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Incentivised Democracy

With its average GDP growth of 7.7 percent between 1995-2017, Cambodia was the world’s sixth fastest growing economy. The skyline of its capital city, Phnom Penh, is increasingly dominated by skyscrapers. Its landmarks – the Royal Palace, the Independence Monument, and Tuol Sleng Genocide Museum – attest to the many periods of the country’s turbulent past. Meanwhile, Angkor Wat – 12th century Hindu-Buddhist temple complex – lies hundreds of kilometres north. Every year, more than a million visitors are struck by the grandeur of this UNESCO World Heritage site, which also holds the record for the world’s largest religious structure.

In addition to tourism, exports – particularly textile and footwear – has also played a key role in this economic boom. Much of this occurs with the European Union (EU), which is Cambodia’s second biggest trading partner, with the Southeast Asian nation exporting around €5 billion worth of goods to the single market in 2017. Such trade relationship is unsurprising, considering that since 2001, Cambodia has benefited from the EU’s Everything But Arms (EBA) scheme. According to this, any country defined as Least Developed Countries (LDCs) by the UN Committee for Development is eligible to export goods to the EU with no tariffs nor quota, excluding arms and ammunitions. The scheme is part of EU’s Generalised Scheme of Preference (GSP), the purpose of which is to reduce poverty, promote good governance, and enable sustainable development in low and lower-middle income countries through supporting their exports sector.

However, recent political turmoil – the governing party’s persecution of the opposition, civil society organisations, human rights activists and independent media ahead of general election in July last year – had led the European Commission to start the temporary withdrawal process for the scheme. On October 18 , 2018, EU Trade Commission Cecilia Malmström points out Cambodia’s troubling records on human rights and labour rights: “Our recent EU mission… demonstrated serious and systematic violations of… freedom of expression, labour rights, and freedom of association” as well as “long standing issues as regards workers’ rights and land-grabbing”. Stressing the regional organisation’s role as a normative power, she states that EU trade policy must be led by its values, and, as such, when there is “blatant disregard for those values, the EU must act”. As a result, the Commission initiated the temporary withdrawal process on February 11, 2019 and will in turn take 12 months to reach the final decision.

While this may seem drastic, the announcement should come as no surprise to those with a passing familiarity with the EU, which has integrated human rights promotion into its external trade policy since at least the 1990s. As elaborated in a comprehensive study by Samantha Velluti, the Maastricht Treaty places human rights at the Union’s foundation, while the Treaty of Lisbon directly states that ‘in its relation with the wider world, the Union shall uphold and promote its values and interests’. Additionally, the latter also grants the European Parliament, traditionally a strong rights advocate, more control over international trade agreements. The sum effect of all this is that human rights and labour rights conditionality exist in all of EU trade agreements, from Free Trade Agreements, Association Agreements to all three categories within the GSP.

Two questions are at the heart of this recent move by the EU. Firstly, is the Union justified in temporarily withdrawing the scheme that has for almost two decades helped lift millions of Cambodians out of poverty? Secondly, is the process likely to work as a financial disincentive against the governing party throwing away any facade of upholding a rule-of-law based, pluralistic, democratic system?

To the first question, a cursory survey at the country’s political situation paints a troubling picture. Prior to the general election in July 2018, the Supreme Court dissolved the main opposition party  – Cambodia National Rescue Party (CNRP) – for charges of plotting with foreign powers to overthrow the government. The court, the president of which is a senior member of the ruling party Cambodian People’s Party (CPP), had acted in response to a request made by the government accusing the CNRP of planning a ‘colour revolution’. As a result of the ruling, more than 100 members of the CNRP were banned from politics for 5 years. Many have lived in exile abroad, and the party leader Kem Sokha was charged with treason and could face up to 30 years of prison. The CPP, consequently, ran virtually unopposed, winning all 125 seats in the National Assembly. The vote was dubbed by another exiled opposition leader Sam Rainsy a “victory without a contest”, and received wide-ranging criticism from rights groups, the EU and the US.

It is not difficult to see why the CPP felt threatened by the opposition. In 2013 general election, the CNRP won 44.5 percent of the votes, and 55 seats in the parliament, a clear upward trend as the CPP received its lowest share of seats since 1998. This trend continued in the 2017 communal election, in which the CNRP received 43.8 percent of the vote share.

Prime Minister Hun Sen at UNCTAD World Investment Forum 2018 in Geneva, Switzerland

Like many of its Southeast Asian neighbours, Cambodia’s relationship with democracy ranges from fragile to non-existent. As argued by historian David Chandler, power in Cambodian politics has always been considered a zero sum game. National election has never been a mechanism though which a ruler or a ruling party was deposed. Alien to the country’s history was a concept of a  ‘loyal opposition’.

This authoritarian mindset of some factions within Cambodian politics can be attributed to the numerous violent conflicts the country has suffered through. While King Norodom Sihanouk won Cambodia a relatively peaceful independence from France in 1953, the country under his premiership tolerated the activity of Viet Cong troops within it border and was thus bombed by the United States during the Vietnam War. These bombings, as well as the overthrow of Sihanouk’s non-aligned government by a right-wing, US-supporting faction in 1970, led to the destabilisation that made possible the revolutionary and anti-imperialist sentiments that would later fuelled the rise of the Khmer Rouge.

