US lifts curb on Cambodia, Laos trade

Thursday, July 2, 2009

US lifts curb on Cambodia, Laos trade
By Brian McCartan

BANGKOK - The removal of Cambodia and Laos from a United States blacklist that limits government support for US companies doing business with the two countries represents the latest strategic move by Washington to counterbalance China's rising influence in mainland Southeast Asia. The new designation will open the way for more American investment in two of Southeast Asia's poorest nations, both US adversaries during the Cold War era.

President Barack Obama has determined that Cambodia and Laos have both shown commitment to open markets, including through more liberal investment laws and fewer market controls, and should no longer be considered "Marxist-Leninist" countries

as defined by the 1945 Export-Import Bank Act, the White House announced on June 12.

With the trade restrictions removed, American companies can apply for financing through the Export-Import Bank of the United States for working capital guarantees, export credit insurance and loan guarantees to conduct business in Cambodia and Laos. Only six countries now remain on the US trade blacklist: Cuba, Iran, Myanmar, North Korea, Sudan and Syria.

With a combined population of 20 million, Cambodia and Laos do not represent an especially large or high purchasing power market for US companies. US exports to Cambodia in 2008 totaled US$154 million while those to Laos were a mere $18 million. Cambodia's exports to the US, which mostly consist of clothing and textiles, last year totaled around $2.4 billion while US-bound shipments from Laos were just $42 million. US trade with Thailand stood at $30 billion last year, and with Vietnam $15 billion.

Obama's decision was highly criticized by US-based ethnic Hmong groups, comprised of people who fled Laos after the 1975 communist takeover and claim their relatives continue to be persecuted by the authoritarian regime. Several thousand Hmong remain in a refugee camp in northern Thailand with another 158 Hmong recognized by the United Nations as refugees with real concerns for their safety if repatriated to Laos held in an immigration detention center in northeastern Thailand.

US-based Hmong activists have said that the Obama administration should first secure guarantees from the Laos government for the safety of the Hmong and investigate claims of human-rights abuses before agreeing to improved diplomatic and economic ties. The Hmong and their former Central Intelligence Agency and military allies during the Vietnam War have said the Hmong deserve better from a country they honorably served.

The US State Department's information site on Cambodia says, "In the past three years, bilateral relations between the US and Cambodia have deepened and broadened." That hasn't always been the case. When the Khmer Rouge deposed a US-propped regime in 1975, the American Embassy was evacuated and a mission was not reestablished in the country until 1991. A US embargo on trade with Cambodia ended with the normalization of economic relations in 1992 and full diplomatic relations were recommenced the following year.

A Congressional ban on direct assistance to the Cambodian government was imposed in 1997 following violent factional infighting between current Prime Minister Hun Sen and then co-prime minister Norodom Ranariddh. Further complicating US-Cambodian relations was a grenade attack that same year on a rally for opposition politician Sam Rainsy, where a US citizen was injured. A US Federal Bureau of Investigation probe that followed linked the attackers to government politicians and Hun Sen's special bodyguard unit. The congressional ban was only lifted 10 years later in 2007 and allowed for direct technical assistance.

The US sent over $57 million to Cambodia last year, scattered across programs in health, education, governance and economic development. The US State Department's website also lists as programs it supports as the fight against terrorism, reduction in HIV/AIDS, improving democratic institutions, promotion of human rights, elimination of corruption, accounting for MIAs and justice for victims of the Khmer Rouge.

Long on a diplomatic backburner, US-Laos relations have also seen a revival in recent years. Although diplomatic relations were never severed after the communist takeover in 1975, the US mission in Vientiane was downgraded and full diplomatic relations were not restored until 1992. Trade ties with Vientiane were normalized in December 2004 after congress passed the Miscellaneous Trade and Technical Corrections Act which extended non-discriminatory treatment of Lao products entering the US. The following year, a bilateral trade agreement between the two former adversaries entered into force.

Commercial countermove
The motivation behind these overtures, some analysts say, is growing US concern over the diplomatic and commercial inroads China has made the region. Since the late 1990s, China has stepped up its influence in both Cambodia and Laos. Although China is not the largest single donor to either country, its investments and aid projects are often strongly publicized, including high-profile infrastructure projects such as hydro-electric dams and roads and public projects like the main stadium for the 2009 Southeast Asia Games to be held in Vientiane.

