Cambodia’s garment industry, already pummeled by the coronavirus pandemic, is set for a “one-two punch” after the European Union signaled it will not suspend its decision to curb trade privileges for the vital sector.
The EU announced in February that it will suspend duty-free access for 40 products from Cambodia, effective Aug. 12, because of “systematic” human rights violations.
Lobby groups representing garment businesses and manufacturers earlier this week called for the EU to postpone the tariffs by at least 12 months because of the dire threat posed by the COVID-19 induced global slowdown.
The new tariffs will hit about 20% of the country’s exports to the bloc or some 1.1 billion euros ($1.19 billion). The targeted goods, which include some items of clothing, footwear and travel goods, were previously included under the Everything But Arms (EBA) scheme, which grants developing countries duty-free access for all products except weapons and ammunition.
The pandemic has already slammed the $9.5 billion apparel, footwear and travel goods sector, which employs more than 900,000 workers. More than 250 factories, accounting for some 130,000 employees, have suspended operations as consumer demand collapses in Europe and North America, the country’s main export markets, and new orders dwindle.
In a joint letter, the Garment Manufacturers Association in Cambodia, the Cambodia Footwear Association and the European Chamber of Commerce in Cambodia said the sector was likely to see a 50-60% fall in year-on-year sales in the second quarter.
They urged the EU to postpone the tariffs, saying the “one-two punch” of the withdrawal and the pandemic could see brands and retailers leave Cambodia and not return.
“If the Commission allows the EBA withdrawal to take effect in August this could in fact result in the near collapse of the already pandemic devastated apparel, footwear and travel goods industries in Cambodia,” they wrote.
But in an email to the Nikkei Asian Review, the European Commission said Cambodia’s path to retaining its full EBA status was through showing “significant progress” in improving political and civil rights.
Should that happen, “The Commission may review its decision and reinstate tariff preferences under the EBA arrangement.”
The EU’s core concerns include the reinstatement of the-now banned political opposition party and the dropping of treason charges against its leader.
Cambodian Prime Minister Hun Sen has previously said he would “not bow down” to the demands.
The country, however, faces grim economic circumstances. In an economic assessment last year, the World Bank predicted the pandemic’s impact on Cambodia’s three growth drivers of apparel exports, tourism and construction could push GDP into a contraction of between 1% and 2.9% this year in what would be Cambodia’s first bout with negative growth since 1994.