Will EU’s Sanctions Mean a Closer Embrace for China and Cambodia?
Photo Credit: Human Rights Watch
By Alvin Cheng-Hin Lim

Will EU’s Sanctions Mean a Closer Embrace for China and Cambodia?

Oct. 22, 2018  |     |  0 comments

On October 5, 2018, the European Commissioner for Trade, Cecilia Malmström, warned Cambodia that the EU has started the process to withdraw its trade benefits under the “Everything But Arms arrangement, or EBA, which guarantees completely tariff-free access to the European market for all exports except for weapons and ammunition.” This is in view of the deteriorating human rights situation in the country, including “serious and systemic violations of … freedom of expression, labor rights and freedom of association. This comes on top of longstanding issues as regards workers’ rights and land-grabbing.” In particular, Commissioner Malmström highlighted Cambodia’s 2018 general elections as being “marked by harassment and intimidation, as well as severe restrictions when it comes to essential political rights.”

Should Cambodia’s EBA trade benefits be withdrawn, the “export cost to the EU would rise by approximately 10 to 15%.” The projected consequence of this would be that, instead of Cambodia, “products will be ordered from other markets, such as Bangladesh, the Ukraine or even Turkey.” In addition, “third parties such as international and local logistic companies, food catering businesses and the Sihanoukville port operator will suffer from a reduced or diminished garment sector.” Not surprisingly, one of Cambodian Prime Minister Hun Sen’s top priorities when he attended the recent Asia-Europe Meeting (ASEM) Summit in Brussels was to “persuade European leaders to forgo” these “threatened sanctions.” However, the Prime Minister’s meetings with the European leaders failed to assuage their concerns, especially about “the dissolution of the opposition and the narrowed democratic space for political opposition and civil society” in Cambodia.

But even as the EU prepares to penalize Cambodia for its dramatic turn towards authoritarianism, China has sent a strong signal that it will stand by its friend in Southeast Asia. China has historically been a strong supporter of Hun Sen’s government, and Chinese aid has helped sustain Cambodia through previous periods of Western sanctions. In return, Cambodia has supported China in key multilateral organizations such as ASEAN (Association of Southeast Asian Nations) on issues such as the South China Sea dispute (Lim, 2018a, pp. 126-127). As the South China Sea dispute remains a significant factor in China’s foreign relations, Cambodia remains an important partner for China to continue cooperating with.

At a recent meeting of the United Nations Human Rights Council, China supported Cambodia against criticisms from the UN Special Rapporteur for Human Rights, Rhona Smith, on Cambodia’s repression of civil society and the political opposition. While the EU representative argued that “the July election was not representative of the will of the Cambodian people and not legitimate,” and warned that the EU “would act against Cambodia if the rights situation was not improved,” the Chinese representative stated that China “welcomed the smooth election in Cambodia,” and appealed “to the international community to follow the will of the Cambodian people.”

More recently, Chinese Premier Li Keqiang met Cambodian Prime Minister Hun Sen on the sidelines of the ASEM Summit in Brussels, and both leaders agreed to expand the practical cooperation between their countries. Premier Li affirmed that: “China will continue to support Cambodia's efforts to maintain stability, develop its economy and improve people’s livelihood,” and stated that “China is ready to expand its import of Cambodia’s competitive agricultural products, and encourage competent Chinese companies to invest in Cambodia.” Prime Minister Hun Sen responded that Cambodia “is also willing to expand practical cooperation with China in economy, trade and agriculture,” and invited Chinese companies “to make investments in Cambodia.” Referring to their countries’ respective development plans — that is, China’s Belt and Road Initiative and Cambodia’s Rectangular Strategy — Premier Li highlighted the “need to enhance synergy of their development strategies and expand bilateral trade … to increase benefits for people of both countries.”

The coming EBA crisis could hence be an important opportunity for Cambodia to draw on Chinese investment to end its dependency on the garment sector and upgrade its industries up the global value chain.

Indeed, such expansion of Sino-Cambodian practical cooperation is already underway. As Cambodian Deputy Prime Minister Hor Namhong noted at September’s Boao Forum for Asia in Phnom Penh, “China is now investing in virtually every sector of economic activity” in Cambodia, “including banking and finance, construction, telecommunication, garment and textiles, agriculture, infrastructure, hydropower plants and special economic zones.” In terms of trade, “bilateral trade between Cambodia and China is growing steadily … Last year, $5.8 billion worth of goods were exchanged, and by 2020 the figure is expected to reach $6 billion.” The Deputy Prime Minister also observed that China has proven itself to be “Cambodia’s close and most reliable friend.” In particular, “grant aid, non-interest and low-interest loans, and the huge amount of investment from China have played an important role in Cambodia’s socio-economic development,” and “assistance and investment from China had greatly helped sustain Cambodia’s economic growth of 7.6 percent per annum in the last two decades.”

In an important way, the EU’s looming withdrawal of trade benefits from Cambodia serves as a timely trigger for Cambodia to diversify its economy away from its current dependence on the garment sector. This is because the global garment industry is on the cusp of technologically-induced structural change. The maturing of sewbot technology is anticipated to lead Western garment firms to establish automated garment factories in their home countries in the coming decade, leading to massive job losses in the currently-thriving garment sectors of the developing world. While there will continue to be demand for clothes in Asian markets, these will likely be supplied from countries where the cost of production is cheaper than in Cambodia.

Even before the EU’s threat to withdraw Cambodia’s EBA trade benefits, the rising labor costs in Cambodia’s garment sector had already “prompted manufacturers to consider moving their factories to countries with cheaper labor costs, such as Bangladesh or Vietnam. Indeed, almost 70 garment factories ended their operations in Cambodia in the first 9 months of 2016, as compared with just 35 in all of 2015 … In the longer term, African countries like Ethiopia — whose garment workers have a starting wage of just 21 USD per month — could attract cost-conscious manufacturers to remove their garment factories from Asia entirely” (Lim, 2018a, p. 127). The coming EBA crisis could hence be an important opportunity for Cambodia to draw on Chinese investment to end its dependency on the garment sector and upgrade its industries up the global value chain.


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