The European Union on Thursday approved new trade rules that will significantly increase the amount of Cambodian products receiving duty-free status and provide a potential boost to the recovering garment industry.
The new rules, which go into affect in January, will simplify the criteria that determine the origin of products, and will make it easier for products partly produced in Cambodia to benefit under the EU’s Everything But Arms trade scheme. Their approval eliminates the requirement that certain garments be manufactured of Cambodian-made fabric, removing a large obstacle in a country with minimal textile production.
“It’s a big deal, obviously. I think it would allow for close to all exports to the EU receiving duty free status,” said Ken Loo, secretary-general for the Garment Manufacturers Association in Cambodia.
Mr Loo estimated that less than 45 percent of Cambodian garments exported to the EU are currently granted duty free status, with the majority carrying a more than 12 percent tariff. Still, he said, though the new regulations increase Cambodia’s competitive advantage, other competitors like Bangladesh will have the same benefits.
According to a news release from the EU delegation, 75 percent of Cambodian products enter the EU market duty free.
Least developed countries have heavily criticized the rules, created in the 1970s, for being too complicated and not benefiting them.
Garments dominate Cambodia’s exports, comprising 88 percent of the $2.46 billion in goods Cambodia exported in the first nine months of the year. The EU market imported 22 percent of those garments, while the US imported 66 percent.
“There is no reason it should be a smaller market,” Mr Loo said of the European Union.
While garment exports increased more than 21 percent in the first 9 months of the year, Mr Loo said he expected a 15 percent increase next year due in part to the new regulations.
Earlier this month, Finance Minister Keat Chhon said exports of garments and textiles would reach $2.8 billion this year, down from the $2.9 billion figure reached in 2008.
EU delegation Chargé d’ Affaires Michelle Labeeu said the new regulations would hopefully increase jobs in the sector.
“It would be reasonable to expect Cambodian exports to the EU to grow above-trend in the coming year as a result of this regulation,” she said in an email.
And though Cambodia’s second largest market is changing its trade rules, it remains unclear if the US will take the same step. For more than four years Cambodia has lobbied for duty free access to the country, which levies a 16 percent tariff on garments from Cambodia.
Congressman Jim McDermott, a member of the US House of Representatives, introduced a bill last year to give Cambodian garments duty free status. However, according to an email from his office this week, any trade legislation benefiting Cambodia this year is unlikely.
“I hope it will be a priority for both parties in the next Congress,” he said.
Mr Loo said the US Congress is expected to review its General System of Preferences next year.