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Cambodia’s economy in the post-EBA era
Op-Ed: East Asia Forum, 16 December 2019
Author: Pheakdey Heng, Enrich Institute
It has been yet another impressive year for Cambodia’s economy. Thanks to continued strength in traditional sectors such as garments, tourism, trade and construction, Cambodia’s GDP grew 7 per cent in 2019 — the highest growth in the ASEAN region according to the IMF.
While this impressive growth is a reason to celebrate, the possible withdrawal of the EU’s Everything But Arms (EBA) initiative may affect Cambodia’s growth prospects for 2020 and beyond. Established in 2001, the EBA gives Cambodia and 48 of the world’s poorest countries access to zero tariffs on all exports except arms and ammunition to the European Union on the condition that they comply with the principles of 15 United Nations and International Labour Organization conventions on core human and labour rights.
The European Union launched an EBA withdrawal procedure on 12 February 2019 after citing ‘a deterioration of democracy and respect for human rights’ in Cambodia. After a six-month monitoring and evaluation period, the EU Commission issued a report on the situation in November and gave the government a month to respond. Depending on developments in the country, the Commission will decide by February 2020 whether or not to suspend Cambodia’s EBA privileges fully or in part. A suspension would come into effect by August 2020.
EBA termination will be a big economic loss for Cambodia, currently the second-largest beneficiary of this trade privilege. Cambodia’s exports to the European Union last year totalled around US$5.8 billion — 95 per cent of which entered the European Union duty-free.
The textile industry will be hit the hardest. The EBA has fuelled an export boom that has kept the economy growing at a steady 7 per cent a year and helped to lift millions of people out of poverty. Suspending the EBA makes exports less competitive, putting workers at risk of losing jobs and dragging down economic growth overall. Around 2 million Cambodians depend on the textile industry, including 750,000 employees.
To help cushion the negative impact of the EBA withdrawal, the government is introducing measures to facilitate trade by lowering logistical costs, cutting red tape and supporting businesses with a six-day reduction in the number of public holidays to increase productivity.
Around US$3 billion is reserved for fiscal stimulus to cope with the potential slowdown. The government also plans to increase revenue raised from taxation, customs and excise by more than 20 per cent next year. The government collected some US$4.57 billion in revenue from customs and taxation in the first nine months of 2019.
While Cambodia is almost certain to miss out on growth potential, the EBA withdrawal is also an opportunity to implement deep reform to ensure sustainable growth over the long term.
Currently Cambodia’s main exports are garments and footwear, mostly to the European Union and the United States. But this industry is labour-intensive, has low levels of technology application and low value addition. Cambodia needs to transform its industrial structure from a labour-intensive sector to a technology-driven, knowledge-based modern industry if it wants to generate lasting growth.
The strategic approach is to promote the development of the manufacturing and agro-processing industries. Investment in these sectors is more sustainable than the low-wage garment industry. It can enable Cambodian workers to acquire higher skills, paving the way for higher value products and services and better integration into regional and global production chains.
To build economic resilience, Cambodia also needs to diversify its economic partners. Trade with China, Japan and South Korea has been on the rise and there is still room to grow. Cambodia and China are now discussing a free trade agreement. If successful, it sets a good precedent for bilateral FTAs with other countries.
Economic diversification and modernisation can only be achieved with the support of hard and soft infrastructure, a constructive policy and political environment and strong human capital. Investment is needed to improve the availability, reliability and affordability of energy, to develop a multimodal transport and logistics system and to strengthen the labour market through skill development. Political stability, good governance and sound regulation are also essential to attract foreign investment and technology transfer.Read More …
Human rights abusers worldwide are to face EU asset freezes and travel bans under new-model sanctions agreed by foreign ministers in Brussels Monday. “Today, the EU unanimously decided to legislate a worldwide EU human rights sanction regime,” Dutch foreign minister Stef Blok said. The EU foreign service will put forward a legal proposal following Monday’s deal, with diplomats predicting it will take six months before the measures enter into force.
