The “change through trade” theory no longer holds much weight. It has been utterly debunked when it comes to China and Russia, so much so that even the German government has intimated its abandonment of Wandel durch Handel.
Proponents might find better luck in the developing world. The European Union has made much out of how the EU-Vietnam Free Trade Agreement (FTA) has compelled Hanoi to impose labor-rights reforms, although it stopped short of allowing actual trade unions, and the Vietnamese Communist Party has a long way to go before its promises become reality on the ground.
The alternative could be called “change through lack of trade.” Last week, the US Trade Representative (USTR) was tasked with leading a review of Cambodia’s place in the Generalized System of Preferences (GSP), which provides zero-tariff privileges to certain exports entering the US market from developing countries.
The review will likely consider issues such as labor and human rights, corruption and money-laundering in Cambodia. And it will likely take some time to perform, perhaps a year or two.
It isn’t unusual for the USTR to conduct such an assessment. Indonesia and Thailand, for instance, went through a similar review that lasted from 2018 until 2020.
I believe that about a third of all Cambodian exports to the US in 2020 (by value) fell under the GSP. But Cambodia’s main export goods, garments and footwear, are not included in the GSP, so any alterations to its terms, which could see tariffs reimposed on certain products, won’t impact the majority of Cambodia’s exports to the US, the country’s largest export market.
However, the review does appear somewhat politically motivated. On the same day as it was announced, the US government sanctioned two senior Cambodian military officials and issued a scathing “advisory” notice to US companies active in Cambodia.
All this stems from Cambodia giving the US the cold shoulder as it moved ever closer into Beijing’s orbit after 2017. Washington is petrified that Prime Minister Hun Sen will allow Chinese troops access to a Cambodian naval base.
It also stems from Hun Sen creating for himself a one-party state after 2017, when he forcibly banned the only viable opposition party, the Cambodia National Rescue Party (CNRP), which was accused of plotting a US-backed coup.
I wrote here in Asia Times last week that Washington may sense newfound leverage over Phnom Penh with which it can pressure for change, as the Cambodian government is increasingly reliant on exporting goods to the US, and China’s economic power in Cambodia will likely be diminished in 2022.
We’ve been here before. In February 2019, the European Union began a review of whether to revoke some of Cambodia’s trade privileges under the Everything But Arms (EBA) scheme, similar to America’s GSP. Brussels eventually did partially reinstate some tariffs on Cambodian exports in early 2020.
The EU’s decision was motivated primarily because of deterioration in Cambodia’s human-rights record since 2017 and the government’s forced dissolution of the CNRP the same year.
I argued in The Diplomat in January 2019, amid the height of the EBA row, that the European Union had every right to remove Cambodia from the scheme. And for the same reasons, the US has the right to review Cambodia’s place in its GSP scheme.
The Cambodian government doesn’t have to accept the demands Washington will likely make of the GSP review, which will probably include making demonstrable improvements to endemic corruption, ineffectual control of money-laundering, land-rights issues, labor-rights problems, and wider human-rights concerns.
As the European Commission has argued, “Since February 2020, when the EU’s decision on partial withdrawal was taken, the Cambodian government could at any time have taken the necessary steps to fulfill the conditions allowing the European Union to fully restore EBA preferential access to the EU market.”
Moreover, all trade cooperation comes with demands from the stronger side. When China offers the Cambodian state a loan, it comes with conditions. And, in some instances, the Phnom Penh government has to alter domestic policies to meet these demands; by limiting state expenditure to make sure it has the funds to repay the loan, for instance.
Under the new FTA with China that will come into effect in January, the Cambodian government also had to alter domestic policy on taxation and tariffs.
As such, there’s little difference when it comes to the GSP. It is not Cambodia’s inherent right, after all, to be part of America’s GSP scheme, nor to dictate on what terms it should be given zero-tariff privileges.
The scheme isn’t a trade pact open to negotiation. It should also be remembered that American businesses are losing out because of the zero-tariffs offered to some Cambodian export goods, while it’s American taxpayers who are in essence subsidizing Cambodia’s exporters.
