Reforms required in the post-EBA Cambodia

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The European Parliament will soon initiate the process to revoke Cambodia’s trade preferences under the EBA scheme. Reuters

The recent moves by the European Parliament to put Cambodia on notice for the revocation of the Everything But Arms (EBA) trade preferences, which has benefitted Cambodian exports to the EU for decades, have sent shock waves down the corridors of power, the chambers of commerce, the various business chambers and exporters.

For Cambodia, EBA provides a lot of benefits to the agriculture industry, in particular, rice and a number of other potential products. Cambodia significantly increased its rice exports to the EU, specifically to France and Italy, according to the Ministry of Commerce. But overall, in real terms, Cambodia’s rice exports to the EU are still small – much to the chagrin of Spain and Italy, who are themselves rice-producing and rice-exporting countries. The EU also helped Cambodia develop geographical indicators to give a much-needed helping hand to Cambodia’s farmers and traders, to improve Cambodia’s agriculture and to protect its cultural and culinary heritage. Today, Kampot pepper is protected on the EU market against any imitations trying to benefit from its reputation and also has duty-free status under the EBA.

The EU is currently Cambodia’s largest export market. The EU has, under the EBA, imported some $5.7 billion worth of products from Cambodia, dominated by textiles, footwear and agricultural products and is Cambodia’s second largest trading partner. Cambodia, on the other hand, imported some $965 million from EU, ranging from machinery, transport equipment and agricultural products.

The economic repercussions from the withdrawal of the EBA could be immense with 800,000 jobs in the garment sector at stake. As it is, garment exports account for around 40 per cent of Cambodia’s GDP.

In a paper done for the European Institute for Asian Studies, University of Leicester doctoral researcher Cindy Cao puts forward that the removal of the EBA trade privileges could have unintended and unwanted consequences effecting poverty and economic growth.

“They could also potentially have a severe impact upon the hard won results of the EU-Cambodia cooperation, which aim at socio-economic development. As access to the EBA scheme has allowed the country ‘to gain a competitive advantage, grow the economy and generate employment’, its removal would have a damaging effect on these economic gains,” the researcher states emphatically.

Ms Cao’s findings makes for grim reading when she analyses that “Removing preferential trade access would likely lead to factory closures. Some estimate that ‘within 18 months, up to 50 per cent of manufacturers would move out of Cambodia’.”

The October 5 EU announcement that Cambodia will lose preferential trade status under the EBA, came as a surprise to many Cambodian officials, many of whom had publicly doubted the EU would withdraw Cambodia’s privileged market access despite numerous warnings from Brussels.

Now, it’s no use crying over spilled milk. Cambodian exporters to the EU market now need to be prepared to face future risks. Various associations and federations such as the Garment Manufacturers Association of Cambodia (GMAC) and the Cambodian Rice Federation (CRF) need urgent reforms and even a change in leadership and core policy direction to prepare for this grim post-EBA scenario.

The Cambodian Chamber of Commerce and export-related government agencies should have taken notice of the revocation of the EBA and its impending ramifications and started institutional reforms to reduce production cost – especially reduce corruption and informal fees – so as to make Cambodian exports more attractive in other markets.

The process for removing the EBA scheme is by itself, lengthy, incremental and not entirely devoid of political, economic and social undertones. While the ramifications might seem serious, its effects will not be sudden as the process for withdrawing the EBA could take at least 18 months.

Buyers from EU countries will not be able to cut imports from Cambodia abruptly. They will probably be slowly-but surely and gradually downsizing their orders but will not be able to completely cut off imports from Cambodia due to the Kingdom’s improving labour conditions. For the past two decades there has been considerable investment in improving the well-being of factory workers. There has been various initiatives to improve labour conditions within the garments and footwear sectors, such as the Ethical Trading Initiatives (ETI), Better Factories Cambodia (BFC) and Global Fairness Initiatives (GFI). These have enabled Cambodia to develop a unique advantage in the post-quota environment. A labour rights verification system administered by the International Labor Organization also provides rights protection to Cambodians and brand security to buyers.

Cambodia’s various chambers, local and foreign, along with the relevant authorities should also be doing more to highlight the gains made in the respective sectors, especially labor, which will be affected by the EBA revocation rather than paying inadequate lip service and mere sound bites.

But rather than wait for 18 months for the withdrawal of the EBA to take effect, Cambodia must seriously from this moment onwards plan for a post-EBA environment. Cambodia needs to accept the reality that there is no such thing as free and fair in the international system. It needs to be self-reliant and start to diversify its economic and strategic partners. Internal structural reforms are critical to advancing Cambodia’s interests abroad. Cambodian leaders from both the private and public sectors should robustly reform and build their own competitiveness in international markets.

There is a significant ethical debate surrounding the withdrawal of Cambodia’s trade preferences by the EU. Why single out Cambodia, when neighbouring Thailand is ruled by a military junta that pays lip-service to organizing free and fair elections? In October, the EU finalized a free trade agreement with Vietnam – a communist country ruled by a one-party state that has scant respect for human rights.

There is ambivalence in the EU’s constitutional framework for human rights promotion and protection. In part this is explained by the fact that the EU is also a conflicted trade power as it is made up of member states, which hold very different views on how to wield the EU’s power through trade.

To put it bluntly, the EU’s motivations are hegemonic and protectionist as it seeks to exert political and economic domination over other third countries because of its own internal failure as a common market.

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