EU Suspension Seen Having ‘Muted’ Direct Impact on Cambodian Economy

The European Commission's partial suspension of Cambodia's duty-free access to the EU market will have a limited impact on the country's economy, a U.S. credit rating agency said Tuesday.

In a statement released in Singapore, Moody's Investors Service noted that the commission's decision last week which has not yet been ratified by the European Parliament and Council was due to go into effect on Aug. 12.

The suspension of tariff benefits will apply to only certain categories of Cambodian garments and footwear, as well as sugar and travel goods. Higher value-added garments and some types of footwear will continue to have preferential access, the statement said.

The direct effect of tariff suspension appears limited. The total value of goods affected, measured in 2018 exports, was almost US$1.3 billion, around 10 percent of Cambodia's total. We calculate that the application of standard EU tariffs, averaging 12 percent for garments and 16% for footwear, will reduce export receipts by US$150 million, equivalent to 0.6 percent of Cambodia's expected 2019 GDP, it added.

This direct economic impact is muted compared to our previous estimate of a hit to exports equal to 2.5 percent of GDP, based on a full withdrawal of EBA benefits for the textiles industry, Moody's said.

Nonetheless, tariff benefit suspension will create some reputational damage among both potential and existing importers, and also weigh on the price competitiveness of Cambodia's exports, underlined the statement.

Source: Agency Kampuchea Press