Cambodia in Participating

the South-South Trade

Prepared by MSc. Agr. Chan Bonnivoit

WTO Office
Ministry of Commerce
Cambodia

Expert Meeting on Participation of the Developing Countries in New and Dynamic Sectors
of the World Trade: the South-South Dimension,
16-17 Oct 2007, Palais des Nations, Geneva
 TABLE OF CONTENTS

A. Introduction
B. Recent economic developments
C. Policy in promoting trade: south-south trade
D. Gains from most open policy: south-south trade
E. Constraints and solutions?
F. Conclusion

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 A. Introduction
ƒ There has been renewed and growing interest in south-
south-south trade cooperation, including through regional or sub-
sub-
regional trade agreements and, more recently, also trade agreements
agreements between developing countries in different
continents.

ƒ Cambodia joined ASEAN and ASEAN + arrangements, and since 2004 the the Country becomes a member of WTO
Besides, Cambodia has many bilateral negotiations and agreements.
agreements. Interest in those agreements is always
based on commercial as well as political considerations of all partner
partner’’s Countries.

ƒ With regard to the issues mentioned, this paper briefly examines the background, the commitments, the
arrangements and other trade issues of Cambodia,
implementation and the benefit relating to regional trade arrangements
including the south-
south-south trade.

ƒ Section B provides some background information on recent CambodiaCambodia Economic Development, including its
experience in terms of regional trade and bilateral cooperation.

ƒ Section C describes Cambodia trade policy and trade negotiations with other Countries with regard to the south-
south-
south trade.

ƒ Section D examines the gains from Cambodian open south-

south-south trade in which some specific sectors are raised
to be addressed.

ƒ Section E examines the constrains that Cambodia is facing in commitment

commitment and implementing such trade
agreements and arrangements and illustrate some predicable solutions
solutions to crack the problems faced.

ƒ Some preliminary conclusion is presented in Section F. This Section

Section lists some summarized issues that Cambodia
faced regarding to promoting south-
south-south trade and the challenge of Cambodia to promote its trade development
development
as well economic growth.

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B. Recent Economic Development

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 B. Recent Economic Development (con’t)

1. GDP Growth (%) and Inflation

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 B. Recent Economic Development (con’t)

2. GDP Growth (%) by Sector

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 B. Recent Economic Development (con’t)

3. Official Exchange Rate (Riel/US$)

(average mid point-buying and selling rate)

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 B. Recent Economic Development (con’t)

4. Cambodia's Foreign Reserve

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 B. Recent Economic Development (con’t)

5. Cambodia’s Foreign Trade (million US$)

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C. Policy in Promoting Trade, including
South-South Trade

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 C. Policy in Promoting Trade, including
South-South Trade (con’t)
1. The rectangular Strategy of RGC
– The core of the rectangular strategy is good governance
focused at four reform areas:
ƒ Anti-Corruption
ƒ Legal and judicial reform,
ƒ Public administration reform, including decentralization and
deconcentration, and
ƒ Reform of the armed forces, especially demobilization

– The integration of Cambodia into the region and the world is

also the significant part of the rectangular strategy

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 C. Policy in Promoting Trade, including
South-South Trade (con’t)
2. The Pro-Poor Trade Strategy of RGC
– Preliminary evidence examined suggests that trade is making a
significant positive contribution to economic growth and poverty
reduction and that such contribution can be further enhanced and
provided Cambodia to become proactive in promoting trade for poverty
reduction.

– Regarding this issue RGC established a Pro-Poor Trade Strategy

organized around tree basic concepts:
ƒ Shifting the balance of policy emphasis from issues of market access and
macro-reforms for trade to micro and meso-level issues of supply capacity
ƒ Focusing strongly on the delivery of capacity-building support at the export
enterprise and export sector level; and
ƒ Stressing the regionalization and geographical decentralization of export
business within Cambodia

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 C. Policy in Promoting Trade, including
South-South Trade (con’t)
3. Trade Sector wide Approach (SWAp)
a. SWAp is an instrument for better management,
coordination and effectiveness of resources. Now RGC is
willing to utilize SWAp in the Trade Sector.

