Last week in FASH455, we discussed the unique critical role played by textile and apparel trade in generating economic growth in many developing countries. The developed countries also use trade policy tools, such as trade preference programs, to encourage the least developed countries (LDCs) making and exporting more apparel. However, a debate on these trade programs is that they have done little to improve the genuine competitiveness of LDCs’ apparel exports in the world marketplace, but instead have made LDCs rely heavily on these trade programs to continue their apparel exports. Here is one more example:
With growing concerns about “the deterioration of democracy, respect for human rights and the rule of law in Cambodia”, in a statement made on February 12, 2019, the European Union says it has started the process that could lead to a temporary suspension of Cambodia’s eligibility for EU’s Everything But Arms (EBA) program. Specifically, the EU process will include the following three stages:
- Stage 1: six months of intensive monitoring and engagement with the Cambodian government;
- Stage 2: another three months for the EU to produce a report based on the findings in stage 1
- Stage 3: after a total of twelve months in stages 1 & 2, the EU Commission will conclude the procedure with a final decision on whether or not to withdraw tariff preferences; it is also at this stage that the Commission will decide the scope and duration of the withdrawal. Any withdrawal would come into effect after a further six-month period.
However, the EU Commission also stressed that launching the temporary withdrawal procedure does not entail an immediate removal of Cambodia’s preferential access to the EU market, which “would be the option of last resort.”
Developed in 2001, the EBA program establishes duty-free and quota-free treatment for all Least Developed Countries (LDCs) in the EU market. EBA includes almost all industries other than arms and armaments. As of February 2019, there are 49 EBA beneficiary countries.
The EBA program has benefited the apparel sector in particular given clothing accounts for the lion’s share in many LDCs’ total merchandise exports. Because of the preferential duty benefits provided by EBA, many LDCs can compete with other competitive apparel powerhouses such as China. Notably, the EBA program also adopts the “cut and sew” rules of origin for apparel, which is more general than the “double transformation” rules of origin typically required by EU free trade agreement and trade preference programs. Under the “cut and sew” rule, Cambodia’s apparel exports to the EU can enjoy the import duty-free treatment while using yarns and fabrics sourced from anywhere in the world.
Cambodia is a major apparel supplier for the EU market, accounting for approximately 4% of EU’s total apparel imports in 2017. Exporting apparel to EU through the EBA program is also of particular importance to Cambodia economically. In 2016, the apparel sector created over 500,000 jobs in Cambodia, of whom 86% were female, working in 556 registered factories. According to Eurostat, of EU’s €4.9bn imports from Cambodia in 2017, around 74.9% were apparel (HS chapters 61 and 62). Meanwhile, of EU’s €3.7bn apparel imports from Cambodia in 2017, as high as 96.6% claimed the EBA benefits. Understandably, losing the EBA eligibility could hurt Cambodia’s apparel exports to the EU significantly.
11 thoughts on “Cambodia May Lose Its Eligibility for European Union’s Everything But Arms (EBA) Program”
This program has helped Cambodia to compete with other apparel manufacturing companies however, it is possible that they are relying too heavily on the program and not doing anything to further develop their factories and market. Instead of completely shutting down Cambodia’s eligibility, it should take steps to slowly allow the LDC to become more independent and take what is given to the country and put it to good use, such as upgrading from apparel manufacturers to textile manufacturers.
You made a great point that we need to find a way to help LDCs “become more independent” and gradually improve the genuine competitiveness of their textile and apparel production and exports. However, the tough question is “how”. Similar to Cambodia’s case, even though the African Growth and Opportunity Act (AGOA), a trade preference program offered by the US to SSA countries, has been in place for over 10 years, Africa still only accounted for around 1.3% of total US apparel imports as of 2018. And there is no sign that Africa is effectively building its textile industry either… (for example https://shenglufashion.com/2018/06/02/usitc-report-agoa-and-the-third-country-fabric-provisions-critical-for-u-s-apparel-sourcing-from-sub-saharan-africa/).
I completely agree with your point that they need to allow Cambodia, in this case, to work and strength themselves without the program so that they can continue to develop and the program can shift to other countries and do the same there.
I think pushing least developed countries into manufacturing more exports is smart because of its direct relation to increasing economic growth of the country. The program is working successfully in Cambodia and perhaps could work in other LDCs as well. Cambodia needs to continue to work with this program until they can ween off of it and continue this type of economic growth on their own.
I agree with your approach that LDCs cannot be relying on programs provided by the EU. I think that Cambodia easing off it would be the best method because it does not remove its major source of economic income to the country, because without this, how can the county be expected to financial fund the change desired by the EU. I think that the EU can use Cambodia as a model for how to ease a country off the program and employ it in other LDCs as well.
I personally agree with the European Union’s steps for Cambodia. The first stage, is intensive monitoring and engagement with their government. The second step is to continue step one for 3 more months to ensure they are making changes. The 3rd step is after 12 moths of both step 1 and 2, they will be able to conduct the final decision whether to withdraw tariff preferences. I think least development countries need to manufacture more goods so they can increase their economy. With these steps created from the EU, it has moved Cambodia into the right direction. Although, Cambodia also needs to grow as a country themselves and determine what needs to be adjusted within their industries to become more successful. They cannot rely on the EU to change things for them.
I agree that it is not the best solution, and definitely not a permanent one, for a LDC to rely heavily upon a program like this, and a more long term solution is needed. But I am not sure with withdrawing would be the best solution. Even though the monitoring, evaluation, and decision-making are going to take a year with a potential gradual withdrawal, how would they be able to transition from exporting apparel to textiles with the loss of significant economic income? 86% of the factory employees are women, and the textile and apparel industries give women job opportunities that they potentially did not have before. If the program was withdrawn, it would hurt the exports because the factories would lose duty- and quota-free benefits. It is possible that some of the factories will no longer be able to afford running due to the loss of benefits, which would result in women losing jobs. How can a country advance if the women are losing job opportunities? Instead of withdrawing, a more beneficial approach could be to cut back on the existing program and install a new program that helps countries learn how to grow their own textile and apparel industries instead of relying on others.
I believe that encouraging these developing countries to manufacture more exports can help their overall economic prosperity. Cambodia should be pushing to continue this program to sustain them until they are further developed. The EU cannot give them everything they need to succeed, they can help give them an edge up, however, most of the work must be done within Cambodia itself. Cambodia must learn to base their textile and apparel industry on their own resources rather than others.
I agree this program that has helped Cambodia compete along side other apparel manufacturing companies and they should keep up with this program until they are further developed. Although, they can be seen as depending on this program too much. If they stop now Cambodia might not be able to keep it up themselves and regress.
I think this program is great, because it allows for countries who many have not been able to be competitive enough or even have the resources to effectively run their factories do so. If EU stops funding this, Cambodia will suffer greatly and might fall back so much that they might not be able to pick themselves back up in the future.
I think the EU is doing a great job of helping out the LDCs, and I also think it is a great idea for them to enforce this process in Cambodia. Ensuring the safety of the people in the country is as important as helping them economically. This process will show Cambodia that they have a great opportunity in front of them, and they should make the necessary changes to help their country in the long run. Losing the EU as a partner, especially with how important apparel exports are for their country, would impact Cambodia in a very bad way.