Reopening border with Cambodia poses security and economic dilemma

The debate on reopening Thailand's border with Cambodia has intensified after Japan urged both countries to relax border checkpoint measures, which are impeding Japanese supply chains in the ASEAN free trade area.

The border has been closed since July, when restrictions were imposed on the movement of goods and people along the border. A build-up of tensions culminated in clashes between the two armed forces from July 24-28, resulting in scores of deaths and trade losses of billions of baht.

US President Donald Trump intervened to end the conflict and both sides agreed to an ASEAN-mediated ceasefire. However, normal relations have not been restored. Meanwhile Japan is pressuring the two sides, as the standoff is affecting Japanese investors in Thailand and the broader ASEAN region.

A wave of Japanese investors flocked to Thailand in the 1980s after the Plaza Accord led to the appreciation of the yen, making Japanese exports less competitive.

The Plaza Accord was a 1985 agreement reached by the finance ministers of the G-5 nations — United States, Japan, West Germany, France and the United Kingdom — to jointly intervene in currency markets to intentionally depreciate the US dollar relative to the Japanese yen and the German Deutsche mark.

Japanese manufacturers chose Thailand as their automobile and electronics production base, attracted by the country’s good infrastructure compared with neighboring nations.

Thailand’s strategic location, bridging several Southeast Asian countries, and its political and social stability, further strengthened its appeal over regional peers.

Impact of Thailand-Cambodia conflict on ASEAN

Thailand is one of the founding members of the Association of Southeast Asian Nations (ASEAN), established in 1967 along with Indonesia, Malaysia, the Philippines and Singapore.

The group launched the ASEAN Free Trade Area (AFTA) in 1992, making Thailand and the region attractive destinations for foreign direct investment.

A major shift in investor strategy occurred after Thailand’s devastating floods in 2011. Japanese, who are the largest group of foreign investors in Thailand, adopted the “Thailand+1” strategy following the widespread inundation, which severely impacted multinational factories operating in Thailand.

High labor costs and slower economic growth encouraged Japanese companies to diversify their investments from Thailand to neighboring countries such as Cambodia.

While Japanese corporations still maintain their main auto parts and electronics factories in Thailand, labor-intensive components are manufactured in Cambodia and enjoy zero tariff under the AFTA agreement.

The ongoing conflict between Thailand and Cambodia has disrupted these supply chains, in part due to rising logistics costs.

“Supply chain is the most important part of AFTA or any free trade areas,” Somjai Pakapaswiwat, an independent scholar in economics and politics, explains. He believes the border should be reopened to normalize trade and logistics, adding, “It offers mutual economic benefits to Thailand and Cambodia.”

Issues of national security

Acting Defense Minister Natthaphon Narkphanit has shown support for reopening the border, as have businesses and people in Chanthaburi province. The Thai Military, however, remains reluctant, citing national security concerns. Ultra-nationalists are also opposed to the reopening.

“I think we could take into account both national security and economic interests,” Somjai reasons.

He suggests that the border reopening could proceed while Thailand remains firm on national security requirements.

Somjai believes that the new government under the leadership of Prime Minister Anutin Charnvirakul may handle the situation better than former prime minister Paetongtarn Shinawatra, who had personal issues with Cambodia’s leader Hun Sen following a leaked phone conversation that contributed to her downfall.

Academics vs ultranationalists

Puangthong Pawakapan, a political scientist at Chulalongkorn University, strongly supports efforts to reopen the border between Thailand and Cambodia.

"Please understand that reopening the Thai-Cambodian border for the transportation of goods between the two countries is in Thailand's best interest,” she posted on her Facebook page recently.

According to Puangthong, the Japanese Embassy in Thailand had requested the Thai government to reopen the border and allow cross-border movement of goods—a request met with severe criticism from Thai nationalists.

Oblivious to the consequences for Thailand, they believe that flows of Thai goods would strengthen Cambodia and argue that the neighbours should be economically punished.

In her post she countered critics of the Japanese Embassy’s request, arguing that their apprehensions were entirely misplaced.

The goods Japanese companies wish to transport across the Thai-Cambodian border are not daily consumer products, but industrial parts produced in a supply chain fashion.

For example, one country may produce components, then send them for assembly to another country. If the supply chain is disrupted, all the involved countries suffer the consequences, Puangthong says.

The Japanese Embassy noted that Japanese companies affected by the border closure had invested in Thailand and Cambodia under the “Thailand+” policy initiated in 2019 during the government of General Prayut.

This policy aimed to attract foreign investors impacted by the US-China trade war to Southeast Asia. The idea is to produce labor-intensive industrial parts in Cambodia, where minimum wages are lower, and send them for assembly in Thailand, benefiting from tax exemptions under the ASEAN Economic Community’s free trade zone.

Thailand aims to be a center for high-tech production and has established the Eastern Economic Corridor to accommodate foreign investors, she explains.

Last year, the Thai government led more than 20 investors on a tour of Cambodia to visit special economic zones and explore partnerships under the Thailand+ concept.

"Closing the border affects production of both foreign and Thai companies. Japanese companies have had to switch to air and sea transport, increasing costs by hundreds of millions of baht per month. These companies are not part of the conflict; they invested with the expectation that the Thai government would facilitate their business as agreed. The government has failed to do so, driven by nationalism and anti-Cambodian sentiment," she says.

“They might be discouraged with Thailand and may conclude soon that Thailand cannot safeguard the interests of foreign businesses, and that a few influencers could disrupt international trade and investment,” Puangthong warns.

The border closure inevitably affects industrial goods production in Thailand, even if the products belong to Japanese companies. Export revenue is counted as Thailand's income, and the partners and workforce are Thai, she says in her Facebook post.

Interestingly, incoming Defense Minister General Natthaphon Nakphanit seems to understand this issue well and has suggested reopening the border.

In the past two years, he has been both a military officer and involved in politics, giving him a broader perspective. However, his subordinate, Lieutenant General Boonsin Padklang, commander of the 2nd Army Area, has expressed opposing views without regard for his superior.

Boonsin may know warfare well, but needs a deeper understanding of socio-economic, political, and international relations, Puangthong says.

Thailand exports goods worth around 10 billion baht to Cambodia monthly. "Even prohibiting daily life goods to Cambodia would hurt Thailand more—impacting Thai factory owners and workers. Meanwhile, Cambodia can purchase these goods from Vietnam and China at lower prices."

"Are we willing to lose the Cambodian market that Thai businesses have built over the past 30 years? Are Thais living with emotion, overlooking the long-term impacts on themselves?" Puangthong poses.

Balancing security and economic growth

The decision on whether to reopen Thailand’s border with Cambodia transcends a simplistic security versus economics choice.

The closure, prompted by military clashes and nationalistic sentiment, however, has had serious repercussions on local businesses, regional supply chains and foreign investor confidence.

While some argue that national security must remain paramount in the face of cross-border tensions, economists, academics and industry leaders highlight that the economic fallout extends far beyond Cambodia.

It threatens the prosperity of Thai workers and factories as well as regional investor trust.