In the wake of the dissolution of the Cambodia National Rescue Party last week by the Supreme Court, which effectively removes any viable opposition party from challenging next year’s national elections, the European Union issued a statement seemingly warning that the Kingdom’s preferential access through the Everything But Arms scheme could now be in jeopardy.

In a statement released on Friday, the EU said that concerns over continued violations of human rights and the lack of a free and fair election could hamper Cambodia’s inclusion in the Everything But Arms (EBA) scheme. Under the EBA, least-developed countries such as Cambodia export all goods – except for weapons – duty-free to the European market.

“A situation in which all parties, including the CNRP, their leaders and their supporters are able to carry out freely their legitimate functions, must be swiftly restored,” the statement said. “Respect of fundamental human rights is a prerequisite for Cambodia to continue to benefit from the EU’s preferential Everything But Arms scheme.”

While calls for punitive sanctions on Cambodia have increased over the last few months, as anti-US rhetoric has reached a fever pitch and the ruling Cambodian People’s Party has waged a political crackdown, Miguel Chanco,

lead Asean analyst for the Economist Intelligence Unit, said this was the strongest statement the EU has yet to make. “I certainly think [this statement] carries more weight compared with the EU’s recent rhetoric as I can’t remember the last time the bloc has mentioned the EBA scheme in the context of the deteriorating political situation in Cambodia,” he said.

However, he doubted the sincerity or willingness of EU to follow through with its “veiled threat”. “I suspect that it won’t, as it will probably wait until the conclusion of next year’s election to take such drastic action,” he said.

Nevertheless, he said that if the EBA scheme was cancelled, the Kingdom’s massive garment sector, already under pressure from rapidly rising labour costs, would be hit the hardest.

“Garment exports won’t disappear overnight if Cambodia loses its eligibility to EBA, but it would likely mark an end to the strong growth of exports to the EU in recent years,” he said. “It would be extremely difficult to replace demand from the EU, as it is Cambodia’s single-largest market for garment exports.”

While Chan Sophal, director of the Centre for Policy Studies, also believed that it was unlikely that the EU would take such a drastic step, he said that the Cambodian economy could cope regardless. However, he stressed the importance of the EBA scheme in developing the economy thus far.

“EBA has been very important to the Cambodian economy in terms of trade and investment, as it waives the tariff on exports from Cambodia and it compensates for the cost disadvantage in production and logistics,” he said.

“Without EBA, it would mean buyers in Europe will have to pay 17 percent more, on average, on products from Cambodia. I guess some would have to find alternative sources elsewhere, but [Cambodia] may be still able to cope.”

David Van, executive director of Deewee Management, said that both the EBA scheme as well as the EU’s Generalised Scheme of Preferences (GSP) have practically “subsidised” Cambodia’s economic growth for the last few decades and that its loss would be cataclysmic.

“EBA loss would negatively impact our fragile economy, leading to a possible exodus of FDI [foreign direct investment] with foreign-owned factories pulling out, triggering likely high unemployment rates . . . in the few months ahead of crucial 2018 legislative elections,” he wrote in an email.

He added that there were few markets that could help keep Cambodian trade afloat.

“China as a strategic friend may step in to help alleviate some burden, but would surely not be able to provide a complete substitution to the markets lost on EU bound destinations,” he said.

Noting that the EU had previously placed punitive sanctions on Sri Lanka which nixed their EBA status, he said that it was purely speculation at this point as to whether the EU would follow through on its threat to Cambodia.

“This is purely a political matter and only a political solution could be worked out for a likely alternative [to stop] any eventual and theoretical sanctions,” he said.

Hing Thoraxy, senior researcher at the Royal Academy of Cambodia and a member of the government, said that while it was the EU’s obligation to express concern over the political climate in Cambodia, any decision to cancel EBA would involve numerous lengthy negotiations.

“There are countries that are in a far worse condition than us and they still don’t have EBA revoked,” he said. “So we are not facing any threats.”

Ear Sophal, associate professor of diplomacy and world affairs at Occidental College in Los Angeles, said that a loss of the EBA puts nearly $4 billion worth of exports at risk.

“This is definitely a warning shot, but I think Phnom Penh will continue to ignore this, believing it is just a bluff and more huffing and puffing,” he said. “The only way to make this credible is to actually carry through the threat and turn it into a credible threat. Anything less is not credible.”

“EU, the ball is in your court, are you just going to talk or actually do something?”