បុគ្គលរំលោភសិទ្ធិមនុស្សជុំវិញពិភពលោកនឹងប្រឈមការបង្កកទ្រព្យនិងហាមឃាត់ទិដ្ឋាការសហគមអឺរ៉ុបក្រោមច្បាប់ដាក់ទណ្ឌកម្មថ្មីយល់ស្របដោយរដ្ឋមន្ត្រីការបរទេសក្នុងទីក្រុងប្រុសសែលកាលពីថ្ងៃចន្ទ៖ ថ្ងៃនេះសហគមអឺរ៉ុបបានសម្រេចជាឯកច្ឆន្ទបង្កើតច្បាប់របបដាក់ទណ្ឌកម្មសិទ្ធិមនុស្សអឺរ៉ុបនៅជុំវិញពិភពលោក នេះបើតាមប្រសាសន៍របស់រដ្ឋមន្ត្រីការបរទេសហូរឡង់។ ក្រសួងសេវ៉ាកម្មការបរទេសអឺរ៉ុបនឹងដាក់សំណើរផ្លូវច្បាប់ទៅតាមការសម្រេចកាលថ្ងៃចន្ទជាមួយទូតទាំងអស់ដោយអាចនឹងប្រើពេល៦ខែមុនវិធានការណ៍ចូលជាធរមាន។
For your reference: EU Observer
FCambodia’s Disastrous Dependence on China: A History Lesson
Op-Ed: The Diplomate
Overdependence on China undermines Cambodia’s national security. We know because it’s happened before.By Chansambath BongDecember 04, 2019
In May 1965, then-Prince Norodom Sihanouk of Cambodia terminated diplomatic relations with the United States. In so doing, he altered his strict adherence of neutrality in foreign policy to align with the People’s Republic of China (PRC).
Sihanouk was in part acting in response to a derogatory article by Bernard Krisher for Newsweek that accused his mother, Queen Sisowath Kossamak, of running a bordello, along with an air raid by an American plane on a village in Kampong Cham province, which killed one teenage boy and injured a few others. Although these events may be viewed as the last straws that pushed Cambodia-U.S. ties to the breaking point, other factors — such as Pathet Lao’s victory at the Plain of Jarres in 1961, the downfall of Ngo Dinh Diem in 1963, and America’s alleged sabotaging efforts against his conference proposal — all played parts in the debacle.
Sihanouk’s decision to opt for close alignment with China had a number of implications for Cambodia’s national security. Internally, suspension of American aid in 1963 stirred contention among the rank and file of the Cambodian armed forces close to General Lon Nol and the commercial elites, both of whom had fed on U.S. largess and economic benefits since 1955.
Moreover, the halt pushed Cambodia’s aid-dependent economy into a tailspin. The nationalization of banking and trade industries created opportunities for corrupt officials to benefit from illegal rice sales at the expense of the general public, who were bearing the brunt of economic hardship.
Externally, alignment with China created both short- and long-term impacts on Cambodia’s foreign policy. For one thing, Cambodia’s alignment with China allowed Beijing to take advantage of Sihanouk’s unbalanced foreign policy. Chinese officials pressured the prince to allow Viet Cong supply lines to run through Kompong Som port up to the Ho Chi Minh trail. That turned out to be an unofficial invitation for American B-52 Stratofortress bomber runs, and Cambodia is still feeling the effects of this today.
In the short term, Sihanouk’s choice also pushed Cambodia into deeper diplomatic isolation with no friend to rely on as the decision to break off ties with the United States in 1965 came just as that the Great Proletariat Cultural Revolution was about to sweep across China. Once the Red Guards occupied the PRC’s foreign affairs ministry in mid-1966, China’s foreign policy radically shifted from Pancha Shila or the five principles of peaceful co-existence to exporting revolution abroad. Prince Sihanouk became increasingly suspicious of China’s intentions after rumors that Beijing was secretly exporting its revolutionary ideas through the Cambodian-Chinese Friendship Association spread across the country.
The last straw came when Chinese Premier Zhou Enlai, who was a target of the Red Guards at this point, openly asked Cambodia to allow the ethnic Chinese community to pledge their allegiance to Communism and Chairman Mao, a move that broke with Beijing’s long-held tradition of Pancha Shila. These developments greatly unnerved Sihanouk, who had previously expected that China would stand behind him through thick and thin without trying to impose its ideology on Cambodia.
The rapid radicalization of Chinese foreign policy made the monarch feel like he had painted himself into a corner. He had alienated the American the previous year and now it looked like the Chinese were about to flip on him as well. It would be nothing short of diplomatic suicide for Cambodia if Beijing reneged.ADVERTISEMENT
Although Sino-Cambodian relations gradually went back to normalcy in 1968, Chinese officials appeared to cross the line when, according to one account, Kang Sheng, who was a member of the Gang of Four, visited Khmer Rouge’s liberated region in 1968. This could suggest that part of the Chinese government had begun working with the Khmer Communists behind Sihanouk’s back before the 1970 coup. It’s not surprising, then, that Beijing threw its full weight behind the Khmer Rouge when it took over Kampuchea in April 1975.Read More …