b. The Ministry of Commerce stands ready to develop a

SWAp
ƒ To encompass all initiatives, strategies, measures and actions
ƒ To strengthen partnerships for consensus building and coordination
with the private sector, civil society and donors,
ƒ And to improve implementation and delivery

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 C. Policy in Promoting Trade, including
South-South Trade (con’t)
3. Trade Sector wide Approach (SWAp) (con’t)
c. SWAp tapping on Aid for Trade
ƒ To tap on the financial resources of Aid for Trade,
ƒ To enhance its supply capacity,
ƒ To alleviate poverty and
ƒ To meet its Cambodian Millennium Development Goals
(CMDGs)

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 C. Policy in Promoting Trade, including
South-South Trade (con’t)
3. Trade Sector wide Approach (SWAp) (con’t)
d. Sector Program for Trade Development in
Cambodia
ƒ Lesson learnt
ƒ Link between trade Policy and Implementing
ƒ Managing and Consultation Structure
ƒ Sequencing next actions
ƒ Immediate TA mobilization
ƒ Issues for discussion

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C. Policy in Promoting Trade, including
South-South Trade (con’t)

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C. Policy in Promoting Trade, including
South-South Trade (con’t)

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C. Policy in Promoting Trade, including
South-South Trade (con’t)

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 C. Policy in Promoting Trade, including
South-South Trade (con’t)
4. Integrating Cambodia into the international Community
– Cambodia’s membership in ASEAN and WTO, as well as cooperation within
the framework of the ASEM will provide great opportunities to reform the
investment and foreign trade regime by focusing on the liberalization and
decentralization of decision making process, reducing the bureaucratic red
tapes, removing impediments to investments, implementing reform programs
and initiating the modernization of structure and management system of the
national economy and upgrade its competitiveness to the regional (south-south
dimension) and international standards.

– Cambodia’s membership in Great Mekong Sub-Region, the Ayeyawadee-Chao

Phraya-Mekong Economic Cooperation Strategy (ACMECS) and other
Triangular Developments at sub-regional level are also demonstrating that
Cambodia is involving so much in promoting south-south dimension in order to
push the trade among those Countries and with an other Countries in the world
and to encourage the economic welfare.

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C. Policy in Promoting Trade, including
South-South Trade (con’t)

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Schedules of Tariff Rate of Cambodia in
ASEAN

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Cambodia’s Tariffs by Product Groups

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 Cambodia’s Service Commitments
ƒ Undertaken market access and national treatment commitments in at least one sub-sector under
each of 11 different service which are communications services, construction and related
engineering services, distribution services, education services, environmental services, financial
services, health-related services, tourism and travel services, recreational services and transport
services.

ƒ Allowing foreign firm to operate in the areas of legal services (with some exceptions),
accounting, auditing, bookkeeping, banking, management consulting, telecommunication and
transport, but some conditions were attached to market access in areas of financial services
(banking and insurance) and telecommunication services.

ƒ Allowing foreign firms to provide higher education and adult education services.

ƒ Undertook commitments to improve in health care and in the provision of sanitary, refuse
disposal and sewerage treatment services.

ƒ Reserving part of a market for Cambodian small and medium sized enterprise in areas such as
banking, tourism and courier service (Ex: relating to tourist guides services; opening hotel market
only for hotels of three stars or higher; and allowing foreign supply of retailing services only a
small number of specific items or for very large supermarkets or department stores.

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 C. Policy in Promoting Trade, including
South-South Trade (con’t)
5. Bilateral agreement on the promotion of trade and protection of investments
between the Kingdom of Cambodia and other Countries

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 C. Policy in Promoting Trade, including
South-South Trade (con’t)
6. Trade related to Investment: Investment Protection
• Equal treatment of all investors
• No nationalization adversely affecting the property of
investors
• No price controls on products or service
• No restriction on foreign equity participation
• No restriction on foreign convertibility
• Remittance of foreign currencies abroad

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 C. Policy in Promoting Trade, including
South-South Trade (con’t)
6. Trade related to Investment (con’t): Investment’s
Incentive Comparison
1994 2003

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 D. Gains from most open Policy: South-
South Trade
1. Investment Sector of Cambodia
• It is not so hasty to say that Cambodia has capacity and ability to invest
into an other Countries as well into the partner Countries in the South,
although Cambodia is enjoying the political stability and the sound
macro economy, because the Country war just recovered from the
suffering under the war, internal strife, instability and backwardness.

