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Businesses in Cambodia foresee challenge from EU-Vietnam free trade deal

Xinhua, August 6, 2015 Adjust font size:

Industry insiders say that the looming Vietnam-European Union (EU) free trade agreement, which gives Cambodia's neighbor duty-free exports to the European market, may not have an immediate impact, but will potentially eat into similar advantages Cambodia enjoys in the longer-term, a local newspaper reported Thursday.

The in-principle agreement announced by the European Commission Tuesday, which still needs to be passed by the EU member states and the European Parliament, will, over time, eliminate 99 percent of tariffs for selected Vietnamese sectors, including in the garment and rice industries -- mainstays of Cambodia's economy.

Ken Loo, secretary-general at the Garment Manufacturer Association of Cambodia (GMAC), said the new free trade agreement (FTA) was sure to impact Cambodia's garment sector, however, he said it would take time, according to the Phnom Penh Post.

He said that this impact will not be in the short-term, given the experience of the Singapore-EU FTA, which after being agreed to in 2012 is yet to be ratified by the European Parliament.

"The duty preference for Vietnam is also to be phased in over a period of seven years. They will enjoy the full duty-free exports only in seven years (after ratification)," he was quoted by the newspaper as saying.

Loo said that while Cambodian garment exporters can source fabric from anywhere, the Vietnamese agreement stipulates that garment exports to the EU only use Vietnam-made fabric.

Cambodia currently exports duty-free to the EU under the Everything But Arms scheme, which is accorded to least-developed countries.

In 2014, the EU became a major garment export destination for Cambodia, according to the International Labour Organization.

Meanwhile, Cambodian exporters are nervous of losing their already-thin margins to one of the world largest exporters of rice. Cambodia sent 60 percent of its rice shipments to the EU last year.

Amru Rice CEO Song Saran said, given these new circumstances, the sector will need to address a wide range of challenges, such as high cost of fertilizer, lowering energy costs for millers and improving financing for warehousing facilities, to regain lost ground.

"The deal between Vietnam and EU will impact the Cambodian rice industry, but it still gives Cambodia the time to address these challenges on competitiveness," the newspaper quoted him as saying. Endi