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February 12, 2019

EU begins process to suspend Cambodia trade benefits

By Beth Wright

The European Union has confirmed it is to start the process that could temporarily suspend Cambodia’s duty-free trade benefits – prompting the group that represents garment manufacturers in Cambodia (GMAC) to say such a move would jeopardise the country’s efforts to build a responsible apparel supply chain.

The European Commission yesterday (11 February) said the EU has started the process that could lead to a temporary suspension of preferential tariff arrangements under the Everything But Arms (EBA) trade scheme. EBA preferences can be removed if beneficiary countries fail to respect core human rights and labour rights – and the EU has for some time been concerned about human rights violations in Cambodia.

But it also emphasised that launching the temporary withdrawal procedure does not entail an immediate removal of Cambodia’s preferential access to the EU market, which “would be the option of last resort.” Instead, it kicks off a period of “intensive monitoring and engagement” with the ultimate aim to improve the situation for the people on the ground.

“It should be clear that today’s move is neither a final decision nor the end of the process. But the clock is now officially ticking and we need to see real action soon” – EU Commissioner for Trade

The move follows a warning to Cambodia in October that without clear and demonstrable improvements to its human rights situation there would be a suspension of trade preferences. At the same time, the EU launched the internal process to initiate the procedure, with Member States adding their approval at the end of January.

If withdrawn from the EBA programme, apparel exports from Cambodia will be subject to the most-favoured-nation (MFN) duty rate within 12 months.

Now, following a period of enhanced engagement, including a fact-finding mission to Cambodia and high-level bilateral meetings, the Commission says it has concluded there is evidence of “serious and systematic violations” of core human rights and labour rights in Cambodia, in particular of the rights to political participation as well as of the freedoms of assembly, expression, and association. These findings add to longstanding EU concerns about the lack of workers’ rights and disputes linked to economic land concessions in the country, it said.

The decision will be published in the EU Official Journal today (12 February), kicking off a process that aims to bring Cambodia in line with its obligations under the core UN and ILO Conventions. There will now be:

  • A six-month period of intensive monitoring and engagement with the Cambodian authorities;
  • Followed by another three-month period for the EU to produce a report based on the findings;
  • After a total of 12 months, the Commission will conclude the procedure with a final decision on whether or not to withdraw tariff preferences; it is also at this stage that the Commission will decide the scope and duration of the withdrawal. Any withdrawal would come into effect after a further six-month period.

“It should be clear that today’s move is neither a final decision nor the end of the process. But the clock is now officially ticking and we need to see real action soon,” EU Commissioner for Trade, Cecilia Malmström, said. “We now go into a monitoring and evaluation process in which we are ready to engage fully with the Cambodian authorities and work with them to find a way forward.

“When we say that the EU’s trade policy is based on values, these are not just empty words. We are proud to be one of the world’s most open markets for least developed countries and the evidence shows that exporting to the EU Single Market can give a huge boost to their economies.

“Nevertheless, in return we ask that these countries respect certain core principles. Our engagement with the situation in Cambodia has led us to conclude that there are severe deficiencies when it comes to human rights and labour rights in Cambodia that the government needs to tackle if it wants to keep its country’s privileged access to our market.” 

Export implications

The EU is Cambodia’s largest export market and the biggest customer for its garment and footwear production, one of the economy’s few growth drivers. Around 40% of Cambodia’s goods exports go to the EU (US$4.3bn in 2017, or 20% of GDP) – and of these around 90% are sold through the EBA initiative. Garments and footwear accounted for the bulk of exports to the EU in 2017.

Cambodia is the second biggest EBA beneficiary and 95.5% of its EBA-eligible exports were made under EBA preferences. In turn, garments account for some 75% of Cambodia’s exports to the EU.

Should Cambodia’s trade preferences be withdrawn, the imposition of tariffs would increase the cost of Cambodian-made goods imported into Europe. According to the 2018 World Trade Organization World Tariffs report, the average EU tariff on clothing – Cambodia’s largest export to the EU – was 11.5%.

However, the eventual tariff rise would depend on the EU’s negotiations with the Cambodian government, as well as the products involved. For example, the EU could decide that some exports are exempt from tariffs, limiting the extent to which export prices rise.

Other potential ramifications of the EU move are that other countries such as Australia and Canada could follow the EU in reviewing their trade agreements with Cambodia, compounding the effect on exports. Both have previously voiced concerns over its political and human rights record.

Conversely, the potential withdrawal of EBA preferences could accelerate Cambodia’s efforts to diversify away from clothing and footwear into other manufacturing industries such as bicycles, packaging and electronics. Over time, further diversifying its export base, particularly into higher-value-added industries, would make Cambodia’s economy stronger.

Garment industry concerns

Not surprisingly, the move has disappointed the Garment Manufacturers Association in Cambodia (GMAC), which told just-style it “regrets the decision to launch the EBA withdrawal procedure.”

The group is calling upon the European Commission, European Parliament, and EU Member States to thoroughly assess “whether a decision potentially resulting in the suspension of preferential tariff arrangements under the Everything But Arms programme would be proportionate and ultimately strengthen democracy and human rights in Cambodia.”

It adds EBA participation has alleviated poverty and built a culture of compliance and due diligence in the garment and footwear sector, while a suspension of the programme would increase tariffs by 12% in the garment sector and by 8-17% for footwear products.

“The competitiveness of our sector will unduly be put at risk, the reputation of our industry will be harmed, and Cambodia’s development will be halted” – GMAC

“The competitiveness of our sector will unduly be put at risk, the reputation of our industry will be harmed, and Cambodia’s development will be halted,” it says. “All efforts made in building a responsible garment supply chain will be jeopardised and it will be a dramatic setback for workers, especially those from rural communities.”

It concludes: “Therefore, GMAC asks the European Commission, Member States, and the European Parliament to carefully evaluate the social and economic impact on Cambodian workers of EBA suspension. GMAC also urges the EU to continue engaging with Cambodian authorities to find a responsible political solution for all parties during that timeframe.

“Meanwhile, GMAC looks forward to further engagement with European decision makers on this issue and to demonstrate the sector’s compliance with international standards.”

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