Cambodia, Asian sourcing’s plan B: a 10 billion business is under threat

One year to regain the trust of the European Union. Cambodia, another of the fashion production poles in Southeast Asia, could see a 10 billion dollar business threatened. That figure is what apparel and footwear exports generated in 2018 in the country. The European Commission has activated a new phase in the process to withdraw tariff benefits as a sanction for not respecting human rights.

Although Cambodian exports of textile articles are in line with those of other Southeast Asian countries, like Vietnam, its growing rate is much faster. Thus, between 2013 and 2017, sales in the Cambodian textile industry advanced by 28% on inter-annual average compared to 13% in Vietnam, according to the consultancy Fitch Solutions.

The garment industry, with 700,000 employees, is the one that creates a larger amount of jobs in the country and its exports generate 40% of the currencies that feed the country’s economy. 95% of the exports to the European Union used that mechanism. Footwear, on its behalf, has an entire workforce that amounts up to 100,000 workers in the country.

The garment industry would be one of the most affected by this measure, since exterior sales in the sector account for 75% of the total in the country. Cambodia is one of the main countries that benefit from the Everything but Arms (EBA) programme, which allows the least developed countries in the world to export to the European Union with zero tariff.

However, the commercial preferences may be temporarily removed if violations of human and labour rights are determined. The European Executive considered that the general elections celebrated last summer in the country were not fair. Even before the elections, the European Commission had already warned the Asian country about the worsening observed in that matter.

The European Government activated the process after the current political party at the lead of Cambodia illegalized the one in the opposition just before the voting. Finally, in October, the European Commission implemented the process. Since then, Cambodia’s Prime Minister, Hun Sen, has kept standing firm in his politics.

In 2018, exports from the Cambodian apparel and footwear industry soared by 24%, compared to an increase of 7.6% registered a year ago. The European Union is the destination of 46% of these sales; United States, of 24%, and Japan, of 8%, according to the latest data from the National Bank of Cambodia, published by The Phnom Penh Post.

With the suspension of the EBA, tariffs would increase by 12% for garments and between 7% and 8% for footwear. On the other hand, Cambodia could be one of the most affected countries by the Brexit, since about 8% of its exports go to the United Kingdom.

Cambodia, at the front line in labour rights

Precisely in Cambodia is where most progress is being made in terms of labour rights in the garment industry of Southeast Asia. Inditex, H&M, PVH and other 17 large groups of the sector work with the global union IndustriAll to develop and implement a collective agreement for the sector in the country, which would be the first to be executed in the continent.

Through the initiative Action, Collaboration, Transformation (ACT), founded in 2015, the giants of the sector and IndustriAll work together to achieve fairer wage policies and eradicate any exploitation practices among textile workers in Asia.

Cambodia is still at the bottom of the classification for labour costs in Asia. Their salaries are on an average of 100 dollars per month, in line with those of Laos and Myanmar, still far from those of China (590 dollars) or Thailand (270 dollars), according to data from the International Labour Organization (ILO).