The EU tried to push Cambodia on human rights by leveraging its preferential trade program. In partially withdrawing the program, it has entered a new phase of relations with the Hun Sen government.
Earlier this month the EU announced it will suspend a portion of Cambodia’s free trade privileges due to the country’s ongoing human rights violations, costing the country hundreds of millions of dollars. The decision has drawn much attention for its economic impacts and what it means for those working to improve the country’s atrophying human rights situation.
On February 12, the EU announced that it is withdrawing trade preferences given to Cambodia under the Everything But Arms (EBA) program. Cambodian producers of a range of products, including many types of garments, shoes and sugar, will no longer have duty-free access to EU markets.
Instead of swaying the country’s entrenched government, the withdrawal will primarily affect the decisions of foreign investors and corporations that have financed Cambodia’s growing economy. Investors that focus on EU markets will begin to turn elsewhere, while those driven by Chinese interests will continue to move in.
For the sugar industry, this will put strain on the Chinese and Thai corporations that local and international advocates say have committed sweeping land grabs, with the blessings of the Cambodian state. The companies will be forced to shut down or move their operations.
In the garment sector, the EU withdrawal means that brands from the US and Europe must contend with the fact that they are complicit in an exploitative industry, under a government that will do little to protect workers.
As Sam Thoeun, a worker in a Phnom Penh garment factory told the Business and Human Rights Resource Centre, “[The] EBA decision will have a significant impact on workers’ working conditions and livelihoods. In order for factories to maintain production flows in the supply chain, factories will force workers to increase productivity to offset the required paid tariffs. They will do whatever they can to restrict workers in order to meet factories’ demands for productivity.”
EU engagement has become a blunt tool as Hun Sen turns away
Though the EU’s role in Cambodia has continued to grow, the bloc’s political leverage with the Hun Sen regime has dwindled.
Cambodia has enjoyed EBA privileges since the EU launched the program in 2001. Access to European markets has played a major role in Cambodia’s development, as the country’s GDP has grown to over 6 times what it was in 2001.
The EU is Cambodia’s largest trading partner and the decision will reportedly affect almost US$1.1 billion in trade or around one-fifth of Cambodia’s exports to the regional bloc.
The EU says it made the decision, long in the works, “due to the serious and systematic violations of the human rights principles” and the Cambodian state’s failure to address grievances raised both domestically and internationally.
The EU has attempted to engage with the Cambodian government on human rights for years, as the country has nearly eliminated the free press, criminalized journalism and banned its opposition party—barring the party’s leaders from politics and turning Cambodia a one-party state.
“The European Union will not stand and watch as democracy is eroded, human rights curtailed, and free debate silenced,” said European Union foreign policy chief Josep Borrell.
To end the sanctions and reset economic relations with the EU, the Cambodian government must restore the rights of the political opposition and repeal or reform a number of repressive laws, including the Law on Political Parties and the Law on Associations and Non-Governmental Organisations.
Cambodian government denounces foreign influence, says economy can weather sanctions
Pressure from the EU has proved ineffective at changing the course of national politics. The prime minister, who has ruled the country for over 35 years, has condemned the EU’s tactics as foreign interference in Cambodia’s domestic affairs.
As Hun Sen said the day before Brussels made its announcement, “I still reiterate that I do not exchange Cambodia’s independence and sovereignty for any aid and preferences.”
The prime minister has held a similar line throughout engagement with the EU.
“We want to be friends and partners with all countries around the world but if they do not understand us and want to force us, we don’t agree,” Hun Sen added.
The Cambodian government has maintained that its economic policies will help the kingdom ride out the impacts of the loss of EBA status.
Kimlong Chheng, director of the Centre for Governance, Innovation and Democracy at local think-tank Asian Vision Institute, estimated that the total withdrawal of EBA privileges would cost Cambodia between $620-650 million per year.
Emerging industries, high value-added garments and some footwear will still be covered by the same duty-free policy they were under EBA.
The partial withdrawal of EBA privileges means the punitive measure is highly targeted towards individual industries—textiles and sugar—as the withdrawal puts workers at risk of losing their jobs and alters the foreign investment climate.
Major brands will have to assess whether they do business ethically in Cambodia
The textile and footwear industries will bear the brunt of the economic impact, putting the strain on factories and forcing international brands to reevaluate whether it’s possible to conduct business responsibly in Cambodia.
Cambodia’s garment sector employs more people than any other industry—around 800,000 workers in 1,200 or more factories. 85% of textile factory workers are women.
Garment companies from Europe and the US have supported the EU’s attempts to improve Cambodian human and labour rights standards.
A group of clothing and footwear corporations including Adidas, American Apparel and others authored a letter to Hun Sen in January calling for the government to engage with the EU. The companies say they represent a significant share of the country’s garment industry, having exported $9.5 billion worth of goods in 2019.
The Cambodian government rejected the claims in the letter.
Following the EU’s decision, companies that claim they adhere to responsible business practices will have to shift their strategies, possibly by leaving Cambodia. But the European Branded Clothing Alliance and a brand and civil society coalition led by Fair Wear have both issued statements indicating that their member corporations intend to stay in Cambodia.
If these companies are staying, they can no longer rely on the Cambodian state to mandate improvements to working conditions or an open environment for unions. International brands will have to take it upon themselves to make sure their subcontractors pay workers a living wage, improve conditions and allow unions to operate. As factories feel the crunch from the loss of EBA, this will be increasingly difficult for international corporations.
Hun Sen recently announced tax breaks for factories affected by the loss of EBA and those impacted by coronavirus, but the measures will only last six months and they will only apply to factories that meet very specific conditions.
The government’s long-term remedy for the loss of EBA depends on a recurring theme in Cambodia of late: a pivot towards China. By the end of the year, Phnom Penh and Beijing may sign a new free trade agreement that the Cambodian government says will recoup its losses from the EBA withdrawal.
China is facing its longest economic slowdown in 25 years, but this will likely work to Cambodia’s advantage. China’s slump is tied to the rising cost of domestic labour, and Cambodia’s lax labour regulations and low wages are already attracting Chinese investors.
As Chinese companies move in to replace European and American brands in the supply chain, it will diminish Western governments’ opportunities to engage with the Cambodian government.
EU pressure may do more for land rights than it could for democracy
The EU’s decision to target the sugar industry specifically is also notable, as it represents a fairly small portion of what the bloc imports from Cambodia.
Some analysts accused the EBA of creating economic incentives for carrying out exploitative land grabs, which the EU condemns. Foreign investors, chiefly from China and Thailand, have moved in, hoping to take advantage of Cambodia’s EBA status and profit off industries like sugar production.
Foreign corporations acquired over 120,000 hectares of land for sugar production in areas like Koh Kong and Oddar Meanchey. These land concessions, often aided by armed security forces, have pushed thousands of people from their homes without their consent and destroyed their livelihoods. The Thai National Human Rights Commission and others have pushed for the foreign investors to be held accountable.
As the EU has completely revoked EBA status for the sugar industry, the withdrawal greatly reduces the economic incentive for these companies to commit land rights abuses. The EU’s move also lends support to communities in sugar-growing areas attempting to hold the companies accountable.
The withdrawal of EBA signals a new phase of relations with the Hun Sen government: as the EU has failed, neither foreign governments nor corporations can pretend as though engagement will lead to progress on human rights or improved labour conditions. If lobbying and dialogue work, it will be because Cambodians have shifted the domestic political situation.