The EU's EBA Scheme and the Future of Cambodia's Garment Industry ; ISEAS Perspective ; Issue 2020 No.14

Abstract

The Cambodian economy has experienced rapid growth in recent decades, with its gross national income per capita increasing to US$1,119 in 2018 from US$ 337 in 1995. A key driver of this remarkable economic growth is the substantial increase of garment exports to high-income markets such as the European Union (EU), the United States, Canada, and Japan. However, Cambodia's economic prospects are becoming increasingly uncertain after the EU announced in February 2019 its intention to launch a procedure to temporarily withdraw tariff preferences granted to Cambodia under the "Everything But Arms" (EBA) arrangement, over concerns related to serious human and labour rights violations in the country. In response, the Cambodian Ministry of Economy and Finance said that the government has reserved around US$3 billion to cope with the possible suspension. The possible withdrawal of the EBA has been recognised as a shock capable of triggering an economic crisis. How important is the EU market for Cambodian exports? How did garment exports to the EU become so important to the Cambodian economy? What impact have exports to the EU had on trade, investment, and jobs in Cambodia? Why does the EU intend to suspend the EBA for Cambodia? Answers to these questions will shed light on the implications of the EBA withdrawal for Cambodia.