4

Hong Kong, China 15406 24214 28765 27908 22826 11.9 6.9

domestic exports 9266 9935 4985 2867 578 42.2 3.4re-exports 6140 14279 23780 25041 22248 8.0 7.1

India 2530 59 0 9932 11495 11454 14.1 7.0

Indonesia 1646 4734 5870 6285 5915 7.2 5.0

Japan 568 534 523 593 483 0.1 0.1

Malaysia d 1315 2257 3159 3624 3126 2.3 2.0

Myanmar c 12 800 412 371 505 48.6 7.5

Philippines d 1733 2536 2294 1979 1534 6.4 4.0

a pe , nese3987

. .

Thailand2817 3759 4073 4241 3724 5.4 2.4

United States2565

8629 4320 4449 4186 1.1 0.4

Viet Nam c...

1821 7400 8724 8629 12.6 15.1

.

b Figures refer to fiscal year.

c Includes Secretariat estimates.

d Includes significant exports from processing zones.e Mainly re-exports.

Source: UNcamtrade datatbase


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Cambodia and VietnamDoing Business in Cambodia ,China and Vietnam

170

183

173

181

160

180

147 146

117

142

124 124

151

114100

120

140

89

74

57

78

100

62

79

65

93

6860

80Vietnam

China

43

15

3138

150

20

40


Easeofdoing

Business

Starting

businesstime

Dealingwith

construction

permit

Registrationof

propety

Gettingcredit Protecting

investors

Payingtaxes Enforcing

contracts

Closing

business


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Cambodia and Vietnam



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Cam o ia an VietnamNumber of strikes

773

Cambodia Vietnam

541

387

86 80105

58

2006 2007 2008 2009

Source:

Vietnam

Business

News;

(Noun

and

Malissa,2010)


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Cam o ia an Vietnam


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Cam o ia an Vietnam


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Cambodias Trade Policy for Garment

Sector

StrengthenInstitutions/

InformationbaseReduce

Transactions

Cost

Maintainand

improvemarketImprovethe

marketing

Building Export

Competitiveness

ShortenLead

access environment

EnhanceLabour

Industry

mes mprove

BusinessOperation Productivity

Source: Cambodias Ministry of Commerce, National Export Strategy 2007-2010


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Sector

compliance

and

labour dispute

resolution

in

Cambodiasgarmentindustrymakesthiscountrytheon ygarmentexportingcountryint ewor t at in simprovementinworkingconditionstotradepolicy

DirectInvestmentsincetherehasbeengrowingevidencethattaxratesandincentiveinfluencethe

location

decision

of

the

companies

when

the

locations

havebeennarrowdowntoafewplaceswithsimilar, .


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Sector

favorabletaxrate,especiallybelowtheinternational

normof35to45 ercent.Alowcor oraterateshows

thatthegovernmentisinterestedinlettingthemarket

determine

the

most

profitable

investments Investmentlaw:9yearstaxholiday,dutyfreeforimport

ofproductionequipment,intermediategoodsandraw

materia s,

40%

specia

epreciation

a owance

on

t e

valueoftheneworusedtangiblepropertiesusedinthe

.


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Sector

profits

capital

No valueaddedtaxforsupportingindustryor

contractorwhosu lies roductsfortheex ortsof

garment,textileandfootwear.


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Araya,Kanokpan (2002).HowCanCambodia,LaoPDR,MyanmarandVietnam CopewithRevenueLostue o ar e uc on . or ng aper er es, o

Athukorala,Pema Chandra(2010).ProductionNetworksandTradePatternsinEast Asia:Regionalizaiton

orGlobalizaiton.ADBWorkingPaperSeriesinRegionalEconomicIntegration,No56. Hill,Hall(1998).VietnamTextileandGarmentIndustry:NotableAchievements,Future Challenges.

MinistryofPlanningandInvestment.

Hiratsuka,Daisuke(2007).IntraAsain FDIFlows:Magnitudes,Trends,Prospectsand PolicyImplication.

Keola,Souknilanh(2010).InternationalFragmentationinLaos:Patterns,Progressand Prospects.InHiratsuka,D.;Uchida(eds)Input Trade and Production Networks in East Asia.Cheltenham:Edward Elgar

Lemoine,

Francoise

and

Kesenci Deniz Unal(2002).

China

in

the

International

Segmentation

of

ProductionProcess.CEPIIWorkin Pa er No200202

MinistryofCommerce(2006)CambodiaNationalExportStrategy:20072010

Morisset,Jacques(2003).TaxIncentive.PublicPolicyforthePrivateSector.TheWorldBankGroupPrivateSectorandInfrastructureNetwork

Noun,Veasa andSerrano,Melisa(2010).BuildingUnioninCambodia:History,Challenges,Strategies. .

Sayres ,N.J.,(2002).TheVietnamUSTextileAgreementDebate:TradePatterns,Interests,andLaborRights.CongressionalResearchServiceReportforCongress,June

Ueki,Yasushi(2010).ComplementaryManufacturingRelationshipbetweenFirmsinChina.BRCResearchPaperNo.3,BangkokResearchCenter,IDEJETRO,Bangkok,Thailand.

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