Political Crackdown Sends Cambodia-EU Trade Status Into Uncertain Territory

FILE: Women work in a clothes factory in Phnom Penh, Cambodia March 28, 2016. Picture taken March 28, 2016. REUTERS/Samrang Pring

The European Parliament passed a non-binding resolution recently to call for the E.U. to consider “temporarily suspending” its EBA scheme with Cambodia if Phnom Penh continues to ignore the bloc’s call for a course reversal in the government’s elimination of the CNRP.

On several occasions the European Union has criticized Cambodia over its crackdown on political opposition to Prime Minister Hun Sen’s government, with Brussels routinely mentioning the preferential trade agreement, Everything But Arms, as leverage.

Hun Sen’s government has dissolved the main opposition, the Cambodia National Rescue Party, which was due to pose a serious challenge to his more than 30-year rule at elections in July. Its leader, Kem Sokha, has been jailed on questionable treason charges and more than 100 CNRP politicians have been barred from politics for five years after they refused offers to defect.

President of main opposition party, Kem Sokha​, was arrested at his home in Phnom Penh, Cambodia midnight on September 3rd, 2017. (courtesy image)

These moves, coming alongside stricter controls on civil society organizations, news media outlets critical of the government, and reports of grassroots-level surveillance and intimidation, have caused a crisis in Cambodia’s diplomatic relations with the U.S. and E.U.

EBA, a non-tariff trade scheme, allows a select number of developing countries to import products into the E.U. free of customs duties, and is crucial to Cambodian garment production, a key economic sector.

FILE-Photo: Minister of Commerce Pan Sorasak in Phnom Penh on June 28, 2016. (Hean Socheata/VOA Khmer)

In an internal memo to Hun Sen leaked last month, Commerce Minister Pan Sorasak briefed the strongman prime minister on the benefits Cambodia is enjoying under the EBA scheme: avoiding paying $676 million in tariff fees on its $6.2 billion exports to the E.U market in 2016.

Hun Sen was advised by Sorasak to launch a “lobby” campaign with “friendly countries” holding E.U. membership to keep Cambodia in the EBA scheme, which supported the employment of some 400,000 garment workers last year.

The E.U. and the U.S. have declared they will nix funding for Cambodia’s National Election Committee, and Washington has imposed visa restrictions on senior officials.

The European Parliament passed a non-binding resolution recently to call for the E.U. to consider “temporarily suspending” its EBA scheme with Cambodia if Phnom Penh continues to ignore the bloc’s call for a course reversal in the government’s elimination of the CNRP.

“Removal of EBA concessions would have a significant impact on the garment sector,” said Stephen Higgins, co-founder of the consultancy firm Mekong Strategic Partners.

“The very large wage increases in recent years have impacted the competitiveness of the industry in Cambodia,” Higgins said, “and removal of EBA concessions would likely be enough to force a large number of factories to close.”

Since the 2013 election, with the opposition’s dramatically increasing support, the Cambodian government has intervened to broker and oversee the surge in the minimum wage for the garment industry and other benefits required in payment from employers.

It is “very important” for Cambodia’s garment sector as one area of its competitiveness to remain under the EBA scheme since it has offered incentives to potential buyers to place order from Cambodia, said Kaing Monika, secretary-general of the Garment Manufacturers Association in Cambodia (GMAC).

“Without the EBA, Cambodia will lose a certain level of competitiveness in the EU market because the import duties that [the international brands and buyers will have to pay] will make Cambodian products more expensive,” Monika said in an email.

“But this might not represent the end of Cambodia's ability to compete. There would still be instances or certain types of products that mean Cambodia would continue to be able to compete and survive, as in the case of the American market, where we so far have to compete head-to-head on a level playing field against Vietnam.“

Long Shot

“I still hope that the EBA won't be withdrawn or suspended,” Monika said.

Plus, the route to EBA suspension is a long road that requires complicated procedures throughout many layers of E.U. bureaucracy, which has led many to believe it may not happen.

The E.U. itself is also consumed with its own transition following the Brexit vote and the rise of the alt-right movement, distracting them from taking action against a “relatively marginal player in Asean,” said Bradley Jansen Murg, a political scientist at Seattle Pacific University.

“I believe targeted sanctions, following the American approach, are more likely - and also a much more effective approach,” Murg said, adding that the aid cuts would give China, Cambodia’s closest ally, an advantage.

Murg added: “China could easily step in and fill the gap as it steps up the Belt and Road Initiative.”

‘Nothing to Worry About’

In an annual conference this week to conclude a review of the Commerce Ministry’s regulatory work in 2017, Sorasak, the commerce minister, confirmed that any action would not be a problem for Cambodia’s non-tariff trade status in 2018, since orders have already been placed.

“There’s nothing to worry about,” Sorasak told reporters on the sidelines of the conference on Wednesday.

Sek Sophal, a researcher at the Ritsumeikan Center for Asia Pacific Studies (RCAPS) in Japan, said the timeframe of Cambodia’s political crackdown – less than one year to the 2018 parliamentary election – and the predictable absence of collaboration from the Kingdom’s fellow Asean members, China, and Russia, would fail or reduce the effectiveness of sanctions.

“What the ruling party want is to ensure that it will remain in power after the 2018 election,” Sophal said. “There may be some kind of political negotiation in the post-election period; that could be concessions leading to an improved state of [the political] situation.”

The fact that the European Parliament used the term “temporary withdrawal” gave a signal that the European countries remain optimistic that there could be a foreseeable solution to the current polarization, he added.

E.U. representatives in Cambodia could not be reached for comment for this story.

Difficult Optimism

Cambodia is among the 49 developing countries worldwide to receive EBA status from the European Union, alongside fellow Southeast Asian nations such as Laos, Myanmar, and East Timor.

But, analysts said, the future of the E.U.’s EBA decision relies largely on the status of Cambodia’s bilateral ties with the 28-nation bloc, which remain bleak.

“While not nearly as severe as the downturn in US-Cambodian relations, we can expect to see similar issues arise in E.U.-Cambodian relations. In the short term, it would be difficult for anyone to say they are ‘optimistic’ about the near-term development of the relationship,” Murg of the Seattle Pacific University said.