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World Bank Warns Cambodia Could Lose Big If Europe Trade Benefits Withdrawn

FILE PHOTO - Prime Minister Hun Sen, center, leans over a garment worker during a visit to a factory outside of Phnom Penh, Cambodia, Wednesday, Aug. 30, 2017.

The decline in textiles production would also lead to a decline in garment exports of between $320 million and $381 million, the World Bank said.

Cambodia could lose as much as $600 million if the European Union decides to suspend it from a lucrative preferential trade scheme over human rights concerns, the World Bank has estimated.

In an official assessment of the cost to Cambodia’s economy if the E.U. withdraws the country from the Everything But Arms (EBA) scheme, the Bank on Monday said the value of Cambodian goods exported to Europe would drop by between $513 million and $654 million as increased tariffs put off buyers.

The decline in textiles production would also lead to a decline in garment exports of between $320 million and $381 million, it said.

E.U. officials are currently reviewing Cambodia’s EBA membership after a sustained campaign by the ruling Cambodian People’s Party against the former opposition Cambodia National Rescue Party, activists and independent media prompted criticism from Brussels and Washington.

If the E.U. decides to remove Cambodia from the scheme, tariffs on textile products would almost double.

Neav Chanthana, deputy government of the National Bank of Cambodia, told reporters the World Bank’s findings were announced that the removal of Cambodia from EBA would have serious consequences but argued the government was prepared with contingency plans.

“It’s a concern but the government has planned to respond if it [EBA] is withdrawn. But we hope that they need 18 months to do research and negotiation, and study what to do with it. We’ve prepared and we hope that they will not withdraw it,” she said.

Last year, Cambodia exported $9.5 billion of garment and footwear products. The E.U. accounted for a third of these exports, according to the World Bank.

In February 2019, the European Commission announced an official procedure that could lead to the temporary suspension of Cambodia due to a decline in human rights and democratic standards.

The World Bank has warned that “downside risks are the erosion of export competitiveness, a potential slowdown in China, an overextended financial sector [which is associated with banks’ exposure to construction and real estate.”

“Given Cambodia’s heavy reliance on capital inflows and tourists from China, a sharp slowdown in the Chinese economy could dampen growth prospects,” reads the report.

However, it noted that preliminary estimates show Cambodia’s real growth achieved a four-year high of 7.5 percent in 2018, compared to 7.0 percent in 2017.

“Driven preliminary by the rapid expansion of exports and robust internal demand, the economy performed better than expected.”