The European Union is increasingly scrutinising abuse of its Everything But Arms treaty with Cambodia, underscoring both the importance of the zero-tariff agreement to the Kingdom’s economy and the potential for its misuse.

Under the EBA, least-developed countries (LDCs) such as Cambodia export all goods – except for weapons – duty-free to the European market.

Thanks to the EBA and similar treaties, Cambodia enjoys “one of the most important advantages to neighbouring countries such as China, Thailand and Vietnam”, said Hiroshi Suzuki, president of the Business Research Institute of Cambodia.

Jean-François Cautain, ambassador of the EU in Cambodia, said in a statement that the EBA’s purpose was to help Cambodia and other LDCs better integrate into the global market – which comes at a cost to European tax collectors.

“For a total of €3 billion that Cambodia exported to the EU last year, member states lose a combined amount of circa €250 million on imported duty tax,” he said.

“The interest of the EU is to ensure compliance with the regulations that frame EBA.”

In Cambodia’s rice sector, fears that cheap rice from neighbouring countries is being mixed with Cambodian rice exports to benefit illegitimately from the EBA have recently led the Ministry of Commerce to take action.

A May 11 letter from the ministry said “surprise inspections” would be launched into rice millers to investigate the issue, while certificates of origin would not be issued to violators.

David Van, senior adviser to the Cambodia Rice Federation, said the Ministry’s move should help stave off concerns by taking preventative measures before formal complaints are filed.

“I absolutely have no clue if it is going to be efficient or not, but at least what the ministry is showing is that they are taking a proactive stance to demonstrate to the EU that they are not just sitting and waiting.”

According to Van, there have been no recent proven cases of EBA abuses when it came to rice exports.

But that is not the case for another Cambodian industry.

Last month, the European Commission said it uncovered a scheme under which Chinese-sourced bikes were being exported to Europe through Cambodia to circumvent an anti-dumping duty imposed on China in 2013.

In response, the Commission slapped 48.5 per cent import duties on Cambodian bicycle imports, save for three companies it found to have been exporting legitimately.

The companies affected by the duties have to wait for one year before they can have their exemption requests reviewed by the EU, according to the Commission.

The investigation also revealed that local authorities in Cambodia and other countries that were inspected “do not carry out cross checks between the Chinese export statistics and respective local import statistics.”

Ministry of Commerce spokesman Ken Ratha said he could not currently elaborate on the bicycle scheme in detail, although he said the ministry was now collecting information on bicycle producers potentially affected by the duties.

“Let’s see how much impact [the duties] have on those companies.”

However, for the industry which benefits the most from the EBA, instances of companies abusing the agreement are “uncommon”, said Ken Loo, secretary general of the Garment Manufacturers Association of Cambodia.

Since the Cambodian government allows garment firms to import raw materials duty-free as long as they are re-exported after processing, numerous checkpoints are already in place.

“Because of this duty exemption at the point of import for raw materials, there’s a lot of inspection going on,” Loo said, adding that the EU annually inspected garment factories to ensure they complied with the EBA.

Cambodian garment exports also benefited greatly from a loosening of EBA certificate of origin requirements in 2011, allowing the heavily import-dependent industry to massively increase its benefit from the deal.

Cambodia now sells 35 to 40 per cent of garments to the EU, overtaking the United States last year.

But even if Cambodia plays by the rules, the EBA will eventually phase out when the Kingdom moves up from its Least Developed Country status.

Loo, however, was not concerned.

“By the time we cease to enjoy the EBA scheme, the situation in Cambodia should have developed to a point where we are no longer as dependent.”