Cambodian Prime Minister Hun Sen has announced reforms to offset the loss of free trade privileges with the EU. His announcement shows that he is most concerned by how the sanctions may impact him politically.
Cambodian Prime Minister Hun Sen announced a series of economic reforms last week to reinforce the economy in the event that the European Union (EU) revokes a key preferential trade program.
The EU has been threatening to end Cambodia’s free trade privileges under the Everything But Arms (EBA) agreement. Hun Sen’s recent announcement shows that he is resisting the EU’s attempt to pressure his government and will continue to repress political freedoms and violate human rights.
The reforms are designed to attract trade and generate revenue, much of which will come from China. These steps may be able to offset any tariffs imposed by the EU, but they also signal that EU leadership has misjudged the importance of the EBA program for Cambodia.
Hun Sen is primarily concerned about the political impact that the end of the EBA program could have on his support base. Key backers of his Cambodian People’s Party (CPP) will likely be among those most affected by the sanctions. Hun Sen has pitched his reforms using nationalist and populist rhetoric in order to rally their support.
New reforms signal continued pivot towards China
The EU began a six-month monitoring period in February to review the EBA policy and determine whether continuing human rights violations and political repression are cause to revoke Cambodia’s trade privileges. Cambodian exports to the EU were valued at US$5.8 billion in 2017, accounting for about 40% of Cambodia’s total exports. The Cambodian economy gains US$676 million annually from the EBA and if the EU suspends the agreement, garment sector tariffs will reportedly increase by 12%.
Hun Sen’s proposed reforms ostensibly aim to make up for the potential added expense of tariffs on EU trade.
“If the EU wants us to pay taxes, we will pay the taxes—don’t worry,” the prime minister said.
The reforms include a reduction to the number of national holidays and cuts to fees for using Cambodia’s ports by lowering custom and inspection charges. The 17-point plan also includes reforms that cancel fees for certificates of origin, reduce electricity tariffs for the industrial sector, and withdraw the Cambodia Import Export Inspection and Fraud Repression agency from all border checkpoints and the Kampuchea Shipping Agency and Brokers from all ports.
The Chinese government has already signalled that it is willing to offset the EU’s tariffs. In January, Beijing pledged a three-year aid package of almost US$600 million to Cambodia. The prime minister and Chinese President Xi Jinping are allegedly planning to increase bilateral trade between the two countries to US$10 billion by 2023.
Chinese investors are also indicating that they’ll step in to help Cambodia deal with the loss of EBA. Leading Chinese clothing company Shenzhou International broke ground on a US$150 million manufacturing facility in Phnom Penh last month, in a move that the company claims will create 17,000 jobs.
Hun Sen is concerned about the political impacts of the loss of EBA
The prime minister has shown he believes Cambodia’s economy can weather the loss of EBA and that his reforms and a continued pivot towards China can adequately offset the sanctions. But the impact of the loss of EBA on the country’s economy as a whole isn’t his chief concern – his rhetoric shows that he’s more concerned over how the loss of EBA may damage his political standing.
“So far, EBA has benefited mostly the business groups operated by his family, cronies, oligarchs and officials – those who are main supporters of his political party,” Sreang Heng, a Cambodian Research Fellow at Harvard University, told ASEAN Today.
While the EBA has supposedly been part of a pro-poor growth model, the primary beneficiaries are manufacturing and agricultural corporations, most of which are owned by those close to Hun Sen.
However, there is the possibility that the government will use the loss of EBA trade as an excuse to delay or cancel much-needed social security reforms and wage increases promised to workers. This would further appease those among the CPP base who may be hurt by the loss of EBA.
Hun Sen’s primary strategy to rally support among the CPP’s base has been to cast his reforms and the decision to ignore EU pressure in a veneer of nationalist rhetoric. He stated that the reforms are designed to “ensure that Cambodia’s economy will not be affected by external factors,” and claimed that his economic reform package builds on King Norodom Sihanouk’s policies of independence and sovereignty. He’s also said that he’s “had enough” of foreign governments trying to dictate how he runs the country.
EU must continue to engage with the CPP
Hun Sen’s proposed reforms and the rhetoric he’s used show why the EU’s attempt to pressure Cambodia with sanctions is likely to fail.
“Sanctions need local organised activists with a reform agenda to link up to, otherwise the outcome will more likely be hardship and chaotic unrest than political change,” said Caroline Hughes, Professor of Peace Studies at the University of Notre Dame.
Without these local networks, the EU’s move towards sanctions will only serve to cede the last of its limited influence to China. The EU and the international community would be far more effective if they instead re-engage with any initiative to promote political space and dialogue between the political establishment and opposition groups.
“If Cambodia is to continue on its path of sustainable economic growth, it needs government that reflects the will of the people, institutions that respond to people’s rights, and people with the necessary skills, voice and access to services to participate actively in development and society,” Rhona Smith, Special Rapporteur on the situation of human rights in Cambodia, told ASEAN Today.
“A real change is going to require renewed involvement by the international community, the UN, the signatories of the Paris Peace Agreement and donor countries to bring back hope of free and fair elections,” said Sreang Heng. “Failing this, the fate of the poor in Cambodia will be to continue suffering at the hands of today’s authoritarians.”