CAMBODIA: EU Trade Access Goes A Long Way

• by Irwin Loy (phnom penh)
• Thursday, November 25, 2010
• Inter Press Service

The company closed up shop, shutting its facility in southern Vietnam and with it, cutting 500 jobs.

'(The duties) really closed our factory,' said Jon Edwards, chief executive officer of A&J Worldwide, a bicycle manufacturer. 'It made it uncompetitive, so we had no choice but to open a new factory somewhere else.'

But A&J did not have far to look when it came to choosing a location for a new factory. Across the border in neighbouring Cambodia, exporters were benefiting from preferential trade benefits with a key trading partner — Europe — that saw tariffs drastically reduced or eliminated for exports from the world’s poorest countries.

In Vietnam, bicycle exports had been crushed by EU trading restrictions; in Cambodia, the rules were about to offer manufacturers like A&J a distinct advantage over the competition.

Under the EU’s Everything But Arms, or EBA scheme, import tariffs from Least Developed Countries (LDCs), such as Cambodia, can be reduced or entirely waived.

For A&J, the reduced tariffs offered a distinct advantage to manufacturers operating in wealthier Asian countries that have more established export industries.

'Not only did it do away with the dumping duty, but it also removed all the import duties,' Edwards said. 'So whereas before we were on a level playing field with the rest of Asia, now we’ve got a duty of zero percent. The overall savings for the customer are tremendous.'

Edwards says the Cambodian government has embraced the business since A&J opened its factory in 2006 in Svay Rieng province — one of this South-east Asian nation’s poorest.

The factory now employs 800 workers, the majority of them locals.

'We could have gone to Malaysia or Thailand and opened the factory much quicker,' Edwards said. 'But in Cambodia, the duty-free makes a huge difference for the customer. They’re getting a big savings.' Those savings, Edwards said, have given A&J’s Cambodian factory strong enough margins to focus on mid- to high-end products — a rarity for manufacturers in LDCs, which rely on mass-producing low-quality items at cheap prices.

Now, he says, the factory is operating at 90 percent capacity and exporting roughly 20,000 bicycles every month.

Cambodian exporters are quickly taking advantage of EBA’s benefits. Exports to the EU from Cambodia totalled 751 million euros, or more than one billion U.S. dollars in 2009, according to statistics from the EU Delegation to Cambodia. Almost three-quarters of the total export value qualified under the EBA scheme.

Cambodia’s main exports benefit extensively from EBA rules. The textiles sector was responsible for the bulk of EU exports in 2009 — 526 million euros (704.9 million dollars) — and more than 70 percent of that total fell under EBA. Roughly 97 percent of Cambodia’s footwear exports last year qualified under EBA. Bicycle exports totalled 48 million euros (64.3 million dollars) — 60 percent of which qualified for EBA benefits.

'The benefits are tremendous,' said Edwards. 'It encourages foreign investors to come into Cambodia. It’s training the Cambodian workforce and employing thousands of people.'

Other nascent export industries in Cambodia are exploring the possibilities under EBA. 'We have a lot of potential,' said Renne Outh, secretary- general of the Small and Medium Industries Association of Cambodia, who also heads a rice export business.

Cambodian long-grain rice represented less than one percent of exports to the EU in 2009. But rice exporters here hope to take advantage of surging demand and EBA benefits to double that figure in 2011.

Renne said any cost savings gained from EBA go a long way to offsetting prohibitively high expenses that have become a characteristic of doing business in Cambodia. Electricity costs are triple here compared to neighbouring Vietnam.

However, rights groups claim the EBA trade scheme has also had disastrous effects on Cambodia’s landless poor. They point a finger at the country’s rapidly expanding sugar industry, which they say has displaced thousands of families from their land.

The non-governmental organisation Bridges Across Borders Cambodia says authorities have awarded more than 100,000 hectares of land to private developers for sugarcane production in the last two years alone. The resulting disputes with villagers living on the land have led to forced evictions, illegal seizures, arrests and violence, the NGO contends.

With EBA offering Cambodian sugar producers attractive conditions to export their products to the EU, the scheme has only fuelled the abuses, says the group’s executive director, David Pred.

'The EU needs to take a hard look at the social and environmental impacts of all of its trade policies and ensure that they are not causing harm,' Pred said. 'In a country like Cambodia, which has very poor governance and no effective remedies for individuals and communities whose rights are violated, any expansion of investment in land and natural resources is going to do far more harm than good for the poor.'

EU officials here have met with rights groups and have promised to look into the issue. But at a rights conference earlier this year, chargé d’affaires Rafael Dochao Moreno said he believed any problems should be solved by Cambodian authorities and not by implementing trade sanctions.

Dochao Moreno also defended the EBA scheme. 'Years ago, it was impossible to think Cambodia could export products like bicycles, like shoes, like certain textile products to the European Union markets,' he said. 'Today, Cambodia is a net exporter of products like bicycles. We’re talking about tens of thousands of Cambodians that are getting jobs thanks to these concessions.'

In the meantime, new regulations governing EBA are about to make it easier for Cambodian goods to qualify under the scheme.

Starting January 2011, the European Commission is relaxing its rules governing what qualifies as products originating in LDCs. This is expected to boost the main engine of Cambodia’s economy, its garment sector, by allowing more products to qualify under the EBA tariff scheme.

© Inter Press Service (2010) — All Rights ReservedOriginal source: Inter Press Service

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