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

17 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.

      1. In order for Cambodia to mitigate negative impacts of the EBA suspension, its important for the garment factories to take social responsibility. It is seen that they have violated Cambodia’s human rights which should be a wake up call to provide safer conditions for garment workers. If I were a fashion brand sourcing from Cambodia, I would find somewhere else to source my garments. I would like to be transparent where the garments from my brand were being sourced from. If customers have to hear about Cambodia violating human rights and thats where I am sourcing from, then I will lose a lot of business. This is not a good look for garment factories in Cambodia moving forward.

    1. I like your thoughts Delaney. I completely agree with you Cambodia is in danger. Not only is Cambodia in danger in the textile and apparel industry but as a economy entirely. The apparel industry employees nearly 100,000 employees and is a major sector of business for the developing country. If this fails, true danger rises, and of course covid does not help the case. I hope that with the interruption of COVID the tariff change will be considered.
      “Why kick someone when they’re down”. This quote is very applicable here, as a poor country Cambodia is struggling and with the decrease of exports due to covid, it would seem unfair for EU to impose a tariff on these goods. The two should work together in a partnership to meet codes and regulations.

  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.

  6. In response to discussion question 1, Cambodia’s suspension from benefits of the EU EBA was a punishment for their disregard to social compliance standards. Social responsibility is becoming increasingly important for many T&A industries, including the EU, and considering Cambodia’s important relationship with the EU, Cambodia’s government and factories need to enforce more labor compliance regulations and auditing practices in order to restore this relationship. Companies have already began to move manufacturing out of Cambodia to avoid higher tariffs and this will continue if they don’t fix their practices. This will be hard with the hit of Covid-19, but maybe this can be a time for Cambodia to restructure their garment industry so that when things start to get better, they can improve along with it.

  7. I think that the European union should definitely reconsider its decision to partially suspend Cambodia’s EBA eligibility because of COVID. Because of the pandemic, Cambodia has taken a devastating loss to their textile and apparel industry after having to close around 130 garment factories and laying off over 100,000 workers. In such a troubling time, I think we all have a social responsibility to support each other and in order to reestablish their industry in the future, Cambodia is going to need the help of EBA benefits.

  8. To me it seems necessary to have talks with the Cambodian government or garment factories to figure out a resolution to their poor human rights, because I fear that without the export of apparel products there will be hundreds of thousands of people without jobs due to this suspension. Yes, the country benefited from the EBA but it also seems that Cambodia took things too far which lead to this suspension, and rightfully so. But this is not because of the workers who are reliant on their jobs, it is because of the government and/or the garment factories themselves.

  9. In regards to discussion question 2, the EU should strongly reconsider its decision to suspend parts of Cambodia’s EBA eligibility. Covid-19 is having terrible effects on Cambodia’s apparel industry, and the suspension of portions of the EBA is only adding to its decline. Given these unfortunate circumstances, the EU should consider reinstating the EBA in its entirety and reevaluate at a later date when the world economy has become more neutralized. Free trade agreements are so important to all parties involved, as it creates a foundation of a trade partnership that should last a long time. The end of even this portion of the EBA is already beginning to sever the trade relationship between Cambodia and the EU, which is unfortunately taking away benefits from both countries.

  10. The garment industry, employing roughly 928,000 workers, is clearly incredibly important to Cambodia. It is vital to their economy as 70% of the merchandise they exported were apparel, as mentioned above. The garment industry is not only important to Cambodia’s economy, but their society as well. About 79% of their workers are females, as stated, and I imagine these are some of the only opportunities for women to earn a living. Because so many people rely on their factory jobs to survive, the suspension of the EBA program would be incredibly detrimental to not only Cambodia’s economy, but to the people who work in those factories as well. On top of that, COVID 19 has put so many Cambodians out of work that imposing these tariffs would make this bad situation even worse. Instead of imposing this tariff to punish the factories for their human rights violations, the Cambodian government should work on impose government subsidies for factories to improve their conditions. In addition, the brands that source from these Cambodian factories should improve their sustainability efforts and pay the factories more so they are able to improve their conditions.

