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19 Feb 2020

Ben Rutledge, Powell Research Fellow at Harvard Kennedy School

A Diplomatic Tightrope on Trade

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19 February 2020

The European Commission announced last week that it was taking the unusual step of suspending a set of tariff privileges granted to Cambodia due to serious and systematic rights violations in the country. 

Citing repressive actions against the main opposition party and unresolved legal cases against trade unionists, the Commission said the scale and impact of the abuses left it with no other choice. 

The decision looks to set a new precedent for how the EU plans to engage with authoritarian and abusive regimes. Beneficiaries of Europe’s Everything But Arms Trade Scheme include a number of countries with atrocious human rights records, including Myanmar, where the Government is currently being investigated for genocide. 

The Commission appears to be making a calculated bet that this decision will prompt the Cambodian and other beneficiary governments to engage more seriously on human rights issues going forward. 

The stakes are high. The EU is determined to retain access to (and leverage over) ASEAN governments, who are increasingly being pulled towards the orbit of Chinese influence and money. 

Many thousands of mostly impoverished female factory workers stand to lose their jobs. The EU is Cambodia's largest trading partner. This withdrawal amounts to around €1 billion worth of exports, and targets dozens of specific products that will be subject to new trade tariffs.

European brands importing from Cambodia and local trade unions both urged the EU not to cut trade privileges due to the potential damage to an already fragile economy. The damage could have been far worse; only 20% of exports have been targeted.  

Nonetheless, the Commission’s messaging is assertive and uncompromising. The European Union will not stand and watch as democracy is eroded, human rights curtailed, and free debate silenced. Respect for human rights is non-negotiable for us. The lofty rhetoric does not appear to line up with the decision this week to strike a new trade agreement with Cambodia’s neighbour, Vietnam, which remains a one-party State that does not allow free media. 

The difference is in large part about engagement. Citing Pakistan as an example, Commission officials recently noted that in other beneficiary States where human rights issues remain problematic, they do at least have government officials willing and able to engage. In Cambodia, concerns have not been taken seriously. Prime Minister Hun Sen, who has been in power since 1985, publicly rebuked the EU over its interference and threats to impose trade tariffs. 

The EU is treading a fine line, displaying both its carrot and stick. Do nothing, and the terms of trade agreements look effectively meaningless if they’re breached without repercussion. Cut trade relations, and Europe’s ability to influence and support emerging markets such as Cambodia will rapidly diminish. 

It is near impossible for Europe to act in a consistent manner in terms of how it treats partner governments. How does one compare Cambodia and Pakistan, Myanmar and the Congo, and what type of human rights abuses constitute cause to cut trade relations? These questions will remain as the Commission prepares to review Myanmar’s trade privileges next.

Who stands to lose?

The difficulty is further exacerbated by the fact that rulers of kleptocratic regimes like Cambodia are rarely the ones who suffer when trade barriers go up. It is typically the workers at the bottom end of the supply chain who feel the impact.

Through this decision, the EU is sending a strong message to repressive regimes that it is serious about human rights. It is also trying to limit the damage on the ground.  

The Commission will be criticised by local and international businesses who claim jobs are being lost. Such criticism would be misplaced. The burden of guilt here must rest with abusive and corrupt Cambodian government officials. Whilst the Commission’s concerns focused largely on political issues, exploitative factory owners and western brands also bear responsibility. 

The business models of big western brands sourcing from Cambodia are still predicated on cheap, expendable labour. They source where costs are lowest, regardless of Governments’ ability to protect the basic rights of workers. A rise in the costs of certain products due to new tariffs will likely result in a shift in sourcing patterns away from Cambodia. 

The European Commission has taken on the daunting task of trying to facilitate sustainable development in authoritarian states through its trade schemes. The Everything But Arms scheme targets some of the most unstable countries and vulnerable populations. Whilst experts suggest inserting human rights clauses into trade agreements has very little, if any, positive impacts, the EU is right to demand that partner governments do not lock up political opponents or have critics killed. There must be consequences when such abuses occur. 

Using trade schemes as a tool in this way will not secure the protection of human rights in Cambodia. It may however generate more time and space for the political opposition and for Cambodian society to push for a stronger foundation for human rights. It will also stimulate backlash from Cambodian companies and investors who lose access to European markets. This too will generate further pressure on Hun Sen’s regime. 

We must now hope that the Cambodian Government and the private sector recognises the importance of maintaining Europe as a trading partner and political ally. Beijing stands ready to step into the breach should Cambodia decide to turn away. 

Ben Rutledge is a Powell Research Fellow with the Corporate Responsibility Initiative at Harvard Kennedy School.

The views expressed here are the author’s alone and do not reflect the position of Harvard Kennedy School.