Uncertainty and Pressure: Cambodia Under the Weight of Sanctions

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Uncertainty and Pressure: Cambodia Under the Weight of Sanctions

Cambodia should be more wary of Western sanctions.

Uncertainty and Pressure: Cambodia Under the Weight of Sanctions
Credit: Kremlin

Cambodia’s economic growth trajectory is facing uncertainty and challenges amid mounting international pressure, in particular the suspension of status under the EU’s Everything-But-Arms arrangement and most recently the United States’ General System of Preferences status.

The Cambodian government’s unprecedented crackdown on dissents prior to the 2018 general elections has not gone unnoticed. The international community, the United States and the European Union in particular, have imposed sanctions on Cambodia in attempts to halt what is widely perceived to be the Kingdom’s drift towards autocracy.

Prime Minister Hun Sen’s ruling Cambodian People’s Party (CPP) was apparently unopposed in the national election last July, as the country’s major opposition party, the Cambodia National Rescue Party (CNRP), was dissolved by the Supreme Court about nine months before the election that was condemned as a sham.

The CPP secured a landslide victory – sweeping all 125 parliamentary seats, while the CNRP politicians were banned from politics, only later were allowed to return to politics if they request political rehabilitation.

As Cambodia is locked in domestic politics, the country faces Western economic sanctions. The EU in October 2018 announced that it would remove its preferential trade deal, the Everything-But-Arms (EBA) scheme which grants Least Developed Countries (LDCs) full duty-free and quota-free access to the EU market for all products except for weapons. In February the EU began a six-month “period of intensive monitoring and engagement” that could lead to the temporary suspension of Cambodia’s EBA status, if no concrete actions are taken to reverse the deterioration of democracy and respect for human right in the country.

It is viewed that the Cambodian government’s response to the EU sanctions has been quite inconsistent. While Prime Minister Hun Sen and his ruling elites have tried to promulgate that Cambodia will not be adversely impacted by the consequences of losing preferential access to the EU market, the Royal Government of Cambodia has however responded to the EU’s EBA threat stating that the EU fails to take into account “the fate of nearly 1 million Cambodian female workers” and “the interest of the European businesses in Cambodia.” Hun Sen’s government regards the EU’s demands as an act of interference in Cambodia’s domestic affairs and Hun Sen himself was reported saying that Cambodia will not “exchange national sovereignty with aid.”

Considering the current political development, there is a high possibility that the EU will proceed to suspend Cambodia’s EBA privileges. Both sides seem to stick to their own terms and as it now stands compromise appears to be off the table, the result of which would be the withdrawal of Cambodia’s EBA status.

Should Cambodia lose its EBA status, despite the government’s unfounded claim of “no impact from EBA withdrawal,” there is no doubt that the country’s export-driven economy will be badly affected. In particular, Cambodia’s garment industry which respectively accounts for 40 and 60 percent of the Kingdom’s GDP and exports will experience the most impact. At the very least, the country will have to pay approximately $700 million annually in tariffs, based on government estimates. As a developing economy, Cambodia obviously cannot afford the possible collapse of its garment industry described as a sector too big to fail.

As uncertainty surrounding the EBA issue looms large, things are worsening. Two U.S. lawmakers: Rep. Alan Lowenthal of California and Rep. Steve Chabot of Ohio, have recently introduced the Cambodia Trade Act (CTA) which would require the U.S. government to review Cambodia’s preferential trade status under the General System of Preferences (GSP) that grants the Kingdom tariff reductions and exemptions on its exports to the U.S. in response to Hun Sen’s repeatedly heavy-handed treatment of political dissents, civil society and human rights activists as well as independent NGOs and media. As quoted by the media, Lowenthal accused Prime Minister Hun Sen of “serious labor and human rights violations, as well as actions to undermine the nation’s path toward democracy by attempts to abolish any political opposition or dissent.”

Under the GSP program, the U.S. provided the status to Cambodia in 1997 and renewed in April 2018. Currently, Cambodia exports more than $180 million a year in duty-free goods to the U.S.. The legislation introduced by the two congressmen if approved by the U.S. president, will result in Cambodia’s trade privileges being withdrawn, suspended, or limited. The introduction of the bill came one month after two other U.S. senators introduced a similar legislation to the U.S. Senate in January 2019.

The possible loss of the EBA status, compounded by the U.S. lawmakers’ calls for a re-examination of Cambodia’s special trade privileges, should be of great concern to the Cambodian government. The government’s claim that the EBA withdrawal “will not impact Cambodia” and that the introduction of the CTA bill is “nothing to worry about” appears to be rhetoric and more political and ideological than practical and realistic. In reality, the Cambodian government has tried very hard to lobby the EU through sending delegation leading by government adviser Sok Siphanna in an attempt to secure EBA for the country.

Cambodia’s reliance on support from development partners, aid and loans, and trade preferences makes the country vulnerable to economic sanctions. Although China has shown continuous support for Hun Sen’s government, its reciprocal relationship with Cambodia is seen to depend entirely on mutual benefits and interests. If benefits are decreasing, support may cease to exist.

The incumbent Cambodian government has more or less ignored the EU and U.S. demands for improvement to human rights and democracy and has condemned such demands as “extreme injustice” and “acts of interference” with Cambodia’s internal affairs. A sense of concern for Western sanctions appears to be lacking, while almost no concrete actions are taken by the CPP-led government to reverse Cambodia’s democratic drift.

Perhaps taking into account the calls by the international community to halt and reverse the Kingdom’s democratic backsliding is the right way forward for Hun Sen’s government. As a small and developing country, Cambodia should be more wary of Western sanctions. It is better to address the issues while they are in the preliminary stage. It is even better to continue to benefit from trade preferences while making an improvement to the political and social landscape in the country.

Kimkong Heng is a doctoral candidate at the University of Queensland and an Australia Awards Scholar. Veasna Var is a doctoral candidate at the University of New South Wales, Canberra and a Senior Fellow at the Cambodian Institute for Cooperation and Peace.