The Cambodian garment manufacturing industry, recently surpassed Vietnam as the fifth supplier of garment and textile products to the European Union (EU). Within five years, Cambodia has climbed from being the tenth largest supplier of clothing to the EU to the fifth, behind China, Bangladesh, Turkey and India respectively.
Cambodia’s garment exports to the EU grew by 14 percent in 2016 to reach €3.8 billion, putting the country ahead of Vietnam with exports of €3.2 billion worth of garments. Given this pace of growth, it is highly likely that Cambodia will overtake India within 2 years.
However, Cambodia’s growth into the EU market was largely the result of preferential treatment under the “Everything But Arms” agreement, which allows its garment products to enter the EU market duty-free due to its status on the list of Least Developed Countries (LDC).
The EU’s “Everything But Arms” arrangement (EBA) was born in 2001 to give all LDCs full duty-free and quota-free access to the EU for all their exports with the exception of arms and armaments. This makes it the most generous form of preferential treatment to LDCs globally. There are currently 49 beneficiaries under this arrangement. In 2011, EBA beneficiaries accounted for exports worth €10.5 billion — 12% of all the preferences under the EU’s Generalised Scheme of Preferences (GSP), which provides tariff reductions for developing countries. Entry into the EBA is automatic and, unlike other GSP arrangements, the EBA has no time-limit.
With per capita income of Cambodia already surpassing the Middle Income Economy’s threshold, sooner or later Cambodia will lose its LDC status as classified by the United Nations. Once Cambodia loses this status, it will surely affect the garment industry. Therefore, Cambodia will have to diversify its economic foundations as well as increase its productivity.
This alert is for general information only and is not a substitute for legal advice.