Trade and Leverage: The Cambodian Dilemma

Garment Industry in Cambodia - New Naratif

Cambodians will be heading to the polls on 29 July in a futile exercise aimed more at granting legitimacy to Prime Minister Hun Sen’s regime than giving citizens the right to choose their own government. Fixed as it already is for Cambodian People’s Party win, the election is a done deal—the real game-changer will not be found at the polling booths, but behind closed doors at the European Union (EU).

The EU’s Everything But Arms scheme

Cambodia benefits enormously from the EU’s Everything But Arms (EBA) scheme, which allows countries classified as the “least developed” in the world to export anything, apart from armaments, to Europe duty- and quota-free. The EU is Cambodia’s number one export destination, receiving 40% of the country’s total exports—mostly textiles and footwear from the garment industry—totaling over EUR5 billion. Of this, 95.5% is traded under the EBA agreement, making Cambodia the second highest beneficiary of the initiative.

But this preferential treatment doesn’t come without conditions. On its website, the EU warns that “EBA preferences can be withdrawn in case of some exceptional circumstances, notably in case of serious and systematic violation of principles laid down in fundamental human rights and labour rights conventions.”

Repression and human rights violations

Over the past two years, Cambodia has been the scene of a large-scale—and ongoing—political crackdown that culminated in the arrest of opposition leader Kem Sokha and the dissolution of his Cambodia National Rescue Party (CNRP). (It was mainly this move, alongside other moves to intimidate and suppress dissenters, that has turned the looming election into a farce.)

This dissolution of the country’s only viable opposition party has arguably violated the International Covenant on Civil and Political Rights (ICCPR), a prerequisite for Cambodia to continue benefiting from preferential trade agreements with the European Union. Cambodia signed the treaty, which requires parties to commit to respecting the civil and political rights of their citizens, in 1980, and ratified it in 1992.

But recent repression in Cambodia didn’t end with Kem Sokha’s arrest. Press freedom in the country has also come under attack, resulting in the closure of independent radio stations and newspapers, and the arrest of journalists. Activists, too, have been subject to harassment, imprisonment, and even assassination.

CNRP - New Naratif
Kem Sokha (left) with opposition leader Sam Rainsy at a CNRP press conference in 2014.

“Cambodia has not met its human rights obligations under the EBA by a long shot, and the EU has looked the other way for far too long,” says Phil Robertson, deputy director of Human Rights Watch’s Asia division, adding that, on top of political rights, Cambodia has also failed to adequately uphold labour rights.

In an answer to a question at the EU Parliament in April 2018, European Commission Vice-President Federica Mogherini stated that the “respect of human rights and fundamental freedoms is part of the EU’s trade policy and underpins the legal basis of our trade preferences.”

She also indicated that there would be a monitoring mission to Cambodia, which would allow the EU to evaluate whether or not Cambodia should still qualify for the EBA. A delegation from the European Commission and the European External Action Service subsequently visited Cambodia from 5–11 July.

Cambodia’s reliance on the EBA

While Hun Sen has publicly scoffed at the notion that he’s afraid of Cambodia getting kicked off the list—even going as far as to dare western powers to sanction him, bragging that China will fill the gap—his commerce minister has privately warned that losing EBA would cost the economy USD676 million.

The garment sector, which employs over 600,000 Cambodians, will be particularly hard-hit by the loss of EBA. Garments and footwear are the country’s most significant export; according to the International Labour Organisation, they accounted for 78% of total merchandise exports in 2016. As the EU is the main destination for these products, it’s no surprise that Commerce Minister Pan Sorasak has advised that Hun Sen appeal to friendly European nations for a reprieve.

But the premier has refused to soften his public rhetoric; instead, he’s embarked on a months-long charm offensive to win over the garment sector. Making as many as three speeches a week to crowds of thousands, Hun Sen has promised new benefits to garment workers while blasting the opposition for betraying the country by campaigning for sanctions to be imposed.

The garment sector, which accounted for 78% of total merchandise exports in 2016, will be particularly hard-hit by the loss of EBA

The prime minister has good reason to fear the hundreds of thousands working in the garment industry. Long seen as a bastion of CNRP support, garment workers made up a significant chunk of massive protests in 2013–2014, when their demand for better wages and working conditions merged with the CNRP’s demonstrations against the election results. The state turned to violence to quash the protests. The recent political crackdown, though, has not yet provoked a similar response from the sector, and Hun Sen would like to keep it that way.

Following the recent assessment of the situation in Cambodia, the EU Commissioner for Trade Cecilia Malmström issued a statement explaining that the EU would now review the deal.

“The Everything But Arms initiative has had a significant impact on development and poverty eradication in Cambodia. Nevertheless, the recent worrying developments in the country have called for a closer assessment of whether Cambodia is fulfilling its commitments,” she said in the release dated June 12.

Malmström noted a “serious decline” in political rights and civil society as well as “serious threats to freedom of association”, and added that the commission is now analysing the situation.

