Amid fragile ceasefire, grim prospects for Thailand-Cambodia trade

More than two weeks since the ceasefire deal signed by Thailand and Cambodia came into effect, it is far from business as usual, taking a toll on the economies of both countries.

The ASEAN-mediated ceasefire deal, following five days of clashes in July, allows displaced Thai people to return to their hometowns in the border provinces of Ubon Ratchathani, Si Sa Ket, Surin and Buri Ram.

People interviewed by the local press have expressed concerns for their livelihood, as staying in shelters has cut them off from their regular sources of income, running their small businesses and farms.

Although business leaders have praised the peace agreement, border trade remains suspended and waves of Cambodian laborers are returning home.

The key question now is how long will it take for things to return to normal?

“It is hard to guess, as the conflict also involves personal issues between the leaders of the two sides. It’s not just national interest, it’s also about emotions and feelings,” says Sompop Manarungsan, economist and president at Panyapiwat Institute of Management.

Sompop points out that as long as politics in both countries remain unchanged, the current stand-off may continue, noting that both sides are stirring up nationalist sentiment among their populations.

Fearing for their safety, Thai businesses operating in Cambodia have brought their Thai employees back home, while a large number of Cambodian workers in Thailand have also returned to their country.

Trade challenges

Thailand is likely to lose some market share in Cambodia due to the closure of border checkpoints and a local campaign to boycott Thai products.

This comes at an unfortunate time, against the backdrop of aggressive US policies that are expected to slow global trade.

“If Thailand could not sell more on the global market due to high tariff barriers imposed by the Trump administration, export to neighboring countries could have been an option but we now have the conflict with Cambodia,” laments Sompop.

Other observers believe that Cambodia could import more from China, Vietnam and Malaysia to reduce dependence on Thailand. Cambodia is also an important logistics route Thailand relies on to export products, especially fresh fruit, to Southern Vietnam.

Two-way trade via land border checkpoints was estimated at 174.5 billion baht last year, according to the Digital Economy, Investment and International Trade Research Center of the University of the Thai Chamber of Commerce (UTCC).

Thai exports to Cambodia accounted for 141.8 billion baht, while imports from Cambodia were worth 32.7 billion baht, giving Thailand a trade surplus of over 109 billion baht. The major Thai exports were jewelry, oil products, drinks, sugar and construction materials, reflecting Cambodia’s dependence on imports for essential goods.

The research center has projected three scenarios:

● If the two sides closed their borders for three months, border trade would be reduced by 45–50 billion baht. Thai businesses would need to accelerate exports via the sea route to Cambodia, resulting in higher transportation costs, making Thai goods more expensive.

● A six-month border closure would cost trade worth 90–100 billion baht. Confidence in trade and investment with Cambodia would be at risk.

● In the worst-case scenario, a full year of border closure would cost 170 billion baht in lost trade. In this case, Thai investors were likely to relocate their factories out of Cambodia.

“The longer the border closure, the higher the loss of trade and investment. Thailand could permanently lose its export market for some products to China and Vietnam,” warns Anusorn Tamajai, dean of Economics Faculty at UTCC and director of the research center.

It took three months before border trade could resume after a clash between Thailand and Cambodia in 2011. The recent hostilities from July 24 to 28, before a ceasefire pushed by US President Donald Trump, claimed dozens of lives in Thailand, displacing around 180,000 people, and was more serious than the conflict in 2011.

Impact on labor market in Thailand

In an aging society and a dwindling Thai labor force, Thailand has for long relied on cheap labor from neighboring countries—Myanmar, Cambodia and Laos. Due to higher labor costs in Thailand, local garment and shoe factories have moved to Cambodia to take advantage of lower costs there.

Fruit growers in Chanthaburi province in eastern Thailand recently advertised vacancies for 30,000 workers to help at fruit plantations, replacing Cambodian laborers who have returned to their country.

“Both Thailand and Cambodia are poorer [from the conflict],” says Yongyuth Chalamwong, research director at Thailand Development Research Institute (TDRI), an independent think tank.

It will take time before normalcy in border trade can resume, says Yongyuth, who specializes in the labor market.

He estimates that about 10 per cent of an estimated 500,000 Cambodian laborers in Thailand have returned home following the deadly border clashes last month and the continued heated rhetoric between the two sides in the post-ceasefire period. The Cambodian government has been urging its laborers to return home as local industries are facing labor shortages.

Laborers returning to Cambodia, however, may struggle to find employment or may end up in very low-paid jobs. “They may be paid about 5,000–6,000 baht per month there compared with over 10,000 baht in Thailand,” says Yongyuth. “They would have much less income to spend.”

In Thailand, small enterprises would find it more difficult to deal with labor shortages. Many Cambodian workers are employed on farms, harvesting fruits along the border in eastern Thailand, in food processing factories and in the fishing industry.

On the positive side, the labor situation could drive Thai farmers and companies to focus on innovation. To some extent, the availability of cheap labor from neighboring countries has engendered complacency and hindered the development of various industries.

“I am not concerned about the impact of Cambodian labor returning home. Thai firms should turn this situation to their advantage by deploying technology in their businesses,” says Yongyuth.

He adds that Thai corporations should climb the supply chain ladder by creating their own businesses and technology, rather than simply being a part of Japanese or other foreign investors’ supply chains.

Economic cooperation hinges on ceasefire

Many critics view the recent ceasefire as fragile. Recent developments along the border seem to confirm such pessimism after a Thai soldier lost a leg in a landmine explosion and the Thai military warned that it reserved the right to respond. Continued clashes would inflict more trade and investment losses for the two countries.