Sugar Exports to Stay Duty Free, EU Trade Czar Says

European Union Trade Commissioner Karel de Gucht said he has no plans to launch an investigation into Cambodia’s much-criticized sugarcane plantations after a meeting with Commerce Minister Sun Chanthol in Phnom Penh on Tuesday. Bottom line: Cambodia’s free trade benefits to Europe are safe for the foreseeable future.

The news came in the face of Tuesday’s announcement by soft-drinks giant PepsiCo that it was joining rival Coca-Cola in declaring “zero tolerance” for land grabs by sugar suppliers. Now, both companies are starting audits of their supply chains, checks that will reach Cambodia.

But Mr. de Gucht said the E.U. has no plans to investigate the plantations. He was in Cambodia Tuesday between stops in Vietnam and Burma to promote E.U. trade with Asean member states.

“If we have to launch an investigation we will do it, but we are of the opinion at present that this is not the case with respect to sugarcane,” he told reporters after a day of meetings with Mr. Chanthol, Justice Minister Ang Vong Vathana and Cabinet Minister Sok An.

Local farmers, rights groups and European parliamentarians have urged the trade commissioner for years to suspend the E.U.’s trade benefits for Cambodian sugar. They say these benefits effectively subsidize plantations accused of stealing land from thousands of poor farmers.

But before the E.U. can suspend benefits, it needs to investigate. In face of mounting pressure, Mr. de Gucht said last May that “legal conditions” for a probe had not been met, despite years worth of well-documented reports on related land disputes across the country. The U.N.’s human rights envoy to Cambodia, Surya Subedi, reported in 2012 that rights violations stemming from the country’s industrial-scale plantations were “serious and widespread.”

On Tuesday, Mr. de Gucht said the trade commission’s standard trigger for an investigation was a negative report from the U.N. International Labor Organization, and that none had been made.

Instead of an investigation, the E.U.’s delegation to Cambodia has started talks with the government. The E.U. hopes to convince the government to find a comprehensive solution for the thousands of families that lost land to sugarcane plantations.

Mr. de Gucht called the talks “a major step.” But after three meetings, the two sides have yet to agree on just how many families have legitimate claims. Asked how far apart Cambodia and the E.U. were on this number, the trade commissioner said it was too soon to say. He said he hoped to bring in two independent experts to help sort out  frivolous claims from legitimate ones.

“Those families who have not yet been indemnified, should be indemnified as soon as possible,” Mr. de Gucht said.

Trade between Cambodia and the E.U. has mushroomed in recent years on the back of the E.U.’s Everything But Arms trade scheme, making Europe now the top destination for Cambodian exports. The country’s exports to Europe rose 30 percent to $3.3 billion last year, most of it garments, followed by footwear, bicycles and rice.

But it has been Cambodia’s sugar exports to the E.U., which more than tripled to $53 million last year, that have grabbed most attention.

Amid a targeted campaign by Oxfam International of the world’s leading sugar buyers, the Coca-Cola Company launched a social and environmental audit of its main sugar suppliers around the world in November. It sent a team to Cambodia for a week-long tour of communities claiming abuse by sugarcane plantations last month.

On Tuesday, PepsiCo announced its plans to do the same, rolling out a new land policy with “zero tolerance” for land grabs and the start of an audit of its main suppliers, starting in Brazil.

“Regardless of the source of the commodity—whether from suppliers, directly or indirectly, a farm or processor—this land policy defines our intentions and the actions we as a company will take to recognize land rights throughout our supply chain,” Paul Boykas, PepsiCo’s vice president for public policy, said in a statement on the company’s website.

In its own statement, Oxfam said PepsiCo’s plans include a look at land disputes that Oxfam highlighted in a 2013 report, one of them in Cambodia.

Despite widespread focus on Cambodian sugar, the country’s biggest export to the E.U. is clothing.

On that front, Mr. de Gucht said he urged the Cambodian commerce minister to continue raising the minimum wage and improving working conditions.

In December, Cambodia’s all-important garment industry was rocked by weeks of strikes over a higher minimum wage. These strikes briefly shuttered most of  the country’s 500-plus factories. Those strikes came to a violent and abrupt halt in early January after police fatally shot five protesters and arrested more than 20 others.

In his talks with the Justice Minister, Mr. de Gucht said he urged Mr. Vong Vathana to make sure the courts distinguish peaceful protesters from criminals.

“But that will finally be up to court, I believe, to decide on that, and we will very closely follow those court proceedings,” he said.

Mr. de Gucht said the E.U. also hoped to replicate a garment industry “compact” it has with Bangladesh in Cambodia in the coming months.

“The right of peaceful assembly has of course to be protected and safeguarded, and what we are planning to do is launch an initiative whereby the four parties concerned—the Cambodian government, the European Union, the local producers, and the European companies that are buying these garments—would sign a compact with regards to safety on the workplace,” he said.

Sam Pracheameanith, spokesman for the Justice Ministry, said he was unaware of Mr. Vong Vathana’s meeting with the E.U. trade commissioner.

Commerce Ministry spokesman Ken Rotha said Mr. Chanthol told the trade commissioner that Cambodia would be sending the E.U. a full report justifying its handling of the “illegal” protests soon. He said the government needed more time to settle the sugar-related land disputes.

A delegation of European parliamentarians is due to arrive in Cambodia at the end of the month to discuss the country’s sugar and garment industries further.

(Additional reporting by Hul Reaksmey)

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