TAIPEI, Taiwan (BRAIN) ― Over the last few years Cambodia has snatched a chunk of manufacturing and assembly business away from Taiwan thanks to rock bottom wages and a European Union tariff of zero.
Almost all those bikes are destined for Europe as companies like Specialized and some European suppliers take advantage of what could be a temporary boost in profits as they duck European tariffs and take advantage of lower wages. One Taiwanese manufacturer derisively referred to it as “suitcase manufacturing.”
Stan Day, SRAM’s chief executive officer, said it’s likely that the European Bicycle Manufacturers Association (EBMA) could―at some point―file a complaint with the European Commission if they haven’t already.
Data reveals that Taiwan’s exports tumbled from 4.4 million units in 2012 to 3.8 million units in 2013 or about 600,000 units. While no one has an exact figure, Taiwan manufacturers speculate that a significant percentage of that decline is due to some production moving to Cambodia.
And, more importantly, from a European perspective, it’s having an impact on employment in Europe where factories assemble bikes for delivery throughout the EU.
“The issue is that some of that production is coming out of European assemblers due to the current tariff protection extended to Cambodia,” Day said. The EU has long tried to protect factory jobs using tariffs and anti-dumping penalties on countries, particularly China. The EU continues to impose a 48.5 percent anti-dumping duty on Chinese-made bikes that has virtually shut China out of Europe.
But Day also noted the contradictions in EU rule making, pointing out that it was an EU’s decision to help support Cambodia and improve its economy by zeroing out tariffs on bicycles and other products. Nonetheless, Cambodian manufacturers could see that protection erode over time, particularly if EMBA files a formal complaint.
Day made his remarks at an A-Team meeting at the Taipei Cycle Show. Day, a keynote speaker at the annual event, told the group’s 20 members―a who’s who of mainstream manufacturers―that Cambodia could be on a short leash with European rule makers. “I don’t think this tariff advantage will stay in place very long,” he said.
Many A-Team members have significant investments in factories located in Taiwan and China and they want to protect those investments. Hence, they are loath to expend additional capital on factories in Cambodia, Vietnam or other low wage countries trying to chase a few dollars of profit. A number of suppliers have asked most A-Team members to invest in Cambodia but to date none have, Day said.
Day pointed out that putting a factory in Cambodia is capital intensive, requires an extended supply chain, disrupts ongoing business and, ultimately, is a risky move given volatility in the global marketplace. Meanwhile, labor unrest continues to wrack the Cambodian economy with impromptu strikes crippling production, particularly in the garment industry.
In January Cambodian police shot and killed three garment workers demanding higher wages. Cambodia is also a hotbed of anti-government protest over what is and increasingly authoritarian government.