"Brexit is going to have an adverse impact on Cambodia’s garment export sector, the International Labor Organization (ILO) has warned. Though new duty-free access to the US will ease pressure on exporters for some time, Cambodia’s recent rise to lower-middle income status could also add to its challenges in a few years. International Labor Organization wage specialist Malte Luebker said, “Exports continued their strong growth over the first half of last year, up 10.8 per cent year-over-year to $3.5 billion."

Brexit is going to have an adverse impact on Cambodia’s garment export sector, the International Labor Organization (ILO) has warned. Though new duty-free access to the US will ease pressure on exporters for some time, Cambodia’s recent rise to lower-middle income status could also add to its challenges in a few years. International Labor Organization wage specialist Malte Luebker said, “Exports continued their strong growth over the first half of last year, up 10.8 per cent year-over-year to $3.5 billion.”

Garments currently make up roughly 80 per cent of Cambodia’s total exports and have been its most reliable growth engine for the past several years. The country has struggled to diversify its economy beyond garments, tourism, agriculture and construction.

Uncertainty of future business

Thanks to the EU’s Everything But Arms trade scheme, Europe has been Cambodia’s No. 1 garment export  market since 2014, with the UK topping the list. But the pound’s slide against the dollar — 20 per cent between the third quarters of 2015 and last year — is making those exports more expensive and could lead to a drop in orders. “Although Britain has not yet withdrawn from the EU, the depreciation of its exchange rate means that the trading environment has already become more difficult for the Cambodian garment and footwear sector. If this depreciation is long-term, this difficulty will endure,” the report highlighted.

Post-Brexit, Cambodia may face more long-term trouble if it loses the preferential access it now enjoys under Everything But Arms. The ILO says the UK could maintain that access for Cambodia and other so-called Least Developed Countries, or revert to World Trade Organization rules. In the latter case, Cambodia would lose its special access unless the government arranges a new free-trade agreement with the UK.

Duty free access to the US

The ILO says the duty-free access the US granted Cambodia’s travel goods exports such as wallets, handbags and suitcases could help grow the industry, which is categorised as a sub-sector of garment manufacturing in the coming years. However, it remains in its infancy and currently accounts for only 1.3 per cent of total garment exports. At the same time, Cambodia’s move last year from low to lower-middle income status means the country could lose its Least Developed status after a three-year grace period and the special access it gets to the rest of the EU along with it. “The Cambodian garment and footwear sector has some time to prepare for an environment in which its competitive advantage is reduced through loss of (Everything But Arms) status,” the ILO says, “but it will need to adapt to this reality over the medium term.”