But let’s turn to the question at hand. It has been put to me that because poverty is allegedly the root cause of most human-rights issues, for the US to pursue a policy that knowingly risks increasing unemployment in Cambodia is, in itself, a threat to those Cambodian workers’ human rights.
This requires some unpacking. The literature isn’t compelling one way or the other, but you could begin by contesting the premise that poverty is actually the primary cause of poor human-rights conditions internationally. China doesn’t show that to be the case, neither does the situation for nationals of the Arab Gulf states.
Indeed, there’s scant evidence that human rights are bound to improve as a country grows richer – or, rather, when the population of that country becomes less poor.
One could also make the Darwinian observation that all trade interactions are win-lose. When a Chinese company builds a new factory in Cambodia, it obviously doesn’t build that factory in Bangladesh (a key rival for low-value-added garment manufacturing). That new factory that employs 1,000 Cambodian workers, therefore, isn’t employing 1,000 Bangladeshi workers.
So where is the moral outrage over job losses and failing human rights when it comes to investment or free-trade deals? Why is it only reserved when a country (typically one from the West) seeks to impose economic sanctions on another (typically poorer)?
One way of parsing this issue is to consider: Does the United States’ government have a responsibility to ensure adequate employment for Cambodian workers? That would considerably increase the scope and purpose of the US government beyond what is reasonable.
And if you want to argue that Washington has a duty to maximize job availability in every country of the world, then you ought to be also arguing for the US government to have far more power over every other countries’ national sovereignty. If it is Washington’s duty, then US officials need a seat at Cambodia’s Council of Ministers, and an American delegate needs a post of secretary of state at its Finance Ministry.
But to change the question slightly: On moral grounds, should the US government pursue a policy that will knowingly lead to job losses in a developing country, in this case Cambodia? Ideally not, except if that policy is intended to improve the human-rights situation for all people of that country.
Thailand last year lost some GSP privileges because it failed to allow imports of pork from US producers, an example of how Washington can use GSP reviews for self-interest. (Under Donald Trump’s administration, more focus was paid to how developing countries allow “equitable and reasonable access to its markets,” one of the GSP’s conditions.) But Cambodia’s review will likely focus on rights issues, not US access to Cambodia’s markets.
As such, Washington has decided that “change through lack of trade” might now be the better option for pressuring Phnom Penh for political progress.
Do economic sanctions hurt ordinary people? Yes, clearly they can. Because of the Covid-19 pandemic we are unable to assess fully the impact of the EBA cuts on Cambodia’s workforce. Exports of garments, footwear and travel goods from Cambodia to the EU contracted by 35% in 2020, but grew almost by 4% to the US, according to the World Bank.
Economic sanctions, in the form of removing some GSP privileges, could weaken the economic rights of Cambodian workers, but only indirectly. Washington isn’t stopping the Cambodian government from subsidizing exporters who would face new US tariffs.
Indeed, Phnom Penh promised to subsidize the additional costs exporters would bear because of new EU tariffs after the EBA cuts. (They were given tax breaks in early 2020 but mainly because of the pandemic.) As such, there’s no reason any change to the GSP scheme should automatically lead to job losses among Cambodian workers.
After all, Hun Sen’s government is sovereign and autonomous, as it keeps reminding us daily, so it has the power to limit the impact of the (equally sovereign and autonomous) US government’s decisions.
Moreover, changes to the GSP scheme that lead to job losses for Cambodian workers are not going to affect their political rights (or what low standard of political rights Cambodians have in their country today). Workers laid off because of hypothetical GSP cuts will still have no real alternative to the ruling Cambodian People’s Party at June’s local elections.
Will job losses alter the Phnom Penh government’s repression of free speech? Of course not.
David Hutt is a political journalist based between the Czech Republic and Britain. Between 2014 and 2019, he was based in Cambodia, covering Southeast Asian affairs. He is Southeast Asia columnist for The Diplomat and a regular contributor to Asia Times, including the column Free Thoughts. He reports on European political affairs and Europe-Asian relations. Follow him on Twitter @davidhuttjourno.