Beware Cambodia’s Europe Sanctions Hype

Claims of threats to the country’s sovereignty are vastly exaggerated and miss the broader point about how foreign economic relations work.

Op-Ed: The Diplomat

By David Hutt January 30, 2019       

For the last 18 months, the Cambodian government has seen foreign conspiracies everywhere it looks. The largest opposition party, the Cambodia National Rescue Party (CNRP), was plotting a coup with American backing, the government says, and was summarily dissolved by the Supreme Court in November 2017 as a result. The CNRP’s president, Kem Sokha, was also arrested for “treason,” though the government gave scant evidence of this.

The list goes on. Two reporters for Radio Free Asia were charged with espionage in late 2017. An Australian filmmaker was convicted as a “spy” for filming a CNRP rally. There are numerous other instances of the government’s myopic mirages of Cambodians, from senior opposition politicians to jaded social media users, who are plotting its downfall.

Amid this, the ruling Cambodian People’s Party (CPP) – which came in power in 1979 thanks, ironically, largely to the support of the Vietnamese military in ousting the genocidal Khmer Rouge – claims that it is the protector of peace and stability, and the only guarantor of Cambodia’s national sovereignty and independence.

Cambodia’s sovereignty, it says, is now also at stake as the European Union (EU) threatens to remove Cambodia from a preferential trade deal, unless the CPP’s political chokehold loosens. This is important. Under the Everything But Arms (EBA) scheme, which grants most Cambodian exports into Europe duty-free status, Cambodia exported roughly $5.8 billion worth of goods to the EU in 2017, making Europe its largest export market and main purchaser of its most profitable products, garments and footwear.

The government’s response to possible sanctions has oscillated between victimhood and vainglory, between saying Cambodia’s economy won’t be too badly affected by the EBA’s withdrawal and saying that if the EU goes ahead with its threat, it will destroy of livelihoods of millions of Cambodians, mostly the poor. Naturally enough, the government has been steadfast in calling possible sanctions an assault on Cambodia’s national sovereignty and independence.

In reality, however, all the EU is doing is reaffirming the conditions of a benevolent trade scheme that explicitly stipulates standards on democracy, human rights, and a free society as previsions for membership. The Cambodian government doesn’t have to accept the EU’s demands, of course. Brussels isn’t threatening to physically intervene in Cambodia. Indeed, the choice is clear: The Cambodian government can do what it likes, just not if it wants the trade benefits Europe offers — and which happen to prop up Cambodia’s export-driven economy.

Prime Minister Hun Sen has recently responded with his own violent ultimatum. “If you want the opposition dead, just cut it,” he said earlier this month, referring to the EBA’s withdrawal and the death of the CNRP. “If you want the opposition alive, don’t do it and come and hold talks together.” But he stands to lose much more.

Despite the Cambodian government’s perception of hostility, is the EU’s position different from any other trade deal? When China offers Cambodia millions of dollars’ worth of loans (which is has on numerous occasions, including $600 million just last week) they come with conditions, obviously. China doesn’t say that the Cambodian government can set whatever terms it likes and then Beijing will blindly comply. No, Beijing states what amount should be paid back, with how much interest, and when, among many other conditions, some of which are controversial.

And, importantly, in order to meet these repayments, the Cambodian government must change its domestic policy. So that its national debt doesn’t grow too costly and there is enough money to make loan repayments, the government modifies its budget; it must curb spending so that it has enough capital to repay the debt. Is this an affront to Cambodia’s sovereignty? Most people, correctly, think not.

Isn’t this also the case with foreign investment? Hasn’t the Cambodian government changed its laws to attract foreign investors? One only has to look at the tax cuts, special economic zones, higher wages, and more investment in infrastructure, among other policies, that the government has introduced over the decades to boost investment.

There are other analogies, too. Cambodia is party to numerous international treaties, while it must change its domestic laws to comply with rules set by the World Trade Organization and the Association of Southeast Asian Nations (ASEAN). What about changes of the law required by free trade deals? Are they infringements on its independence and sovereignty? The Cambodian government has never thought so.

The point is that the government often has to change its domestic laws so it can enjoy the benefits provided by trading with foreign nations. Making adaptions to stay within the EBA scheme is, on paper, no different. The only actual difference is the EU’s conditions mean the CPP will have to loosen its political stranglehold, something less palatable than tax cuts.

A few other observations. First, it is not Cambodia’s inherent right to be part of the EBA scheme; it was designed by the EU to help boost the developing economies. Second, the scheme lays out clearly what conditions must be upheld if a country wants to remain part of the deal. It isn’t as though the Cambodian government has suddenly been informed of these; they were in black-and-white when it joined the EBA scheme years ago. My colleague Luke Hunt spelled this out clearly in the Diplomat recently: “EBA is not a trade pact open to negotiations – it is a trade preference gifted to financially impoverished countries and designed to encourage democratic and social reforms more attuned with European standards, whose taxpayers are footing the bill.”

This brings up my last point. Remember, too, that many European businesses lose out because of the EBA scheme. Providing cheap Cambodian exports with duty-free status, of course, negatively impacts European producers who cannot compete with the costs. This was the chief reason why, unrelated to the EBA scheme, the EU this month imposed tariffs on Cambodia-produced Indica rice exports, so as to “safeguard” Italian and Spanish rice-growers.

As Hunt also notes, the EBA scheme costs European taxpayers, who are basically subsidizing Cambodian exporters. Is it not, then, within the sovereignty of the EU and European nations to determine who remains part of the EBA scheme or, more so, the right of European states to protect their own producers even if this comes at the cost of Cambodian workers? Interestingly enough, sovereignty and independence cut both ways.

In the end, all talk of national sovereignty and European inequity is up against a ticking clock. Factory owners in Cambodia are troubled by possibly having to pay tariffs in the future, and some appear to be bailing out, while investors also seem to be putting their money in countries other than Cambodia, where labor is now cheaper and infrastructure better. Things will only worsen as uncertainty lingers over Cambodia’s EBA status.

No one, in truth, thinks that the EU really wants to remove Cambodia from its EBA scheme out of malice; most of its politicians just want to see some political progress in the country and think economic threats are the best way of achieving it. But they have now laid down their conditions, which every policymaker in Phnom Penh clearly understands, so it is up to the Cambodian government to respond. Like with any other trade deal, the government doesn’t have to agree to them. But it ought not to get angry when it cannot have it cake and eat it, too. Isn’t there another cliché about biting the hand that feeds?