During the its reign of terror between 1975-79, the Khmer Rouge regime was responsible for the deaths of 1.7 million people, approximately 21 percent of the country’s population. Its two most senior members surviving were found guilty of crimes against humanity and genocide. The current Prime Minister Hun Sen – having been in power for more three decades – was, in fact, a commander within the Khmer Rouge. He had defected to Vietnam before the regime fell and began his political career as a Vietnamese-backed ministerial appointee.

Apart from the deteriorating political situation, the EU’s decision to temporarily withdraw the Everything But Arms (EBA) scheme was also on the basis of land-grabbing. According to a 2013 Human Rights Impact Assessment financially supported by the European Commission, 75 percent of Cambodia’s total arable land mass had been granted to private companies. This process was done through Economic Land Concessions, whereby the state leased land to companies for agricultural development at below market price, often regardless of whether or not it had been occupied. In practice, this often led to forced eviction of the poor, who were at best only meagerly compensated. At worst, they had to work for a company that had just taken their land away, or had their children do so.

At least 700,000 people have been affected, the report states. In particular, the sugar industry, which saw an increase in exports to the EU from $61,000 to almost $13 million between 2007 to 2011, is singled out as one of the worst offenders. As stated in the report, the development of the sugar industry was accompanied by ‘forced evictions, seizure of farmland and commons, destruction of property, crops and protected forests, and the use of violence, intimidation and harassment against local communities’, sometimes carried out with support by the police. The EBA scheme was complicit in this; it gave firms the incentive to establish plantations in cheap beneficiary countries like Cambodia, before then export tariff-free to Europe.

As such, the EU’s decision appears to be justified. Not only did the scheme fail to promote good governance and sustainable development, in certain cases, it worsened the situation. This, in turn, brings us to the second question: Will withdrawing the EBA have the intended effect of bringing the Cambodian government back towards compliance with those norms?

Studies have shown that EU’s human rights conditionality only works in countries over which the union holds substantial material leverage, either through aid dependence or reliance on EU purchase of its export. According to a World Bank report, exports comprise 60.7 percent of the country’s nominal GDP in 2017, with those of textile, footwear, and bicycles cited as the main drivers of growth. The exports sector is projected to expand, subject to the country’s continued participation in the EBA scheme. In addition, the European Commission’s Mid-Term Evaluation on GSP indicates that 37 percent of the country’s global exports goes to the EU in 2016. Cambodia’s utilisation rate – GSP preferential imports as percentage of eligible imports – at 93.4 percent average between 2014-2018 also demonstrates that export firms have benefited from the scheme. These figures suggest that, to an extent, Cambodia’s economy relies on exports to the EU.

Still, concerns have been raised over the impact of the withdrawal on workers. Currently, there are approximately 700,000 workers in the garment factories – 85 percent consisting of women – and their economic livelihood could be at risk as the sector might face up to 12 percent tariff on EU exports. This decrease in competitive advantage could cause investors to look to other emerging markets to set up production, such as Vietnam where productivity is higher, or Bangladesh where wage is lower.

The EU knows that if it withdrew the EBA scheme, these economic hardships would occur. It hopes that these hardships would create pressure – either from the public or other factions within the ruling party – on the government to change course. While the former is possible, the public may instead blame the decreased living standards on the exiled opposition. Prime Minister Hun Sen’s invocation of national sovereignty against what he portrays as foreign interference could have an unpredictable effect in a country where authoritarianism, and not pluralist democracy, is already historically the norm. As for other factions within the CPP, it depends on whether the cost of loss in business outweighs the benefits of staying in the prime minister’s good grace.

It was likely that Hun Sen willingly sacrificed preferential trade status with the EU for a chance to eliminate his political opponents, especially since sooner or later the country will graduate out of the Least Developed Country status and consequently lose access to the EBA scheme. An incentive with an expiry date becomes less effective.

French Colonial buildings in Phnom Penh such as these will soon be replaced by modern high-rises.

Then there is the geopolitical elephant in the room: China. In recent years, the ties between Beijing and Hun Sen’s CPP have deepened. The Chinese ambassador appeared at the party’s election rally ahead of the general election. Unlike Western aid and trade schemes, China’s $600 million assistance and $2 billion funding of expressway do not come attached with good governance provisions nor human rights conditionality. The aforementioned expressway will link Sihanoukville and Phnom Penh; the former is turning into Macau of Southeast Asia, with locals equally excited and concerned by increased employment opportunity and costs of living, while the latter is experiencing a property boom thanks to the capital inflow of Chinese private investments. Although not without risks, the closeness between China and the CPP currently presents a win-win situation. China maintains a strategic ally at the heart of economically dynamic Southeast Asia, and the CPP sustains its authoritarian grip on power as it moves the country up the global value chain. Unless either the EU or Hun Sen backs down, the result of the EBA withdrawal could be a Cambodia that pivots ever closer to China, and further away from democracy.

Although Cambodia no longer relies on Europe as much as it did in the past, the Union’s status as the world’s largest trading bloc means that it still wields significant economic leverage over the Southeast Asian country. While it is right that the EU remains firm in its values and consistent in penalising non-compliance, it has to tread carefully; otherwise, it risks harming those it aims to help. If it were to withdraw the EBA, it would have to make sure that the decision made would not impact projects and partnerships that have helped rebuild the country after three decades of civil war. Only through the efforts of Cambodians, with EU and international support, can the country’s long-term democratic and human rights norms be ensured.


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