EU Exports To Rise with Easing of Duty-Free Rules

The European Union this month is expected to approve revised trade rules that could significantly increase garment exports from Cambodia to Europe, according to EU officials.

The changes would make it easier for Cambodian products to meet “rules of origin” conditions that allow duty-free export to European markets, according to the officials. In practice, this would mean that Cambodian manufacturers could import most raw materials for some products and still sell them duty-free to Europe.

“This will be very beneficial for Cambodian exporters,” EU Delegation Ambassador David Lipman said in an interview on Friday. “For many products, the local content will only need to be 30 percent as opposed to 50 percent under the current arrangements, so that should give a massive boost to exports from Cambodia to the European Union.”

The changes would apply to all developing countries, but Cambodia would be one of the major beneficiaries, according to Mr Lipman. They are expected to be approved by the European Council this month and to go into effect at the beginning of January.

The EU undertook to revise and simplify the current system of trade preferences after developing countries repeatedly complained that they had been unable to benefit from the current arrangement, Mr Lipman said.

The new system will primarily benefit manufactured products, such as garments, said Seth Van Doorn, political and commercial affairs attache for the EU delegation to Cambodia. Garments comprise the vast majority of Cambodian exports, accounting for some 90 percent in 2009, according to the Ministry of Commerce.

“Given the fact that textiles are such a large part of the exports to the EU, this will no doubt have a large reflection on the export figures to the EU,” Mr Van Doorn said in Friday’s interview. EU officials declined to speculate on how much exports might increase if the new trade rules are approved as expected.

Despite the ongoing effects of the global financial crisis, Cambodian exports to the EU increased 4.9 percent to about $1.1 billion in 2009, according to the EU’s statistical office, Eurostat. About 71 percent of the exports were textiles or textile articles, and roughly another 19 percent were in a category that includes footwear and headgear.

Cambodia sends about 65 percent of its garment exports to the US, but the EU has the second-largest share at about 25 percent, according to Ken Loo, secretary-general of the Garment Manufacturers Association in Cambodia.

In an industry where fabric is imported, the changes would be “extremely beneficial,” Mr Loo said.

“This will basically allow more Cambodian garments to enjoy duty-free access to the EU, and there will be an added incentive or bias to place more orders in Cambodia,” Mr Loo said, adding that GMAC had been “deeply involved” since 2005 in discussions over the revisions.

Economists said the proposed changes would likely help Cambodian exports, although to what degree remained uncertain.

“I think it will be very favorable for garment exports to the EU, because the local content [here] is normally very limited. A lot of materials are imported,” said Chan Sophal, president of the Cambodia Economic Association.

Kang Chandararot, head of the economics unit at the Cambodia Institute of Development Study, said the changes could help attract more investment to Cambodia, especially if paired with improvements to public services and licensing.

“It is…one positive factor needed out of many positive factors to promote manufacturing industry,” Mr Chandararot said.

Mao Thora, secretary of state at the Ministry of Commerce, said he was unfamiliar with the proposed changes but welcomed any relaxation of trade barriers.

“If they help to facilitate some [hard] conditions, it will be easier for us to export,” Mr Thora said.

    (Additional reporting by Hul Reaksmey)



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