YANGON/HANOI -- The European Union's move to end trade preferences for Cambodia and Myanmar over human rights issues has spurred both countries to take drastic action. But while Cambodia has responded by easing political restrictions, Myanmar has turned to economic reforms to blunt the impact.
Last October, the European Commission said it was ready to terminate an arrangement granting both countries tariff-free access to the EU. "Our EU trade policy must be led by our values," wrote Cecilia Malmstrom, the body's trade commissioner. "Accordingly, when we are faced with blatant disregard for those values, the EU must act."
In December, both chambers of Cambodia's parliament passed a law creating a pathway for members of the Cambodia National Rescue Party to return to politics. The country's Supreme Court had effectively disbanded the CNRP in 2017, after Prime Minister Hun Sen's government accused the leading opposition party of plotting to take power with the help of the U.S.
The ruling paved the way for Sen's ruling Cambodian People's Party to run virtually uncontested in July's general election, with the CPP winning all seats in the controversial vote.
But for former CNRP members to return to politics, they need to file petitions subject to the approval of Sen's government. It remains an open question whether CNRP leader Kem Sokha, who remains under house arrest, will be allowed to be politically rehabilitated.
On the other hand, Myanmar finds itself unable to respond effectively to comply with the EU's wishes. Myanmar planned to repatriate 700,000 Rohingya refugees now in Bangladesh starting in November as a way to show the international community its commitment to human rights. This has yet to occur, as the refugees refuse to return out of fear of additional persecution.
Furthermore, Myanmar still does not count the Rohingya as one of its 135 officially recognized indigenous ethnic groups -- a situation that provides no guarantee of safety after resettlement for members of the Muslim minority group in the majority Buddhist country.
To offset the impact of the EU sanctions, Myanmar is instead easing restrictions to lure foreign investment. The Ministry of Planning and Finance announced on Jan. 2 a plan to significantly open up the insurance market to foreign capital. In November, Myanmar's central bank said foreign-owned banks can provide lending and other financial services to local businesses.
Around that time, Myanmar formed the new Ministry of Investment and Foreign Economic Relations, an interagency body tasked with drawing foreign investment. Heading the ministry is U Thaung Tun, who simultaneously chairs the Myanmar Investment Commission, a panel that reviews major private-sector investments. He is also a close aide to State Counselor Aung San Suu Kyi, Myanmar's de facto leader.
Cambodia and Myanmar operate under the EU's so-called Everything But Arms scheme, which allows the two developing nations to export all goods except weapons and ammunition to the common market duty-free. But in October, the EU notified Cambodia that it had launched proceedings to withdraw from that arrangement, with a final decision expected around a year later.
Meanwhile, the European Commission has sent a high-level mission to Myanmar to access the situation on the ground, and its conclusions could result in a similar notice being sent to that country.
The EU is a key market for apparel -- a staple export for both Cambodia and Myanmar. Apparel generates nearly 20% of Cambodia's gross domestic product, and accounts for about 70% of exports. Myanmar exported 1.5 billion euros ($1.7 billion) worth of goods to the EU in 2017, about nine times 2011's sum. Sewn products make up 80% of the exports.
The removal of the cushy trade status by the EU would send shock waves to both countries' economies. Myanmar's sewing industry is propped up by foreign investment, but new investments have plummeted as of late. The government approved $3.3 billion worth of foreign direct investment during the 12 months through November, according to official figures, down 60% from the year-earlier period.
Last month, the EU added seven Myanmar military officials to its sanctions list, further undermining Myanmar's image as a potential destination for investing. Even overlooking their spotted human rights records, Myanmar and Cambodia are losing their appeal as manufacturing centers. Both have hiked the minimum wage significantly, leading to rising production costs.