She didn’t say when a final decision would be made, but made it clear that bumping Cambodia off the list was not a preferred option: “Removing Cambodia from the trade scheme is a measure of last resort, if all our other efforts have failed to address these concerns.”

The dilemma of sanctions

While it seems indisputable that Cambodia has failed to meet its human rights obligations, the EU will have to take other factors into consideration, such as an economic backlash that will likely hit ordinary Cambodians more than it impacts the authoritarian elite.

A spokesman for the Ministry of Commerce declined to comment on the impact of EBA’s cancellation, but an economist warned that there would be major consequences.

“It should be noted that, without such schemes, the Cambodian economy could be plunged into recession, and its government does not have a very good track record of managing economic priorities,” says Anwita Basu, an analyst with the Economist Intelligence Unit (EIU).

There’s also been precedent for keeping countries with highly problematic governments and political environments on the list; Cambodia is hardly the only country to violate its human rights requirements. One needs to look no further than neighbouring Laos—a one-party communist nation that still benefits from the EBA.

“You can’t say that the EU follows the rules by the letter in situations like this. The EU has been criticised for being inconsistent in applying sanctions,” says Astrid Noren-Nilsson, a political scientist who specialises in Cambodia.

“The EU is not ruling by the letter so much as acting on the one real leverage that it has on the Cambodian government at this time”

Noren-Nilsson says the EU has only suspended agreements in three countries—Belarus, Myanmar, and Sri Lanka. Sri Lanka was temporarily suspended for violating political rights, after massive human rights abuses committed during the civil war—a far more serious case than Cambodia. It was reinstated in 2017. Myanmar, too, has been included under the EBA since 2013 in recognition of the country’s “efforts to improve the political, social and labour environments”—efforts that, with the Rohingya crisis and the arrests of journalists, don’t seem to have been followed through.

According to Noren-Nilsson, the EU is likely to prefer using deterrents rather than sanctions, in the hopes that the threat of revoking the EBA will be enough to influence Hun Sen’s government. “The EU is not ruling by the letter so much as acting on the one real leverage that it has on the Cambodian government at this time: the EBA agreement.”

HRW’s Robertson agrees that it’s not a straightforward decision-making process: “The reality is decisions on [the] continuation of EBA are based on consultations, analysis and advocacy—and like most things in the EU, are determined through a combination of applicability of law and discussion of economic and political context.”

He says that the European Commission will report its findings to the Foreign Affairs Council and the European Parliament, and the decision will be part of an ongoing process that will factor in the interests of Cambodian workers.

Given the complexity of the EU’s decision-making mechanisms, the process will necessarily be a complicated one, but there are also weaknesses that governments can exploit.

“The problem is that PM Hun Sen and the Cambodian government know very well how to take advantage of these processes, making vague promises to buy time, using proxies like government-controlled labour unions to plead for sympathy for workers,” Robertson explains.

Geopolitics and human rights

Basu says the EIU doesn’t believe the EBA will be revoked, both for humanitarian and geopolitical reasons.

“Western powers do not want to push Cambodia into China’s sphere completely,” she points out. “We would argue that on the one hand, China’s role in Cambodia’s economy, as it stands currently, has been exaggerated, but the potential for deeper engagement with China is high.”

While western powers like the EU are wary of China’s economic influence, Basu says the real fear is over China’s strategic positioning in the region.

Despite these possible consequences, the opposition continues to advocate for measures to be taken against Hun Sen’s regime.

“The EU’s last statement makes it clear that the conditions under which EBA is granted to Cambodia [have been] seriously [called] into question. We must think of trade and human rights, freedoms and respect of democratic principles,” says Mu Sochua, who was CNRP’s vice-president at the time of its dissolution.

“Western powers do not want to push Cambodia into China’s sphere completely”

While Robertson hopes the EBA could first be used as leverage to force concessions, he hopes the EU will stand firm if Hun Sen’s government fails to take tangible action.

“If Cambodia continues its systematic non-compliance with those obligations, then it must face the consequences, starting with a suspension of EBA benefits until such time that Cambodia demonstrates the political will through concrete action to fulfill its obligation to protect rights,” he says.

It’s possible that the Cambodian government could still find some wriggle room and buy itself a reprieve. With opposition leader Kem Sokha still behind bars, the government could potentially release him after the election as a way to demonstrate “progress”—a strategy it has previously employed. It’s a strategy familiar to Hun Sen: he’d previously pardoned opposition figure Sam Rainsy in response to a US threat to cut aid to Cambodia unless steps were taken to make the 2013 general election free and fair. A similar move now would allow Hun Sen and his party to at least partially satisfy the international community, even as it steals an election under everyone’s noses.

“We must think of trade and human rights, freedoms and respect of democratic principles”

Unsurprisingly, Sochua says the release of her party president alone would not be enough. She argues that the EU should only allow the EBA to remain in effect if the elections are delayed and the CNRP be allowed to participate.

It’s a tough stance that will cause problems for many Cambodian workers, but Sochua believes it’s a necessary move: “Having Hun Sen in power will sink the entire nation.”

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