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Ministries begin measures to offset EU’s EBA decision

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An international law firm partner, Kohe Hasan, says the withdrawal of EBA incentives would adversely impact the garment and footwear sectors. Photo supplied

Ministries begin measures to offset EU’s EBA decision

In the wake of the EU’s controversial announcement this week that it has begun the withdrawal process for Cambodia’s Everything But Arms (EBA) preferential agreement, government ministries and political analysts continued to share their reactions and economic mitigation plans in preparation for the measures coming into effect.

On Monday, the EU announced it had officially started the EBA withdrawal procedure against Cambodia for what it claimed were “serious human rights violations”, as well as a deterioration of democracy in the country.

The decision has been met with condemnation among government ministries, which rejected accusations of a worsening human rights and democracy situation, and insisted the measures will only serve to harm ordinary Cambodians.

Among them was the Ministry of Foreign Affairs and International Cooperation, which in a press release on Wednesday slammed the decision as regressive.

“Cambodia is mindful that this decision is made by two commissioners, without taking into account neither the fate of nearly one million Cambodian female workers, nor the interest of the European business in Cambodia, nor the decades-long good bilateral relation Cambodia has with key EU member states,” the statement read.

It added that the Cambodian government was committed to enhancing the democratic space and human and labour rights.

“We will continue to make every effort to address all immediate socio-economic issues facing our people’s livelihood, especially those who are relying on sectors that could be affected by the decision,” the ministry’s statement continued.

The Ministry of Commerce issued its own press release explaining the EBA withdrawal procedure and saying that some media outlets had failed to accurately outline the situation to the public.

It said should the EU confirm the withdrawal of Cambodia’s EBA privileges after a 12-month evaluation period, it would only be effective 18 months from February 12 – the day after the decision was announced.

The Ministry of Commerce continued that a mitigation plan for the possible negative impacts has already begun.

It said the relevant ministries and institutions had made reforms which would help cut the cost of production and transportation, as well as enhance socio-economic conditions for workers, farmers and Cambodian citizens.

“The Ministry of Commerce has erased fees for all exports – there is now no requirement for fees and documents to prove the source of products."

“We also removed CamControl [the government’s import-export inspection department]. All of this has resulted in the government losing dozens of millions [of dollars] annually."

“As instructed by the leader [Prime Minister Hun Sen], relevant ministries and institutions continue reforming to increase the competitiveness of Cambodian products and strengthen economic independence,” the statement read.

‘Minor impact’

Economic analyst Khoun Bunny said the withdrawal would have a minor impact, but added that the government has already taken precautionary steps.

He said should EBA be withdrawn, it merely implied that the EU supported the Kingdom’s political opposition, namely the Cambodia National Rescue Party (CNRP) acting president Sam Rainsy – a vocal proponent of the measures.

“If the EU eventually withdraws the preference scheme with a difficult decision in 2020, it reflects the EU’s support for the opposition and that decision could lead the people to turn against Sam Rainsy for causing a loss to the nation."

“The Cambodian government may respond [to the measures] with actions against any group to ensure political and economic stability [in Cambodia]."

“Such actions could be against civil society groups or any opposition parties that allegedly subvert security, politics and economics,” he said.

Ken Loo, the Garment Manufacturers Association in Cambodia (GMAC) secretary-general, confirmed on Wednesday that currently, the EU accounted for 46 per cent of Cambodia’s total garment exports, with 54 per cent going to markets outside the 28-country bloc.

He said the measures would mean a further 20 per cent of garment exports would shift to non-EU markets.

‘Skill up’

The EU said 99 per cent of Cambodia’s exports to the bloc last year – at a value of €4.8 billion ($5.43 billion) – were eligible for EBA preferential status. The remaining €100 million were not.

Kohe Hasan, a partner at international law firm Reed Smith, with expertise in emerging markets including Cambodia, told The Post that the withdrawal of EBA incentives would adversely impact the garment and footwear sectors.

“These sectors are very labour intensive and are heavily reliant on the EBA incentives. If and when the incentives are withdrawn, the 700,000 strong garment sector employees face a real prospect of losing their jobs,” she said.

Kohe continued that in the context of Cambodia’s ambitions to move out of Least Developed Countries status and into Middle Income Countries status, the threat of EBA withdrawal has accelerated the need to rethink national economic strategies.

“Cambodia should diversify its export markets. Being part of Asean, Cambodia should at the very least leverage on the Asean Free Trade Agreement to increase its exports into a market of 635 million, which is seeing rapid growth in its middle-class population,” she said.

She added that threats of the EBA withdrawal may have already tempted investors to turn towards other emerging markets.

“Cambodia should also ‘skill up’ and focus on developing a more robust manufacturing and electronics sector."

“The successes of Thailand, Indonesia and Vietnam with car assembly plants, for instance, are models that Cambodia can emulate,” she added.

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