• But from the most open policy to other Countries in the region and to
the World, including to the South Countries, Cambodia’s investment
sector can be seen as a dynamic sector benefiting from this liberal
policy, and it is being interested by the foreign investors from the region
and the world, including from the South Countries.

• The following slides illustrate the gains.

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 D. Gains from most open Policy: South-
South Trade (con’t)
ƒ Investments in Cambodia 2004 (by Country)

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 D. Gains from most open Policy: South-
South Trade (con’t)
ƒ Investments in Cambodia 2005 (by Country)

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 D. Gains from most open Policy: South-
South Trade (con’t)
ƒ Investments in Cambodia 2006 (by Country)

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 D. Gains from most open Policy: South-
South Trade (con’t)
ƒ Investments in Cambodia by Country 1994-1st Half 2006

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 D. Gains from most open Policy: South-
South Trade (con’t)
ƒ Investments by Sector (1994-1st Half 2006)

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 D. Gains from most open Policy: South-
South Trade (con’t)
2. Tourist Sector of Cambodia
• The growth in tourism has been robust and is a strong contribution to
the services sector of the Country. GDP of the services sectors grew
at an average of 8.6% over the 2000-2005 period.

• The number of tourists increased by 35% in 2005 relative to the year

before. Tourists from the Republic of Korea ranked first in terms of
tourist arrivals.
• More than 50% of total tourist arrivals to Cambodia are from the
Asian and Pacific countries, and about a quarter of the tourist arrivals
are from the Europe.
• The number of Cambodian tourists to the neighbor Countries
increases from year to year and account approximate at 800,000
persons for last year.

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 D. Gains from most open Policy: South-
South Trade (con’t)
ƒ Visitors to Cambodia

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 D. Gains from most open Policy: South-
South Trade (con’t)
ƒ Tourist arrivals to Cambodia

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 D. Gains from most open Policy: South-
South Trade (con’t)
ƒ Top 10 main market arrivals to Cambodia (2005)

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 D. Gains from most open Policy: South-
South Trade (con’t)
ƒ Tourist Receipts

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 D. Gains from most open Policy: South-
South Trade (con’t)
3. Garment Sector of Cambodia
• The garment sector of Cambodia is a new and dynamic sector trade of the
Country which is accounted approximately 80% of total Cambodian export
value, although it was slight decreased in year 2006 due to finishing MFA.
(seen slides below)

• Why this sector would be took to demonstrate for the south-south trade of this
paper, although the people knew that Cambodian garment products exported
mostly to the developed Countries as USA, EU, Japan and South Korea, and
even though the raw material and other inputs for those production are imported
mostly from China, Taiwan, Hong Kong, Malaysia, Thai etc.

• Base on the data illustrating below, it can be considered that the new and most
dynamic trade sector of Cambodia may be existed and promoted through the
bilateral negotiations with the South Countries as well the North Countries.

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 D. Gains from most open Policy: South-
South Trade (con’t)
ƒ Cambodia’s garment exports (million US$)

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 D. Gains from most open Policy: South-
South Trade (con’t)
ƒ Number of textile and apparel factories in Cambodia
(Jan 1994 -Jan 2006)

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 D. Gains from most open Policy: South-
South Trade (con’t)
ƒ Number of Garment factories in Cambodia (1994 - 2006)

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 D. Gains from most open Policy: South-
South Trade (con’t)
ƒ Cambodia’s total textiles and garment exports to the various
markets by Oct 2006

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 E. Positive issues gained by the south-
south trade
ƒ Garment Sector:
– Providing exporters with access to raw materials and intermediate inputs at
world market prices. For example, membership in ASEAN and the bilateral
trade and investment protection agreement with China allows Cambodia to
import fabrics from ASEAN countries or from China to produce garments for
the US or EU market.

