In February 2019, the European Union launched an 18-month process to determine whether or not to maintain Cambodia’s preferential access to the EU market under the Everything But Arms (EBA) trade scheme. The review follows what the European Union perceives as “the deterioration of democracy, respect for human rights and the rule of law in Cambodia.”
Analysts, civil society members, and many in the private sector have expressed concern over the European Union’s potential suspension of the trade scheme, due to how much is at stake for Cambodia. The EBA scheme allows Cambodia to export anything to the EU market, with the exception of weapons, duty-free and quota-free. In return Cambodia must fulfill its obligations to the core UN and International Labor Organization conventions. Cambodia was granted access to the scheme, offered to most Least Developed Countries, in 2001.
In 2018, exports to the European Union accounted for more than a third of Cambodia’s total exports and were valued at 4.9 billion euros ($5.5 billion), of which 99 percent were eligible for EBA preferential duties. Textiles and footwear, prepared foodstuffs, vegetable products, rice, and bicycles represented 97 percent of exports to the European Union in the same year. The textiles and footwear industries alone employ more than 700,000 Cambodians, indirectly benefiting millions of others.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
How much the EBA scheme has contributed to Cambodia’s economic development is difficult to precisely determine. Cambodia’s merchandise exports have grown from $1.5 billion in 2001 to over $12 billion in 2017. Over the same period, its GDP per capita has more than doubled, from $454 to $1,137. The poverty rate also declined from 50.2 percent in 2003 to 13.5 percent in 2014.
It is also difficult to predict the economic consequences of the EBA removal in the long run. A recent report by the World Bank hints only that “losing EBA preferences … would likely result in slower export growth.” The suspension of the EBA would increase tariffs by 12 percent in the garment sector and by 8–17 percent in the footwear sector. It will likely cost Cambodia’s economy $676 million in additional taxes.
It is reasonable to speculate that in the short term — depending on the effectiveness of the Cambodian government’s economic reforms — the EBA withdrawal could deprive hundreds of thousands of Cambodians of decent jobs and plunge them into poverty. This could create conditions for social unrest and political instability. Data from the World Bank indicates that 4.5 million Cambodians, or 28 percent of the population, remain “near-poor” — extremely vulnerable to returning to poverty if exposed to economic and external shocks.
The Cambodian government is launching a 17-point strategy to stimulate Cambodia’s economy in response. Measures include reducing the number of national holidays, reducing costs in shipping and electricity and reforms in railway management. These measures — if effectively implemented — should save the private sector around US$400 million.
The EBA review has soured Cambodia–EU relations, rendering Cambodia more dependent on China. The Cambodian government blasted the EU’s move as an “extreme injustice,” vowing not to trade the country’s “sovereignty and independence” for “foreign aid.” The European Union has acknowledged that recently “the Cambodian authorities have taken a number of positive steps, including the release of political figures, civil society activists and journalists,” but continues to expect more.
The ordeal began following a number of domestic events in Cambodia that were to the European Union’s chagrin. In late 2017, Cambodia’s Supreme Court disbanded the opposition Cambodia National Rescue Party (CRNP) and imprisoned CRNP leader Kem Sokha on the charge of treason. This occurred a few months after the June 2017 local government elections and ahead of the July 2018 national election.
The CNRP was the country’s only effective opposition prior to its dissolution, posing a credible threat to the ruling Cambodian People’s Party that has held power for decades. In its February 2019 statement, the European Union demanded “more conclusive action” from the Cambodian government to ensure continued EBA participation, but fell short of publicly addressing concrete specifics.
China pledged to help Cambodia overcome the hardships of an EBA suspension, promising $588 million in aid to Cambodia from 2019–2021. Reports suggest China had already promised to import 400,000 tons of rice and increase investment as part of the Belt and Road Initiative. Since overtaking Japan in 2010, China has become Cambodia’s largest donor. China has also been Cambodia’s largest foreign investor for several years.
The European Union is engaging in political dialogue with the Cambodian government to promote democracy. Before the European Union makes a final decision over whether or not to withdraw, it should aim to reach a win-win deal with the government. This deal should give enough incentive to the government to pursue economic reforms, including the full and effective implementation of its 17-point economic strategy, and to foster further democratization.
A full EBA removal would be counterproductive to Cambodia’s socioeconomic and political development. It may also change the European Union’s image as a goodwill provider in the eyes of Cambodians and nations sympathetic to Cambodia, including China.
Kongkea Chhoeun is a PhD candidate at the Crawford School of Public Policy, The Australian National University. This article was originally published over at East Asia Forum here with the title “EU Prepares to Kneecap Cambodia Over Human Rights.”