Garments account for around 75% of Cambodias exports to the EU

Garments account for around 75% of Cambodia's exports to the EU

The European Union (EU) has sent a monitoring mission to Cambodia to assess the human and labour rights situation in the country as part of the process to decide whether to end its access to the Everything But Arms (EBA) duty-free trade benefit.

Officials from the European Commission and the European External Action Service visited Cambodia earlier this month as part of a six-month period of monitoring and evaluation that began in February.

The process could lead to the temporary withdrawal of Cambodia's EBA trade preferences over concerns about Cambodia's record on core human and labour rights.

The mission looked at some of the major issues being examined in Cambodia, including the potential violation of political rights, freedom of expression and freedom of association, the right to organise and collective bargaining, and dispossession of families caused by economic land concessions (ELCs).

The monitoring mission met government authorities, international organisations, trade unions, business organisations, civil society, and the Embassies of EU member states and third countries, a statement said.

It added that steps have been reported by Cambodia towards improving compliance with international standards on freedom of association and collective bargaining, as well as in addressing a number of land disputes in relation to economic land concessions.

The monitoring and evaluation period will end in mid-August, after which the EU will produce a report of its findings and conclusions. Cambodia will have one month to reply to this report.

"The EU's aim is to address the human rights and labour rights concerns. The EU is committed to work with the Cambodian authorities to achieve this. Cambodia must show real, credible improvement on the issues of concern in order to avoid the withdrawal of EBA preferences," it says.

Garment industry impact

The EU is Cambodia's largest export market and the biggest customer for its garment and footwear production – and Cambodia is the second largest beneficiary of EBA trade preferences, accounting for over 18% of all EBA imports into the EU in 2018. In turn, 95.5% of Cambodia's EBA-eligible exports were made under the trade benefit.

Garments account for some 75% of Cambodia's exports to the EU, accounting for around EUR4bn of Cambodia's total EUR5.3bn worth of shipments to the EU in 2018.

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 re:source by just-style strategic sourcing tool, if the EU decides to suspend Cambodia's EBA eligibility, apparel exports from Cambodia will be subject to the most-favoured-nation (MFN) tariff rate – which averages around 12%.

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.

As well as the potential loss of EU trade benefits, members of the US Congress have introduced the Cambodian Trade Act of 2019, which would require the US Government to review Cambodia's Generalized System of Preferences (GSP) benefits based on the declining respect for labour standards, including freedom of association, and other issues related to respect for human rights.

Both the EU and US moves have prompted global brands including Nike, Gap Inc, Levi Strauss and Under Armour to urge the Cambodian government to address criticism of its human rights record or risk losing international trade benefits.

And a campaign by the National Union Alliance Chamber of Cambodia (NUACC) has warned that nearly 250,000 garment and footwear manufacturing workers could be left jobless if the EU pulls Cambodia's access to the EBA duty-free trade benefit.