The exact amounts of Chinese aid are difficult to discern since development assistance is often tied together with direct economic investment and loans
. According to a January 2008 Congressional Research Service (CRS) report entitled "China's 'Soft Power' in Southeast Asia", the US disbursed some $55 million annually in aid to Cambodia during 2006-2007. China, which for the first time donated money through the Western-dominated Consultative Group that coordinates foreign aid to Cambodia, pledged $91.5 million in 2007.

According to the same CRS report, the US has been a small donor in Laos, with aid amounting to $4.5 million between 2005 and 2007. The US bolstered its disbursements last year, according to the US State Department statistics, with $18 million going to the removal of unexploded bombs and mines, counter-narcotics, health, education, economic development and governance. China has become increasingly important to Vientiane as a source of low-interest loans, grants, development projects, technical assistance and foreign investment.

US relations with Cambodia and Laos have been tempered by concerns lingering from the Vietnam War. In Laos, that includes issues involving the treatment of ethnic Hmong who supported the US during the war and accounting for US servicemen lost during the conflict. Laos and Cambodia, for their part, remain wary of engaging too closely with the US, which dropped thousands of tons of bombs on both countries during the 1960s and early 1970s and as unexploded ordinance continue to kill and maim innocent civilians.

Yet China has its own public image problem in both countries, including Beijing's support for the murderous Khmer Rouge regime in Cambodia. In Laos, there are new fears of being swallowed up by its massive northern neighbor, a perception reinforced by the growing presence of all things Chinese ranging from imported goods to migrant workers, who, Lao officials say, do not return home once their work obligations have expired.

China has worked to counter those criticisms, including through building high-profile infrastructure and public works projects. There have also been frequent visits of Chinese cultural missions, expansion of local Chinese language courses, scholarships for study at Chinese universities, technical assistance programs and Beijing-supported study tours to China for government officials.

Some analysts sense a shift, especially in the younger generation of officials whose formative years did not take place during the Vietnam War, away from erstwhile ally Vietnam to a more pro-China stance. China's recent extensive investments in both Cambodia and Laos have convinced many that the way to prosperity comes through working with the Chinese.

China's inroads into both countries have been helped by inconsistent US attention to the region. Under the George W Bush administration, Washington was perceived by many to have downgraded its commitment to Southeast Asia while concentrating its resources on the so-called global war on terror. When America did engage with the region, it seemed to be focused primarily on counter-terrorism.

It was not lost on countries in the region that then-secretary of state Condoleezza Rice skipped the Association of Southeast Asian Nations (ASEAN) Regional Forum in 2007, or that Bush postponed the US-ASEAN summit in September 2007 and left a day early the Asia-Pacific Economic Cooperation meeting later that year.

Under the Obama administration, some sense a change in course, with this month's lifting of restrictions on Cambodia and Laos. Southeast Asian nations noted with some pleasure that Secretary of State Hillary Clinton's included Indonesia in her inaugural tour of Asia and were heartened by her attendance of ASEAN's opening session in Jakarta. Clinton has also announced that she will be attending the annual ASEAN foreign ministers' meeting and ASEAN Regional Forum in Phuket, Thailand, next month.

Still, Beijing is considered the primary economic patron of both Cambodia and Laos, underlined in April when it announced a "special" aid package of $39.7 million to meet "urgent needs" in Cambodia, Laos and Myanmar. The US's re-engagement in Cambodia and Laos, some say, has demonstrated a new willingness in Washington to provide both governments alternative avenues to prosperity apart from engagement with China.

At the same time, some say Obama must hedge his diplomacy to avoid upsetting its traditional regional ally, Thailand. Despite being made in 2003 a US non-NATO ally, Bangkok has shown signs of moving closer to China, especially under deposed former prime minister Thaksin Shinawatra. Thai military officers say increased US prioritization of Cambodia, which is currently engaged with Thailand in a pitched border conflict, could push further Thai military ties with China.

Several articles have already appeared in the Thai and English language press expressing annoyance with America's move on Cambodia and Laos and dismay that Thailand as a key strategic ally was not first consulted. That's added to official consternation that began with a perceived snub by Clinton's choice of Indonesia over Thailand for her first Southeast Asia visit earlier this year.

There are still some formalities to iron out under the new relaxed trade regime and American officials have said it will be several months before loans can actually be extended to Cambodia and Laos. Whether US private companies
are in a financial position to take advantage of the new designation of two of the region's more marginal economies is also in question. But Obama has now publicly stated and put money in the message that the US is keen to more strongly engage Laos and Cambodia, with the subtext of countering China's recent regional gains.

Brian McCartan is a Bangkok-based freelance journalist. He may be reached at


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