Cambodia: Footwear sector braces for EU sanctions

The Cambodian Footwear Association (CFA), that six months ago employed 150,000 workers, and other domestic private sector representatives, are again appealing for exemption on the tax-free benefit withdrawal imposed by the European Union.

Shoes and other footwear will be taxed by the EU from Aug 12 after the latter decided it broke guidelines on working conditions.

However, the impact of COVID-19 has cost the industry 30,000 to 40,000 jobs. The CFA says taking away its duty-free status will cost it more.

“This represents the crushing impact of the pandemic on global demand for footwear, particularly in Cambodia’s major export markets of the European Union and North America,” the CFA said in a statement.

“The Cambodian Footwear Association is deeply worried about the additional expected impact on our members when the withdrawal of EBA trade preferences on 30 percent of the value of our footwear exports to the EU takes effect on August 12. This second blow to our sector will cause economic damage well beyond what could have been forseen when  the European Council [sic] undertook its its assessment in 2019  and issued its Cambodia EBA decision in early February 2020.”

The EBA, which stands for Everything but Arms, gave Cambodia free-trade status on many items but it lost 20 percent of that when the EU agreed with an assessment that workers in the industry were abused.

The CFA says it is now facing bleak prospects. It recently completed a membership survey that it says showed a decline in production volumes in the first half of 2020 of on average 20 to 40 percent per factory compared with 2019 and sectoral employment reductions of 30,000 to 40,000 jobs.

For the second half of 2020 the forecast is worse. The CFA says there is not one member factory reporting an increase in orders with most forecasting a drop to 40 to 60 percent compared with 2019.

“Based upon existing order volumes for the second half of 2020, even before the August 12 EBA partial withdrawal takes effect, 70 percent of member factories are preparing for further reductions in employment or a complete suspension of production. Most of the remaining 30 percent have already reduced employment and forecast production only at already reduced levels.” the statement continued.

“If the pandemic gets under control, maybe we can expect a gradual recovery beginning in the summer of 2021, after the inventory built up from this year’s collapse in demand works its way through the market. However, if there is no early vaccine or effective control over the virus remains elusive we are not anticipating any upturn for the next two years,” cautioned CFA vice-chairman Tony Tung. He predicts a further 30,000 to 40,000 job losses.

Thus far the only support for suspended workers has been eight weeks of funding from the Cambodian government at $40 a month for the two months – $10 a week.

“Against this dire reality we can only re-state our urgent appeal to the European Commission (sic) to take into account the impact of the pandemic and postpone the partial  EBA withdrawal. To not do so is turning a terribly painful situation for our workforce… into a potential collapse for our sector as the August EBA withdrawal will encourage buyers to move remaining sourcing from Cambodia to other countries.”

Source: Khmer Times