“I believe history is repeating itself in the case of the EU’s withdrawal of the EBA (the EU’s Everything-But- Arms trade status) at a time when Cambodia struggles to survive amid the COVID-19 pandemic,” Cambodian PM Hun Sen said in his speech during the 75th Session of the United Nations General Assembly held via video conference.

He said the EU’s decision to withdraw part of the tariff preferences granted to Cambodia under the EBA trade scheme reminds him of a historical “déjà vu” and he compared it to what was done to Cambodians by a majority of UN member states which had supported Khmer Rouge figures after the regime’s fall.

“After the fall of Pol Pots regime, it was Cambodian survivors who were punished by a majority of UN member states since they allowed the Khmer Rouge executioners to occupy the Cambodian seat in the UN,” he added.

Why Cambodian PM is criticising the EU?

In February, the European Commission decided to withdraw part of the tariff preferences granted to Cambodia under the EBA trade scheme due to “the serious and systematic violations of the human rights principles enshrined in the International Covenant on Civil and Political Rights.” Cambodia has been a major beneficiary of the EU’s ‘Everything But Arms’ (EBA) tariff-reducing trade preference system for developing nations in recent years.

The EU is (was) Cambodia’s largest trading partner, accounting for 45% of Cambodian exports in 2018. Exports to the EU from Cambodia reached €5.4 billion in 2018, more than double the €2.5 billion recorded in 2013. 95.7% of these exports entered the EU market under EBA tariff preferences (i.e. €5.2 billion out of the €5.4 billion in total).

Is the Cambodia-China FTA able to fill the gap left by EU sanctions?

After EBA withdrawal, China presented itself as as a trade partner to replace the EU. Cambodia signed with Beijing a Free Trade Agreement expected to take effect by the end of the year. But now the question is whether Cambodia can fill the gap left by EU sanctions with China FTA. Cambodia has historically been close to China. While the EU sanctions have doubtless only strengthened their bond, the bloc’s preferential tariff framework helped bring them so close in the first place, as Asia Nikkei Review pointed out.

Cambodia will be able to continue exports to Europe even without the EBA. But apparel, for example, would be subject to a 12% tariff, which the World Bank estimates would push down exports by between 8.7% and 10.4% if fully passed on to EU consumers – the equivalent of $300 million to $360 million based on 2019 figures. The impact would be even greater when accounting for other products.

On the other hand, the Cambodian government expects a 25% boost in exports to China under a bilateral free trade agreement. Since the 2019 total came to $1 billion, the boost would come to about $250 million — not quite enough to fill the shortfall.

If human rights conditions in Cambodia do not improve, the EU could impose further penalties. The country has begun trade negotiations with India and South Korea as well, likely because it realises that a bilateral deal with China alone will not plug the hole. It could also push for tariff relief from the U.K., which has technically left the EU but will abide by EU trade agreements through this year.

Is Europe loosing Cambodia favouring China?

But now Europe risks to see the bond between the two Asian countries strengthened in the very exact moment while Europe has toughened its stance on China.  France has decided to shut out equipment made by China’s Huawei Technologies from its 5G networks, while the Czech Senate’s speaker has visited Taiwan despite their governments having no official diplomatic ties. Germany has changed its pro-Beijing stance, adopting a new strategy on the Indo-Pacific that calls for greater cooperation with countries that share its democratic values. And Italy is pressured by US Secretary of State Mike Pompeo to join his 5G Clean Network initiative, entailing a group of countries banning Chinese equipment from their telecoms. It would be a real paradox that the EU sanctions would push Cambodia closer to China, the European and USA main competitor, in this historical moment.