Cambodia May Lose Its Eligibility for European Union’s Everything But Arms (EBA) Program

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.

Author: Sheng Lu

Professor @ University of Delaware

4 thoughts on “Cambodia May Lose Its Eligibility for European Union’s Everything But Arms (EBA) Program”

  1. 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.

    1. 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/).

    2. 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.

  2. 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.

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