As Cambodia gears up for the second round of negotiations with the United States next month over the imposition of a 49% “reciprocal” tariff on Cambodian goods, key stakeholders are focusing on issues of trade balance, origin of goods, and market diversification strategies.
The tariff, introduced during the Trump administration, has come under renewed scrutiny, with U.S. officials reportedly concerned about the origin of Cambodian exports—particularly claims that some goods may originate from China. This has led to increased dialogue between both countries on the framework for fair and transparent trade.
Key Topics for Upcoming Negotiations
On May 10, Sun Chanthol, First Vice-President of the Council for the Development of Cambodia (CDC) and head of the working group on Cambodia–U.S. trade and investment coordination, outlined the major points to be addressed in the next round of discussions. These include the expansion of U.S. imports into Cambodia and stricter evaluation of the origin of goods exported from the Kingdom.
At the Cambodia Economic Forum held on May 26 under the theme “Cambodia’s Economy in the Context of U.S. Reciprocal Tariffs,” officials elaborated on rules-of-origin principles and their implications for Cambodian exports. Pen Sovicheat, spokesperson for the Ministry of Commerce, reaffirmed that many Cambodian products—particularly in the garment industry—meet internationally accepted origin criteria, despite using imported raw materials.
“There are two types of rules of origin,” Sovicheat explained. “Wholly obtained, where all raw materials are domestically sourced, and sufficient value-added or processing, which qualifies goods made with imported materials as domestic if the local transformation is significant.”
He added that Cambodian goods meet the criteria used by the EU and UK under the value-added rule, which considers labour input and transformation processes. The same standards are reflected in ASEAN’s cumulation rule, which allows materials from ASEAN countries to be counted as local if the final production is carried out domestically.
U.S. Concerns over Solar Panels and State-Owned Enterprises
The debate over origin intensified after recent findings by U.S. trade officials accused certain Cambodia-based solar companies of dumping prices in the American market while benefiting from Chinese state subsidies. In response, the U.S. imposed countervailing duties exceeding 3,500% on some companies operating in Cambodia. A final ruling by the U.S. International Trade Commission is expected in June.
Sovicheat responded to these concerns by emphasizing that state-owned shares do not equate to government-controlled advantages. “Just like Chinese companies that are partially state-owned but compete in the market, our commerce ministry also holds shares in companies like Green Trade, which operates under the same risks and rewards as private enterprises,” he stated.
Impact on Cambodia’s Garment Sector and Global Brands
The proposed 49% tariff poses a serious challenge to Cambodia’s key export sectors, particularly the garment and footwear industry. Kaing Monika, Deputy Secretary-General of the Textile, Apparel, Footwear and Travel Goods Association in Cambodia (TAFTAC), noted that major global brands such as Nike, Adidas, and Lee source their products from Cambodian factories operating under strict compliance with international standards.
“If this tariff is implemented, the consequences will be felt by both producers in Cambodia and consumers in the U.S.,” Monika said. “Tariffs inflate final product prices. Even if brands continue sourcing from Cambodia, and producers absorb part of the tariff, U.S. consumers will ultimately bear the cost. Over time, brands may look for cheaper sourcing destinations.”
Diversifying Markets and Strengthening Supply Chains
Monika and Sovicheat both stressed the importance of market diversification as a long-term solution. Cambodia has already signed bilateral and multilateral free trade agreements, including the Regional Comprehensive Economic Partnership (RCEP), which can reduce dependency on a single market.
Sovicheat also highlighted the potential of developing Cambodia’s domestic raw material industry. “By producing more materials locally, we can reduce dependency on imports, ease pressure from the U.S. over Chinese-origin goods, and enhance our own supply chain resilience,” he said.
Monika agreed, stating that a stronger domestic supply base could not only address current scrutiny but also add value to Cambodian exports. “This is a chance for Cambodia to upgrade its production systems and compliance structures to align with global expectations,” he concluded.
Government Optimism
Despite the challenges, Prime Minister Hun Manet remains optimistic. Speaking last week, he expressed confidence that the upcoming negotiations would lead to a mutually beneficial agreement and a reduction in tariff rates.
The government, along with private sector stakeholders, continues to advocate for fair treatment under international trade frameworks and is actively working to ensure that Cambodian exports remain competitive, legitimate, and compliant.
As the second round of talks approaches, the outcome will have significant implications not only for Cambodia’s export sectors but also for its broader economic strategy in a shifting global trade landscape.
