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EU Funnels $498M in Aid to Cambodia But Tariff Action Still Stands

As Cambodia struggles to navigate the ongoing COVID-19 pandemic, the European Union (EU) is mobilizing 443 million euros ($498 million) in grants and loans to help the Southeast Asian nation mitigate the virus’s socioeconomic fallout.

The assistance comes under the auspices of “Team Europe,” an initiative that rallies resources from the EU, its member states and financial institutions such as the European Investment Bank to support vulnerable countries in “the fight against the coronavirus pandemic and its consequences.” Team Europe’s collective pot is worth 20 billion euros ($22 billion), according to the EU.

The pandemic “demands cooperation and solidarity” and the EU “stands together” with Cambodia in these challenging times, Carmen Moreno, EU Ambassador to Cambodia, said in a statement.

“We have to work together to ensure a sustainable and strong economic recovery, and to help mitigate the impact of this pandemic on human lives, jobs and livelihoods,” she said. “To this purpose, we combine our resources and join efforts with the government, the people of Cambodia and civil society, in response to this global challenge.”

Cambodia’s $9.3 billion garment, footwear and travel goods industry accounts for 40 percent of the country’s gross domestic product. With the COVID-19 outbreak prompting a sweeping withdrawal of production orders, however, the World Bank estimates that Cambodia’s economy could contract by as much as 2.9 percent in 2020.

Already, some 256 garment, footwear and travel goods factories in Cambodia have suspended their operations because of sinking demand from Europe and North America, Prime Minister Hun Sen said this month, affecting more than 130,000 of the sector’s 800,000 workers.

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Its largesse aside, the EU does not appear to be backtracking on its decision to partially withdraw Cambodia’s Everything But Arms (EBA) trade privileges in light of what it described as “systematic” human rights violations. Lobbyists representing garment manufacturers urged the EU this month to postpone tariffs by at least 12 months, citing concerns that the “one-two punch” of the withdrawal and COVID-19 could see brands and retailers abandon Cambodia permanently.

The new tariffs will target roughly one-fifth or 1.1 billion euros ($1.19 billion) of Cambodia’s yearly exports to the EU— including some items of clothing, footwear and travel goods that were previously granted duty-free access—beginning Aug. 12.

“If the Commission allows the EBA withdrawal to take effect in August this could in fact result in the near collapse of the already pandemic devastated apparel, footwear and travel goods industries in Cambodia,” the Garment Manufacturers Association in Cambodia, the Cambodia Footwear Association and the European Chamber of Commerce in Cambodia wrote in a joint letter to the European Commission.

The sector, they noted, is poised to plummet by 50 percent to 60 percent in year-on-year sales in the second quarter.

The EU is Cambodia’s largest trading partner, according to the European Commission, accounting for 45 percent of Cambodian exports in 2018.