– Cambodia’s textile and garment industry well illustrates the role of exports
and investment in generating employment and helping to reduce poverty.
More than half the current 280,000 skilled and unskilled jobs in the industry
have been created during the past five years, making the industry by far the
largest source of job growth during this period.

– Garment exports have also helped manage the balance of payments; they rose
sharply from around US$20 million in 1995 to almost US$2 billion in 2005.

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 E. Positive issues gained by the south-
south trade (con’t)

ƒ Agricultural Sector:
– The productivity of Cambodia is considered low, in particular
for the agriculture sector. However, through south-south
trade, the small yields might also be turned into a good
opportunity to enhance productivity in the sector.

– The south-south trade would open up foreign markets to

Cambodian agricultural products, while also obliging
Cambodian farmers to become more competitive so as to
succeed in local and foreign markets.

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 E. Positive issues gained by the south-
south trade (con’t)
ƒ Investment Sector:
– Foreign investment has an important role in upgrading technology
levels and transferring commercial and industrial knowledge.
Cambodia has much to learn from the foreign firms that know
foreign markets the best and possess the technology, managerial
experience, and marketing channels that are needed to export
successfully.

– From the most open policy to other Countries in the region and to
the World, including to the south Countries, Cambodia’s
investment sector can be seen as a dynamic sector benefiting from
this liberal policy, and it is being interested by the foreign investors
from the region and the world, including from the south Countries.

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 E. Negative issue effected by the south-
south trade (con’t)
ƒ Vietnam and Thai recently allowed Cambodia duty free access to
40 and 250 types of agricultural products. But till now it seems
still not well-built effects for agricultural trade of Cambodia into
the market of these Countries, because it can be that Cambodia
does not have comparative advantage for those productions. It is
not like the garment sector that Cambodia has also the GSP to the
US market.

ƒ Regarding to China market, Cambodia has also the duty free and
quota free for some agricultural products. But till now those
effects for Cambodian agricultural trade are the same case like
with Vietnam and Thai.

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E. Negative issue effected by the south-
south trade (con’t)

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E. Negative issue effected by the south-
south trade (con’t)

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 E. Constraints

ƒ Constraints
– Domestic problems relating to factor endowments,
infrastructure, bureaucracy, corruption, HR and
capital
– The market access’s issues not only for goods, but
for services
– SPS and TBT’s issues
– National treatment’s issues
– Trade facilitation’s issues
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 E. Solutions?

ƒ Solutions?
– Better sourcing of raw materials or production of raw
materials locally
– Capacity building and education programs
– Improving infrastructure
– Reducing bureaucracy and corruption
– Encouraging competition
– Regional arrangement base on impartiality benefit
– Further negotiations in WTO
– Bilateral negotiations and agreements

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 F. Conclusion
ƒ South-south trade has been increasing, and the process and the results depend on the capacity, ability and
feasibility of the Countries concerned.

ƒ It is difficult to conclude that the south-south trade is either good or bad for the concerned Countries,
because the trade is not always fairness or impartiality.

ƒ Much will depends on how adroitly the process is managed. In some case, south-south trade will definitely
have both positive and negative impacts. The positive impacts will have to be maximized, and the negative
impacts will have to be well managed if the concerned Countries have to benefit explicitly from them. (Ex.)

ƒ In case of Cambodia as a LDC’s Country, the south-south trade currently sounds tiny meaning for
promoting trade sector and the economic development of the Country due to limitation of many things to
carry out the south-south trade in the impartial balance.

ƒ The WTO membership of Cambodia, the ASEAN and ASEAN + arrangements create the proper conditions
for trade and investment, push for outward-oriented policies to promote efficiency, promote structural
reform to encourage domestic competition, and create strong institutions to foster good governance in the
Country.

ƒ But base on data illustrated above, the bilateral negotiations and agreements, even though with the South
Country or North Country, certainly are a key instrument in pushing and promoting any trade sectors which
are recognized by the Country as a significant sectors to encourage its economic growth.

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 sUmGrKuN
THANKS YOU

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