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A fray in US economic ties?

Garment factory workers are seen at the Kin Tai garment factory in the Chak Angre commune of Phnom Penh in May 2015.
Garment factory workers are seen at the Kin Tai garment factory in the Chak Angre commune of Phnom Penh in May 2015. Kimberly McCosker/AFP

A fray in US economic ties?

The deteriorating political climate in Cambodia and ramped up government rhetoric against the United States could end up jeopardising the Kingdom’s economic relations with the US, its largest single trading partner, analysts have warned.

Relations with the United States have been strained by what the US State Department has described as “troubling recent steps”, including the arrest of opposition leader Kem Sokha early on Sunday morning on charges of treason for allegedly colluding with the US to overthrow the Cambodian government.

The charges against Sokha, widely regarded as politically motivated, appear to be part of what rights groups have claimed is a government crackdown on its critics ahead of next year’s national election. In recent weeks the government has taken radio stations that broadcast US-funded programming off the air, pressured an American-owned newspaper to close and shuttered the offices of a Washington-based pro-democracy NGO.

The escalating clampdown is fraying the already tenuous level of business confidence in the Kingdom, say analysts, who warn that the damage could end up spilling over into trade and investment.

The United States is the world’s largest consumer market and Cambodia’s biggest single trade partner. Cambodian exports to the US topped $2.8 billion last year, largely driven by sales of garment and footwear products. US investors, meanwhile, pumped more than $122 million into approved investment projects in Cambodia last year, according to government data.

While American FDI was expected to slow on uncertainty ahead of Cambodia’s 2018 elections, Michael Michalak, regional managing director of the US-Asean Business Council, said the business community has been “puzzled” by Cambodia’s rapid political deterioration and the rise of anti-American sentiment.

“It is disturbing to have the Cambodian government act like this and paint broad negative strokes against the US when it supported the outcome of the commune elections as being free and fair,” he said.

Michalak said the situation could prompt US businesses with interests in Cambodia to hold off on additional investment.

“We don’t know yet what the ramifications will be as businesses will take a wait and see approach,” he said.

“And while that approach happens around every election in Cambodia, it appears to be triggered earlier rather than later.”

While he said it was too soon to predict whether this would result in US garment buyers securing orders from other countries, it was a possibility.

“There are always advocates [in Washington] that will see any clampdown on human rights and free press as a sharp negative,” he said. “And they have the lobbying power in the US to make businesses pay attention.”

There are historical precedents of advocacy groups in the US using their influence to slow Cambodian garment orders during fraught political situations, according to Ear Sophal, an associate professor of diplomacy and world affairs at Occidental College in Los Angeles.

He noted, for instance, that in 2006 when Kem Sokha – then president of the Cambodian Centre for Human Rights (CCHR) – was arrested on charges of defamation for criticising Hun Sen, the US-based advocacy group Business for Social Responsibility (BSR) put “billions of dollars” at stake by pressuring buyers to cancel orders from Cambodia.

“If BSR considers this [current situation] to be unacceptable, it will advise garment buyers to slowdown their buying and/or even stop,” he said.

Sophal said recent events have increased Cambodia’s country risk for US companies, and any American firm that undertakes good corporate governance would be rightfully concerned.

“Phnom Penh is playing a high-stakes brinkmanship that will lead to more than paper cuts,” he said. “No one in Phnom Penh seems to realise that it is Cambodia that has more to lose from a bad relationship with the United States.”

“China is not buying Cambodia’s garments,” he added. “It’s the US that buys garments.”

Miguel Chanco, lead Asean analyst for the Economist Intelligence Unit, said if the political climate continues to deteriorate – and particularly if it results in the West imposing punitive economic sanctions – foreign companies operating in or sourcing out of Cambodia will face greater reputational risks.

“In this scenario, businesses would not only have to wait for the next election cycle to conclude, they would also have to wait until economic relations with the West normalise,” he said.

However, Chanco said it was unlikely that Washington would impose economic sanctions on Cambodia as its is trying to pry the country out of China’s political orbit.

“Cambodia certainly can’t afford to completely alienate the US in view of its importance as an export market,” he said.

“[But it] is also in a fortunate position wherein the US will try to stay engaged as much as possible to counter China’s rising influence.”

Paul Chambers, a political science professor at Thailand’s Naresuan University, said that while the Cambodian government was likely ratcheting up the anti-American rhetoric to show China that it was willing to defy Washington, economic dependence on China comes at a cost.

“The risks of putting too much faith in China and drawing into a China orbit is that Cambodia risks becoming an even greater economic dependency of China,” he said.

“The best future for Cambodia is to balance the sources of economic aid, trade and investment so as not to become dependent on any one country.”

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