As the European Union expands from 15 to 25 countries on Saturday, officials in Cambodia were unsure whether the benefits of increased market access would offset the stiff competition they expect to face from the union’s poorer new members.
“An enlarged EU can increase incomes or affect Cambodia negatively,” said Kea Sovan, chief of the World Trade Organization Department in the Ministry of Commerce. “Cambodia will get a large market from the EU,” he added. “But some foreign investors want to invest in the new EU countries because they are poor and their labor is cheap.”
As a least-developed country, Cambodia enjoys duty-free, quota-free access to the EU on most items, though restrictions on some agricultural goods remain. The 10 states joining the EU on Saturday give Cambodia increased access to 75 million potential consumers, but will offer tough competition in producing garments, which comprise the bulk of Cambodian exports.
Cambodia exported about
$420 million worth of goods to the EU last year, consisting mostly of garments. EU members and the commission provide about $118 million in aid to Cambodia annually, though that is unlikely to increase significantly since most of the joining members are poorer than the existing ones.
The average per capita income in the 10 new EU countries—Slovenia, Malta, Hungary, Czech Republic, Slovakia, Estonia, Poland, Lithuania, Latvia and Greek Cyprus—is about $9,200. For existing EU members, it’s about $28,400.
In a presentation on Wednesday, EU officials said the improved market access for Asian goods and services would outweigh the potential negative trade effects.
“All of the 10 countries joining the EU have much higher rates of protection than existing members,” said Winston McColgan, charge d’affaires for the Cambodian delegation of the European Commission. “So whatever trade you have is going to be easier and more profitable.”
Polish Ambassador Kazimierz Duchowski said he expects Cambodia to continue exporting garments, footwear and handicrafts to his country.
The EU enlargement “will make things better in all spheres,” he said. “It’s a bigger organization with lower taxes and tariffs.”
Though he said it was “a little too soon” for Polish companies to invest in Cambodia, he said Polish businesses have inquired about starting up garment and footwear companies here.
But before they invest, “they need to know very well how the system operates in Asia,” Duchowski said. “Many things are not too transparent here.”
A top garment industry official contacted Wednesday said the expanded EU will not benefit the country in the short term, but it will later on.
“There are pros and cons,” the official said. “There is a bigger market in the new EU. But we will face a stiff challenge from garment producers there because they can deliver goods within weeks, not months.”
But, he added, “European markets may produce high-end garments, but Asia is much more effective at mass production.”
Weighing the benefits to Cambodia of an enlarged EU depends on the length of perspective, McColgan said.
“The challenge for Cambodia is to diversify its exports,” he said. “An enlarged EU gives Cambodia an additional set of opportunities for Cambodia to diversify,” as it could provide new markets for Cambodia to try exporting new products, he said.