EBA withdrawal not to impact Cambodia, says PM

Cambodia’s manufacturing sector will not be affected by the complete withdrawal of the Everything But Arms (EBA) preferential tariff line of the European Union (EU) expected in the near future, said Prime Minister Hun Sen, recently.

During his meeting with more than 16,000 workers in Kampong Speu province on Sunday, the premier noted that Cambodia will lose the EBA benefits when it is elevated as a high-middle-income country in 2026 or 2027.

“By then (with the elevation), our country will no longer have the Least Developed Countries (LDCs) status. So, we will have to pay tariffs for our exports. But the removal of EBA will not be a matter of concern and it is not going to affect our production lines,” Mr Hun Sen said.

The EBA is one of the preferential trade arrangements under the EU’s Generalized System of Preferences (GSP). It grants full duty-free, quota-free access into the EU market for all products except arms and ammunition for countries classified by the UN as LDCs.

It may also be noted that in 2020, the EU withdrew the preferential tariffs on 20 percent or one-fifth of $1 billion worth of goods imported into the 27-member bloc from Cambodia claiming that the country failed to meet some of the conditions regarding political and human rights.

Mr Hun Sen, meanwhile, reiterated the stand that Cambodia will not trade national sovereignty for aid or a GSP.

“We still can export our products to the EU, but we will have to pay tariffs, so our profit will decline. Therefore, we have to be more resilient from now on,” the premier told the workers.

According to the Garment Footwear and Travel (GFT) Goods Brief jointly released last December by the European Chamber of Commerce (EuroCham) in Cambodia and the Textile, Apparel, Footwear & Travel Goods Association in Cambodia (TAFTAC), the EBA’s partial withdrawal did decrease the import of Cambodian travel goods (TG) products by the EU.

With five product tariff lines affected by the partial withdrawal, the EU went from being the destination of 12 percent of Cambodia’s TG exports in 2019, to just six percent in 2021 (or seven percent when including the UK).

However, the trade data released by Cambodia’s General Department of Customs and Excise (GDCE) for 2022 showed that the country’s GFT goods exports grew by around 15 percent in the year compared to the previous year, from $10.99 billion to $12.63 billion, indicating that the loss in exports to the EU was compensated by a gain in the exports to other countries.

In 2022, the GFT sector also continued to be the largest export earner for the country accounting for 56.2 percent of the total exports, showed the GDCE report.

But the GFT exports of Cambodia in the first four months of 2023 showed a decline of 24.63 percent, compared to the same period in 2022. Cambodia exported $3.10 billion worth of GFT goods during the first four months of the year, a sharp decline from the $4.11 billion exported during the same period last year.

The exports for April 2023 alone showed a decline of 30.42 percent compared to April 2022, the biggest so far for a month this year. In March 2023, GFT exports declined by 14.60 percent, in February by 24.54 percent and for January the slide was over 28 percent, compared to the respective months last year.

According to industry experts, excess or unsold stocks with retailers in Europe and the US from the previous seasons have brought down the demand leading to reduced exports.

Ken Loo, the Secretary General of the Textile, Apparel, Footwear & Travel Goods Association in Cambodia (TAFTAC), told Khmer Times recently that the decline would continue for the rest of the year.

The reasons, according to him, include the continuing Russia-Ukraine conflict and the subsequent inflationary pressures.

Ky Sereyvath, senior economist and Director General of the Institute of China Studies at the Royal Academy of Cambodia, said that the effects of the economic crisis resulting from the ongoing war between Russia and Ukraine have taken a heavy toll on global demand and this has affected the export of GFT goods from Cambodia too.