How will EU Trade Curb Affect Cambodia’s Apparel Industry?

Key findings:

1. The garment industry matters significantly to Cambodia, both economically, and socially. As of 2019, as much as 70% of Cambodia’s merchandise exports were apparel items. Likewise, around one-third of Cambodia’s manufacturing output currently comes from the garment sector alone. Further, as of 2016, the garment industry in Cambodia employed nearly 928,600 workers (almost 79% were female), an increase of 239% from 2007.

2. Cambodia’s apparel exports have enjoyed steady growth in recent decades,  reaching US$7.83 billion in 2018 – a jump of 256% from US$2.2 billion in 2005. Yet, it faces several major challenges:

  • Due to limited production techniques and capital availability, apparel producers in Cambodia are still mostly engaged in cut-make-trim (CMT) activities, meaning they rely heavily on imported textile raw material and are only able to make a marginal profit based on low-value-added sewing work.
  • Cambodia’s apparel exports are highly concentrated on the EU and the US markets, which together accounted for 73.4% of the country’s total garment exports in 2019.
  • Cambodia is facing intense competition in its main apparel export markets—there has been little growth in Cambodia’s share of EU and US apparel imports over the past two decades, remaining as low as 3% as of 2019.

3. Cambodia has benefited significantly from the EU Everything But Arms (EBA) program. Established in 2001, the EBA trade initiative provides least developed countries (LDCs), such as Cambodia, with duty-free and quota-free access to the vast EU market for all products except weapons and ammunition. Like other EBA beneficiary countries, the majority (around 95%) of Cambodia’s apparel exports to the EU currently claim the duty- and quota-free EBA benefits.  

4. Out of concerns over Cambodia’s “serious and systematic violations of the human rights principles enshrined in the International Covenant on Civil and Political Rights,” the European Commission on 12 February 2020 formally announced the withdrawal of part of the tariff preferences granted to Cambodia under the EBA program. Starting from 12 August 2020, a select group of Cambodia’s apparel exports to the EU, together with all travel goods, sugar, and some footwear will be subject to the EU’s Most-Favored-Nation (MFN) tariff rat, which were at the rate of 11.5% on average for apparel items in 2019

5. Even the partial suspension of Cambodia’s EBA eligibility could result in significant and lasting negative impacts on its apparel exports to the EU:

  • The apparel items directly affected by the EBA suspension accounted for around 15% of the value of Cambodia’s total apparel exports to the EU in 2019. For those apparel categories directly targeted by the EBA suspension, EU fashion brands and retailers may quickly shift sourcing orders from Cambodia to other supplying countries to avoid paying the additional tariffs.
  • Social responsibility is being given more weight in fashion companies’ sourcing decisions. This means even those apparel items not directly targeted by the EU EBA suspension could face widespread order cancellations as sourcing from Cambodia is deemed to involve higher social compliance risks. In a worse but possible scenario, Cambodia’s apparel exports to the whole world could be under threat as many EU fashion brands and retailers operate globally and adopt a unified ethical standard and code of conduct for apparel sourcing across different markets.
  • Additionally, the timing cannot be worse: Due to the devastating hit by Covid-19, as of April 2020, Cambodia had reported nearly 130 garment factory closures and more than 100,000 workers laid off. These numbers may increase further as the effect of the pandemic continue to unfold.

Further reading: Abby Edge and Sheng Lu (2020). How will EU trade curb affect Cambodia’s apparel industry? Just-Style.

Discussion questions:

  1. What you would suggest to the Cambodian government or garment factories there to mitigate the negative impacts of the EU EBA suspension?
  2. Why or why not the EU should reconsider its decision to partially suspend Cambodia’s EBA eligibility because of Covid-19?
  3. If you were fashion brands and retailers that source from Cambodia, what would you do?

Author: Sheng Lu

Professor @ University of Delaware

6 thoughts on “How will EU Trade Curb Affect Cambodia’s Apparel Industry?”

  1. Given that 70 percent of Cambodia’s merchandise exports were apparel items in 2019, the concept of the suspension of Cambodia’s EBA eligibility has the potential to wreak havoc on many aspects of Cambodian life. While Cambodia repeatedly violates human rights principles, the withdrawal of tariff preferences for Cambodia could cause the deterioration of life for workers in many industries, notably female workers in the garment industry. A reduction in exports from Cambodia directly impacts the garment industry in reduced job opportunities and wages. As a result, the entire Cambodian economy is negatively affected due to workers who are jobless or have reduced income levels. Textiles, along with tourism, is Cambodia’s main source of income. I think that by removing Cambodia’s eligibility in the EBA, it will exacerbate the problems that already exist (and possibly create more). Perhaps an alternative would be to allow Cambodia to remain in the EBA while implementing a program that addresses issues related to human rights violations but still allows their economy to stay afloat.

  2. Even it is very hard Cambodian people have to pay the bill for a bad government in Cambodia, which was already given time by the EU to prepare improvements. The EPA is substantial for the apparel production. Raw-material Situation not good, logistics infrastructure not goods (mostly goods have to be shipped via Vietnam harbors)

  3. This article makes me feel that due to Cambodia’s developing nature and poor human rights decisions that they will fall down the list of manufacturing countries until they are a very small player. As recent as 2019, 70% of the country’s exported merchandise were apparel items and 33% of these exports were linked to the garment industry. While the country benefitted from the EBA program, it seems to me they took advantage of its perks, violated workers’ rights and subsequently lost the benefits they received from EBA. In my opinion, Cambodia was being greedy, and this was lead to the decline of their exports, which is still being threatened as a result of the pandemic. Although apparel exports in 2018 were $7.83 billion, generating a decent profit for the country, I believe that Cambodia is not properly paying attention to an industry that is helping the country immensely.

  4. Cambodia seems to be going in a horrible direction. What doesn’t help any of this is COVID-19 coming in and taking away many workers jobs. Cambodia looks like they have benefited greatly by the EBA eligibility that the suspension of it will cause problems. Before any pandemic, Cambodia relied heavily on their exports to EU that currently claim duty and quote free benefits. Now with the partial suspension, Cambodia will face many risks to their garment factories. They will lose export markets after this decision. By taking away part of the EBA, there will be more problems than before which will cause Cambodia to potentially end garment factories for good.

  5. Considering Cambodia employs nearly 928,600 workers in their garment industry, it is obviously a very important sector for the country’s economy. If they want to continue to succeed and grow in the textile and apparel industry, they must take social responsibility more seriously. Because of Cambodia’s human rights violations, they are loosing EBA tariff preferences. I propose that Cambodia implements rules and regulations that provide health and safety to all garment workers. Specifically, there should be mandatory inspections for all garment factories at least once every two months to ensure that these ethical practices are being enforced. Fire escapes, air quality, and door locks are all things that should be checked regularly, in case of an emergency. Social responsibility is an issue that is gaining importance amongst many companies around the world, therefore, if Cambodia wants to have successful trade relations with other countries, they must do better.

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