In the wake of the European Union’s decision to put the Everything-but-arms (EBA) agreement with Cambodia under review, prior to its possible cancellation, the Garment Manufacturers Association in Cambodia (GMAC) said people should not be too worried.
Its deputy secretary-general Kaing Monika sat down with Khmer Times Business Insight to share his views on the EBA, relating the EU’s threat to remove the EBA to a court case saga in which Cambodia is the accused. But by law and based on facts, it is certain that Cambodia is not guilty, he said, in an attempt to reassure the public and industrialists the EBA removal might not happen after all.
KT: What is EBA? And what has Cambodia gained from EBA?
Mr Monika: EBA is a trade preferential system crafted by the EU in 2001 and designed to assist the Least Developed Countries with the aim to enable them to participate in the world’s economy through exports to international markets like the EU.
In short, under the EBA, there are no quota limits and no tariffs for our exports to the EU, and it bears zero tax. The EBA gives access to Cambodia’s goods to the EU market and given the fact our goods are cheaper, it makes us more competitive than others.
KT: What is EBA’s contribution in attracting foreign direct investment?
Mr Monika: If we take a look at the flow of Foreign Direct Investment (FDI) in our country, we can say it really started from 1993 onwards after our first national elections. That was when Cambodia entered an era of peace. At that time, we were a poor country with limited human resources and a dire lack of infrastructure. The first investments were in the garment sector and we exported 80 percent of our products to America at that time. But in 2001 the EU came with the EBA and this helped increase our exports to the EU. In the last 5 or 6 years, our exports to the EU grew exponentially, accounting to about 46 percent of our total exports, compared to 25 percent of our exports to the US.
We benefited from zero tariffs, which made us more competitive and secondly we also benefited from the EU’s reform of the procedures of the rules of origin and this really facilitated our industries. Before 2011, fabrics were imported from China or other countries and tailored in Cambodia, but they could not be exported to the EU under the strict rules of origin. However, after 2011 the EU rewrote its rules of origin, allowing fabrics from anywhere to enter the country to be used in the local factories exporting to the EU. The change in the rules of origin facilitated the strong growth of our exports to EU.
KT: Recently, the EU decided to trigger a clause allowing the removal of the EBA, accusing Cambodia of rights abuses. What do you think about this?
Mr Monika: I thank Khmer Times for giving me this opportunity to speak on this controversial issue. The truth on the real issue related to the EBA is that it is not such a serious problem, unlike what we have been reading recently. I would like to compare the situation regarding the EBA to say that it looks like an ongoing court case in which the EU accused us. But, based on facts and on the legality of the situation, it is certain we are not guilty.
What we have to do is that we should participate in the dialogue and continued engagements with EU. I mean all sectors should do so, not only the private sector, but the government and other stakeholders too should engage the EU. The situation is not as serious as some would want us to believe. We have the ability to explain our situation to the EU. Finally, I hope that we are spared the removal of the EBA.
The EBA is connected to the implementation of human and labour rights and obviously Cambodia’s rights record is good compared to other countries. The EU also has to refer to the several reports from the International Labor Organisation (ILO) on this. Based on the true picture from these reports, we have a good chance not to see the EBA being removed.
KT: Why are you not worried about the EBA?
Mr Monika: I am being factual about the rights and the freedom of the labour force in Cambodia and since 2001 we started implementing ‘Better Factories Cambodia’ which is an independent project of the United Nations that checks on labour conditions and implementation of workers’ and unions’ rights. At that time we promoted labour rights and packaged this with our international trade policy.
Through this, we penetrated the US market with a quota obtained in 1996. At the end of 2014, Cambodia became a member of the World Trade Organization and this allowed us to export without quota since we could compete with other manufacturers.
Another thing is that we look at the simple and ordinary things, such as whether workers’ and unions’ rights are promoted or not. It reflects through the improving living conditions of workers.
KT: If the removal of the EBA happens, how will it affect the sector?
Mr Monika: If it happens, there will be concerns by all the parties involved. It is like what I mentioned above, that is Cambodia is not in a situation that should get everybody worried. Sometimes we do not have the real information and we get worried.
What I have heard so far are two words which are ‘removal’ and ‘collapse’ of the economy. But obviously it does not have to go in this direction.
If the EBA is removed, we will have to find a solution. One way is to look at the WTO’s ruling limiting tariffs to a certain percentage. To limit the damage to our exportations, we will have to reduce our production costs in order to meet the tariff requirements. Based on some facts, I am strongly confident the EBA for Cambodia’s garment and footwear sector will not be removed.
But we need to be prepared. First, reduce our cost of production and we have the obvious possibility to do so. We can also reduce the number of our holidays, which is 28 days and it is a lot. We also have 18 days of annual leaves and if we cut 15 days out of the holidays and annual leaves, we can save up to $100 million in the manufacturing sector. We can also reduce transportation and electricity costs, but I don’t want go into the details here. The government can also offer tax incentives to alleviate the burden to the private sector, and there is more that we can do.