Cambodia's business sector is exploring ways to mitigate any fallout from a possible loss of access to the EU’s Everything But Arms (EBA) agreement as talks continue before the 28-member bloc makes a final decision.
The EU monitoring process is set to conclude in mid-August, with a report on its findings to be released soon after. The Kingdom will have one month to reply.
Cambodia exported $11.2 billion worth of goods last year, 46 per cent of which was shipped to the EU, making it the Kingdom’s second largest export market after China, according to the Ministry of Commerce.
Consumers in the EU may face a 12 per cent increase in the cost of buying Cambodian-made goods in the event the EU moves to impose EBA sanctions.
The challenge for companies exporting to the EU from Cambodia would be to remain competitive and reduce the effects of tariffs by reducing costs further down the supply chain, said business leaders.
“There is an atmosphere [in Cambodia] where everyone is asking the right question: ‘How can we be more competitive?”.
“There are certain ways to [mitigate the effects of EBA withdrawal], like increasing the efficiency of our production tools."
“It can be in equipment, [by] increasing the capacity of our workforce so they can work faster and better, as well as improving working conditions,” EuroCham chairman Arnaud Darc told The Post.
Ken Loo, the president of the Garment Manufacturers Association in Cambodia (GMAC), said if costs go up, manufacturers need to ensure that raw material prices remain competitive at the source.
GMAC has also been lobbying the government to reduce the number of national holidays and curb the tripling of wages for garment workers over the past five years.
“The trajectory of the last five years cannot continue. The tripling of wages in five years is silly."
“There is no denying the fact that wages need to increase, it is the rate of increase we need to be careful about. So the trajectory of the last five years cannot continue,” Loo told The Post.
Cambodian wages ‘highest’
Workers producing footwear and clothing have seen their wages increase by 300 per cent since 2013 – from $61 to $180.
In comparison, garment workers in Bangladesh earn $60 a month, with those in Myanmar making $91. Their Vietnamese counterparts earn a maximum of $171 a month.
The garment industry accounts for as much as 95 per cent of the Kingdom’s exports, with nearly one million of its workforce producing goods for brands such as Adidas, Marks & Spencer and Zara.
Adidas alone employs some 90,000 workers – 90 per cent of whom are women.
Loo believes reducing wages and holidays will make the Kingdom a more attractive destination for buyers seeking low wages and high productivity.
“If we compare our minimum wage with that in Vietnam, Myanmar and Bangladesh, ours is currently the highest, while we are certainly not the most efficient or productive."
“If our competitors increase their wages by five per cent and we have a 10 per cent rise, we’re in trouble."
“We have been lobbying the government over the past 15 to 20 years to look at the costs here in Cambodia and try to keep ourselves competitive vis-a-vis the countries we are competing against, such as Bangladesh, Myanmar, Vietnam and Indonesia,” Loo said.
A disparity in workers’ salary relative to other countries in the region has caused a strain on Cambodian manufacturers as labour accounts for upwards of 75 per cent of manufacturing costs, he said.
Loo said the Cambodian government had already been proactive in increasing business efficiency by reducing electricity prices and relieving Camcontrol – the Ministry of Commerce’s Cambodia Import-Export Inspection and Fraud Repression Directorate-General – of border inspection duties, for example.
There are also discussions on reducing the number of national holidays.
“I think it’s imperative that in the next few years, the government pay special attention to wage increases and keep them to a minimum so that the cost of doing business in Cambodia is contained,” Loo said.
Darc agreed that costs needed to come down to remain competitive.
“I don’t think it would be popular or that [workers] would appreciate it, but it’s always a possibility. In order to be competitive, we need to decrease a certain amount of costs on our side,” he said.
Vietnam’s National Wage Council this year announced it would raise the minimum wage by an average of 5.3 per cent, the lowest increase yet for the country.
By comparison, Cambodia’s Prime Minister Hun Sen aims to increase the minimum wage by around 50 per cent by 2030 – to $250 a month.
Cambodia also boasts the greatest number of public holidays – at 28 – compared to its competitors. Vietnamese workers get only 10 days.
“As Cambodia grows as a country in terms of economic development, there will come a time when the country is no longer classified as a Least Developed Country."
“It is just a matter of when . . . not if. It’s not about reinventing ourselves – if EBA is withdrawn or suspended, it’s not the end of the world. Life goes on,” Loo said.
Darc said the EU using EBA as a political tool would be “catastrophic”.
“It’s catastrophic in terms of ethics. EBA was put in place to eradicate poverty and the job is not yet done. To use it to advance a political agenda … that thinking is catastrophic,” Darc said.