  11. This article spiked a lot of interest for me. The issue Cambodia is facing is a double edge sword. Yes they are at fault for not being up to code but at the same time they may not be able to finance the repairs to meet code. Cambodia is a labor intensive industry exporting apparel to major developed countries. These developed sectors like the EU and US may not be willing to pay that extra fee that Cambodia factory owner’s need to fix any social issues. By the rising demand of lower and lower prices there is little profitability for Cambodia, the issues to fix are capital intensive. Such as low wages, manufacturing tools, safety protection and so on, all require money and if Cambodia does not have the money they are ultimately unable to meet the requires, which leaves this developing country in the dirt while buyers and retailers simply move factories. Instead, I feel like more attention needs to be turned to retailers for their social responsibility, and further long the supply chain the consumers. If consumers are pushing these low prices it is hard for their normal retailer to impose higher ones. All in all this is a WE problem not just Cambodia.
    The current market needs to be restructure to ensure funds are disrupted throughout the supply chain fairly.
    There is hope! With COVID crisis going on there has been a shift in attitude and priorities, so if we can portray the message clear and concise to the consumer there may be hope for change!

  12. In response to discussion question 2, I do not think that the EU should entirely reconsider its decision to partially suspend Cambodia’s EBA eligibility. Given that 70% of merchandise exports were apparel items, it is clear that this suspension could have seriously detrimental consequences on top of the damage COVID-19 has already done. Being that Cambodia is a poor developing country it does not surprise me that they are violating human rights principles. It is absolutely no excuse for their neglect, but a countries economic survival is likely prioritized over the health and wellbeing of the factory workers (in other words, they did this to themselves). When the European Commission withdrew a part of tariff preference granted to Cambodia it was to help the country realize that their economy is at risk if working conditions do not improve soon (cannot simply care about factory output without considering the workers). Personally, I think that if the country shows that they are putting effort into improving the situation (with actual improvements), they should be able to slowly regain the lost benefits until their working conditions are up to standards. Between COVID-19, the Rana Gaza disaster (that shed light on human rights in garment industries), and the taxes imposed on Cambodia’s imports— there is no way the countries economy would survive without some leniency. I think they need a fair chance to actually fix the problems, rather than be absolutely doomed.

  13. I think the EU should reconsider its decision to partially suspend Cambodia’s EBA eligibility because of COVID-19. I believe that sourcing from any country during a pandemic acquires risk. By suspending Cambodia’s eligibility the country’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. Also, the garment industry employs about 928,000 workers & it vital to their economy as 70% of merchandise exporters was apparel. Knowing how important the industry is to the country means the EU should allow the workers to continue earning a living & help the economy of developing country.

  14. There is a huge supply chain risk in the export hubs,in SEZs in Cambodia.It is not only the risk of a 1 man rule,of a man,who is a 4th pass.Once he dies,there will be civil war and Pol Pot – Part 2.

    Such a nation cannot have human rights ! dindooohindoo

    But more than that the education system is pathetic, and designed that way by Hun Sen – to keep the people ignorant,supplicant and suppressed.This leads to human rights problems, and a poorly skilled work force

    This is nation wherein 80% of the Khmer failed in class 12 after 12 years of education !

    http://www.cambodiadaily.com/news/second-chance-awaits-75-who-failed-exam-67317/

    And then in the 2nd try again 75% failed and only 1 Khmer got a C Grade !

    http://www.phnompenhpost.com/post-weekend/just-18-cent-students-pass-second-attempt-exams

    Cheating is their Fundamental right – coded in the Constitution !

    http://www.nbcnews.com/news/asian-america/cambodia-cracks-down-cheating-75-percent-fail-final-exam-n194566

    1st time cheating was banned – 75% of the Khmer niggers failed

    NOW THESE CHEATS OF THE LAST 25 YEARS ARE IN THE CIVIL SERVICE !

    http://www.phnompenhpost.com/national/testing-civil-service-radar

    They had a NATIONAL PROTEST DAY – CALLED A 2ND CHANCE EXAM !

    http://www.phnompenhpost.com/national/protest-leads-second-chance-nat%E2%80%99l-exams

    The Khmer say that they invented the ZERO ! A ZERO race invented the ZERO !

    http://www.phnompenhpost.com/post-weekend/did-ancient-cambodians-invent-zero

    Sample the achievment of these ZEROS !

    2000 years after inventing the zero – they are doing rat farming !

    http://www.cambodiadaily.com/news/as-prices-fall-rat-huntings-few-charms-fade-64042/

    2000 years after inventing the zero – they sell their women as child brides to foreigners who in turn sell them to brothels

    http://www.cambodiadaily.com/archives/court-hears-of-chinese-marriage-traffickers-54927/

    2000 years after inventing the ZERO, the Khmer sell their kids as professional beggars in foreign nations !

    http://www.cambodiadaily.com/news/couple-on-trial-for-buying-baby-to-use-as-beggar-in-malaysia-63715/
    http://www.phnompenhpost.com/national/couple-%E2%80%98bought%E2%80%99-girl-faces-court

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