Industries Further Jeopardized by EU-Vietnam Trade Deal

3 min read
Prime Minister Nguyen Xuan Phuc and EU Commissioner for Trade Cecilia Malmström and Romanian Minister for Business, Trade and Entrepreneurship Ștefan-Radu Oprea at the Government Office in Ha Noi on June 30, 2019. Photo: VGP

A free trade deal between the E.U. and Vietnam jeopardizes the exports of Cambodian manufacturers, whose own duty-free access to the E.U. is under review due to political and human rights concerns.

The E.U. and Vietnam signed the free trade agreement (FTA) on Sunday, paving the way for Cambodia’s competitors across the border to export most goods tariff-free to Europe. The deal still needs to be ratified and will be phased in over 10 years.

A 2016 estimate by the World Bank suggested that a E.U.-Vietnam free trade deal could cost Cambodia $350 million in exports due to a “level playing field” being established between the two neighbors. Earlier this year, the World Bank estimated that the loss of Cambodia’s own Everything But Arms (EBA) deal with the E.U. could further impact garments, footwear and rice exports by as much as $650 million.

Jayant Menon, lead economist for trade at the Asian Development Bank, said Cambodia and Vietnam especially compete in the European market in clothing, footwear and some agricultural products such as rice — areas that could see the greatest impact.

He noted that Vietnam’s new deal would protect its rice exporters from future tariff increases, while the E.U. raised its duties for Cambodian rice in January despite the EBA agreement already being in place.

“It would appear that Cambodia’s prospects in the EU market would therefore be best secured with an FTA, although this appears unlikely at this stage,” Menon said.

Still, the impact on Cambodia would largely depend on whether it loses the EBA, he said.

The E.U. in February embarked on a process to review Cambodia’s duty-free access to its markets over last year’s maligned national election, which was held without the main opposition party.

The Cambodian government has frequently called out the E.U.’s apparent double standards, however: Although the E.U. criticizes Cambodia’s democratic backsliding, Vietnam’s communist one-party regime is considered considerably more repressive.

Vietnam scored 10 points lower out of 100 than Cambodia in Freedom House’s Freedom in the World 2018 report, with an aggregate score of 20. It also ranked 33 places below Cambodia on Reporters Without Borders’ 2019 World Press Freedom Index as the fifth-worst country in the world for media freedoms.

Sophal Ear, associate professor of diplomacy and world affairs at Occidental College in Los Angeles, said it was hard to see any benefits for Cambodia arising out of the E.U.-Vietnam deal.

“I imagine that if Cambodia were to produce things and it was labeled ‘Made in Vietnam’ after being transshipped there, it might benefit Cambodia at least marginally,” Ear said. “In reality, Cambodia isn’t like China in the sense that it is the world’s factory floor. Vietnam alone has plenty of export capacity and doesn’t need Cambodia.”

Sam Vitou, adviser to agriculture NGO Cedac, said Cambodia would be losing its chief competitive advantage vis-à-vis Vietnam — its lower duties on exports.

“Vietnam could replace our position in exporting to Europe,” Vitou said, adding that organic rice was the only category in which he could see Cambodia having an advantage.

Commerce Ministry spokeswoman Seang Thay acknowledged that the E.U.-Vietnam deal could impact Cambodia’s exports.

However, he said, the magnitude of loss would not be so great as to be impossible to overcome.

“We acknowledge that the EBA benefits Cambodia. We don’t want to lose it,” Thay said. But “Cambodia does not just trade with the E.U. … We will turn to other countries that are our markets.”

Cambodia also has trade deals in place with ASEAN members, Japan, China, South Korea and the U.S., Thay noted.

The E.U., however, is Cambodia’s biggest export market with a 39 percent share. A further 30 percent goes to the U.S., which is also reviewing duty-free access over human rights concerns.

Additional reporting by Michael Dickison

(Translated and edited from the original article on VOD Khmer)

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