Cambodia: Europe puts at risk clothing imports worth 3.42 billion

Europe threatens half of Cambodia’s textile exports. However, for now it’s only a threat. The European Commission began ten days ago the process to withdraw the access of the Asian country to the trade preference program Everything but Arms (EBA). However, this measure could be delayed in time, and even decaffeinated, as member states still have to vote for or against it.

In any case, the threat has already caused some damage. Although Cambodia’s tariff advantages are still in force and it’s difficult to foresee when the sanction will be applied, the announcement made by the European Commission has an immediate impact on the country’s export industries and, specifically, on the garment sector.

“Removing advantages always creates problems,” says Gabriel Farías, expert of fashion industry sourcing. In this case, the short-term impact lies in the paralysis of future investments, such as those of companies that had planned to build up a factory or that were about to start sourcing in the country.

The European Commission threats to Cambodia have an immediate impact on the country’s export industries

“The groups that already operate in the country, may decrease their manufacturing volumes once the sanctions are applied, but it’s uncommon that they stop sourcing in Cambodia,” says Farías. “Those who have set up a factory in the country think in the long term and, surely, will continue,” he says.

The sourcing expert also points out that the great advantage of Cambodia lies on its cheap productive cost, but its textile industry is as well very sensitive to tariffs. Besides Cambodia, other neighboring countries like Bangladesh also benefit from EBA’s trade preference program.

In 2017, Europe imported apparel from Cambodia worth 3.42 billion euros. In the last five years, EU countries have doubled their imports from this country, which has become one in the meanwhile one of the strategic sourcing hubs for the global fashion industry in Asia.

Since 2012, EU countries have doubled the value of apparel imports from Cambodia

In fact, Cambodia is already the fifth largest clothing supplier for the European Union, behind China, Bangladesh, Turkey and India, according to data from Spain’s Institute of Foreign Trade (Icex). Between 2012 and 2017, garment sales from the Asian country to Europe have grown in double digits.

A long-term process

The withdrawal of a country from the EBA system of tariff preferences by the European Commission is not usual, but there have been precedents. In most cases, Brussels threatens with this sanction with the aim of ending human rights abuses, explain experts close to the EU Government.

However, in the case of Cambodia, the reason why the European Commission has decided to impose the sanction (a Government election that it considers unfair) has already passed. This way, the withdrawal of Cambodia’s trade benefits in legal terms is already underway and hardly reversible.

But for the decision to prosper, the process still needs to overcome the vote of all member countries in a council of ministers. And here the legal and political aspects collide. The interests and bilateral agreements that each of the EU nations maintains with Cambodia has a strong influence on this vote.

After overcoming this phase, the European Parliament would still have to give the final go. And here everything indicates that a green light would be given because the European lower house reacts usually favorably to this kind of sanctions. Nevertheless, this whole journey could take months.