As part of ongoing efforts by the European Union to increase trade links with the world’s poorest countries, all rice being exported from Cambodia to the EU will be duty-free starting today, officials said.
The duty-free status on Cambodian rice is part of the EU’s “Everything But Arms” initiative, which was established in early 2001 and gives duty-free preferences on all goods, except weapons, entering the EU zone from 50 least developed countries. Alongside Cambodia, the EU’s preferential access list includes Laos and Burma but excludes Thailand and Vietnam.
“This means that no duty will have to be paid for exporting rice from Cambodia to the EU, a market of 500 million consumers,” Rafael Dochao Moreno, Charge d’Affaires of the European Commission to Cambodia, wrote in an e-mail yesterday.
“This arrangement gives producers from the 50 Least-Developed Countries concerned a price advantage over their competitors from non-LDCs,” he wrote.
In 2007, Least Developed Countries exported 4.3 billion euros, or $6.1 billion worth of goods to the EU’s single market without paying any duties. Had these imports entered the EU with normal tariffs, the import duties would have amounted to more than $700 million, wrote Mr Dochao Moreno.
Despite the obvious benefits that come with duty-free and quota-free access to the EU, experts say that Cambodia still has much work to do in order to take full advantage of a more flexible trade environment with European markets.
“Thailand has to pay tax because it is a more developed country, so we will have some comparative advantage,” said Yaing Saing Koma, president of the Cambodian Center for Study and Development in Agriculture. “But that doesn’t mean we can export easily.”
Mr Saing Koma said that the level of production as well as quality still needs to be improved in order for Cambodian rice to seriously compete in Europe against larger and better established producers such as Thailand.
According to the EU’s strategy paper for the period 2007 to 2013, “Cambodia’s uptake of the opportunities offered by the [Everything But Arms initiative] is limited mainly by the country’s extremely narrow export base.”
Mr Dochao Moreno said Cambodian needs improvements in agricultural equipment, rice mill production, and better education for farmers.
“Duties payable represent only one of a range of challenges that Cambodian producers and traders face in doing business [with Europe],” he wrote.
Nonetheless, cheaper, more competitive rice on the EU market might mean that Cambodian farmers will no longer be forced to sell their un-milled rice in Thailand and Vietnam, as Cambodia “will be able to challenge” in international markets, said Phou Puy, president of the Federation of Cambodian Rice Millers Associations.
“Exporting milled rice to the EU we have wanted for a long time. Our country is an agricultural country and we need a more stable market,” he said.
In order to qualify for the preferential treatment regarding tariffs on exported goods, Cambodian farmers must comply with so-called “rules of origin,” which qualify products as Cambodian in origin and therefore eligible for export under the scheme.
“Through setting these thresholds, the EU wants to avoid a situation where Cambodia is used merely as a transshipment site for products from countries that do not need any preferential treatment,” Mr Dochao Moreno wrote.
Un Buntha, deputy director of the domestic trade division at the Ministry of Commerce, said that although facilitating exports to the EU was a positive development, production would need to increase if Cambodia is to see any meaningful financial benefits through rice exports.
“For the EU market we export mainly aromatic rice. But we don’t export very much,” he said.
According to Mr Dochao Moreno, Cambodia exported just $2.3 million in rice to the EU last year, up from $1.4 million in 2007, but down from $3.3 million in 2006. Mr Dochao Moreno also said that the total of Cambodian rice exported in the whole of 2008 to Europe amounted to less than one percent of all rice exports to the EU in the first six months of this year.
According to figures from the US Department of Agriculture, Thailand—the world’s largest rice exporter—exported nine million tons of rice to international market last year. Data showed Cambodia exported just 0.4 million tons.