Cambodia’s potential loss of preferential trade access to the European Union (EU) could weaken the country’s economic growth and undermine the price competitiveness of the country’s garment exports. Cambodia’s economy depends heavily on its garment and textile industry, and the EU is its largest export market. Loss of trade benefits would be a big blow to the sector. If the EU decides to suspend Cambodia’s EBA eligibility, apparel imports from Cambodia would be subject to the World Trade Organization’s most-favored-nation (MFN) tariff rate, which averages around 12 per cent.
Cambodia’s garment industry has many strengths. Garment production is well-established, and despite rising wages it has relatively competitive labor costs. Yet ongoing tensions and the government’s refusal to address the country’s human rights issues will only add to the sector’s weaknesses. Supporting industries, such as textile manufacturing, are still in their infancy, the sector is dependent on Chinese investment and the infrastructure is poor.
The European Commission has given Cambodia a one-month deadline to respond to its findings over alleged human rights violations in the country. It will then decide in February whether to temporarily withdraw the duty-free Everything But Arms (EBA) trade benefit. Based on Cambodia’s strength as an apparel supplier to the US without any trade benefits, there’s a chance the loss of EU benefits might not make a meaningful difference. In the first ten months of the year, US imports from Cambodia rose 10.84 per cent.