Bloc launches process that could lead to end of favourable deal over Phnom Penh’s record on human rights and democracy.

Phnom Penh, Cambodia – The European Union has warned Cambodia that the “clock is ticking” after it officially launched the process of suspending the country’s valuable trade privileges over rights concerns, paving the way for a move that analysts warn would be “catastrophic” to its economy.

The so-called Everything But Arms (EBA) trade scheme allows Cambodia to export products other than weapons to the EU at reduced tariff rates.

Revoking the favourable deal would cost Cambodia’s economy $676m, according to the Southeast Asian country’s minister of commerce. It would also result in expected mass layoffs in the key garment industry, which employs 800,000 people and has historically been prone to protests.

“It should be clear that today’s move is neither a final decision nor the end of the process. But the clock is now officially ticking and we need to see real action soon,” EU Commissioner for Trade Cecilia Malmstrom said in a statement announcing the decision on Monday.

The EBA, access to which has various human rights and democratic prerequisites, has been under threat since the country’s main opposition party – the Cambodia National Rescue Party (CNRP) – was dissolved and its president arrested for treason ahead of last year’s elections.

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The July 2018 polls saw Prime Minister Hun Sen’s Cambodian People’s Party (CPP) win in a landslide an essentially unopposed vote, extending its decades-long grip on power.

“If you want the opposition dead, just cut it,” Hun Sen threatened last month during a speech commemorating his 34th year in power, lashing out at the EU over the prospect of the highly preferential scheme being revoked. The following day, an outspoken CNRP member who supports sanctions was arrested.

On Tuesday, government spokesman Phay Siphan took a softer approach. “We consider the EU not our enemy, just a partner, and we try our best to explain to them and maintain cooperation,” he told Al Jazeera.

Phay Siphan argued, however, that Cambodia was being treated “unfairly”, accusing the EU of not recognising the country’s progress in sustaining peace and development after emerging from years of conflict and the genocidal Khmer Rouge.

Effect of sanctions

Sophal Ear, a Cambodian-US associate professor of diplomacy and world affairs at Occidental College, said losing EBA would be “utterly catastrophic, but maybe that’s exactly what Phnom Penh needs: a wake-up call”.

“Nobody wants the pain of EBA being revoked, but frankly, if you’re going to threaten to kill the opposition, you’ve come right out of central casting as a villain,” Sophal Ear said.

Many CPP critics welcome sanctions as a vehicle to force the government to make democratic concessions or instigate protests against it. Others fear they may push the country further into China’s orbit and negatively affect some of the most vulnerable parts of Cambodia’s population.

“If the EU were to decide to suspend the EBA at the end of this process, this would certainly derail relations between Cambodia and the EU permanently,” Astrid Noren-Nilsson, a political scientist, warned.

“It is important to note that we are not there yet,” she added, urging continued dialogue and negotiations. “To have positive results, the only way forward is to engage all formal and informal channels to advance dialogue with the Cambodian government.”

‘People held hostage’

While negotiations are ongoing, Cambodia refuses to consider reinstating the CNRP – one of the EU’s demands.

“We cannot do anything,” said Phay Siphan, noting that the decision to dissolve the main opposition party, which almost won the country’s previous elections in 2013, was taken by the Supreme Court.

However, Cambodia consistently ranks among the worst countries in terms of judicial independence, and the courts are widely seen as a tool of Hun Sen’s government.

The withdrawal process will last 12 months according to the EU statement, including six months of “intensive monitoring and engagement with the Cambodian authorities”.

Sophal Ear said whether or not the EBA is revoked, the economy is already feeling the heat as garment buyers reduce orders and investments drop.

“[T]he people are being held hostage, so what can you do?” he said.

“Look, nobody ‘owes’ Phnom Penh preferential trade. What Phnom Penh owes the Cambodian people is some modicum of respect for human rights and democracy.”