Why a New Trade Pact Could be the Carrot the EU Needs in Cambodia

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Why a New Trade Pact Could be the Carrot the EU Needs in Cambodia

The idea of such a pact is one such way for the EU to offer carrots, rather than just sticks, that can help it achieve its reform objectives in the country.

Why a New Trade Pact Could be the Carrot the EU Needs in Cambodia
Credit: Flickr/World Economic Forum

A contradiction seemingly lies in how the European Union is pursuing ties with two mainland Southeast Asian states where democracy and human rights concerns remain. As it threatens to withdraw Cambodia from its preferential Everything But Arms (EBA) trade scheme for the country’s democratic regression, at the same time it is on the verge of signing a free-trade deal with Vietnam, by far a worse human-rights abuser and much less democratic.

True, Cambodia’s Prime Minister Hun Sen is now accustomed to using the machinery of state as if it were the private property of his ruling party. But in Vietnam, the ruling Communist Party formally considers itself and the state to be the same thing and, according to its constitution, criticism of one is considered criticism of the other (at least changes to Cambodia’s constitution haven’t yet gone that far).

This contradiction (or hypocrisy, to some) reveals that Cambodia is being punished for backsliding on something Vietnam has never even promised. In another example of this, the EU is offering up a new free-trade deal, known as the EVFTA, to try secure political and human rights reforms from Vietnam (controversially, since many think the reforms are mere window-dressing) but is trying to secure political reforms from Cambodia through punitive measures. There are carrots for Vietnam, but none that can be seen for Cambodia.

But what about if the EU, as well as threatening Cambodia with the EBA’s withdrawal, at the same time offered Cambodia talks over its own FTA? Such a deal would be dependent on the same reforms the EU is currently asking of Phnom Penh – releasing Kem Sokha, the reinstatement the CNRP, remove some recent constitutional changes, judicial reform, and opening up media space.

It might be considered unethical to offer a FTA to Cambodia given its current political climate, just as many have argued about the EVFTA. But as I have tried to briefly make clear, the EU’s current stance with the EBA’s withdrawal and the EVFTA isn’t solely about ethics, but rather the commingling of ethics and pragmatism – foreign policy, indeed, is chiefly about what can be fixed, not what should be fixed. Quite simply, change is far easier to achieve in Cambodia than Vietnam, for political conditions in Cambodia are not as bad as in Vietnam; it is easier to return Cambodian politics to how they were in 2016, which is basically the EU’s endgame, than to introduce to Vietnam a multiparty democracy that the country has never known.

Would offering a FTA, and not just threatening to remove Cambodia from the EBA scheme, be more effective at bringing about political reform? Perhaps. Of course, political conditions on preferential trade deals are much different to those on FTAs, as I made clear in a previous article. And is a weighty issue that requires more space than I have in this column. But give ear to a few hypothetical reasons.

First, if the EU goes ahead with the EBA’s withdrawal, the earliest possible date that tariffs and quotas will be re-imposed is August 2020, and then it is likely that duties won’t be introduced on Cambodia’s key exports first. However, the government has argued that since Cambodia’s place in the EBA scheme must naturally come to an end, once it graduates to middle-income status, it might as well diversify its trade links away from the EU now, rather than wait another few years.

Some think Cambodia’s natural exit from the EBA scheme could happen as soon as 2022 or 2023, though I have been told by members of the international community that, because the EU grants latitude for least-developed countries leaving the scheme, Cambodia could enjoy its benefits until at least 2029 (unless it is chucked out earlier). Nonetheless, a free-trade deal would make all this inane. A FTA would secure Cambodia tariff-free and quota-free access to European markets for perpetuity, not just for another five years or ten years. Such stability in export routes would no doubt attract even more foreign investors to Cambodia, and allow economists in government to produce decades-length plans with the knowledge that export markets are secured after 2030.

Second, while it is clear that the EBA’s withdrawal would dent Cambodia’s economy, it isn’t clear that this would destabilize the government enough to force it into political negotiations for reform. EU markets account for more than a third of Cambodia’s key exports, chiefly garments and footwear, and the World Bank’s latest economic update estimates that the EBA’s withdrawal and the re-imposition of tariffs could see garment exports to the EU decline by between 8.7 percent and 10.4 percent – or between $320 million and $381 million – while footwear exports could decline by 25.2 percent ($128 million).

Admittedly, a far greater cost would come from declining trade and investment, as manufacturers move operations to countries, like Vietnam, on better terms with the EU. However, the ruling Cambodian People’s Party (CPP), which has clung onto power for decades by far more violent means than just the dissolution of an opposition party, most likely has the force and will to survive if the economy worsens and public anger soars. Hun Sen has repeatedly said he isn’t concerned about this, though in private conversations government officials reveal they are.

Third, the EU’s stance has so far put the CPP government on the defensive, a position it is quite adept at playing and which allows it to engage in its well-rehearsed self-pity and victimization. It makes it all too easy (although ahistorical) to claim that European pressure is forcing Cambodia to move closer to China – the reality, in fact, is the other way around. And it allows the CPP government to develop a narrative with itself as the nationalist, even anti-colonial, force defending Cambodian sovereignty against foreign powers.

While at the moment the EU is portrayed as the aggressor, if it was to offer talks on a FTA, the CPP government could no longer play the victim card. Indeed, if a FTA was offered, dependent on certain political changes, and if the CPP still rejected these measures, then it would ruin the narrative the CPP has so far created for itself. The government would no longer be able to claim it is the one being backed into a corner. Nor could it state that the EU’s interest in democracy and human rights progress in Cambodia is actually about infringing “national sovereignty,” or that that the EU is acting punitively.

Moreover, much of the CPP’s propaganda, as well as messages from the domestic business community, has focused on how the EBA’s withdrawal would affect ordinary Cambodian workers, who would be laid off if tariffs reduce exports in the garment and footwear sectors, the largest employers in Cambodia. As a result, a narrative has formed that EBA withdrawal would only hurt the poor, not the rich, and that the EU is impoverishing already poor Cambodians because of political reasons. Obviously, this is incorrect – it is the stubbornness of the CPP to maintain its political stranglehold that will result in this. However, if a FTA was on the table, the CPP government would no longer be able to claim that the EU intends to hurt poor Cambodians – in fact, it would be the government who is denying them a new trade agreement that secures future prosperity.

Indeed, by putting a FTA on the table, it would shift all agency off Brussels and onto Phnom Penh. It would be offering Cambodian government something in exchange for reform, rather than simply taking something away. And if Phnom Penh was to reject talks for a FTA, the Cambodian people would have even more reason to question why their government, not the EU, is making the economy a casualty of politics.

Fourth, since we are talking about ethics nestled in pragmatism, the EU might consider what is more likely: is Hun Sen – one of the world’s most protean politicians, who fled the Khmer Rouge only to return with a foreign army to overthrow it, and who has ruthlessly secured supreme power over a fractious party – more willing to put up a fight in order to avoid capitulating to the EU, or accept a deal which allows him to parade himself before Cambodians as the procurer of a lucrative trade deal and stabilizer of Cambodia’s economic future?

Indeed, while Hun Sen is a politician used to having his back to the wall, yet he is also a politician used to accepting hand-outs in return for moderation. Indeed, if the last three decades of Cambodian history has shown us anything, it is that the CPP is more than willing to opportunistically accept offers from foreign governments while holding out the prospect for some limited political reforms.